February/March 2010 Bankruptcy Section Newsletter

Sua Sponte

Deborah K. Ebner
Law Office of Deborah Kanner Ebner
Chicago, Illinois

A Change of Guard

Our annual conference in Chicago will convene in a few short weeks. At its conclusion, new officers for the Section will be in place for the 2010-2011year. At the helm will be Peter Califano. Since now authorized by our By--Laws, we are hopeful that Peter will opt to serve a two year term.

Peter has been a prolific member of the League and of our Section for many years, As Legislative Chair, he has been responsible for the drafting of our critical issues papers, all of which have been submitted to Congress. Peter has been a constant driving force behind League comments on Rule changes, including the League position on enactment of BAPCPA in 2005. Peter has pushed for greater utilization of PAC funds to Congress and has always applied his critical thinking to how the League and our Section can use its resources for the greater good.

Our economy is reeling from the most severe economic downturn since the Great Depression; the press tells us that we are in a prolonged recession. Those of us in the business may apply a different term to define this economic crisis. Whichever label one places on our economic decline, most of us in the bankruptcy industry recognize that our bankruptcy laws do not work very well to address the economic realities that Americans now face.

Our organization is a solid one with over one hundred years of experience. Our know-how and ability is vast and our commitment to the maintenance and continued development to a strong system of laws is constant. With Peter at the helm, I am certain that the League and our Section will be a driving force for the creation of laws that will work towards restoring economic equilibrium to our country.

I urge everyone to please get behind Peter and work with us. We can make a difference.

I thank all of you for allowing me an opportunity to Chair this Section once again, and I look forward to seeing you in Chicago.

Best wishes and safe travel.

Debbie Ebner

Case Analysis

William Schorling
Buchanan Ingersoll & Rooney, P.C.
Philadelphia, Pennsylvania

The Supreme Court, in Milavetz v. U.S., decided March 8, 2010, held that (i) Attorneys who represent Assisted Persons who are debtors are "debt relief agencies" under section 101(12A) of the Bankruptcy Code as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005("BAPCPA"), (ii) section 526(a)(4)  of the Bankruptcy Code, which, as amended by BAPCPA, prohibits an attorney from advising an Assisted Person to incur debt in contemplation of bankruptcy is constitutional, and (iii) section 528 of the Bankruptcy Code, as amended by BAPCPA, constitutionally requires Attorneys who are Debt Relief Agencies to include the statement "We are a debt relief agency.  We help people file for bankruptcy relief under the Bankruptcy Code."  The Commercial Law League of America filed an amicus brief which in support of the lawyer respondents' which advocated that section 526(a)(4) is unconstitutional and that lawyers who represent Assisted Persons who are creditors are not included in "Debt Relief Agencies" or, if creditors' lawyers are included in "Debt Relief Agencies", then the requirement that Debt Relief Agencies include the statement in advertising is unconstitutional.

Although the Supreme Court held that attorneys are included in "debt relief agencies", the Court also held that, as argued by the CLLA, attorneys who represent "Assisted Persons" who are creditors are not included in "debt relief agencies".  Thus, attorneys who are representing consumers creditors do not need to comply with the requirements for debt relief agencies.

In holding the section 526(a)(4) prohibition constitutional, the Supreme Court limited the prohibition to advice to incur debt when the impelling reason for the advice is the anticipation of bankruptcy.  That is, an attorney may not advise an assisted person to incur debt to game the bankruptcy system.  The Supreme Court made it clear that an attorney is free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case.

Case Law Update

CLLA Staff

U.S. 2nd Circuit Court of Appeals
In re: West Point Stevens
3/26/10
Case no. 07-4772

In a bankruptcy proceeding, the district court's order reversing the bankruptcy court's orders permitting (1) the distribution of unregistered securities and subscription rights to satisfy the liens held by senior secured creditors and (2) the distribution of the remaining subscription rights to junior secured creditors, but affirming the bankruptcy court's order of adequate protection payments to the junior secured creditors, is affirmed in part where the adequate protection payments held in escrow were properly released to the second lien lenders. However, the order is reversed in part where: 1) the court of appeals lacked jurisdiction to review the sale order unless a stay had been entered or there was a challenge to the "good faith" aspect of the sale; and 2) in withdrawing the motion for "a stay of the closing of the sale," the parties' stay stipulation permitted the transfer of assets and the lien release, claim satisfaction, and distribution to occur as a single integrated transaction.

U.S. Circuit District of Columbia Court of Appeals
Burns v. George Basilikas Trust
3/26/10
Case no. 09-7045

In an appeal from a bankruptcy court's imposition of sanctions on counsel for a debtor, for violation of Rule 9011(b)(2) of the Federal Rules of Bankruptcy Procedure, the order is reversed where requesting counseling from an unapproved credit counseling agency could satisfy 11 U.S.C. section 109(h)(3), and thus counsel did not violate that statute.