Woman’s bankruptcy doesn’t give ex-husband attorney fee relief

Douglas C. Sutphin was probably one happy guy when he learned his ex-wife declared bankruptcy and received a Chapter 7 discharge.

Sutphin figured that her divorce lawyer’s bill, the one he was supposed to be paying but so far hadn’t, was gone with the wind.

But after her bankruptcy discharge, Sutphin’s ex went back to court and obtained an order requiring him to pay the $23,000 bill in three installments. Sutphin went to the Court of Appeals and argued that he wasn’t responsible for her legal bill because it had been discharged in bankruptcy.

There are a few problems with your argument, Mr. Sutphin, said COA Judges Kathleen Jansen and Elizabeth L. Gleicher in the majority opinion of Berryman v. Sutphine.

First, it’s not at all clear that your ex-wife’s legal bill was discharged:

Defendant has presented no evidence substantiating (1) that plaintiff listed or scheduled her divorce attorney debt, or (2) the extent of plaintiff’s divorce attorney’s notice or knowledge of the right to assert a claim in plaintiff’s Chapter 7 case.

Second, if you yourself sought a bankruptcy discharge of the judgment requiring you to pay the attorney fees, you couldn’t do it:

[T]he current bankruptcy code prohibits the Chapter 7 discharge of a divorce-related attorney fee obligation. Depending on the underlying circumstances and the precise language of a divorce court’s attorney fee award, federal courts deem a divorcing party’s attorney fee debt as nondischargeable in a Chapter 7 bankruptcy under either 11 USC 523(a)(5) or (15).

But the real stopper is this:

Even were we to assume for the sake of argument that plaintiff’s Chapter 7 discharge eliminated the debt she owed to her divorce attorney, defendant ignores that plaintiff’s discharge has no legal impact on the distinct attorney fee debt that defendant owed to plaintiff, arising from the circuit court’s … orders.

In a concurring opinion, Judge Christopher M. Murray noted that:

[A] “Chapter 7 discharge does not actually extinguish a debtors debts; however, he is no longer personally liable for the discharged debts.” In re Graham, 297 BR 695, 697 (Bankr ED Tenn, 2003) … .

Thus, even if plaintiff’s debt to her attorney was discharged in the Chapter 7 proceeding, that did not eliminate the actual debt that existed to the attorney.

Therefore, the circuit court was free to determine that defendant should pay the outstanding attorney fees, as long as that decision was supportable under the normal rules governing the award of attorney fees in divorce actions. Since it was, defendant’s argument is properly rejected.

Murray said the only thing missing from the majority opinion was a directive that Sutphin should make the payments directly to the ex-wife’s attorney.

It’s only right. He’s the guy with the unpaid bill.

Bankruptcy court has more to say about debtors’ tax refunds

The Bankruptcy Court for the Eastern District of Michigan used to require Chapter 13 confirmation orders to include a provision ordering the IRS to pay debtors’ tax refunds directly to bankruptcy trustees.

The problem was, the IRS didn’t like being told to do that. It sued to prevent the bankruptcy court from including the requirement in the confirmation orders.

U.S. District Court Judge Denise Page Hood last month shot down the direct payment provisions. See, The Michigan Lawyer: Bankruptcy court can’t order IRS to give trustees debtors’ refunds

Bankruptcy Chief Judge Phillip Shefferly has responded with a new directive.

To continue facilitating compliance with the obligation to pay tax refunds to the trustee, notice is hereby given that in each case in which an order confirming the plan has not yet been entered and in which the debtor’s plan provides for the payment of tax refunds to the trustee, the debtor shall sign, as requested by the trustee,

(1) any appropriate IRS forms that authorize the IRS to forward the debtor’s tax refunds directly to the trustee, whether by check or direct deposit, and,

(2) any appropriate form that will authorize the trustee to endorse, negotiate and deposit the debtor’s tax refund check for the debtor’s chapter 13 account.

Shefferly’s directive applies to Chapter 13 cases in which the meeting of creditors or the confirmation hearing is on or after Friday, March 26, 2010.

Bankruptcy court can’t order IRS to give trustees debtors’ refunds

It seemed like such a good idea.

A couple of years ago, the Bankruptcy Court for the Eastern District of Michigan approved a standardized confirmation order for Chapter 13 cases, which, in part, attempted to cut out the middleman by ordering the IRS to send debtors’ tax refunds directly to the bankruptcy trustees overseeing their cases.

Well, nobody, and we mean nobody, tells the IRS what to do.

The IRS sued to stop the tax refund redirects. It later withdrew the suit and the parties tried to mediate a solution. Those efforts failed.

As the IRS made plans to file another suit, the court’s six judges sent the IRS a letter insisting they had the authority to issue the redirect order.

The IRS responded by reinstituting its suit.

Last week, U.S. District Court Judge Denise Page Hood, in United States v. Carroll, delivered the bad news to the trustees and the Bankruptcy Court

The Court finds that sovereign immunity has not been waived as to proceedings against the IRS redirecting tax refunds to be paid to chapter 13 Trustees instead of to the debtors. The Bankruptcy Court, therefore, had no jurisdiction and authority to enter chapter 13 confirmation orders ordering the IRS to redirect tax refunds to be paid to chapter 13 Trustees instead of to the debtors.

Accordingly, IT IS ORDERED AND DECLARED that the chapter 13 Trustees for the Eastern District of Michigan may not seek to enforce any provisions of chapter 13 plan confirmation orders entered by the United States Bankruptcy Court for the Eastern District of Michigan that compel the IRS to pay future tax refunds claimed by chapter 13 debtors to the chapter 13 Trustees instead of to the debtors.

IT IS FURTHER ORDERED that a writ of mandamus is issued prohibiting the United States Bankruptcy Court for the Eastern District of Michigan from entering any further orders containing redirection provisions of chapter 13 confirmation orders that compel the IRS to pay future tax refunds claimed by chapter 13 debtors to the chapter 13 Trustees instead of to the debtors.

Yesterday, Bankruptcy Court Chief Judge Phillip J. Shefferly issued a Notice Regarding Tax Refunds In Chapter 13 Cases. The notice recapitulates the relief ordered in Carroll and contains a stern reminder.

It is important to note that if a Chapter 13 plan or an order confirming a plan require the payment of tax refunds by a debtor to the Chapter 13 trustee, the debtor remains fully responsible to comply with such provision.

The District Court Order only addresses whether the Internal Revenue Service can be ordered to send tax refunds to the Chapter 13 trustees, not whether the debtors must send tax refunds to the Chapter 13 trustees.

New Local Court Rules for Eastern District Bankruptcy Court

Amended local court rules for the U.S. Bankruptcy Court for the Eastern District of Michigan take effect Dec. 1, 2009, according to a statement from the court’s Chief Judge Phillip J. Shefferly.

What’s different? Consult the blacklined copy of the local rules, which reflects the revisions.

The amended local rules supplement the recently revised Federal Rules of Bankruptcy Procedure. The amended federal rules also take effect Dec. 1.

Old GM billed $23M in bankruptcy filing

“A consulting firm is charging General Motors’ bankruptcy estate more than $23 million for three months’ work leading up to and following one of the largest corporate bankruptcy filings in U.S. history,” the Detroit News reported.

“According to a quarterly report filed Thursday in U.S. Bankruptcy Court, crisis management firm AP Services LLC charged GM and its bankruptcy estate $23 million for about 90 days of work and expenses that included airfare, hotels, meals and rental cars. U.S. Bankruptcy Court records give the most detailed look at costs related to GM’s bankruptcy case and offers insight into the number of people needed to prepare GM to be dismantled and liquidated.”

Bankruptcy judge approves severance pay for Checker Motors workers

Good news for 125 workers formerly employed by Checker Motors to make the iconic and celebrated Checker taxicabs: U.S. Bankruptcy Judge James Gregg has approved a settlement between the workers’ union and the company for more than $500,000 in severance pay.

The company filed for Chapter 11 at the beginning of the year and closed its plant in Kalamazoo at the end of June.

More from The Kalamazoo Gazette.

Not the usual thing

The Sixth Circuit Bankruptcy Appellate Panel, which usually sits in Cincinnati, will hear oral arguments tomorrow right in downtown Detroit at the Theodore J. Levin Courthouse and Federal Building, 231 West Lafayette, Room 100 at 11 a.m.

Two bankruptcy judges from the Eastern District of Michigan, Marci McIvor (presiding) and Steven Rhodes will be on the panel. They’ll be joined by Judge Marilyn Shea-Stonum from the the U.S. Bankruptcy Court for the Northern District of Ohio.

The bar and the public are invited to attend.

Details on the case and issues raised here.

Eastern District bankruptcy judges featured at Dec. 10 luncheon

Bankruptcy Judges Marci B. McIvor, Phillip J. Shefferly and Thomas J. Tucker are the featured roundtable speakers at the Eastern District Federal Bar Association Bankruptcy Section’s Dec. 10 luncheon at Cobo Hall.

The event starts with an 11:30 a.m. buffet lunch. More information here.

FBA hosts state of bankruptcy court address

Chief Judge Steven Rhodes of the Eastern District Bankruptcy Court will be the featured speaker at a Cobo Hall luncheon sponsored by the Federal Bar Association’s bankruptcy section.

Rhodes will deliver the annual State of the Court address Tuesday, Sept. 16. A buffet lunch gets underway at 11:30 a.m.

For more information, call section co-chairs Leslie Berg, 313.226.7950 or David Lerner, 248.901.4010.

Registration form here.

Bone up on Michigan bankruptcy practice

Nov. 11 is a court holiday, so it’s the perfect time for bankruptcy practitioners to get the latest at the American Bankruptcy Institute Detroit Consumer Bankruptcy Conference.

Things get underway at the Troy Marriott beginning at 7 a.m. with a breakfast and registration period sponsored by Trott & Trott. There’s a full day of informational sessions by leading practitioners and bankruptcy judges.

The luncheon keynote speaker is Amy Crews Cutts, Deputy Chief Economist, Freddie Mac; Washington, D.C. Her topic: “The Economic and Housing Market Outlook – When Might We See Bottom?”

Complete information and registration form here.