Consumer Bankruptcy

By: Christine Knoesel

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In an expansive reading of the homestead cap added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the First Circuit Court of Appeals, in Larson v. Howell, held that criminal negligence is sufficient to trigger the cap.

[1]

  The BAPCPA provision, section 522(q)(1)(B)(iv) of the Bankruptcy Code, applies a $136,875 cap on the homestead exemption where the “debtor owes a debt arising from any . . . criminal act, intentional tort, or willful or reckless misconduct.”

[2]

  In Larson, the debtor was driving her van in Massachusetts and took a shortcut through a parking lot, striking the oncoming motorcycle of Howell.  Howell’s wife, a passenger, died as a result of the accident.  In the criminal case, the judge found facts sufficient to find Larson guilty of negligent vehicular homicide.

[3]

  In the bankruptcy proceeding, the Court of Appeals reasoned that use of the word “or” in the section 522(q)(1)(B)(iv) list of triggering acts indicates that criminal acts are separate triggers to the subsection, independent of any intent or recklessness.

[4]

 The court also determined that the debtor need not be convicted of the crime, holding that section 522(q)(1)(B)(iv) applies “wherever the debtor’s debt arises from . . .  any criminal act.”

[5]

 Therefore, the provision is triggered whenever one admits to facts sufficient for a finding of guilt, as Larson did.  The court concluded that the cap on the homestead exemption applies to Larson because her act was a crime of negligence and her debt to Howell arose from that criminal act.

By: Heather Navo
St. John’s Law Student
American Bankruptcy Institute Law Review Staff

Although the Ninth Circuit barely addresses the unbundling of consumer bankruptcy services in Hale v. U.S. Trustee,[1] one of the first appellate cases on the point,[2] the court appears to require that an attorney provide, at a minimum, those services “critical and necessary” to the bankruptcy case.[3]   Tom Hale, like any other bankruptcy attorney, charged debtors to analyze their financial situation and prepare their petitions.[4]  However, unlike most other attorneys, Hale charged debtors for doing just that and nothing more; Hale referred to this practice as the “unbundling of legal services to pro se debtors.”[5]  The bankruptcy court deemed Hale’s fee disclosure inadequate, and ordered sua sponte that Hale submit an itemization to determine whether the amount was reasonable under section 329.[6]  However, after numerous opportunities, Hale never fully complied with the court’s order, but instead filed a Motion to Recuse, Vacate and Jury Trial Demand on the issue of his fee.[7]  The court scheduled a hearing, but Hale did not attend; the court set response dates, but Hale never filed a reply brief.[8]  Finally, the bankruptcy court published a decision denying both Hale’s motion for recusal as well as Hale’s request for a jury trial, finding that an attorney has no Seventh Amendment right to a jury trial regarding the reasonableness of his fees.[9]  Moreover, the court ordered Hale, a repeat “unbundler”,[10] to disgorge his fees and further penalized him with both monetary and non-monetary sanctions.[11]  On appeal, the Ninth Circuit affirmed both the jury trial determination and the imposition of sanctions.[12]  Although the appellate court’s discussion of the unbundled service is brief and intertwined with its review of the sanction award, the court appears to adopt the view that an attorney cannot limit consumer debtors to merely pre-petition advice and preparation of the petition and related papers.[13]  The attorney must sign the petition or be subject to sanctions under the bankruptcy court’s inherent power to sanction vexatious conduct, may not exclude critical and necessary services, adequately advise the client of any limitations on services and obtain the client’s informed consent to those limitations.[14]