Just because you don’t pay ordered attorney fees doesn’t mean you’re in contempt of court, necessarily

New case out of the Central District of California Bankruptcy Court—Judge Robles’s court.

First a little background. For the past two years or so, the parties have been litigating in bankruptcy court. Not sure what the nature of the litigation was, but it doesn’t matter much for this opinion. Back in late 2019 (pre-pandemic era!), plaintiff won a $1.8 million dollar verdict (including attorney fees and costs of $600k). 

Defendant appealed the verdict to the 9th Circuit Bankruptcy Appellate Panel, but lost there too. When the matter came back to to the trial court, as the losing party on appeal, Judge Robles awarded $153k in additional attorneys’ fees (ouch) to be paid within 45 days. Defendant apparently did not make that payment.

The current case. Which brings us to the recent opinion. Because defendant didn’t pay the $153k in fees, plaintiff filed for an application for an order to show cause why the defendant should not be held in contempt and set a hearing on the application. Put a simpler way, the plaintiff wanted the judge to sanction the defendant for not paying the fees by calling it “contempt of court.” And they set a hearing.

Judge Robles, instead of holding the hearing on the application, issued an order denying the application and striking the hearing. He explained that the court would first have to grant the application and issue an order to show cause, which he had not done. He also explained that one cannot have a hearing about sanctions until the court issues that OSC order, which, again, did not happen.

Finally, he explained that using the court’s sanction power to enforce the attorney fee award was inappropriate because the fee award only made the plaintiff a judgment creditor.  Sanctions would only be appropriate if there had been some kind of misconduct, as the opinion reasons. 

For local practitioners, Judge Robles pointed to Local Bankruptcy Rule 9020-1 as the correct procedure to seek an order to show cause.

JL AM Plus v. MBN Real Estate Investments (Oct. 12, 2021).

Public Service Loan Forgiveness – Help Is On the Way

Because of a major change announced last week, millions of people with student loan debt may be eligible for a discharge without having to file for bankruptcy. If you work in public service, read on because changes to the Public Service Loan Forgiveness program may help. 

In this post, I’ll give you a brief introduction to how the Public Service Loan Forgiveness works as well as how it’s changing for the better.

Introduction to PSLF

Student loan debt was rising rapidly back in 2007, so much so that lawmakers worried people wouldn’t take public service jobs. (Little did they know how much more student loan balances would grow over the next decade.) It was (and still is) a serious concern because there are a lot of people who work in public service, almost 25% of student loan borrowers. 

So with the cost of student loans, we may not be able to have educated teachers, social workers, or even relatively higher paid professionals like doctors or lawyers who serve under-privileged communities work in those jobs. In order to pay their student loans, the most highly educated might have to work in more highly paid private sector jobs.

The less educated would be the only people who could afford the take public service jobs, or so the thinking goes.

How Public Service Loan Forgiveness works

Enter the Public Service Loan Forgiveness Program. At a high level, the Public Service Loan Forgiveness program discharges student loan debt after you make 120 total monthly payments (10 years total) while you’re working in “public service.”  

The payments don’t have to be consecutive (e.g., you can switch jobs and you don’t have to stay in public service continuously). And the payments don’t necessarily have to be unaffordable because repayment plans like the Income Based Repayment count (assuming that’s actually affordable). 

But there are a lot of little details to the program that can trip people up, which is part of what the Biden Administration is trying to fix. For example, you have to work at least 30 hours per week (averaged over a year). The loans have to be through the Direct Loan program (consolidation counts). You can’t be in default. The payments have to have been made after 2007. You have to be in the job at the time you ask for the discharge. And there are a whole bunch of other small wrinkles and details.

There’s a Help Tool to help you navigate through it. I’m curious whether it helps you or not–send me your stories!

What’s changing

While it’s a generous program, not enough have been able to qualify for loan forgiveness because of its complexities. In April 2018, according to the National Consumer Law Center, only 55% of applicants received forgiveness. Under later revisions to the program, the rejection rate is 99-98%. That’s an incredibly high number!

The Biden Administration ran on campaign promises to help improve student loans, including possibly outright cancellation of large amounts for many. That hasn’t happened yet. However, they did announce major changes to the Public Service Loan Forgiveness program last week.

It looks like the changes will include:

  • Giving borrowers a one time waiver on the Direct Loan requirement
  • Simplifying what payment plan qualifies 
  • Improve access to the program for military service members
  • Implementing an outreach program so people know about the program
  • Automatically 

If you have questions or would like a clarification of anything, feel free to reach out to me! michael@michaelricelaw.com

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The third degree of consanguinity

Bankruptcy Judge Kaufman recently dusted off some very old law books to explore both the deep legislative history of the Bankruptcy Code and also ancient English common law to figure out who a “relative” is under the Code.

The facts in Ehrenberg v. Halajyan (published) are not crystal clear but it appears that a Chapter 7 sued the debtor and his first cousin for a using his avoidance powers. The question was whether a first cousin qualifies as an “insider.”

For non bankruptcy practitioners, you may be curious what “avoidance powers” are. It’s a relatively complex topic, but in essence, these powers make it possible for a trustee to recover money if the debtor transfers property to an insider to avoid creditors or the bankruptcy liquidation process. Relatives are considered insiders.

But is a first cousin a “relative?”

It appears this case is the first time the question has come up in the Ninth Circuit. The Bankruptcy Code does not define it. It says that a relative is an “individual related by affinity or consanguinity within the third degree as determined by common law.”

But what does the Code mean by “common law” in this context? Eherenberg analyzed it as follows. First, the courts seem to agree common law refers to state law. But even that is unclear because there are different types of common law within states.

To explore the question further, the court had to explore the legislative history of the old Bankruptcy Act of 1898 (you should see the footnote), which led the court to explore, and apply, very old English common law to conclude that yes, indeed, a first cousin is an insider.

Judge Kaufman listed the case for publication.

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Hello.

My name is Michael Rice. I am a lawyer (mostly pro bono) in the Los Angeles area, and this is my website and blog, mostly about some of the more complex aspects bankruptcy.

I graduated from the Seattle University School of Law magna cum laude, served on the Editorial Board of the Law Review, and participated in the school’s bankruptcy clinical program. Later, I was appointed as a Judicial Clerk in the United States Bankruptcy Court for the District of Arizona during the Great Recession.

Today, I am admitted in all California state courts as well as the Central District of California.

michael@michaelricelaw.com or call or text (310) 504-6981.

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