Avoiding the debt trap: high-interest car title loans

For most people, reliable transportation is the key to survival. Without a way to get to work, there is no income to pay for food, rent or mortgage payments, and the other essentials. But few people have the cash to buy a car outright. And with poor credit or poor planning. the quest for a car can become a trap in itself. But there may be a way out…

Remember the subprime mortgage fiasco? Anyone who was breathing and had some income could buy a home with little or no money down. Now the same thing is happening with car loans. But these loans often come with very high interest. Those who have not done a budget to know how much they can afford can get trapped.

Even worse are the “title loans”. Just as many states have outlawed “payday loans” with high interest and never-ending payments, shrewd subprime lenders and the investors that back them have come up with a new twist: lending money at high interest backed up by the title to your car. They have accurately concluded that most people will do anything to avoid losing a car that is essential to working and living.

The trap this creates was recently illuminated by a New York Times article, “Rise in Loans Linked to Cars is Hurting Poor” http://dealbook.nytimes.com/2014/12/25/dipping-into-auto-equity-devastates-many-borrowers/?_r=0. Sky high interest rates. Working people trapped by the never-ending cycle of payments. Loans advertised as “easy cash” that are anything but. Loan balances that far exceed the value of the car.

Those who, out of need or desperation, are considering these types of loans should read this article. With a bit of luck and some planning, these types of loans should be avoided whenever possible.

For those who are trapped in these types of non-purchase money car title loan arrangements and who otherwise qualify, a bankruptcy under Chapter 13 may provide relief, including reduction in loan balances or interest rates, (“cramdown”) or the alternative of buying back the car at market value through payments over as much as 60 months.

Avoiding being a fraud victim shopping during the holidays

We came across this timely article about avoiding fraud or other problems in making holiday purchases, in the December 3, 2014 edition of The New York Times:


The article is well worth reading. Too many of our clients are victims of one or another forms of fraud. We have had some firsthand dealings with some of the perpetrators. Credit card fraud and financial fraud are a continuing problem.

We wish all our readers well for the holidays and hope none of them have to deal with these types of problems. Still, forewarned is forearmed.



Lenders being sued for violating the bankruptcy discharge when they refuse to correct your credit report to show listed debts as discharged

When a debt is discharged in bankruptcy, the Bankruptcy Discharge Order enjoins (ie prohibits) all efforts to collect that debt from the debtor personally. (but enforcement of rights to collateral are not affected). A discharge is central to the “fresh start” that bankruptcy affords. However, in a recent article, “Debts Canceled by Bankruptcy Still Mar Consumer Credit Scores”,  the New York Times reports that several major lenders (including JP Morgan Chase, Bank of America and Citigroup) are under investigation and are being sued for systematically refusing to correct debtors’ credit reports to show their debts as discharged, in an apparent effort to coerce payments in violation of federal law. http://dealbook.nytimes.com/2014/11/12/debts-canceled-by-bankruptcy-still-mar-consumer-credit-scores/?partner=msft_msn?a=1&m=en-us

A nationwide class action against Chase Bank USA NA is now pending in the United States Bankruptcy Court for the Southern District of New York. In a July 22, 2014 ruling, Bankruptcy Judge Robert Drain refused to dismiss that suit. Haynes v Chase Bank USA NA, 2014 Bankr. Lexis 3111, 2014 WL 3608891. Mr. Haynes alleged that Chase had refused to correct his credit report to show that his debt had been discharged in bankruptcy. He charged that it did this as part of a systematic effort to pressure people like him, anxious to improve their credit, to pay discharged debts that were barred from collection efforts.

Chase claimed that it had no obligation to correct the credit report because it had sold off the debt. Judge Drain rejected this argument. He explained that under the facts alleged, Chase had an incentive in seeing payment on these discharged debts. First, if as Mr. Haynes claimed, Chase receives from the debt buyer a portion of the money collected, it would have an  an incentive to help collection. And, he noted, it certainly has under those facts a continuing connection to the debt.

Secondly, while the credit reports list the debt as solder they do not identify the purchaser. Thus, Judge Drain points out, “as far as the debtor is concerned, the only creditor to approach to correct the credit reports is Chase, which, though it appears to be the only game in town, as a mater of policy refuses to correct them…highlighting further the perniciousness of Chase’s allegedly systematic approach to refusing to correct such errors”

At present, the suit is pending, along with similar others. In another case, Judge Drain denied a motion by GE Capital Consumer Lending to have the discharge violation action sent to arbitration under a provision of its loan agreement.

These practices are indeed pernicious and these investigations and lawsuits are a welcome response.  We commonly urge our clients to demand from credit reporting agencies that all discharged debts be marked as having a zero balance and as having been discharged in bankruptcy. If this is not being done, then multiple federal laws are being violated and important rights need to be vindicated by aggressive legal action. Such actions under section 524 of the Bankruptcy Code can and should seek contempt sanctions.

Lessons from the Dark, Lucrative World of Debt Collection

Over the years, we have seen our clients’ individual unpaid debts being collected by one collection agency after another sometimes involving abusive tactics. Many but not all debt collectors are legitimate and law-abiding. But from time to time our clients run into debt collectors who are really abusive. When we have confronted these bad actors on behalf of our clients, they have not hesitated to extend their abuse, including foul language, to us. When he have worked with clients outside of bankruptcy to settle debts or have raised questions about a debt’s legitimacy, we have seen the debt getting handed off to collection agency after agency, each apparently ignorant of the past history or of the questions we have raised about the debt. When we have demanded documentation to support a challenged debt, the response is often to ignore these requests.

A recent expose in the New York Times Magazine entitled “The Dark, Lucrative World of Debt Collection” details the sometimes sordid behind-the-scenes reality of such debt collections. It is eye-opening. Here is a link to it: http://www.nytimes.com/interactive/2014/08/15/magazine/bad-paper-debt-collector.html?a=1&m=en-us&_r=0 As this expose shows, bad debts are a lucrative business. Debt buyers pay pennies on the dollar for bundles of bad debt, that they then try to collect, making large profits. And at some point they will sell the debts off again. What is being handed around is just a list of names, Social Security numbers, contact information, account numbers and supposed balances due. This may or may not be accurate.

These debts can include some that are so old that the right to sue on the debt has expired. In other words, the debt is uncollectible. Although not mentioned in the article, it logically follows from the minimal and often old account information that is sold, the debt may have been settled or discharged in bankruptcy.

The upshot for those facing collections is “debtor beware”.

Based on our experience and what this article reveals, here is some advice to follow if faced with unpaid debts in collection:

1. Don’t assume that the debt collector owns the debt or is authorized to settle it. You should receive a written demand on the debt stating who owns the debt. The demand should state that you are entitled to dispute the debt and if so they will supply proof that you owe it. This is a matter of federal law. If this has not happened, be very suspicious. As the article points out, some supposed debt collectors are thieves trying to collect someone else’s debt.

2. If you settle, make sure you have something in writing from the debt collector making a firm offer. This must have all the account information and must clearly state what payment terms will be accepted as “payment in full” or similar language. When you send in payment, make sure the check has a notation of the debt, the account number and “payment in full” or “payment under settlement letter dated [DATE]” or something similar.

3. Do not respond to threats to send you to jail. These are illegal and bogus.

4. Any time you are dealing with suspected abuse, you should keep a detailed log of who called, the date and time, what was said, and the contact number. The number given may be a bogus one. Always ask for a telephone number “in case we get disconnected”. You might then consider hanging up then calling back claiming you got disconnected.

5. Recording these calls is legal, so long as you tell them you are recording. Knowing they are being recorded will give pause to any legitimate collector. If it does not, then be extremely suspicious.

6. It may make sense to get an attorney involved. If you already have an attorney, then your conversation should be limited to telling the collector that, demanding that he/she “correct your records”, and contact your attorney. If you have hired an attorney to file bankruptcy, most legitimate collectors will then contact the attorney to verify this, then put your debt at the bottom of their stack. This only works if you have really hired an attorney.

7. If you are having these types of troubles, it is probably a good idea to meet with a qualified and experienced bankruptcy attorney to understand that option. You should prepare a household budget showing all your basic living expenses. Whether or not you proceed with a bankruptcy, don’t ignore this option. Bankruptcy under Chapter 13 can allow you to pay your debts to the best of your ability, in a controlled and court-supervised process.


How to Stop Collection Lawsuits Against You

Your Options to Stop Collection Lawsuits

Final collection noticeIf you have fallen behind on your financial obligations and have been threatened with a collection lawsuit, you may be considering bankruptcy as a way to stop legal action and get a fresh start. Before you file for bankruptcy, though, you want to do two things: prepare a detailed budget and if a suit has not already been filed, explore an out of court settlement. Finally, any settlement must be documented in a properly drafted agreement, which can be as simple as a letter signed by the lender or their collection agent, or as complex as a court order.

Prepare a Budget

Far too many people fail to budget, usually out of fear of what the numbers might tell them. But the reality is that the best way to know what you can afford and what you need to do is to have a plan. You may discover that you don’t have enough income to pay all your bills. That will allow you to start to prioritize, to determine which obligations are most important and to see that certain expenses are just not realistic. As you prioritize, remember that the most important asset you have is the one that gets you to your job and that allows you to earn income. Without a vehicle, you won’t be able to work unless you work from home.

Remember, too, that a budget is mostly an estimate. There will be some expenses that will be precise — car and mortgage/rent payments. There will be others that vary from month to month. The purpose of a budget is to give you a big picture.

Non-bankruptcy settlements.

If your budget leaves some money available to bring past due debts current, AND if you have not already been sued by one or more of them AND if you do not have a lot of separate past due bills, some people may benefit from reaching out to their creditors to explore non-bankruptcy options. Some but not all creditors will work with you to some degree. Some creditors have forbearance options that allow you to skip a payment or two and add it to the end of the loan. Many utility companies will allow you to set up a payment plan over a longer period of time.

But before doing this, you should explore the bankruptcy option. All too often we see people who struggle to pay high interest credit cards or other loans, often using up protected retirement funds. You need to clearly understand your limits and explore other options.

One such option is Chapter 13. Chapter 13 allows you to control the repayment process. Once you get approval of a repayment plan, all your creditors are bound by it. Even where the plan provides for full payment of all creditors, the repayment is almost always without additional interest. In other words, a Chapter 13 bankruptcy gives you a guaranteed court approved payment plan.

That said, Chapter 13 is not always the best option. But to know that, you need to get the help of an ethical and experienced bankruptcy attorney. Our practice is always to explain the non-bankruptcy options to our clients. And if you decide to forego bankruptcy, an attorney’s help in securing agreements from your lenders is often valuable. The bottom line is that your creditors may would rather have something paid than nothing. And their preference is not to force you into bankruptcy, as that severely limits their options and typically makes the process more expensive for them.

Settlements must be in writing.

We often say that an oral agreement is not worth the paper it is written on. What one person tells you on the phone may be ignored or forgotten by another agent. Written agreements should be reviewed by a lawyer. At a minimum they should specify who the lender is, that the signer is an authorized agent, the agreed payment terms, that so long as you abide by those no further collection action will take place, and what the lender will do when all payments are made. That said, this is still an area where the help of an attorney may be money well spent.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know that the bankruptcy process can be intimidating and confusing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call our office at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients Across South Jersey

Resurrection of the subprime mortgage mess-this time in car loans

In the run up to the 2008 financial crisis, investment bankers were telling us they were flush with cash. In a real estate boom fueled by easy availability of credit, even buyers with poor credit histories could get mortgage loans, often with exotic terms and overstated income or values put onto credit applications by less than scrupulous mortgage brokers. The whole thing was fueled by securitization, in which large bundles of questionable loans were created for investors, with the risks hidden by overstated appraisal values and credit rating agencies that for one reason or another did not expose the risk.

The result was the crash in real estate and the crisis in financial markets that started in late 2008. The real estate market is only now starting to recover.

But subprime credit targeting the most vulnerable borrowers has come back. In a  July 21, 2014 report in the New York Times, In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates  we learn that in the past 5 years, auto loans to borrows with tarnished credit have gone up 130 percent, and that these loans are 25% of the total of auto loans being made. The Times investigation found loan rates as high as 24%, with the amounts borrowed typically about double the value of the car being purchased. The borrowers frequently default and the cars are repossessed. Many of the borrowers have a previous bankruptcy that prevents them from discharging the resulting deficiency debt.

As the Times reports, the money to make these loans is fueled by same process of loan securitization and investors looking for high rates of return in a difficult investing environment. Indeed, in some respects, auto loans are less risky that mortgage loans. A car can repossessed and sold in many states in a small fraction of the time to foreclose on a mortgage and sell the home at Sheriff Sale.

The victims of this process are the most vulnerable of borrowers. Most need reliable transportation in order to get to work and to feed themselves and their families. Without access to a ready chunk of cash, they have to borrow the money to buy a car.

We constantly counsel our bankruptcy clients to start with and keep a budget, and to accumulate cash for important needs such as auto repairs. But even the most diligent often find themselves backed into a financial corner, where getting an auto loan is the only option.

So availability of credit for this purpose is not necessarily bad. What is deplorable is the way that used car sellers and lenders are pawning off overpriced vehicles of questionable value on those who seek credit.

For the regulators, some controls on the credit industry and its used car seller partners is called for. For those who need to borrow money for basic transportation, the lesson is that “buyer beware”, and to borrow money for these purposes carefully and with full knowledge of the traps that unscrupulous dealers and lenders have lying in wait for them.


Supreme Court now decides to answer the questions it ducked in Arkison-what can a bankruptcy court decide, when and how?

A short time ago we reported on Executive Benefits v Arkison, where some critical questions about the powers of bankruptcy courts were left hanging.  In Wellness International Network, Limited v. Sharif,  the Supreme Court has now decided to take up a case where those issues are clearly presented. On July 1, 2014 it granted Certiorari to review a decision of the Seventh Circuit Court of Appeals in that case.

The issues presented in the case turn on the extent of the Bankruptcy Court’s power to render final decisions and in what types of matters. You will recall that Bankruptcy Courts are Article I courts, appointed without the lifetime tenure granted to federal district court judges and other Article III judges.

Generally, Article I jurisdiction is centered on “bankruptcy specific” issues, that would not exist as controversies outside of bankruptcy. What property is included in a bankruptcy estate would seem clearly to fall within this area, yet  in Sharif, the Court is being asked to decide whether the presence of a subsidiary state property law issue necessary to decide this question takes the controversy outside Article I territory, so that a bankruptcy court does not have the constitutional authority to enter a final order deciding that matter.

The second issue in Sharif concerns whether,  under Article III of the Constitution, litigants by either express or implied consent can empower bankruptcy courts to enter final decisions in matters that are beyond Article I. The Seventh Circuit said no.

Decision on these matters is expected next term. If the Court decides against bankruptcy court powers on either question, the result will be to upend bankruptcy practice, causing many or all routine bankruptcy matters to grind to a halt as much or all of the bankruptcy court docket is shifted to already-overburdened federal district court judges.

The Court has already upheld the power of another class of Article I judges to render final decisions by consent, and a different ruling here could have drastic effects across the Federal Court system. In Roell v. Withrow, 538 U.S. 580 (2003), the Court held that U.S. Magistrate Judges could proceed by implied consent of the parties based on their lack of objection and other conduct, even though the Federal Magistrate Act of 1979 required written consent. Magistrates work as an arm of the District Courts. The Magistrate Act specifically provides that “upon the consent of the parties, a full-time United States magistrate judge . . . may conduct any or all proceedings in a jury or nonjury civil matter and order the entry of judgment in the case, when specially designated to exercise such jurisdiction by the district court.” 28 U.S.C. § 636(c)(1) [28 USCS § 636(c)(1)]. Unlike  nonconsensual referrals of pretrial but case-dispositive matters under § 636(b)(1), which leave the district court free to do as it sees fit with the magistrate judge’s recommendations, a § 636(c)(1) referral gives the magistrate judge full authority over dispositive motions, conduct of trial, and entry of final judgment, all without district court review.  A judgment entered by “a magistrate judge designated to exercise civil jurisdiction under [§ 636(c)(1)]” is to be treated as a final judgment of the district court, appealable “in the same manner as an appeal from any other judgment of a district court.” § 636(c)(3).”  Roell v Withrow, 538 U.S., at 585.

Bankruptcy Courts are given jurisdiction by another Congressional enactment, embodied in 28 USC 157,  which gives them power to act as “a unit of the district court.” The statute provides that “with the consent of all the parties” the District Courts may refer Article III matters to the bankruptcy courts for final decision. In New Jersey and throughout the country, the District Courts have entered Standing Orders of Reference. 28 USC 157(c) also provides a mechanism for the parties to opt out and by a “withdrawal of the reference” insist on the district court making the rulings in the first instance.

We would hope that the Court would see this as putting bankruptcy courts in the same posture and status as US Magistrates. If not, the Court will have to confront whether Roell is still good law, and if not, how the federal courts can handle the enormous caseload now routinely disposed of by bankruptcy court as well as US Magistrates.

It is going to be an interesting year in bankruptcy practice. We can expect litigants interested in hindering or delaying decisions by the bankruptcy courts to raise these issues. Clarification has been delayed, and is overdue.

US Supreme Court holds that inherited IRA’s are not “retirement funds” that can be exempted in bankruptcy, but New Jersey residents may have other protections

We previously reported that the Seventh Circuit Court of Appeals held that inherited IRA’s were not protected by the Bankruptcy Code’s IRA exemption. The Supreme Court agreed, in a ruling issued June 12, 2014. Clark v Rameker. This means that debtors in bankruptcy cannot count on being able to keep such IRA’s under the federal IRA exemption, 11 USC 522(b)(3)(C). However, debtors who live in New Jersey may still be able to rely on a separate statute that removes IRA’s from a bankruptcy estate. NJSA 25:2-1(b). Because that statute has broader wording than the federal exemption statute, it may shelter inherited IRA’s. But in view of the Supreme Court’s decision, there may be some open questions here.

In Rameker, the Debtor’s mother named Mrs. Clark the beneficiary of an IRA. Under the applicable tax code sections, 26 USC 408 and 408A, the Debtor could either take the IRA funds outright, or roll them over into an “inherited IRA”. Unlike regular IRA’s, the money in these IRA’s can be taken out any time without penalty, and no additional money can be put into them. The Trustee objected to Mrs. Clark’s claim of the entire inherited IRA as exempt, and the exemption was overruled by the 7th Circuit. The Supreme Court agreed, finding that as Congress wrote the exemption, it applied only to “retirement funds”, which, it found, inherited IRA’s were not. The critical distinction was the ability to pull the funds out at any time and to use them for any purpose as well as the inability to add to the account. Funds in an inherited IRA, it found, “constitute ‘a pot of money that can be freely used for current consumption'”

Bad news outside of New Jersey. But New Jersey passed a law intended to shelter “any property held in a qualifying trust and any distributions from a qualifying trust, regardless of the distribution plan elected for the qualifying trust” NJSA 25:2-1(b). A qualifying trust is defined as “a trust created or qualified and maintained pursuant to federal law, including, but not limited to, section 401, 403, 408, 408A, 409, 529 or 530 of the federal Internal Revenue Code of 1986” Id. There is no reference to retirement funds. And such property or distributions are “exempt from all claims of creditors and shall be excluded from an estate in bankruptcy, subject to certain exceptions.

Does this state law supercede contrary limitations in the Bankruptcy Code? The Third Circuit Court of Appeals held it did in In re Yuhas, 104 F.3d 612 (3d Cir 1997), cert denied, 521 U.S. 1105 (1997). For now at least, that would seem to answer the question.

But if someone were to push the issue, we wonder whether the New Jersey exclusion would withstand further scrutiny by the Supreme Court. States are given only limited powers in bankruptcy matters. They are allowed to “opt out” of the Bankruptcy Code’s exemption scheme and craft their own exemptions in bankruptcy. New Jersey has not done that. So how can New Jersey declare that a broad range of assets are “exempt”?

Moreover, New Jersey has purported to “exclude” these “qualified trusts” from an estate in bankruptcy. The Bankruptcy Code treats certain types of assets, whether or not an exemption is available, as “excluded” from a bankruptcy estate. 11 USC 541(c)(2). Examples are ERISA qualified pensions, and assets in valid spendthrift trusts.  One can argue that New Jersey’s attempt to re-write this section of the Bankruptcy Code falls afoul of the Constitution’s mandate that bankruptcy laws be the sole province of federal law, and for that reason is invalid. But the counter-argument is that New Jersey law determines what is a valid trust Bankruptcy Code section 541(c)(2) excludes from the bankruptcy estate.  If NJSA 25:2-1(b) is seen as declaring all such “qualified trusts” to have the same protections as otherwise valid “spendthrift trusts” (ie those created with a provision that no part of the trust can be levied, pledged, or encumbered), the validity of the statute could stand unimpeded.

For now, attentive bankruptcy practitioners, especially outside New Jersey, need counsel their clients accordingly.


When can a Bankruptcy Court enter a final decision? The Supreme Court punts, and muddies the waters

In rendering a narrow and less than clear ruling on the powers of Bankruptcy Courts, the Supreme Court missed an opportunity to solve a problem and instead has made it worse.

Since the 1982 Marathon decision of the US Supreme Court, we have known that Bankruptcy Judges’ cannot always  enter a final ruling the same as Article III District Court judges (who are granted lifetime tenure and who have to go through the Congressional confirmation process). As Article I judges appointed through the Executive Branch, their powers have been limited to certain “core” areas intrinsic to the Bankruptcy Process. Originally, Congress in enacting the 1979 Bankruptcy Code gave them broad powers. In 1982 this was struck down by Marathon.   In response, Congress amended the Bankruptcy Code to give Bankruptcy Judges the power to enter final rulings in certain defined “core” proceedings considered so central to the federal bankruptcy administration process as to fit within what the Constitution allows Article I judges to do. (examples are challenges to creditor claims). For anything else (so-called “related-to” jurisdiction involving matters that had a connection to the bankruptcy case), the issue either had to go to the District Court, or the Bankruptcy Court could only issue proposed findings of fact and conclusions of law and then submit them to the District Court for “de novo” review. At first, it seemed the District Courts would be inundated with bankruptcy related disputes.

This problem was initially solved by making the Bankruptcy Courts arms of the District Courts (the same as US Magistrates) under standing orders of reference which sent all bankruptcy cases and issues to them. For years, the statutory designation of “core” vs “non-core” jurisdiction  worked  fairly well. And it has been generally assumed that non-core matters could be finally decided by consent of the parties. In 2012, all that unraveled as the Supreme Court in Stern v Marshall held that at least one of these “core” categories did not pass muster, so that a counterclaim for tortious interference either had to be heard by the District Court, or else if heard by the Bankruptcy Court, that court could only issue proposed findings and conclusions.

In Executive Benefits Insurance Agency v Arkison, decided June 9, 2014, the Supreme Court was asked to decide if the parties’ consent to a final ruling by a bankruptcy court passed Constitutional muster where the action, to avoid a fraudulent transfer, was clearly one that only an Article III court could enter a final judgment upon.  Had that been decided, a lot of uncertainty might have been avoided.

In Arkison, a trustee sued to avoid a fraudulent transfer and bring money or property into the Bankruptcy Estate. The defendant did not raise lack of Article III jurisdiction when the Bankruptcy Court heard the trustee’s motion for summary judgment, and ruled against it. Instead it took an appeal to the District Court, again not raising this issue. Only on a further appeal, when Stern was decided, did it claim that the Bankruptcy Court never had jurisdiction to rule against it because instead of propsed findings of facts and a proposed judgment, it had issued a final ruling that only the District Court had the power to hand down. That was the case that was presented to the Supreme Court.

The Supreme Court ruling has been long-awaited with some degree of trepidation. Bankruptcy Judges handle an enormous docket of cases involving specialized law and practice. If all of this or even a major portion of this work were shifted to District Court judges, the entire bankruptcy system would grind to a halt. A ruling in favor of the defendants would also place in question whether US Magistrates had any power to decide anything.

The Court declined to rule on whether consent of the parties was sufficient to permit a Bankruptcy Court to make a final trial court ruling, and that is unfortunate. Most bankruptcy related matters are decided this way without objection. Instead, the Court held that where the District Court is given an opportunity to review that ruling on appeal in the same plenary manner as should have happened, the constitutional defect is cured. This was possible in this case only because, unlike an appeal of a ruling after trial where deference is given to the lower court findings of fact, no such deference applied on an appeal of a summary judgment.

After Arkison and Stern, it is not always clear where the line should be drawn between what a Bankruptcy Court can decide for itself and for what it can only issue a proposed decision. At least one court, the day after the decision, opined that when in doubt, the matter goes to the District Court to decide where the line is to be drawn.

Sadly, Arkison does not even say whether parties’ consent to a final ruling in the Bankruptcy Court resolves the issue and cures any defect if the Bankruptcy Court exercises more power than it is supposed to. Had the Supreme Court so ruled, much potential mischief might be avoided. With the question in doubt, and under princples that lack of jurisdiction can always be raised, a party might  proceed to trial, silent on this issue, then when disappointed in the result, object that the Bankruptcy Court lacked power to render a binding ruling. What if these objections are not raised until long after the time for appeal, when for example the successful party seeks to enforce the Bankruptcy Court judgment? The possibilities for gamesmanship are legion.

Whether a Bankruptcy Court ruling is final or only proposed makes a big difference in the nature of later review. If the latter, the review is “de novo” meaning the District Court is free to reconsider the evidence as well as the law, instead of having to give deference to the factual findings of the Bankruptcy Court. Does this mean that all these cases can get automatically re-tried in the District Court? This has been so uncommon up to now that few of us know what to expect.

Arkison has opened the can of worms even more than before. We foresee that this is going to be a major headache for the entire federal court system. The Supreme Court has simply “kicked the can down the road” but the need for well-drawn lines and principles to guide courts and parties remains as urgent as ever. Until that happens, the prospect of dysfunction in many contested cases looms.

Mediation now required in New Jersey Bankruptcy Court- but you have more choices than first appears

Anyone who has experienced the rigors and the expense of litigation knows its costs both personal and financial. Any attorney who does a fair amount of litigation knows that ultimately, most cases settle. Unfortunately, this often happens after the parties have bloodied each other.

Mediation is a process where a neutral third party meets with the parties and their attorneys to explore settlement. The Mediator cannot impose a settlement. A good one can, however, help the parties get past the posturing to what really is at issue and to help them find better alternatives that litigating. Done well, the process can be quite valuable. Even where a settlement is not reached during the mediation, in my experience, the process gets the parties talking and thinking about settlement as an alternative. Both as a mediator and as a litigant, I have found many times that the mediation produced a settlement after the mediation was over.

The New Jersey Bankruptcy Court has just imposed a requirement that every “adversary proceeding” (a bankruptcy term for a lawsuit in the bankruptcy court) filed after May 1, 2014 must go to mediation, unless the parties can convince the court to opt out.

The court has selected a panel of mediators. All are good, and some are superb. But the selection of the right mediator is an important decision. The mediator must be someone who commands or will command the trust and respect of the parties and their attorneys.

In selecting a mediator for your case, do keep in mind that you are not limited to the mediators on the panel. The parties can designate and select anyone who is otherwise qualified. DNJ LBR 9019-2(b)(2).

Both Steven Neuner and Joanne Ventura are experienced mediators. Mr. Neuner has served for over 6 years on the New Jersey Superior Court mediation panel, and has served as a bankruptcy mediator in several cases. His background and experience as a trustee and a respected bankruptcy practitioner brings a unique perspective to bear. Joanne Ventura is a divorce mediator with years of experience and extensive training, as well as a familiarity with the bankruptcy process.

If you are facing a mediation in bankruptcy court, please feel free to consider selecting one of us to help.

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