Fifth Circuit affirms Camp v. Ingalls

On January 21 the Fifth Circuit affirmed the District Court opinion in Camp v. Ingalls.


In that case, the debtor moved from Florida to Texas in 2007 and filed a Chapter 7 in 2008, less than 730 days later. The question presented was what exemptions was the debtor allowed or required to claim.


Section 522(a)(3)(A) which was added by BAPCPA provides that a debtor may claim the exemptions of the state where he was domiciled for the 730 day period prior to filing. If he has not been domiciled in one place for the 730 day period, he claims the exemptions of the state where he resided for the 180 day period prior to the 730 day period. In this case, Mr. Camp would be required to claim Florida exemptions because he was not domiciled in Texas for 730 days prior to filing.


The problem is that Florida’s exemption statutes say that specified property may be claimed as exempt by “residents of this state.” Since Mr. Camp is no longer a resident of the state of Florida, he is not entitled to claim Florida exemptions. The Fifth Circuit held that although Florida has opted out, the Florida exemptions only apply to residents and since Mr. Camp was a non-resident, the Florida opt out statute did not bar him from claiming federal exemptions. (I personally think this is the wrong way to get to the right answer, but they got the right answer, so I’m not going to complain too much.)


In a footnote, the court declined to address the issues of whether 522(b)(3) preempts state law restrictions of extraterritorial application of exemptions and whether the savings clause at the end of 522(b) permits a debtor to claim the federal exemptions when state law opts out and at the same time restricts extraterritorial application of state exemptions.


I have previously written on this issue and opined that I think Judge Gargotta reached the result that Congress actually intended (If you have lived somewhere for less than two years, you have to use the exemptions where you came from), but the statute was not well thought through (i.e., the drafters at MBNA never thought about the issue or looked at individual state laws) and as result, poorly drafted. Because I have way too much time on my hands, I have actually looked at each state’s exemption statutes to see if they have a domicile or residency requirement. Please note that some states have a residency requirement for real property, but not personal property, and vice versa. I made a chart, which I offer for your consideration. Major disclaimer – the chart is about two years old. State laws may have changed since then. I know, for example, that New York is considering amendments to its exemption laws to address this issue.   


For what it’s worth………


Michael Baumer

Assigned Ad Valorem Tax Claims in Chapter 13

The following is a recent article published in the State bar of Texas Bankruptcy Law Section Newsletter. It is primarily of interest to consumer bankruptcy law attorneys practicing in Texas.

Chapter 13 debtors whose taxes are not escrowed will occasionally resort to one of the property tax payment services which pay the taxes and take an assignment of the taxing entity’s claim. The upside for the taxing authority: they get their money faster without incurring collection costs. The upside for the debtor: they get to pay the taxes over a longer period of time without incurring collection costs. The downside for the debtor: taxing authorities can only charge 12% interest while tax assignees can charge 18%. If the debtor pays the claim over a longer period of time at 18% interest, they end up paying far more interest. (Actually, the best case for the debtor is for the mortgage company to pay the taxes. That way, the debtor can pay back the mortgage company at no interest.)

 BAPCPA added new Section 511 which provides: “If any provision of this title requires the payment of interest on a tax claim… the rate of interest shall be the rate determined under applicable nonbankruptcy law.” It is significant that Section 511 does not define “tax claim.”

 There have been a recent spate of opinions on this issue starting with Judge Lynn in In re Davis, 352 B.R. 651 (Bankr.N.D.Tex.2006). Judge Lynn held that the claim of a creditor which paid the ad valorem tax claim prior to filing of the Chapter 13 and held a transfer of the tax lien was a “tax claim” under Section 511 and so was entitled to receive its contractual rate of interest in a Chapter 13. The important point here is the anti-modification provision of Section 1322(b)(2) which provides that a debtor may modify the rights of holders of secured claims “other than a claim secured only by a security interest in real property that is the debtor’s principal residence.”

 In In re Sheffield, 390 B.R. 302 (Bankr.S.D.Tex.2008), Judge Isgur went into a more detailed analysis and concluded that although the private company assignee of a taxing authority held a “tax lien”, it did not hold a “tax claim”, disagreeing with Judge Lynn.

 Section 101(51) defines a security interest as a “lien created by an agreement.” Ad valorem tax liens are created by state law, not by any agreement. In most of these cases, the tax assignee takes a transfer of the taxing authority’s lien, but they also have the debtor execute a note and deed of trust. As Judge Isgur explains, the lien is not created by the agreement, but arises by operation of state law. In order to obtain an assignment of the tax lien, the taxes must be paid by the assignee. When the taxes are paid, there is no longer any “tax claim.” A new claim arose under the promissory note executed by the debtor. That claim may have resulted from payment of taxes, but it was not a “tax claim.” Judge Isgur makes the further point that the tax assignee did not purchase the taxing authority’s claim – it paid the claim. Judge Isgur concludes: “A state taxing authority may assign its tax claims if state law so provides. Hypothetically, a state could authorize the sale of its tax receivables to a third party. That third-party assignee would presumably be protected by Sec. 511, But, that is not the structure that this State has chosen for the private collection of its property taxes.”

 Approximately one month later, Judge Bohm followed Sheffield in In re Prevo, 393 B.R. 464 (Bankr.S.D.Tex.2008). Judge Bohm provides some discussion of the Kentucky and Pennsylvania tax statutes to contrast them with the language of the Texas statute and clarify the issue.

 Judge Isgur revisited the issue in January 2009 in In re Kizzee-Jordan, 399 B.R. 817 (Bankr.S.D.Tex.2009). In Kizzee-Jordan, the tax assignee took another approach arguing that Sheffield was inconsistent with the Supreme Court’s opinion in Johnson v. Home State Bank, 501 U.S. 78 (1991) and the Sixth Circuit’s opinion in Glance v. Carroll, 487 F.3r 317 (6th Cir.2007). Neither of those opinions have any relevance to the disposition of this issue and Judge Isgur so concluded. (In short order.) [Judge Isgur confirmed this conclusion again a month later in In re Sotto, 2009 WL 260957 (Bankr.S.D.Tex.2009).]

 I have not found any opinions in the Eastern or Western Districts or by any other judges in the Northern or Southern Districts.

 Assuming that 511 does not apply to “tax liens” as opposed to “tax claims”, the appropriate rate of interest for tax assignees in Chapter 13 would be the Till “prime plus” approach. FYI, the interest rates confirmed in Sheffiled, Prevo, Kizzee-Jordan and Sotto were 12%, 8.25%, 8.5%, and 7%, respectively. (As a debtor’s attorney, I like the downward trend in rates.)

 I would guess that we will see the tax assignee lobby try to get the legislature to “fix” this “defect” in the tax statutes, but until then, your Chapter 13 plans should pay Till interest, not the contract rate of 15% or 18%.


Michael Baumer

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New Legislation Protecting Tenants of Foreclosed Properties

On May 20, 2009, President Obama signed into law The Protecting Tenants in Foreclosure Act. Public Law No.111-22. The law took effect immediately.

The principal protection of the law is that the successor in interest to the foreclosing lender must give a bona fide tenant (not the mortgagee or a family member who is paying market rate rent negotiated as part of an arms length transaction) at least 90 days notice to vacate the property. If the tenant has a lease, they are entitled to occupy the property until the end of the lease. The new owner may terminate the lease on 90 days notice if the purchaser intends to occupy the property. In both cases, the tenant must pay the contract rent to the new owner or they may terminate the tenant’s occupancy in compliance with state law. [There are additional provisions relating to tenants (and owners) of section 8 properties.]

None of these provisions preempts state or local laws providing greater protection to tenants.

The provisions of this law expire December 31, 2012.

My clients are not typically tenants and so are less likely to be hugely effected by this legislation. I do, however, represent many clients who own rental properties which they intend to surrender because they are upside down and the properties do not cash flow. This legislation will effect the tenants of those debtors.

Michael Baumer

Law Office of Michael Baumer

The Future of Chrsyler

On Father’s day morning I watched the McLaughlin Group as I do most Sunday mornings. (Although I frequently turn off the sound while they shout over each other.) At the end of the show, John invites his guests to make a prediction and he makes one, too. John predicted that Chrysler will produce a car that gets 50 miles per gallon and costs less than $5,000 by the end of 2011.

 Let’s look at that in pieces. (Although I am going to nitpick with him over some of the details, I am not criticizing John McLaughlin. Keep reading.)

 First, it really isn’t Chrysler anymore. It is Fiat/Chrysler. This is more significant than most Americans realize. (Fiat didn’t put up any money to “buy” Chrysler. If the “new” Chrysler crashes and burns, Fiat walks away with minimal consequences. Sweet. Where do I sign up for this for my business?)

 Second, a car that gets 50 mpg is really no big deal. This is the easy part, believe it or not.

 Third, I think that a “less than $5,000″ price tag is seriously optimistic, but I do think we could get into that neighborhood. (This is going to be a very bare bones car. Let me suggest that your teenager doesn’t need to drive a Lexus/Hummer/Suburban.)

 Fourth, I am not convinced that Chrysler can produce this (very) theoretical car in the US by the end of 2011. I will concede that Fiat/Chrysler might produce that car somewhere else by then, but that is a very different issue. (I understood that part of the reason we bailed out Chrysler and GM was to help save American jobs. If all of these production jobs move overseas, why are American taxpayers footing the bill to preserve and/or create jobs in Italy?) Historically, the time line from design to market for the US auto industry has been more than 5 years. To shorten that reality, the only option is to tool up to produce an existing Fiat model in the US. One small problem: the Fiats produced in Europe do not comply with US environmental laws. Either Fiat/Chrysler has to get a waiver of existing environmental laws or they have to re-tool their “small engine technology” to comply with those laws. Any bets on which is more favorably received by US taxpayers? And how long will this take?

 Another small detail: it takes more than a month or two to re-tool a car plant. Remember all of those car ads on TV that show the robots making the spot welds or spraying paint on cars on the assembly line? All of those robots have to be re-programmed to produce another car. The end of 2011 may be achievable (although improbable), but can Fiat/Chrysler survive that long? Their sales are already down by half from historical levels. (They aren’t the only one, but their numbers seem particularly bad.)

 More problematic are two questions that have no happy answer. First, what is the “hot” Chrysler product that people “have to have?” (To keep Fiat/Chrysler in business in the US for the interim period. However long that is.) The short answer is that there is no such product. The Dodge Ram truck is the leading contender, but the Ford F-150 and the Chevrolet C1500 are far more popular. (A very large problem.)

 Second, what is the Fiat product that Americans “have to have?” This is the “save Chrysler” notion. In theory, Chrysler is supposed to benefit from Fiat’s small engine technology. Let’s assume for the purpose of argument that Fiat has some super duper technology that will save Chrysler. If that was the case, Americans would be clamoring for that already existing Fiat model. Fiat would be selling thousands/millions/gazillions of those cars, because America is, after all, the home of “sell what sells.”

 John McLaughlin’s prediction that Chrysler would produce a 50 mpg $5,000 car by the end of 2011 illustrates the real problem. Most of the Pundits talk about Chrysler being “out of bankruptcy” like that’s the end of the story. The harsh reality is that Chrysler is still in serious trouble. The Fiat deal is life support. (At best.) Chrysler is not viable, Fiat or no Fiat. Chrysler as we know it will cease to exist. The question is the date of the demise, not whether it will happen.

 Michael Baumer



Law Office of Michael Baumer


The news since May 1, 2009.

GM is closing 11 plants, “idling” 3 more, and closing 3 parts distribution facilities.

Fiat/Chrysler is probably closing plants, but there is no official word yet.

GM will layoff 21,000 (more) employees.

Fiat/Chrysler will layoff more employees, but we don’t know how many yet.

GM will reportedly terminate somewhere between 2000 and 2600 dealerships. (They sent out notices to 1100 dealerships prior to filing Chapter 11 that they would not be renewed. The question is how many more.)

Chrysler (pre-Fiat) has already terminated 789 dealerships.

The terminated dealerships are reported to be the “weakest” dealerships with an average of 50 employees per dealership. (The reality seems to be that these are the low volume dealers. They may be profitable for the dealer, but they are less profitable for GM and Chrysler. The trend is toward the big, chain, mega-dealers out on the interstate. The small downtown dealers who have been in business for three generations are no longer required or desired.)

Estimated job losses for Chrysler dealerships: 40,000. Estimated job losses for GM dealerships: 100,000+/-. (My best guess is that these numbers are at least somewhat inflated. Some of these dealers sell other brands and will continue to sell those brands. Some do not sell other brands, but they will survive as used car lots and/or doing repair work. The “good” news is that instead of losing 140,000 jobs at dealerships, we will “only” lose somewhere between 70,000 and 100,000.)

The reported numbers are that since 2002, 300,000 jobs have been lost at companies that supply parts to the auto industry and that the number of suppliers has declined from 1900 to 1100. (Some of these ceased to exist due to mergers. Some just ceased to exist.) There are estimated to be approximately 300,000 jobs remaining in the direct chain to the auto manufacturers. Best guess? There will be additional mergers/consolidations in the supplier industry. There will be additional bankruptcies by the weakest links.

Economists talk about the “multiplier effect”. In good times, each new job in the auto industry creates (up to) ten more jobs because of jobs for suppliers, jobs for delivery companies, jobs at restaurants, jobs at lube companies, the grocery store, etc…….) Unfortunately, (and economists are less happy to talk about this), the multiplier effect works on the downward spiral, too. For each job lost at GM or Chrysler, how many more jobs are lost? (Ten? Does the multiplier work in the same proportions on the downslope as on the upslope?)

Spring Hill, Tennessee is the home of the original Saturn plant which opened in 1990. Prior to the Saturn plant, the population of Spring Hill was approximately 1500. The current population is approximately 25,000. By far the largest employer in the area was the Saturn plant. (The plant was closed in 2007 to re-tool. It reopened in 2008 producing the Buick Lucerne.) GM has announced that this is one of the plants they are “idling.” (Idling is the industry term for a plant they are shutting down “temporarily” as opposed to a plant which they are shutting down permanently. Like forever.)

The Spring Hills plant employs 3000 people. They are all probably going to lose their jobs. (They will all be laid off this Fall assuming no white knight comes in and saves the day) That is more than 10% of the town’s population. Unemployed people wash their cars less often. They get their hair cut less often. They eat out less often. They don’t buy new cars. They don’t buy big screen TVs. They buy cheap domestic beer rather than the fancy imported stuff. They don’t take vacations. They don’t ……………..

If somebody doesn’t buy the plant, what happens? How do you sell your house? Who is going to buy it? The answer is: nobody. Prices will drop. Anybody who has a home will walk away and/or move away. Nobody will move in to replace them. I don’t know the specifics in this case, but in many of these cases the big employer in town will pay a yearly payment “in lieu” of property taxes. I would guess that GM pays one or two or three million dollars in lieu of property taxes for the Spring Hill plant. That money won’t get paid anymore. What is the effect of this loss of tax revenue? (Not counting the drop in property tax revenues due to the decline in values for houses that nobody can sell.) City and county employees get laid off – police officers, teachers, park employees, the ladies at the counter where you pay your vehicle registration, the guys (no offense ladies) who pick up your trash, ……..

Unless some miracle happens, Spring Hill, Tennessee will lose most of its population in the next five years, and the people who are left will make significantly less money. Spring Hill may not become a ghost town, but there will be parts of town that will make you wonder.

This is their new reality.

Michael Baumer

Law Office of Michael Baumer

Chrysler Chapter 11 email to Texas Bankruptcy Bar

The following is an email I sent to the Bankruptcy Section of the Texas Bar on May 14, 2009.

Dear Readers:

All of us who know a little about how bankruptcy really works have been amused and/or bemused by the whole notion that Chrysler would go through a “surgical bankruptcy” that would be completed within 60 to 90 days. The asset sale to Fiat may be completed within 60 days, but mopping up the blood may take a little longer.

One issue which has not received a great deal of press is Chrysler’s ability to reject franchise/dealer agreements as executory contracts under Chapter 11. Franchise agreements for car dealers are generally controlled by state law and many states have laws which are VERY protective of their auto dealers. (Some car dealers make or made a LOT of money and they know and contribute to their elected state officials. Some of you may have heard of Red McCombs.) Some states, for instance, have laws which force the car companies to renew franchises at the end of the contract term, whether the car manufacturers want to or not. The result has been that there are a lot of car dealers (many in small towns or in towns close to each other [think Northeast]) which may be profitable for the dealer, but not for the manufacturer.

Today Chrysler released its list of franchises which will be rejected effective June 1. That list includes 789 dealers. Having a law firm to run, I don’t actually have time to do a state by state analysis, but by my count, there are 50 in Texas. For comparison, Florida has 34 and New Jersey appears to be one of the hardest hit with 30. (I realize that 50 in Texas is more than 30 in New Jersey, but there are some counties in Texas bigger that the whole state of New Jersey.) The Midwest seems to be particularly hard hit with large numbers in several Rust Belt states. (Ohio, Michigan, Illinois, and Iowa.)

I practice in Austin, which did not lose a single dealer. (Good for Austin, but as a bankruptcy lawyer, I fell a bit left out.

Although Austin didn’t lose any, the Central Texas region did not do so well. We lost FIVE in Waco proper, and one each in Clifton, Hillsboro, and Gatesville. Closer to Austin, we lost one each in Fredericksburg, Lockhart, Giddings, Seguin and San Marcos.

San Antonio only lost one.

The Archer family lost four in Houston. (Ouch.) Baytown and Alvin each lost one.

In the Dallas/Fort Worth area there are ten with one each in Dallas and Fort Worth, two each in Denton and Waxahachie, and one each in Arlington, Richardson, McKinney and Mineral Wells.

The Valley lost two in Harlingen and one each in McAllen and Brownsville.

Doing some basic internet research, a new car dealership typically employs between 100 and 200 people depending on its size. 789 dealerships times 150 employees equals 118,350 people that won’t have a place to work June 1. I realize it is really not that simple. Some of these franchises are two that operate together (i.e., a Chrysler franchise and a Dodge franchise on the same lot.) There will be some consolidation in the industry, so some of these people will find jobs at other that dealers that survive and will theoretically sell more cars now that there is less competition. (Of course, new car sales for Chrysler are down 48% from a year ago.) The fallout extends far beyond the dealers. Some of the auto dealer employees used to make pretty good money. (And in some cases, very good money.) I’m talking about the sales guys/girls and the finance guys. The car washers maybe not so much. BUT all of these people spent money in their local communities at restaurants and stores and the local Starbucks. How is losing its Chrysler dealer going to effect Aransas Pass, or George West, or Hughes Springs, or Crockett, or Denver City?

These are the numbers for Chrysler. When GM files at the end of May, their list of franchises to be rejected is rumored to be almost 3,000 dealers.

In case anyone was interested.

Michael Baumer

Law Office of Michael Baumer

FYI, the next day Chrysler announced that the expected layoffs from the dealerships would “only” be about 40,000 people. GM has since announced that they will “only” be terminating about 2200 dealerships. These are smaller dealerships and only employ 50 people or less, so the actual number of people who will lose their jobs at the GM dealerships should be under 100,000. And that’s the “good” news.

Downstream Effects of GM and Chrysler Chapter 11 Cases

Chrysler filed Chapter 11 on May 1, 2009. GM will almost certainly file on June 1.

The immediate consequences are clear for all to see. Chrysler will be sold to Fiat. Plants will close, employees will be laid off, dealerships will be terminated. How many people will be directly effected is not so clear. We don’t know how many UAW workers will lose their jobs at Chrysler until new management has a chance to review operations and make those decisions. We do know that Chrysler is terminating 789 dealership agreements and that approximately 40,000 people are employed at those dealerships. Many of those dealerships also sell other brands so many will continue, but one would assume that if they are selling less cars, they will need less employees and at least some of them will lose their jobs.

The news from GM is even worse given its greater size. GM has announced it will eliminate 21,000 of its 61,000 UAW employees, will close approximately 14 plants, and terminate approximately 2200 dealerships.

All of that is bad enough, but it doesn’t tell the whole story. Auto manufacturers buy parts to build cars. Once upon a time, they made most of their own parts, but in the last 30 years or so, there has been a trend in the industry to spin off the parts companies. GM spun off Delphi. Ford spun off Visteon.

Delphi filed Chapter 11 in October, 2005 and has been stuck there ever since. (So mush for “surgical” Chapter 11 cases.) One of the complicating factors for Delphi is that the world in which it operates keeps changing. Delphi confirmed a plan in January, 2008, but the current recession officially started in December, 2007. Car sales have decreased by 50% or more since then. Due to no fault on its part, the Delphi plan of reorganization was based on a reality which no longer exists. According to its 2008 10K, Delphi employed 146,600 employees as of December 31, 2008, 18,900 in the U.S. and 127,700 outside the U.S. This is compared to a year earlier when it employed 169,500, a drop of 23,000. As a major supplier to GM, what happens to Delphi when GM files Chapter 11 and closes 14 plants and lays off 21,000 UAW workers? Sounds like GM will be buying less parts, further complicating Delphi’s financial reality.

On May 28, 2009 Visteon filed Chapter 11. According to its 2008 10K, Visteon employs 33,500 employees, which is a reduction of 27% of manufacturing employees and 14% of salaried employees during 2008. The company also closed 14 facilities and sold 7 more. Visteon is faced with the same issues as Delphi – declining demand due to decreased sales and increased competition from foreign competitors. (Although Visteon already employs many of its personnel in “low cost countries.”) How many Visteon employees will be laid off? How many more Delphi employees will be laid off? How many employees of the smaller companies nobody ever heard of that supply screws and light bulbs and cup holders and …. to the companies that make the car parts will be laid off? The short answer is that there will probably be AT LEAST another 100,000 jobs lost in the U.S. auto industry, if not double that number. (And remember, Delphi and Visteon are global companies. The effects won’t be felt just in the U.S.)

What happens to the local businesses in the communities where these plants are when the “good paying” jobs start to disappear? People stop buying houses and cars and big screen TVs and stop eating out at the local restaurants and stop going to the car wash and get their hair cut less often and …… For a good review of the impact on a local economy, look at Elkhart, Indiana, home of the U.S. RV industry, which has been decimated by layoffs due to a lack of demand for toys due to the recession.

People who talk about “surgical Chapter 11’s” are intentionally not telling the whole truth. Chrysler’s asset sale to Fiat may be complete within 90 days, but the case will linger while the attorneys mop up the blood (at $500 to $1000 per hour.) In addition, the downstream effects on suppliers and dealers and local communities will take months or years to be fully appreciated. AND we as taxpayers will now be major shareholders in Chrysler and GM, waiting for the day when we can sell “our” stock and recoup some or all of our “investment.” Let me say right now that I think GM will emerge as a “leaner, meaner” company and that it will survive if it can make better product decisions. (For instance, why do we need GMC? Isn’t the GMC Sierra basically the same thing as the Chevrolet Silverado?) On the other hand, I think Chrysler is doomed and we are only delaying its inevitable demise, which will mean still more job losses and more downstream effects.

Until the U.S housing market stabilizes and there is an end to the continuing job losses, there will be little demand for new cars, and Chrysler and GM (and Ford and Toyota and Nissan) will all continue to struggle. The weak will not survive. I am always amused to hear the financial pundits say the “good news” is that we “only” lost 500,000 jobs last month. Obviously, this is better than losing 650,000 jobs in a month, but it is hardly “good news.” Depending on who you listen to, we need to generate about 100,000 jobs per month just to stay even and another 100,000 to support economic growth. When we are losing “only” 500,000 jobs per month, there will be no growth and no bright future for the auto industry.

Law Office of Michael Baumer

by Michael Baumer