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Craig D. Robins, Esq. New York Bankruptcy Attorney, Longisland bankruptcy attorney

“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”

Craig D. Robins, Esq.

Recent Bankruptcy Court Decisions

Debtors Denied Discharge in High-Debt Case for Failing to Report Info on Petition

Posted on Tuesday (March 29, 2011) at 11:55 pm to Bankruptcy Crime
Bankruptcy Tips Consumers Should Know
Recent Bankruptcy Court Decisions

Getting a fresh financial start in bankruptcy is for the honest debtor.  Written by Craig D. Robins, Esq.
 
A decision from the 7th Circuit Court of Appeals last week illustrates the importance of providing accurate information in the bankruptcy petition.  In that case,  debtors from Michigan failed to do so and were denied a discharge.  (Stamat v. Neary, 7th Cir. Mar. 24, 2011).
 
This Bankruptcy Filing Was Far From Ordinary
 
Dr. and Mrs. Stamat of Illinois filed a high-debt Chapter 7 bankruptcy case in July 2007.  Dr. Stamat is a medical doctor who operates a pediatric clinic.  The wife owns a medical billing company.  They sought to discharge over $1.5 million in debt.
 
After being examined, the trustee alleged that the debtors failed to list numerous assets and transactions including past business interests, two limited partnerships, a $10,000 law suit settlement payment, and $90,000 obtained from a refinance.  The trustee also alleged that they misreported their 2006 income.
 
Accordingly, the trustee sought to deny their discharge by bringing an adversary proceeding under Bankruptcy Code section 727, arguing that the debtors concealed estate assets with intent to defraud their creditors, fraudulently made false statements under oath, and failed to satisfactorily explain the loss of assets — some pretty serious charges.
 
The bankruptcy court agreed with the trustee, denying the debtors a discharge.  The debtors unsuccessfully appealed to both the District Court and the Court of Appeals, who held that the debtors made numerous material omissions which displayed a reckless disregard for the truth. 
 
Debtors Were Far From Candid and Honest
 
The debtors indicated in their petition that their 2006 gross income was $53.000.  However, their 2006 tax return indicated that Dr. Stamat grossed $265,000 from his medical practice and his wife grossed $22,000 from her billing business.  That’s quite a disparity.
 
In addition, the debtors failed to disclose past investment and business interests, as well as ownership interests in various limited partnerships, which information they were required to list in the Statement of Financial Affairs, which is one of the schedules of the bankruptcy petition.
 
The debtors also refinanced their home twice in the two years before filing the bankruptcy petition, receiving over $90,000 in cash, and they failed to report that as well.
 
Bankruptcy Relief is for Honest Debtors
 
The decision underscores a basic tenet of consumer bankruptcy — that an honest debtor is entitled to a fresh new financial start.  Honesty and candidness are paramount.
 
The Court stated that the debtors knew or should have known that the information they provided was inaccurate and that the cumulative effect of their false statements was material.  This established a pattern of reckless indifference to the truth.
 
What Can We Learn From This Case?
 
First, the debtors in this case are both intelligent and educated.  They ran a medical practice.  So they were smart enough to know what they were doing.  When it came to their bankruptcy petition, they made not one omission, but many.  It appears that they did so to deceive the court.
 
If the debtors had merely neglected to schedule one particular asset, or if they merely provided inaccurate information about their income, they likely would have been able to coast, assuming that they were immediately forthright about amending their schedules to provide accurate information.
 
However, in this case, the debtors’ failure to provide accurate information was so wide-spread, that it was impossible for the court to overlook, as the only reasonable conclusion was that the debtors intentionally acted to withhold important information.
 
The bottom line is that it is important to be as accurate as possible when disclosing information about your financial situation.  Failure to do so can result in having the court deny your dischage.
 
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Foreclosure Rage: Homeowner Retaliates Against Bank but Pays the Price

Posted on Wednesday (January 19, 2011) at 3:00 pm to Bankruptcy and Society
Foreclosure Defense
Recent Bankruptcy Court Decisions

foreclosure rageWritten by Craig D. Robins, Esq.
 
Being in Foreclosure is Bad Enough but Don’t Compound Problems by Damaging House in Retaliation
 
Public sentiment these days is that mortgage banks are evil for bringing so many foreclosure proceedings against suffering homeowners in a difficult economic climate, especially when there are frequent headlines about lenders engaging in shoddy and improper foreclosure tactics.
 
So whether justified or not, many homeowners are angry that the big banks are seeking to foreclose on their homes when times are tough.  Some of these angry homeowners  want to “get back” at the bank.  However, if you are a homeowner in a foreclosure situation, be careful how you vent that anger.
 
Foreclosure Rage Becoming More Prevalent 
 
There are numerous stories of homeowners in foreclosure who have intentionally damaged their homes upon moving in an effort to punish the bank — something we can call “foreclosure rage.” 
 
Some homeowners are taking out their frustration on the lender in an effort to get even by vandalizing their own home.
 
While it is usually acceptable to take items of reasonable value, such as appliances, others, in an act of foreclosure rage, totally gut the home, strip it of almost everything, including flooring and plumbing, and then maliciously inflict serious damage by destroying walls, pouring cement down the toilet, creating floods by leaving the water on, and exposing the house to the elements and vermin by removing windows and doors.
 
However, as one recent case shows, the immediate emotional relief that damaging the house brought was certainly not worth it.
 
One Homeowner Goes on the Foreclosure Rage Rampage
 
A homeowner who went on the war path against the mortgagee in a fit of foreclosure rage recently paid the price. 
 
Michael  Zahniser of Illinois had just been served with foreclosure papers.  The next day he removed the back door of his house and stripped the interior.  He also removed cabinets, countertops, doors, light fixtures, gutters, pieces of siding, and tile floors.  He left the house with no door and a gaping hole in the wall.
 
He subsequently filed a Chapter 7 bankruptcy to eliminate any obligation on the mortgage deficiency, and presumably to eliminate other obligations like credit card debt.
 
The mortgage lender, Byron Bank, was not amused and brought an adversary proceeding in bankruptcy court arguing that Mr. Zahniser should not be able to discharge his obligation to the bank under Bankruptcy Code section 523(a)(6).  That section provides that debtors who willfully and maliciously injure someone’s property cannot escape liability for doing so.
 
Last month, the bankruptcy court found that the bank proved that the debtor intended to cause injury to the bank’s interest in the house and that the debtor acted willfully and maliciously.
 
The bankruptcy court also determined that the items that the debtor took and the state that he left the house in demonstrated that he was not merely trying to collect what would have been valuable for himself, but rather, that he was trying to deny value to the mortgage bank.
 
In determining what part of the bank’s deficiency claim should be non-dischargeable, the court ascertained the amount necessary to rehabilitate the house, and that amount was $50,000.  The court also added $19,000 in attorney’s fees to that.  The case is Byron Bank v. Zahniser, 2010 Bankr. LEXIS 4623 (Bankr. N.D.Ill, December 13, 2010).
 
In some ways the homeowner here was lucky.  The bank sought to have the entire deficiency held non-dischargeable.  However, the court only permitted that part which was caused by the malicious injury to be non-dischargeable.
 
Almost all mortgages have boiler plate language that prevents a homeowner from engaging in this type of conduct.  If you are a homeowner in foreclosure, think twice as to how you should vent your frustration and anger against the bank.
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Bankruptcy Means Test Car Deduction Issue Decided by Supreme Court Today

Posted on Tuesday (January 11, 2011) at 7:15 pm to Bankruptcy Means Test
Chapter 13 Bankruptcy
Chapter 7 Bankruptcy
Recent Bankruptcy Court Decisions

automobile / car deduction in bankruptcy means test

Written by Craig D. Robins, Esq.

 
Today the U.S. Supreme Court gave us another interpretation of the how the means test should be used in bankruptcy cases by deciding that only consumers who have car loans or car leases can claim a certain motor vehicle “ownership expense” deduction on the means test.
 
Justice Elena Kagen, in her very first decision since ascending to the Supreme Court, ruled in an eight-to-one opinion that the BAPCPA means test is designed to enable creditors to recover as much as possible while ensuring that consumers seeking bankruptcy relief have enough money to maintain a reasonable standard of living.
 
The case, Ransom v.F.I.A.Card Services, N.A., had been frequently discussed at national bankruptcy symposiums that I’ve attended during the past year.  Even though the case is not a victory for the consumer (it is basically a win for the credit card companies), it was not unexpected either.  The Supreme Court upheld the decision of the U.S. Court of Appeals for the Ninth Circuit.
 
Ransom Case Now Governs Who Can Take Ownership Expense Car Deduction on Means Test
 
What the case means is that only consumers who have a car loan or car lease can take an additional deduction on the means test that car owners whose vehicles are totally paid off cannot take. 
 
This additional means test deduction can sometimes be significant in enabling a consumer to either pass the means test in a Chapter 7 case or pay substantially less in a Chapter 13 case.
 
The Ransom decision does not change local practice here in New York at all, as consumer bankruptcy practitioners here have customarily only taken the vehicle ownership expense deduction when the consumer debtor had a car loan or lease.
 
In her ruling, Justice Kagan sought to interpret the language of the means test statute, which provides that a debtor may claim only “applicable” expense amounts.  While the law does not define applicable, the Justice cited dictionary definitions such as relevance and appropriate.
 
In her decision, Justice Kagan also relied on the “statutory context” that in chapter 13 bankruptcy cases, means testing deductions fill in “amounts reasonably necessary to be expended” by above-median-income debtors.
 
Finally, Justice Kagan noted that bankruptcy law has a “core purpose of ensuring that debtors devote their full disposable income to repaying creditors.”
 
What Can Consumer Debtors Do to Get Around the Ransom Decision?
 
Here is how some bankruptcy debtors who do not have financed vehicles, side-step the issue so that they can obtain the additional means test deduction.  Instead of keeping an older, non-financed vehicle, they trade it in for a newer car that is financed by a loan or lease.  They do this prior to filing for bankruptcy.
 
Assuming that they engage in this “pre-bankruptcy planning” in good faith, and that they truly need a newer, more-reliable vehicle, then no one should be able to argue that engaging in such a transaction is abusive bankruptcy conduct.
 
Even Keeping an Older, Non-Financed Car, Results in an Additional Means Test Deduction
 
In our jurisdiction, the U.S. Trustee permits debtors to utilize a certain additional IRS used car deduction if the debtor’s car is an older car, which is one which is at least six years old.  This is because a good part of the means test deductions are based on IRS cost of living deductions.
 
If a debtor has an older car, then the debtor can take an additional $200 deduction on the means test.  This applies even if the car is financed, in which case the debtor can get a double deduction.
 
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Complying With the Payment Advice Rule in Consumer Bankruptcy Cases

Posted on Thursday (September 30, 2010) at 8:00 pm to Bankruptcy Practice
Issues Involving New Bankruptcy Laws
Recent Bankruptcy Court Decisions
Suffolk Lawyer

Pay Stubs in Bankruptcy CasesBy Craig D. Robins, Esq.
   
Recent Appellate Decision Says Filing All Pay Stubs May Not Be Necessary

 
We all know that under the new bankruptcy laws, debtors are required to file copies of all pay stubs for income received during the 60-day period prior to filing.
 
To put teeth into this requirement, the law further provides that failure to do so will result in the automatic dismissal of the bankruptcy case – a scary thought.  What happens if a debtor files just one pay stub, but otherwise documents the payments they received?
 
The Second Circuit Court of Appeals just decided a case last month, on August 9, 2010.  It held that debtors do not need to file all of their pre-petition payment advices if they otherwise document all payment received from employers during the 60-day pre-petition period. 
 
This case addressed for the first time in our circuit what obligations the Bankruptcy Code imposes upon a debtor with respect to the filing of payments advices. The bottom line is that debtors merely need to provide the necessary information on payments as opposed to the actual pay stubs themselves.
 
The Pay Stub Requirement in Chapter 7 and Chapter 13 Bankruptcy Filings
 
When Congress revised the bankruptcy laws in 2005, it imposed a new requirement under Bankruptcy Code section 521(a)(1)(B)(iv) that debtors provide written verification of their current income by filing “copies of all payment advices or other evidence of payment received within 60 days before the date of the filing of the petition, by the debtor from any employer of the debtor.”  Payment advices are typically pay stubs.
 
Bankruptcy Rule 1007(c) requires debtors to fulfill this requirement within 14 days after filing the petition.   However, if the debtor fails to file the payment advices within 45 days of the filing date, then Code section 521(i)(1) provides for automatic dismissal. 
 
Bankruptcy counsel typically file pay stubs with the bankruptcy court by ECF, and send copies to the trustee, at the same time the petition is filed or shortly thereafter.
 
The Recent Riffle Case
 
Stephen Riffle and his wife filed a routine Chapter 13 case in the Western District of New York in 2008.  His attorney only filed the debtor’s last pay stub during the 60-day pre-petition period because that was the only pay stub that the debtor retained.
 
The pay stub contained the debtor’s earnings and deductions for the pay period and also stated the debtor’s year-to-date earning and payroll deductions in various categories.
In addition to filing this one pay-stub, the debtor also filed a chart entitled “Sales Earnings Report,” which had been issued by the debtor’s employer and showed the debtor’s gross earnings for each pay period from the beginning of the year.  Debtor’s counsel believed that these two documents satisfactorily disposed of the payment advice requirement.
 
However, an aggressive creditor, Community Bank, disagreed, and after 45 days filed a motion asking the bankruptcy court to confirm that the case was dismissed for non-compliance with the statute.  The Chapter 13 trustee opposed the dismissal, arguing that the two documents that the debtor filed represented full compliance with the statutory requirement.
 
The bankruptcy court agreed with the debtor and trustee; the District Court affirmed, and so did the Second Circuit.  Community Bank v. Riffle (In re Riffle), no. 08-4440-bk (2d Cir. 08/09/10).
 
 
The Relatively-New BAPCPA Statute that Provides for Filing Payment Advices Is Very Poorly Worded
 
The Court of Appeals noted that it had not previously decided what obligations 521(a)(1)(B)(iv) imposes upon a debtor and further stated that “the statute, to put it mildly, is not a model of syntactical clarity. At least two grammatically valid readings of the statute are possible, each of which would place a different requirement on the debtor.”
 
The Court determined that the statute was ambiguous and provided an analysis in which it dissected clauses and words, explored different grammatical meanings, discussed how certain words modified other words, and focused on how interpreting one participle could lead to two different grammatical conclusions – both of which would be technically correct.
 
“Other Evidence” of Payment is Acceptable 
 
In the end, the Court chose “the payment-focused interpretation” over a “document-focused interpretation” and held that the statute requires a debtor to file either all payment advices received within 60 days pre-petition – or –  other evidence of payment received during this period.
 
“Although neither reading is perfectly satisfying, we conclude that the payment-focused interpretation is superior,” the Court said.
 
The Court commented that the documents that the debtor filed “created a very clear picture as to the amount of income the debtor received in the 60 days pre-petition” and thus met his obligation under the statute.
 
What this Case Means to Long Island Bankruptcy Practitioners
 
The Second Circuit clearly indicated its desire to follow a more liberal, practical-sense approach in its interpretation of the statute.  Basically, as long as a debtor provides all of the relevant information regarding payment received during the relevant period, as opposed to the actual “pieces of paper” the debtor received (pay stubs), then the debtor has complied with his statutory requirements.
 
Income Breakdown Not Required
 
The Court also commented that the Bankruptcy Code does not require a breakdown of gross and net income on a per-pay period basis.  However, a debtor must identify monthly net income.
 
Practical Tip:  What Do You Do If the Debtor Has Not Received Any Payment Advices During the 60-day Period?
 
When there are no payment advices, then there is nothing to file.  However, the bankruptcy court clerk’s office does not know that there is no documentation, so it is prudent to prepare an affidavit for the debtor to sign indicating this fact, and file this “Affidavit in Lieu of Payment Advices” the same way you would ordinarily file the pay stubs.
 
Practical Tip: Have Debtor Request Info from Employer
 
Debtors often do a poor job of retaining papers, and frequently discard or misplace pay stubs.  If a debtor has discarded or misplaced his pay stubs, then most employers will be able to print a report containing the same information, that should provide all of the necessary details to comply with the statute.
  
About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the SEPTEMBER 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Mastic, Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com
 
 
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Judges Differ with Chapter 7 Bankruptcy Cram-Down

Posted on Wednesday (April 7, 2010) at 1:00 am to Central Islip Bankruptcy Court & Judges
Chapter 7 Bankruptcy
Mortgages & Sub-Prime Mortgage Meltdown
Recent Bankruptcy Court Decisions
Suffolk Lawyer

cramdown second mortgage in Chapter 7 bankruptcyWritten by Craig D. Robins, Esq.
 
One Long Island Bankruptcy Judge Permits Cram-Down; Two Do Not

 

Several months ago I was excited to report that Central Islip Bankruptcy Judge Dorothy T. Eisenberg issued a decision permitting a Chapter 7 debtor to cram-down a second mortgage.  (See my December Suffolk Lawyer article, “Chapter 7 Cram-Down of Second Mortgages”.) 

That decision was very newsworthy, as it permitted homeowners whose homes were underwater to “strip-off” and remove a wholly-unsecured second mortgage.
 
However, we have since heard from our two other Long Island Bankruptcy Court judges.
 
Judge Eisenberg Permits Chapter 7 Cram-down
 
The decision granting this relief was In re Lavelle, No. 09-72389-478, 2009 WL 4043089 (E.D.N.Y. November 25, 2009).  In that case, Judge Eisenberg determined that a Chapter 7 debtor may avoid a subordinate mortgage lien if that lien is wholly unsecured, based on an analysis of Bankruptcy Code section 506.
 
Judge Eisenberg, in her decision, also commented on the seminal Supreme Court case of  Dewsnup v. Timm, 502 U.S. 410 (1992), stating that she found no authority in it that prevents a Chapter 7 debtor from cramming down a second mortgage in a Chapter 7 case.
 
The Distinction Between ‘Strip-Down” and “Strip-Off”
 
Judge Eisenberg focused a large part of her decision on Dewsnup which held that a Chapter 7 debtor may not “strip down” a first mortgage to the fair market value of the property.   However, she pointed out that there is a difference between “stripping down” a mortgage and “stripping off” a mortgage.
  
Stripping-down refers to removing that portion of a mortgage that is unsecured, which is done pursuant to § 506.   On the other hand, “stripping off” is essentially cramming down a mortgage, which means removing its lien status altogether.  She determined that stripping-off was permissible in Chapter 7 cases.
  
Our Two Other Bankruptcy Judges Have Since Held Differently
  
Once Judge Eisenberg released the Lavelle decision, the Long Island bankruptcy bar was abuzz about the possibility of being able to cram-down undersecured second mortgages for their Chapter 7 debtor clients.  However, there was no guarantee that our other two bankruptcy judges would follow Lavelle.  Now we know that they will not.
  
Judge Grossman Denies Cram-down
  
Just last month, Judge Robert E. Grossman issued a decision in a case involving a somewhat similar set of facts and denied the debtor’s application to cram-down and strip-off the second mortgage – even though the mortgage lender defaulted and failed to file any response whatsoever.  In re Pomilio, —B.R.—, No. 09-72389-reg, 2010 WL 681300 (E.D.N.Y. February 23, 2010).
 
Judge Grossman discussed Judge Eisenberg’s Lavelle decision, stating that she set forth a “well reasoned argument which finds support in a number of scholarly articles.” However, he felt constrained to apply her argument to the facts of his case.
 
In Pomilio, Judge Grossman began his analysis with Bankruptcy Code Sections 506(a) and (d), and the Supreme Court’s holding in Dewsnup, that a Chapter 7 debtor cannot bifurcate a secured creditor’s claim into a secured claim to the extent of the fair market value of the subject real property, and an unsecured claim for the remaining balance
  
He reached a different conclusion than Judge Eisenberg, determining that the  “stripping down” process was simply not available to a Chapter 7 debtor.
  
Judge Trust Adopts Judge Grossman’s Position Denying Cram-down
 
Last week, Judge Alan S. Trust issued the Caliguri decision in which he expressed his position against Chapter 7 cram-downs.  In re Caliguri, No. 09-75657-ast, slip op. (E.D.N.Y. March 16, 2010).  In that decision, Judge Trust referred to both the Lavelle and Pomilio decisions and stated, “This Court adopts the analysis in Pomilio and concludes that a Chapter 7 debtor may not avoid the lien of a wholly undersecured, consensual mortgage lien holder.”
 
Judge Trust pointed out that post-Dewsnup courts have generally interpreted Dewsnup to prohibit Chapter 7 debtors from avoiding (stripping off) liens which are wholly undersecured for the same reasons that a Chapter 7 debtor may not reduce a secured mortgage claim to the fair market value of the property.
 
He further pointed out that such a reading of Dewsnup is a proper and consistent application of Section 506.
 
Practical Tips
 
A debtor has a one in three chance of having his or her case land in Judge Eisenberg’s Court, in which event, the debtor will likely be able to successfully bring a Chapter 7 cram-down proceeding.  If the case is pending before Judges Trust or Grossman, their position is clear that the debtor cannot.
  
However, at some point down the road, there will certainly be a higher court decision establishing the issue for sure, at which point all of our judges will be obligated to follow it.
  
Get Copies of Bankruptcy Decisions Reported in this Article
 
Check back to view this post in a few days and I will have copies of the Long Island Bankruptcy Court decisions that I cited in this post.
    
About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the APRIL 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, West Babylon, Coram, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
 
 
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I Can Now Legally Advise My Long Island Bankruptcy Clients to Incur Debt in Contemplation of Bankruptcy

Posted on Monday (March 8, 2010) at 8:45 pm to Bankruptcy and Society
Bankruptcy Practice
Issues Involving New Bankruptcy Laws
Photographs of Max
Recent Bankruptcy Court Decisions

Long Island Bankruptcy Attorneys can now advise clients to incur debt in contemplation of bankruptcyWritten by Craig D. Robins, Esq.
 
High Court Issues Decision on Attorneys’ Ability to Give Legal Advice to Bankruptcy Clients
 
The U.S. Supreme Court ruled today that a provision of the 2005 Bankruptcy Act, which bars attorneys from advising clients to take on more debt before filing for bankruptcy protection, is permissible in certain situations.
 
I first wrote about this case, Milavetz, Gallop & Milavetz v. United States, a year and a half ago when the Eighth Circuit Court of Appeals ruled that the provision was unconstitutional:  Portion of New Bankruptcy Laws Declared Unconstitutional. Court of Appeals Strikes Down Provision which Prevented Attorneys from Advising Clients
 
The Court of Appeals had ruled that the provision barring such advice was unconstitutionally broad and violated free-speech rights
 
Now, the Supreme Court unanimously reversed that ruling, but with a caveat.
 
Today’s decision, which was written by Justice Sonia Sotomayor, said the provision prohibiting such advice was valid, but should be read narrowly.  She said that the law only prohibits attorneys from advising clients to abuse the bankruptcy system.
 
However, Justice Sotomayer indicated that it would be permissible for lawyers to advise clients contemplating bankruptcy to take on additional debt in certain situations.  She wrote that bankruptcy lawyers could advise clients to refinance a mortgage or purchase a reliable car prior to bankruptcy on the grounds that doing so would reduce the debtor’s interest rates or improve the debtor’s ability to repay.
 
“It would make scant sense to prevent attorneys and other debt relief agencies form advising individuals thinking of filing for bankruptcy about options that would be beneficial to both those individuals and their creditors,” Sotomayor wrote.
 
Professionals specializing in bankruptcy “remain free to talk fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case,” Sotomayor wrote.
 
How This Decision Affects Bankruptcy Attorneys and their Clients
 
I often encounter a situation where my client’s car lease is about to end.  Before the 2005 Bankruptcy Amendment Act (BAPCPA), I would have simply advised the client to immediately surrender the existing car and obtain a new car lease or car loan, as getting a new car is easier to do before filing for bankruptcy than after.
 
However, BAPCPA contained a provision which prevents attorneys from advising clients to incur debt in contemplation of bankruptcy.  So, for the last five years, I’ve been technically unable to give clients such advice.
 
Today’s Supreme Court decision now clarifies that as long as my advice is not meant to abuse the system, it is considered appropriate.  Of course, a bankruptcy attorney cannot advise a client to go out and charge up debt when the client has no reasonable expectation to repay it — providing such advice would be considered abuse, and therefore a violation of the statute.
 
I view the decision as a victory of sorts because it enables us bankruptcy practitioners to do what we’ve wanted to do all along:  give honest and appropriate advice to clients in order to reach a beneficial result, as opposed to taking advantage of the system and defrauding creditors.
 
Bankruptcy Attorneys Are Debt Relief Agencies
 
Justice Sotomayer also upheld the BAPCPA’s requirement that attorneys make certain disclosures in their advertisements and ruled that attorneys who provide bankruptcy assistance are debt relief agencies within the meaning of the law.
 
Having to label bankruptcy attorneys as “debt relief agencies” seems silly, and serves no useful purpose.  However, the requirement is rather benign, and more of a nuisance than anything else.
 
———————————————————
About the Photo:  That’s my son, Max.  To see more Max, click:  Super Ninja Bankruptcy Attorneys
 
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Deciphering the Plethora of Means Test Cases Across Many Bankruptcy Courts

Posted on Monday (February 15, 2010) at 3:00 am to Bankruptcy Means Test
Recent Bankruptcy Court Decisions
Suffolk Lawyer

The Bankruptcy Means Test -- Many bankruptcy courts have interpreted it differentlyWritten by Craig D. Robins, Esq.
 
When I sat down to write this month’s column for the Suffolk Lawyer, I was prepared to discuss several recent cases interpreting the means test.  However, I could not get over the great number of splits of authority over almost every single issue.
 
The Means Test is the focal point of the drastic revisions that Congress made to the Bankruptcy Code in 2005.  That was when the legislature thought it was necessary to tighten the existing bankruptcy law and make it more difficult for consumers to eliminate debt, especially for those who Congress thought could afford to pay something to their creditors.
 
Unfortunately for bench and bar, the statutory wording of the Code provisions underlying the means test is anything but clear and unambiguous.
 
 
Congress Failed in Drafting a Clear-Cut Means Test Statute
 
Ironically, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005  (“BAPCPA”) was intended “to improve bankruptcy law and practice by restoring personal responsibility and integrity in the bankruptcy system and ensure that the system is fair for both debtors and creditors.”
 
Yet, when the new law was enacted in 2005, Bankruptcy scholars across the land declared that so many of the provisions of BAPCPA were so poorly worded that  bankruptcy court judges would be perpetually perplexed as they tried to interpret them.  They were right.  The relatively new statute contains typos, sloppy choices of words, hanging paragraphs, and inconsistencies. 
 
We now have bankruptcy courts, U.S. District Courts, and U.S. Courts of Appeal issuing decisions almost daily in an effort to make heads and tails over what Congress intended.  The worst part?  There are minority and majority views to almost every possible issue, and even a few hybrid views to boot.
 
Here’s more irony:  BAPCPA was supposed to limit judicial discretion.  Instead, the legislation, which leaves a great deal to be desired, actually requires significant judicial discretion simply to interpret the statute.  Congress failed to create the “bright line” which it intended, a concept Long Island Bankruptcy Court Judge Robert E. Grossman cited in one of his recent opinions.
 
This confusion has led to a spate of law review articles with deriding, mocking and skewering titles such as “BAPCPA:  Trying to Make Sense Out of Nonsense.”  I can come up with some of my own: “BAPCPA is Bupkis” and “Mean Streets to the Means Test – An Ugly Road to Bankruptcy Court.”
 
The Ambiguity of the New Laws Makes Bankruptcy Challenging
 
What all this means is that if an issue has not yet been decided in your jurisdiction, counsel has little guidance as to how the local bankruptcy court will rule.  So imagine the challenge of trying to advise clients when a judge in Connecticut has held one way, a judge in New Jersey has reached a decision that is totally opposite, and our jurisdiction has not even addressed the issue yet.  And then, most issues are also finding their way up to the appellate courts.
 
BAPCPA has created a wide split among courts, not only upon the interpretation of whether a consumer has too much income to qualify for Chapter 7 relief, but upon the methodology used to calculate what income really is. 
 
Courts seem to be debating endlessly concepts such as whether projected disposable income requires either an “anticipated” or “historical” calculation of income. In other words, do you use a backwards-looking approach or a forwards-looking approach?  Judge Grossman has already written a number of decisions seeking to make this distinction.  (FYI, he’s a forward-looker.)
 
The Strict Constructionist Verses the Logical Originalist in Bankruptcy Court
 
Inconsistencies in BAPCPA language have created two approaches to addressing conflicting interpretations.  You have the strict constructionists who believe a statute should be interpreted on its face, regardless of the result, and those who believe that maintaining a logical outcome based on the legislature’s original intent is paramount. 
 
We’ve come to learn that Judge Grossman is of the school of thought “supported by reason.”  He recently wrote in one of his decisions interpreting the means test: “Absent clear binding authority in this Circuit, this Court will not adopt a reading of the statute which does not make any sense.”
 
As Judge Grossman wrote just last week in In re: Rabener, “this Court does not share the view that a rigid application. . . is required because the 2005 BAPCPA amendments were intended to blindly reduce judicial discretion. This Court does not believe that it is required to reach a decision that is absurd on its face merely to satisfy an unsupported argument that eliminating or reducing judicial discretion is more important than reaching a sound conclusion consistent with reason.”  In re Rabener, No. 809-75719, slip op. (E.D.N.Y. January 21, 2010).
 
Do you look at the “plain meaning of the statute” or do you try to ascertain “what Congress originally intended?”  Perhaps that depends on which side you’re on.
 
So what can the bankruptcy practitioner do when courts across the country are divided on issues?  Hope for the best.  Such uncertainty makes practicing bankruptcy law post-2005 daunting to say the least. But all those divergent decisions sure make for good reading.
 
  

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the February 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
 
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Serial Bankruptcy Filers Eventually Get the Ax

Posted on Monday (February 1, 2010) at 1:00 am to Bankruptcy Procedure
Chapter 13 Bankruptcy
Foreclosure Defense
Issues Involving New Bankruptcy Laws
Recent Bankruptcy Court Decisions
Suffolk Lawyer

 Filing multiple Chapter 13 bankruptcy cases to stop foreclosureWritten by Craig D. Robins, Esq.
 
 
Some debtors like bankruptcy so much, they come back for more, and more, and even more. . .  sometimes using multiple bankruptcy filings to delay foreclosure proceedings for years.  But when is enough, enough?
  

What Can Mortgagees and the Bankruptcy Court Do in Situations Involving Extreme Serial Filings?

In the past three months, Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court on Long Island, addressed this issue in several cases.  The most recent one caught my eye based on the incredible number of related bankruptcy filings, as well as the unbelievable amount of time the debtors were able to thwart the system and delay foreclosure.

Serial Filings in Bankruptcy Cases

Some debtors file successive Chapter 13 petitions because each time they file, they get the benefit of the stay, which stops a foreclosure proceeding dead in its tracks.
 
Technically, Bankruptcy Code section 109(e) prohibits a debtor from refiling another case for 180 days, if the prior case was dismissed because the debtor neglected to make necessary payments or maintain other debtor responsibilities.

However the bankruptcy court has become rather liberal in permitting debtors to engage in repeated filings and will typically give the debtor the benefit of the doubt as long as the debtor can demonstrate a change of circumstances.

Nevertheless, some debtors clearly take advantage of the system, and by their sheer audacity (and desperation), give bankruptcy a bad name for those who file in good faith.  The vast majority of bad faith serial filings are done by pro se debtors.

Any experienced bankruptcy attorney knows that judges will not hesitate to sanction counsel for filing a case in bad faith.  The law is very clear that a case cannot be filed for the sole purpose of delay, without any good faith intent to follow through with a Chapter 13 plan.
 

Bankruptcy Amendment Act Made Serial Filings More Difficult

 
When Congress overhauled the bankruptcy laws in 2005 (BAPCPA), it imposed several new provisions designed to stop the problem of bad faith serial filers.  I wrote about some of these changes in my Suffolk Lawyer column in November 2005:  Consumer Bankruptcy Debtors Face New Limitations for Repeat Filings .
 
In particular, there are new exceptions to the automatic stay.  For example, if a debtor had one pending bankruptcy case in the preceding year, then the automatic stay only lasts 30 days, effectively shifting the burden to the debtor to make an application to extend the stay.  If there was more than one filing in the prior year, then the debtor is not entitled to any automatic stay at the time of filing.
 
Even with these provisions, debtors soon learned to game the system.  After one spouse’s bankruptcy was dismissed, the other spouse would then file, and then this “tag team” filing approach would go on for years.  Although this conduct was nothing new, Congress addressed this problem too, with an “in rem” provision in BAPCPA.
         
Debtors Filed 10 Cases to Delay Foreclosure
 
On December 21, 2009, Judge Trust issued companion decisions in two separate, but related cases, outlining the excessive measures taken by two Long Island debtors who filed a total of ten bankruptcy petitions over a 12-year period to stop foreclosure on their jointly-owned home.  In re Janet Blair (Case No. 09-76150-ast) and In re Allen Gary Smith (Case No. 09-77562-ast).
 
The decision was precipitated by a motion brought by the mortgagee, seeking “in rem” relief against the premises.  Most of these filings were Chapter 13 cases filed over a four-year period between 2005 and 2009.  Almost all of them were filed on the eve of a scheduled foreclosure sale.
 
In Rem” Relief in Bankruptcy Proceedings Stops Foreclosure Delaying Tactics
 
In rem” relief is when the bankruptcy court grants an order indicating that a particular piece of property will not be affected by any future bankruptcy stays, effectively eliminating any benefit of the “tag-team” filing approach.  “In rem” originates from the Latin phrase for a lawsuit directed against property, rather than a person.
 
In the Blair / Smith cases, the judge immediately lifted the stay and subsequently granted in rem relief, stating that the serial filings were evidence of the debtors’ bad faith, and also evidence of the fact that the debtors were abusing the bankruptcy process for several years.
 
Statutory Authority for In Rem Relief.  In his decision, Judge Trust, delivered a well-written and detailed analysis behind the statutory authority providing for in rem relief.  In doing so, the judge essentially reiterated his holding in a two-month-old similar decision, which has since been published.  In re Montalvo (416 B.R. 381).
 
One of BAPCPA’s amendments was the addition of Section 362(d)(4) which provides the statutory authority to grant in rem relief.  Pursuant to Section 362(d)(4), the Court can grant in rem relief from the stay as to a mortagee’s interest in the property, such that any and all future filings by any person or entity with an interest in the property will not operate as an automatic stay against the owner and its successors and/or assigns for a period of two years after the date of the entry of such an order.
 
To obtain this relief, the mortgagee bears the burden of showing that the various petitions filed by debtors are part of a scheme to hinder, delay and defraud the mortgagee.
 
A key issue in such cases is whether the court can infer an intent to hinder, delay and defraud creditors when it appears that there have been multiple, strategically timed bankruptcy filings.  Judge Trust took the established view that holds that the mere timing and filing of several bankruptcy cases is an adequate basis from which a court can draw a permissible inference.
  
However, Judge Trust also observed that the debtors demonstrated no intent to make the bankruptcy work.  They did not make plan payments, show up in court, or provide the trustee with required documents.
 

Standard of Proof in In Rem Litigation

 
Judge Robert E. Grossman also addressed this issue just over a year ago, and wrote about the standard of proof necessary to obtain in rem relief.  In re Lemma (394 B.B. 315 (Bank.E.D.N.Y. 2008).
 
In that case, which involved a third Chapter 13 filing (with debtor representation by my friend, Babylon bankruptcy attorney Michael A. Kinzer), the judge concluded that the mortgagee was not entitled to in rem relief (and not even entitled to dismiss the case).
  
The reason why Judge Grossman denied the mortgagee’s application was because the mortgagee, as the party seeking in rem relief, had the burden of proving that the current filing was part of a scheme; that the scheme involved the transfer of real property, or multiple bankruptcy filings; and that the object of the scheme was to hinder, delay and defraud the mortgagee.
 
The mortgagee in that case was unable to provide the court with any evidence  other than the fact that the debtors filed three petitions.
 
Thus, multiple filings, alone, are not adequate to find intent to hinder, delay and defraud.
 
 
About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the January 2010 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
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Long Island Bankruptcy Debtors Delay Foreclosure for 12 Years

Posted on Thursday (December 24, 2009) at 1:30 am to Chapter 13 Bankruptcy
Foreclosure Defense
Recent Bankruptcy Court Decisions

Long Island Bankruptcy Debtors Delayed Foreclosure for 12 Years by Filing Multiple Bankruptcy ProceedingsWritten by Craig D. Robins, Esq.
 
The Debtors Filed 10 Bankruptcy Cases to Delay the Foreclosure
 
A decision issued Monday by Judge Alan S. Trust, sitting in the Central Islip Bankruptcy Court for Eastern District of New York, outlined the excessive measures taken by two Long Island debtors who filed a total of ten bankruptcy petitions over a 12 year period in an effort to stop the foreclosure of their jointly-owned home.
 
Most of these bankruptcy filings were Chapter 13 cases filed over a four-year period between 2005 and 2009.  Almost all of them were filed on the eve of a scheduled foreclosure sale.
 
Judge Trust issued the decision in each of two separate cases:  In re Janet Blair (Case No. 09-76150-ast) and In re Allen Gary Smith (Case No. 09-77562-ast). 
 
The decision was precipitated by a motion brought by Barbara Dunleavy, Esq. of the Nassau County foreclosure law firm, Rosicki, Rosicki & Associates, in which she sought in rem relief against the premises, located in Wyandanch, New York.
 
In Rem” Relief in Bankruptcy Proceedings
 
“In rem” relief is when a mortgagee seeks a court order indicating that the bankruptcy stay that arises in any further bankruptcy cases will not affect a particular piece of property.  At the conclusion of the hearing on the mortgage company’s motion, which occured on November 24, 2009, Judge trust lifted the stay to enable the mortgagee to proceed, but reserved decision on the issue of granting in rem relief.
 
At that bankruptcy court hearing , Mr. Smith conceded that he was really looking to stay in the house for as long as he could.  That did not bode to well for the the debtors, as the judge concluded that the serial filings were evidence of the debtors’ bad faith, and also evidendce of the fact that the debtors were abusing the bankruptcy process for several years.
 
The decision issued yesterday, which granted in rem relief,  will now make any further bankruptcy filings by these debtors or any others useless, as far as staying the pending foreclosure proceeding.
It was interesting that Judge Trust did not sanction the debtors for their conduct.
 
More Posts and Articles About In Rem Bankruptcy Relief to Follow
 
In his decision, Judge Trust provided an interesting and detailed discussion about the law which enables a bankruptcy court to grant in rem relief.  I will likely make that the topic of my January 2010 article which will be published in the Suffolk Lawyer, and I will discuss the new statutory aspects set forth in BAPCPA as well as case authorities for granting in rem relief.
 
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Chapter 7 Cram-Down of Second Mortgages

Posted on Monday (December 7, 2009) at 11:55 pm to Benefits of Bankruptcy
Chapter 7 Bankruptcy
Mortgages & Sub-Prime Mortgage Meltdown
Recent Bankruptcy Court Decisions
Suffolk Lawyer

Lien Stripping and Cram-Downs now possible in Chapter 7 bankruptcy cases on Long IslandWritten by Craig D. Robins, Esq.
 
New Long Island case now permits lien-stripping that was previously impossible
 
One of the biggest problems that homeowners face in today’s recessionary economy is the loss in value to their homes.  It is not uncommon to see houses that have dropped 50% in value over the past few years, leaving many to wonder if it is even worthwhile to keep their home.
 
As such, many homes are “under water” or “upside down” meaning that the homes are worth less than the balance due on the mortgage.  In many cases, there are two mortgages and the home is worth less than the first mortgage, making the second mortgage totally unsecured.
 
Up until recently, there was little recourse available to consumer bankruptcy filers to eliminate mortgages that were underwater.  However, a new decision released last month has now changed all that, permitting cram-down of second mortgages in Chapter 7 bankruptcy cases.
 
What is a Cram-down in Bankruptcy?  Also known as a “strip-off”, a cram-down is when a debtor modifies the rights of a mortgagee, who is a secured creditor, by having the bankruptcy court strip off the secured status of the mortgage because there is insufficient value in the property to secure any part of it.
 
A cram-down removes the mortgage as a lien on the premises.
 
Cram-downs in Chapter 13 Bankruptcy Cases
 
The existing state of the law has been that only Chapter 13 debtors had the unique ability to cram-down mortgages, and then, only the second mortgage.  Chapter 7 debtors did not have any ability to cram down any mortgage.
 
The reason for this is that the provision for cram-down is § 1322(b)(2), located in Chapter 13 of the Bankruptcy Code, which limits debtors from cramming down first mortgages.
 
The Lavelle Case Changes the Law
 
On November 25, 2009, Central Islip Bankruptcy Judge Dorothy T. Eisenberg issued a decision permitting Chapter 7 debtors to cram-down second mortgages.  In re:  Mark T. Lavelle, et. al (09-72389-478, Eastern District of New York).
 
An unusual aspect of this case is that the debtors did not even file an application seeking to cram-down their mortgage – it fell in their lap.  The debtors are typical consumers residing in Levittown who sought Chapter 7 relief in April 2009.   They were represented by Long Island bankruptcy attorney Norman M. Mendelson, Esq.
 
The home was in the name of the husband and it was worth $400,000.  The balance owed on the first mortgage was $411,000 and the balance on the second mortgage was $9,900.  Both mortgages were held by Bank of America.
 
In May 2009, the mortgagee, represented by Steven J. Baum, P.C. filed a motion seeking relief from the stay on the second mortgage based on the fact that the debtor had no equity in the property.
 
However, the debtor defended that motion by filing opposition in the form of a cross-motion seeking to avoid the mortgagee’s lien on the second mortgage under Bankruptcy Code § 506(a), arguing that the creditor only had a secured claim to the extent of the value of its collateral, and an unsecured claim for the balance.
 
The debtor argued that even though this was a Chapter 7 case, the ability of the Court to modify wholly unsecured liens against a debtor’s residence in a Chapter 13 case under § 1322(b)(2) should be extended to Chapter 7 cases.
 
Judge Eisenberg, in a very complicated and complex, technically-worded decision which discussed two Supreme Court cases, first noted that the debtor’s motion should have been brought by adversary proceeding, but nevertheless permitted the debtor to proceed by motion, which she pointed out was “technically incorrect.”
 
The Distinction Between ‘Strip-Down” and “Strip-Off”
 
The Court addressed the 1992 Dewsnup Supreme Court decision which held that a Chapter 7 debtor may not “strip down” a first mortgage to the fair market value of the property.   However, there is a difference between “stripping down” a mortgage and “stripping off” a mortgage.
 
Stripping-down refers to removing that portion of a mortgage that is unsecured, which is done pursuant to § 506.   On the other hand, “stripping off” is essentially cramming down a mortgage, which means removing its lien status altogether.
 
The Judge observed that since Dewsnup, the issue of whether wholly unsecured liens may be “stripped off”, as opposed to “stripped down”, has been a contentious issue between various bankruptcy and district courts and their respective Courts of Appeals.
 
Judge Eisenberg then discussed the 1993 Supreme Court case of Nobelman which barred Chapter 13 debtors from relying on § 506 to bifurcate an undersecured mortgage to secured and unsecured components.  (I wrote an article about Nobelman for the Suffolk Lawyer 16 years ago).
 
However, the Nobelman case only applies to situations where a portion of the mortgage remains secured, and the Supreme Court did not address situations where the mortgage is totally unsecured.   Consequently, debtors have been able to cram-down totally unsecured second mortgages in Chapter 13 cases.
 
Cramming-Down Mortgages in Chapter 7 Cases
 
Judge Eisenberg, after utilizing a rather complex analysis, determined that the second mortgage was wholly unsecured (which means that § 506(a) does not apply), and that the plain meaning of § 506(d) required the lien to be voided.  The Judge went on to say that there was no logical reason that this result should be any different in a Chapter 7 context as opposed to a Chapter 13 situation.
 
Thus, the Judge voided the lien on the second mortgage.  Since this was a Chapter 7 case, the debt, now considered an unsecured debt, became totally discharged.  A big win for the consumer.
 
What Does This Bankruptcy Decision Mean for Consumers and Society?
 
There is a record number of homeowners facing foreclosure, and there appears to be a groundswell of support by politicians, bankruptcy attorneys and consumer groups for a change to the Bankruptcy Code to deal with this.  As such, perhaps some judges, like Judge Eisenberg, are taking a position rooted in public policy that recognizes the existing problem.
 
Many provisions in bankruptcy law have favored the mortgagee and secured lender over the past two decades.  It now looks like the tides may be shifting in the other direction.
 
This case will likely result in a number of Chapter 7 cram-down proceedings being brought.  As the Judge put it:
 
“Arguments that debtors will benefit from possible windfalls, are not persuasive. Markets are uncertain, and it is not certain such a scenario will ever occur. Secondly, the creditors’ right to foreclose will not result in any present monetary gain for the creditor since there is no value in the property for them.”
 
“Bankruptcy is not intended to benefit either the creditor in securing a potential increase in property value, or the debtor. However, where the future is unknown, bankruptcy principles of giving the debtor a fresh start should apply.” 
 
About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the December 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
 
IMPORTANT UPDATE ABOUT CHAPTER 7 CRAM-DOWN (April 2009):  Judge Eisenberg is one of three bankruptcy judges in the Central Islip Bankruptcy Court, in the Eastern District of New York.  The other two judges, in the past month, have reached a different conclusion as to a debtor’s ability to cram-down a second mortgage in a Chapter 7 case.  Please see this post for full info:   Judges Differ with Chapter 7 Bankruptcy Cram-Down.
 
 
 
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