Southern Illinois Bankruptcy Attorney, Marcus Herbert, Senior Partner, Bankruptcy Advocates recently appealed the Bankruptcy Judge’s ability to enact local rules. The Rochelle’s Daily Wire featured the case in which it was determined that local rules may not impose confirmation requirements beyond those contained in the statute.
The article is reprinted with permission as follows:
District Court Limits Bankruptcy Judges’ Ability to Enact Local Rules
A district court in Illinois limited the ability of
bankruptcy judges to adopt local rules adding more requirements for confirming
a chapter 13 plan.
According to a December 18 opinion by District Judge David
R. Herndon of East St. Louis, Ill., the bankruptcy judges in his district
published a notice on the court’s website having the effect of a local rule
that became effective on Jan. 1, 2018. The rule required the inclusion of a
lengthy paragraph in every chapter 13 confirmation order.
The new provision in confirmation orders required every
chapter 13 debtor to amend his or her schedules after acquiring “any interest
in property of more than nominal value.” “Absent further order of this Court,”
the provision went on to say that the newly acquired property “shall constitute
disposable income” that must be paid through the plan to general unsecured
Judge Herndon interpreted the provision to mean that a
debtor must turn over cash to the trustee or, if it is not cash, “sell the
property so that it may be turned over to the trustee.”
The husband and wife debtors filed an appeal from the
confirmation order, contending that the new local rule added additional, non-statutory
requirements for confirmation of a chapter 13 plan and contravened the state
exemption statute. In opposition, the U.S. Trustee argued that the new local
rule did not impose “any additional duties on debtors not otherwise required by
the Bankruptcy Code,” Judge Herndon said.
Judge Herndon said the new rule did not require “merely
menial tasks of reporting.” He cited opinions in similar cases from the Fourth
and Seventh Circuits saying that Congress specified “a finite list of six
affirmative requirements [in Section 1325(a)] necessary for a plan’s
confirmation.” Petro v. Mishler, 276
F.3d 375, 378 (7th Cir. 2002).
Noting how Section 1325(a) says the court “shall confirm a
plan” if the statutory requirements are satisfied, Judge Herndon reversed the
confirmation order, finding that “the new rule creates completely new
requirements and layers them onto the statute . . . and should not be applied
blanketly in all cases.”
The opinion is Roseberry v. U.S. Trustee (In re Roseberry),
18-01039 (S.D. Ill. Dec. 18, 2018).