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Ninth Circuit BAP Permits Debtor to Prioritize Debt Guaranteed by Her Mother - In re Renteria

May 23, 2012

Vincent Howard and our San Bernardino consumer bankruptcy lawyers were interested to see a recent case in which the court permitted a debtor to prioritize a debt for what appeared to be emotional reasons. In In re Renteria, Amanda Kay Renteria's Chapter 13 bankruptcy plan proposed to treat a debt guaranteed by her mother differently from other unsecured debts. The debt, to an attorney, was classified separately and to be paid in full, with 10 percent interest; other unsecured creditors were to receive nothing. Trustee Michael Hugh Meyer objected to this as unfair, but the Sacramento bankruptcy court disagreed. The Bankruptcy Appellate Panel of the Ninth U.S. Circuit Court of Appeals upheld that ruling.

Renteria filed for bankruptcy in January of 2011, with $100,000 in unsecured debt. A full $20,000 of this was debt to a former attorney, James Preston, for litigation of domestic violence and paternity issues, and was classified differently from the rest of the unsecured debt. In support of the plan, Renteria explained that her mother, Nellie Reser, was a co-debtor; a default judgment had been entered against Reser in Tulare County in December of 2010. In his objection, Meyer argued that this was impermissible discrimination among creditors, and that Renteria could afford to carry out a plan without preferring one creditor. In its ruling, the bankruptcy court found that the law, as amended in the 1980s, exempts "codebtor claims" like Renteria's from the unfair discrimination rule Meyer cited. Thus, it confirmed her plan.

Meyer appealed, arguing that the bankruptcy code requires courts to avoid discrimination among creditors. The BAP disagreed. The law initially required no discrimination among creditors in different classes, but a 1984 amendment created legal controversy by introducing ambiguous language. That language appeared to either qualify or eliminate the nondiscrimination rule for codebtor claims like this one. After a lengthy analysis of past interpretations of this language and legislative history, the BAP concluded that Congress, in writing this language, intended to permit special treatment for codebtor claims under specific circumstances. Renteria's plan meets those standards, the panel said, so the bankruptcy court did not err in confirming it. There followed two concurrences proposing different ways to reach the same result.

The fact that the panel was so divided about the logic of the case - yet not its outcome - is very interesting to the Garden Grove personal bankruptcy attorneys at Howard Law, P.C. The "however clause" at issue, the apparently ambiguous language, is still stirring controversy 28 years after it was written. This is unfortunate for the bankruptcy courts, which must apply the law to debtors every day and would appreciate more clarity from Congress. In fact, Vincent Howard and our San Diego County individual bankruptcy lawyers work every day with a more recent law that has been criticized for its lack of clarity: the 2005 amendments to the bankruptcy code, known as BAPCPA. Despite its far-reaching effects on debtors, BAPCPA remains in some ways just as controversial to bankruptcy courts.

If you're so deep in debt that you see no way to get out of it, and you'd like to talk to an experienced attorney like Vincent Howard, don't hesitate to call Howard Law for help. You can reach us toll-free at 1-800-872-5925 or send us a message online.

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