6th Circuit Bankruptcy Law News - U.S. Sixth Circuit
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Municipal bankruptcies, at least until recently, were a rare phenomenon. Even more rare is a bankruptcy filing of this magnitude. Detroit has $18.5 billion in debt and liabilities that it cannot afford to pay, including $3.5 billion in unfunded pension liabilities.

In a 150-page order earlier this month, Judge Steven W. Rhodes held that Motown was eligible to file for Chapter 9 bankruptcy and more importantly, could restructure or avoid some of its massive pension obligations, despite the Michigan Constitution's protections for pensioners from cuts, as federal bankruptcy law trumps state law.

Both holdings may now head to the Sixth Circuit Court of Appeals, after Judge Rhodes certified his rulings for appeal directly to the appeals court, bypassing the intermediate district court, though as USA Today notes, it'll be up to the Sixth Circuit to decide whether it wants to accept the immediate appeal.

Your employee IRA accounts are still safe under Chapter 7 Bankruptcy, according to a decision by the Sixth Circuit on Monday.

The Daley v. Mostoller Court reaffirmed common knowledge in bankruptcy practice, that individual retirement accounts (IRAs) are “off limits from tax collectors and creditors in bankruptcy,” unless they’ve been used in a prohibited way.

What does the Sixth Circuit consider a prohibited use of an IRA?

Guardian Ad Litem Fees are Nondischargeable in Bankruptcy

There are certain obligations that a bankruptcy petitioner can't shed in court.

For example, barring "undue hardship," your student loans will follow you. Forever.

Student loans, however, have nothing on child support. Courts are pretty committed to enforcing domestic support obligations. And that commitment to extends to guardian ad litem fees.

Fired Employee's Discrimination Claim Belongs to Bankruptcy Estate

There are bad weeks, and then there are lose-your-job-and-file-for-bankruptcy bad weeks. Karen Auday had the unfortunate distinction of enduring the latter.

To make matters worse, Auday alleges that she was a victim of age discrimination. While that may be true, the Sixth Circuit Court of Appeals ruled last week that Auday can't sue her former employer because the claim now belongs to her bankruptcy estate.

Seriously, this woman can't catch a break.

Sixth Circuit: Severance Pay Not Subject to FICA Taxes

You may have noticed that the unemployment rate is still pretty high. Though it's down from the October 2009 peak, companies continue to lay off workers.

The Sixth Circuit Court of Appeals issued an opinion last week that could ease the financial burden on flailing businesses facing layoffs: Friday, the court ruled that severance pay is not subject to FICA taxes, Thomson Reuters News & Insight reports.

Government Can't Claim Money Buried on Golf Course

People might enjoy reading bankruptcy cases if more of those cases included money buried on a golf course.

In what the Sixth Circuit Court of Appeals characterizes as “a fact pattern befitting a John Grisham novel,” FBI agents found $250,000 of “fraudster” A. William Erpenbeck, Jr.’s cash stashed in a cooler on a golf course outside Cincinnati while Erpenbeck was serving a 300-month sentence in federal prison.

Thursday, the Sixth Circuit ruled that the feds couldn’t keep the cash because they didn’t give proper notice of their intent to seize the money for restitution.

Int'l Dairy Foods Ass'n v. Boggs, 09-3515, concerned a challenge to the district court's grant of summary judgment in favor of the state of Ohio on all but one of plaintiffs' claims, in a suit brought by two separate dairy-processor trade organizations, challenging a regulation adopted by the Ohio Department of Agriculture (ODA), designed to regulate labeling of dairy products that reflect the nonuse of artificial hormones.


Wilson v. Rees, 09-6306, concerned a challenge to the district court's dismissal, as untimely, of an inmate's 42 U.S.C. section 1983 suit challenging Kentucky's lethal injection protocol under the Eighth and Fourteenth Amendments.  In affirming, the court held that Bowling v. Ky. Dept. of Corrections, 301 S.W.3d 478, (Ky. 2009), and its aftermath do not disrupt the district court's holding that defendant's complaint is barred by the statute of limitations.


White v. Wyndham Vacation Ownership, Inc., 09-5626, concerned a challenge to the district court's grant of summary judgment in favor of the defendants based on a claim of judicial estoppel, in plaintiff's sexual harassment suit against her former employers seeking $250,000 in compensatory damages and $1 million in punitive damages.  In affirming, the court held that plaintiff asserted a position before the bankruptcy court that was contrary to the position that she asserted before the district court as she did not disclose her sexual harassment claim against defendants in her initial bankruptcy filings.  The court also held that the plaintiff had a motive to conceal and knowledge of the factual basis of her harassment claim, and the evidence plaintiff presented of her attempts to advise the bankruptcy court and the trustee of her harassment claim does not excuse her initial omission.

  • Decisions In Criminal, Labor, and Bankruptcy Law Matters

    US v. Allen, 09-5178, concerned a challenge to the district court's denial of defendant's motion to reduce and modify his sentence for his convictions for possession and intent to distribute over five grams of cocaine base and other related crimes.  In affirming the denial, the court held that the district court properly concluded that it lacked the authority in proceedings under section 3582(c)(2) to sentence the defendant below the bottom of the amended Guidelines range or to entertain a challenge under Booker to the court's calculation of the original Guideline range.

    Merritt v. Int'l Ass'n of Machinists & Aerospace Workers, 09-1563, concerned a labor suit brought by Northwest Airlines Quality Service Agents (QSAs) against a labor organization and others, claiming that between 2000 and 2006 defendants breached their duty of fair representation relating to the negotiation and administration of contracts on behalf of QSA employees and in handling their dues-objector status requests.  In affirming the district court's grant of defendants' motion for summary judgment and an order issuing Rule 11 sanctions against the plaintiffs' counsel for failing to adequately investigate the law and facts before filing their complaint, the court held that the mere fact that the plaintiffs were a minority group within their union organization and were adversely affected by the actions of the union does not establish that the union acted with hostile or discriminatory intent.  Court also held that the plaintiffs have failed to submit any evidence that the defendant improperly handled the dues-objector status requests; and 3) Rule 11 sanctions were properly imposed.

    In re: Darrohn, 09-5499, concerned the bankruptcy court's calculation of the debtors' projected disposable income in approving the proposed plan in Chapter 13 proceedings.  In reversing and remanding in light of the Supreme Court's recent decision in Hamilton v. Lanning, --S.Ct.---, 78 U.S.L.W. 4518, 2010 WL 2243704 (No. 08-998 June 7, 2010), the court held that the bankruptcy court erred when it determined that it was required to use the income calculated on Form B22C, which was derived from the six-month look-back formula, rather than debtors' current monthly income.  Court also held that the bankruptcy court erred in failing to account for the debtors' intent to surrender properties securing the mortgages in considering reasonable necessary monthly expenses.

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