Lamar, Archer & Cofrin, LLP v. Appling is the last of three bankruptcy cases to be heard and decided on the U.S. Supreme Court’s 2017 merits docket, but the ruling has the potential to be the most far-reaching bankruptcy decision of the term. While the case arose in the course of a business relationship between a law firm and its client, its disposition by the Supreme Court may transform previously unremarkable loan and account transactions and collection communications into discussions fraught with dischargeability risks for unwary consumers and the lenders that loan to them.

Section 523(a)(2)(A) of the Code excepts from an individual’s discharge debts for money, property or services “to the extent obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s . . . financial condition.” The exception of financial statements from § 523(a)(2)(A) exists to prohibit a debtor’s verbal statements about financial condition from rising to the same level of nondischargeable fraud as written financial statements excepted from discharge under § 523(a)(2)(B).

Beyond agreement on this basic premise, case law in the bankruptcy courts reflects the circuit split on when a statement “respecting” a debtor’s financial condition makes a debt nondischargeable.

While a split among the circuits continues to persist with respect to whether the Bankruptcy Code permits a “ride-through” option in the context of a chapter 7 debtor’s statement of intention, the U.S. Bankruptcy Court for the Eastern District of Michigan (Shefferly, J.) recently sided with courts holding that the Bankruptcy Code does not permit a “ride through” or “stay and pay” option, and outlined the legal consequences for a debtor who fails to perform duties related to personal property securing a debt.

In In re McCray, the debtor financed the purchase of a manufactured home in January 2010 and filed a chapter 7 case in August 2017. She listed the manufactured home on her Schedule A/B, estimating the value to be $25,000. She indicated on her Schedule D that the creditor’s secured claim totaled $21,366. At the time of the bankruptcy filing, the debtor was current on her payments to the creditor.

As attorneys are aware, the debtor almost always wants to keep a vehicle when filing a chapter 13 case. Then, post-confirmation, the debtor’s income changes, the vehicle has engine problems or the debtor hits a deer, and the debtor wants to give the vehicle back to the creditor and get a different one.

There has been a split in the bankruptcy courts and circuits for more than 25 years on the post-confir- mation modification of plans to surrender vehicles. The reason for the split has been recognized as the Bankruptcy Code’s lack of clear statutory guidance on the subject. The leading authorities on the subject of post-confirmation surrender of vehicles are pre- Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) decisions: In re Nolan, In re Adkins and In re Luellen.

At this year's Annual Spring Meeting in Washington, D.C., the Consumer Bankruptcy Committee paired with the Ethics & Professional Compensation Committee to host a session titled Access to Chapter 13 Justice. Speakers for this session included: 

• Margaret A. Burks - Office of the Trustee; Cincinnati
• Hon. Mildred Caban - U.S. Bankruptcy Court - District of Puerto Rico; San Juan
• B. Summer Chandler - Georgia State University College of Law; Atlanta
• Elizabeth Gunn - Virginia Office of the Attorney General; Richmond, VA