BANKRUPTCY COURT OFFERS GUIDANCE FOR HURRICANE IKE CLAIMS INVOLVING BANKRUPTCIES

In a case of first impression, a United States Bankruptcy Court recently decided a debtor had the right to exempt settlement proceeds from his Hurricane Ike claim under Texas Homestead Law even though the debtor did not ask for authority to file the suit, did not ask for permission to hire the Mostyn Law Firm to pursue the claim, did not list the lawsuit in the schedules, and did not seek consent to enter into the settlement agreement.  In re Hill, 2011 WL 6936357 (Bkrtcy.S.D.Tex. Dec. 30, 2011), the Court found the debtor was an unsophisticated person who did not intentionally fail to disclose information to the court.  The Court determined the contingency fee agreement for 40% by the Mostyn Law Firm was also approved, but used its discretion to reduce the fee by $1,000 for the firm’s failure to timely file an application for approval of its employment.  The Court noted this was a serious offense and noted: “Candidly, the Mostyn Firm is fortunate that this Court did not reduce its fees by more than $1,000.00, as this delay in obtaining Court approval to represent the Debtor is entirely unacceptable.”  The Court awarded the $1,000 to the Trustee to distribute among the unsecured creditors.  The Court also ordered the lienholder on the homestead had the right to hold the proceeds, determine that the repairs had been made, and to apply any leftover amounts to arrearages on the mortgage.