National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC Editor

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City’s Lien on Vehicle Is Judicial and May be Avoided

The City’s possessory lien on the chapter 7 debtor’s vehicle was judicial rather than statutory and could therefore be avoided under section 522(f). City of Chicago v. Mance, No. 21-1355 (7th Cir. April 21, 2022).

After the chapter 7 debtor incurred several unpaid traffic tickets, the City of Chicago impounded her car subject to a possessory lien of $12,245, comprising the amount of the outstanding tickets, storage and towing costs, and the City’s attorney fees. The lien in this case was more than four times the car’s value. The debtor’s monthly income was $197 in food stamps. The bankruptcy court held that the lien was avoidable, and the district court affirmed. City of Chicago v. Howard, 625 B.R. 384, 390 (N.D. Ill. 2021). [Read more…] about City’s Lien on Vehicle Is Judicial and May be Avoided

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Mandatory Discharge Trumps Discretionary Dismissal for Bad Faith

The debtors were entitled to discharge despite their failure to disclose an asset where the trustee moved for dismissal for bad faith after the debtors completed all their plan payments but before they had received their discharge. In re Frank, No. 18-12812 (Bankr. D. Colo. March 30, 2022).

Less than one year after one of the debtors was injured in a car accident, the below-median debtors filed for chapter 13 bankruptcy. The debtors did not inform the trustee of the car accident or list the potential cause of action in their bankruptcy schedules. The debtors’ confirmed 39-month plan committed them to paying a priority tax debt, a small secured debt, trustee fees and their own attorney fees. The plan paid nothing to unsecured creditors. About one year after their plan was confirmed, the debtors received a $67,000 settlement in the personal injury case. They did not amend their schedules or inform the trustee of the settlement. One month before the final payment was due on the debtors’ plan, the trustee asked them whether they had received any payment on a separate wrongful discharge claim that they had listed in their schedules. They then informed the Trustee of the $67,000 payment on the personal injury claim. The debtors made their final plan payment the following month and the trustee then moved to dismiss on the grounds of bad faith for nondisclosure of the personal injury claim. The debtors claimed inadvertence based on their belief that the settlement proceeds were exempt. [Read more…] about Mandatory Discharge Trumps Discretionary Dismissal for Bad Faith

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Provision for Balloon Payment after Sale Precludes Confirmation

In a consolidated opinion, the Bankruptcy Court for the District of Massachusetts held that the “equal payment provision of § 1325(a)(5)(B)(iii) is best read to prohibit confirmation of a sale plan, over the objection of a secured creditor holding a mortgage of a principal residence, that contemplates periodic payments followed by a lump-sum payment.” In re Materne, No. 20-40027, and In re Gnaman, No. 19-40930 (Bankr. D. Mass. April 7, 2022). [Read more…] about Provision for Balloon Payment after Sale Precludes Confirmation

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Employment Contract Is Domestic Support Obligation

An employment contract between the debtor and his ex-spouse where the ex-spouse’s only responsibilities were to assist the debtor in family matters, was in the nature of domestic support and was entitled to priority treatment in the debtor’s chapter 7 bankruptcy. In re Wibracht, No. 21-50477 (Bankr. W.D. Tex. March 31, 2022). [Read more…] about Employment Contract Is Domestic Support Obligation

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NCBRC Files Amicus on Pre-Confirmation Trustee Fees when Plan Not Confirmed

NCBRC has filed an amicus brief on behalf of the NACBA membership in the Tenth Circuit case of Goodman v. Doll (In re Doll). The case addresses the issue of whether a chapter 13 standing trustee is entitled to keep pre-confirmation statutory fees when the case is ultimately dismissed prior to plan confirmation. Case No. 22-1004 (filed April 6, 2022). The bankruptcy court found in favor of the trustee and the district court reversed. [Read more…] about NCBRC Files Amicus on Pre-Confirmation Trustee Fees when Plan Not Confirmed

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Terms of Promissory Note Not Enough to Show Nondischargeability of Student Loan

Because it was unclear whether the debtor’s private student loan was issued under the auspices of a federally-funded program, neither the debtor nor the student loan creditor were entitled to summary judgment on the issue of whether the loan was excepted from discharge under section 523(a)(8)(A)(i). Mazloom v. Navient Solutions, LLC., No. 18-60206, Adv. Proc. No. 20-80033 (Bankr. N.D.N.Y. March 29, 2022).

The debtor received a $38,400 private student loan through the EXCEL Grad Loan Program to fund her attendance in medical school. The lender was Nellie Mae, Navient’s predecessor in interest. The debtor filed for chapter 7 bankruptcy listing the loan as a “student loan.” Two years after she received her discharge, the bankruptcy court allowed the debtor to reopen her bankruptcy case to bring an adversary complaint against Navient seeking a declaration that her loan did not fall under any of the student loan exceptions enumerated in section 523(a)(8)(A) and had therefore been discharged in bankruptcy. [Read more…] about Terms of Promissory Note Not Enough to Show Nondischargeability of Student Loan

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Mortgage May Be Bifurcated Under Section 1322(c)

The Bankruptcy Court for the Eastern District of Wisconsin joined the majority of courts in finding that section 1322(c)(2) “authorizes modification of a principal residence loan through bifurcation, when the last payment on the original payment schedule is due before the final plan payment is due.” In re Harris, No. 21-26280 (Bankr. E.D. Wisc. March 16, 2022).

The debtor filed her chapter 13 petition shortly after the final balloon payment was due on her home mortgage. At the time of her petition, she owed $78,009.00 on the mortgage and she valued the residence at $45,000.00. In her plan, she proposed to bifurcate the claim and pay the entire secured portion and none of the unsecured portion. The mortgage creditor objected to confirmation on three grounds only one of which was addressed in this order. That issue was whether section 1322(b)(2) precluded the debtor from modifying the treatment of the mortgage beyond altering the terms of the repayment schedule. [Read more…] about Mortgage May Be Bifurcated Under Section 1322(c)

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IRS Had No “Substantial Justification” for Challenging Jurisdiction

The IRS had no reasonable basis for challenging the bankruptcy court’s exercise of personal jurisdiction, where it consented to jurisdiction when it filed a claim in the debtor’s chapter 7 bankruptcy, and the debtor notified it of his objection to the claim using the address the IRS provided. For that reason, the debtor was entitled to recover fees and costs associated with litigation of the IRS’s claim. Nicolaus v. United States of America, No. 21-3010 (N.D. Iowa March 8, 2022). [Read more…] about IRS Had No “Substantial Justification” for Challenging Jurisdiction

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Discharge Despite Unpaid Mortgage Fees

The chapter 13 debtor was entitled to discharge despite the fact that she had incurred but not paid fees and assessments under her mortgage contract while she was paying the mortgage outside the plan, where the creditor had not sought payment of those fees and assessments prior to plan completion. In re Brown, — B.R. —-, 2021 WL 4480832 (Bankr. D. S.C. Sept. 15, 2021) (case no. 16-4122).

In this case, the debtor’s plan provided for the trustee to pay off the mortgage arrears through the plan and the debtor to maintain all other payments according to the mortgage agreement outside the plan. After she successfully completed her plan, the mortgage creditor, Citizen’s Bank, objected to discharge arguing that the debtor owed $1,085 in post-petition fees and assessments.

While the debtor did not dispute that she had incurred the fees and assessments, she argued that they were not “payments under the plan,” as contemplated by section 1328(a), which would preclude discharge if not paid at plan completion. [Read more…] about Discharge Despite Unpaid Mortgage Fees

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Debtor Entitled to Attorney Fees from Defense of Motion for Relief from Stay

The chapter 13 debtor was entitled, under Oregon’s reciprocal fee statute, to recover attorney fees for successfully defending a motion for relief from stay where the motion required interpretation of the terms of the motor vehicle lease. In re Gilgan, 2021 WL 4047463 (Bankr. D. Or. Sept. 3, 2021) (case no. 19-32009). [Read more…] about Debtor Entitled to Attorney Fees from Defense of Motion for Relief from Stay