National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC Editor

by on

Debt for Overpayment of DSO not Itself DSO

Debts based on overpayments to debtors for government welfare benefits are not non-dischargeable domestic support obligations. Dennis v. Illinois Dept. of Human Serv., Nos. 18-2899, 18-2952 (7th Cir. June 27, 2019).

Chapter 13 debtor, Devan Dennis entered bankruptcy owing the Illinois Department of Human Services for overpayments under the state Child Care Assistance Program. Chapter 7 debtor, Tyeane Halbert, owed the DHS for overpayments of her SNAP benefits. The bankruptcy court rejected the DHS’s argument that the overpayments were non-dischargeable domestic support obligations under section 507(a)(1)(B) and DHS appealed.

NACBA filed an amicus brief on behalf of the debtors.

[Read more…] about Debt for Overpayment of DSO not Itself DSO

by on

Bankruptcy Court Suspends Counsel for Changing Schedules After Signing. Employing “Trust But Verify” the Court “Peeked and Shrieked.”

It’s going to be a bad opinion when the judge brings up Pandora’s Box at the beginning of the
opinion and titles the last section of the opinion “This Is The End.”

On June 25, 2019, the Bankruptcy Court for the Southern District of Florida, in a 172-page opinion (including attachments), suspended an attorney from practice for two years before the Bankruptcy Court, terminated her CM/ECF privileges, referred the attorney to District Court’s attorney review committee and the Florida Bar with recommendations to disbar, and referred the attorney to the United States attorney for investigation.

The Debtor filed a Chapter 7 bankruptcy.  He was represented by the Attorney.  Neither the Debtor nor the Attorney attended the 341 meeting.   Subsequently, the trustee filed an adversary objecting to the Debtor’s discharge under 11 U.S.C. § 727(a)(2), (3), and (4).  The basis of the Trustee’s complaint was that the Debtor’s schedules indicated virtually no detail, were not consistent with other documents the trustee received (tax returns), and that required information was missing (missing lawsuit).  In addition, the Trustee cited the Debtor’s and Attorney’s failure to attend the 341 meeting.  When asked by the Trustee, the Attorney said they didn’t plan on proceeding and wanted the case dismissed.

Two days after the adversary was filed, the Attorney moved to withdraw as counsel for the Debtor.  The Debtor, now pro se, stated to the Trustee that the schedules were not provided to him before filing and that he did not sign the schedules that were filed. 

To read more click here.

by on

7th Circuit Overrules Precedent and Dismisses Direct Appeal for Failure to File Timely Petition

Rule 8006(g) states a mandatory requirement that a party seeking direct appeal file a petition in support. Failure to do so, if properly invoked by the opposing party, is cause for dismissal. In re Wade, No. 18-2564 (7th Cir. June 14, 2019).

This case came to the Seventh Circuit on certification of direct appeal by the bankruptcy court to address the scope of section 362(c)(3)(A), which, in the case of successive petitions, lifts the automatic stay after 30 days concerning the property of the debtor. The Wades’ previous attorney, Kreisler Law, P.C., filed a lien against Ms. Wade’s residence while the Wades’ second bankruptcy was pending and the Wades sought sanctions for violation of the automatic stay. The bankruptcy court determined that the stay was no longer in effect when the lien was filed and denied the motion for sanctions. Recognizing, however, that courts have disagreed as to the meaning of the phrase “concerning the debtor,” in section 362(c)(3)(A), the bankruptcy court certified the Wades’ appeal to the Seventh Circuit.

[Read more…] about 7th Circuit Overrules Precedent and Dismisses Direct Appeal for Failure to File Timely Petition

by on

Case Bites – Interesting Bites from This Week’s Cases

Case Bites issues:

  • If service of an adversary complaint is not completed until 21 days after the Clerk issues the summons, and no response is filed, can a Court sua sponte deny a request for entry of default judgment for improper service?
  • Can a chapter 13 Trustee avoid the claim of a creditor who did not perfect its security interest until after a chapter 13 is filed?
  • Are negative procedural rulings against a party grounds to recuse the bankruptcy judge for bias?
  • What is the standard to challenge a trustee’s decision to settle litigation?
  • Can a motion for sanctions under Rule 11 be dismissed as untimely if filed after final adjudication of the offending pleading or motion?

To read more click here.

by on

7th Circuit Rules Chicago Can Not Ignore the Automatic Stay and Hold Vehicles Until Tickets are Paid

On June 19, 2019 the 7th Circuit Court of Appeals affirmed the decisions of the lower bankruptcy courts.

In four Chapter 13 bankruptcies, the City of Chicago impounded vehicles owned by the Debtors for failure to pay multiple traffic fines. After the Debtors filed chapter 13, the City refused to return the vehicles claiming they needed to maintain possession to continue their perfection on them and wouldn’t return the vehicles until the fines were paid.

The bankruptcy courts held that the City violated the automatic stay by exercising control over the vehicles, that no exceptions applied, and ordered the return of the vehicles and sanctions. The City appealed and the 7th Circuit consolidated the appeals in this case.

The Debtors were represented in part by NACBA members John Wonais of the Semrad Law Firm, and Eugene Wedoff. NACBA member Tara Twomey supported the Debtors by filing an amici curiae brief for NACBA and the National Consumer Bankruptcy Rights Center. NACBA member David Yen filed an amicus curiae brief for the Legal Assistance Foundation.

To read more click here.

by on

Hard View of Religious Tithing (and other things) in Student Loan Discharge Case

In a bad-facts-make-bad-law situation, the Southern District of New York affirmed the denial of student loan discharge where the chapter 7 debtor sought to have his religious contributions deducted from his income, and, unfortunately, in so holding, the district court went beyond the bankruptcy court holding to add some unpleasant dicta of its own. In re Lozada, No. 18-11643 (S.D.N.Y. June 12, 2019).

[Read more…] about Hard View of Religious Tithing (and other things) in Student Loan Discharge Case

by on

Rooker-Feldman Bars Motion to Vacate

Where the debtor was not deprived of the opportunity to fully participate in the state court proceedings, there was no “extrinsic fraud” and his bankruptcy court challenge to the state court judgment was barred by the Rooker-Feldman doctrine. Reyes v. Kutnerian (In re Reyes), No. 18-1229 (B.A.P. 9th Cir. April 19, 2019) (unpublished).

Enrique and Guadalupe Reyes placed their trailer home on land they rented in a month-to-month lease from Migran Kutnerian. Various disputes arose leading Kutnerian to give the Reyes a 30-day notice of eviction. When the Reyes failed to vacate the land, Kutnerian filed an unlawful detainer (UD) action against them. The Reyes filed a demurrer in lieu of an answer to the UD complaint. The court set the action for trial and allowed Reyes’s demurrer to stand as their answer. At trial, the Reyes asserted that they were not served with the eviction notice, and that, in any case, they were entitled to 60-day notice under state law because they had been on the property over one year and because the property was subject to mobile home park law. The trial court granted possession of the property to Kutnerian and ordered the Reyes to pay judgment in the amount of $699.99.

The state court of appeals rejected the Reyes’s arguments that they were deprived of due process when the lower court proceeded to trial before the Reyes filed an answer to the complaint and without ruling on the demurrer. The appellate court also rejected the Reyes’s arguments relating to the adequacy of the 30-day notice. The court affirmed.

The Reyes filed for chapter 13 bankruptcy. In that case, they moved for an order vacating the state UD judgment on grounds of due process deprivation based on “extrinsic fraud” perpetrated on the state court by Kutnerian. (The Reyes’s additional attempt to have the bankruptcy court vacate the judgment under F.R.C.P. 60(b) was rejected as that Rule is inapplicable to state court judgments). The bankruptcy court found that, under the Rooker-Feldman doctrine, it lacked jurisdiction to review the state court judgments. The Reyes appealed to the Bankruptcy Appellate Panel for the Ninth Circuit.

Broadly speaking, the Rooker-Feldman doctrine prohibits a federal court from exercising appellate jurisdiction over a state court judgment unless that judgment is found to be a legal nullity, void ab initio. Such may be the case if the state court judgment was obtained in the absence of jurisdiction or as a result of “extrinsic fraud.” For a state court judgment to be deemed void by reason of extrinsic fraud, the fraudulent conduct must have prevented the complaining party from presenting a defense in the state court proceeding.

The BAP found that was not the case here. All of the conduct the Reyes maintained was fraudulent—failure of service of the eviction notice, failure to provide 60-days notice under state law, and improper notice of the UD summons and complaint—were addressed during the state court proceedings. Furthermore, because the state court, at both the trial level and on appeal, found that the 30-day notice was sufficient, the state court judgment was not entered in the absence of jurisdiction. The Reyes’s argument that they were denied due process because judgment was entered without their having had the opportunity to file an answer to the UD complaint, was unavailing. They had every opportunity to present all relevant defenses and, in fact, did so.

The bankruptcy appellate panel agreed that the bankruptcy court lacked subject matter jurisdiction and affirmed.

Reyes 9th BAP April 2019

by on

Debtor May Not Modify to Surrender Residence after 60 Month Plan Complete

Debtors were precluded from modifying their plan to surrender their residence where the surrender was a “payment” under the plan and was beyond the sixty-month plan period. Derham-Burk v. Mrdutt (In re Mrdutt), No. 17-1256 (B.A.P. 9th Cir. May 6, 2019).

When chapter 13 debtors, Christina and David Mrdutt, filed their bankruptcy petition, Wells Fargo held two liens on their residence. The first lien was under-secured and the second was wholly unsecured. The Mrdutts were also almost $65,000 in arrears on their mortgage. They proposed a plan providing for curing their mortgage arrearage either after loan modification or as proposed in a later plan modification. In the meantime, the Mrdutts agreed to maintain direct mortgage payments to Wells Fargo outside the plan.

The bankruptcy court confirmed their plan while their request to modify the primary mortgage was still pending with Wells Fargo. The Mrdutts made all 60 of their plan payments but failed to maintain necessary direct payments to Wells Fargo. Ms. Mrdutt died of cancer during the bankruptcy, and Wells Fargo, being Wells Fargo, refused to discuss loan modification with Mr. Mrdutt because only Ms Mrdutt’s name was on the loan. Wells Fargo never approved a loan modification, and the mortgage arrears were not cured either through the plan or outside it. [Read more…] about Debtor May Not Modify to Surrender Residence after 60 Month Plan Complete

by on

SCOTUS Adopts No Fair Ground of Doubt Standard for Discharge Order Violation

In a unanimous decision, the Supreme Court held that “a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the credi­tor’s conduct.” Taggart v. Lorenzen, No. 18-489, 587 U. S. ___ (June 3, 2019).

Chapter 7 debtor, Bradley Taggart, was involved in pre-petition litigation in state court at the time he filed for bankruptcy. After he obtained his discharge, Sherwood, an opposing party in the state court litigation, obtained a judgment against him. Sherwood then sought attorney’s fees, and the state court awarded those fees notwithstanding Ninth Circuit precedent making clear that the post-petition attorney’s fees were discharged along with Taggart’s other debts. The bankruptcy court found that Sherwood was aware of the discharge and intended the act that violated it and, under that standard, it held Sherwood in contempt of the discharge order. The bankruptcy appellate panel reversed the sanction award and the Ninth Circuit affirmed, holding that Sherwood could not be held in contempt in light of its good faith belief that its conduct did not violate the discharge injunction regardless of whether that belief was reasonable. [Read more…] about SCOTUS Adopts No Fair Ground of Doubt Standard for Discharge Order Violation