Finding that the debtor’s string of very bad luck unrelieved by his concerted efforts to increase his earnings, satisfied the Brunner test, a bankruptcy court granted him a partial discharge of his student loan, reducing the debt from $440,000 to $8,291.67. Koeut v. U.S. Dept. of Ed., No. 12-7242, Adv. Proc. No. 18-90130 (Bankr. S.D. Cal. Dec. 4, 2020). [Read more…] about Med School Loans Partially Discharged after Debtor Fails to Match for Residency
9th Circuit Limits Walls, Permits FDCPA Action for Post-D/C Collection
Declining to extend its 2002 holding in Walls, the Ninth Circuit found that a chapter 13 debtor who fully paid the creditor’s claim prior to completion of his plan was not precluded from pursuing an FDCPA claim based on the creditor’s post-discharge collection efforts. Manikan v. Peters & Freedman, L.L.P., No. 19-55393 (9th Cir. Nov. 25, 2020).
The debtor entered chapter 13 bankruptcy after receiving a notice of foreclosure from Peters & Freedman, a debt collector, based on HOA arrears. Through P&F, the HOA filed a claim in his bankruptcy, and the debtor provided for the arrears in his plan. He fully paid off the debt approximately two years prior to completion of his plan. After the debtor received his discharge, P&F hired Advanced Attorney Services (AAS) to re-serve a Notice of Default based on the debt that the debtor had paid off in his bankruptcy. AAS served the notice by breaking through a gate, entering the debtor’s backyard and banging on his windows, causing the debtor to call the police. [Read more…] about 9th Circuit Limits Walls, Permits FDCPA Action for Post-D/C Collection
Ninth Circuit Applies Scotus Standard in Discharge Injunction Case
On remand from the Supreme Court, the Ninth Circuit found that, under the Supreme Court’s objective standard, the debtor’s active post-bankruptcy litigation in state court of the terms of his separation from his business partnership established sufficient cause for his business partner creditors to have a reasonable belief that he had “returned to the fray” and that their motion for attorney’s fees would not violate the discharge injunction. Lorenzen v. Taggart, No. 16-35402 (9th Cir. Nov. 24, 2020). [Read more…] about Ninth Circuit Applies Scotus Standard in Discharge Injunction Case
California Clarifies Marital Property Presumptions
Relying on the answer to a certified question propounded to the California Supreme Court regarding presumptions attached to marital property, the Ninth Circuit found that one of two properties owned by the individual debtor and his wife was community property despite its being designated a joint tenancy. Brace v. Speier (In re Brace), No. 17-60032 (9th Cir. Nov. 9, 2020).
The debtor and his wife acquired the San Bernardino property sometime after they married in 1972, and the Redlands property in 1977 or 1978. When the husband filed for chapter 7 bankruptcy, the trustee sought to sell both properties and distribute the proceeds to the debtor’s creditors. Even though both deeds characterized the properties as joint tenancies, the bankruptcy court found that, under the California Family Code, they were community property and could be sold to satisfy the husband’s debts. The BAP affirmed. In re Brace, 566 B.R. 13 (B.A.P. 9th Cir. 2017). [Read more…] about California Clarifies Marital Property Presumptions
ACA’s Shared Responsibility Payment Debt Not Entitled to Priority
The shared responsibility payment under the Affordable Care Act is not an “excise tax,” within the meaning of section 507(a)(8) and, therefore, the IRS’s claim for unpaid SRP was not entitled to priority in bankruptcy. IRS v. Huenerberg, No. 18-1617 (E.D. Wisc. Oct. 22, 2020).
When the debtors filed for chapter 13 bankruptcy, the IRS submitted a claim for over $6,000 in unpaid taxes, a portion of which was attributable to the debtors’ failure to pay what they owed under the Affordable Care Act as their shared responsibility payment (SRP). The IRS sought to have the SRP treated as a priority tax debt under section 507(a). The bankruptcy court found that the SRP did not qualify as an “excise tax” under that section and denied the IRS’s motion. The IRS appealed to the district court. [Read more…] about ACA’s Shared Responsibility Payment Debt Not Entitled to Priority
State Exemption Need Not Specify that it Applies in Bankruptcy
Reversing the courts below, the Seventh Circuit found that unpaid vacation wages that were exempt under state law were also exempt under bankruptcy law notwithstanding the lack of explicit reference to bankruptcy in the state statute. In re Burciaga, No. 19-2246 (7th Cir. Dec. 13, 2019).
The debtor filed for bankruptcy shortly after losing his job and at a time when his employer owed him $24,000 in unused vacation pay. The debtor sought to exempt 85% of the unpaid vacation time under an Illinois law that allows creditors to reach only 15% of unpaid wages. It was undisputed that Illinois law treats vacation time as wages. The trustee objected to the exemption arguing that there was no suggestion that the state legislature intended the exemption to apply in the federal bankruptcy context. The bankruptcy court sustained the objection, and the district court, agreeing with the trustee’s position, affirmed. [Read more…] about State Exemption Need Not Specify that it Applies in Bankruptcy
No Abuse of Discretion in Denying Motion to Compel Arbitration
The bankruptcy court did not abuse its discretion in denying the creditor’s motion to compel arbitration of two counts of the debtor’s adversary complaint where one count sought to disallow the creditor’s claim as based on a contract that violated Virginia’s usury and consumer finance laws and the other count asserted claims for violation of those same laws. Allied Title Lending, LLC v. Taylor, 2019 WL 5406039 (E.D. Va. Oct. 22, 2019) (case no. 3:18-cv-845), appeal filed, Taylor v. Allied Title Lending LLC, Case No. 19-2283 (4th Cir. filed Nov. 15, 2019).
The Chapter 13 debtor entered into a credit agreement with Allied Title Lending under which she agreed to pay back a $1,500 loan at an annualized interest rate of 273.75%. Allied filed a proof of claim for $2,756.92 in her bankruptcy, and the debtor filed an adversary complaint alleging, in pertinent part, that the underlying lending agreement was null and void because it violated Virginia’s usury and consumer finance laws. Ms. Taylor sought disallowance of Allied’s claim as well as monetary damages, fees, and costs for herself and a putative class of similarly situated plaintiffs. Allied moved to compel arbitration under the terms of the credit agreement. The Attorney General for the Commonwealth of Virginia then moved to intervene to press a claim against Allied for violation of Virginia consumer protection laws. At that time, the commonwealth had already filed a case against Allied in state court alleging that Allied’s open-end credit plan and interest rates violated state laws. [Read more…] about No Abuse of Discretion in Denying Motion to Compel Arbitration
Rhode Island Exempts Inherited IRAs
In answer to a question certified by the Bankruptcy Court for the District of Rhode Island, the Rhode Island Supreme Court determined that “under the plain and ordinary meaning of the language in § 9-26-4(11) and § 408, an inherited IRA is defined under § 408, and it is, therefore, exempt under § 9-26-4(11).” In re Kapsinow, No. 2018-94-M.P. (R.I. Dec. 11, 2019) (Bankr. D. R.I. 16-11859).
Chapter 7 debtor, Lynette Kapsinow, inherited an IRA from her mother which she sought to exempt from her bankruptcy estate under the Rhode Island exemption laws. It was undisputed that the account when held by the debtor’s mother was a qualified retirement account under 408 of the Internal Revenue Code. Once her mother died, Ms. Kapsinow had access to the funds without penalty, could not make contributions to the account, and was required to take minimum distributions. [Read more…] about Rhode Island Exempts Inherited IRAs
Haven Act Guide
The Honoring American Veterans in Extreme Need Act of 2019 (“HAVEN Act”) excludes certain benefits paid to veterans or their family members from the definition of current monthly income (“CMI”) found in the Bankruptcy Code. The HAVEN Act amends § 101(10A) of the Bankruptcy Code and supplements the 2005 amendments to the Code that excluded other government benefits, such as social security income.
This Guide provides an overview of the HAVEN Act, identifies benefits that are excluded, and answers frequently asked questions.
Court May Not Deny Amendment to Exemptions Based on Bad Faith
Based on Law v. Siegel the bankruptcy court properly overruled the trustee’s objection to the debtor’s amendment to his exemptions without regard to whether the debtor concealed assets in bad faith. Rucker v. Belew (In re Belew), No. 18-3045 (8th Cir. Nov. 26, 2019).
In his bankruptcy schedules, the debtor initially failed to disclose that he had $30,000 in cash in a home safe. When the trustee learned of the cash, the debtor sought to amend his exemptions to exempt the money. The trustee objected because the debtor had intentionally concealed the asset and was therefore precluded from amending based on bad faith. The bankruptcy court overruled the objection and the BAP affirmed. [Read more…] about Court May Not Deny Amendment to Exemptions Based on Bad Faith