National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC Editor

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Debtors’ Plan May Direct Student Loan Payments to Principal

Finding that “non-dischargeability does not immunize the student loan claim from modification,” the bankruptcy court confirmed the Chapter 12 debtors’ plan under which their payments would go to the principal on their student loan debt with accumulated post-petition interest to be paid post-discharge. In re Duensing, No. 18-10201 (Bankr. D. Kans. Feb. 22, 2019).

ECMC objected to Kirk and Eve Duensing’s proposed treatment of Ms. Duensing’s student loan debt arguing that, because the reduction of principal would result in declining post-petition interest, the proposed plan effectively discharged her student loan without a finding of undue hardship. [Read more…] about Debtors’ Plan May Direct Student Loan Payments to Principal

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Debtors’ Manufactured Home Was Personal Property Under Iowa Law

The Eighth Circuit found no clear error in the bankruptcy court’s finding that, under Iowa common law, the chapter 13 debtors’ manufactured home was personal property and therefore the debt it secured was not subject to section 1322(b)’s anti-modification provision. The Paddock, LLC v. Bennett, No. 18-2098 (Feb. 28, 2019).

Benjamin and Teresia Bennett purchased a manufactured home from Paddock, and placed it on a lot owned by Paddock under a 990-year lease. In their chapter 13 bankruptcy, the Bennetts proposed to bifurcate the debt secured by the manufactured home into secured and unsecured portions under section 506(a)(1). Paddock objected arguing that the home was real property and the interest was subject to the anti-modification provision of section 1322(b). The bankruptcy court found that, under Iowa law, the home was personal property and confirmed the plan. In re Bennett, 2017 WL 1417221 (Bankr. N.D. Iowa Apr. 20, 2017). The Bankruptcy Appellate Panel affirmed. In re Bennett, 584 B.R. 15 (B.A.P. 8th Cir. 2018).

On appeal, the Eighth Circuit Court found that the bankruptcy court correctly applied Iowa law which provides that a fixture may be deemed real property when: “(1) it is actually annexed to the realty, or to something appurtenant thereto; (2) it is put to the same use as the realty with which it is connected; and (3) the party making the annexation intends to make a permanent accession to the freehold.” Applying these considerations, the court looked at the evidence to determine whether the bankruptcy court committed clear error in its findings of fact.

At the confirmation hearing, the parties introduced contradictory evidence as to the physical permanence of the home’s placement on the lot. Although Paddock produced testimony that the home was placed on a permanent, embedded cement foundation, the bankruptcy court credited the Bennetts’ contrary testimony that the home was placed on piers and blocks that were not deeply embedded. In fact, the Bennetts testified that one of the pier pads repeatedly sank into the ground requiring them to raise the pad to level the home. The bankruptcy court was also persuaded that the home was not a permanent accession to the freehold by the fact that the Bennetts leased the land where it was located and, even though the lease described the home as a permanent structure, it included provisions for moving it. The circuit court found no clear error in the bankruptcy court’s resolution of the factual disputes and affirmed the decisions below.

In dissent, Judge Beam argued that the bankruptcy court erred in disregarding the “uncontroverted” evidence that the home was placed on an embedded cement foundation and could not be moved without the use of a professional home mover. This conclusion was supported, according to the dissent, by Iowa law which requires that manufactured homes be placed on cement foundations. The dissent further disagreed with the bankruptcy court’s reliance on the fact that the land where the home was placed was subject to a lease. The dissent argued that the 990-year lease was, in fact, a transfer in fee simple “subject to a condition subsequent.”

Bennett 8th Cir Feb 2019

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ACA’s Shared Responsibility Payment is Priority Tax Debt

The District Court for the Eastern District of Louisiana determined that the tax assessment for failure to maintain health insurance under the Affordable Care Act is a nondischargeable priority tax debt under section 507(a)(8)(A)(iii), rather than a penalty dischargeable in bankruptcy under section 523(a)(7) and 1328(a). United States v. Chesteen, No. 18-2077 (E.D. La. Feb. 25, 2019).

As the Chapter 13 debtor, John Chesteen pointed out on appeal, the shared responsibility payment at issue is described numerous times in the ACA as a penalty and is collected the same way other tax penalties are collected. The district court noted, however, that statutory descriptions, while informative, are not dispositive of whether a payment is a tax or a penalty. Rather, courts rely on the underlying purpose of the payment. A “tax” is a burden placed on the taxpayer for the financial support of the government, and a “penalty” is a punishment for an unlawful act. [Read more…] about ACA’s Shared Responsibility Payment is Priority Tax Debt

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Federal Lien Broader than State Lien for Avoidance Purposes

Federal law defines a lien more broadly than Missouri law, and for that reason, the debtor was able to avoid a judgment lien as impairing the exemption he claimed on his residence, which he owned as a tenancy in the entireties with his wife, even though state law did not recognize the creation of the lien. CRP Holdings A-1, LLC v. O’Sullivan, No. 17-3226 (8th Cir. Feb. 1, 2019).

Chapter 7 debtor, Casey O’Sullivan, and his wife acquired their residence as tenants in the entirety. CRP obtained a foreign judgment for $765,151.18 against the debtor and registered the judgment in the debtor’s resident county to obtain a judicial lien against the property. When Mr. O’Sullivan filed for bankruptcy, he claimed an exemption for the property and sought to avoid CRP’s judicial lien under section 522(f)(1) as impairing that exemption. The bankruptcy court found that the judgment lien, even though unenforceable, placed a “cloud” on the debtor’s title and could therefore be avoided as impairing his bankruptcy exemption. The BAP affirmed. [Read more…] about Federal Lien Broader than State Lien for Avoidance Purposes

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Bankruptcy Court Abused Discretion in Failing to Confirm Plan

In a terse opinion, the Fifth Circuit balanced the evidence relied on by the bankruptcy court against various additional factors and concluded that the bankruptcy court abused its discretion when it denied the debtors’ Chapter 13 plan for lack of good faith under section 1325(a)(3). Booker v. Johns (In re Booker), No. 18-30526 (5th Cir. Feb. 11, 2019) (unpublished).

In holding that the debtors’ plan was proposed in bad faith, the bankruptcy court relied on the fact that the debtors proposed to pay unsecured creditors at 4% while retaining their 1998 fishing boat, motor, and trailer. The debtors proposed a new plan that was less favorable to them which the bankruptcy court confirmed. The debtors appealed, and the district court affirmed. [Read more…] about Bankruptcy Court Abused Discretion in Failing to Confirm Plan

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Nebraska Bankruptcy Court Rules §506(b) Is Not A Blank Check for Over-Secured Creditors, Knocks off $38,355.85 of Excessive Fees and Charges

The Bankruptcy Court for the District of Nebraska recently reviewed the reasonableness of the fees claimed by a mortgage creditor on an over-secured loan. Before filing for protection under Chapter 13 of the Bankruptcy Code, the Debtor owned two properties, one residential and the other business, and pledged them as collateral for an SBA loan through the creditor. He subsequently fell behind on payments and was not able to pay the balloon amount. The properties are collectively valued at $220,000.00 and the principal and interest balance at filing was less than $70,000.00. The creditor’s claim also included $13,592.20 for late charges and $41,365.85 for expenses for appraisals, assessments, and other fees. The Debtor objected to the reasonableness of the charges and expenses.

To read more and access the opinion click here.

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Bankruptcy Court Addresses Eligibility, Non-formal Notice of Bankruptcy and a Creditor’s Affirmative Duty to Correct Technical Violations of the Automatic Stay

A bankruptcy court recently ruled on several issues of importance to all potential debtors. First, the court examined the effect of a prior dismissal order (for failure to timely file certain schedules, statements or other documents) on a subsequent bankruptcy petition. Specifically, the court examined the small slice of cases where the automatic stay does not apply in a second case when the Debtor is not an “eligible Debtor” under 11 U.S.C. § 109(g). The court also examined the split in authority on who bears the burden of proof of proving eligibility.

Further the court examined whether a creditor, who unknowingly completed a foreclosure sale during the second case, violated the automatic stay by not promptly undoing the sale upon notification of the bankruptcy. Further the court extensively discussed the different non-traditional methods that creditors can receive binding notice of a bankruptcy and their responsibility thereafter. The court also examined whether a technical violation can turn into a willful violation and whether a creditor has an affirmative duty to correct a technical violation.

To read more click here.

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Maryland Bankruptcy Court Holds Failure to Produce Writings Doesn’t Invalidate Credit Card Claims

The Bankruptcy Court for the District of Maryland recently ruled whether several claims based on open-ended credit card agreements could be disallowed for failure to provide the Debtor’s documents supporting the claim. The Debtors’ counsel had requested the creditors to deliver copies of the writings on which each of the claims was based and other documents including copies of all monthly statements to copies of all notices of transfer of the account. When the creditors failed to supply the information, the Debtors objected to those claims and asked that they be disallowed.

To read more and access the opinion click here.

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District Court Addresses Due Process in Fee Hearing

The district court found that the Chapter 7 trustee’s legal representative was deprived of due process when the bankruptcy court reduced a portion of its fees without providing notice and an opportunity to be heard. Arnall, Golden, Gregory, LLP, v. Stroud, No. 18-3755 (N.D. Ga. Jan. 28, 2019).

Appellant, Arnall, Golden, Gregory, LLP, sought $13,607.09 in attorney fees for services performed for the Chapter 7 trustee in connection with the debtor/appellee’s motion to reconvert her case to Chapter 13. After a fee hearing, the court found that $3,575.50 of the appellant’s fees were for services constituting trustee duties and that $3,000 of the $6,000 in fees claimed for work on litigation of the conversion motion, were not reasonable and necessary. The court thus reduced the fees to $7,000.00. [Read more…] about District Court Addresses Due Process in Fee Hearing