National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC Editor

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Tuition Deadline Agreement Did Not Create a Student Loan

An agreement establishing a tuition payment deadline was not a lending agreement and therefore, the debt created by the debtor’s failure to pay her summer tuition did not constitute a non-dischargeable student loan under section 523(a)(8). Hazelton v. UW-Stout, No. 18-159 (W.D. Wisc. Feb. 1, 2019).

To attend classes at UW-Stout, Kelly Hazelton signed an “Email Authorization/Payment Plan Agreement” which provided that she pay for summer classes in full by the end of the first week of class. Ms. Hazelton failed to pay for her 2015 summer classes but finished all the coursework necessary to satisfy the requirements for her degree. She and her husband filed for Chapter 7 bankruptcy and received a discharge, but despite knowing of the bankruptcy, UW-Stout refused to issue her degree. It also garnished her 2016 tax refund. The Hazeltons filed an adversary complaint seeking sanctions for violation of the discharge injunction, but the bankruptcy court found the debt was a student loan that was excepted from discharge under section 523(a)(8). [Read more…] about Tuition Deadline Agreement Did Not Create a Student Loan

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Bankruptcy Court holds Debtor is Entitled to Chapter 13 Discharge even if Co-Debtor is Delinquent on Post-Petition DSO Payments

A bankruptcy court recently reviewed the issue of whether a debtor can receive a discharge under § 1328 even if her co-debtor husband is delinquent on a post-petition DSO payment. The court examined the requirements for discharge using the plain language of § 1328(a).

In this case, the debtors, Mr. and Mrs. Hernandez, filed a joint Chapter 13 bankruptcy. At filing, neither owed a DSO. Approximately two years into their confirmed plan, Mr. Hernandez became liable for a DSO and subsequently fell behind in those payments. Both parties were aware of the DSO and neither reported the delinquency to their attorney nor the trustee.

After completion of the plan payments, Mrs. Hernandez moved for entry of discharge under 11 U.S.C. § 1328(a). The Trustee objected arguing Mrs. Hernandez was unjustly enriched and that failure to amend the plan demonstrates bad faith. No party disputed that all plan payments were made.

To read more and access the opinion click here

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Bankruptcy Court Rejects Ditech’s Standing to file Mortgage Claim

A bankruptcy court recently expunged a claim of Ditech Financial LLC (Ditech) asserting that it was the creditor and the servicer of a note secured by an investment property (the “Property”) owned by the Debtors. Ditech filed a petition for bankruptcy in Case No. 19-10414 (Bankr. S.D.NY February 11, 2019). The order was entered in another proceeding before a different judge after Ditech’s bankruptcy was filed.

In this case, the Debtors filed a Chapter 11 and sought to sell the Property free and clear of all liens under 11 U.S.C. § 363. Ditech filed its claim. The Debtors successfully objected to Ditech’s claim because Ditech had not demonstrated it had standing. Ditech then filed a motion to reconsider which was granted. Meanwhile, the court granted the motion to sell the Property but kept the proceeds in escrow pending the new hearing on the standing issue.

Ominously, the court’s opinion began with “Throughout this case, Ditech Financial LLC (“Ditech”) has shown disdain for this Court and [the] debtors…”

To read more and get the opinion click here.

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Bankruptcy Court Denies USA’s Blanket Request for Tolling of Deadlines During Lapse of Appropriations

In an unpublished opinion, the Bankruptcy Court for the Northern District of Ohio recently denied a motion from the United States Attorney’s Office “requesting a tolling of all deadlines applicable to the United States, its agencies, or its employees, including, without limitation a tolling of all bar dates for the filing of proofs of claim and request for the payment of administrative expenses with respect to the United States and its agencies from December 22, 2018 through January 28, 2019 (the “Appropriations Lapse”).”

To read more and access the opinion click here.

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Bankruptcy Court Discusses the Effect of Res Judicata in Claim Allowance and Disallowance

The Bankruptcy Court for the Central District of California recently examined whether a claim, allowed or disallowed in a previously dismissed bankruptcy, has res judicata effect in a subsequent bankruptcy. The court discussed the elements of res judicata in these circumstances.

The debtor had filed a previous Chapter 13 case. In that case, the creditor argued that the debtor (a corporate officer) was personally liable for a debt also owed by that corporation to the creditor. In state court proceedings the state court allowed a judgment only against the corporation and abstained on ruling on the debtor’s liability due to the automatic stay.

The creditor filed a proof of claim against the debtor. The debtor objected to the claim. The Bankruptcy Court held a hearing and issued a ruling sustaining the debtor’s objection to the claim. The creditor did not appeal the order or timely move for relief from the order. Subsequently, the debtor’s case was dismissed for failure to make plan payments.

The debtor refiled another Chapter 13 bankruptcy and the creditor refiled her claim. The debtor objected and the creditor asserted the same arguments made in the old case plus one additional legal argument for liability under the federal Fair Labor Standards Act. The parties agreed that the second case’s objection to the claim was identical to the first case’s objection, that the first objection was decided on the merits, and the parties were identical. However, the creditor argued that since the first case was dismissed, the order disallowing her claim was not final since there was no discharge.

To read more and access the opinion click here.

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Bankruptcy Court Clarifies Authentication Standard in Motions for Summary Judgment

The Bankruptcy Court for the District of Delaware recently clarified the authentication standard for an exhibit attached to a motion for summary judgment. The court examined the change in Fed.R.Civ.P. 56(c)(4) in 2010 (made applicable to bankruptcy proceedings in Fed.R.Bankr.P. 7056 and applicable to all contested matters in Fed.R.Bankr.P. 9014(c)).

This case involves a corporate Chapter 7 bankruptcy. The Trustee is holding a large tax refund of approximately $5.5 million and two creditors claimed priority in disbursement. In support of its summary judgment motion creditor 1 relied upon a declaration with 29 exhibits and sub-exhibits signed by an employee from creditor 1’s parent company. Creditor 2 moved to strike the employee’s declaration and its exhibits for failing to meet the requirements in Fed.R.Civ.P. 56(c).

To read more click HERE to go to NACBA News.

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10th Circuit BAP Says Amending Schedules in a Reopened Case is not Subject to Excusable Neglect Test

The Bankruptcy Appellate Panel for the 10th Circuit recently addressed a thorny issue about amending schedules in reopened cases. See In re Dollman, BAP No. NM-18-030(10th Cir. B.A.P. February 5, 2019). The question is whether a debtor in a reopened case seeking to amend schedules must first move for an extension of time under Fed.R.Bankr.P. 9006, and demonstrate excusable neglect.

In Dollman and the consolidated companion case In re Mendoza, both debtors unknowingly failed to disclose personal injury claims in their schedules. Both cases received a chapter 7 discharge. Both debtors reopened their cases to amend their schedules and claim exemptions in the settlements. In both cases the chapter 7 trustee objected to the amended schedules asserting that the debtors must show excusable neglect under Fed.R.Bankr.P. 9006(b) before they could exercise their rights to amend under Fed.R.Bankr.P. 1009(a). The bankruptcy courts sustained those objections on the basis that neither of them could show excusable neglect for failing to amend schedules prior to the closing of their cases.

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District Court Certifies Appeal of 100% Plan Language Restricting Right to Modify

In Brown v. Viegelahn, No.18-282  the District Court for the Western District of Texas, on its motion, certified an appeal to the Fifth Circuit to resolve a dispute among lower courts concerning the so-called Molina language in which a Chapter 13 debtor paying less than his entire disposable income to his 100% plan, is required to agree that he will not later modify the plan to pay less than 100% to unsecured creditors. (appeal certified, Jan. 22, 2019).  [Read more…] about District Court Certifies Appeal of 100% Plan Language Restricting Right to Modify

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Court Rejects Nonstandard Provision for Retention of Tax Refund

The Chapter 13 debtor was not permitted to include a nonstandard plan provision to retain her tax refund where the refund was not reasonably necessary for the support of the debtor or her dependents. Penn v. Viegelahn, 2018 WL 5984844, No. 18-354 (W.D. Tex. Nov. 13, 2018). [Read more…] about Court Rejects Nonstandard Provision for Retention of Tax Refund

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Bankruptcy Court Says Call First Before Seeking Attorney’s Fees

The Bankruptcy Court for the Eastern District of Michigan recently ruled whether a creditor must pay attorney’s fees to the objecting party when the creditor filed a claim with deficient information. In re Ball, No. 17-22574 (Bankr. E.D.MI. Jan. 22, 2019).

The issue was brought before the court by the chapter 13 trustee. A creditor, Financial Edge Credit Union (FECU), was owed a debt for overdraft charges which was an open-end consumer debt. FECU filed a deficient proof of claim that only attached a copy of the deposit account contract and did not include the last payment date or the date of the debtor’s last transaction.

[Read more…] about Bankruptcy Court Says Call First Before Seeking Attorney’s Fees