National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Fire-Damaged Home Valued as of Pre-Restoration Petition Date

The chapter 7 debtor was entitled to avoid a judicial lien that impaired her homestead exemption where the home, which had been damaged by fire pre-petition, was valued as of the petition date rather than after post-petition restoration had enhanced the residence’s value. Waltrip v. Sawyers (In re Sawyers), No. 19-6016 (B.A.P. 8th Cir. Dec. 19, 2019).

Prior to filing for bankruptcy, Ruby Sawyers’s home was damaged by fire and she received insurance proceeds in the amount of over $132,000 for its restoration. At the time of her petition, she had not yet restored the home and it was valued at $3,000 – $6,000. She claimed a homestead exemption on 100% of the fair market value of the residence to the maximum exemption of $15,000. After the fire and prior to  the bankruptcy petition, David Waltrip and the debtor entered into a consent judgment in the amount of $256,739.31 which resulted in lien against the property. The trustee made no distributions and abandoned all assets. The case was closed. Using the insurance proceeds, Ms. Sawyers then made improvements to the residence increasing its value to $95,000 – $103,000. The judgment creditor instituted a sheriff’s sale of the property. Ms. Sawyers reopened her bankruptcy and moved to avoid the judgment lien as impairing her homestead exemption. Mr. Waltrip objected. Using a formula under which the value of the property was subtracted from the sum of the liens and the exemption amount, the bankruptcy court found that the judicial lien impaired Ms. Sawyers’s homestead exemption and granted her motion for summary judgment to avoid the lien in full. The creditor appealed to the bankruptcy appellate panel for the Eighth Circuit. [Read more…] about Fire-Damaged Home Valued as of Pre-Restoration Petition Date

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Omissions on Written Applications Satisfies Writing Requirement for Non-Dischargeability

A bankruptcy court found that the omission of income data from numerous applications for food stamps and other public-assistance benefits satisfies the requirement of a materially false written statement respecting the debtor’s financial condition for purposes of exclusion from discharge. State of Oregon v. Maxwell, (In re Maxwell), No. 17-32084, Adv. Proc. No. 17-03113 (Bankr. D. Ore. Oct. 18, 2018) (unpublished letter opinion).

In this case, Antoinette Maxwell failed, on numerous public-assistance applications, to disclose employment income and child support payments she was receiving. The State of Oregon filed an adversary complaint in her chapter 7 bankruptcy seeking an order of non-dischargeability of over $16,000 in benefits it claimed she received by reason of the fraudulent omissions.   [Read more…] about Omissions on Written Applications Satisfies Writing Requirement for Non-Dischargeability

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Court Declines to Enforce Arbitration Clause in Student Loan Agreement

An arbitration clause in a student loan contract is unenforceable where the debtor seeks an order of discharge of the loan in bankruptcy. Roth v. Butler University (In re Roth), No. 17-4109, Adv. Proc. No. 18-50097 (Bankr. S.D. Ind. Nov. 16, 2018).

After Matthew Roth obtained his chapter 7 discharge, he moved to reopen his bankruptcy to seek discharge of his student loans under section 523(a)(8). One of his student loan lenders, Sallie Mae, answered with a motion to compel arbitration based on the terms of the student loan agreement. [Read more…] about Court Declines to Enforce Arbitration Clause in Student Loan Agreement

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Avoidability of Tuition Payments Depends on Timing

Once tuition funds became non-refundable, the universities receiving the funds would be considered initial transferees and the transfers would be subject to avoidance under section 550(a). Pergament v. Brooklyn Law School, Nos. 18-2204, 18-2235, 18-2236 (E.D. N.Y. amended opinion Jan. 4, 2019).

In three adversary proceedings, the Chapter 7 Trustee, Marc Pergament, sought to recover tuition payments the debtor, Harold Adamo, made for his children’s education in three universities. The bankruptcy court found that the trustee could not avoid the transfers because the institutions were subsequent transferees who took in good faith under section 550(b). [Read more…] about Avoidability of Tuition Payments Depends on Timing

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BAP Reverses Finding of Student Loan Exception from Discharge

Where evidence of the non-profit entity’s involvement in the debtor’s student loan was minimal, the bankruptcy appellate panel found that the lender should not have been granted summary judgment on the issue of nondischargeability. Page v. JP Morgan Chase Bank, No. 18-6011 (B.A.P. 8th Cir. Nov. 20, 2018).

Richelle Page obtained a loan from Chase Bank through its Education One Undergraduate Loan Program. The loan was then sold to the National Collegiate Student Loan Trust (NCSLT). When she filed for bankruptcy, NCSLT sought a finding that the loan was nondishargeable under section 523(a)(8). The bankruptcy court granted NCSLT’s motion for summary judgment. [Read more…] about BAP Reverses Finding of Student Loan Exception from Discharge

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Obligation to Return Funds to Debtor upon Dismissal Preempts State Levy Law

The chapter 13 trustee had no choice but to return post-petition funds to the debtor upon pre-confirmation dismissal of his bankruptcy despite state law permitting the Division of Child Support to levy against any person holding the debtor’s funds. Commonwealth of Va., Dept. of Soc’l Serv. v. Webb, No. 17-2328 (4th Cir. Nov. 19, 2018).

Chapter 13 debtor, Barry Webb, paid $3,000 to the chapter 13 trustee while his bankruptcy was pending confirmation. After he was unable to establish a confirmable plan, his bankruptcy was dismissed and the Virginia Department of Social Services, Division of Child Support, presented the trustee with an Order to Withhold the funds for payment to the Division. The bankruptcy court found that the Code required the trustee to return the funds to the debtor. The district court affirmed. [Read more…] about Obligation to Return Funds to Debtor upon Dismissal Preempts State Levy Law

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District Court Upholds Sanctions and Suspension Against UpRight Law

Where a “local partner” working under the auspices of Chicago-based UpRight Law botched a Louisiana chapter 7 case, the district court affirmed the bankruptcy court’s order suspending UpRight from practice in the district and other sanctions. Law Solutions Chicago, LLC d/b/a UpRight Law, LLC v. U. S. Trustee, No. 18-216 (W.D. La. Sept. 24, 2018).

Appellant, UpRight Law, is a bankruptcy law practice based in Chicago using a business model under which it contracts with “local partners” around the country to handle cases for a percentage of the fee paid to UpRight. When Lillie Mae Banks sought representation for her Louisiana bankruptcy case, UpRight assigned her case to one of its local partners (after first assigning it to an attorney who was not licensed to practice in Louisiana). After Ms. Banks’s case was “horribly screwed up” the U.S. Trustee stepped in seeking disgorgement of the fees she paid, a civil penalty, and other sanctions against UpRight and local counsel. [Read more…] about District Court Upholds Sanctions and Suspension Against UpRight Law

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Foreclosure Not Complete Until Deed Recorded so Debtor May Cure and Maintain

Where the debtor’s residence was sold in a foreclosure sale but the mortgagee failed to record the foreclosure deed as required by state law, the debtor had the right to cure and maintain under section 1322(c). In re Vertullo, 18-10552 (Bankr. D. N.H. Oct. 1, 2018).

In this case, the mortgagee, U.S. Bank, moved for relief from stay, arguing that because the foreclosure auction was completed prior to Darlene Vertullo’s chapter 13 bankruptcy filing, the property did not enter the bankruptcy estate and she could not cure and maintain under section 1322(c). Ms. Vertullo countered that U.S. Bank’s failure to record the deed allowed section 1322(c) to preempt the state law which would have otherwise divested her of ownership interest in the property upon foreclosure sale at auction. [Read more…] about Foreclosure Not Complete Until Deed Recorded so Debtor May Cure and Maintain

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Ninth Circuit Certifies Community Property Question to Calif. S.Ct

In Brace v. Speier (In re Brace), the Ninth Circuit certified the following question to the Supreme Court of California: “Does the form of title presumption set forth in section 662 of the California Evidence Code overcome the community property presumption set forth in section 760 of the California Family Code in Chapter 7 bankruptcy cases where: (1) the debtor husband and non-debtor wife acquire property from a third party as joint tenants; (2) the deed to that property conveys the property at issue to the debtor husband and non-debtor wife as joint tenants; and (3) the interests of the debtor and non-debtor spouse are aligned against the trustee of the bankruptcy estate?” No. 17-60032 (9th Cir. Nov. 8, 2018) (order certifying question). [Read more…] about Ninth Circuit Certifies Community Property Question to Calif. S.Ct

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Debtor Cannot Exempt His Interest in Ex-Wife’s Retirement Accounts

Accounts the debtor received from his ex-wife in a divorce were not retirement accounts for bankruptcy exemption purposes because, even though his ex-wife had contributed to the accounts for retirement, his interest was merely through a property settlement. Lerbakken v. Sieloff and Assoc., P.A., No. 18-6018 (B.A.P. 8th Cir., Oct. 16, 2018).

The bankruptcy court disallowed chapter 7 debtor, Brian Lerbakken’s, claimed exemptions for a 401K account and an IRA that he had received in a property settlement when he and his wife divorced. The funds in the accounts were contributed in their entirety by his ex-wife. [Read more…] about Debtor Cannot Exempt His Interest in Ex-Wife’s Retirement Accounts