National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Circuit Rejects Mechanical Application of Judicial Estoppel

The district court abused its discretion when it mechanically applied judicial estoppel to bar the plaintiff’s personal injury lawsuit after he and his wife successfully completed their 100% plan. Clark v. Advanced Composites Grp., No. 17-1727 (2d Cir. March 30, 2018).

Michele and John Clark had one more payment due on their five-year chapter 13 plan when Mr. Clark was diagnosed with mesothelioma which he believed to have been caused by exposure to asbestos through his service with the United States Air Force and in his subsequent private sector work. The Clarks notified their bankruptcy counsel of his diagnosis and their intention to commence litigation, but their counsel did not notify the bankruptcy court. The Clarks successfully completed their plan payments. One year later, and one week prior to formal discharge and closure of their bankruptcy, Mr. Clark filed a personal injury complaint against Boeing and numerous other corporations. The case was removed to district court. Boeing then moved to dismiss the lawsuit on grounds of judicial estoppel. Finding that the Clarks’ failure to disclose Mr. Clark’s diagnosis to the bankruptcy court amounted to a false representation which the bankruptcy court acted upon by discharging them, the district court granted the motion. Mr. Clark died during the pendency of the appeal. [Read more…] about Circuit Rejects Mechanical Application of Judicial Estoppel

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Fourth Circuit Reverses Bad Decision on Chapter 13 Lien Stripping

Finding that a wholly unsecured lien may be stripped in chapter 13 even where no proof of claim was filed the Fourth Circuit reversed the district court’s holding to the contrary. Burkhart v. Grigsby (In re Burkhart), No. 16-1971 (4th Cir. March 29, 2018).

Chapter 13 debtors, Edwin and Teresa Burkhart’s, home was subject to several liens, two of which were held by Community Bank of Tri-County and were wholly unsecured. Tri-County did not file a proof of claim in the Burkharts’ bankruptcy. The Burkharts filed an adversary complaint seeking to strip off the wholly unsecured liens under section 1322(b). Relying on section 506(d), the bankruptcy court held Tri-County’s liens could not be stripped because they had not filed proofs of claim. (The court stripped the wholly unsecured lien held by PNC because PNC had filed a timely proof of claim). The district court affirmed (blogged here). [Read more…] about Fourth Circuit Reverses Bad Decision on Chapter 13 Lien Stripping

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Post-Petition Condo Fees Discharged in Chapter 13

Although a chapter 13 debtor continues to accrue post-petition condo fees while in bankruptcy, discharge extends to his in personam liability for those fees. In re Wiley, No. 16-15361 (Bankr. D. Md. Jan. 26, 2018).

Chapter 13 debtor, Christopher Wiley, owned but did not live in a condominium unit subject to a mortgage lien and a lien held by the condominium association based on post-petition fees and assessments. The mortgagee was granted relief from stay to foreclose but had not done so for over a year. Mr. Wiley’s confirmed plan surrendered the property to the lienholders for foreclosure with any deficiency in sale proceeds being treated as an unsecured claim. The plan also provided that estate property would not vest in the debtor until discharge. [Read more…] about Post-Petition Condo Fees Discharged in Chapter 13

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Excusable Neglect Standard for Amendment in Reopened Case

The right to amend in the case of a bankruptcy that is closed and then reopened is neither unlimited nor foreclosed, but requires a showing of excusable neglect. In re Mendoza, No. 16-10951 (Bankr. D. N.M. Jan. 31, 2018).

Despite direct prompting, Chapter 7 co-debtor, Sandy Armijo, failed to disclose the existence of a personal injury claim for which she was receiving pre-and post-petition chiropractic treatment. After her case was closed she received a settlement of approximately $8,000 in the personal injury case and moved to reopen her bankruptcy to amend her schedules to show the income and claim it as exempt. The trustee objected to the exemption. [Read more…] about Excusable Neglect Standard for Amendment in Reopened Case

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Booting Car Not a Stay Violation

The City’s action in booting the debtor’s car after she had filed her bankruptcy petition did not violate the automatic stay where its purpose was to protect public safety. In re Hicks, No. 17-3663 (Bankr. N.D. Ill. Feb. 1, 2018).

Ashina Hicks entered chapter 13 bankruptcy with almost $16,000 in traffic fines owed to the City of Chicago. After her petition, the City booted her car and did not remove the boot until the following day. Ms. Hicks filed a motion to show cause why the City’s action should not be found to be a violation of the automatic stay, and she sought $6,000 in damages for emotional distress, inconvenience and embarrassment. The City countered that its action was within its governmental power to protect the public safety and was not subject to the automatic stay under section 362(b)(4). The court agreed. [Read more…] about Booting Car Not a Stay Violation

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Homestead Post-Petition Sale Proceeds Retain Exempt Status in Chapter 7

Proceeds from the post-petition sale of the chapter 7 debtor’s homestead did not become part of the bankruptcy estate even though the debtor did not reinvest them in another homestead. Lowe v. DeBerry (In re DeBerry), No. 17-50315 (5th Cir. March 7, 2018).

When Curtis DeBerry filed for chapter 7 bankruptcy he exempted his homestead without objection by the trustee. Post-petition he sold the residence and transferred some of the proceeds to his wife and used the rest to pay unrelated criminal attorney fees. The trustee filed an adversary complaint arguing that, because Mr. DeBerry did not reinvest the proceeds in another homestead within six months as required by Texas proceeds law, the proceeds were not exempt. The bankruptcy court found in favor of Mr. DeBerry and the district court reversed. [Read more…] about Homestead Post-Petition Sale Proceeds Retain Exempt Status in Chapter 7

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SSA Cannot “Recoup” Payments Obtained by Fraud from Separate Program

The SSA’s withholding of benefits from one program to recover fraudulently-obtained payments made under a separate program was not a “recoupment” free from the strictures of the automatic stay. U.S.A. v. Johnson, No. 17-5224 (N.D. Ill. March 12, 2018).

For more than three years John Johnson fraudulently received retirement social security benefits. Upon learning of the fraud, the SSA calculated that he owed almost $58,000 in ill-gotten benefits and penalties and began withholding his legitimate disability benefits. Mr. Johnson filed for chapter 13 bankruptcy and argued that the SSA’s withholding of his disability benefits violated the automatic stay. The bankruptcy court agreed and the SSA appealed. [Read more…] about SSA Cannot “Recoup” Payments Obtained by Fraud from Separate Program

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Direct Mortgage Payments Not “Payments under the Plan” for Discharge Purposes

Payments made directly by the debtor to the mortgagee are not “payments under the plan,” within the meaning of section 1328 and the debtor’s failure to make those payments are not cause for dismissal without discharge. In re Gibson, No. 12-81186 (Bankr. C.D. Ill. March 5, 2018).

Bryan and Holly Gibson made all payments in accordance with their five-year chapter 13 plan, and the trustee filed the notice of payment completion. Mortgage creditor, PNC, agreed that the Gibsons were current on their first mortgage and had paid the arrearage on the second mortgage through the trustee. However, it chose that moment to complain that, as of the beginning of the plan, the debtors had made none of the post-petition direct payments on their second mortgage. On the basis of that default, the trustee moved to dismiss under section 1307(c)(6). [Read more…] about Direct Mortgage Payments Not “Payments under the Plan” for Discharge Purposes

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Second Circuit Finds Arbitration Conflicts with Discharge Injunction

Arbitration of the debtor’s claim for violation of the discharge injunction presented an inherent conflict with the Bankruptcy Code and the bankruptcy court did not abuse its discretion in refusing to compel arbitration. Anderson v. Credit One Bank, No. 16-2496 (2d Cir. March 7, 2018).

Credit One charged off Orrin Anderson’s credit card debt, sold the account to a debt buyer, and reported the default to the major credit reporting agencies. After Mr. Anderson obtained a chapter 7 discharge, Credit One refused to change the credit report to reflect the discharge. Mr. Anderson reopened his bankruptcy and filed a class action suit complaining that Credit One’s inaction with respect to his credit reports and those of other putative class members violated section 524(a)(2). The bankruptcy court rejected Credit One’s efforts to enforce the arbitration clause in the credit card agreement. On Credit One’s interlocutory appeal, the district court affirmed. In re Anderson, 553 B.R. 221 (S.D. N.Y. 2016). [Read more…] about Second Circuit Finds Arbitration Conflicts with Discharge Injunction

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Debtor Correctly Excluded Mother’s Social Security From PDI

Where the debtor lived with his mother and they shared all income and expenses, he correctly included her expenses and excluded her social security benefits in his projected disposable income calculation. In re Palcher, 2018 WL 481863, No. 7:17-bk-3938 (Bankr. D. S.C. Jan. 16, 2018).

Above-median debtor, Michael Palcher, proposed a chapter 13 plan to pay his mortgage directly and pay approximately 6.7% to unsecured creditors through the plan. The trustee objected to confirmation arguing that, because Mr. Palcher did not include his mother’s social security in his projected disposable income, the plan did not comply with section 1325(b) and was proposed in bad faith. [Read more…] about Debtor Correctly Excluded Mother’s Social Security From PDI