National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Court Won’t Let Bank of America “Buy and Bury” Judgment Against It

“To name and to shame Bank of America on the public record in an opinion that stays on the books serves a valuable purpose casting sunlight on practices that affect ordinary consumers.” Sundquist v. Bank of America, No. 10-35624, Adv. Proc. No. 14-2278 (Bankr. E.D. Cal. Jan. 18, 2018).

Calling it a “naked effort to coerce this court to erase the record,” the bankruptcy court declined to vacate its 2017 judgment in which it awarded damages for violation of the automatic stay in the amount of $1,074,581.50 and ordered an additional $5 million in punitive damages based on Bank of America’s conduct in connection with Erik and Renee Sundquists’ home mortgage. In addition to the award directed to the Sundquists, the 2017 order included a $45 million punitive damage award to be distributed to various public interest entities which were added to the case as Intervenors. The order also cancelled the Sundquists’ attorney’s contingency fee agreement, citing section 329(b), and ordered payment of her fees on a lodestar basis. Sundquist v. Bank of America (In re Sundquist), 566 B.R. 563 (Bankr. E.D. Cal. 2017) (2017 order) (blogged here). [Read more…] about Court Won’t Let Bank of America “Buy and Bury” Judgment Against It

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Debtor May Exempt 100% FMV When Value Does Not Exceed Statutory Cap

“There are certain situations where a debtor claiming federal exemptions under § 522 of the Bankruptcy Code can claim an exemption of a 100% interest in an asset. What we do not decide is whether doing so entitles such a debtor to clear title in that asset and any post-petition appreciation.” Ayobami v. Peake, No. 16-20589 (5th Cir. Jan. 3, 2018). [Read more…] about Debtor May Exempt 100% FMV When Value Does Not Exceed Statutory Cap

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Debtor’s Treatment of Student Loan Outside Plan Not Confirmable

The court could not confirm the debtor’s plan proposing to pay all claims in full except her student loan debt for which she proposed payments on interest only outside the plan. In re Ryan, 17-1507 (Bankr. M.D. Fla. Nov. 7, 2017).

Jenna Ryan’s chapter 13 petition schedules listed total debts in the amount of approximately $173,000, including a student loan debt from the Department of Education of almost $80,000. Her disposable income was $4,417.72. Her plan proposed to pay $1,403.09 per month for sixty months to pay off all debts in full except for the student loan debt. As to that claim, the plan proposed that Ms. Ryan would maintain payments outside the plan. She took the “position that there are no payments due under the terms of the student loan, given the filing of the bankruptcy, so her payments are voluntary and enough to cover the accruing interest payments.” [Read more…] about Debtor’s Treatment of Student Loan Outside Plan Not Confirmable

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Code Does Not Entitle Trustee to Sell Free and Clear of Creditor’s Judgment Liens

The bankruptcy estate’s interest in property does not become superior to a valid senior judgment lien even though the bankruptcy trustee took the steps necessary to avoid a fraudulent transfer and bring the property into the estate. In re Knight, No. 16-584 (Bankr. D. S.C. Nov. 6, 2017).

Apex Bank obtained two judgments against Talmadge Knight in state court. By operation of state law, the judgments resulted in liens on Mr. Knight’s property. Shortly thereafter, Mr. Knight transferred his farm property, Saluda, to Ambler Road, LLC., an entity owned solely by Mr. Knight. Mr. Knight later filed for chapter 7 bankruptcy. Apex filed two proofs of claim totaling approximately $1.9 million. The trustee filed an adversary proceeding to avoid the transfer of the Saluda property from Mr. Knight to Ambler. That proceeding was settled and the transfer avoided. The trustee then arranged a sale of the property for $146,000 and moved the court for permission to sell free and clear of liens. The motion contained some inaccuracies about the property and did not mention Apex’s judgment liens. [Read more…] about Code Does Not Entitle Trustee to Sell Free and Clear of Creditor’s Judgment Liens

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Bankruptcy Court Lacked Power to Order $375,000 in Punitive Damages

A bankruptcy court lacks inherent or statutory power to award $375,000 in punitive damages based on the creditor’s violation of Rule 3002.1(c) and disregard of a court order. PHH Mortgage Corporation v. Beaulieu, Nos. 16-256, 16-257, 16-258 (D. Vt. Dec. 18, 2017).

The debtors in three chapter 13 cases had confirmed plans under which they were able to remain in their homes post-petition and pay their mortgages through the trustee. Two sets of debtors, the Gravels and the Beaulieus, successfully completed their payments and the court issued an order stating that they were current on their mortgages and charges through the completion of their plans. PHH sent all three sets of debtors a monthly statement for fees based on property inspection, late charges, and insufficient funds, all of which were were incurred more than 180 days prior to the statement in violation of Rule 3002.1(c). The trustee moved for sanctions in all three cases for violation of Rule 3002.1(c) and, in the Beaulieus’ and the Gravels’ cases, for violation of the Bankruptcy Court’s Order at the close of their cases. [Read more…] about Bankruptcy Court Lacked Power to Order $375,000 in Punitive Damages

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Title-Pawned Vehicle Drops Out of Estate When Not Redeemed Post-Petition

A chapter 13 plan treating a loan secured by property which had been title-pawned prior to bankruptcy should not have been confirmed where the debtor failed to redeem the property within the redemption grace period. TitleMax v. Northington, Nos. 16-17467, 16-17468 (11th Cir. Dec. 11, 2017). In so holding, the Eleventh Circuit deemed TitleMax’s continued prosecution of its motion for relief from stay as equivalent to an objection to confirmation.

Debtor, Gustavius Wilber, entered into a title pawn agreement with TitleMax pledging his car as security for a loan. After the payment due date for the loan expired but before the statutorily-mandated redemption period had lapsed, Mr. Wilber filed for chapter 13 bankruptcy and proposed a plan to repay the loan with interest. TitleMax filed a motion for relief from stay. At the confirmation hearing, which took place after the redemption period had lapsed, TitleMax continued to press for relief from stay but specifically indicated that it was not objecting to confirmation of the plan. The bankruptcy court confirmed the debtor’s plan and later denied TitleMax’s motion for relief from stay. In re Wilber, 551 B.R. 542, 544–47 (Bankr. M.D. Ga. 2016). The district court affirmed. Title Max v. Northington, 559 B.R. 542, 545 (M.D. Ga. 2016). [Read more…] about Title-Pawned Vehicle Drops Out of Estate When Not Redeemed Post-Petition

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$119,000 Sanctions for Discharge Injunction Violations

Continuous confusing contact with the discharged debtors by the mortgage servicer was appropriately sanctioned at $1,000 per violation notwithstanding the servicer’s formulaic and contradictory disclaimers in some of the correspondence. Ocwen Loan Servicing v. Marino, Nos. 16-1229, 16-1238 (B.A.P. 9th Cir. Dec. 22, 2017).

Debtors, Christopher and Valerie Marino, surrendered their real property in their chapter 7 bankruptcy. After they received their discharge in June, 2013, the court granted the mortgagee relief from the automatic stay and closed the case. From June, 2013, through April, 2015, Ocwen, as servicer for the mortgagee, sent nineteen letters stating the amount owed on the debt as the “amount you must pay,” and providing payment due dates. Some of the letters contained the disclaimer that, “if you have received a discharge in bankruptcy, this notification is for informational purposes only and is not intended to collect a pre-petition or discharged debt.” Ocwen also made approximately one hundred calls to the Marinos seeking payment on the discharged debt. [Read more…] about $119,000 Sanctions for Discharge Injunction Violations

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Incorrect 1099-A Form Not Objectively Coercive

An IRS 1099-A Form sent post-foreclosure by the mortgagee and misstating that the debtors were personally liable on the mortgage debt, was not an attempt to collect a debt in violation of the discharge injunction. Bates v. CitiMortgage, Inc.,– F.3d – , 2016 WL 7229754 (1st Cir. Dec. 14, 2016). [Read more…] about Incorrect 1099-A Form Not Objectively Coercive

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Improper Service Precludes Default Judgment

Notwithstanding actual knowledge of the adversary complaint, where the debtor failed to serve the “insured depository institution” by certified mail, the Bank was not obliged to respond, and the bankruptcy court erred in granting default judgment. Citizens Bank v. Decena, No. 16-1918 (E.D. N.Y. Nov. 29, 2016).

Lorelei Decena attended St. Christopher’s College of Medicine for three years. She funded her education from St. Christopher’s through five separate student loans from Citizens Bank. After completing her studies, she sought to sit for the medical boards in the United States and was told that she was not eligible because St. Christopher’s was not an accredited medical school. [Read more…] about Improper Service Precludes Default Judgment

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Discriminatory Treatment of Student Loan Debt Not Unfair

“This Court respectfully disagrees with other courts’ holding that, without more, nondischargeability of student loans is an insufficient reason for discriminating in favor of Student Loan Claims.”

In a thoughtful, in-depth discussion addressing the state of student loan debt and the treatment of such debts separately from other debts in chapter 13, the Kansas Bankruptcy Court found that the debtors did not unfairly discriminate against general unsecured creditors by prioritizing their student loan debts in their plan. In re Engen, No. 15-20184 (Bankr. Kans. Dec. 12, 2016). [Read more…] about Discriminatory Treatment of Student Loan Debt Not Unfair