National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Mortgage Deficiency Judgment Liens Are Avoidable

Section 522(f)(2)(C) does not create an exception to lien avoidance for mortgage deficiency judgment liens. In re Pace, No.16-8036 (B.A.P. 6th Cir. June 20, 2017).

Antoinette Pace filed a chapter 13 petition in which she scheduled her residence with a value of $147,630 and claimed a homestead exemption in the amount of $132,900. At that time, Farmers National Bank (FNB) held two judicial liens resulting from post-foreclosure deficiency judgments (though the two liens appeared duplicative, the bankruptcy court and the BAP treated them as separate liens). There were also two liens on the house held by Midland Credit Management (MCM) and Matthew Giannini, as well as a county lien against the property for unpaid real estate taxes. Ms. Pace converted to chapter 7 and moved to avoid the non-tax liens as impairing her homestead exemption. The motion was unopposed. The bankruptcy court granted the motion to avoid the MCM and Giannini liens, but denied the motion to avoid the liens held by FNB. [Read more…] about Mortgage Deficiency Judgment Liens Are Avoidable

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DOR May Not Collect Child Support Arrearage Outside Plan

Where the debtor’s plan provided for repayment of child support arrearage inside the plan, the Florida Department of Revenue was precluded from post-confirmation garnishing of the debtor’s wages in connection with that debt. Dempsey v. Fla Dept. of Rev., No. 16-328 (E.D. Tenn. June 20, 2017).

Kenneth Dempsey’s confirmed chapter 13 plan provided, “Miami Dade Child Support – Arrearage Child Support to be paid in full inside the plan.” Notwithstanding its knowledge of Mr. Dempsey’s bankruptcy and his treatment of the arrearage in his plan, the Florida Department of Revenue began garnishing Mr. Dempsey’s wages. Mr. Dempsey filed a motion for contempt. The bankruptcy court ordered the FDOR to cease its garnishments, refund any amounts it had collected but not yet disbursed, and reduce its claim in the bankruptcy by the amount it had garnished and disbursed. It declined to find the FDOR in contempt, however. The parties filed cross-appeals. [Read more…] about DOR May Not Collect Child Support Arrearage Outside Plan

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Automatic Stay Does Not Preclude Criminal Restitution Collection

The automatic stay does not prevent the government from collecting criminal restitution under the Mandatory Victim’s Restitution Act, 18 U.S.C. § 3613(a). Partida v. U.S. Dept. of Justice, No.15-60045 (9th Cir. July 7, 2017).

Deborah Partida was convicted of embezzlement and theft of labor union funds. She filed for chapter 13 bankruptcy owing over $200,000 in court-ordered restitution for the crime. When the government offset the debt against her current income, she moved to hold it in contempt for stay violation. The bankruptcy court denied the motion and the Bankruptcy Appellate Panel affirmed. Partida v. United States (In re Partida), 531 B.R. 811 (B.A.P. 9th Cir. 2015). [Read more…] about Automatic Stay Does Not Preclude Criminal Restitution Collection

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Debtors Have Standing to Seek Abandonment

The debtors were “parties in interest” for purposes of establishing standing to compel abandonment of their residential property. Jahn v. Burke (In re Burke), No. 16-6603 (6th Cir. July 14, 2017).

After Philip and Nekolia Burke filed chapter 7 bankruptcy, the trustee sought to evict them from their residence and sell the property for the benefit of creditors. The trustee tendered a check to the Burkes representing their homestead exemption. The Burkes refused the money and moved to compel the trustee to abandon the property as being of inconsequential value to the bankruptcy estate. In the alternative, the Burkes moved to convert to chapter 13. At the evidentiary hearing, the parties offered competing valuations with the Burkes presenting testimony of two appraisers that the residence had a value of approximately $108,000 and was security for a mortgage in the amount of $91,581. The trustee countered with the testimony of a realtor, a home inspector and himself that the value was approximately $200.000. The bankruptcy court resolved the valuation issue in favor of the Burkes and granted the motion to compel abandonment. The district court affirmed. [Read more…] about Debtors Have Standing to Seek Abandonment

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Deadline for Revocation of Discharge Not Jurisdictional

The one-year deadline for seeking revocation of a discharge order is not jurisdictional and may therefore be waived. Weil v. Elliott (In re Elliott), No. 16-55359 (9th Cir. June 14, 2017).

When Edward Elliott filed his chapter 7 bankruptcy petition he failed to mention one important asset: his home. He received a discharge under section 727(a). Fifteen months later, when the trustee discovered the fraudulent nondisclosure, she filed an adversary complaint seeking an order vacating the discharge under section 727(d)(1). Section 727(e)(1) permits a trustee to seek revocation of discharge within one year of the discharge order. Mr. Elliott did not raise the issue of untimeliness in his response to the adversary complaint. The bankruptcy court revoked his discharge. The Bankruptcy Appellate Panel, however, found the one-year filing deadline to be jurisdictional and reversed. Elliott v. Weil (In re Elliott), 529 B.R. 747, 755 (B.A.P. 9th Cir. 2015). On remand, the bankruptcy court dismissed the adversary complaint for lack of jurisdiction. The trustee was permitted direct appeal to the Ninth Circuit. [Read more…] about Deadline for Revocation of Discharge Not Jurisdictional

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Section 707(b) Applies to Converted Cases

Section 707(b) applies to a case converted to chapter 7 from chapter 13. Pollitzer v. Gebhardt, No. 16-11506 (11th Cir. June 27, 2017).

Stratton Pollitzer contributed to his chapter 13 plan for two years before converting under section 1307 to chapter 7. Upon conversion, the trustee moved the court to dismiss the case as abusive under section 707(b) because Mr. Pollitzer’s income was sufficient to significantly repay his unsecured creditors. Conceding that his petition failed the means test, Mr. Pollitzer took the position that because his case was originally filed as a chapter 13, section 707(b) was inapplicable. Both the bankruptcy court and the district court concluded that section 707(b) applies to converted cases. The Eleventh Circuit agreed. [Read more…] about Section 707(b) Applies to Converted Cases

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Direct Payments to Mortgagee are “Payments under the Plan”

“A chapter 13 debtor’s direct payments to a secured creditor pursuant to a ‘cure and maintain’ plan are ‘payments under the plan’ for purposes of § 1328(a), and a debtor who fails to make such payments is not entitled to a discharge under 11 U.S.C. § 1328(a).” In re Coughlin, No. 11-76202 and In re Sangamaya, No. 12-71109 (Bankr. E.D. N.Y. June 15, 2017). [Read more…] about Direct Payments to Mortgagee are “Payments under the Plan”

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Some Federal Student Loans Cancelled in New Jersey

Approximately 2,200 students who enrolled in any one of five schools operated by Corinthian Colleges, Inc., a New Jersey for-profit entity, are eligible to have their federal student loans cancelled. Corinthian Colleges ceased operations in 2015 under scrutiny by government entities into fraudulent conduct including misrepresentations made between 2010 and 2014 about post-graduate employment rates, the transferability of credits, and other issues. The schools affected by the loan cancellation are Everest Institute, Everest College, Everest University, Heald College, and Wyotech. Students who have their federal loans cancelled will make no further payments and will receive a refund of payments already made. The loan cancellation was announced on May 22, 2017, in a Press Release issued by Attorney General Christopher S. Porrino Office. The Attorney General’s office is sending outreach letters and application forms to those students who may be eligible for the loan cancellation.

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Equitable Estoppel vs. Right to Amend Schedules

Where new facts arose to support a claim for homestead exemption and the debtor did not make any misrepresentation upon which the trustee reasonably relied, the bankruptcy court erred in disallowing the exemption on the basis of equitable estoppel. Lua v. Miller (In re Lua), No. 15-56814 (9th Cir. June 27, 2017) (unpublished).

Rosalva Lua  claimed a homestead exemption in her initial bankruptcy schedules, removed the claim in her First Amended Schedules, and reasserted it in her Second Amended Schedules approximately three years later. The bankruptcy court sustained the trustee’s objection to the exemption on the basis of equitable estoppel. The district court affirmed. [Read more…] about Equitable Estoppel vs. Right to Amend Schedules

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Grace Period to Cure Arrearage Beyond Five-Year Plan Period

A bankruptcy court has discretion to grant a grace period at the end of the five-year plan to a chapter 13 debtor who has completed her plan payments but where there is a newly discovered arrearage. Klaas v. Shovlin (In re Klaas), Nos. 15-3341 & 16-3482 (3rd Cir. June 1, 2017).

Chapter 13 debtors, Paul and Beth Ann Klaas, successfully completed their plan according to its terms, but one month after completion, the trustee filed a motion to dismiss citing an unpaid arrearage of over $1,000. (The shortfall was apparently due to an increase in the Trustee’s fee during the term of the plan, and not to any missed payments.) In the motion to dismiss, the trustee stated that she would withdraw the motion if the Klaas’s paid the arrearage. They did so. By that time, however, a creditor, Elizabeth Shovlin, had joined the motion to dismiss and objected to its withdrawal. [Read more…] about Grace Period to Cure Arrearage Beyond Five-Year Plan Period