National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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A Loan Is Not an “Educational Benefit” for Dischargeability Purposes

A loan is not an “educational benefit” within the meaning of section 523(a)(8)(A)(ii), therefore, that student loan discharge exception in did not apply. Kashikar v. Turnstile Capital Management, No. 16-1298 (B.A.P. 9th Cir. April 28, 2017).

Ms. Kashikar attended St. Matthew University School (SMU) in the Grand Cayman Islands. She obtained loans which were paid directly by the creditor to SMU and which, by the time she filed chapter 7 bankruptcy, amounted to over $73,000. She received her chapter 7 discharge and filed an adversary complaint seeking determination that her loans related to her attendance at SMU were discharged. The parties stipulated that “SMU has never been, and is not now, an ‘eligible educational institution’ as that term is defined under section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), and has never been, and is not now, eligible to participate in a program under title IV of the Higher Education Act.” The court declined to address Ms. Kashikar’s argument under section 523(a)(8)(A)(i) because she had not raised that provision in her complaint. The court, however, applied an “expansive” reading of the phrase “educational benefit,” in section 523(a)(8)(A)(ii), and found the loans nondischargeable. [Read more…] about A Loan Is Not an “Educational Benefit” for Dischargeability Purposes

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Escrow, Insurance and Rent Not Additional Collateral in Deed of Trust

Escrow, insurance and rent do not constitute additional collateral in a deed of trust for purposes of stripping down a mortgage. Jeremy v. J.P. Morgan Bank, No. 15-2369 (4th Cir. March 9, 2017). In an unpublished opinion, the Fourth Circuit rejected Calvert and Jolita Jeremy’s argument that stripping down of their residential debt was not prohibited by the anti-modification provision of section 1322(b)(2) because the debt was collateralized by more than simply their residence. Specifically, the Jeremys pointed to the deed of trust which provided for supplemental collateral including escrow funds, insurance proceeds, and rent. Citing its decision in Birmingham v. PNC Bank, N.A., 846 F.3d 88 (4th Cir. 2017), the court found that the funds listed in the deed of trust were “incidental property” rather than additional collateral.

Jeremy 4th Cir. March 2017

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Order On Liability But Not Damages Is Interlocutory

Where the bankruptcy court granted partial summary judgment on the debtor’s complaint for willful violation of the automatic stay, but did not decide damages, the order was interlocutory and the Bankruptcy Appellate Panel lacked jurisdiction over the appeal. Lugo Ruiz v. FirstBank Puerto Rico, No. 17-7 (B.A.P. 1st Cir. April 14, 2017). [Read more…] about Order On Liability But Not Damages Is Interlocutory

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Governmental Regulatory Exception to Automatic Stay Applies to Contempt Proceeding

“Civil contempt proceedings are exempted from the automatic stay under the government regulatory exemption when the proceedings are intended to effectuate the court’s public policy interest in deterring litigation misconduct.” Dingley v. Yellow Logistics, LLC, No. 14-60055 (9th Cir. April 3, 2017).

The underlying Nevada state court litigation arose out of a dispute in between Mark Dingley’s towing company and two transportation companies, Yellow Logistics, LLC, and Yellow Express, LLC, (Yellow) in which Yellow sued Mr. Dingley for improper towing, storage and sale of one of Yellow’s trucks. The Nevada court ordered $4,000 in discovery sanctions against Mr. Dingley when he failed to appear for a scheduled deposition. When he then failed to pay the sanction the court ordered Mr. Dingley to show cause why he should not be held in contempt. Mr. Dingley filed for chapter 7 bankruptcy before the contempt issue came to hearing. Yellow filed a brief in the state court arguing that the automatic stay did not apply to prevent the ongoing contempt litigation. Mr. Dingley responded with a complaint in the bankruptcy court arguing that Yellow’s state court brief violated the automatic stay. The bankruptcy court agreed with Mr. Dingley and awarded sanctions. [Read more…] about Governmental Regulatory Exception to Automatic Stay Applies to Contempt Proceeding

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Emotional Distress Damages Available for Stay Violation

Emotional distress damages may be awarded for willful violation of the automatic stay. Lansaw v. Zokaites (In re Lansaw), No. 16-1867 (3rd Cir. April 10, 2017).

Garth and Deborah Lansaw operated a day care center out of property they leased from Frank Zokaites. The Lansaws and Mr. Zokaites had numerous disputes during the course of their relationship and the Lansaws eventually entered into a lease with a third party. Mr. Zokaites asserted a lien against the Lansaws’ personal property for unpaid rent and, the next day, the Lansaws filed a bankruptcy petition. Despite notice of the bankruptcy, Mr. Zokaites entered the day care center during business hours, took photographs and behaved in a physically threatening manner toward Ms. Lansaw. Mr. Zokaites also entered the property during off hours, confronted Ms. Lansaw’s mother who was there to clean, and padlocked the door, allowing Ms. Lansaw to reenter only in the company of a police officer. Additionally, Mr. Zokaites threatened the Lansaws’ new landlord with legal action if he did not end the lease with the Lansaws. After a lengthy procedural history, and a hearing, the bankruptcy court awarded the Lansaws $7,500 for emotional distress, $2,600 in attorney fees, and $40,000 in punitive damages. [Read more…] about Emotional Distress Damages Available for Stay Violation

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Attorney Fee Application Filed Too Late

Where the debtors’ attorneys filed a fee application as an administrative claim after the debtors completed their chapter 13 plan, the court properly denied the administrative claim and treated the debt as discharged. Cripps v. Foley, No. 16-744 (W.D. Mich. March 31, 2017).

After the debtors, Lon and Deborah Cripps, completed their chapter 13 bankruptcy and the trustee had filed the notice of completion, their bankruptcy attorneys, Dietrich Law Firm, filed a fee application for $642.60 as an administrative claim. (During the course of the bankruptcy, Dietrich Law had filed fee applications amounting to over $13,000 which had been approved and paid through the plan). The trustee objected to the fees as untimely and, while the issue was pending, the Cripps’ were granted discharge. While the court approved the fee application under section 330(a), it found that the fees could not be paid as an administrative claim under section 503. [Read more…] about Attorney Fee Application Filed Too Late

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Sovereign Immunity in Tax Refund Turnover Claim

Application of section 505(a)(2)(B), which carves out an exception to the government’s abrogation of sovereign immunity in tax refund claims, involved issues of both fact and law, and therefore, the district court remanded this appeal to the bankruptcy court for determination of whether it had subject matter jurisdiction over the debtors’ claim for turnover of their tax refund. United States v. Copley, No. 3:16-cv-207 (E.D. Va. March 31, 2017).

Chapter 7 debtors, Matthew and Jolinda Copley, listed the United States as a creditor for a tax debt of over $13,000 from 2008, 2009, and 2010. They also listed a 2013 tax refund in the amount of over $3,000 which they sought to exempt under Virginia’s homestead exemption statute. Post-petition, the IRS notified the Copleys that it had withheld their 2013 tax refund as set off against the tax debt. The Copleys sought turnover of the refund and both parties moved for summary judgment. The bankruptcy court granted judgment in favor of the Copleys, relying on sections 522 and 542(a) and case law establishing that, unless the IRS acts to offset the tax debt prior to bankruptcy, the refund becomes part of the bankruptcy estate. [Read more…] about Sovereign Immunity in Tax Refund Turnover Claim

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Res Judicata Does Not Bar Post-Confirmation Objection to POC

Plan confirmation did not adjudicate claim allowance on contested unsecured claims, therefore, res judicata did not bar the debtors’ post-confirmation challenges to the proofs of claim. LVNV Funding v. Harling, No. 16-1346, and LVNV Funding v. Rhodes, No. 16-1347 (4th Cir. March 30, 2017).

In two chapter 13 cases, LVNV filed proofs of claim prior to plan confirmation. The debtors, Derrick and Teresa Harling, and Jeffrey Rhodes, objected after plan confirmation but prior to the claims bar date. LVNV argued that the objections should have failed under the doctrine of res judicata. The bankruptcy courts found that res judicata did not apply, and disallowed the claims on the basis that the underlying debts were uncollectible due to the passage of the statute of limitations.

LVNV appealed both cases directly to the Fourth Circuit. [Read more…] about Res Judicata Does Not Bar Post-Confirmation Objection to POC

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Circuit Court Upholds Punitive Damages Eight Times Compensatory

There was sufficient evidence of the mortgage servicer’s reckless indifference to the mortgagor’s rights to support a punitive damage award eight times the compensatory damage award for invasion of privacy. May v. Nationstar Mortgage, No. 16-1285, 16-1307 (8th Cir. March 29, 2017).

While in chapter 13 bankruptcy, Jeannie May entered into an agreement with her mortgagee to pay down her mortgage and arrears. After she was discharged from bankruptcy, the mortgage servicer, Nationstar, sent her a mortgage statement in which it misstated a $51 credit as a $5,162 debit. Nationstar also damaged Ms. May’s credit score by incorrectly reporting a delinquent debt. Ms. May spent the next two years trying to get Nationstar to correct the admitted error. Instead of correcting the problem, however, Nationstar commenced aggressive collection efforts including threatening of foreclosure, conducting periodic property inspections, and making numerous mocking and sarcastic phone calls to her. Ms. May sued Nationstar alleging invasion of privacy under state law, and federal claims under RESPA, FDCPA and FCRA. The jury awarded compensatory damages of $50,000 for the invasion of privacy, and $50,000 for the violation of the FCRA.  It also awarded $400,000 in punitive damages for the invasion of privacy. [Read more…] about Circuit Court Upholds Punitive Damages Eight Times Compensatory

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Mere Retention of Property Does Not Support Stay Violation

Breaking with the majority view that passive retention of estate property may be an “exercise of control,” the Tenth Circuit held that the lender must take some affirmative action to support a stay violation claim. WD Equipment, LLC. v. Cowen, No. 15-1413 (10th Cir. Feb. 27, 2017).

Jared Cowen defaulted on the purchase money security interest loan for one vehicle and a non-pmsi loan for another vehicle. After the vehicles were repossessed, by separate but related lenders, Mr. Cowen filed for chapter 13 bankruptcy. The case was dismissed, however, because, without his trucks, he could not earn income to finance his plan. The bankruptcy court retained jurisdiction over Mr. Cowen’s adversary complaint for violation of the automatic stay. In the hearing on that complaint, the lenders lied and presented forged documents to support their claims that the sale of one vehicle and title transfer of the other took place pre-bankruptcy. The bankruptcy court found that the lenders’ failure to turn over the vehicles constituted continuing violation of the automatic stay and awarded damages. The district court recalculated damages but otherwise affirmed. [Read more…] about Mere Retention of Property Does Not Support Stay Violation