National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

ncbrc

by on

Court Erroneously Requires that Exemption Attach to Equity

Because the debtor had no equity in her residential property to which it could attach, the Sixth Circuit found that the bankruptcy court properly authorized sale of the property and denied her claim for exemption based on her state law redemption rights. Brown v. Ellman (In re Brown), No. 16-1967 (6th Cir. March 20, 2017).

Susan Brown’s residence was valued at $170,000 and was secured for more than $200,000. When she filed her chapter 7 petition, she indicated her intent to surrender the property. The trustee sought an order allowing him to sell the property for $160,000 and use the proceeds to pay administrative costs and make distributions to creditors. Ms. Brown objected and claimed an exemption under section 522(d) based on her state law redemption rights. She did not seek a stay of the sale. The sale went forward and the bankruptcy court denied Ms. Brown’s exemption claim on the basis that she had no equity in the property. The district court affirmed. [Read more…] about Court Erroneously Requires that Exemption Attach to Equity

by on

Court Issues $45m Punitive Damages Award Against BofA

“The mirage of promised mortgage modification lured the plaintiff debtors into a kafkaesque nightmare of stay-violating foreclosure and unlawful detainer,” for which the court ordered over $1 million dollars in actual damages plus a significant punitive damage award. Sundquist v. Bank of America, No. 10-35624, Adv. Proc. No. 14-2278 (Bankr. E.D. Cal. March 23, 2017).

In the first 30 pages of the 109-page opinion, the court walked through the facts of the case illustrating Bank of America’s egregious conduct and including extensive quotes from Renee Sundquist’s journal. A few highlights include the following facts. Though struggling financially, Erik and Renee Sundquist were current on their home loan, defaulting only after Bank of America told them that the only way they could get loan modification would be if they were in default. After that began a series of abortive modification attempts during which Bank of America consistently lost paperwork, denied modification for no apparent reason, or otherwise dangled modification before the Sundquists without actually providing it, while at the same time going forward then retreating on foreclosure actions. At one point, a Bank of America employee told Renee that modifications were “not real” but were simply a way for Bank of America to make more money before foreclosure. [Read more…] about Court Issues $45m Punitive Damages Award Against BofA

by on

No Personal Liability for Post-Petition HOA Fees

The debtor was not personally liable for post-petition HOA dues despite the fact that title to the property remained in his name, where he had no “significant incidents of ownership” in the property. Hovious v. Bridgewater Homeowners Assn., No. 10-2917, Adv. Proc. 16-50195 (Bankr. S.D. Ind. Feb. 15, 2017).

In his 2010 chapter 13 bankruptcy petition, debtor, Daniel Lee Hovious, listed Bridgewater Homeowners Association as an unsecured creditor to which he owed 2009 HOA dues on his residence. He also stated his intention to surrender that property to the holder of the first mortgage. He ceased making HOA payments upon filing for bankruptcy. The court confirmed the plan and ultimately granted Mr. Hovious’s discharge. [Read more…] about No Personal Liability for Post-Petition HOA Fees

by on

Preferential Transfer Governed by Date Garnished Wages Earned

It is not the date the garnishment order is served on the employer, but the date the debtor earns the wages that governs whether garnishment of those earnings is a preferential transfer. Tower Credit Inc. v. Schott (In re Jackson), No. 16-30274 (5th Cir. March 13, 2017).

Pursuant to a state court judgment, Tower Credit garnished the wages of the chapter 7 debtor, Christon Jackson. When he filed for bankruptcy, the trustee, Martin Schott, moved for turnover of the garnished wages as preferential transfers. Section 547(b) empowers a trustee to avoid a transfer made within 90 days of bankruptcy filing. The bankruptcy court granted summary judgment in favor of Mr. Schott. The district court affirmed. [Read more…] about Preferential Transfer Governed by Date Garnished Wages Earned

by on

Nationstar Drags its Feet to the Tune of $49,000

Calling Nationstar’s behavior reprehensible for its two-year failure to follow a court order and properly apply balloon payments, the court found it in contempt and awarded the chapter 13 debtor compensatory and punitive damages totaling $48,927.50. In re Rhodes, No. 11-18257 (Bankr. M.D. Fla. Feb. 3, 2017).

Chapter 13 debtor, Mary Katherine Rhodes, owned two non-primary-residence properties with mortgages held by Nationstar. After a hearing to value under section 506(a), in which Nationstar participated, the court bifurcated the claims into secured and unsecured portions. With respect to the secured portion, the plan provided for regular payments for twenty three months and balloon payments in month twenty four. When it came time to make the balloon payments, however, Ms. Rhodes was unable to finance them and her non-filing husband arranged to use his retirement account to make the payments. [Read more…] about Nationstar Drags its Feet to the Tune of $49,000

by on

Illinois AG Cracking Down on Fraud in the For-Profit College Industry

Illinois Attorney General, Lisa Madigan, is leading the charge in investigating and enforcing consumer protection violations in the area of student lending. According to a press release issued by the Attorney General’s office, Ms. Madigan is calling for the U.S. Department of Education to forgive student loans for students who attended Everest College or the criminal justice program at Westwood College. Ms. Madigan’s investigations into both colleges revealed that students were fraudulently lured into enrolling in programs that were poorly or non-accredited and that students took out millions of dollars in federal student loans to attend the programs. In 2015, Ms. Madigan reached a $15 million settlement with Westwood College, which included forgiving private loans of students enrolled in the school. Ms. Madigan’s efforts are in addition to a current investigation by the AG’s office into Navient, the largest servicer of student loans in the country. She has also taken action against debt relief scammers who victimize student loan debtors into paying for help that never materializes.

by on

SCOTUS Declines to Decide Late-Filed Tax Return Issue

The Supreme Court denied cert. in the case of Smith v. I.R.S., No. 16-497 (U.S.) dashing hopes of a definitive resolution of the issue of whether a late-filed tax return may constitute a “return” within the meaning of the hanging paragraph to section 523(a) (petition denied, (Feb. 21, 2017)). As NACBA/NCBRC argued in its amicus brief in support of certiorari, the question has deeply divided the courts with the Eighth Circuit relying on the accuracy of the documents purporting to constitute the return and permitting discharge if a bankruptcy petition is filed two years after a late-filed return, Colsen v. United States (In re Colsen), 446 F.3d 836 (8th Cir. 2006); the Fourth, Sixth, Seventh, Ninth and Eleventh Circuits, finding that once the IRS has made its own assessment of tax liability the late-filed return is not considered a return for purposes of bankruptcy dischargeability, e.g. Smith v. United States (In re Smith), 828 F.3d 1094 (9th Cir. 2016); and the First, Fifth and Tenth Circuits taking the draconian approach epitomized by McCoy v. Mississippi State Tax Comm’n (In re McCoy), 666 F.3d 924 (5th Cir. 2012), that all taxes described on late-filed returns—even those filed one day late for any reason—are barred from discharge. Unfortunately, given the sharp divide between circuits, treatment of a late-filed return will continue to be based on luck of the geographical draw.

by on

BAP Takes Realistic Approach to Undue Hardship Analysis

Where there is little likelihood that the debtor will be able to pay her students loans now or in the future, the fact that an income-based repayment plan may be available does not automatically constitute an “ability to pay.” Fern v. FedLoan Servicing, No.16-6021 (B.A.P. 8th Cir. Feb. 7, 2017).

Sara Fern is a 35 year-old single mother of three who receives food stamps and rental assistance and has a monthly employment income of $1,507. While she receives occasional financial help from her mother, that assistance is expected to end when her mother retires. Her expenses exceed her income by $62/month. Ms. Fern has student loans totaling over $27,000 which have been in forbearance or deferment ever since she left school.

The U.S. Department of Education appealed the bankruptcy court’s finding that Ms. Fern’s student loans were dischargeable based on undue hardship under section 523(a)(8). [Read more…] about BAP Takes Realistic Approach to Undue Hardship Analysis

by on

Court Denies “Comfort Order” to File Late POC

Neither the Code nor the Bankruptcy Rules permit a Bankruptcy Court to grant a “comfort order” allowing a late proof of claim where no objection has been made to the filing. In re Rodriguez, No. 16-70150 (Bankr. S.D. Tex. Feb. 13, 2017).

Karina Rodriguez listed Ovation as a tax lien creditor on Schedule D of her chapter 13 petition. Ovation filed its claim, along with a motion to allow late filing, after the filing deadline had passed. Ovation’s contemporaneous motion objecting to confirmation because the plan did not provide for full payment of its claim was granted pursuant to an agreed order. [Read more…] about Court Denies “Comfort Order” to File Late POC