National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Harsh McCoy Rule Rejected in Late Tax Return Cases

The bankruptcy court for the district of New Jersey bucked the current trend, and “agree[d] with those decisions that hold that the timing of the filing is not a factor in determining whether the document meets the definition of a ‘return.’”In re Davis, No. 14-26507 (Bankr. D. N.J. Sept. 29, 2015). See also, In re Maitland, 531 B.R. 516 (Bankr. D. N.J. 2015). [Read more…] about Harsh McCoy Rule Rejected in Late Tax Return Cases

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Ninth Circuit Permits Lien-Voidance in Chapter 20

In an elegant opinion employing judicial tools of plain text reading, simple logic, and historical context, the Ninth Circuit joined the “Fourth and Eleventh Circuits in concluding that Chapter 20 debtors may permanently void liens upon the successful completion of their confirmed Chapter 13 plan irrespective of their eligibility to obtain a discharge.” HSBC Bank v. Blendheim (In re Blendheim), No. 13-35412 (Oct. 1, 2015). [Read more…] about Ninth Circuit Permits Lien-Voidance in Chapter 20

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Caulkett Does Not Apply in Chapter 13

Following the decision in Bank of America, N.A. v. Caulkett, 575 U.S. ___, 2015 WL 2464049 (June 1, 2015), that wholly unsecured liens could not be stripped off in chapter 7, there was a flurry of concern that courts, at the behest of trustees and creditors, would revisit the issue of lien-stripping in chapter 13. That fear is quietly being laid to rest.

Strip-down of partially secured liens in chapter 7 was prohibited by Dewsnup v. Timm, 502 U. S. 410 (1992), and the Caulkett decision extended that holding to wholly unsecured liens. In chapter 13, however, appellate courts have consistently found that the reasoning in the decision in Nobelman v. American Savings Bank, 508 U. S. 324 (1993), which also prohibits strip-down of partially secured liens, permits strip-off of wholly unsecured liens. The difference being that, unlike chapter 7, where the Dewsnup Court found that section 506(d) does not provide a mechanism for lien-stripping, chapter 13 has its own mechanism in section 1322(b) for stripping off unsecured liens.

Since this summer’s decision in Caulkett, courts have largely, and correctly, found that that case does not apply in chapter 13 lien-strip cases. See, e.g., Green Tree Servicing v. Wilson, No. 14-9543 (S.D. N.Y. June 5, 2015) (“The recent Supreme Court decision on lien stripping, Bank of America, N.A. v. Caulkett, has no effect on the Bankruptcy Court’s order granting the Pond motion because Caulkett only applies in the Chapter 7 context.”); Kresl v. Beneficial Nebraska, No. 15-8016 (Bankr. D. Neb. Sept. 24, 2015); Osbourn v. Wells Fargo Financial Bank, No. 12-80485, Adv. Pro. 15-8007 (Bankr. D. Neb. Sept. 21, 2015); In re Ricci-Breen, No. 14-22798 (Bankr. S.D. N.Y. Aug. 31, 2015); Young v. Green Tree Servicing, No 14-41518, Adv. Pro. 15-4016 (Bankr. D. Neb. Aug. 18, 2015); Landron v. Banco Popular de Puerto Rico Oriental Bank, No. 13-7968 (Bankr. D. P.R. June 25, 2015) (all recognizing that Caulkett limited to chapter 7).

But, lest anyone get too comfortable with these cases, see, Davis v. Springleaf Financial Services, No. 15-4020 (Bankr. S.D. Ga. Sept. 9, 2015) (speculating in dictum that the decision in Caulkett could cause a change in current lien-stripping law in chapter 13).

 

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Plan May Vest Surrendered Property in Creditor

The bankruptcy court for the Eastern District of New York confirmed the debtors’ chapter 13 plan which provided for surrendering their residential property and vesting title in the creditor over that creditor’s objection. HSBC Bank v. Zair, No. 14-74456 (Bankr. E.D. N.Y. Aug. 13, 2015).

[Read more…] about Plan May Vest Surrendered Property in Creditor

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CFPB Penalizes Two Largest Debt Buyers

In a September 9, 2015, press release, the CFPB announced that it took action against the nation’s two largest debt buyers and collectors: Encore Capital Group and Portfolio Recovery Associates. Encore’s subsidiaries, also named in the action, are Midland Funding LLC, Midland Credit Management, and Asset Acceptance Capital Corp. Together, the two companies have bought over $200 billion in defaulted loans.

The Bureau found that both companies bought debts that “were potentially inaccurate, lacking documentation, or unenforceable. Without verifying the debt, the companies collected payments by pressuring consumers with false statements and churning out lawsuits using robo-signed court documents.” The all-too-familiar list of wrongdoing includes attempts to collect on debts that they knew were inaccurate or unenforceable by means of meritless lawsuits that they expected to, and often did, win by default, in violation of the FDCPA and the Dodd-Frank Wall Street Reform and Consumer Protection Act. They lied to consumers about their legal burdens and threatened litigation that was, in fact, not being considered. They harassed consumers with phone calls before 8:00 a.m. and after 9:00 p.m. and, in some instances, made collection calls to the consumer over 20 times in a two-day period.

The enforcement action consists of requiring both entities to stop reselling debts, stop collection efforts with respect to unverified debts, ensure accuracy when filing lawsuits, provide information to consumers such as the name of the creditor and charge-off balance, provide original documentation of the debt, use accurate affidavits, and cease collections efforts on time-barred debts.

Encore was ordered to pay up to $42 million in refunds and to dismiss all pending lawsuits or cease collection efforts on judgments involving misrepresentation.

Portfolio was ordered to pay $19 million in refunds where it made similar legal claims and where it collected payments on default judgments for debts that were barred by the statute of limitations.

Finally, Encore was ordered to pay $10 million and Portfolio $8 million to the CFPB;s Civil Penalty Fund.

The Encore consent order can be found at: http://files.consumerfinance.gov/f/201509_cfpb_consent-order-encore-capital-group.pdf

The Portfolio Recovery Associates consent order can be found at: http://files.consumerfinance.gov/f/201509_cfpb_consent-order-portfolio-recovery-associates-llc.pdf

 

 

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Harris Does Not Preclude Attorney Fees Upon Pre-Confirmation Conversion

A bankruptcy court for the District of Maryland held that the chapter 13 trustee could use funds that were undisbursed at the time of conversion to pay accrued fees owed by the debtors to their bankruptcy attorneys. In re Everest, No. 14-29084 (Sept. 10, 2015) consolidated with In re Brandon, No. 14-23735 (lead case), In re Rucker, No. 14-27630, and In re Burrows, No. 14-28940. [Read more…] about Harris Does Not Preclude Attorney Fees Upon Pre-Confirmation Conversion

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Proposed Bill Eliminates Student Loan Discharge Exception

On September 8, 2015, Michigan Congressman Dan Kildee introduced a bill in Congress intended to reduce the burden on students and their families caused by the ever-increasing costs of higher education and the financial stress of student loans. H.R. 3451. The proposed legislation removes student loans from section 523(a)’s exceptions to discharge, thereby clearing the way for student loans to be discharged in bankruptcy just as credit card debts and car loans are currently dischargeable. In a statement issued by Mr. Kildee’s office, the necessity for the legislation was founded on his concern that “[s]tudent loan debt has soared in recent years, and there are now over 40 million federal and private student loan borrowers who collectively owe $1.2 trillion in student loans. The average student has $28,400 of loan debt, and total student loan debt in the U.S. has now surpassed credit card and auto loan debt totals.” In a press conference, Mr. Kildee explained: “It’s increasing[ly] clear that well educated society is absolutely necessary to a sustainable economy and to an equitable society that more fairly allocates the vast wealth that we create in this nation. The path to doing that is to make college affordable to more and more people. I think it’s important for us to remind ourselves that a college education for a young person in our state is valuable not just to them [but] for all of us and we should be willing to invest in it.”

Mr. Kildee also introduced two other bills dealing with student loans, one of which would exempt Pell Grants and scholarships from income taxes, and the other which would eliminate some private lenders’ unfair practice of automatically treating loans as being in default when a student’s cosigner dies even where the payments on those loans are current.