National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Two Courts Reject Narrow Parameters for Rule 3002.1

A bankruptcy court in Illinois found that JP Morgan Chase violated Rule 3002.1 by raising the debtors’ mortgage payments without providing proper notification even though there was no mortgage arrearage being cured through the chapter 13 plan. In re Tollios, No. 09-19329 (Bankr. N.D. Ill. May 13, 2013). In the Eastern District of Kentucky, the bankruptcy court found that the rule continued to apply even after the mortgagee was granted relief from stay. In re Holman, No. 12-50023 (March 15, 2013). [Read more…] about Two Courts Reject Narrow Parameters for Rule 3002.1

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Supreme Court Determines Scienter for Defalcation

Debts for “defalcation” have been excepted from discharge for almost one hundred and fifty years, yet only now has the Supreme Court resolved the question of what mental state is required for an actor to commit defalcation within the meaning of section 523(a)(4). Bullock v. BankChampaign, 569 U. S. ____ (2013), No. 11-1518 (May 13, 2013). [Read more…] about Supreme Court Determines Scienter for Defalcation

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Creditor Must Return Repossessed Vehicle upon Bankruptcy Filing

The Second Circuit upheld sanctions against vehicle loan creditor, SEFCU, for refusing to return debtor’s repossessed vehicle without a court order and adequate protection. Weber v. SEFCU, No. 12-1632 (May 8, 2013). SEFCU had lawfully repossessed the debtor’s pick-up truck pursuant to the loan agreement but when the debtor filed for bankruptcy SEFCU refused to return the vehicle. The bankruptcy court determined that SEFCU’s actions did not violate the automatic stay. The district court reversed. Weber v. SEFCU, 477 B.R. 308, 311 (N.D.N.Y. 2012). [Read more…] about Creditor Must Return Repossessed Vehicle upon Bankruptcy Filing

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Chapter 20 Lien Stripping Goes to Circuit

The Ninth Circuit is poised to be the first circuit court to address the issue of whether a lien may be stripped in a “chapter 20” case where discharge is unavailable. The Western District of Washington recently found that lien stripping was not contingent upon the availability of discharge. Litton Loan v. Blendheim, No. 11-2004 (W.D. Wash. March 29, 2013). Litton Loan filed a notice of appeal on April 26, 2013.

In upholding the bankruptcy court’s finding in favor of the debtors, the district court noted “an emerging trend” in the Ninth Circuit permitting such lien stripping. See In re Tran, 321 B.R. 230, 235 (Bankr. N.D. Cal. 2010); In re Hill, 440 B.R. 176, 182 (Bankr. S.D. Cal. 2010); In re Okosisi, 451 B.R. 90, 100 (Bankr. D. Nev. 2011), and found that those cases were correctly decided. It reasoned that the Supreme Court in Johnson v. Home State Bank, 501 U.S. 78 (1991), explicitly sanctioned chapter 20 cases, and nothing in the later amendments to the Bankruptcy Code imposed a discharge requirement upon the ability to strip a lien that is otherwise amenable to stripping. The court concluded that the lien would be stripped upon completion of plan payments.

The Eighth Circuit recently avoided the issue in the case of In re Fisette, 695 F.3d 803 (8th Cir. 2012), by concluding that the BAP’s order that liens may be stripped in chapter 20 was an interlocutory order not subject to appeal.

Blendheim opinion

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No Presumption of Validity for Payment Changes under Rule 3002.1

The bankruptcy court for the Northern District of Mississippi differentiated between the shifting burdens of proof under Rule 3001, which deals with proofs of claim generally, and Rule 3002.1, relating to notice of changes to mortgage payments on debtor’s residence. In re Taylor, No. 12-11463 (March 27, 2013). [Read more…] about No Presumption of Validity for Payment Changes under Rule 3002.1

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Creditor Sanctioned to the Tune of $50,000.00

In In re Powell, No. 10–03859 (Bankr. E.D. N.C. June 26, 2012), the court put a leash on the creditor’s dogged pursuit of the debtors. The court found that the creditor, Bank of America and its servicer, violated the discharge injunction and the automatic stay when it foreclosed on the debtors’ residence after they filed bankruptcy, and relentlessly dunned them for payments post-discharge.

After the debtors obtained their bankruptcy discharge the creditor began sending monthly billing statements seeking to collect on the mortgage for property the debtors had surrendered. The debtors’ attorney responded with several warning letters and finally with a motion to the court for sanctions. With the exception of one letter claiming to be a debt collector under the FLSA, the creditor otherwise responded like a mindless automaton. It continued its monthly collection efforts unabated. At the hearing on the motion, which the creditor did not attend, one of the debtors testified to the stress and anxiety caused by the continued billing and the ever-increasing amount owed. The court invoked its contempt power under section 105, under which four conditions must be met: 1) there must be a valid decree of which the contemnor had actual or constructive knowledge; 2) the decree must be in the movant’s favor; 3) the contemnor must have violated the terms of the decree, with knowledge of such violations; and 4) the movant must have suffered harm as a result. Finding that each of these conditions was met, the court awarded attorney fees in the amount of $3,000.00, damages in the amount of $2,500.00 and sanctions in the amount of $50,000.00.

Powell opinion