NCBRC’s Tara Twomey assisted debtors’ counsel in appealing a decision by the Bankruptcy Court of the Central District of California, Riverside Division, in which the court refused to give effect to debtors’ notice of conversion and instead dismissed the case with a 180-day bar to refiling. In re Taylor, No. 11-1879 (C.D. Cal.). In Taylor, the judge dismissed debtors’ chapter 13 case sua sponte the day after the chapter 13 debtors filed a notice of conversion to chapter 7. While acknowledging that the notice of conversion had been filed, the court refused to give the notice any effect. At a continued confirmation hearing, debtors’ counsel commented that the case had been converted the prior day, but the judge responded by saying: “No, it wasn’t. Confirmation denied. Cased dismissed. 109(g) applies.” [Read more…] about Appeal of Sua Sponte Dismissal in Central District California
$3,000,000.00 Award Against Wells Fargo
In Charles Dickens’ “A Tale of Two Cities,” there is a scene in which the wealthy Monsieur the Marquis riding in his carriage through a crowd runs over and kills a small, poor, child. When the crowd cries out in outrage, he carelessly throws a few coins out of the window of the carriage with the words, “It is extraordinary to me, that you people cannot take care of yourselves and your children.” With that, he rides on. Thus begins the French Revolution.
For many years, Wells Fargo has been carelessly throwing coins out its carriage window at the debtors overrun by its policies that unfairly compound their already onerous financial burdens. But, debtors, with the help of the courts, are fighting back.
The recent battlefield was the Bankruptcy Court for the Eastern District of Louisiana in the case of Jones v. Wells Fargo Home Mortgage, No. 03-16518 (Bankr. E.D. La, April 5, 2012). In that case Judge Elizabeth Magner reviewed an order for sanctions after remand by the Fifth Circuit, in light of the Fifth Circuit’s decision in Wells Fargo Bank, N.A. v. Stewart (In re Stewart), 647 F.3d 553 (5th Cir. 2011) (finding that Bankruptcy overstepped its mandate in ordering Wells Fargo to audit every case it was involved in in the district). [Read more…] about $3,000,000.00 Award Against Wells Fargo
Bankruptcy-Only Exemptions Constitutional
In a lengthy and comprehensive opinion, Judge Karlin of the Bankruptcy Court of Kansas, overruled the trustee’s objection to debtor’s claimed exemption for earned income tax credits under a state bankruptcy-only exemption scheme. In re Westby, No. 11-40986, 2012 Bankr. LEXIS 1428, (Bankr. Kan. April 4, 2012).The trustee had challenged the exemption in Westby and several other cases based on the contention that the state exemption violated the Uniformity and Supremacy Clauses of the U.S. Constitution. [Read more…] about Bankruptcy-Only Exemptions Constitutional
MERS Survives Challenge to its Business Model
The Eastern District of New York found that the Bankruptcy Court overstepped its jurisdictional bounds when it entered an advisory opinion that MERS, as “nominee,” had no power to assign mortgages. In re Agard, No. 11-1826 (E.D. N.Y. March 28, 2012). [Read more…] about MERS Survives Challenge to its Business Model
No Requirement upon Conversion to Chapter 7 to Turn Over Tax Refund
The BAP for the Ninth Circuit found that a pre-petition tax refund which was obtained and spent by chapter 13 debtor post-petition but prior to confirmation of chapter 13 plan, was not subject to turnover upon conversion to chapter 7. Warfield v. Salazar (In re Salazar), No. 11-1551 (B.A.P. 9th Cir. March 14, 2012), The court found that the case turned on interpretation of section 348(f)(1)(A) which provides that upon conversion from chapter 13 to chapter 7 the estate consists of property in the possession or control of debtor at the date of conversion. Noting that section 348(f)(1)(A) creates an anomaly whereby a debtor who remains in chapter 13 would have had to have included the refund in the plan, and a debtor who had filed originally in chapter 7 would have been required to turn over the refund, the court found that the plain language of that section pinpoints the date of conversion as the relevant point. Applying rules of statutory construction, the court found that this result was not absurd and that, in the absence of bad faith, the debtors therefore were not required to turn over the tax refund.
NACBA Files Amicus on Issue of Social Security Benefits in Chapter 13 Plan
NACBA has filed an amicus brief on the issue of whether debtor’s social security income may be considered by the court when addressing whether debtor’s chapter 13 plan is proposed in good faith and is confirmable over the trustee’s objection. Beaulieu v. Ragos (In re Ragos), No. 11-31046 (5th Cir.). [Read more…] about NACBA Files Amicus on Issue of Social Security Benefits in Chapter 13 Plan
Fee-Only Plans Not Per Se Bad Faith
Making specific reference to NACBA’s “helpful” amicus brief, the First Circuit Court of Appeals found that fee-only chapter 13 plans are not per se bad faith under section 1325(a)(3). In re Puffer, No. 11-1831 (1st Cir. March 22, 2012). Debtor’s chapter 13 plan proposed to pay $2,900 to his counsel, $300 to general unsecured creditors and $400 as trustee fees. The bankruptcy court declined to confirm the plan on the basis that it was per se bad faith to file a plan in which debtor’s bankruptcy counsel was essentially the only beneficiary. In reversing, the first circuit borrowed the totality of the circumstances analysis from section 706(a), placing the burden on the debtor to establish that the facts are such that the chapter 13 plan is in good faith. The decision will make bankruptcy relief more available to debtors who otherwise could not find competent counsel and for whom proceeding pro se is a poor alternative. [Read more…] about Fee-Only Plans Not Per Se Bad Faith
Win for Debtors on Absolute Priority Rule in Chapter 11
In a thoughtful and comprehensive opinion, the BAP for the Ninth Circuit held yesterday that the absolute priority rule does not apply to individual debtors filing chapter 11 bankruptcy. In re Friedman, Nos. 11-1149, 11-1105 (B.A.P. 9th Cir. March 19, 2012).
Daniel Press is to be congratulated on his fine oral argument on behalf of NACBA in this case.
[Read more…] about Win for Debtors on Absolute Priority Rule in Chapter 11
Another Court Allows Chapter 20 Lien Strip
The Colorado District Court found that a chapter 13 debtor may strip a lien even though he is ineligible for discharge due to a prior chapter 7 discharge within the preceding four years. In re Waterman, No. 11-929 (D. Colo. March 13, 2012). The court rejected the trustee’s argument that section 1325(a)(5) prohibits strip-off, finding that that section applies only to “allowed secured” claims and that where there is no value in the collateral, the claim is not secured. The court further noted that strip-off was not prohibited by the plain language of section 1328(f) and that, where discharge only applies to personal liability, allowance of the strip-off did not constitute a de facto discharge. See also, In re Frazier, No. 11-290 (E.D. Cal. March 9, 2012) (reaching the same holding). But see, Victorio v. Billingslea, No. 11-1825 (S.D. Cal. Feb. 24, 2012) (relying on pre-BAPCPA decisions to find that a chapter 13 case may end in one of only three ways: discharge, dismissal, conversion, and that a lien strip becomes permanent only upon discharge).
BAP’s Consider Appeals of Sanctions Orders
Creditor’s counsel is appealing an order by the Bankruptcy Court of the Western District of Missouri awarding chapter 7 debtor sanctions in the amount of $1,500.00 as a result of creditor’s violation of the discharge injunction under section 524(a)(2) and (3). In re King, No. 12-6014 (B.A.P. 8th Cir.). The appeal, filed on February 21, 2012, is before the 8th Circuit BAP. The debtor had filed a motion to reopen his bankruptcy case to add the creditor and the underlying debt was thereafter discharged with no objection. The creditor then filed suit in State Court seeking recovery on that debt. After notifying creditor’s counsel of the bankruptcy discharge to no avail, debtor sought sanctions and attorney fees against creditor’s counsel. The creditor’s counsel appeals the bankruptcy court’s denial of creditor’s motion for reconsideration of the court’s order granting sanctions.
The BAP for the 9th Circuit is also considering an appeal of an order granting sanctions against creditors and their counsel in the amount of $11,217 for violation of the automatic stay under section 362(a). In re Knapp, No. 12-1092 (B.A.P. 9th Cir.). Like King, that case involves pursuit of a state court lawsuit against chapter 7 bankruptcy debtor even after debtor’s counsel sought to educate creditor’s counsel about the automatic stay.