In three consolidated chapter 7 cases, the Bankruptcy Court, finding that carve-out or short sale agreements did not lead to any meaningful distribution to creditors, reduced the trustee’s fee by 50% of the requested amount. In re Scoggins, No. 12-42158 (Bankr. E.D. Cal. Sept. 8, 2014) (the court approved the fee request in a fourth, business, case). [Read more…] about Trustee Fee Cut Where No Meaningful Distribution
Warning: May Cause Munchies and Preclude Bankruptcy Relief
A Colorado Bankruptcy Court found that a debtor whose only non-social security income was generated through the marijuana industry could not avail himself of bankruptcy relief. In re Arenas, — B.R. —-, 2014 WL 4288991 (Bankr. D. Colo. Aug. 28, 2014). The chapter 7 debtors’ income sources were $4,265.16 from Mr. Arenas’ marijuana growing business for which he was licensed under Colorado law, a lease with a marijuana dispensary, and $3,000.00 from his co-debtor wife’s social security disability benefits. Mr. Arenas’ marijuana-related business interests were legal under state law and illegal under the federal Controlled Substances Act. [Read more…] about Warning: May Cause Munchies and Preclude Bankruptcy Relief
Bankruptcy as Social Insurance Program
Fortune Magazine reported yesterday on the results of a recent study conducted by the National Bureau of Economic Research in which the NBER examined 500,000 U.S. bankruptcy filings to determine the overall effect on consumers. The study found that Chapter 13 bankruptcy protection “increases annual earnings by $5,562, decreases five-year mortality by 1.2 percentage points, and decreases five-year foreclosure rates by 19.1 percentage points.” [Read more…] about Bankruptcy as Social Insurance Program
Galaxies Apart…
Men Are From Mars, Women Are From Venus is the classic guide to understanding relationships between men and women. A similar resource is desperately needed for consumer advocates and some federal regulators (Treasury and the NMS Monitor, specifically) because it seems we are not even working in the same galaxy! As evidence of this cosmic disconnect, Ocwen Financial Corp. recently announced (here) that it had received top marks from the HAMP compliance team in all categories for the second quarter of 2014. This is the same Ocwen that in December 2013 agreed to a consent order with the CFPB and authorities from 49 states who believed that “Ocwen engaged in significant and systemic conduct that occurred at every stage of the mortgage servicing process.” (See CFPB Press Release and Complaint, here). According to the CFPB complaint Ocwen: (1) took advantage of homeowners with servicing shortcuts and unauthorized fees; (2) deceived consumer about foreclosure alternatives and improperly denied loan modification; and (3) engaged in illegal foreclosure practices. It would be great if Ocwen truly remedied all these deficiencies in such a short time, but that’s not the experience on the ground. The glowing report from Treasury’s HAMP team sadly suggests that six years after the mortgage meltdown consumer advocates and regulators are still worlds apart in even understanding how to measure compliance with Obama’s flagship program to help struggling homeowners.
The Economic Well-being of U.S. Households
The Board of Governors for the Federal Reserve System has released a new report on the economic well-being of U.S. households. For those interested in consumer bankruptcy and trends in credit behavior and savings, it is worth taking a look. The report provides a snapshot of the self-perceived financial and economic well-being of U.S. households and addresses many key topics, including household economic well-being, housing and living arrangements, credit behavior and access to credit, savings, education and student loans, retirement, and health insurance coverage and expenses.
Colorado AG Charges Foreclosure Mills with Fraud
Colorado AG’s Consumer Protection Section charged The Castle Law Group, its principals and affiliated foreclosure-related businesses, as well as Aronowitz & Mecklenburg, its principals and affiliated foreclosure-related businesses with violating the Colorado Consumer Protection Act, the Colorado Antitrust Act, and the Colorado Fair Debt Collection Practices Act. The complaints allege that these law firms, and their principals, conspired to charge fraudulent and inflated costs for posting of two statutorily-mandated notices on the homes of borrower’s facing foreclosure, and used affiliated companies to run up the costs of title products used in the foreclosures. The complaints also allege that these firms improperly and deceptively tacked on additional charges as “costs” for tasks already compensated by the maximum allowable fee paid to the law firm by the investor.
Complaints and the Final Consent Judgment with the Aronowitz defendants are available here.
Eleventh Circuit Joins Fourth in Allowing Chapter 20 Lien Strip
Yesterday, the Eleventh Circuit joined the Fourth Circuit in affirming the debtor’s ability to strip a wholly unsecured lien in chapter 13 where no discharge is available. In re Scantling, No. 13-10558 (June 18, 2014).
After reviewing the historical development of lien stripping under the Bankruptcy Code, the court, relying on its previous decision in Tanner v. Firstplus Financial, Inc., 217 F.3d 1357 (11th Cir. 2000), stated that in order for a claim to be “secured” and trigger the antimodification provisions of § 1322(b)(2), the collateral must have at least some value. In this case, it was undisputed that the amount owed on the first mortgage exceeded the property value, leaving no collateral value to support the junior mortgages. The court stated that though BAPCPA amended the discharge provision of 1328(f), it did not amend the two operative sections for lien stripping in chapter 13: §§ 506 or 1322(b)(2). Therefore, the court concluded the analysis for lien stripping in chapter 13 cases is the same irrespective of whether the debtor is eligible for a discharge.
The court rejected creditor’s argument based on In re Gerardin, 447 B.R. 342 (Bankr. S.D. Fla. 2011), that its claim was an “allowed secured claim” for purposes of section 1325(a)(5)(B)(i). Section 1325(a)(5)(B)(i) provides that creditors holding allowed secured claims retain their liens until (1) payment in full under applicable non-bankruptcy law, or (2) discharge. As the Eleventh Circuit correctly noted in this case the creditor did not hold an allowed secured claim, and therefore section 1325(a)(5)(B)(i) was inapplicable.
Going to Jail for Being Poor
NPR did a story this week about how the poor are being saddled by increasing fees associated with the criminal justice system. The story highlights a disturbing trend in which people are facing jail time that is disproportionate to their crime because they are too poor to pay assessed fees, such as electronic monitoring fees, collection fees, probation fees, and public defender fees. A case currently pending before the Third Circuit Court of Appeals, In re Lopez, challenges lower court decisions holding that such fees are non-dischargeable fines and penalties. In Lopez, the debtor does not contest the nondischargeability of his restitution debt, but he does argue that more than $1,000 in costs for items such as the Judicial Computer Project, Firearm Education and Training Fund, collection fees, etc. are dischargeable. Last week, the Bankruptcy Court for the Western District of Missouri in In re Miller, 2014 WL 2012828 (Bankr. W.D. Mo. May 15, 2014) adopted an argument similar to that made by Lopez and held that such fees did not constitute a “fine, penalty or forfeiture” because the purpose of imposing the fees is not penal in nature.
Debtor’s Prison in the 21st Century?
Prof. Vivian Berger, Nash Professor of Law Emerita at Columbia Law School, writes here about the misuse of civil contempt proceedings to obtain the repayment of debts. She’s right that despite our common belief that debtors’ prisons have been eliminated in America, it just isn’t so.
Are subprime loans making a comeback?
An article in Sunday’s Los Angeles Times suggests that lenders in markets with rising property values such as California are looking to increase their subprime lending. While current mortgage interest rates are around 3.5%, these subprime loans comes with interest rates starting at 7.95% and going up from there. As with the old subprime products, high fees are common for this next generation of subprime loans. So what’s different? Most new subprime loans require much higher down payments and evidence of an ability to pay.