Despite agreeing that the Tenth Circuit got it wrong, the Solicitor General for the United States filed a brief opposing certiorari in the case of Kinney v. HSBC Bank USA, No. 21-599 (brief filed Aug. 30, 2022). The issue was a simple one: whether the debtor could receive a completion discharge under section 1328(a) when she missed the final three payments on her mortgage due to a car accident, but made up the payments shortly after her plan expired. [Read more…] about SG Agrees 10th Erred But Opposes Cert
Debtor Stated Claim for Turnover of Repossessed Vehicle
The debtor stated a claim for turnover of the fair market value of a vehicle where the creditor repossessed the vehicle post-petition but prior to the expiration of section 108(b)’s extension of time to redeem or cure a default. Milledge v. Carolina Acceptance, No.21-2968, Adv. Proc. No. 22-80001 (Bankr. D. S.C. April 7, 2022).
The debtor bought a car under a retail installment contract obligating her to pay a $5,050.00 down payment and secure financing from the creditor, Carolina Acceptance, for the principal amount of $20,139.00 at an annual interest rate of 19.88% with 51 monthly payments of $592.87. The debtor paid all but $500.00 of the down payment and arranged with the creditor to pay that amount by November 4, 2021. She failed to make the payment and filed for chapter 13 bankruptcy on November 17, 2021, proposing a plan committing her to pay the car loan in full at 5.25% interest. Because of two prior dismissed bankruptcies the automatic stay did not take effect. [Read more…] about Debtor Stated Claim for Turnover of Repossessed Vehicle
Provision for Balloon Payment after Sale Precludes Confirmation
In a consolidated opinion, the Bankruptcy Court for the District of Massachusetts held that the “equal payment provision of § 1325(a)(5)(B)(iii) is best read to prohibit confirmation of a sale plan, over the objection of a secured creditor holding a mortgage of a principal residence, that contemplates periodic payments followed by a lump-sum payment.” In re Materne, No. 20-40027, and In re Gnaman, No. 19-40930 (Bankr. D. Mass. April 7, 2022). [Read more…] about Provision for Balloon Payment after Sale Precludes Confirmation
Unlawful Possession of Real Property Does Not Create Property Interest
Where the debtor was subject to a state court judgment cutting off his right to cure the default on an installment land contract, he had no interest in the property despite his continued unlawful possession and, therefore, the bankruptcy court erred in confirming the debtor’s chapter 13 plan that provided for payment of the default judgment. In re Peralta, No. 20-2380 (E.D. Pa. Dec. 4, 2020).
The debtor entered into an installment contract with the creditor for the transfer of real property. After the debtor defaulted on the contract, a new agreement was reached obligating the debtor in the event of future default to submit to a default judgment and vacate the property. He defaulted and the creditor obtained a judgment in the amount of $41,151.70, as well as a Judgment for Possession in state court. But rather than vacate the property, the debtor filed for chapter 13 bankruptcy and proposed a plan under which he would pay off the judgment and obtain possession of the property free and clear of the creditor’s interest. The bankruptcy confirmed the plan over the creditor’s objection. [Read more…] about Unlawful Possession of Real Property Does Not Create Property Interest
First Circuit BAP Applies “Gavel Rule” to Foreclosure Sale
A panel for the First Circuit BAP found that the debtor could not cure and maintain her mortgage in bankruptcy because she had no interest in the property, which was sold in a foreclosure sale before her bankruptcy petition, even though the mortgagee failed to record the deed of sale in accordance with state foreclosure law. U.S. Bank Nat’l Assoc. v. Vertullo, Nos. 18-56, 18-63 (B.A.P. 1st Cir. Jan. 10, 2020).
After the debtor defaulted on her mortgage, the mortgagee, U.S. Bank, sold the property to a third party through a foreclosure sale. The foreclosure deed was not recorded. When Ms. Vertullo filed for chapter 13 bankruptcy, the Bank sought to lift the automatic stay to evict Ms. Vertullo from the property. Ms. Vertullo countered that, because the foreclosure sale was not recorded within the time required by state law, she retained an interest in the property and could cure and maintain the mortgage through her plan. The bankruptcy court agreed. It denied the Bank’s motion for relief from stay and, in a separate order, confirmed the debtor’s plan. In re Vertullo, 593 B.R. 92, 94 (Bankr. D.N.H. 2018). The Bank appealed both orders to the Bankruptcy Appellate Panel for the First Circuit. [Read more…] about First Circuit BAP Applies “Gavel Rule” to Foreclosure Sale
Debtor’s Right to Amend Extends to Reopened Cases
A debtor may amend his schedules as a matter of right “without limitation of whether the case is open or reopened after closing.” Mendoza v. Montoya, No. 18-19, Dollman v. Montoya, No. 18-30 (B.A.P. 10th Cir. Feb. 5, 2019). [Read more…] about Debtor’s Right to Amend Extends to Reopened Cases
Debtor may not modify default interest rate.
A “cure and maintain” plan permits deceleration of the loan but does not allow a debtor to return to the pre-default interest rate. Anderson v. Hancock (In re Hancock), No. 15-1505 (4th Cir. April 27, 2016).
The Andersons purchased residential property from the Hancocks, financed in the amount of $255,000 by the sellers. The Andersons signed a thirty-year note agreeing to pay $1,368.90 per month, including interest payments at 5%. In the event of a default, the note provided that the interest rate would increase to 7%. The note also entitled the Hancocks to accelerate the loan. When the Andersons defaulted on the loan, the Hancocks imposed the default interest rate, notified the Andersons of acceleration of the loan, and instituted foreclosure. The debtors filed Chapter 13 bankruptcy proposing to cure the arrears and maintain payments at the 5% interest rate through the life of the plan. The Hancocks objected to the plan on two bases. First, they argued that the calculation of arrears was too low because it was based on the pre-default interest rate. Second, they maintained that all future payments on the loan should be at the 7% interest rate. [Read more…] about Debtor may not modify default interest rate.
Court Gets it Wrong in Cure and Maintain Case
Contrary to the principle that “cure and maintain” permits a residential loan debtor to return to status quo ante, the Bankruptcy Court for the Eastern District of North Carolina found that while operation of section 1322(b)(5) reverses a loan acceleration, it does not reverse other contractual consequences of default; specifically an increased interest rate. In re Anderson, No. 13-5843 (Bankr. E.D. N.C. Sept. 5, 2014). [Read more…] about Court Gets it Wrong in Cure and Maintain Case
Effect of Foreclosure Sale on Right to Cure and Maintain
A couple of recent cases deal with the application of the automatic stay when the debtor files his bankruptcy petition in the no-man’s-land between a foreclosure sale and the legal transfer of title through recordation. TD Bank v. LaPointe, No. 13-29 (B.A.P. 1st Cir. Feb. 24, 2014) and In re Comer, No. 13-12148 (Bankr. E.D. Tenn. March 10, 2014). [Read more…] about Effect of Foreclosure Sale on Right to Cure and Maintain
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