National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

confirmation

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Debtor Need Not Provide for Secured Claim in Plan

Nothing in the Code requires a debtor to provide for a claim secured by his principal residence in his chapter 13 plan. In re Jones, 2021 WL 4465554 (Bankr. E.D. N.C. Sept. 29, 2021) (case no. 20-03607).

When he filed for chapter 13 bankruptcy, the debtor listed food stamps and VA disability benefits as his only source of income. He also listed his principal residence as securing a debt to Bank of New York Mellon (BONY). The debtor’s second amended proposed plan omitted any provision for BONY’s claim relating to the residence. The plan also specified that the debtor could sell the property without notice to the court or the chapter 13 trustee. BONY objected to confirmation arguing that section 1325(a) required the debtor to provide for its secured claim in the plan. The trustee also objected to confirmation on feasibility grounds and because of the provision relating to non-notification in the event of sale. The standing chapter 13 trustee filed an amicus brief on the issue of notice and on the grounds that the debtor’s failure to treat the secured claim in his plan violated section 1325(a)(3) and (5). [Read more…] about Debtor Need Not Provide for Secured Claim in Plan

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No Mortgage Modification for Mixed Use Property

The chapter 11 debtor could not modify her residential mortgage even though much of the property securing the mortgage was used for income-producing purposes. Lee v. U.S. Nat’l Bank Ass’n, No. 20-222 (M.D. Ga. Oct. 4, 2021).

The debtor’s residence was located on forty-three acres of land of which she rented out approximately thirty-five acres as farmland. She took out a mortgage on the property in 2007 and, acting on the advice of the mortgagee, in 2010, allowed the mortgage to go into default in the expectation of refinancing the loan under the federal Housing Action Resource Test (HART). When she was unable to refinance, she filed for chapter 11 bankruptcy seeking to modify the mortgage.

US National Bank filed a claim as trustee for RMAC Trust, Series 2016-CTT (the Trust), in the amount of $253,070.25, representing $139,195.75 in unpaid principal and $82,228.15 in interest. It moved for relief from stay, and the bankruptcy court granted the motion finding that section 1123(b)(5) prohibited modification of the mortgage. The debtor appealed to the district court. [Read more…] about No Mortgage Modification for Mixed Use Property

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District Court Upholds Local Rule Requiring Statements of Compliance

Finding the requirement to be procedural rather than substantive, the District Court for the Northern District of California upheld the district’s General Order requiring chapter 13 bankruptcy debtors who elect to pay their mortgages directly rather than through the trustee to submit regular notifications of compliance to the bankruptcy court. Gordon v. Bronitsky (In re Gordon), No. 21-643 (N.D. Cal. July 15, 2021). [Read more…] about District Court Upholds Local Rule Requiring Statements of Compliance

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Debtor Has Private Right of Action to Enforce Anti-Discrimination Provision

A debtor has a private right of action to enforce bankruptcy’s anti-discrimination provision and may recover damages under the court’s authority under section 105. Johnston v. Speedway, LLC, 2021 WL 1662725 (W.D. Va. April 28, 2021) (case no. 7:21-cv-100).

The plaintiff, Michael Johnston, worked as an assistant manager at Speedway for eight years, but fell on hard times and found himself homeless and living out of his car. He filed for chapter 13 bankruptcy. Speedway learned of the bankruptcy and fired him, citing as the reason that he was a risk for stealing from the cash register. The plaintiff filed an adversary proceeding in his bankruptcy case alleging discrimination under section 525(b), and seeking reinstatement, compensatory and punitive damages, and attorney’s fees. The case was later withdrawn from the bankruptcy court and transferred to district court. Speedway moved to dismiss. [Read more…] about Debtor Has Private Right of Action to Enforce Anti-Discrimination Provision

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Debtor Loses the Battle but Wins the War

A confirmed plan binds the county tax creditor even though the plan did not provide for the interest claimed in its post-confirmation proof of claim where the county had notice of the plan and failed to object to confirmation. In re Bird, 624 B.R. 841 (Bankr. N.D. Ill., Feb. 2, 2021) (case no. 1:17-bk-2072). [Read more…] about Debtor Loses the Battle but Wins the War

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TitleMax Can’t Have Its Cake and Eat it Too

TitleMax waived its right to forfeiture under a title pawn transaction when it failed to object to treatment of the loan as a secured debt prior to confirmation of the debtor’s plan. TitleMax of Alabama v. Deakle, No. 20-335 (S.D. Ala. March 31, 2021).

Prior to filing for bankruptcy, the debtor entered into a title pawn transaction with TitleMax. The pawn matured and the grace period for redemption expired before the debtor filed her chapter 13 petition. Her proposed plan provided for payments to TitleMax as a secured creditor. TitleMax raised no objection to the treatment of the loan until three months after the debtor’s plan was confirmed. At that time, TitleMax filed a motion to “confirm termination or absence of stay.” The bankruptcy court found that, by failing to object to confirmation, TitleMax had waived the forfeiture provision of Alabama’s Pawnshop Act and was bound by the terms of the confirmed plan under section 1327(a). [Read more…] about TitleMax Can’t Have Its Cake and Eat it Too

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Two Vehicles Securing One Claim Must Receive Identical Treatment in Ch 13 Plan

Under section 1325(a)(5), a Chapter 13 plan cannot provide for different treatment of two vehicles that were purchased at different times with loans from the same creditor where both lending agreements included cross-collateralization clauses securing each loan by both vehicles. Barragan-Flores v. Evolve Federal Credit Union, No. 18-50420 (5th Cir. Jan 14, 2021). [Read more…] about Two Vehicles Securing One Claim Must Receive Identical Treatment in Ch 13 Plan

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No Amortization of Tax Refund in W.D. Texas

In an opinion that reads like a father chastising his ungrateful children, the District Court for the Western District of Texas scolded the debtors for their proposed treatment of anticipated tax refunds and required them to adhere to the District Plan under which they could retain up to $2,000 of their refunds, but must turn over to the Trustee any amount remaining as disposable income. Vega v. Viegelahn, No. 18-796 and Diaz v. Viegelahn, No. 18-798 (W.D. Tex. Sept. 19, 2019) (consolidated for argument and decision).

Contrary to the District Plan structure, the debtors in this case sought to amortize their tax refunds as income over one year. Upon objection by the trustee, the debtors ultimately amended their plans to conform to the District Plan. They then appealed the Bankruptcy Court’s order of confirmation arguing that the District Plan’s treatment of the tax refunds violated various provisions of the Bankruptcy Code, the Local Rules and the Official Forms. [Read more…] about No Amortization of Tax Refund in W.D. Texas

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Adoption Assistance Payments Excluded from Current Monthly Income

The debtors’ Adoption Assistance payments were “benefits received under the Social Security Act” and were therefore excluded from the calculation of their current monthly income. In re Isaacs, No. 18-1651 (Bankr. M.D. Pa. Aug. 26, 2019).

The above-median debtors proposed a 21% plan and the trustee objected to confirmation on the basis that they were not paying all their projected disposable income into the plan as required under section 1325(b)(1)(B). The dispute centered around the nature of the $2,325/month in benefits the debtors received under the Adoption Assistance and Child Welfare Act of 1980 (the Act). The debtors maintained that those benefits should be excluded from the calculation of current monthly income because they were benefits received under the Social Security Act (SSA). The Act was established under Title IV-E of the Social Security Act (SSA), under which the federal government created a fund to provide benefits to the states to assist families adopting special needs children. The monthly benefits the debtors received were not entirely made up of federal funds, however, but were comprised of 51.82% federal funding, 38.54% state funding, and 9.64% county funding. The trustee argued that the funds were not social security benefits under the definition found in section 101(10A)(B) of the Bankruptcy Code.

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Direct Payments to Creditor Are Not “Under the Plan” for Discharge Purposes

Adopting the minority view, the Bankruptcy Court for the D.C. Circuit found that the Chapter 13 debtor’s direct payments to a residential lienholder were not provided for under the plan and, therefore, her failure to make all the payments did not preclude entry of discharge. In re Drabo, No. 1:15-bk-653 (Bankr. D. D.C. May 10, 2019) (unpublished).

Ms. Drabo’s plan provided that she would pay her pre-petition arrears and make regular mortgage payments outside the plan until the debt was paid off—an event scheduled to occur five years after the completion of her plan. After she completed all plan payments, she moved for discharge under section 1328(a), but the lender, Ameritas Life Insurance, objected, complaining that Ms. Drabo had failed to keep up with the direct payments under the lending agreement.

[Read more…] about Direct Payments to Creditor Are Not “Under the Plan” for Discharge Purposes