National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

Exceptions to Discharge

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State Court May Order Criminal Restitution Relating to Discharged Debt

The Pennsylvania Supreme Court held that its criminal law permits an order of restitution even though it relates to a debt that was discharged in Chapter 7 bankruptcy. Commonwealth v. Petrick, No. 47 MAP 2018 (Pa. Sept. 26, 2019).

The issue came before the Court from the state superior court where the Appellant argued that his sentence for restitution was illegal because the underlying debt had been discharged in bankruptcy. The Court “granted allocatur . . . to address the effect a discharge of a civil debt by a federal bankruptcy court has on the authority of a state trial court to order mandatory restitution as part of a sentence in a criminal case involving the same obligation.” [Read more…] about State Court May Order Criminal Restitution Relating to Discharged Debt

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Bankruptcy Court holds Debtor is Entitled to Chapter 13 Discharge even if Co-Debtor is Delinquent on Post-Petition DSO Payments

A bankruptcy court recently reviewed the issue of whether a debtor can receive a discharge under § 1328 even if her co-debtor husband is delinquent on a post-petition DSO payment. The court examined the requirements for discharge using the plain language of § 1328(a).

In this case, the debtors, Mr. and Mrs. Hernandez, filed a joint Chapter 13 bankruptcy. At filing, neither owed a DSO. Approximately two years into their confirmed plan, Mr. Hernandez became liable for a DSO and subsequently fell behind in those payments. Both parties were aware of the DSO and neither reported the delinquency to their attorney nor the trustee.

After completion of the plan payments, Mrs. Hernandez moved for entry of discharge under 11 U.S.C. § 1328(a). The Trustee objected arguing Mrs. Hernandez was unjustly enriched and that failure to amend the plan demonstrates bad faith. No party disputed that all plan payments were made.

To read more and access the opinion click here

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Court Rejects Terms Slipped into Reaffirmation Agreement

“A party to a reaffirmation agreement cannot bootstrap contract terms into the reaffirmation agreement through inconspicuous additions to the statutory disclosures on a form represented to be a Director’s Form.” In re Jenkins, No. 17-30753 (Bankr. S.D. Ohio Sept. 26, 2017).

Chapter 7 debtor, Tracy Michelle Jenkins, entered into a reaffirmation agreement with KH Network Credit Union concerning Ms. Jenkins’ 2015 Volvo. After Ms. Jenkins received her discharge, the Credit Union rescinded the reaffirmation agreement. The Credit Union pointed to language it had added to the “Disclosure Statement” on Director’s Form 2400A, in which it asserted a right to rescind the agreement in the manner it followed.

As an initial matter, the court found that it had jurisdiction over the action because, rather than being a disagreement as to the terms of a contract requiring application of state law, the disagreement involved interpretation of Ms. Jenkins’s rights under section 524 of the Code.

The court began its substantive analysis with the general principles that reaffirmation agreements serve the valuable purpose of permitting a debtor to retain necessities but often at the cost of a heavy financial obligation to the debtor. For that reason, safeguards such as the disclosures on Director’s Form 2400A are statutorily mandated and, under section 524(k)(1), must be made “clearly and conspicuously and in writing.”

The court found that, while in theory a creditor may negotiate and add to a reaffirmation agreement terms allowing it to rescind, the Credit Union here did not comply with the requirements necessary to alter the standard terms of the agreement. The court pointed to several deficiencies in the terms the Credit Union sought to enforce: 1) it was not visually conspicuous, 2) it was appended to the disclosure section of the agreement which is a recitation of the debtor’s statutory rights, and 3) it was not included in the Agreement section where it would have been properly included in the negotiated contractual terms. Where the disclosure requirements are intended for the protection of debtors, the Credit Union’s inclusion of its own rescission rights in that section of the agreement contradicted and diluted its purpose.

The Credit Union argued that it rescinded the agreement due to Ms. Jenkins’s failure to enter into a separate reaffirmation agreement with it for an unsecured debt. The court found that there was no evidence of any agreement between the parties as to this separate contractual term and, under Ohio law, a contract may be rescinded upon fraud or mistake of fact, but that no such justification existed here. The credit union opted to sign the reaffirmation agreement with no contingency provision included. Ms. Jenkins could not be said to have breached the contract by reason of noncompliance with a term that was not in it.

The court found that under section 105(b), it had the power to alter the terms of the reaffirmation agreement to conform to the provisions and principles of the Bankruptcy Code.

Jenkins Bankr SD Ohio Sept 2017

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Objection to Discharge Should Have Been Dismissed as Untimely

The chapter 7 trustee failed to continue the creditors’ meeting to a specified date as required by Rule 2003(e) and therefore his later objection to discharge was untimely. In re Jenkins, No. 14-1385 (4th Cir. Apr. 27, 2015). [Read more…] about Objection to Discharge Should Have Been Dismissed as Untimely

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Agent’s Fraud Does Not Lead To Nondischargeability

When a debt is the result of fraud may the debtor still discharge it if he was not complicit in the fraud? What if the fraudulent actor was an agent of the debtor? Judge Posner of the Seventh Circuit answered both questions in the negative. Sullivan v. Glenn (In re Glenn), No. 14-3213 (7th Cir. Apr. 2, 2015). [Read more…] about Agent’s Fraud Does Not Lead To Nondischargeability

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Motion to Reopen Too Little Too Late

Equitable considerations weighed in favor of the debtors where, two years after their Chapter 7 discharge, a creditor sought to reopen the bankruptcy to allow the trustee to administer a district court UCC claim that the debtors filed post-discharge. In re Pinks, No. 12-317 (Bankr. D. S.C. Jan. 21, 2015). [Read more…] about Motion to Reopen Too Little Too Late

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It’s Alive! – McCoy Adopted by Tenth Circuit

The Tenth Circuit has concluded that late-filed tax returns are not “returns” for dischargeability purposes unless filed by the IRS in cooperation with the debtor. Mallo v. IRS (In re Mallo), __ F.3d __, 2014 WL 7360130 (Dec. 29, 2014) (consolidated with In re Martin, 14-1488). [Read more…] about It’s Alive! – McCoy Adopted by Tenth Circuit

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Court Finds Ride-Through Not Available with respect to Real Property

In In re Jeanfreau, No. 13-50015 (Bankr. S.D. Miss. June 12, 2013), the mortgagee moved to compel compliance with section 521(a)(2) and to delay discharge of the debtor’s chapter 7 bankruptcy due to the debtor’s failure to reaffirm the mortgage on her home. Ms. Jeanfreau was current on her payments under the mortgage and had equity in the home. In her section 521(a)(2) “statement of intention”’ she indicated that she intended to retain the property but did not elect to either “redeem” or “reaffirm” the debt. Instead she checked “other” and noted that she intended to maintain regular payments on the mortgage outside of bankruptcy without reaffirming. [Read more…] about Court Finds Ride-Through Not Available with respect to Real Property