National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Subjective Belief that Conduct Not Subject to Discharge Order Precludes Sanctions

A creditor’s good faith belief that its conduct did not violate the discharge order precludes a finding of contempt for violation of the discharge injunction even if that belief is unreasonable. Taggart v. Lorenzo (In re Taggart), No. 16-35402 (9th Cir. April 23, 2018).

Bradley Taggart, a 25% owner of a real estate business, became embroiled in state litigation involving two other 25% owners of the business after he transferred his share to his lawyer without giving the co-owners their contractual right of first refusal. Mr. Taggart filed for chapter 7 bankruptcy and the state court stayed the business litigation until after he obtained his discharge. At that time, the business litigation resumed for the purpose of unwinding the business interest, but with the condition that, due to his bankruptcy discharge, Mr. Taggart would not be liable for any monetary judgment. At the conclusion of the business litigation, however, the state court permitted both parties to seek attorney’s fees. The attorneys for Mr. Taggart’s opponents sought attorney fees for their post-discharge work on the basis that Mr. Taggart had “returned to the fray” and the fees were thus the result of post-discharge conduct not related to the bankruptcy discharge. [Read more…] about Subjective Belief that Conduct Not Subject to Discharge Order Precludes Sanctions

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Equitable Recoupment Does Not Violate Stay

The creditor’s equitable recoupment of an overpayment of retirement benefits from the debtor’s ongoing monthly benefit payments did not violate the automatic stay. Williamson v. PARS, No. 17-1375 (B.A.P. 9th, Oct. 10, 2018) (unpublished).

The Public Agency Retirement System (PARS) erroneously calculated Barbra Williamson’s entitlement to supplemental retirement benefits by listing her yearly salary as monthly. When it discovered the mistake, PARS offset Ms. Williamson’s retirement benefit overpayment by withholding from the ongoing monthly payments to which she was entitled. Ms. Williamson filed for chapter 13 bankruptcy and sought sanctions against PARS for violation of the automatic stay. The bankruptcy court found no violation and denied the motion. [Read more…] about Equitable Recoupment Does Not Violate Stay

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Impairment to Exemption Calculation Based on Debtor’s Half Interest in Property

A debtor seeking to avoid a lien as impairing a homestead exemption must calculate the impairment using his proportionate interest in the property and the sum of the corresponding mortgage liens in proportion to that interest. Sandoval Irrevocable Trust v. Taylor, No. 17-1241 (10th Cir. Aug. 14, 2018).

As a result of Mark Taylor’s misappropriation of funds from an Irrevocable Trust for which he was trustee, the Trust (Sandoval) obtained state court judgments against him and liens against his residence. Mr. Taylor filed for chapter 13 bankruptcy and listed the property, which he co-owned with his ex-wife, as having a total value of $560,000 with his portion amounting to $280,000. He later converted his case to chapter 7 and moved to avoid the judgment liens as impairing his state homestead exemption of $37,500. [Read more…] about Impairment to Exemption Calculation Based on Debtor’s Half Interest in Property

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Eleventh Circuit Applies New Judicial Estoppel Analysis

When addressing judicial estoppel, courts may no longer apply a presumption of motive to conceal, but must look at the facts and circumstances behind a bankruptcy debtor’s failure to disclose his civil action in the bankruptcy proceeding. Silva v. Pro Transport Inc., No. 17-12744 (11th Cir. Aug. 10, 2018).

After Julio Antonio Silva’s chapter 13 bankruptcy plan was confirmed, he filed an FLSA claim in district court against his employers for failure to pay overtime. He did not tell his civil counsel about his bankruptcy nor did he immediately inform the bankruptcy court of the district court case. The district court granted the employer’s motion for summary judgment on the basis of judicial estoppel, and awarded over $50,000 to the employer in sanctions and attorney fees. Mr. Silva appealed the sanctions award. [Read more…] about Eleventh Circuit Applies New Judicial Estoppel Analysis

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Local Plan Form’s Treatment of Tax Returns Is Mandatory

Any conflict between Arizona’s Local Plan Form and the Bankruptcy Code’s requirement relating to a chapter 13 debtor’s obligation to file post-confirmation tax returns was not significant and the debtors here could not confirm a plan that failed to comply with the Local Form. In re Reichard, No. 16-12633 (Bankr. D. Ariz. July 5, 2018).

In their motion to set confirmation hearing, chapter 13 debtors, John and Ericka Rae Reichard, included a stipulated order of confirmation (SOC) under which they proposed to pay creditor, Harley Davidson, $6,255, consistent with Harley Davidson’s proof of claim but less than the amount the debtors had proposed in their plan. The SOC also included a provision for submitting post-confirmation tax returns to the court, in accordance with section 521(f), rather than directly to the trustee as required by Arizona Local Plan Form. [Read more…] about Local Plan Form’s Treatment of Tax Returns Is Mandatory

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Collection Due Process Action Tolls Look-Back Period for Tax Debt

Because of the IRS’s inability to levy against the debtor’s property, bankruptcy’s three-year look-back period for tax debts is tolled while a tax debtor pursues a collection due process action. Tenholder v. United States of Amer., No. 17-1310 (S.D. Ill. Sept. 17, 2018).

Angela and Randy Tenholder reopened their chapter 7 case to challenge the IRS’s post-discharge efforts to collect tax debts the Tenholders asserted were outside the three-year look-back period and had therefore been discharged. The bankruptcy court found the tax liabilities were non-dischargeable under section 523(a)(1)(A) because the three-year limitations period was tolled during the Tenholder’s pursuit of a “collection due process” (CDP) action. [Read more…] about Collection Due Process Action Tolls Look-Back Period for Tax Debt

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Court Lacks Discretion to Allow Ineligible Student Loan Debtor to Proceed in Chapter 13

A debtor who exceeds the debt limit specified in section 109(e) is ineligible for chapter 13 bankruptcy regardless of the nature of the debts and, therefore, there is cause for dismissal or conversion. Stearns v. Pratola (In re Pratola), No. 18-213 (N.D. Ill. Aug. 31, 2018).

Christopher Pratola filed a chapter 13 bankruptcy petition listing unsecured debts at less than the debt limit set forth in section 109(e). He later amended his schedules to include an additional federal student loan debt which he was repaying under an IBR at 10%. That loan raised his unsecured debt to above the debt ceiling. [Read more…] about Court Lacks Discretion to Allow Ineligible Student Loan Debtor to Proceed in Chapter 13

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Court’s Sua Sponte Denial of Confirmation Reversed

A bankruptcy court may not deny confirmation of a debtor’s chapter 13 plan in the absence of objection by the trustee or unsecured creditor, based on its belief that the debtor miscalculated her disposable income. Briggs v. Johns (In re Briggs), No. 17-1080 (W.D. La. Sept. 28, 2018).

In calculating her disposable income, chapter 13 debtor, Marlea Briggs, deducted $913.00 as mortgage or rental expenses based on the IRS Local Standard. Though no one objected to the plan, the bankruptcy court scheduled a hearing and denied confirmation sua sponte. The court required Ms. Briggs to file a new plan calculating her income using her actual mortgage payments of $438.20. The court then confirmed the plan over Ms. Briggs’s objection. She appealed. [Read more…] about Court’s Sua Sponte Denial of Confirmation Reversed

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SCOTUS Denies Cert in Creditor’s Arbitration Appeal

The Supreme Court today denied certiorari in a case filed by Credit One Bank seeking to enforce an arbitration clause in a consumer credit card agreement. Credit One Bank, N.A. v. Anderson, No. 17-1652, petition denied, (Oct. 1, 2018).

The case originated in the Bankruptcy Court for the Southern District of New York on the debtor’s motion to reopen his bankruptcy and seek redress for a discharge injunction violation based on Credit One’s post-discharge collection efforts. Faced with Credit One’s motion to compel arbitration, the bankruptcy court found an inherent conflict between arbitration and the goals of the Bankruptcy Code and denied the motion. The district court and the Second Circuit Court of Appeals affirmed. Anderson v. Credit One Bank, No. 16-2496 (2d Cir. March 7, 2018).

Find copies of NACBA’s amicus brief and the Second Circuit opinion here.

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Debtor Wins Battle of the Code Sections: Exemption vs Set-Off

A debtor’s right to an exemption for a tax refund overrides the IRS’s right to set-off of that refund to pay tax liabilities. United States of Amer. v. Copley, No. 16-207 (E.D. Va. Sept. 10, 2018).

In their chapter 7 bankruptcy, Matthew and Jolinda Copley listed tax liabilities for the years 2008, 2009, and 2010, as priority claims held by the IRS. They also sought to exempt their 2013 tax refund of $3,208.00. But the IRS withheld the refund as set-off against a portion of the tax debts. The bankruptcy court ordered the IRS to turn over the refund to the debtors. [Read more…] about Debtor Wins Battle of the Code Sections: Exemption vs Set-Off