National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Debtors’ Challenge to Private Student Loan Survives Dismissal Motion

A private loan in excess of the cost of attendance is not subject to exception from discharge under section 523(a)(8)(A)(ii). McDaniel v. Navient Solutions, No. 09-37450, Adv. Proc. No. 17-1274 (Bankr. D. Colo. Sept. 2018).

In their confirmed chapter 13 plan, Byron and Laura McDaniel treated their student loans, including those held by Navient Solutions, as unsecured Class Four claims to be deferred until after discharge. Upon completion of their plan, the McDaniels obtained discharge, but later moved to reopen. They filed an adversary proceeding seeking a declaration that a particular private loan held by Navient was not excepted from discharge. They also sought a finding that Navient violated the discharge injunction by collecting on that private loan post-discharge. Navient moved to dismiss the adversary proceeding. [Read more…] about Debtors’ Challenge to Private Student Loan Survives Dismissal Motion

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No Recovery for Foreclosure Sale of Non-Disclosed Property

The chapter 13 debtor was judicially estopped from challenging the foreclosure sale of his property as a violation of the automatic stay because he failed to disclose his ownership interest in the property. Fornesa v. Fifth Third Mortgage Co., No. 17-20324 (5th Cir. July 27, 2018). [Read more…] about No Recovery for Foreclosure Sale of Non-Disclosed Property

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Fifth Circuit Addresses Valuation of Mobile Home

Delivery and set-up costs are not included in the valuation of a mobile home under section 506(a). 21st Mortgage Corp. v. Glenn, No. 17-60533 (5th Cir. Aug. 13, 2018).

Kayla Glenn elected to retain her mobile home and pay it off with 5% interest through her chapter 13 bankruptcy. 21st Mortgage objected to Ms. Glenn’s proposed plan based on her valuation of the property as not including the cost of delivery and set-up. The bankruptcy court confirmed the plan and the district court affirmed. 21st Mortgage appealed. [Read more…] about Fifth Circuit Addresses Valuation of Mobile Home

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Court May Not Deny Exemption Due to Debtor Misconduct

“A bankruptcy court has no authority under federal law to deny a debtor’s claim of exemptions on a ground that is not specified in the bankruptcy code.” Rucker v. Belew (In re Belew), No. 18-6007 (B.A.P. 8th Cir. Sept. 6, 2018).

Johnny Belew sought to amend his schedules to exempt assets he had failed initially to disclose. The trustee objected. The bankruptcy court found that it had no authority to deny a motion to amend exemptions for any reason not specified in the Code and overruled the trustee’s objections. The trustee appealed. [Read more…] about Court May Not Deny Exemption Due to Debtor Misconduct

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Court Puts Trustee Fees Under the Microscope

Where the trustee made no distributions and performed only his regular duties as trustee, the court denied his fee application in total. Citing efficiency concerns, the court also reduced the trustee’s attorney fee application by almost half. In re Stroud, 2018 Bankr. LEXIS 2136, No. 15-74063 (Bankr. N.D. Ga. July 19, 2018).

The debtor filed a chapter 13 plan proposing to maintain her mortgage payments and pay unsecured creditors at 100%. When she missed payments on the plan she allowed her case to be converted to chapter 7. Five weeks later, having obtained new counsel, she moved to reconvert to chapter 13 and to continue her 100% plan. The chapter 7 trustee objected to the motion but the case was converted nonetheless. The chapter 7 trustee, as both trustee and member of the law firm representing him, submitted a fee application seeking $1,716.50 in trustee fees and $13,607.09 in attorney fees. The debtor objected. [Read more…] about Court Puts Trustee Fees Under the Microscope

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Availability of IBRP Relevant to Student Loan Discharge

The availability of an income-based repayment program is a factor to be considered in the totality-of-circumstances test for student loan discharge under section 523(a)(8). Kemp v. U.S. Dept.  of Ed., No. 17-6032 (B.A.P. 8th Cir. Aug. 24, 2018).

The bankruptcy appellate panel affirmed the bankruptcy court’s denial of discharge of Erin Kemp’s student loans. The bankruptcy court had based its decision, in part, on the availability of an income-based repayment program when determining whether Ms. Kemp could make payments on the loan while maintaining a minimum standard of living. The panel, relying on the Eighth Circuit opinion in Educ. Credit Mgmt. Corp. v. Jesperson (In re Jesperson), 571 F.3d 775 (8th Cir. 2009), found that the existence of a repayment plan offering lower payments than those mandated by the lending agreement, while not dispositive, was a legitimate factor to be considered in the totality-of-circumstances test. Other factors also contributed to the bankruptcy court’s opinion, however, including the facts that Ms. Kemp had a history of successful employment, understated her income and overstated her expenses, was 36 years-old-at the time of her bankruptcy and could obtain better employment but chose not to in order to maintain a flexible part-time work schedule. As to her claim that she suffered from anxiety and depression, the court did not doubt her testimony but found insufficient evidence that those issues prevented full employment. [Read more…] about Availability of IBRP Relevant to Student Loan Discharge

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NACBA Helps Debtor Win on Sovereign Immunity Issue

“Sovereign immunity does not preclude an award of emotional distress damages against the United States for willful violation of the Bankruptcy Code’s automatic stay.”  Hunsaker v. U.S.A., No. 16-35991 (9th Cir. Aug. 30, 2018).

After Jonathan and Cheryl Hunsaker filed for chapter 13 bankruptcy the IRS continued to send them collection notices. The bankruptcy court found the IRS’s conduct was a willful violation of the automatic stay under section 362(k) and awarded damages for emotional distress. The district court reversed on the grounds that Congress did not waive sovereign immunity for emotional distress damages.

The Hunsakers appealed and NACBA/NCBRC filed an amicus brief in support of reversal. [Read more…] about NACBA Helps Debtor Win on Sovereign Immunity Issue

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Sketchy and Incomplete Evidence Dooms Student Loan Discharge

After extensive review of the evidentiary record, the court, applying a “totality of the circumstances” test, found that the debtor failed to establish past and future inability to pay his consolidated student loans and denied discharge. Golliday v. ECMC, No. 16-20014, Adv. Proc. No. 16-2028 (Bankr. D. Me. July 12, 2018).

In 2016, Gregory Golliday filed for chapter 7 bankruptcy seeking to discharge over $200,000 in student loan debt and accumulated interest under section 523(a)(8). After a hearing, the court applied a totality-of-circumstances test in which, in order to show undue hardship, a debtor must “prove by a preponderance of the evidence that (1) . . . his past, present, and reasonably reliable future financial resources; (2) . . . his and . . .[his] dependents’ reasonably necessary living expenses; and (3) other relevant facts and circumstances unique to the case, prevent [him] from paying the student loans in question while still maintaining a minimal standard of living . . .” [Read more…] about Sketchy and Incomplete Evidence Dooms Student Loan Discharge

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Exception to Discharge for Criminal Fines and Costs

Where state law treats criminal fines, fees and costs as punitive rather than compensatory those debts are excepted from discharge in bankruptcy. Sanders v. AllianceOne Receivables Management Inc., No. 15-15243, Adv. Proc. No. 16-1204 (Bankr. W.D. Wash. July 6, 2018).

When Randy Sanders filed for chapter 13 bankruptcy, AllianceOne Receivables Management, Inc., as collection agency for Bellingham Municipal Court and Whatcom County, filed proofs of claim based on criminal fines, costs and fees. The debts, or “Legal Financial Obligations,” (LFO) arose out of Sentencing Orders following numerous criminal convictions. Mr. Sanders filed an adversary complaint alleging that AllianceOne’s conduct relating to the debts for which it filed proofs of claim and a debt based on a criminal conviction in the Whatcom County District Court, violated state consumer protection statutes as well as the discharge injunction from his prior chapter 7 bankruptcy. Both parties moved for summary judgment. [Read more…] about Exception to Discharge for Criminal Fines and Costs

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Circuit Court Addresses “Insufficiency” Calculation for Purposes of Set-Off

In calculating set-off under section 553, the bankruptcy court properly used the amount of the back-award accrued from the date of the debtor’s eligibility even though the debtor was not entitled to receipt of those benefits until within 90 days of filing her bankruptcy petition. Berg v. Social Security Admin., 900 F.3d 864 (7th Cir. 2018).

For a time, and through no fault of her own, Peggy Berg received social security benefits after she was no longer eligible. When the SSA caught its error, Ms. Berg began repaying the overpayment. She reapplied for social security benefits in March, 2014, and she was awarded benefits as of May, 2013. She did not receive her Notice of Award, however, until July 30, 2014. The Notice informed Ms. Berg that the SSA would set-off the almost $20,000 representing her remaining debt from the back-award it owed her. On August 7, 2014, Ms. Berg filed a bankruptcy petition and an adversary complaint seeking to reverse the set-off under sections 553(b) and 522(h). The bankruptcy court found that approximately $2,000 was improperly withheld by the SSA. The Seventh Circuit granted Ms. Berg’s petition for direct appeal. [Read more…] about Circuit Court Addresses “Insufficiency” Calculation for Purposes of Set-Off