National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Tax Sale Certificate Transfer Was Avoidable Preference

A transfer of a tax sale certificate from the initial tax purchaser to the bankruptcy creditor was an avoidable preference where it resulted in the creditor obtaining greater value than it would have received in a chapter 7 liquidation. Hackler v. Arianna Holding Company, LLC., No. 17-6589 (D. N.J. March 22, 2018).

The chapter 13 debtors, Frank and Dawn Hackler, owned real property valued at $335,000. The property was sold in a tax sale to Phoenix Funding Inc. Phoenix sent a notice of foreclosure to the Hacklers then assigned the tax lien to Arianna Holding Company, LLC. The Hacklers filed for chapter 13 bankruptcy but that case was dismissed due to their failure to attend the 341 meeting of creditors. A month later, Arianna obtained a Final Judgment in Foreclosure vesting the property in itself. Within three months, the Hacklers again filed for chapter 13 bankruptcy listing the value of Arianna’s lien at $45,000. The Hacklers filed an adversary proceeding against Arianna seeking to avoid the transfer from Phoenix. The bankruptcy court found the transfer was an avoidable preference under section 547(b) and granted summary judgment in favor of the Hacklers. In re Hackler, 2017 Bankr. LEXIS 2437 (Bankr. D. N.J. Aug. 28, 2017). [Read more…] about Tax Sale Certificate Transfer Was Avoidable Preference

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Debtor’s Valuation of Worker’s Comp Claim Insufficiently Supported

An affidavit by the debtor’s worker’s compensation counsel asserting that at the time of the bankruptcy petition the worker’s comp claim had a mere nuisance value, was insufficient to overcome the IRS’s claim for a secured interest in the amount the worker’s comp case actually settled for several months post-petition. United States v. Austin (In re Austin), No. 17-6024 (B.A.P. 8th Cir. April 9, 2018).

When Scott and Anna Austin filed their chapter 13 petition, Mr. Austin had a pending worker’s compensation action which they valued on their schedules at zero or “unknown amount.” The IRS filed a claim asserting a tax lien to which the Austins objected. While that action was pending, the Austins settled the worker’s compensation claim for $21,448.80, of which they received $15,661.60. The IRS amended its claim to show a tax lien secured by the $15,661.60 settlement amount. The Austins objected again, presenting the affidavit of their worker’s compensation attorney, Michael Smallwood, that, notwithstanding the ultimate settlement amount, the worker’s compensation claim in fact had only a “nuisance” value of $3,000 at the time the Austins filed for bankruptcy. Based on the affidavit, the bankruptcy court reduced the IRS’s secured claim to $3,000. [Read more…] about Debtor’s Valuation of Worker’s Comp Claim Insufficiently Supported

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One Mortgage Securing Three Debts Equals Three Liens for Strip-Off Purposes

Three separate debts secured by one mortgage are properly treated as three liens and those junior liens that are wholly unsecured may be stripped in chapter 13. Poole v. First National Bank of Middle Tennessee, No.17-8 (E.D. Tenn. March 19, 2018).

David and Mary Poole took out three separate loans from First National Bank of Middle Tennessee (FNB) each of which were secured by the Pooles’ residence pursuant to an Open End Mortgage provision in the Deed of Trust providing security for future indebtedness. In their chapter 13 plan, the Pooles proposed to treat each loan as a separate secured debt and strip the two wholly unsecured junior liens under section 1322(b)(2). FNB objected arguing that there were not three liens, but one partially-secured lien that could not be modified. The bankruptcy court overruled the objection and confirmed the Pooles’ plan. [Read more…] about One Mortgage Securing Three Debts Equals Three Liens for Strip-Off Purposes

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EITC Is Income Which May Be Prorated and Offset with Expenses

The Bankruptcy Court did not err when it confirmed a plan in which the debtor prorated her expected Earned Income Tax Credit and offset the income with projected reasonably necessary expenses. Marshall v. Blake (In re Blake), No. 17-2809 (7th Cir. March 22, 2018).

Below-median chapter 13 debtor, Denise Blake, proposed a plan under which she pledged her federal tax refunds but retained any Earned Income Tax Credit. Notwithstanding that Ms. Blake worked full-time, lived in subsidized housing and had three dependent children, the trustee objected, arguing that Ms. Blake must count the EITC as income and include it in her plan payments. The bankruptcy court ultimately confirmed a plan over the trustee’s objection in which Ms. Blake treated the tax credit as income prorated over the course of the year and offset it with reasonable expenses. [Read more…] about EITC Is Income Which May Be Prorated and Offset with Expenses

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Circuit Rejects Mechanical Application of Judicial Estoppel

The district court abused its discretion when it mechanically applied judicial estoppel to bar the plaintiff’s personal injury lawsuit after he and his wife successfully completed their 100% plan. Clark v. Advanced Composites Grp., No. 17-1727 (2d Cir. March 30, 2018).

Michele and John Clark had one more payment due on their five-year chapter 13 plan when Mr. Clark was diagnosed with mesothelioma which he believed to have been caused by exposure to asbestos through his service with the United States Air Force and in his subsequent private sector work. The Clarks notified their bankruptcy counsel of his diagnosis and their intention to commence litigation, but their counsel did not notify the bankruptcy court. The Clarks successfully completed their plan payments. One year later, and one week prior to formal discharge and closure of their bankruptcy, Mr. Clark filed a personal injury complaint against Boeing and numerous other corporations. The case was removed to district court. Boeing then moved to dismiss the lawsuit on grounds of judicial estoppel. Finding that the Clarks’ failure to disclose Mr. Clark’s diagnosis to the bankruptcy court amounted to a false representation which the bankruptcy court acted upon by discharging them, the district court granted the motion. Mr. Clark died during the pendency of the appeal. [Read more…] about Circuit Rejects Mechanical Application of Judicial Estoppel

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Fourth Circuit Reverses Bad Decision on Chapter 13 Lien Stripping

Finding that a wholly unsecured lien may be stripped in chapter 13 even where no proof of claim was filed the Fourth Circuit reversed the district court’s holding to the contrary. Burkhart v. Grigsby (In re Burkhart), No. 16-1971 (4th Cir. March 29, 2018).

Chapter 13 debtors, Edwin and Teresa Burkhart’s, home was subject to several liens, two of which were held by Community Bank of Tri-County and were wholly unsecured. Tri-County did not file a proof of claim in the Burkharts’ bankruptcy. The Burkharts filed an adversary complaint seeking to strip off the wholly unsecured liens under section 1322(b). Relying on section 506(d), the bankruptcy court held Tri-County’s liens could not be stripped because they had not filed proofs of claim. (The court stripped the wholly unsecured lien held by PNC because PNC had filed a timely proof of claim). The district court affirmed (blogged here). [Read more…] about Fourth Circuit Reverses Bad Decision on Chapter 13 Lien Stripping

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Post-Petition Condo Fees Discharged in Chapter 13

Although a chapter 13 debtor continues to accrue post-petition condo fees while in bankruptcy, discharge extends to his in personam liability for those fees. In re Wiley, No. 16-15361 (Bankr. D. Md. Jan. 26, 2018).

Chapter 13 debtor, Christopher Wiley, owned but did not live in a condominium unit subject to a mortgage lien and a lien held by the condominium association based on post-petition fees and assessments. The mortgagee was granted relief from stay to foreclose but had not done so for over a year. Mr. Wiley’s confirmed plan surrendered the property to the lienholders for foreclosure with any deficiency in sale proceeds being treated as an unsecured claim. The plan also provided that estate property would not vest in the debtor until discharge. [Read more…] about Post-Petition Condo Fees Discharged in Chapter 13

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Excusable Neglect Standard for Amendment in Reopened Case

The right to amend in the case of a bankruptcy that is closed and then reopened is neither unlimited nor foreclosed, but requires a showing of excusable neglect. In re Mendoza, No. 16-10951 (Bankr. D. N.M. Jan. 31, 2018).

Despite direct prompting, Chapter 7 co-debtor, Sandy Armijo, failed to disclose the existence of a personal injury claim for which she was receiving pre-and post-petition chiropractic treatment. After her case was closed she received a settlement of approximately $8,000 in the personal injury case and moved to reopen her bankruptcy to amend her schedules to show the income and claim it as exempt. The trustee objected to the exemption. [Read more…] about Excusable Neglect Standard for Amendment in Reopened Case

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Booting Car Not a Stay Violation

The City’s action in booting the debtor’s car after she had filed her bankruptcy petition did not violate the automatic stay where its purpose was to protect public safety. In re Hicks, No. 17-3663 (Bankr. N.D. Ill. Feb. 1, 2018).

Ashina Hicks entered chapter 13 bankruptcy with almost $16,000 in traffic fines owed to the City of Chicago. After her petition, the City booted her car and did not remove the boot until the following day. Ms. Hicks filed a motion to show cause why the City’s action should not be found to be a violation of the automatic stay, and she sought $6,000 in damages for emotional distress, inconvenience and embarrassment. The City countered that its action was within its governmental power to protect the public safety and was not subject to the automatic stay under section 362(b)(4). The court agreed. [Read more…] about Booting Car Not a Stay Violation

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Homestead Post-Petition Sale Proceeds Retain Exempt Status in Chapter 7

Proceeds from the post-petition sale of the chapter 7 debtor’s homestead did not become part of the bankruptcy estate even though the debtor did not reinvest them in another homestead. Lowe v. DeBerry (In re DeBerry), No. 17-50315 (5th Cir. March 7, 2018).

When Curtis DeBerry filed for chapter 7 bankruptcy he exempted his homestead without objection by the trustee. Post-petition he sold the residence and transferred some of the proceeds to his wife and used the rest to pay unrelated criminal attorney fees. The trustee filed an adversary complaint arguing that, because Mr. DeBerry did not reinvest the proceeds in another homestead within six months as required by Texas proceeds law, the proceeds were not exempt. The bankruptcy court found in favor of Mr. DeBerry and the district court reversed. [Read more…] about Homestead Post-Petition Sale Proceeds Retain Exempt Status in Chapter 7