National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Court Takes Self-Enriching Chapter 7 Trustee to Task

The district court went beyond the issue of whether the bankruptcy court properly denied the debtor’s motion for reconsideration, and addressed the unappealed substantive issue of whether the chapter 7 trustee, Kevin McCarthy, properly discharged his duties when he generated substantial fees and costs in pursuit of certain creditor claims. Skubal v. McCarthy, No. 1:17-cv-936 (E.D. Va. May 16, 2018).

Chapter 7 debtor, Megan Skubal, co-owned two real estate parcels as joint tenants with her father, Thomas Skubal. When she filed for bankruptcy, two unsecured creditors filed proofs of claim for a total of approximately $600. The trustee then contacted two additional unsecured creditors to urge them to file proofs of claim. Those creditors were Ms. Skubal’s student loan lender, ASC Education Services, to whom Ms. Skubal owed $46,171.47, and Midland Credit Management, for a credit card debt of $25,818.06. As both creditors declined to file proofs of claim, and despite the U.S. Trustee’s opposition, Mr. McCarthy filed the proofs of claim on their behalf. Mr. McCarthy then sought to sell Ms. Skubal’s real property to pay the $600 claims, the student loan claim, the credit card claim, and his fees and administrative expenses. [Read more…] about Court Takes Self-Enriching Chapter 7 Trustee to Task

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Fourth Circuit Applies Choice of Law Approach to Exemptions

The “state-specific” approach to application of exemption laws applies when determining whether the debtor may use the exemptions from his former domicile state with respect to property located in the bankruptcy state. Sheehan v. Ash, No. 17-1867 (4th Cir. May 4, 2018).

In their chapter 7 bankruptcy filed in West Virginia, Keith and Phyllis Ash sought to apply the exemption laws of their prior domicile state, Louisiana, to exempt approximately $3,500 in various items of personal property located in West Virginia. The trustee objected to application of Louisiana exemption law. The bankruptcy court overruled the objection and the district court affirmed. Sheehan v. Ash, No. 1:16-cv-109 (N.D. W. Va. June 27, 2017). [Read more…] about Fourth Circuit Applies Choice of Law Approach to Exemptions

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Guarantor May Contest Dischargeability of Student Loan

A guarantor on a student loan is an “accommodation party” who comes within the purview of the student loan nondischargeability provision when she is required to pay the loan on behalf of the debtor. De la Rosa v. Kelly (In re Kelly), No. 17-32295, Adv. Proc. No. 17-3320 (Bankr. S.D. Tex. March 23, 2018).

Mary De la Rosa was the guarantor on a student loan acquired by her friend and fellow church member, Tabitha Kelly. When Ms. Kelly defaulted on the loan, the lender sued Ms. De la Rosa and she paid the debt pursuant to a state court judgment. Ms. Kelly and her husband later filed for chapter 13 bankruptcy and Ms. De la Rosa filed an adversary complaint seeking to have the debt deemed nondischargeable under section 523(a)(8)(A)(ii). [Read more…] about Guarantor May Contest Dischargeability of Student Loan

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Court Refuses to Discard Totality of Circumstances Test for Good Faith

A chapter 13 plan must still be proposed in good faith under the totality of circumstances test even if it complies with Code provisions for confirmation. Booker v. Johns (In re Booker), No. 16-1604 (W.D. La. April 17, 2018).

Although the trustee did not challenge Webster and Lillie Bookers’ first chapter 13 plan, which proposed to keep their boat and various other secured items and paid only 4% to unsecured creditors, the bankruptcy court held a hearing and found the plan was not proposed in good faith. After filing a successful plan, the Bookers appealed the denial of confirmation of the first plan to the district court. [Read more…] about Court Refuses to Discard Totality of Circumstances Test for Good Faith

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Court Rejects “No Seal, No Deal” Argument

Parties cannot have a settlement agreement sealed simply because they have agreed to keep the settlement amount secret from the public. In re Thomas, No. 17-20527 (Bankr. E.D. Ky. March 1, 2018).

In the bankruptcy case she shared with her husband Andrew, Brittany Thomas filed an adversary proceeding against AT&T and DirecTV alleging violation of the automatic stay. She sought to make the case a class action alleging that the complained of conduct extended to other non-party contract-holders with the telecommunications companies. Ms. Thomas and the companies settled their claims as to Ms. Thomas alone, and she agreed to dismiss the class action claims. The parties presented their settlement to the bankruptcy court for approval and sought to have the agreement sealed from public view in perpetuity pursuant to section 107(b)(1) (though in a separate brief to the court, the companies sought a five-year sealing period and limited the request to the amount of settlement only). [Read more…] about Court Rejects “No Seal, No Deal” Argument

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Brunner Test Does Not Require that Debtor Take Advantage of IBR

Willie West was 60 years old, had been largely unemployed for thirty years and owed over $60,000 in student loans. He lived rent-free with his aunt and received $197.00 under the Supplemental Nutrition Assistance Program. When he sought to discharge the loans in bankruptcy the case came before the court on the parties’ cross-motions for summary judgment. West v. U. S. Dept. of Ed., No. 17-20506, AP No. 17-78 (Bankr. W.D. Tenn. Feb. 4, 2018). [Read more…] about Brunner Test Does Not Require that Debtor Take Advantage of IBR

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Court Adopts Predominate-Use Test for 910-Day Vehicle Analysis

When Jamie Denise McGinness filed for chapter 13 bankruptcy, she owed $27,867.56 on her Nissan Altima. She sought to strip-down the unsecured portion of the debt. Nissan Motor Acceptance Corporation objected to confirmation of her plan citing the hanging paragraph of section 1325(a)(5) which provides that a loan made to secure the purchase of a vehicle bought for personal use within 910 days of filing for bankruptcy may not be stripped down. The court overruled Nissan’s objection. In re McGinness, No. 17-14746 (Bankr. E.D. Tenn. March 2, 2018). [Read more…] about Court Adopts Predominate-Use Test for 910-Day Vehicle Analysis

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Debtor’s Attorney Fees Were Properly Paid Before Creditors in Chapter 13

In confirming the debtor’s chapter 13 plan, the bankruptcy court noted that “[a] debtor’s attorney fees are considered to be administrative priority claims and have priority above other claims . . .[under section] 507(a)(2).” In re Amaya, No. 17-70280 (Bankr. S.D. Tex. April 11, 2018).

In Evette Amaya’s chapter 13 bankruptcy, Propel Financial Services, LLC., filed a proof of claim in the amount of $25,303.63 secured by a tax lien on Ms. Amaya’s homestead. Ms. Amaya proposed a plan providing for two monthly payments in the amount of $1,100, and the remaining fifty eight monthly payments in the amount of $1,200. The plan specified that both Ms. Amaya’s counsel, to whom she owed $2,968.00  and Propel would be paid pro rata from month one through month fifty eight of the plan. The plan also provided that, subject to disposition of an avoidance motion, secured creditors would retain their liens. The trustee had her own internal distribution procedures under which she would pay Ms. Amaya’s counsel prior to other creditors. [Read more…] about Debtor’s Attorney Fees Were Properly Paid Before Creditors in Chapter 13

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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