National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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No Personal Liability for Post-Petition HOA Fees

The debtor was not personally liable for post-petition HOA dues despite the fact that title to the property remained in his name, where he had no “significant incidents of ownership” in the property. Hovious v. Bridgewater Homeowners Assn., No. 10-2917, Adv. Proc. 16-50195 (Bankr. S.D. Ind. Feb. 15, 2017).

In his 2010 chapter 13 bankruptcy petition, debtor, Daniel Lee Hovious, listed Bridgewater Homeowners Association as an unsecured creditor to which he owed 2009 HOA dues on his residence. He also stated his intention to surrender that property to the holder of the first mortgage. He ceased making HOA payments upon filing for bankruptcy. The court confirmed the plan and ultimately granted Mr. Hovious’s discharge. [Read more…] about No Personal Liability for Post-Petition HOA Fees

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Preferential Transfer Governed by Date Garnished Wages Earned

It is not the date the garnishment order is served on the employer, but the date the debtor earns the wages that governs whether garnishment of those earnings is a preferential transfer. Tower Credit Inc. v. Schott (In re Jackson), No. 16-30274 (5th Cir. March 13, 2017).

Pursuant to a state court judgment, Tower Credit garnished the wages of the chapter 7 debtor, Christon Jackson. When he filed for bankruptcy, the trustee, Martin Schott, moved for turnover of the garnished wages as preferential transfers. Section 547(b) empowers a trustee to avoid a transfer made within 90 days of bankruptcy filing. The bankruptcy court granted summary judgment in favor of Mr. Schott. The district court affirmed. [Read more…] about Preferential Transfer Governed by Date Garnished Wages Earned

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Nationstar Drags its Feet to the Tune of $49,000

Calling Nationstar’s behavior reprehensible for its two-year failure to follow a court order and properly apply balloon payments, the court found it in contempt and awarded the chapter 13 debtor compensatory and punitive damages totaling $48,927.50. In re Rhodes, No. 11-18257 (Bankr. M.D. Fla. Feb. 3, 2017).

Chapter 13 debtor, Mary Katherine Rhodes, owned two non-primary-residence properties with mortgages held by Nationstar. After a hearing to value under section 506(a), in which Nationstar participated, the court bifurcated the claims into secured and unsecured portions. With respect to the secured portion, the plan provided for regular payments for twenty three months and balloon payments in month twenty four. When it came time to make the balloon payments, however, Ms. Rhodes was unable to finance them and her non-filing husband arranged to use his retirement account to make the payments. [Read more…] about Nationstar Drags its Feet to the Tune of $49,000

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Illinois AG Cracking Down on Fraud in the For-Profit College Industry

Illinois Attorney General, Lisa Madigan, is leading the charge in investigating and enforcing consumer protection violations in the area of student lending. According to a press release issued by the Attorney General’s office, Ms. Madigan is calling for the U.S. Department of Education to forgive student loans for students who attended Everest College or the criminal justice program at Westwood College. Ms. Madigan’s investigations into both colleges revealed that students were fraudulently lured into enrolling in programs that were poorly or non-accredited and that students took out millions of dollars in federal student loans to attend the programs. In 2015, Ms. Madigan reached a $15 million settlement with Westwood College, which included forgiving private loans of students enrolled in the school. Ms. Madigan’s efforts are in addition to a current investigation by the AG’s office into Navient, the largest servicer of student loans in the country. She has also taken action against debt relief scammers who victimize student loan debtors into paying for help that never materializes.

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SCOTUS Declines to Decide Late-Filed Tax Return Issue

The Supreme Court denied cert. in the case of Smith v. I.R.S., No. 16-497 (U.S.) dashing hopes of a definitive resolution of the issue of whether a late-filed tax return may constitute a “return” within the meaning of the hanging paragraph to section 523(a) (petition denied, (Feb. 21, 2017)). As NACBA/NCBRC argued in its amicus brief in support of certiorari, the question has deeply divided the courts with the Eighth Circuit relying on the accuracy of the documents purporting to constitute the return and permitting discharge if a bankruptcy petition is filed two years after a late-filed return, Colsen v. United States (In re Colsen), 446 F.3d 836 (8th Cir. 2006); the Fourth, Sixth, Seventh, Ninth and Eleventh Circuits, finding that once the IRS has made its own assessment of tax liability the late-filed return is not considered a return for purposes of bankruptcy dischargeability, e.g. Smith v. United States (In re Smith), 828 F.3d 1094 (9th Cir. 2016); and the First, Fifth and Tenth Circuits taking the draconian approach epitomized by McCoy v. Mississippi State Tax Comm’n (In re McCoy), 666 F.3d 924 (5th Cir. 2012), that all taxes described on late-filed returns—even those filed one day late for any reason—are barred from discharge. Unfortunately, given the sharp divide between circuits, treatment of a late-filed return will continue to be based on luck of the geographical draw.

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BAP Takes Realistic Approach to Undue Hardship Analysis

Where there is little likelihood that the debtor will be able to pay her students loans now or in the future, the fact that an income-based repayment plan may be available does not automatically constitute an “ability to pay.” Fern v. FedLoan Servicing, No.16-6021 (B.A.P. 8th Cir. Feb. 7, 2017).

Sara Fern is a 35 year-old single mother of three who receives food stamps and rental assistance and has a monthly employment income of $1,507. While she receives occasional financial help from her mother, that assistance is expected to end when her mother retires. Her expenses exceed her income by $62/month. Ms. Fern has student loans totaling over $27,000 which have been in forbearance or deferment ever since she left school.

The U.S. Department of Education appealed the bankruptcy court’s finding that Ms. Fern’s student loans were dischargeable based on undue hardship under section 523(a)(8). [Read more…] about BAP Takes Realistic Approach to Undue Hardship Analysis

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Court Denies “Comfort Order” to File Late POC

Neither the Code nor the Bankruptcy Rules permit a Bankruptcy Court to grant a “comfort order” allowing a late proof of claim where no objection has been made to the filing. In re Rodriguez, No. 16-70150 (Bankr. S.D. Tex. Feb. 13, 2017).

Karina Rodriguez listed Ovation as a tax lien creditor on Schedule D of her chapter 13 petition. Ovation filed its claim, along with a motion to allow late filing, after the filing deadline had passed. Ovation’s contemporaneous motion objecting to confirmation because the plan did not provide for full payment of its claim was granted pursuant to an agreed order. [Read more…] about Court Denies “Comfort Order” to File Late POC

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Alaska, Georgia and Louisiana Top CFPB’s List for Consumer Complaint Filings

In its monthly complaint report, the CFPB reported that the top three financial products or services receiving complaints in December, 2016, were, in descending order, debt collection, credit-reporting, and mortgages. Mortgage servicers garnered complaints for such things as misapplication of payments and ineffective resolution of borrowers’ problems with their loans. To account for monthly and seasonal fluctuations, the report compares complaints against companies in three-month segments to the same period the prior year. Equifax, Wells Fargo and TransUnion had the dubious honor of being the top three complained–about companies in the period from August to October, 2016. With respect to complaints relating to types of loans, the three-month average for complaints concerning student loans rose by 109% over the same period last year. The three states with the greatest increase in consumer complaints were Alaska, Georgia and Louisiana.

CFPB Monthly-Complaint-Report Feb 2017

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Forced Vesting Does Not Satisfy Confirmation Requirements

Section 1322(b)(9) does not permit a court to confirm a plan vesting surrendered property in an unwilling creditor. Wells Fargo v. Sagendorph, No. 15-40117 (D. Mass. Jan. 23, 2017).

Paul Sagendorph’s chapter 13 plan proposed to surrender property on which Wells Fargo held the sole lien, and vest title in Wells Fargo notwithstanding Wells Fargo’s objection. The bankruptcy court held that the Code permitted Mr. Sagendorph’s treatment of the secured debt and confirmed the plan. In re Sagendorph, No. 14-41675 (Bankr. D. Mass. June 2015). [Read more…] about Forced Vesting Does Not Satisfy Confirmation Requirements