An agreement between the debtor and a creditor to extend the deadline for filing an adversary complaint seeking denial of discharge under section 727 will not stand against later challenge on the basis of untimeliness where the extension was never ordered by the bankruptcy court. Shahrestani v. Alazzeh (In re Alazzeh), No. 13-1350 (B.A.P. 9th Cir. Apr. 24, 2014). [Read more…] about Parties’ Agreement to Extend Time Not Binding
Creditor’s AP Amendment Denied Due to Delay
The creditor waited too long to amend his adversary complaint and, therefore, the bankruptcy court’s denial of the motion to amend was not an abuse of discretion. Zullo v. Lombardo (In re Lombardo), No. 13-9004 (1st Cir. June 13, 2014). The case involved an apprentice plumber (Debtor) who passed himself off as a master, did a poor job and cost the creditor (Zullo) additional money to fix his work. Zullo sued and won in state court. After the debtor filed a chapter 7 bankruptcy petition, Zullo sought an order of nondischargeability of the state court judgment under section 523(a)(6) which excepts from discharge debts caused by willful injury. After losing a motion for summary judgment and being informed by the court that a claim under section 523(a)(2)(A), which excepts debts based on fraud, might have fared better, Zullo moved to amend to add a claim under that section. The timing of the motion was seventeen months after filing the complaint and one week before trial.
The court found that “undue delay in moving to amend, even standing alone, may be . . . an adequate reason” for denial of the motion. Citing Acosta-Mestre v. Hilton Int’l of P.R., Inc., 156 F.3d 49, 51-52 (1st Cir. 1998). The court recognized the tension between efficient resolution of cases and liberally permitting appeals to ensure that all relevant claims are addressed, and found that the unwarranted delay in this case resolved that tension in favor of the non-movant/debtor. No extenuating circumstances justified the delay: there had been no change in law or recent discovery of facts since the state court judgment. Any foot-dragging by the debtor in discovery was irrelevant as the facts and law were plain from the outset.
The court concluded that, while the bankruptcy court might have been justified in granting the motion to amend, it was not an abuse of discretion to have denied it.
Judge Thompson filed a dissenting opinion. He opined that Fed. R. Civ. P. 15(a)(2) requires granting permission to amend in the absence of justification to deny. Because all the facts of the case were established, the claim Zullo sought to add was not so different from the original claim or from the claim litigated in state court, it would not have unduly burdened the debtor or the court to address the new claim. Mere delay was insufficient reason to deny the motion
Failure to Follow Condition Precedent to Foreclosure Precludes Recovery for Costs
It pays to read mortgage documents carefully to determine whether the bank or Servicer complied with contractual conditions precedent prior to bringing adverse action against the debtor upon default. In In re Demers, No. 13-11539 (Bankr. R.I. June 5, 2014), American Servicing Co. (ASC) failed to comply with such conditions and was denied recovery of nearly $2,000.00 in claimed fees and costs associated with initiation of foreclosure proceedings. [Read more…] about Failure to Follow Condition Precedent to Foreclosure Precludes Recovery for Costs
Eleventh Circuit Joins Fourth in Allowing Chapter 20 Lien Strip
Yesterday, the Eleventh Circuit joined the Fourth Circuit in affirming the debtor’s ability to strip a wholly unsecured lien in chapter 13 where no discharge is available. In re Scantling, No. 13-10558 (June 18, 2014).
After reviewing the historical development of lien stripping under the Bankruptcy Code, the court, relying on its previous decision in Tanner v. Firstplus Financial, Inc., 217 F.3d 1357 (11th Cir. 2000), stated that in order for a claim to be “secured” and trigger the antimodification provisions of § 1322(b)(2), the collateral must have at least some value. In this case, it was undisputed that the amount owed on the first mortgage exceeded the property value, leaving no collateral value to support the junior mortgages. The court stated that though BAPCPA amended the discharge provision of 1328(f), it did not amend the two operative sections for lien stripping in chapter 13: §§ 506 or 1322(b)(2). Therefore, the court concluded the analysis for lien stripping in chapter 13 cases is the same irrespective of whether the debtor is eligible for a discharge.
The court rejected creditor’s argument based on In re Gerardin, 447 B.R. 342 (Bankr. S.D. Fla. 2011), that its claim was an “allowed secured claim” for purposes of section 1325(a)(5)(B)(i). Section 1325(a)(5)(B)(i) provides that creditors holding allowed secured claims retain their liens until (1) payment in full under applicable non-bankruptcy law, or (2) discharge. As the Eleventh Circuit correctly noted in this case the creditor did not hold an allowed secured claim, and therefore section 1325(a)(5)(B)(i) was inapplicable.
Tuition Deferment Dischargeable
“[W]hen a private educational institution finances a deferred payment of its tuition and related fees owed by one of its students that did not involve a third party loan or an exchange of funds,” the debt is not excepted from discharge under section 523(a)(8). Institute of Imaginal Studies v. Christoff, No.13-10808, A.P. 13-3186 (Bankr. N.D. Cal. June 11, 2014). [Read more…] about Tuition Deferment Dischargeable
The Bell Tolls for Inherited IRAs
In a unanimous decision authored by Justice Sotomayor, the Supreme Court found that “[t]he text and purpose of the Bankruptcy Code make clear that funds held in inherited IRAs are not ‘retirement funds’ within the meaning of §522(b)(3)(C)’s bankruptcy exemption.” Clark v. Rameker (In re Clark), No. 13-299 (U.S.S.Ct. June 12, 2014). [Read more…] about The Bell Tolls for Inherited IRAs
Debtor’s Claim to Equitable Distribution from Spouse’s Pension Property of Estate
Where no Qualified Domestic Relations Order (QDRO) has yet been entered, the debtor’s claim for equitable distribution of her ex-husband’s pension is property of the estate and the trustee is free to negotiate a settlement agreement with respect to that pension. Walsh v. Urmann (In re Urmann), No. 11-21606 (Bankr. W.D. Pa. Apr. 15, 2014). [Read more…] about Debtor’s Claim to Equitable Distribution from Spouse’s Pension Property of Estate
Contributions to 401(k) One Factor in Abuse Analysis
401(k) contributions may be considered when determining whether the debtors’ chapter 7 case should be dismissed for abuse pursuant to section 707(b)(3)(B). In re Nunna, No. 13-5679 (Bankr. M.D. Fla. May 13, 2014). In Nunna, the Acting U.S. Trustee filed a motion to dismiss the debtors’ chapter 7 case as abusive. The bankruptcy court granted the trustee’s motion. [Read more…] about Contributions to 401(k) One Factor in Abuse Analysis
Trustee May Not Compel Use of Non-Estate Property in Modified Plan
Relying on Eleventh Circuit precedent, a Georgia bankruptcy court found that a debtor could not be compelled to contribute life insurance proceeds received more than 180 days post-petition to his modified chapter 13 plan. In re McAllister, 2014 WL 1624106 (Bankr. N.D. Ga. April 3, 2014). [Read more…] about Trustee May Not Compel Use of Non-Estate Property in Modified Plan
Chapter 7 Lien Strip Issue in Eleventh Circuit Unclogged
Cases have been piling up in the Eleventh Circuit challenging that court’s position that a chapter 7 debtor may strip a wholly unsecured lien. See In re Brown No. 13-14298 (lead case). But that court’s recent decision in Bank of Amer. v. Toledo-Cardona, No. 13-15855 (May 15, 2014) (relying on McNeal), and more significantly, its denial of petitions for rehearing and rehearing en banc in the case of McNeal v. GMAC Mortg., LLC, 735 F.3d 1263 (11th Cir. 2012) pet. den. (May 20, 2014), suggest that movement toward Supreme Court resolution may be in the offing. [Read more…] about Chapter 7 Lien Strip Issue in Eleventh Circuit Unclogged