In good news for bankruptcy debtors who cannot afford to file chapter 7 or for whom chapter 7 is otherwise impracticable, the Fifth Circuit affirmed the bankruptcy court’s confirmation of the debtor’s “fee-only” chapter 13 plan finding that such plan are not per se bad faith. Sikes v. Crager (In re Crager), No. 11-30982 (5th Cir. August 16, 2012), rev’g, W.D. La. 10-1863 (Sept. 30, 2011). [Read more…] about Fifth Circuit Approves “Fee-Only” Chapter 13 Plan
Bankruptcy-Specific Exemptions Found Constitutional
In a comprehensive opinion, the Sixth Circuit today joined the Fourth Circuit and upheld bankruptcy-specific exemptions against a challenge based on the Bankruptcy and Supremacy Clauses of the Constitution. Richardson v. Schafer (In re Schafer), No. 11-1340 (6th Cir. Aug. 20, 2012) (rev’g 455 B.R. 590 (B.A.P. 6th Cir. 2011)). See also Sheehan v. Peveich, 574 F.3d 248, 252 (4th Cir. 2009). [Read more…] about Bankruptcy-Specific Exemptions Found Constitutional
Arbitration vs. Bankruptcy
The Ninth Circuit found that the creditor’s motion to compel arbitration was properly denied where arbitration would have resolved the core bankruptcy issue of dischargeability and, therefore, the Federal Arbitration Act conflicted with the underlying purposes of the Bankruptcy Code. In re Eber, No. 11-55341 (9th Cir. July 9, 2012). Specifically, the creditors sought arbitration to determine whether the debtor had committed fraud, breach of fiduciary duty, and willful injury, with respect to a contract for construction and operation of a hair salon. The bankruptcy court denied the motion on the basis that findings on these issues would essentially decide the issue of whether the debts were nondischargeable under sections 523(a)(2), (4) and (6) of the Bankruptcy Code. [Read more…] about Arbitration vs. Bankruptcy
Post-Petition 401(k) Contributions
Two recent cases came out the wrong way on the issue of whether a debtor may deduct post-petition contributions to his 401(k) from calculation of disposable income. In re Parks, No. 11-1366 (B.A.P. 9th Cir. August 6, 2012), and In re Jenkins, No. 11-16960 (Bankr. E.D. Tenn. July 5, 2012). [Read more…] about Post-Petition 401(k) Contributions
Trustee May Not Waive Debtor’s Defenses to Foreclosure Action
In an action comparable to two wolves and a sheep voting on what to have for dinner, the Bankruptcy Court for the Southern District of Florida stepped in on behalf of the sheep and disapproved a settlement agreement under which the trustee sought to waive the debtor’s defenses in an underlying state court foreclosure action. In re Larkin, 468 B.R. 431 (Bankr. S.D. Fla. 2012). [Read more…] about Trustee May Not Waive Debtor’s Defenses to Foreclosure Action
Debtor May Not Discriminate in Favor of Student Loan Creditor
Substituting its judgment for that of the Bankruptcy Court, the court for the Eastern District of Virginia found that the debtor’s chapter 13 plan should not have been confirmed where it proposed to treat her student loan outside the plan. Gorman v. Birts (In re Birts), No. 12-427 (E.D. Va. August 1, 2012). Under her plan as proposed, the debtor would have maintained her monthly payments on her student loan outside the plan while paying 7% to unsecured creditors within the plan. [Read more…] about Debtor May Not Discriminate in Favor of Student Loan Creditor
Automatic Stay within One Year of Dismissal of Previous Bankruptcy
NCBRC’s Tara Twomey assisted in writing the debtor’s brief in the case of St. Anne’s Credit Union v. Ackell, No. 12-10720 (D. Mass.), arguing that when a debtor files a bankruptcy petition within one year of a dismissal of a previous bankruptcy case, the plain language of section 362(c)(3)(A) provides that the automatic stay lapses after 30 days only as to the debtor and not as to the property of the estate.
Expert Testimony by NCLC Results in Debtor Victory Against Mortgage Servicer
In a victory for consumer debtors, the Bankruptcy Court for the Eastern District of Kentucky disallowed Ocwen’s proof of claim for late fees and charges, and awarded judgment, including punitive damages in the amount of $25,000.00, in favor of the debtor due to Ocwen’s “gross reckless[ness]” in accounting and servicing her mortgage. In re Tolliver, No. 09-21742, Adv. Proc. No. 09-2076 (Bankr. E.D. Ky. July 19, 2012).
In reaching its decision, the court held Ocwen’s feet to the fire demanding adequate explanation of Ocwen’s convoluted and contradictory accounting records. After finding Ocwen’s explanations just as slippery and unreliable as the records themselves, the court turned to the expert testimony of Margot Saunders from the National Consumer Rights Center. She sifted through the dust heap and offered the only reliable evidence as to the history of the loan, revealing a litany of mismanagement including collecting “unsubstantiated interest arrearage balance,” and “systematically assessing late charges, fees and costs in complete disregard of the terms of the [loan documents.]” Ocwen’s attempt to justify the charges with evidence of forbearance agreements was roundly rejected. The court found the debtor had been “bullied” into signing those agreements by repeated false representations that the debtor was in default and that foreclosure was imminent even though she had completely paid off the underlying loan. Ocwen’s outrageous conduct was found to violate state common laws including breach of contract, breach of implied covenant of good faith and fraud.
Third Circuit Allows Trustee Retention of Post-Discharge Appreciation
Relying on Schwab v. Reilly, 130 S.Ct. 2652 (2010), the Third Circuit has found that the chapter 7 trustee is entitled to the value of future appreciation in an asset the debtor has exempted under the wildcard exemption to the extent the value exceeds the dollar amount exempted. In re Orton, No. 11-4157 (3rd Cir. July 20, 2012) (affirming the decisions of the bankruptcy and district courts for the Western District of Pennsylvania). [Read more…] about Third Circuit Allows Trustee Retention of Post-Discharge Appreciation
Report on Student Loan Discharge in Bankruptcy
The Consumer Financial Protection Bureau and the Department of Education have released a report on private student loans, found at http://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.pdf.
The report finds that the 2005 BAPCPA law restricting bankruptcy protection for student loans coincided with rapid growth in questionable lending practices, compounding the risk to student borrowers. Although the restriction on bankruptcy discharge applies to all student loans, private student loans generally lack the intrinsic flexibility that permits federal student loan debtors to adjust their repayment based on income. The report finds little to no evidence that restricting bankruptcy rights improved either loan prices or access to credit. The report noted that the bankruptcy process itself, with its bad faith considerations, means testing, and attorney accountability, all protect against use of bankruptcy to unfairly defeat private student loan creditors.
Both the CFPB and the Education Department recommend in the report that Congress revisit the 2005 law restricting bankruptcy protection for private student loans stating:
“As noted in the report, several bodies were unable to find any systematic abuse of the bankruptcy code in seeking student loan discharges. Additionally, we were unable to find strong evidence that the 2005 changes to the bankruptcy code caused prices to decline or access to credit to increase significantly. If Congress concludes that the 2005 changes did not meet their overall policy goals, it would be prudent to consider modifying the code in light of the impact on young borrowers in challenging labor market conditions.”