National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC News

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Eligibility for REPAYE Relevant Consideration for Student Loan Discharge

The 51-year-old debtor with no mental or physical impairments, no dependents, and a history of underemployment, could not discharge her over $650,000 in student loans as undue hardship but must participate in the offered income-based repayment plan. Parvizi v. U.S. Dept. of Ed., No. 18-30578, Adv. Proc. No. 19-3003, 2021 WL 1921121 (Bankr. D. Mass. May 12, 2021), motion to amend judgment granted, July 28, 2021.

The pro se chapter 7 debtor entered bankruptcy with a student loan debt of over $650,000 which she sought to discharge as undue hardship under section 523(a)(8). She was 51-years-old, had no dependents, spoke four languages, and had no physical or mental impairments standing in the way of employment. She obtained multiple degrees including a medical degree though she never completed a medical residency. She described years of under-employment, most often in education. She made clear that so long as she could live comfortably, she sought employment for personal fulfillment rather than for maximizing her income. Though she could avail herself of an income-based repayment plan at a rate of $80/month, she chose not to, in part because she blamed the psychiatric residency program from which she voluntarily withdrew for failing to provide her with the education it promised. [Read more…] about Eligibility for REPAYE Relevant Consideration for Student Loan Discharge

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Standing Trustee Need Not Disgorge Fees when Plan Dismissed Prior to Confirmation

“[A] standing trustee is entitled to collect the statutory fee under [28 U.S.C.] § 586(e) upon receipt of each payment under the plan and is not required to disgorge the fee if the case is dismissed prior to confirmation.” McCallister v. Harmon, No. 20-1168 (B.A.P. 9th Cir. July 20, 2021) (unpublished).

The debtors made several payments in accordance with their proposed plan but voluntarily dismissed their bankruptcy prior to plan confirmation. The bankruptcy court’s order of dismissal included provision for the debtors’ attorney to collect his fee from the funds held by the trustee. The original order also provided for the trustee to retain the statutory fees she collected under section 586(e). Upon reconsideration of that order, though, the bankruptcy court concluded that section 1326(a)(2), which requires the trustee to retain plan payments until confirmation and return those payments to the debtor after deducting unpaid administrative claims if the case is dismissed prior to confirmation, mandated that the trustee return the fees to the debtor upon dismissal. In re Harmon, No. 19-01424-TLM, 2020 WL 6037759 (Bankr. D. Idaho June 23, 2020). [Read more…] about Standing Trustee Need Not Disgorge Fees when Plan Dismissed Prior to Confirmation

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No Punitive Sanctions for Rule 3002.1 Violation

In a decision taking the teeth out of Rule 3002.1’s notice requirement, the Second Circuit found that the Rule does not permit imposition of punitive sanctions. PHH Mortgage Corp. v. Sensenich (In re Gravel), No. 21-1 (2d Cir. Aug. 2, 2021). In a well-reasoned dissent, Judge Bianco argued that the majority incorrectly limited the scope of sanctions available under the Rule.

These three consolidated cases (In re Gravel (21-1), In re Beaulieu (21-2), In re Knisley (21-3)) came before the bankruptcy court upon motions by the Trustee seeking sanctions against PHH for assessing fees against the debtors, in 25 statements per debtor, without complying with the requirement in Rule 3002.1(c) that a mortgage creditor “shall file and serve on . . . the trustee a notice itemizing all fees, expenses, or charges” that the creditor “asserts are recoverable against the debtor” and serve this notice “within 180 days after the date on which the fees, expenses, or charges are incurred.” The trustee also sought sanctions for violations of the court’s Current Orders in the Gravel and Beaulieu cases. Those orders stated that the debtors, who had completed their plans, were current on their mortgages, and prohibited PHH from challenging that finding in “any other proceeding.” (The Knisleys had not yet completed their plan when the trustee filed for sanctions, so there was no similar order involved in that case). [Read more…] about No Punitive Sanctions for Rule 3002.1 Violation

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Debtor Cannot Cure Default After Expiration of Plan

The bankruptcy court correctly dismissed the debtor’s chapter 13 case after she missed her final two mortgage payments under her five-year plan, even though, shortly after the plan expired, she paid the arrears in full. In re Kinney, No. 20-1122 (10th Cir. July 23, 2021).

The debtor entered bankruptcy current on her mortgage payments, and her chapter 13 plan provided for continued payments to the mortgagee, HSBC Bank USA,  “under the plan.” A few months prior to completion of her plan, the debtor was injured in a car accident and, for that reason, missed two mortgage payments before the plan expired and two additional payments after its expiration. She then made the back payments and sought discharge. The bank opposed discharge and moved to dismiss her bankruptcy. The bankruptcy court found that it lacked discretion to grant a discharge and granted the motion to dismiss. After her motion for reconsideration was denied, the debtor was granted leave to appeal directly to the Tenth Circuit. [Read more…] about Debtor Cannot Cure Default After Expiration of Plan

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“Effective Date of the Plan” for Best Interests Test upon Modification

The best interests test does not provide authority to compel turnover through plan modification of settlement funds from the debtor’s post-petition personal injury case where that money would not be available to unsecured creditors in a case converted from chapter 13 to chapter 7 under section 348(f). In re Taylor, No. 16-40873 (Bankr. D. Kans. July 21, 2021). [Read more…] about “Effective Date of the Plan” for Best Interests Test upon Modification

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Private Student Loan Not “Educational Benefit”

A private student loan is not a conditional grant and therefore does not fall within the meaning of section 523(a)(8)(A)(ii) which excepts from discharge an “educational benefit, scholarship, or stipend.” Homaidan v. Sallie Mae, Inc., No. 20-1981 (2d Cir. July 15, 2021).

The chapter 7 debtor received a bankruptcy discharge that was ambiguous as to whether it applied to the “Tuition Answer Loans” he obtained from Navient (as successor to Sallie Mae,Inc.) The loans, in the amount of $12,567, were paid directly into the debtor’s bank account, and exceeded the debtor’s tuition obligation. Post-discharge, Navient pursued repayment of the loans, and the debtor complied, ultimately paying them off. The debtor then reopened his bankruptcy and filed an adversary proceeding seeking an order holding Navient in contempt for violation of the discharge violation. The court determined that the loans had been discharged and denied Navient’s motion to dismiss. Homaidan v. SLM Corp. (In re Homaidan), 596 B.R. 86, 107 (Bankr. E.D.N.Y. 2019). The Second Circuit granted Navient’s petition for direct appeal. [Read more…] about Private Student Loan Not “Educational Benefit”

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The ACA’s Shared Responsibility Payment Is Not a Priority Claim

“The shared responsibility payment is neither ‘a tax on or measured by income or gross Receipts’ nor ‘an excise tax on . . . a transaction’ within the meaning of § 507(a)(8)(A) or (E) of the Bankruptcy Code.” In re Juntoff, 2021 WL 1522206 (Bankr. N.D. Ohio April 15, 2021) (case nos. 1:19-bk-17032, 1:20-bk-13035) (unpublished). [Read more…] about The ACA’s Shared Responsibility Payment Is Not a Priority Claim

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Tax Credits Exemptible as Public Assistance

Where the Additional Child Tax Credit and Earned Income Tax Credit were both intended to benefit low-income households and were not limited by taxes owed, they were properly deemed “public assistance” under state exemption laws. In re Moreno, — B.R. —-, 2021 WL 1904189 (Bankr. W.D. Wash. May 11, 2021) (case no. 3:20-bk-42855). [Read more…] about Tax Credits Exemptible as Public Assistance

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Insurance Proceeds Don’t Enter Exemption Impairment Calculation

Insurance proceeds for the repair of the debtor’s fire-destroyed house are not considered when calculating impairment to the debtor’s homestead exemption where the debtor had not made any repairs on the house prior to filing for bankruptcy. Waltrip v. Sawyers, No. 20-1130 (8th Cir. July 2, 2021). [Read more…] about Insurance Proceeds Don’t Enter Exemption Impairment Calculation