National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Transfer of Funds Divided between Creditor and Creditor’s Agent Fully Avoidable

Garnished wages divided between the creditor and his agent in accordance with their fee agreement were an avoidable transfer in their entirety even though the creditor never received the portion withheld by the agent. Hooker v. Wanigas Credit Union, No. 20-2252 (6th Cir. Jan. 26, 2021) (unpublished).

During the ninety-day preference period,Wanigas Credit Union, through its agent, Shek Law Offices, garnished $884.13 from the debtor’s wages in satisfaction of a judgment Wanigas had against the debtor. Shek retained $452.60 of the garnished wages and sent the remaining $431.53 to Wanigas. After filing for bankruptcy the debtor sought turnover of the funds under section 547(b)(1) as a preferential transfer. Wanigas turned over only the funds it received. It argued that the portion retained by Shek was not subject to turnover because Wanigas never received the funds, and in the alternative, because the funds were subject to an attorney-charging lien. The bankruptcy court denied Wanigas’s motion for summary judgment and ordered the turnover of the funds. The district court granted leave to appeal and affirmed. [Read more…] about Transfer of Funds Divided between Creditor and Creditor’s Agent Fully Avoidable

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Two Vehicles Securing One Claim Must Receive Identical Treatment in Ch 13 Plan

Under section 1325(a)(5), a Chapter 13 plan cannot provide for different treatment of two vehicles that were purchased at different times with loans from the same creditor where both lending agreements included cross-collateralization clauses securing each loan by both vehicles. Barragan-Flores v. Evolve Federal Credit Union, No. 18-50420 (5th Cir. Jan 14, 2021). [Read more…] about Two Vehicles Securing One Claim Must Receive Identical Treatment in Ch 13 Plan

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SCOTUS Finds Retention of Property Is Not Exercise of Control

In an unhappy start to the new year, the Supreme Court resolved a long-festering issue in favor of creditors when it found that “mere retention of property does not violate §362(a)(3).” City of Chicago v. Fulton, 592 U.S. ___, No. 19-357 (S.Ct. Jan. 14, 2021).

Here, a number of chapter 13 debtors entered bankruptcy after the City of Chicago impounded their vehicles for failure to pay traffic fines. In their separate cases, the debtors sought return of the vehicles arguing that once they filed for bankruptcy, the City’s retention of the vehicles violated the automatic stay. The bankruptcy courts in each case agreed with the debtors. In a consolidated opinion, the Seventh Circuit found that retention of the vehicles constituted an exercise of control over property of the estate within the meaning of section 362(a)(3). It affirmed. In re Fulton, 926 F. 3d 916 (7th Cir. 2019). [Read more…] about SCOTUS Finds Retention of Property Is Not Exercise of Control

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Creditor Cannot Be Compelled to Take Possession of Surrendered Collateral

Surrender of collateral under section 521(a)(2) is a procedural action lifting the bankruptcy stay and permitting a lienholder to exercise state remedies with respect to the collateral. Because surrender does not affect the substantive rights of the debtor or the creditor, however, the debtor could not compel the creditor to take possession or release the lien. In re Loucks, 619 B.R. 908 (Bankr. E.D. Mich. Oct. 9, 2020) (case no. 20-42265). [Read more…] about Creditor Cannot Be Compelled to Take Possession of Surrendered Collateral

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Court Applies Purpose Test to Private Student Loan Discharge Case

Private loans extended to pay the debtor’s “costs of attendance” at the University of Michigan and which, taken in conjunction with the debtor’s Pell Grants, did not exceed the debtor’s education expenses, fell within section 523(a)(8)(B)’s exception to discharge. MacEwan Conti v. Arrowood Indemnity Co., No. 20-1172 (6th Cir. Dec. 14, 2020). [Read more…] about Court Applies Purpose Test to Private Student Loan Discharge Case

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Exemption under 522(d) Need Not Be Primary Residence

Adopting a plain-meaning approach, the Second Circuit found a debtor may avoid a lien that impairs her exemption on property her dependent son lives in part-time but is not his primary residence. Donovan v. Maresca (In re Maresca), No. 19-3331 (2d Cir. Dec. 14, 2020).

The debtor lived in an apartment, and her ex-husband lived in the marital residence (the Property) which he and the debtor owned jointly. They had joint custody of their dependent son whose primary residence was with his mother but who spent several days a week with his father in the Property as his “non-primary” residence. At the time the debtor filed for chapter 7 bankruptcy, her divorce lawyer had a judgment lien on the Property securing almost $71,000 in legal fees. She claimed an exemption on her interest in the Property under section 522(d) and sought to avoid the lien under section 522(f)(1)(A) as impairing that exemption. The bankruptcy court granted the debtor’s motion to avoid the lien. The district court affirmed. [Read more…] about Exemption under 522(d) Need Not Be Primary Residence

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Sixth Circuit Discusses Appellate Jurisdiction

Where the BAP remanded to the bankruptcy court for a finding on whether the creditor violated the automatic stay by failing to prevent the continuation of a contempt hearing against the debtor, the Sixth Circuit relied on precedent to conclude that the BAP’s order was not final and appealable. Wohleber v. Skurko (In re Wohleber), No. 19-3223/3225 (6th Cir. Nov. 18, 2020) (unpublished). In her concurring opinion, Judge Batchelder argued that the precedent relied on by the majority was erroneous and advocated for adopting a rule that “we have appellate jurisdiction if either the bankruptcy court’s judgment or the intermediate appellate judgment is final.” [Read more…] about Sixth Circuit Discusses Appellate Jurisdiction

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Lien for Incarceration Costs Is Avoidable Judicial Lien

The State Treasurer’s lien based on a statute authorizing the state to seek reimbursement from a prisoner for the costs of his incarceration was not a statutory lien but a judicial lien which the debtor could avoid as impairing his exemptions. State Treasurer v. Wigger, No. 19-732 (W.D. Mich. Nov. 16, 2020).

The debtor was a prisoner in the Central Michigan Correctional Facility. The Michigan State Treasurer sought to recover some of the costs of his incarceration under the State Correctional Facility Reimbursement Act (SCFRA). After a bench trial, the state court found the State Treasurer was entitled to reimbursement from the debtor’s IRA funds and from proceeds from a judgment the debtor had against his son. The debtor initiated a chapter 7 bankruptcy and filed an adversary proceeding seeking to have the state’s lien voided as a judicial lien impairing his exemptions under section 522(f)(1). The bankruptcy court granted the debtor’s lien avoidance motion finding that the lien impaired his exemption for retirement funds under section 522(d)(12), and his exemption for property valued up to $13,100 under section 522(d)(5). [Read more…] about Lien for Incarceration Costs Is Avoidable Judicial Lien

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Debtor’s Post-Discharge Pre-Closure Motion to Convert Denied

The debtor was not permitted to convert from chapter 7 to chapter 13 post-discharge but prior to administrative closure of his case where the court found the attempted conversion to be an abuse of process and his conduct in his chapter 7 case to indicate bad faith. In re Chamoun, No. 20-5069 (C.D. Cal. Dec. 2, 2020). [Read more…] about Debtor’s Post-Discharge Pre-Closure Motion to Convert Denied

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Unlawful Possession of Real Property Does Not Create Property Interest

Where the debtor was subject to a state court judgment cutting off his right to cure the default on an installment land contract, he had no interest in the property despite his continued unlawful possession and, therefore, the bankruptcy court erred in confirming the debtor’s chapter 13 plan that provided for payment of the default judgment. In re Peralta, No. 20-2380 (E.D. Pa. Dec. 4, 2020).

The debtor entered into an installment contract with the creditor for the transfer of real property. After the debtor defaulted on the contract, a new agreement was reached obligating the debtor in the event of future default to submit to a default judgment and vacate the property. He defaulted and the creditor obtained a judgment in the amount of $41,151.70, as well as a Judgment for Possession in state court. But rather than vacate the property, the debtor filed for chapter 13 bankruptcy and proposed a plan under which he would pay off the judgment and obtain possession of the property free and clear of the creditor’s interest. The bankruptcy confirmed the plan over the creditor’s objection. [Read more…] about Unlawful Possession of Real Property Does Not Create Property Interest