National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

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Eleventh Circuit Interprets Section 1328(a)’s “Provided for”

A mortgage paid outside the plan is not “provided for by the plan” for purposes of discharge of the debtor’s liability under section 1328(a). Dukes v. Suncoast Credit Union, No. 16-16513 (11th Cir. Dec. 6, 2018).

When she filed her bankruptcy petition, Chapter 13 debtor, Mildred Dukes, was current on two mortgages held by Suncoast Credit Union. Though she listed both mortgages in her schedules, the credit union filed a proof of claim only for the second mortgage. Her confirmed plan stated that the mortgages would be paid outside the plan. Ms. Dukes completed her plan payments and was granted discharge of all debts provided for by the plan. During the plan, however, Ms. Dukes defaulted on both mortgages. The credit union foreclosed on the property under the second mortgage and sought deficiency judgment against Ms. Dukes under the first mortgage. It moved to reopen her bankruptcy to obtain an order that her liability on the first mortgage was not discharged. The bankruptcy court found in favor of the credit union, and the district court affirmed. [Read more…] about Eleventh Circuit Interprets Section 1328(a)’s “Provided for”

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Interest in Joint Tenancy Drops from Estate upon Death of Debtor

By operation of state property law, a debtor’s interest in a joint tenancy drops out of the Chapter 7 estate upon the death of the debtor, and this does not conflict with the trustee’s powers under federal law. Cohen v. Chernushin (In re Chernushin), No. 18-1068 (10th Cir. Dec. 21, 2018).

Gregory and Andrea Chernushin owned real property as joint tenants. Mr. Chernushin filed for bankruptcy but committed suicide during the pendency of his case. The Chapter 7 trustee sought to retain and sell the joint tenancy. The bankruptcy court found that upon Mr. Chernushin’s death, the entire interest in the property went to Ms. Chernushin and was therefore no longer part of the bankruptcy estate amenable to sale by the trustee. On appeal, the district court agreed. Cohen v. Chernushin (In re Chernushin), 584 B.R. 567 (D. Colo. 2018). [Read more…] about Interest in Joint Tenancy Drops from Estate upon Death of Debtor

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Court Exceeded Power with Plan Provision Re: After-Acquired Property

A bankruptcy court lacks the power to require a chapter 13 debtor to include a plan provision pledging to pay into the plan the cash equivalent of any non-cash property obtained post-confirmation. Roseberry v. U.S. Trustee, No. 18-1039 (S.D. Ill. Dec. 18, 2018). [Read more…] about Court Exceeded Power with Plan Provision Re: After-Acquired Property

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Omissions on Written Applications Satisfies Writing Requirement for Non-Dischargeability

A bankruptcy court found that the omission of income data from numerous applications for food stamps and other public-assistance benefits satisfies the requirement of a materially false written statement respecting the debtor’s financial condition for purposes of exclusion from discharge. State of Oregon v. Maxwell, (In re Maxwell), No. 17-32084, Adv. Proc. No. 17-03113 (Bankr. D. Ore. Oct. 18, 2018) (unpublished letter opinion).

In this case, Antoinette Maxwell failed, on numerous public-assistance applications, to disclose employment income and child support payments she was receiving. The State of Oregon filed an adversary complaint in her chapter 7 bankruptcy seeking an order of non-dischargeability of over $16,000 in benefits it claimed she received by reason of the fraudulent omissions.   [Read more…] about Omissions on Written Applications Satisfies Writing Requirement for Non-Dischargeability

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Court Declines to Enforce Arbitration Clause in Student Loan Agreement

An arbitration clause in a student loan contract is unenforceable where the debtor seeks an order of discharge of the loan in bankruptcy. Roth v. Butler University (In re Roth), No. 17-4109, Adv. Proc. No. 18-50097 (Bankr. S.D. Ind. Nov. 16, 2018).

After Matthew Roth obtained his chapter 7 discharge, he moved to reopen his bankruptcy to seek discharge of his student loans under section 523(a)(8). One of his student loan lenders, Sallie Mae, answered with a motion to compel arbitration based on the terms of the student loan agreement. [Read more…] about Court Declines to Enforce Arbitration Clause in Student Loan Agreement

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Avoidability of Tuition Payments Depends on Timing

Once tuition funds became non-refundable, the universities receiving the funds would be considered initial transferees and the transfers would be subject to avoidance under section 550(a). Pergament v. Brooklyn Law School, Nos. 18-2204, 18-2235, 18-2236 (E.D. N.Y. amended opinion Jan. 4, 2019).

In three adversary proceedings, the Chapter 7 Trustee, Marc Pergament, sought to recover tuition payments the debtor, Harold Adamo, made for his children’s education in three universities. The bankruptcy court found that the trustee could not avoid the transfers because the institutions were subsequent transferees who took in good faith under section 550(b). [Read more…] about Avoidability of Tuition Payments Depends on Timing

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BAP Reverses Finding of Student Loan Exception from Discharge

Where evidence of the non-profit entity’s involvement in the debtor’s student loan was minimal, the bankruptcy appellate panel found that the lender should not have been granted summary judgment on the issue of nondischargeability. Page v. JP Morgan Chase Bank, No. 18-6011 (B.A.P. 8th Cir. Nov. 20, 2018).

Richelle Page obtained a loan from Chase Bank through its Education One Undergraduate Loan Program. The loan was then sold to the National Collegiate Student Loan Trust (NCSLT). When she filed for bankruptcy, NCSLT sought a finding that the loan was nondishargeable under section 523(a)(8). The bankruptcy court granted NCSLT’s motion for summary judgment. [Read more…] about BAP Reverses Finding of Student Loan Exception from Discharge

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Obligation to Return Funds to Debtor upon Dismissal Preempts State Levy Law

The chapter 13 trustee had no choice but to return post-petition funds to the debtor upon pre-confirmation dismissal of his bankruptcy despite state law permitting the Division of Child Support to levy against any person holding the debtor’s funds. Commonwealth of Va., Dept. of Soc’l Serv. v. Webb, No. 17-2328 (4th Cir. Nov. 19, 2018).

Chapter 13 debtor, Barry Webb, paid $3,000 to the chapter 13 trustee while his bankruptcy was pending confirmation. After he was unable to establish a confirmable plan, his bankruptcy was dismissed and the Virginia Department of Social Services, Division of Child Support, presented the trustee with an Order to Withhold the funds for payment to the Division. The bankruptcy court found that the Code required the trustee to return the funds to the debtor. The district court affirmed. [Read more…] about Obligation to Return Funds to Debtor upon Dismissal Preempts State Levy Law

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District Court Upholds Sanctions and Suspension Against UpRight Law

Where a “local partner” working under the auspices of Chicago-based UpRight Law botched a Louisiana chapter 7 case, the district court affirmed the bankruptcy court’s order suspending UpRight from practice in the district and other sanctions. Law Solutions Chicago, LLC d/b/a UpRight Law, LLC v. U. S. Trustee, No. 18-216 (W.D. La. Sept. 24, 2018).

Appellant, UpRight Law, is a bankruptcy law practice based in Chicago using a business model under which it contracts with “local partners” around the country to handle cases for a percentage of the fee paid to UpRight. When Lillie Mae Banks sought representation for her Louisiana bankruptcy case, UpRight assigned her case to one of its local partners (after first assigning it to an attorney who was not licensed to practice in Louisiana). After Ms. Banks’s case was “horribly screwed up” the U.S. Trustee stepped in seeking disgorgement of the fees she paid, a civil penalty, and other sanctions against UpRight and local counsel. [Read more…] about District Court Upholds Sanctions and Suspension Against UpRight Law

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Foreclosure Not Complete Until Deed Recorded so Debtor May Cure and Maintain

Where the debtor’s residence was sold in a foreclosure sale but the mortgagee failed to record the foreclosure deed as required by state law, the debtor had the right to cure and maintain under section 1322(c). In re Vertullo, 18-10552 (Bankr. D. N.H. Oct. 1, 2018).

In this case, the mortgagee, U.S. Bank, moved for relief from stay, arguing that because the foreclosure auction was completed prior to Darlene Vertullo’s chapter 13 bankruptcy filing, the property did not enter the bankruptcy estate and she could not cure and maintain under section 1322(c). Ms. Vertullo countered that U.S. Bank’s failure to record the deed allowed section 1322(c) to preempt the state law which would have otherwise divested her of ownership interest in the property upon foreclosure sale at auction. [Read more…] about Foreclosure Not Complete Until Deed Recorded so Debtor May Cure and Maintain