National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC News

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Availability of IBRP Relevant to Student Loan Discharge

The availability of an income-based repayment program is a factor to be considered in the totality-of-circumstances test for student loan discharge under section 523(a)(8). Kemp v. U.S. Dept.  of Ed., No. 17-6032 (B.A.P. 8th Cir. Aug. 24, 2018).

The bankruptcy appellate panel affirmed the bankruptcy court’s denial of discharge of Erin Kemp’s student loans. The bankruptcy court had based its decision, in part, on the availability of an income-based repayment program when determining whether Ms. Kemp could make payments on the loan while maintaining a minimum standard of living. The panel, relying on the Eighth Circuit opinion in Educ. Credit Mgmt. Corp. v. Jesperson (In re Jesperson), 571 F.3d 775 (8th Cir. 2009), found that the existence of a repayment plan offering lower payments than those mandated by the lending agreement, while not dispositive, was a legitimate factor to be considered in the totality-of-circumstances test. Other factors also contributed to the bankruptcy court’s opinion, however, including the facts that Ms. Kemp had a history of successful employment, understated her income and overstated her expenses, was 36 years-old-at the time of her bankruptcy and could obtain better employment but chose not to in order to maintain a flexible part-time work schedule. As to her claim that she suffered from anxiety and depression, the court did not doubt her testimony but found insufficient evidence that those issues prevented full employment. [Read more…] about Availability of IBRP Relevant to Student Loan Discharge

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NACBA Helps Debtor Win on Sovereign Immunity Issue

“Sovereign immunity does not preclude an award of emotional distress damages against the United States for willful violation of the Bankruptcy Code’s automatic stay.”  Hunsaker v. U.S.A., No. 16-35991 (9th Cir. Aug. 30, 2018).

After Jonathan and Cheryl Hunsaker filed for chapter 13 bankruptcy the IRS continued to send them collection notices. The bankruptcy court found the IRS’s conduct was a willful violation of the automatic stay under section 362(k) and awarded damages for emotional distress. The district court reversed on the grounds that Congress did not waive sovereign immunity for emotional distress damages.

The Hunsakers appealed and NACBA/NCBRC filed an amicus brief in support of reversal. [Read more…] about NACBA Helps Debtor Win on Sovereign Immunity Issue

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Sketchy and Incomplete Evidence Dooms Student Loan Discharge

After extensive review of the evidentiary record, the court, applying a “totality of the circumstances” test, found that the debtor failed to establish past and future inability to pay his consolidated student loans and denied discharge. Golliday v. ECMC, No. 16-20014, Adv. Proc. No. 16-2028 (Bankr. D. Me. July 12, 2018).

In 2016, Gregory Golliday filed for chapter 7 bankruptcy seeking to discharge over $200,000 in student loan debt and accumulated interest under section 523(a)(8). After a hearing, the court applied a totality-of-circumstances test in which, in order to show undue hardship, a debtor must “prove by a preponderance of the evidence that (1) . . . his past, present, and reasonably reliable future financial resources; (2) . . . his and . . .[his] dependents’ reasonably necessary living expenses; and (3) other relevant facts and circumstances unique to the case, prevent [him] from paying the student loans in question while still maintaining a minimal standard of living . . .” [Read more…] about Sketchy and Incomplete Evidence Dooms Student Loan Discharge

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Exception to Discharge for Criminal Fines and Costs

Where state law treats criminal fines, fees and costs as punitive rather than compensatory those debts are excepted from discharge in bankruptcy. Sanders v. AllianceOne Receivables Management Inc., No. 15-15243, Adv. Proc. No. 16-1204 (Bankr. W.D. Wash. July 6, 2018).

When Randy Sanders filed for chapter 13 bankruptcy, AllianceOne Receivables Management, Inc., as collection agency for Bellingham Municipal Court and Whatcom County, filed proofs of claim based on criminal fines, costs and fees. The debts, or “Legal Financial Obligations,” (LFO) arose out of Sentencing Orders following numerous criminal convictions. Mr. Sanders filed an adversary complaint alleging that AllianceOne’s conduct relating to the debts for which it filed proofs of claim and a debt based on a criminal conviction in the Whatcom County District Court, violated state consumer protection statutes as well as the discharge injunction from his prior chapter 7 bankruptcy. Both parties moved for summary judgment. [Read more…] about Exception to Discharge for Criminal Fines and Costs

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Circuit Court Addresses “Insufficiency” Calculation for Purposes of Set-Off

In calculating set-off under section 553, the bankruptcy court properly used the amount of the back-award accrued from the date of the debtor’s eligibility even though the debtor was not entitled to receipt of those benefits until within 90 days of filing her bankruptcy petition. Berg v. Social Security Admin., 900 F.3d 864 (7th Cir. 2018).

For a time, and through no fault of her own, Peggy Berg received social security benefits after she was no longer eligible. When the SSA caught its error, Ms. Berg began repaying the overpayment. She reapplied for social security benefits in March, 2014, and she was awarded benefits as of May, 2013. She did not receive her Notice of Award, however, until July 30, 2014. The Notice informed Ms. Berg that the SSA would set-off the almost $20,000 representing her remaining debt from the back-award it owed her. On August 7, 2014, Ms. Berg filed a bankruptcy petition and an adversary complaint seeking to reverse the set-off under sections 553(b) and 522(h). The bankruptcy court found that approximately $2,000 was improperly withheld by the SSA. The Seventh Circuit granted Ms. Berg’s petition for direct appeal. [Read more…] about Circuit Court Addresses “Insufficiency” Calculation for Purposes of Set-Off

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Third Circuit Rejects Preference Argument in 547 Context

Denying the debtor’s claim of preferential transfer, the Third Circuit applied a presumption that the foreclosure sale of the debtor’s property resulted in a purchase price equivalent to what the property could have garnered in a chapter 7 liquidation sale. Veltre v. Fifth Third Bank, No. 17-2889 (3rd. Cir. July 19, 2018) (unpublished).

The junior mortgagee, Fifth Third Bank, bought Margaret Veltre’s home in a pre-bankruptcy foreclosure sale for an amount sufficient to satisfy the first mortgage. Ms. Veltre subsequently filed for bankruptcy and initiated an adversary proceeding seeking to have the foreclosure sale avoided as a preferential transfer. [Read more…] about Third Circuit Rejects Preference Argument in 547 Context

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Battle of the Valuation Reports

Retail value under NADA, rather than trade-in value, governs valuation of car under section 506(a)(2). In re Burton, No. 17-10979 (Bankr. D. Del. May 16, 2018).

Deborah Burton filed an amended chapter 13 plan in which she listed the value of her secured vehicle as $8,100 and proposed a 5% interest rate. In support of her valuation, Ms. Burton submitted an appraisal from a car dealership stating the vehicle’s trade-in value, taking into account damage and wear. Ally Financial, the secured holder of the car loan, objected to the valuation and the interest rate, arguing that, based on a National Automobile Dealers Association valuation, the vehicle should have been valued at $11,105, and should be repaid at an interest rate of 7%. Both parties maintained that the holding in Assocs. Commercial Corp. v. Rash, 520 U.S. 953 (1997), supported their valuation. [Read more…] about Battle of the Valuation Reports

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No Distribution to Creditors after Chapter 13 Case Voluntarily Dismissed

The chapter 13 debtors who voluntarily dismissed their bankruptcy case were entitled to the proceeds from the sale of their homestead. Viegelahn v. Lopez, No. 17-50297 (5th Cir. July 31, 2018).

Chapter 13 debtors, Manuel and Dolores Lopez, sold their homestead without prior court approval and did not use the proceeds to purchase another home. Their confirmed plan provided that estate property would not revest in the debtors except upon order of the court. For various reasons, including Mr. Lopez’s arrest and deportation, the Lopezes had difficulty making plan payments. In response to the trustee’s third motion to dismiss, Ms. Lopez sought to use the proceeds from the sale of their homestead for plan payments after she paid approximately $20,000 for mandatory eye surgery. The trustee objected to any hold-back of the sale proceeds. The bankruptcy court agreed to allow Ms. Lopez’s modification, adding that if the Lopezes voluntarily dismissed their bankruptcy, they would be entitled to retain all the proceeds from the homestead sale. The Lopezes moved for voluntary dismissal and the trustee objected on the basis of bad faith. The bankruptcy judge granted the motion to dismiss and found that the proceeds should be returned to the Lopezes. The district court affirmed the dismissal but reversed on the issue of returning the proceeds. [Read more…] about No Distribution to Creditors after Chapter 13 Case Voluntarily Dismissed

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Wells Fargo on the Hook for Misreporting Delinquency

Finding genuine issues of material fact, the district court denied Wells Fargo’s motion for summary judgment on most of the chapter 13 debtors’ federal and state claims based on Wells Fargo’s misapplication and misreporting of mortgage payments while the debtors were in bankruptcy. Anderson v. Wells Fargo Bank, No. 16-2514, 2018 WL 3426269 (N.D. Tex. July 13, 2018).

Tony and Hanna Anderson were current on their mortgage when they filed their chapter 13 petition. Their confirmed plan provided for continued payments on the mortgage outside the plan. Though the Anderson made all mortgage payments in a timely manner, the mortgage servicer, Wells Fargo, misapplied the payments and reported the debt as delinquent. The Andersons sent Wells Fargo five qualified written requests for information under RESPA and filed a request for investigation under the FCRA. Wells Fargo admitted its error and sent the corrected information to credit reporting agencies approximately two months later. [Read more…] about Wells Fargo on the Hook for Misreporting Delinquency

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Tax Sale May Be Avoided as Constructively Fraudulent

A tax sale was avoidable as constructively fraudulent where the state tax foreclosure sale procedures did not include notice and bidding procedures likely to result in the debtors’ receiving “reasonably equivalent value.” Hampton v. Ontario County, No. 17-6808, and Gunsalus v. Ontario County, No. 17-6810 (W.D. N.Y. July 18, 2018).

In two separate cases with substantially identical facts, the Western District of New York addressed whether the bankruptcy court improperly dismissed the debtors’ adversary proceeding seeking to avoid the transfers of the debtors’ homes in tax sales. [Read more…] about Tax Sale May Be Avoided as Constructively Fraudulent