Willie West was 60 years old, had been largely unemployed for thirty years and owed over $60,000 in student loans. He lived rent-free with his aunt and received $197.00 under the Supplemental Nutrition Assistance Program. When he sought to discharge the loans in bankruptcy the case came before the court on the parties’ cross-motions for summary judgment. West v. U. S. Dept. of Ed., No. 17-20506, AP No. 17-78 (Bankr. W.D. Tenn. Feb. 4, 2018). [Read more…] about Brunner Test Does Not Require that Debtor Take Advantage of IBR
Court Adopts Predominate-Use Test for 910-Day Vehicle Analysis
When Jamie Denise McGinness filed for chapter 13 bankruptcy, she owed $27,867.56 on her Nissan Altima. She sought to strip-down the unsecured portion of the debt. Nissan Motor Acceptance Corporation objected to confirmation of her plan citing the hanging paragraph of section 1325(a)(5) which provides that a loan made to secure the purchase of a vehicle bought for personal use within 910 days of filing for bankruptcy may not be stripped down. The court overruled Nissan’s objection. In re McGinness, No. 17-14746 (Bankr. E.D. Tenn. March 2, 2018). [Read more…] about Court Adopts Predominate-Use Test for 910-Day Vehicle Analysis
Debtor’s Attorney Fees Were Properly Paid Before Creditors in Chapter 13
In confirming the debtor’s chapter 13 plan, the bankruptcy court noted that “[a] debtor’s attorney fees are considered to be administrative priority claims and have priority above other claims . . .[under section] 507(a)(2).” In re Amaya, No. 17-70280 (Bankr. S.D. Tex. April 11, 2018).
In Evette Amaya’s chapter 13 bankruptcy, Propel Financial Services, LLC., filed a proof of claim in the amount of $25,303.63 secured by a tax lien on Ms. Amaya’s homestead. Ms. Amaya proposed a plan providing for two monthly payments in the amount of $1,100, and the remaining fifty eight monthly payments in the amount of $1,200. The plan specified that both Ms. Amaya’s counsel, to whom she owed $2,968.00 and Propel would be paid pro rata from month one through month fifty eight of the plan. The plan also provided that, subject to disposition of an avoidance motion, secured creditors would retain their liens. The trustee had her own internal distribution procedures under which she would pay Ms. Amaya’s counsel prior to other creditors. [Read more…] about Debtor’s Attorney Fees Were Properly Paid Before Creditors in Chapter 13
Tax Sale Certificate Transfer Was Avoidable Preference
A transfer of a tax sale certificate from the initial tax purchaser to the bankruptcy creditor was an avoidable preference where it resulted in the creditor obtaining greater value than it would have received in a chapter 7 liquidation. Hackler v. Arianna Holding Company, LLC., No. 17-6589 (D. N.J. March 22, 2018).
The chapter 13 debtors, Frank and Dawn Hackler, owned real property valued at $335,000. The property was sold in a tax sale to Phoenix Funding Inc. Phoenix sent a notice of foreclosure to the Hacklers then assigned the tax lien to Arianna Holding Company, LLC. The Hacklers filed for chapter 13 bankruptcy but that case was dismissed due to their failure to attend the 341 meeting of creditors. A month later, Arianna obtained a Final Judgment in Foreclosure vesting the property in itself. Within three months, the Hacklers again filed for chapter 13 bankruptcy listing the value of Arianna’s lien at $45,000. The Hacklers filed an adversary proceeding against Arianna seeking to avoid the transfer from Phoenix. The bankruptcy court found the transfer was an avoidable preference under section 547(b) and granted summary judgment in favor of the Hacklers. In re Hackler, 2017 Bankr. LEXIS 2437 (Bankr. D. N.J. Aug. 28, 2017). [Read more…] about Tax Sale Certificate Transfer Was Avoidable Preference
Debtor’s Valuation of Worker’s Comp Claim Insufficiently Supported
An affidavit by the debtor’s worker’s compensation counsel asserting that at the time of the bankruptcy petition the worker’s comp claim had a mere nuisance value, was insufficient to overcome the IRS’s claim for a secured interest in the amount the worker’s comp case actually settled for several months post-petition. United States v. Austin (In re Austin), No. 17-6024 (B.A.P. 8th Cir. April 9, 2018).
When Scott and Anna Austin filed their chapter 13 petition, Mr. Austin had a pending worker’s compensation action which they valued on their schedules at zero or “unknown amount.” The IRS filed a claim asserting a tax lien to which the Austins objected. While that action was pending, the Austins settled the worker’s compensation claim for $21,448.80, of which they received $15,661.60. The IRS amended its claim to show a tax lien secured by the $15,661.60 settlement amount. The Austins objected again, presenting the affidavit of their worker’s compensation attorney, Michael Smallwood, that, notwithstanding the ultimate settlement amount, the worker’s compensation claim in fact had only a “nuisance” value of $3,000 at the time the Austins filed for bankruptcy. Based on the affidavit, the bankruptcy court reduced the IRS’s secured claim to $3,000. [Read more…] about Debtor’s Valuation of Worker’s Comp Claim Insufficiently Supported
One Mortgage Securing Three Debts Equals Three Liens for Strip-Off Purposes
Three separate debts secured by one mortgage are properly treated as three liens and those junior liens that are wholly unsecured may be stripped in chapter 13. Poole v. First National Bank of Middle Tennessee, No.17-8 (E.D. Tenn. March 19, 2018).
David and Mary Poole took out three separate loans from First National Bank of Middle Tennessee (FNB) each of which were secured by the Pooles’ residence pursuant to an Open End Mortgage provision in the Deed of Trust providing security for future indebtedness. In their chapter 13 plan, the Pooles proposed to treat each loan as a separate secured debt and strip the two wholly unsecured junior liens under section 1322(b)(2). FNB objected arguing that there were not three liens, but one partially-secured lien that could not be modified. The bankruptcy court overruled the objection and confirmed the Pooles’ plan. [Read more…] about One Mortgage Securing Three Debts Equals Three Liens for Strip-Off Purposes
EITC Is Income Which May Be Prorated and Offset with Expenses
The Bankruptcy Court did not err when it confirmed a plan in which the debtor prorated her expected Earned Income Tax Credit and offset the income with projected reasonably necessary expenses. Marshall v. Blake (In re Blake), No. 17-2809 (7th Cir. March 22, 2018).
Below-median chapter 13 debtor, Denise Blake, proposed a plan under which she pledged her federal tax refunds but retained any Earned Income Tax Credit. Notwithstanding that Ms. Blake worked full-time, lived in subsidized housing and had three dependent children, the trustee objected, arguing that Ms. Blake must count the EITC as income and include it in her plan payments. The bankruptcy court ultimately confirmed a plan over the trustee’s objection in which Ms. Blake treated the tax credit as income prorated over the course of the year and offset it with reasonable expenses. [Read more…] about EITC Is Income Which May Be Prorated and Offset with Expenses
Circuit Rejects Mechanical Application of Judicial Estoppel
The district court abused its discretion when it mechanically applied judicial estoppel to bar the plaintiff’s personal injury lawsuit after he and his wife successfully completed their 100% plan. Clark v. Advanced Composites Grp., No. 17-1727 (2d Cir. March 30, 2018).
Michele and John Clark had one more payment due on their five-year chapter 13 plan when Mr. Clark was diagnosed with mesothelioma which he believed to have been caused by exposure to asbestos through his service with the United States Air Force and in his subsequent private sector work. The Clarks notified their bankruptcy counsel of his diagnosis and their intention to commence litigation, but their counsel did not notify the bankruptcy court. The Clarks successfully completed their plan payments. One year later, and one week prior to formal discharge and closure of their bankruptcy, Mr. Clark filed a personal injury complaint against Boeing and numerous other corporations. The case was removed to district court. Boeing then moved to dismiss the lawsuit on grounds of judicial estoppel. Finding that the Clarks’ failure to disclose Mr. Clark’s diagnosis to the bankruptcy court amounted to a false representation which the bankruptcy court acted upon by discharging them, the district court granted the motion. Mr. Clark died during the pendency of the appeal. [Read more…] about Circuit Rejects Mechanical Application of Judicial Estoppel
Fourth Circuit Reverses Bad Decision on Chapter 13 Lien Stripping
Finding that a wholly unsecured lien may be stripped in chapter 13 even where no proof of claim was filed the Fourth Circuit reversed the district court’s holding to the contrary. Burkhart v. Grigsby (In re Burkhart), No. 16-1971 (4th Cir. March 29, 2018).
Chapter 13 debtors, Edwin and Teresa Burkhart’s, home was subject to several liens, two of which were held by Community Bank of Tri-County and were wholly unsecured. Tri-County did not file a proof of claim in the Burkharts’ bankruptcy. The Burkharts filed an adversary complaint seeking to strip off the wholly unsecured liens under section 1322(b). Relying on section 506(d), the bankruptcy court held Tri-County’s liens could not be stripped because they had not filed proofs of claim. (The court stripped the wholly unsecured lien held by PNC because PNC had filed a timely proof of claim). The district court affirmed (blogged here). [Read more…] about Fourth Circuit Reverses Bad Decision on Chapter 13 Lien Stripping
Post-Petition Condo Fees Discharged in Chapter 13
Although a chapter 13 debtor continues to accrue post-petition condo fees while in bankruptcy, discharge extends to his in personam liability for those fees. In re Wiley, No. 16-15361 (Bankr. D. Md. Jan. 26, 2018).
Chapter 13 debtor, Christopher Wiley, owned but did not live in a condominium unit subject to a mortgage lien and a lien held by the condominium association based on post-petition fees and assessments. The mortgagee was granted relief from stay to foreclose but had not done so for over a year. Mr. Wiley’s confirmed plan surrendered the property to the lienholders for foreclosure with any deficiency in sale proceeds being treated as an unsecured claim. The plan also provided that estate property would not vest in the debtor until discharge. [Read more…] about Post-Petition Condo Fees Discharged in Chapter 13