National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC News

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Debtors Have Standing to Seek Abandonment

The debtors were “parties in interest” for purposes of establishing standing to compel abandonment of their residential property. Jahn v. Burke (In re Burke), No. 16-6603 (6th Cir. July 14, 2017).

After Philip and Nekolia Burke filed Chapter 7 bankruptcy, the trustee sought to evict them from their residence and sell the property for the benefit of creditors. The trustee tendered a check to the Burkes representing their homestead exemption. The Burkes refused the money and moved to compel the trustee to abandon the property as being of inconsequential value to the bankruptcy estate. In the alternative, the Burkes moved to convert to chapter 13. At the evidentiary hearing, the parties offered competing valuations with the Burkes presenting testimony of two appraisers that the residence had a value of approximately $108,000 and was security for a mortgage for $91,581. The trustee countered with the testimony of a realtor, a home inspector, and himself that the value was approximately $200.000. The bankruptcy court resolved the valuation issue in favor of the Burkes and granted the motion to compel abandonment. The district court affirmed. [Read more…] about Debtors Have Standing to Seek Abandonment

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Deadline for Revocation of Discharge Not Jurisdictional

The one-year deadline for seeking revocation of a discharge order is not jurisdictional and may therefore be waived. Weil v. Elliott (In re Elliott), No. 16-55359 (9th Cir. June 14, 2017).

When Edward Elliott filed his Chapter 7 bankruptcy petition he failed to mention one important asset: his home. He received a discharge under section 727(a). Fifteen months later, when the trustee discovered the fraudulent nondisclosure, she filed an adversary complaint seeking an order vacating the discharge under section 727(d)(1). Section 727(e)(1) permits a trustee to seek revocation of discharge within one year of the discharge order. Mr. Elliott did not raise the issue of untimeliness in his response to the adversary complaint. The bankruptcy court revoked his discharge. The Bankruptcy Appellate Panel, however, found the one-year filing deadline to be jurisdictional and reversed. Elliott v. Weil (In re Elliott), 529 B.R. 747, 755 (B.A.P. 9th Cir. 2015). On remand, the bankruptcy court dismissed the adversary complaint for lack of jurisdiction. The trustee was permitted direct appeal to the Ninth Circuit. [Read more…] about Deadline for Revocation of Discharge Not Jurisdictional

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Section 707(b) Applies to Converted Cases

Section 707(b) applies to a case converted to chapter 7 from chapter 13. Pollitzer v. Gebhardt, No. 16-11506 (11th Cir. June 27, 2017).

Stratton Pollitzer contributed to his chapter 13 plan for two years before converting under section 1307 to chapter 7. Upon conversion, the trustee moved the court to dismiss the case as abusive under section 707(b) because Mr. Pollitzer’s income was sufficient to significantly repay his unsecured creditors. Conceding that his petition failed the means test, Mr. Pollitzer took the position that because his case was originally filed as a chapter 13, section 707(b) was inapplicable. Both the bankruptcy court and the district court concluded that section 707(b) applies to converted cases. The Eleventh Circuit agreed. [Read more…] about Section 707(b) Applies to Converted Cases

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Direct Payments to Mortgagee are “Payments under the Plan”

“A Chapter 13 debtor’s direct payments to a secured creditor under a ‘cure and maintain’ plan are ‘payments under the plan’ for purposes of § 1328(a), and a debtor who fails to make such payments is not entitled to a discharge under 11 U.S.C. § 1328(a).” In re Coughlin, No. 11-76202 and In re Sangamaya, No. 12-71109 (Bankr. E.D. N.Y. June 15, 2017). [Read more…] about Direct Payments to Mortgagee are “Payments under the Plan”

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Some Federal Student Loans Cancelled in New Jersey

Approximately 2,200 students who enrolled in any one of five schools operated by Corinthian Colleges, Inc., a New Jersey for-profit entity, are eligible to have their federal student loans canceled. Corinthian Colleges ceased operations in 2015 under scrutiny by government entities into fraudulent conduct including misrepresentations made between 2010 and 2014 about post-graduate employment rates, the transferability of credits, and other issues. The schools affected by the loan cancellation are Everest Institute, Everest College, Everest University, Heald College, and Wyotech. Students who have their federal loans canceled will make no further payments and will receive a refund of payments already made. The loan cancellation was announced on May 22, 2017, in a Press Release issued by Attorney General Christopher S. Porrino’s Office. The Attorney General’s office is sending outreach letters and application forms to those students who may be eligible for the loan cancellation.

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Equitable Estoppel vs. Right to Amend Schedules

Where new facts arose to support a claim for homestead exemption and the debtor did not make any misrepresentation upon which the trustee reasonably relied, the bankruptcy court erred in disallowing the exemption based on equitable estoppel. Lua v. Miller (In re Lua), No. 15-56814 (9th Cir. June 27, 2017) (unpublished).

Rosalva Lua claimed a homestead exemption in her initial bankruptcy schedules, removed the claim in her First Amended Schedules, and reasserted it in her Second Amended Schedules approximately three years later. The bankruptcy court sustained the trustee’s objection to the exemption based on equitable estoppel. The district court affirmed. [Read more…] about Equitable Estoppel vs. Right to Amend Schedules

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Grace Period to Cure Arrearage Beyond Five-Year Plan Period

A bankruptcy court has the discretion to grant a grace period at the end of the five-year plan to a Chapter 13 debtor who has completed her plan payments but where there is a newly discovered arrearage. Klaas v. Shovlin (In re Klaas), Nos. 15-3341 & 16-3482 (3rd Cir. June 1, 2017).

Chapter 13 debtors, Paul and Beth Ann Klaas, successfully completed their plan according to its terms, but one month after completion, the trustee filed a motion to dismiss citing an unpaid arrearage of over $1,000. (The shortfall was apparently due to an increase in the Trustee’s fee during the term of the plan, and not to any missed payments.) In the motion to dismiss, the trustee stated that she would withdraw the motion if the Klaas paid the arrearage. They did so. By that time, however, a creditor, Elizabeth Shovlin, had joined the motion to dismiss and objected to its withdrawal. [Read more…] about Grace Period to Cure Arrearage Beyond Five-Year Plan Period

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Loan Paid Directly from Dept. of Educ. to Penn State Not a Fraudulent Transfer

A Parent Plus loan made directly from the Department of Education to Penn State University before the debtor’s bankruptcy filing is not a fraudulent transfer where the funds were never in the debtor’s possession and would not have been available to his creditors. Eisenberg v. Pennsylvania State Univ. (In re Lewis), No. 16-12372, Adv. Proc. Nos. 16-0282, 16-0284 (Bankr. E.D. Pa. April 7, 2017). [Read more…] about Loan Paid Directly from Dept. of Educ. to Penn State Not a Fraudulent Transfer

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Right to Dismiss Prevails Over Motion to Convert

A Chapter 13 debtor’s right to dismiss is absolute even in the face of a creditor’s prior motion to convert to Chapter 7. In re de Lamadrid Perez, 2017 WL 1458857 (Bankr. D. Puerto Rico, April 24, 2017) (No. 12-2042).

Two of Julio Enrique Gil de Lamadrid Perez’s creditors moved the court to convert his Chapter 13 case to Chapter 7. Mr. de Lamadrid Perez opposed the motion and then moved to dismiss under section 1307(b). The creditors argued that a debtor’s right to voluntarily dismiss his bankruptcy case is limited once there has been a motion to convert. [Read more…] about Right to Dismiss Prevails Over Motion to Convert

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Personal Attacks on Trustee Not Sanctionable – But Not Helpful Either

Invective and personal attacks on the chapter 7 trustee did nothing to further the debtors’ arguments in their motion to dismiss but did not amount to sanctionable conduct. Geltzer v. Brizinova (In re Brizinova), No. 12-42935, Adv. Proc. No. 15-1073 (Bankr. E.D. N.Y. March 3, 2017) (on appeal to the District Court for the Eastern District of New York, No.17-1465).

The trustee, Robert Geltzer, moved for a contempt order and sanctions against Karimvir Dahiya, counsel for the debtors, Estella Brizinova and Edward Soshkin, based on statements he made in connection with a motion to dismiss an adversary complaint in the debtors’ bankruptcy case. In the motion to dismiss, Mr. Dahiya stated, among other things, “Geltzer having realized that he has gotten money from the sons, he could extract more, he has begun his extortionist journey again.” Generally, Mr. Geltzer maintained that Mr. Dahiya’s statements were part of a personal crusade against him, were vexatious and in bad faith, and represented a course of conduct Mr. Dahiya generally followed against bankruptcy trustees.

Mr. Geltzer also sought sanctions for a statement in the reply brief for the motion to dismiss concerning another case, Geltzer v. Ng (In re Ng), No. 12-1343, in which Mr. Dahiya represented the debtor. In the reply brief, Mr. Dahiya said of the settlement in Ng that it “was an Agreement, that was signed only on the basis of being urged: ‘Sometimes, it takes a stronger person to walk away.’ I decided to walk away.” Mr. Geltzer argued that the advice to “walk away,” was given by the mediator and its inclusion in the briefing in the Brizinova case was an impermissible disclosure of a statement made during mediation. He also argued that the statement was in contravention of the Stipulated Order and Mediation Order in the Ng case under which Mr. Dahiya agreed to comply with rules of professional conduct and the Local Bankruptcy Rules.

Beginning with Mr. Dahiya’s alleged violation of the Stipulated Order and Mediation Order in the Ng case, the Brizinova court found that an order out of another court enjoining certain conduct should be addressed by the court issuing the injunction. The Brizinova court therefore denied the motion for sanctions without prejudice with respect to that claim.

The court also addressed whether Mr. Dahiya’s comment concerning the Ng case, violated Local Rule 9019-1(1) which stresses nondisclosure of “views and suggestions of the mediation participants with respect to possible pathways to a settlement, any settlement proposals advanced by a party or the mediator, and whether a mediation participant was willing to accept a mediator’s proposal.” It found that, although Mr. Geltzer asserted that the comment was made by the mediator, Mr. Dahiya did not attribute the statement to any particular participant in the mediation process and the comment was otherwise too vague to violate the Local Rule.

Turning to Mr. Geltzer’s claims under section 105(a), Mr. Dahiya argued that the court did not have inherent power to sanction him for his conduct under that section. The court disagreed. Section 105(a) permits a court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” The court found that under the Code and Second Circuit precedent, a court has “the inherent authority to supervise the proceedings that take place before it and, as part of that authority, the ability to impose sanctions when necessary.”

The Second Circuit has found that to justify sanctions an attorney’s conduct must be entirely meritless, and he must have acted for improper purposes. Bad faith is essential to sanctions under section 105(a). Turning to the language Mr. Geltzer sought to have sanctioned, including “extortionist,” “threaten into further submission,” “unexpected accretion,” “frivolous,” and “dig more,” the court found that while the invectives likely detracted from any valid argument the debtors might have made, the language appeared to be in furtherance of Mr. Dahiya’s representation of the debtors. For that reason, the element of bad faith was not present and the language did not merit sanctions under section 105(a).

Finally, the court addressed Mr. Geltzer’s argument that Mr. Dahiya’s personal comments about him were in violation of the New York’s Rules of Professional Conduct, 22 NY CRR §§ 1200 et seq. which prohibit an attorney from “making multiple derogatory and unprofessional attacks upon the personal attributes of another attorney,” knowingly advance a claim that is unwarranted under the law, or otherwise fail to behave with a threshold amount of decorum in court proceedings. The court found that “viewed in the context of the Motion to Dismiss, the statements are more accurately viewed as rhetorical flourishes than as knowing and material statements that are false.” Moreover, the language did not cross the line between zealous representation and sanctionable expressions of personal opinion as to “the justness of a cause, the credibility of a witness, the culpability of a civil litigant or the guilt or innocence of the accused.” While Mr. Dahiya mentioned “extortion” in his list of invectives against Mr. Geltzer, he did not threaten to pursue criminal charges against him.

In conclusion, the court found that Mr. Dahiya’s statements in the context of the otherwise appropriate motion to dismiss, were not sanctionable. It denied the motion without prejudice with respect to Mr. Dahiya’s possible violation of the Ng court’s injunction order, and denied the remaining claims with prejudice.

Brizinova Bankr. ED NY opinion March 2017