National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC News

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Incompetence Does Not Excuse Stay Violation

A mortgage creditor violated the automatic stay by mistakenly filing a claim to which it had no rights and by failing to immediately return payments on that claim it had received by the trustee. In re Mocella, 552 B.R. 706, No. 10-42287 (Bankr. N.D. Ohio 2016).

Joseph J. and Kimberly A. Mocella filed chapter 13 bankruptcy in June, 2010, and listed a debt to GMAC of approximately $10,000.00, secured by their car. GMAC filed a proof of claim (claim 2) for the secured debt. Nationstar Mortgage filed a proof of claim for over $76,000.00 secured by the Mocellas’ residence. On December 4, 2014, Nationstar filed a Transfer of Claim in which it stated that GMAC had transferred claim 2 to Nationstar. In fact, Nationstar intended to file the Transfer of Claim for a bulk servicing transfer from Ocwen Loan Servicing relating to an unsecured HomeSaver Loan Nationstar had given the Mocellas. [Read more…] about Incompetence Does Not Excuse Stay Violation

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Funds in Joint Account Belong Solely to Non-Debtor

Where the non-debtor co-owner of a joint account was responsible for all the funds in the account at the time the debtor filed her bankruptcy petition, the funds were not part of the bankruptcy estate. In the Matter of Thornton, No 11-13222 (Bankr. N.D. Ga. March 25, 2016).

In anticipation of getting married, the debtor, Verna A. Thornton, and Chuck Sylvester opened a joint checking account into which they each made deposits and withdrawals intended to cover their respective living expenses. A medical malpractice judgment creditor of Ms. Thornton sought a Writ of Garnishment against that account. The credit union turned over the funds, totaling approximately $6,700.00, to the state court. When Ms. Thornton filed chapter 7 bankruptcy, the funds were turned over to the trustee and Mr. Sylvester brought an Assertion of Superior Claim in the bankruptcy court. The trustee opposed the claim arguing that the funds were part of the bankruptcy estate. [Read more…] about Funds in Joint Account Belong Solely to Non-Debtor

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State Court Application of Automatic Stay Is Res Judicata

A state court’s final ruling as to application of the automatic stay to a case before it was res judicata and could not be overruled by the bankruptcy court. Bank of North Georgia v. Vanbrocklin, 2016 Bankr. LEXIS 2176, No. 15-11761 (Bankr. N.D. Ga. May 15, 2016).

Bank of North Georgia (BNG) filed a state court lawsuit against a number of parties including several entities as principles on four notes and against James P. Vanbrocklin as guarantor on the notes. When Mr. Vanbrocklin filed chapter 7 bankruptcy he listed BNG as holding a contingent, unliquidated claim for approximately $1.2 million. BNG responded with an adversary complaint asserting that its claim was nondischargeable because Mr. Vanbrocklin, as a member and manager of Axiom Labs, a principle on the loans, had sold Axiom property, misappropriated proceeds, and wrongfully transferred property to a company called USA Labs. In the state case, BNG issued subpoenas and sought discovery as to transfers of property from either Mr. Vanbrocklin or USA Labs.

Mr. Vanbrocklin filed an emergency motion in the state court arguing that the discovery sought by BNG was in furtherance of its adversary proceeding in the bankruptcy court and requesting that the state court enforce the automatic stay by precluding such discovery. The state court granted the motion and stayed all proceedings in the state court as to Mr. Vanbrocklin. [Read more…] about State Court Application of Automatic Stay Is Res Judicata

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Modification Based on Increased Ability to Pay

The trustee may modify a chapter 13 plan based on the debtor’s post-confirmation increase in ability to pay. Germeraad v. Powers (In re Powers), No. 15-3237 (7th Cir. June 23, 2016). Elvie Owens-Powers and Myrick Powers had a confirmed plan under which they would pay off their secured creditors and pay $22,000 toward their unsecured debts. Upon receiving their tax return during the plan, the trustee noticed a $50,000 increase in Mr. Powers’ income and sought an order requiring them to modify their plan under section 1329 to increase their monthly plan contributions. The bankruptcy court denied the motion to modify on the basis that it was not supported by any provision of the Code, and, alternatively, that the facts did not support modification. In re Powers, 507 B.R. 262 (Bankr. C.D. Ill. 2014). The district court affirmed on the basis that the Code did not permit the modification. It did not address the alternative factual basis for the bankruptcy court’s decision. In re Powers, __ B.R. __, 2015 WL 5725701, at *2 (C.D. Ill. Sep. 30, 2015). [Read more…] about Modification Based on Increased Ability to Pay

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Post-Petition Lawsuit Not Property of Estate

Where the debtor had not suffered any injury from her hip replacement until post-discharge, the claim against the medical device provider was not property of the bankruptcy estate even though the hip replacement took place pre-petition. Sikirica v. Harber (In re Harber), 2016 Bankr. LEXIS 2168, No. 14-20155 (Bankr. W.D. Pa. May 31, 2016).

Elizabeth Harber underwent two hip replacement surgeries using implants produced by DePuy Orthopaedics. Three years later, she received notice that some of the implants were problematic and she was listed among the plaintiffs in a class action lawsuit against DePuy. Three years later, the she and her husband, Brent Harber, filed for chapter 7 bankruptcy. They listed the lawsuit in their schedules as a contingent, unliquidated claim with a value of $0. At that time, Ms. Harber had suffered no injury as a result of the implants. The Harbers’ bankruptcy case was closed with the potential claim against DePuy excepted from abandonment. Ms. Harber then discovered that metal had entered her bloodstream due to the implants and she was advised to have the hip replacement revised. Nonetheless, Ms. Harber dismissed her civil suit without prejudice as a “non-revised” plaintiff. She had the hip revision shortly thereafter. The Harbers’ bankruptcy attorney informed the court of a potential civil case against DePuy. The bankruptcy case was reopened and the trustee filed a turnover motion seeking to require the Harbers to contribute any settlement they might receive to the bankruptcy estate. The Harbers objected arguing that any settlement would not be property of the estate because Ms. Harber did not suffer any injury until after the bankruptcy case was closed. [Read more…] about Post-Petition Lawsuit Not Property of Estate

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Relief from Stay Motion Not “Action on a Contract” for Fee-Shifting Purposes

A California statute requiring reciprocal fee-shifting when a contract provides for fee-shifting for the benefit of only one party, does not apply when the action is for relief from stay in bankruptcy. Green Tree Servicing, Co. v. Giusto, No. 15-2105 (N.D. Cal. June 20, 2016).

Jacqueline Giusto inherited real property encumbered by a note and deed of trust. When she filed for bankruptcy she stopped making payments on the note. Green Tree Servicing, as servicer for Bank of America, filed a motion for relief from stay to allow it to initiate foreclosure proceedings. Ms. Giusto filed a brief in opposition arguing that Green Tree did not have standing to bring the motion. The bankruptcy court agreed. Ms. Giusto then sought to recover costs and attorney’s fees incurred by reason of the motion arguing that the note’s provision entitling Bank of America to recoup fees and costs incurred in the effort to collect on a debt was made reciprocal by operation of California Civil Code § 1717.  That statute provides: “In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.” [Read more…] about Relief from Stay Motion Not “Action on a Contract” for Fee-Shifting Purposes

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No Equitable Tolling for Section 727(a)(2) Look-Back Period

The one-year look-back period for fraudulent transfers is not subject to equitable tolling. DeNoce v. Neff (In re Neff), No. 14-60017 (9th Cir. June 9, 2016).

In October, 2008, Douglas DeNoce obtained a $310,000.00 dental malpractice judgment against Robert Neff. Neff filed a chapter 13 bankruptcy petition in March, 2010, and the following month he quitclaimed property he owned to a revocable living trust that he had created. His bankruptcy was dismissed, and he filed a second chapter 13 petition in June, 2010, listing the revocable trust on his schedules. In August, 2010, he transferred the property back to himself. Neff subsequently voluntarily dismissed that bankruptcy case. In October, 2011, Neff filed a third bankruptcy petition, this time in chapter 7. DeNoce filed an adversary complaint under section 727(a)(2) arguing that the 2010 quitclaim of the property to the trust was a fraudulent transfer. The court granted Neff’s motion for summary judgment on the basis that the transfer had occurred more than one year prior to his chapter 7 bankruptcy. The BAP for the Ninth Circuit affirmed. In re Neff, 505 B.R. 255 (B.A.P. 9th Cir. 2014). [Read more…] about No Equitable Tolling for Section 727(a)(2) Look-Back Period

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Discharge Injunction Does Not Apply to Domestic Support Obligation

The Missouri Department of Social Services did not violate the discharge injunction by collecting on a debt that the bankruptcy court had deemed fully satisfied through the debtors’ successful completion of their chapter 13 plan. Missouri Dept. of Soc’l Serv. v. Spencer, No. 15-6030 (B.A.P. 8th Cir. June 13, 2016).

Michael and Patricia Spencer filed a chapter 13 bankruptcy petition in which they listed a domestic and child support debt owed by Mr. Spencer to his ex-spouse. The Missouri Division of Child Support Enforcement (Division) filed a proof of claim on behalf of Mr. Spencer’s ex-spouse in the amount of approximately $36,000.00. Upon discovering that it had miscalculated the domestic support debt, the Division amended the proof of claim to over $88,000.00. When the Spencers objected to the amended proof of claim the bankruptcy court held a hearing and found that the original proof of claim was the one that should be allowed. The Division did not appeal this decision or object to confirmation of the plan providing for repayment of the original claim, nor did it object to discharge upon the debtors’ successful completion of their plan. After the discharge order was entered, the Division filed a withholding order with Mr. Spencer’s employer to collect past-due domestic support. Mr. Spencer moved the bankruptcy court for an order of contempt and sanctions. The bankruptcy court the Division willfully violated the discharge order and awarded sanctions and attorney’s fees. [Read more…] about Discharge Injunction Does Not Apply to Domestic Support Obligation

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Garnishment as Avoidable Transfer

Two recent cases discussed the issue of whether wages subject to a pre-petition garnishment order but actually garnished within the 90-day preference period were part of the bankruptcy estate.

In Weinman v. Alternative Revenue Systems, Inc. (In re Stevens), No. 15-11776, Adv. Proc. No. 15-1340 (Bankr. D. Colo. March 23, 2016), the case was before the court on the Chapter 7 trustee’s and Alternative Revenue Systems’s (ARS) cross motions for summary judgment. Prior to the debtors’, Kwanza and Mindy Stevens, bankruptcy, ARS obtained a judgment against Mindy Stevens, and began garnishing her wages. Approximately three months after the Stevens received their chapter 7 discharge, the trustee brought an adversary proceeding against ARS arguing that two garnishments made within 90 days of the debtors’ bankruptcy were avoidable transfers under section 547. ARS countered that the relevant transfer date was the date the writ of garnishment was served on the employer rather than the date of each individual garnishment. Therefore, the transfer took place prior to the 90 day preference period. [Read more…] about Garnishment as Avoidable Transfer

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Debtor may not modify default interest rate.

A “cure and maintain” plan permits deceleration of the loan but does not allow a debtor to return to the pre-default interest rate. Anderson v. Hancock (In re Hancock), No. 15-1505 (4th Cir. April 27, 2016).

The Andersons purchased residential property from the Hancocks, financed in the amount of $255,000 by the sellers. The Andersons signed a thirty year note agreeing to pay $1,368.90 per month including interest payments at 5%. In the event of a default, the note provided that the interest rate would increase to 7%. The note also entitled the Hancocks to accelerate the loan. When the Andersons defaulted on the loan, the Hancocks imposed the default interest rate, notified the Andersons of acceleration of the loan, and instituted foreclosure. The debtors filed chapter 13 bankruptcy proposing to cure the arrears and maintain payments at the 5% interest rate through the life of the plan. The Hancocks objected to the plan on two bases. First, they argued that the calculation of arrears was too low because it was based on the pre-default interest rate. Second, they maintained that all future payments on the loan should be at the 7% interest rate. [Read more…] about Debtor may not modify default interest rate.