National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC News

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Private School Tuition Payments Not Constructively Fraudulent Conveyance

A New York bankruptcy court found that the chapter 7 trustee’s legal theory for recovery of private school tuition payments was “fundamentally flawed” and “at odds with common sense.” Getzler v. Xavierian High School (In re Okanmu), No. 11-43773, AP 13-01105, 13-01107 (Bankr. E.D. N.Y. Dec. 4, 2013). The trustee filed an adversary complaint seeking to avoid the debtors’ private school tuition payments for their minor children as constructively fraudulent transfers under sections 544 and 548(a)(1)(B). [Read more…] about Private School Tuition Payments Not Constructively Fraudulent Conveyance

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CFPB Takes Action against Payday Lender

In its first enforcement action against a payday lender, the Consumer Financial Protection Bureau (CFPB), ordered Cash America International, Inc. to refund consumers in the amount of $14 million and pay a fine of $5 million, as a result of its violations of consumer financial protection laws. Cash America, a publicly traded financial services company out of Fort Worth, Texas, is one of the largest short-term, small-dollar lenders in the country.

Deriving its authority from the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB began its oversight of payday lenders in January, 2012. The CFPB announced the action in a press release dated November 20, 2013, marking the Bureau’s first public enforcement action for failure to comply with the CFPB’s supervisory examination authority.

The violations include robo-signing by Cash America’s Ohio subsidiary, Cashland Financial Services, Inc. Cash America also extended payday loans to service members at a rate in excess of the 36 percent limit set by the Military Lending Act. Finally, Cash America was found to have impeded the CFPB routine examination by destroying records, deleting recorded phone calls with consumers, instructing employees to limit information provided to the CFPB, and withholding a report related to robo-signing.

As a result of its illegal practices, Cash America has voluntarily refunded approximately $6 million and has committed $8 million more to military borrowers and to Ohio victims who suffered from the robo-signing practices between 2008 and January 2013. Cash America has also dismissed pending lawsuits, terminated post-judgment collection activities, and cancelled all judgments in nearly 14,000 wrongful cases filed against consumers in Ohio. On top of these compensatory measures, Cash America has been ordered to pay a $5 million civil penalty. Finally, Cash America will develop and implement a plan to improve compliance with consumer financial protection laws.

CFPB Director, Richard Cordray, said of the action that it, “brings justice to the Cash America customers who were affected by illegal robo-signing, and shows that we will vigilantly protect the consumer rights that service members have earned. We are also sending a clear message today to all companies under our watch that impeding a CFPB exam by destroying documents, withholding records, and instructing employees to mislead examiners is unacceptable.”

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New Filing Fee for Motions to Sell Property under Section 363(f)

The Judicial Conference for the United States has approved several changes to the federal court miscellaneous fee schedules including a new administrative fee for motions to sell property under section 363(f) of the Bankruptcy Code. Section 363(f) allows estate assets to be sold free and clear of liens and encumbrances. The committee rejected the idea of a sliding fee connected to the price of the property being sold, and settled on a flat fee of $176.00. The new fee will take effect December 1, 2013.

In instituting the new fee, the Judicial Conference is apparently taking advantage of the increasing trend in chapter 11 toward sale of businesses rather than restructuring. According to Jacqueline Palank of the Wallstreet Journal blog “Bankruptcy Beat,” this move comes in the face of a looming judicial budget crisis. A small percentage of operating funds comes from fees that the federal courts charge, and bankruptcy filing fees generate about 79% of the judicial operating funds that come from federal court fees in general. Where Congress appropriates most of the federal judiciary’s operating funds, recent government budget cuts negatively impact the judiciary. In his  blog on the fee change, Cooley, LLP attorney, Robert L. Eisenbach, III, predicts that the new fee in this area could show significant revenue increase from chapter 11 cases. To a lesser extent, the change will impact chapter 7 as well.

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Payments to Senior Lienholder Avoidable as to Junior Lienholder

Payments made to a senior lienholder within 90 days of bankruptcy were avoidable as a preferential transfer in favor of the junior lienholder. Gladstone v. Bank of America (In re Vassau), No. 09-9536, AP 11-90280 (Bankr. S.D. Cal. Sept. 25, 2013). [Read more…] about Payments to Senior Lienholder Avoidable as to Junior Lienholder

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Debtor has Standing to Move to Avoid Statutory Lien

A debtor has standing under section 522(h) to bring an action to avoid a statutory lien under section 545(2). In In re McCarthy, No. 13-6042 (B.A.P. 8th Cir. Oct. 28, 2013), the debtor filed an adversary proceeding seeking to avoid an attorney fee statutory lien as impairing his homestead exemption under Minnesota law. The bankruptcy court dismissed the proceeding on the basis that, under section 545(2), the debtor “lacks the authority and ability to exercise the strong-arm powers of the trustee to defeat a statutory lien.” The BAP found that, while section 545 does provide that the “trustee may avoid the fixing of a statutory lien on property of the debtor,” the bankruptcy court’s inquiry should not have stopped there. Section 522(h), in conjunction with section 522(g)(1), provides an avenue for the debtor to avoid a lien that is avoidable by the trustee under section 545. Under these sections the BAP set forth five requirements that must be met to allow a debtor to avoid a statutory lien: “(1) the debtor’s transfer of property must have been involuntary; [§ 522(g)(1)(A)] (2) the debtor must not have concealed the property [§ 522(g)(1)(B)]; (3) the trustee must not have attempted to avoid the transfer [§ 522(h)(2)]; (4) the debtor must seek to exercise an avoidance power enumerated under § 522(h); and (5) the transferred property must be such that it could have been exempted if the trustee had avoided the transfer under the provisions of § 522(g) [§ 522(h)(1)].” Finding that section 522 gives the debtor the power to avoid the statutory lien, despite section 545’s limitation to the trustee, the court reversed and remanded to allow the bankruptcy court to address the merits of the debtor’s lien avoidance action.

McCarthy opinion