The district court for the Eastern District of North Carolina was asked to revisit its previous decision that a Chapter 7 debtor may take secured payment deductions on property he intends to surrender. Krawczyk v. Lynch (In re Krawczyk), No. 12-643 (E.D. N.C. June 17, 2013). The bankruptcy court had concluded that intervening Supreme Court and Fourth Circuit decisions rendered that finding incorrect. In re Krawczyk, No. 11-0956-8-JRL, 2012 WL 3069437 * 5 (Bankr. E.D. N.C. July 27, 2012) (relying on Hamilton v. Lanning, 130 S. Ct. 2464 (2010); Ransom v. FIA Card Services, 131 S.Ct. 716, 178 L.Ed.2d 603 (2011); In re Quigley, 673 F.3d 269 (4th Cir. 2012)). The district court agreed that the debtor could not take the deductions and that, therefore, the petition was presumptively abusive under section 707(b)(2)(A). [Read more…] about Court Erroneously Applies Lanning to Find Presumption of Abuse in Chapter 7
Social Security Not Part of PDI but May Be Considered for Feasibility
In a significant win for debtors, the Fourth Circuit today held “that the plain language of the Bankruptcy Code excludes Social Security income from the calculation of ‘projected disposable income,’ but that such income nevertheless must be considered in the evaluation of a plan’s feasibility.” Ranta v. Gorman (In re Ranta), No. 12-2017 (July 1, 2013). [Read more…] about Social Security Not Part of PDI but May Be Considered for Feasibility
Wells Fargo Financial Finally Moving to Claims Review and Compensation
In 2011, the Federal Reserve Board issued a cease and desist order and assessed an $85 million civil money penalty against Wells Fargo & Company of San Francisco, a registered bank holding company, and Wells Fargo Financial, Inc., of Des Moines. (as distinguished from Wells Fargo Home Mortgage or by Wells Fargo Bank, N.A.) The order addresses allegations that Wells Fargo Financial employees steered potential prime borrowers into more costly subprime loans and separately falsified income information in mortgage applications. The order affect certain mortgage loans made between January 1, 2004, and September 30, 2008. In addition to the civil money penalty, the order requires that Wells Fargo compensate affected borrowers.
Wells Fargo Financial made subprime loans that primarily refinanced existing home mortgages in which borrowers received additional money from the loan proceeds in so-called cash-out refinancing loans. The order addresses allegations that Wells Fargo Financial sales personnel steered borrowers who were potentially eligible for prime interest rate loans into loans at higher, subprime interest rates, resulting in greater costs to borrowers. The order also addresses separate allegations that Wells Fargo Financial sales personnel falsified information about borrowers’ incomes to make it appear that the borrowers qualified for loans when they would not have qualified based on their actual incomes.
According to both the Federal Reserve Board and Wells Fargo, some current and former customers of Wells Fargo Financial will receive notices that they may be eligible to file a claim. For more information, you can visit the Wells Fargo Financial Consent Order Website.
FHFA Turns to Industry Lobbyist for Advice on Force-placed Insurance
Mortgage lenders routinely require homeowners to purchase property insurance to protect the lender’s interest in the home in the case of fire or other casualty. If the homeowner fails to purchase such insurance or fails to provide evidence of insurance, most loan documents will authorize the lender to purchase insurance to protect its interest. This coverage is called forced-placed or collateral protection insurance. Force-placed insurance has long been an area of abuse. Not only do servicers improperly place policies, but the field is filled with price gouging and illegal kickbacks. Bankruptcy debtors have not been immune from troubles caused by force-placed insurance. For example, in In re Cothern, 422 B.R. 494 (Bankr. N.D. Miss. 2010), the servicer’s unrelenting and improper efforts to collect force-placed insurance premiums drove the borrowers into bankruptcy. “The incompetence here is absolutely radiant” is how the judge in Cothern describes the servicer’s conduct.
After years of effort to get Fannie Mae and Freddie Mac to address the problem of force-placed insurance, Fannie Mae unveiled a plan last year that would have limited financial ties between servicers and insurers. In February of this year, FHFA, the agency that oversees Fannie Mae, vetoed Fannie Mae’s plan–a plan that would have lowered the cost of force-placed insurance significantly. Now we learn from Jeff Horwitz at American Banker that FHFA’s “outside expert” on force-placed insurance is actually an industry lobbyist who is well versed in protecting financial institutions. For more details, read Jeff’s article here.
“Lien Provision” Does Not Render IRA Non-Exemptible
The Sixth Circuit found that the debtor’s pledge of his IRA account against future indebtedness which he never incurred did not render the account non-exemptible in bankruptcy. Daley v. Mostoller (In re Daley), No. 12-6130 (June 17, 2013). [Read more…] about “Lien Provision” Does Not Render IRA Non-Exemptible
Deed of Trust Is Functional Equivalent of Mortgage for State Foreclosure Purposes
In Cruz v. Aurora Loan Services, No. 11-1133, Adv. Proc. No. 11-90116 (Bankr. S.D. Cal. Apr. 25, 2013), the court was asked to reconsider its earlier determination that the recording requirement of California’s non-judicial foreclosure statute applies to deeds of trust. See Cruz v. Aurora Loan Servs. LLC (In re Cruz), 457 B.R. 806 (Bankr. S.D. Cal. 2011) (“Cruz I“). [Read more…] about Deed of Trust Is Functional Equivalent of Mortgage for State Foreclosure Purposes
Alimony Part of Bankruptcy Estate
Relying on South Dakota treatment of alimony, the BAP for the Eighth Circuit found that post-petition alimony payments were part of the bankruptcy estate. Mehlhaff v. Alfred (In re Mehlhaff), No. 13-6012 (B.A.P. 8th Cir. June 4, 2013). [Read more…] about Alimony Part of Bankruptcy Estate
Disallowed Claim Renders Lien Void Under 506(d)
The Fourth Circuit found that a lender’s lien was extinguished upon debtor’s discharge where the lender’s proof of claim had been disallowed due to the lender’s failure to provide the necessary documents to prove that it had a perfected security interest. National Capital Management v. Gammage-Lewis, No. 12-2286 (June 6, 2013). [Read more…] about Disallowed Claim Renders Lien Void Under 506(d)
Fifth Circuit Deals Blow to Individual Debtors in Chapter 11
The Fifth Circuit has joined the Fourth and Tenth Circuits in applying the absolute priority rule to individual debtors in chapter 11 bankruptcy. In re Lively, No. 12-20277 (5th Cir. May 29, 2013). See also In re Stephens, 704 F.3d 1279 (10th Cir. 2013); In re Maharaj, 681 F.3d 558 (4th Cir. 2012). But see In re Friedman, 466 B.R. 471 (B.A.P. 9th Cir. 2012) (finding that the rule does not apply to individual debtors). [Read more…] about Fifth Circuit Deals Blow to Individual Debtors in Chapter 11
Fourth Circuit Takes on Applicable Commitment Period Issue
The Fourth Circuit has accepted two direct appeals presenting the issue of whether the applicable commitment period for a chapter 13 plan applies when there is no projected disposable income. Both cases first treat the issue of whether an expected change in payments during the course of the plan should be considered when determining the debtor’s projected disposable income at the outset, and then deal with the relevance of the applicable commitment period where the debtor has zero or negative disposable income as calculated by the means test. [Read more…] about Fourth Circuit Takes on Applicable Commitment Period Issue