National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

bankruptcy

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Legal Malpractice Claim Accrued When Debtors Denied Discharge

Where the only injury resulting from bankruptcy counsel’s conduct was denial of discharge, the cause of action for legal malpractice accrued post-petition and belonged to the debtors rather than the chapter 7 bankruptcy estate. Church Joint Venture, L.P. v. Blasingame, No. 19-5505 (6th Cir. Jan. 26, 2021).

The debtors filed for chapter 7 bankruptcy but were denied discharge when the court learned of undisclosed assets in the form of personal property, shell companies, family trusts, etc. The debtors filed a malpractice lawsuit against their bankruptcy attorneys in state court. When the trustee declined to bring a suit against the debtors’ attorneys on behalf of the bankruptcy estate, the debtors’ primary creditor, CJV, obtained derivative standing to do so. CJV moved for summary judgment on the issue of whether the cause of action belonged to the estate. The court treated the debtors’ response as a cross-motion for summary judgment and granted judgment in favor of the debtors. The BAP for the Sixth Circuit affirmed. Church Joint Ventures, L.P. v. Blasingame (In re Blasingame), 597 B.R. 614 (B.A.P. 6th Cir. 2019). [Read more…] about Legal Malpractice Claim Accrued When Debtors Denied Discharge

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Notification to State Tax Board of Federal Tax Reevaluation is Return “Equivalent”

A state-mandated notification with the state taxing authority of a change in the taxpayer’s federal taxes is a “return, or equivalent report or notice,” which, if not filed by the taxpayer, renders the state tax debt nondischargeable under section 523(a)(1)(B). Berkovich v. Calif. Franchise Tax Bd., No. 20-1025 (B.A.P. 9th Cir. Oct. 5, 2020). [Read more…] about Notification to State Tax Board of Federal Tax Reevaluation is Return “Equivalent”

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Voluntary Dismissal Under 1307(b) over Objection by Creditor

The debtor was permitted to voluntarily dismiss her chapter 13 case under section 1307(b) despite the judgment creditor’s objections and a technical error, where, even if a good faith component is read into the statute, the creditor failed to provide evidence of bad faith and was otherwise provided due process. Murphy v. Marinari (In re Marinari), No. 19-3642 (3rd Cir. Jan. 19, 2021) (unpublished).

The judgment creditor filed a claim and an adversary proceeding in the debtor’s chapter 13 case. The debtor filed an “application” to voluntarily dismiss her bankruptcy case under section 1307(b). When the bankruptcy court dismissed the case over the creditor’s objection, the creditor appealed. The district court affirmed. [Read more…] about Voluntary Dismissal Under 1307(b) over Objection by Creditor

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Transfer of Funds Divided between Creditor and Creditor’s Agent Fully Avoidable

Garnished wages divided between the creditor and his agent in accordance with their fee agreement were an avoidable transfer in their entirety even though the creditor never received the portion withheld by the agent. Hooker v. Wanigas Credit Union, No. 20-2252 (6th Cir. Jan. 26, 2021) (unpublished).

During the ninety-day preference period,Wanigas Credit Union, through its agent, Shek Law Offices, garnished $884.13 from the debtor’s wages in satisfaction of a judgment Wanigas had against the debtor. Shek retained $452.60 of the garnished wages and sent the remaining $431.53 to Wanigas. After filing for bankruptcy the debtor sought turnover of the funds under section 547(b)(1) as a preferential transfer. Wanigas turned over only the funds it received. It argued that the portion retained by Shek was not subject to turnover because Wanigas never received the funds, and in the alternative, because the funds were subject to an attorney-charging lien. The bankruptcy court denied Wanigas’s motion for summary judgment and ordered the turnover of the funds. The district court granted leave to appeal and affirmed. [Read more…] about Transfer of Funds Divided between Creditor and Creditor’s Agent Fully Avoidable

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Two Vehicles Securing One Claim Must Receive Identical Treatment in Ch 13 Plan

Under section 1325(a)(5), a Chapter 13 plan cannot provide for different treatment of two vehicles that were purchased at different times with loans from the same creditor where both lending agreements included cross-collateralization clauses securing each loan by both vehicles. Barragan-Flores v. Evolve Federal Credit Union, No. 18-50420 (5th Cir. Jan 14, 2021). [Read more…] about Two Vehicles Securing One Claim Must Receive Identical Treatment in Ch 13 Plan

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SCOTUS Finds Retention of Property Is Not Exercise of Control

In an unhappy start to the new year, the Supreme Court resolved a long-festering issue in favor of creditors when it found that “mere retention of property does not violate §362(a)(3).” City of Chicago v. Fulton, 592 U.S. ___, No. 19-357 (S.Ct. Jan. 14, 2021).

Here, a number of chapter 13 debtors entered bankruptcy after the City of Chicago impounded their vehicles for failure to pay traffic fines. In their separate cases, the debtors sought return of the vehicles arguing that once they filed for bankruptcy, the City’s retention of the vehicles violated the automatic stay. The bankruptcy courts in each case agreed with the debtors. In a consolidated opinion, the Seventh Circuit found that retention of the vehicles constituted an exercise of control over property of the estate within the meaning of section 362(a)(3). It affirmed. In re Fulton, 926 F. 3d 916 (7th Cir. 2019). [Read more…] about SCOTUS Finds Retention of Property Is Not Exercise of Control

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Creditor Cannot Be Compelled to Take Possession of Surrendered Collateral

Surrender of collateral under section 521(a)(2) is a procedural action lifting the bankruptcy stay and permitting a lienholder to exercise state remedies with respect to the collateral. Because surrender does not affect the substantive rights of the debtor or the creditor, however, the debtor could not compel the creditor to take possession or release the lien. In re Loucks, 619 B.R. 908 (Bankr. E.D. Mich. Oct. 9, 2020) (case no. 20-42265). [Read more…] about Creditor Cannot Be Compelled to Take Possession of Surrendered Collateral

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Court Applies Purpose Test to Private Student Loan Discharge Case

Private loans extended to pay the debtor’s “costs of attendance” at the University of Michigan and which, taken in conjunction with the debtor’s Pell Grants, did not exceed the debtor’s education expenses, fell within section 523(a)(8)(B)’s exception to discharge. MacEwan Conti v. Arrowood Indemnity Co., No. 20-1172 (6th Cir. Dec. 14, 2020). [Read more…] about Court Applies Purpose Test to Private Student Loan Discharge Case

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Exemption under 522(d) Need Not Be Primary Residence

Adopting a plain-meaning approach, the Second Circuit found a debtor may avoid a lien that impairs her exemption on property her dependent son lives in part-time but is not his primary residence. Donovan v. Maresca (In re Maresca), No. 19-3331 (2d Cir. Dec. 14, 2020).

The debtor lived in an apartment, and her ex-husband lived in the marital residence (the Property) which he and the debtor owned jointly. They had joint custody of their dependent son whose primary residence was with his mother but who spent several days a week with his father in the Property as his “non-primary” residence. At the time the debtor filed for chapter 7 bankruptcy, her divorce lawyer had a judgment lien on the Property securing almost $71,000 in legal fees. She claimed an exemption on her interest in the Property under section 522(d) and sought to avoid the lien under section 522(f)(1)(A) as impairing that exemption. The bankruptcy court granted the debtor’s motion to avoid the lien. The district court affirmed. [Read more…] about Exemption under 522(d) Need Not Be Primary Residence

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Sixth Circuit Discusses Appellate Jurisdiction

Where the BAP remanded to the bankruptcy court for a finding on whether the creditor violated the automatic stay by failing to prevent the continuation of a contempt hearing against the debtor, the Sixth Circuit relied on precedent to conclude that the BAP’s order was not final and appealable. Wohleber v. Skurko (In re Wohleber), No. 19-3223/3225 (6th Cir. Nov. 18, 2020) (unpublished). In her concurring opinion, Judge Batchelder argued that the precedent relied on by the majority was erroneous and advocated for adopting a rule that “we have appellate jurisdiction if either the bankruptcy court’s judgment or the intermediate appellate judgment is final.” [Read more…] about Sixth Circuit Discusses Appellate Jurisdiction