Filing a proof of claim for a deficiency judgment that was discharged in a previous bankruptcy violates the discharge injunction. Green Point Credit v. McLean, No. 14-14002 (11th Cir. July 24, 2015). Green Point Credit, LLC and Green Tree Servicing LLC (Green Tree) filed a proof of claim for a debt that had been discharged in McLean’s previous bankruptcy and the McLeans filed an adversary proceeding seeking damages for violation of the discharge injunction. Four days later, Green Tree, acknowledging that the claim had been filed in error, withdrew it. The bankruptcy court found that Green Tree violated the discharge injunction and awarded compensatory damages for McLean’s emotional distress, attorney’s fees, and a “coercive” sanction. The district court affirmed. [Read more…] about POC Violates Discharge Injunction
Contributions to Retirement Plan Excluded from CMI
Contributions to an employee retirement plan are to be excluded from the calculation of current monthly income rather than deducted from disposable income in the Means Test. In re Vu, No. 15-41405 (Bankr. W.D. Wash. June 16, 2015). [Read more…] about Contributions to Retirement Plan Excluded from CMI
Funds from Consent Order Not Estate Property
Funds the debtor received through operation of a post-petition consent order between banking regulators and Bank of America were not part of the bankruptcy estate subject to turnover. MacKenzie v. Neidorf (In re Neidorf), No. 14-1496 (B.A.P. 9th Cir. July 10, 2015). Carrie Margaret Neidorf’s home was foreclosed upon while she was in bankruptcy and years later, while her bankruptcy case was still open and pursuant to a national settlement between banking regulators and Bank of America, she received $31,250 as a result of the foreclosure. The 2011 Consent Order (amended in 2013) required Bank of America to make a $1,127,453.261 cash payment to a Qualified Settlement Fund. That fund was then distributed to borrowers who had experience foreclosure within a specified period. The chapter 7 trustee sought turnover of the funds arguing that they were property of the estate. The bankruptcy court disagreed and the BAP affirmed.
The BAP stated three conditions that must be met for after-acquired property to be considered part of the estate under section 541(a)(7); “(1) It must be created with or by property of the estate; (2) acquired in the estate’s normal course of business; or (3) otherwise be traceable to or arise out of any prepetition interest included in the bankruptcy estate.” The panel found that the fact that the foreclosed residence was property of the estate was not dispositive. It found that the debtor’s entitlement to the foreclosure payment arose out of the post-petition Consent Order rather than out of her ownership of the property. The panel concluded: “Seen in this light, that the estate had an interest in Debtor’s Residence is not enough. Nowhere has Trustee shown how the estate obtained an interest in the Foreclosure Payment itself when the qualifying events giving rise to Debtor’s legal rights to the payment all occurred post-petition and were held solely by the borrowers.”
Eighth Circuit BAP Gets it Wrong in FDCPA Case
Filing an accurate proof of claim on a stale debt does not violate the FDCPA. Gatewood v. CP Medical, LLC, No. 15-6008 (B.A.P. 8th Cir. July 10, 2015). Mr. and Mrs. Gatewood filed for Chapter 13 bankruptcy and CP Medical, a medical collection agency, filed a proof of claim on a debt that was time-barred under Arkansas law. After the Gatewoods converted to Chapter 7, they filed an adversary complaint against CP Medical for seeking payment on a stale debt “as a means of debt collection that is either false, misleading, deceptive, unfair, or unconscionable” in violation of the FDCPA.
The bankruptcy court, relying on Eighth Circuit precedent, found that an attempt to collect on a stale debt is not a violation of the FDCPA. It further found that the Bankruptcy Code provides the only relief available to a debtor in cases such as these. The BAP affirmed.
On appeal, the BAP found that CP Medical’s filing of a proof of claim constituted an act to collect on a debt under the FDCPA. CP Medical argued that unless there is a threat of litigation in connection with its debt collection conduct, there can be no violation of the FDCPA. Citing Lewallen v. Green Tree Servicing, L.L.C., 487 F.3d 1085, 1091 (8th Cir. 2007), the BAP found that filing a proof of claim in a bankruptcy case is an act of litigation.
The panel turned to whether filing a proof of claim on a stale debt constitutes “false, misleading, deceptive, unfair, or unconscionable” conduct. The court noted that the Eleventh Circuit in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), applied a “least sophisticated debtor” standard and found that a proof of claim for a stale debt was an FDCPA violation. However, other courts have found that the protection afforded to the unsophisticated debtor under the FDCPA is not necessary when the debtor is in bankruptcy. In the parallel universe some courts inhabit, all debtors have lawyers and bankruptcy trustees and judges are ever alert to stale claims and avid to protect the rights of the debtors even where there is little benefit to the estate in doing so.
The court quoted Torres v. Asset Acceptance, LLC, ___ F. Supp. 3d ___, 2015 WL 1529297 (E.D. Pa. Apr. 7, 2015) (appeal filed May 13, 2015): “Under these circumstances, the Court will not insert judicially created remedies into Congress’s carefully calibrated bankruptcy scheme, thus tilting the balance of rights and obligations between debtors and creditors.” Id. at *7. Incredibly, this quoted language suggests that permitting debtors to enforce their rights under the FDCPA when they already have the protection of the bankruptcy court, would give them an unfair advantage over creditors trying to slip one by the trustee and court.
The BAP fell short of finding that the FDCPA is wholly precluded by the Bankruptcy Code. It limited its holding to the facts of the case before it, in which it found “[t]here is nothing improper about attempting to collect on a time-barred debt since the debt remains.”
Growing Consensus Permits Lien Strip in Chapter 20
Joining a “growing consensus” of courts, the BAP for the Ninth Circuit found that a Chapter 20 debtor may strip off a wholly unsecured lien with the strip-off becoming effective upon completion of the plan. Boukatch v. MidFirst Bank (In re Boukatch), No. 14-1483 (July 9, 2015). In so holding, the BAP reversed the contrary finding by the bankruptcy court. [Read more…] about Growing Consensus Permits Lien Strip in Chapter 20
Must Read – Why Filing Stale Claims in Bankruptcy Violates the FDCPA
On Friday, Debtor in Johnson v. Midland Funding filed her opening brief in the Eleventh Circuit. It is well worth the read. In summary:
1. There is no textual support for the conclusion that the Bankruptcy Code precludes valid FDCPA claims.
2. When it comes to proofs of claim, debt collectors do not have a “right” to file a claim on a time-barred debt. Even though the debt is not extinguished by the statute of limitations, the expiration of the SOL renders the obligation legally unenforceable. As such, it is not a “claim” for purposes of the Code.
3. The bankruptcy process is designed to run fairly and efficiently; there is no room for a pointless exercise of lodging invalid claims that require trustees or debtors to object. Debt collectors tax scarce judicial and party resources by filing such frivolous claims and diverting funds from honest creditors. The aggregate cost to the system from debt collectors filing stale claims is staggering.
4. Debt collectors can easily comply with both the Code and the FDCPA by refraining from filing stale claims. Debt collectors are not compelled to take any action under the Code that violates the FDCPA.
District Court Has Original Jurisdiction over 362(k) Claim
A district court has subject matter jurisdiction over a claim under section 362(k) without regard to a standing order referring all bankruptcy-related cases to the bankruptcy courts, and dismissal under FRCP 12(b)(6) is inappropriate where the allegations in the complaint present a plausible explanation for the defendant’s conduct. Houck v. Substitute Trustee Services, No. 13-2326 (4th Cir. July 1, 2015). [Read more…] about District Court Has Original Jurisdiction over 362(k) Claim
Implied Consent Supports Plan Confirmation
A plan providing for delayed payments to secured creditors was confirmed over the trustee’s objection based on the creditors’ implied acceptance of the repayment terms. Bronitsky v. Bea (In re Bea), No. 14-1376, 2015 Bankr. LEXIS 1793 (B.A.P. 9th Cir. May 29, 2015). [Read more…] about Implied Consent Supports Plan Confirmation
Debtor Takes Road Less Traveled to POC Challenge and Hits Dead End
Evidence that would be inadmissible hearsay in state court satisfied Bankruptcy Rule 3001 for purposes of establishing the validity of the debt buyer’s proofs of claim. Walston v. PYOD, LLC, No. 14-14593 (11th Cir. June 2, 2015). [Read more…] about Debtor Takes Road Less Traveled to POC Challenge and Hits Dead End
IRA Exemption Lost Due to Prohibited Transaction
The debtors’ use of funds in the husband’s self-directed IRA to fund the purchase and development of property was a prohibited transaction that disqualified the IRA from exemption in bankruptcy. In re Kellerman, No. 09-13935 (Bankr. E.D. Ark. May 26, 2015). [Read more…] about IRA Exemption Lost Due to Prohibited Transaction