On January 17, 2013, the Consumer Financial Protection Bureau enacted mortgage servicing rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act provisions relating to the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). [Read more…] about New CFPB Rules Fail to Resolve Problem of Dual-Tracking on Delinquent Mortgages
Fairness for Struggling Students Act
Illinois Senator Richard Durbin began the 113th Congress by reintroducing the Fairness for Struggling Students Act of 2013, S. 114, proposing to make private student loans, like other consumer debts, dischargeable in bankruptcy. In presenting the legislation, Senator Durbin said:
The first two pieces of legislation I will introduce this Congress deal with what I think is one of the biggest threats to millions of working families – the growing student loan debt crisis. Too many Americans are carrying around mortgage-sized student loan debt that forces them to put off major life decisions like buying a home or starting a family. It’s not only young people facing this crisis, it is parents, siblings, and even grandparents who co-signed private loans long ago and are still making payments decades later. It’s time for action. We can no longer sit by while this student debt bomb keeps ticking.”
Federal student loans have been essentially non-dischargeable since 1978 but it was not until the Bankruptcy Code underwent upheaval in 2005 that private student loans were accorded the same favored treatment. Although private student loans comprise only about 20% of the total student loan debt, private loans tend to be substantially more onerous for borrowers. They typically have higher interest rates, limited or no availability of deferment or forbearance, and no income-based repayment plans. In addition, they are not subject to the consumer protections in place for federal student loans.
Senators Jack Reed (D-R.I.), Sheldon Whitehouse (D-R.I.), Al Franken (D. MN), Tom Harkin (D-IA), and Elizabeth Warren (D-MA), are co-sponsors of the bill. Other organizations that have publically called on Congress to amend student loan treatment in bankruptcy are the American Association of University Women, the Consumer Financial Protection Bureau, the U.S. Department of Education, The Institute for College Access and Success, and Sallie Mae.
NACBA has actively fought for a return to pre-2005 treatment of private student loans and NACBA members have an opportunity to make their voices heard at the 2013 Capitol Hill Meeting in Washington on February 26-27. You can register for this event through the NACBA website, www.NACBA.org.
NACBA Amicus Opposes “Carve-Out” Agreement
NACBA has filed an amicus brief in the Fourth Circuit case of In re Reeves, No. 12-2127. In that case, the trustee, claiming authority under section 724(b), sought to sell the debtor’s fully encumbered residential property to give effect to an agreement the trustee had entered into with the IRS, a lienholder, under which the IRS agreed to “carve out” a portion of its share of the proceeds from any sale of the property. That portion would then go toward administrative costs and unsecured creditors. [Read more…] about NACBA Amicus Opposes “Carve-Out” Agreement
Absolute Priority Rule Found to Apply to Individual Debtor
The Tenth Circuit joined the Fourth Circuit in finding that BAPCPA did not abrogate the absolute priority rule with respect to individual debtors in chapter 11 bankruptcy. In re Stephens, No. 11-6309 (10th Cir. Jan. 15, 2013) (agreeing with In re Maharaj, 681 F.3d 558 (4th Cir. 2012)). [Read more…] about Absolute Priority Rule Found to Apply to Individual Debtor
Whether Inheritance Received More than 180 Days Post-Petition Is Property of Estate
The Fourth Circuit has agreed to hear a direct appeal to address the issue of whether an inheritance received more than 180 days post-petition is property of the Chapter 13 estate. Carroll v. Logan (In re Carroll), No. 13-1024. The debtors received a $100,000.00 inheritance after the 180-day period had lapsed and the trustee sought to modify the plan to include those funds. The bankruptcy court found that the inheritance was part of the estate and granted the trustee’s motion. In re Carroll, 2012 WL 5512356 (Bankr. E.D. N.C. Nov. 14, 2012). [Read more…] about Whether Inheritance Received More than 180 Days Post-Petition Is Property of Estate
Fee-Only Chapter 13
NACBA has filed an amicus brief opposing the imposition of a bright line rule prohibiting attorney-fee-only chapter 13 cases as being filed in bad faith. Berliner v. Pappalardo (In re Puffer), No. 11-1831 (1st Cir.). [Read more…] about Fee-Only Chapter 13
Berliner v. Pappalardo (In re Puffer), No. 11-1831 (1st Cir.)
NACBA has filed an amicus brief opposing the imposition of a bright line rule prohibiting attorney-fee-only chapter 13 cases as being filed in bad faith. Berliner v. Pappalardo (In re Puffer), No. 11-1831 (1st Cir.). The brief emphasizes that bad faith is necessarily a case-by-case, fact specific inquiry, and that there exist legitimate, good faith, reasons for seeking chapter 13 relief solely to make payments toward attorney fees and administrative costs. Because debtors eligible for chapter 7 relief frequently cannot afford to pay the attorney fees to file their cases, chapter 13 presents a viable alternative and nothing in the Code prohibits such filing. NACBA member David Baker filed the brief on NACBA’s behalf.
Brief
Debtor’s Standing to Avoid Lien
The Sixth Circuit BAP found that the debtor has derivative standing to exercise the trustee’s strong-arm powers under section 542 by seeking avoidance under section 544 of an unperfected lien on his manufactured home. U.S. Bank Nat’l Ass’n v. Barbee, No. 10-8074 (B.A.P. 6th Cir.) The court identified certain realities that supported its finding: the trustee’s lack of resources to pursue every legitimate avoidance claim, the requirement that the plan conform to section 1325(a)(4), and the possibility of the debtor’s being accused of bad faith if he proposes a plan that does include avoidance of a clearly avoidable lien. In so deciding, the court agreed with the holding in Countrywide Home Loans v. Dickson, 427 B.R. 399 (B.A.P. 6th Cir.), aff’d on other grounds, 655 F.3d 585 (6th Cir. 2011).
Opinion
Chapter 20 Lien Stripping 8th Circuit
The issue of whether a debtor may strip a wholly unsecured lien in chapter 13 where discharge is unavailable is before the Eighth Circuit Court of Appeals in the case of Keller v. Fisette (In re Fisette), No. 11-3119, after debtor won before the bankruptcy appellate panel. The debtor argues in his brief, filed on December 8, 2011, that Nobelman v. American Sav. Bank, 508 U.S. 324 (1993), has been consistently and correctly interpreted by all the circuit courts addressing the issue to permit strip-off of wholly unsecured liens in chapter 13. Because BAPCPA permits chapter 13 cases even where discharge is unavailable debtors may avail themselves of all the benefits of a chapter 13 case with the exception of discharge upon completion of the case. One of those benefits is stripping of wholly unsecured liens pursuant to section 1322(b).
[Read more…] about Chapter 20 Lien Stripping 8th Circuit
Denial of Motion to Dismiss for Abuse Final Appealable Order
In McDow v. Dudley, No. 10-1732 (4th Cir. Nov. 30, 2011) the fourth circuit found that an order denying a trustee’s motion to dismiss a debtor’s chapter 7 case as abusive under section 707(b) is a final, appealable order under section 158(a). In the bankruptcy court, the trustee sought dismissal based on a means test calculation that the debtors had $2,000/month available to pay creditors. The bankruptcy court granted debtors’ motion for summary judgment finding that section 707(b) applies only to cases filed originally under chapter 7 and does not encompass cases converted from chapter 13, as debtors’ case was. The district court dismissed the trustee’s appeal as interlocutory.
The circuit court vacated and remanded. The court reasoned that when Congress enacted BAPCPA and added the means test it created a presumption of abuse when debtor’s income exceeded a statutory threshold. Because BAPCPA imposed a strict deadline for the trustee to raise the issue of bad faith the court found that resolution of that issue was essential to the continuation of the case and therefore constituted a conclusion of a discrete dispute which was an appealable order. The court further noted that pragmatic considerations, including the possible liquidation of assets and depletion of resources if the case goes forward, militated in favor of treating the denial of dismissal for abuse as a final appealable order.