Panel Affirms Reduced Attorney Fees

Posted by NCBRC - September 15th, 2021

The bankruptcy court did not abuse its discretion in reducing the chapter 7 bankruptcy attorney’s fees in two cases in which the attorney charged an additional $500 to clients due solely to their electing to pay his fees post-petition rather than up front. Ridings v. Cassamatta (In re Allen), No. 20-6023 (B.A.P. 8th Cir. June 21, 2021).

At issue in this case was Bankruptcy Attorney William Riding’s payment policy under which he offered two options for his chapter 7 clients. Under the first option, the debtor pays $1,500 prior to filing the petition. That amount comprises a $335 filing fee plus attorney fees of $1,165. Under the second option, the debtor pays nothing up front but pays $2,000 post-petition. That amount comprises the filing fee plus $1,665 in attorney fees. The services Mr. Ridings provided were the same regardless of whether the client paid up front or post-petition. Read More

Absolute Right to Dismiss v. Bad Faith

Posted by NCBRC - September 6th, 2021

Section 1307(b) grants debtors an absolute right of dismissal which is not limited by the court’s inherent power to punish bad faith conduct. Nichols v. Marana Stockyard & Livestock Market, No. 20-60043 (9th Cir. Sept. 1, 2021).

After the debtors filed their chapter 13 petition, they were indicted on a scheme to defraud the Marana Stockyard & Livestock Market. In order to avoid disclosing information that might harm their federal criminal case, the debtors declined to attend their 341 meeting of creditors, provide tax returns, or submit a proposed plan. Marana, acting as a claimant in the bankruptcy case, eventually moved to have the case converted to chapter 7 and the debtors responded with a motion to stay the bankruptcy proceedings. The bankruptcy court denied the motion for stay and granted the motion for conversion “for cause.” The debtors then moved for voluntary dismissal under section 1307(b) which provides: “On request of the debtor at any time, if the case has not been converted . . ., the court shall dismiss a case under this chapter.”

Denying the debtors’ motion for voluntary dismissal, the bankruptcy court relied on In re Rosson, 545 F.3d 764 (9th Cir. 2008), where the circuit court held that there was an implied bad faith exception to a debtor’s right to voluntarily dismiss. The Bankruptcy Appellate Panel for the Ninth Circuit affirmed. Read More

Retroactive vs Prospective Relief from Stay

Posted by NCBRC - August 31st, 2021

The bankruptcy court erred when it denied prospective relief from stay based on the same analysis it used when it denied the mortgage creditor’s retroactive annulment of stay motion. Wilmington Savings Fund Soc’y v. Fairbanks, No. 21-1019 (B.A.P. 9th Cir. Aug. 12, 2021) (unpublished).

When the debtor defaulted on her mortgage payments, she hired Home Matters USA to communicate with the foreclosure trustee. Home Matters assured her that, due to Covid foreclosure restrictions, her home would not be sold at auction. Home Matters failed to adequately protect her and her mortgage creditor, Wilmington Savings Fund Society, held a nonjudicial foreclosure auction where it sold the property for $7,000 in excess of the total debt. The sale was the first indication to the debtor that her property was not protected from foreclosure. In an effort to save her home, she immediately filed a chapter 13 petition. Three days later, the foreclosure trustee executed the deed and the purchaser recorded it within the statutory fifteen-day period. A month later, Wilmington moved for retroactive annulment of the stay to validate the transfer, or, in the alternative, for prospective relief from the stay to allow the foreclosure trustee to make the transfer again. The bankruptcy court denied both the retroactive and prospective stay motions. Wilmington appealed to the Bankruptcy Appellate Panel for the Ninth Circuit. Read More

Court Requires Debtor to Pay Discharged Mortgage through Plan

Posted by NCBRC - August 24th, 2021

In a poorly-reasoned opinion ignoring basic principles of bankruptcy, the Bankruptcy Court for the Eastern District of New York held that a junior mortgagee’s lien could be stripped in the debtor’s chapter 13 case, but the claim must be treated as a general unsecured claim despite the fact that the debtor discharged her personal liability on the debt in a prior chapter 7 bankruptcy. In re Hopper, No. 21-70139 (Bankr. E.D.N.Y. Aug. 5, 2021). Read More

District Court Upholds Local Rule Requiring Statements of Compliance

Posted by NCBRC - August 20th, 2021

Finding the requirement to be procedural rather than substantive, the District Court for the Northern District of California upheld the district’s General Order requiring chapter 13 bankruptcy debtors who elect to pay their mortgages directly rather than through the trustee to submit regular notifications of compliance to the bankruptcy court. Gordon v. Bronitsky (In re Gordon), No. 21-643 (N.D. Cal. July 15, 2021). Read More

Eligibility for REPAYE Relevant Consideration for Student Loan Discharge

Posted by NCBRC - August 17th, 2021

The 51-year-old debtor with no mental or physical impairments, no dependents, and a history of underemployment, could not discharge her over $650,000 in student loans as undue hardship but must participate in the offered income-based repayment plan. Parvizi v. U.S. Dept. of Ed., No. 18-30578, Adv. Proc. No. 19-3003, 2021 WL 1921121 (Bankr. D. Mass. May 12, 2021), motion to amend judgment granted, July 28, 2021.

The pro se chapter 7 debtor entered bankruptcy with a student loan debt of over $650,000 which she sought to discharge as undue hardship under section 523(a)(8). She was 51-years-old, had no dependents, spoke four languages, and had no physical or mental impairments standing in the way of employment. She obtained multiple degrees including a medical degree though she never completed a medical residency. She described years of under-employment, most often in education. She made clear that so long as she could live comfortably, she sought employment for personal fulfillment rather than for maximizing her income. Though she could avail herself of an income-based repayment plan at a rate of $80/month, she chose not to, in part because she blamed the psychiatric residency program from which she voluntarily withdrew for failing to provide her with the education it promised.

In determining whether the debtor was entitled to discharge of the student loan balance, the court applied a totality of circumstances test under which it considers “all relevant evidence—the debtor’s income and expenses, the debtor’s health, age, education, number of dependents and other personal or family circumstances, the amount of the monthly payment required, the impact of the general discharge under chapter 7 and the debtor’s ability to find a higher-paying job, move or cut living expenses.” The court also considered the debtor’s future ability to earn an income and the availability of an income-based repayment plan.

Applying these factors, the court found the debtor had marketable skills, many more years of earning potential ahead of her, and had not maximized her income. The court weighed these considerations against the size of the student loan, finding that “common sense” suggested that even if the debtor maximized her income, repaying the $650,000 loan would not be possible. It went on to find, however, that “the Debtor’s ability to participate in the REPAYE program weighs heavily against the Debtor’s argument that repayment of the student loans would impose an undue hardship.” It found in favor of the DOE.

In its original decision, the court ordered that “judgment will enter for the DOE, except that pursuant to § 105(a), the Court will order that any student loan debt remaining unpaid upon the Debtor’s completion of the REPAYE program or any comparable program is deemed discharged as an undue hardship pursuant to § 523(a)(8).” Upon the DOE’s motion to amend judgment, the court withdrew that portion of the order of discharge under section 105(a) as exceeding the scope of arguments raised and evidence raised by the debtor stating: “Accordingly, the Court will enter an amended judgment in favor of the DOE which removes the provision that any remaining student loan debt owed to the DOE after the completion of the REPAYE or similar program is deemed excepted from the Debtor’s discharge pursuant to 11 U.S.C. § 523(a)(8).”

The debtor has appealed this decision to the Bankruptcy Appellate Panel for the First Circuit, case no. 21-21.

Parvizi Bankr. Mass May 2021

Parvizi amended order

Sixth Circuit Addresses 401(k) Contributions

Posted by NCBRC - August 13th, 2021

The Sixth Circuit held that “the bankruptcy code’s text does not permit a Chapter 13 debtor to use a history of retirement contributions from years earlier as a basis for shielding voluntary post-petition contributions from unsecured creditors. This is true even if the debtor had no ability to make further contributions in the six months preceding filing; the code makes no exception for such circumstances.” Penfound v. Ruskin (In re Penfound), No. 19-2200 (6th Cir. Aug. 10, 2021). Read More

Standing Trustee Need Not Disgorge Fees when Plan Dismissed Prior to Confirmation

Posted by NCBRC - August 11th, 2021

“[A] standing trustee is entitled to collect the statutory fee under [28 U.S.C.] § 586(e) upon receipt of each payment under the plan and is not required to disgorge the fee if the case is dismissed prior to confirmation.” McCallister v. Harmon, No. 20-1168 (B.A.P. 9th Cir. July 20, 2021) (unpublished).

The debtors made several payments in accordance with their proposed plan but voluntarily dismissed their bankruptcy prior to plan confirmation. The bankruptcy court’s order of dismissal included provision for the debtors’ attorney to collect his fee from the funds held by the trustee. The original order also provided for the trustee to retain the statutory fees she collected under section 586(e). Upon reconsideration of that order, though, the bankruptcy court concluded that section 1326(a)(2), which requires the trustee to retain plan payments until confirmation and return those payments to the debtor after deducting unpaid administrative claims if the case is dismissed prior to confirmation, mandated that the trustee return the fees to the debtor upon dismissal. In re Harmon, No. 19-01424-TLM, 2020 WL 6037759 (Bankr. D. Idaho June 23, 2020). Read More

No Punitive Sanctions for Rule 3002.1 Violation

Posted by NCBRC - August 3rd, 2021

In a decision taking the teeth out of Rule 3002.1’s notice requirement, the Second Circuit found that the Rule does not permit imposition of punitive sanctions. PHH Mortgage Corp. v. Sensenich (In re Gravel), No. 21-1 (2d Cir. Aug. 2, 2021). In a well-reasoned dissent, Judge Bianco argued that the majority incorrectly limited the scope of sanctions available under the Rule.

These three consolidated cases (In re Gravel (21-1), In re Beaulieu (21-2), In re Knisley (21-3)) came before the bankruptcy court upon motions by the Trustee seeking sanctions against PHH for assessing fees against the debtors, in 25 statements per debtor, without complying with the requirement in Rule 3002.1(c) that a mortgage creditor “shall file and serve on . . . the trustee a notice itemizing all fees, expenses, or charges” that the creditor “asserts are recoverable against the debtor” and serve this notice “within 180 days after the date on which the fees, expenses, or charges are incurred.” The trustee also sought sanctions for violations of the court’s Current Orders in the Gravel and Beaulieu cases. Those orders stated that the debtors, who had completed their plans, were current on their mortgages, and prohibited PHH from challenging that finding in “any other proceeding.” (The Knisleys had not yet completed their plan when the trustee filed for sanctions, so there was no similar order involved in that case). Read More

Debtor Cannot Cure Default After Expiration of Plan

Posted by NCBRC - July 30th, 2021

The bankruptcy court correctly dismissed the debtor’s chapter 13 case after she missed her final two mortgage payments under her five-year plan, even though, shortly after the plan expired, she paid the arrears in full. In re Kinney, No. 20-1122 (10th Cir. July 23, 2021).

The debtor entered bankruptcy current on her mortgage payments, and her chapter 13 plan provided for continued payments to the mortgagee, HSBC Bank USA, “under the plan.” A few months prior to completion of her plan, the debtor was injured in a car accident and, for that reason, missed two mortgage payments before the plan expired and two additional payments after its expiration. She then made the back payments and sought discharge. The bank opposed discharge and moved to dismiss her bankruptcy. The bankruptcy court found that it lacked discretion to grant a discharge and granted the motion to dismiss. After her motion for reconsideration was denied, the debtor was granted leave to appeal directly to the Tenth Circuit. Read More