Declining to “dim the light that shines at the end of the long 60-month tunnel for compliant debtors,” the Bankruptcy Court for the Southern District of Texas held that Wells Fargo waived its right to collect post-petition shortfalls in escrow payments due to its failure to comply with notice requirements. In re Garza, No. 08-60088 (Bankr. S.D. Tex. Oct. 1, 2012). [Read more…] about Lack of Notice Constitutes Waiver of Wells Fargo’s Claim
A Cautionary Tale on Good Faith
The Northern District of California upheld a finding of bad faith for the debtor’s Chapter 13 fee-only plan. In re Ingram, No. 11-408 (N.D. Cal. Sept. 28, 2012). The plan proposed to maintain payments on the first mortgage, strip off the second wholly unsecured mortgage, and pay only attorney and administrative fees. The debtor later filed an amended plan proposing to make lower payments for a longer duration while still paying nothing to unsecured creditors. The Bankruptcy Court raised the issue of good faith sua sponte.
The district court found that the bankruptcy court applied the appropriate “totality of the circumstances” standard as outlined in Leavitt v. Soto (In re Leavitt), 171 F.3d 1219 (9th Cir. 1999) and Goeb v. Heid (In re Goeb), 675 F.2d 1386 (9th Cir. 1982). It noted, however, that a “veiled Chapter 7” plan is rarely proposed in good faith. Though the court teetered on the edge of a per se rule against such plans, it did not step over that edge.
The debtor’s downfall here appears to have been the fact that when he amended his plan to lower payments but extend the duration, he refused to explain to the bankruptcy court why he could not maintain the higher payments and pay something to unsecured creditors. The court found that the original proposed plan indicated that the debtor could afford to pay more into the plan without regard to duration, and the debtor failed to counter that inference.
Lesson: where fee-only plans are generally disfavored, it is perhaps wise not to antagonize the court when trying to confirm one.
What, if Anything, is Section 506(d)?
(Borrowing from Stephen Jay Gould’s, “What, If Anything, Is a Zebra?” Hen’s Teeth and Horse’s Toes (W.W. Norton & Co. 1980)).
Where, in his essay, Gould discusses the evolution of striped members of the genus equus, cautioning that appearances do not necessarily dictate classifications, bankruptcy practitioners likewise have had to look beyond appearances (or plain language) to determine meaning. This could not be more manifest than in the Supreme Court interpretation of Section 506(d), which provides: “To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void . . .” A simple reading of this clause in conjunction with section 506(a), which provides that a lien is “a secured claim to the extent of the value of the creditor’s interest,” would suggest that when a lien has no value, it is unsecured and therefore void under the operation of Section 506(d). But a recent case out of the Eastern District of New York has joined the majority of courts in deciding otherwise. Wachovia Mortgage v. Smoot, No. 11-6379 (E.D. N.Y. Sept. 20, 2012). [Read more…] about What, if Anything, is Section 506(d)?
Forgiving Our Debtors (Unless They Are Prisoners)
Through various provisions in the Bankruptcy Code, Congress has identified debts that should not be forgiven. These include, for example, debts for certain taxes, debts for money obtain through fraud, debts for domestic support obligations, and debts incurred from drunk driving (think, personal injury or wrongful death judgments). Congress has also identified debtors that will be denied a fresh start because they acted badly and contrary to the bankruptcy process. This usually happens when the debtor is not honest and makes false disclosures with respect to assets and property.
Nowhere in the Bankruptcy Code does Congress prohibit prisoners from filing bankruptcy.
While Congress has not precluded prisoners from being debtors, a bankruptcy court in the recent decision In re Moore, 2012 Bankr. LEXIS 3897 (Aug. 24, 2012) has effectively done just that. If you are a prisoner, your case will be dismissed. Why? Because as a prisoner, you are not at liberty to personally attend the meeting of creditors (also known as the 341 meeting). Section 343 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure 4002 require the debtor’s presence at the meeting of creditors. However, the Moore court acknowledged that it had discretion to waive debtor’s presence at the meeting of creditors for the physically disabled, gravely ill, or deployed military personnel. But the court concluded that “incarceration did not constitute a good and sufficient reason to waive the debtor’s attendance.” Since issuing its opinion, the court has issued a show cause order why the debtor’s case should not be dismissed for failing to attend the 341 meeting.
So much for forgiving our debtors…
IRS Refund “Freeze” Not in Violation of Automatic Stay
The Sixth Circuit recently affirmed the lower courts’ holding that the IRS’s failure to immediately issue a post-petition tax refund was not a violation of the automatic stay. In re Harchar, No. 10-4201 (6th Cir. Sept. 12, 2012). [Read more…] about IRS Refund “Freeze” Not in Violation of Automatic Stay
Arbitration vs. Bankruptcy
Finding, under the circumstances of the case, that the Federal Arbitration Act conflicts with the underlying purposes of the Bankruptcy Code, the Ninth Circuit upheld the denial of the creditor’s motion to compel arbitration where such arbitration would necessarily have resolved a core bankruptcy issue. In re Eber, No. 11-55341 (9th Cir. July 9, 2012). [Read more…] about Arbitration vs. Bankruptcy
Fifth Circuit Affirms Class Certification Challenging Fee Collection Practices
The Fifth Circuit found that the bankruptcy court did not abuse its discretion when it certified a class of plaintiffs, under Rule 23(b)(2), who challenged certain fee-charging and collection practices of Countrywide Home Loans. Rodriguez v. Countrywide Home Loans, No. 11-40056 (5th Cir. Sept. 14, 2012). [Read more…] about Fifth Circuit Affirms Class Certification Challenging Fee Collection Practices
Life After Bankruptcy
Vicki Elmer at the New York Times has written about getting a mortgage after filing for bankruptcy (here). The bottom line is that bankruptcy isn’t the end of the world. Indeed, for many, bankruptcy provides a much needed fresh start, putting people on sounder financial footing and allowing them to rebuild their credit. It is even possible to get a mortgage.
Creditor Found to Have No Obligation to Foreclose on Surrendered Property
The District Court for the Southern District of Georgia found that a bank has no affirmative duty under section 1325(a)(5)(C) to transfer title to surrendered property out of the debtor’s name. Arsenault v. JP Morgan Chase, No. 11-106 (S.D. Ga. Aug. 27, 2012). [Read more…] about Creditor Found to Have No Obligation to Foreclose on Surrendered Property
Eighth Circuit Puts Off Lien-Stripping in Chapter 13 Issue for Another Day
In a cranky opinion chastising “judicially careless attorneys” and remanding the case to the bankruptcy court on procedural grounds, the Eighth Circuit sidestepped the issues of whether a wholly unsecured mortgage can be stripped in Chapter 13, and whether, if such stripping is allowed, the availability of discharge is a necessary prerequisite to it. In re Fisette, No. 11-3119 (8th Cir. Sept. 12, 2012). [Read more…] about Eighth Circuit Puts Off Lien-Stripping in Chapter 13 Issue for Another Day