Debts for “defalcation” have been excepted from discharge for almost one hundred and fifty years, yet only now has the Supreme Court resolved the question of what mental state is required for an actor to commit defalcation within the meaning of section 523(a)(4). Bullock v. BankChampaign, 569 U. S. ____ (2013), No. 11-1518 (May 13, 2013). [Read more…] about Supreme Court Determines Scienter for Defalcation
Creditor Must Return Repossessed Vehicle upon Bankruptcy Filing
The Second Circuit upheld sanctions against vehicle loan creditor SEFCU for refusing to return the debtor’s repossessed vehicle without a court order and adequate protection. Weber v. SEFCU, No. 12-1632 (May 8, 2013). SEFCU had lawfully repossessed the debtor’s pick-up truck under the loan agreement, but when the debtor filed for bankruptcy, SEFCU refused to return the vehicle. The bankruptcy court determined that SEFCU’s actions did not violate the automatic stay. The district court reversed. Weber v. SEFCU, 477 B.R. 308, 311 (N.D.N.Y. 2012). [Read more…] about Creditor Must Return Repossessed Vehicle upon Bankruptcy Filing
Chapter 20 Lien Stripping Goes to Circuit
The Ninth Circuit is poised to be the first circuit court to address the issue of whether a lien may be stripped in a “Chapter 20” case where discharge is unavailable. The Western District of Washington recently found that lien stripping was not contingent upon the availability of discharge. Litton Loan v. Blendheim, No. 11-2004 (W.D. Wash. March 29, 2013). Litton Loan filed a notice of appeal on April 26, 2013.
In upholding the bankruptcy court’s finding in favor of the debtors, the district court noted “an emerging trend” in the Ninth Circuit permitting such lien stripping. See In re Tran, 321 B.R. 230, 235 (Bankr. N.D. Cal. 2010); In re Hill, 440 B.R. 176, 182 (Bankr. S.D. Cal. 2010); In re Okosisi, 451 B.R. 90, 100 (Bankr. D. Nev.. 2011), and found that those cases were correctly decided. It reasoned that the Supreme Court in Johnson v. Home State Bank, 501 U.S. 78 (1991), explicitly sanctioned chapter 20 cases, and nothing in the later amendments to the Bankruptcy Code imposed a discharge requirement upon the ability to strip a lien that is otherwise amenable to stripping. The court concluded that the lien would be stripped upon completion of plan payments.
The Eighth Circuit recently avoided the issue in the case of In re Fisette, 695 F.3d 803 (8th Cir. 2012), by concluding that the BAP’s order that liens may be stripped in chapter 20 was an interlocutory order not subject to appeal.
No Presumption of Validity for Payment Changes under Rule 3002.1
The bankruptcy court for the Northern District of Mississippi differentiated between the shifting burdens of proof under Rule 3001, which deals with proofs of claim generally, and Rule 3002.1, relating to notice of changes to mortgage payments on the debtor’s residence. In re Taylor, No. 12-11463 (March 27, 2013).
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Creditor Sanctioned to the Tune of $50,000.00
In In re Powell, No. 10–03859 (Bankr. E.D. N.C. June 26, 2012), the court put a leash on the creditor’s dogged pursuit of the debtors. The court found that the creditor, Bank of America, and its servicer, violated the discharge injunction and the automatic stay when it foreclosed on the debtors’ residence after they filed bankruptcy, and relentlessly dunned them for payments post-discharge.
After the debtors obtained their bankruptcy discharge, the creditor began sending monthly billing statements seeking to collect on the mortgage for property the debtors had surrendered. The debtors’ attorney responded with several warning letters and finally with a motion to the court for sanctions. Except one letter claiming to be a debt collector under the FLSA, the creditor otherwise responded like a mindless automaton. It continued its monthly collection efforts unabated. At the hearing on the motion, which the creditor did not attend, one of the debtors testified to the stress and anxiety caused by the continued billing and the ever-increasing amount owed. The court invoked its contempt power under section 105, under which four conditions must be met: 1) there must be a valid decree of which the contemnor had actual or constructive knowledge; 2) the decree must be in the movant’s favor; 3) the contemnor must have violated the terms of the decree, with knowledge of such violations; and 4) the movant must have suffered harm as a result. Finding that each of these conditions was met, the court awarded attorney fees of $3,000.00, damages in the amount of $2,500.00, and sanctions in the amount of $50,000.00.
Are subprime loans making a comeback?
An article in Sunday’s Los Angeles Times suggests that lenders in markets with rising property values, such as California, are looking to increase their subprime lending. While current mortgage interest rates are around 3.5%, these subprime loans come with interest rates starting at 7.95% and going up from there. As with the old subprime products, high fees are common for this next generation of subprime loans. So what’s different? Most new subprime loans require much higher down payments and evidence of the ability to pay.
Seventh Circuit Deals a Blow to Debtors Who Inherit IRAs
In a departure from the majority of courts, the Seventh Circuit has found that debtors cannot exempt inherited IRAs. In re Clark, No. 12-1241 & 12-1255 (April 23, 2013). [Read more…] about Seventh Circuit Deals a Blow to Debtors Who Inherit IRAs
Acceleration Clause Clears Way for Modification
A bankruptcy court in Maryland found that an acceleration clause in a deed of trust, making the remaining debt immediately due, triggered the modification clause of section 1322(c)(2). Fed’l Nat’l Mtg. Ass’n v. Griffin (In re Griffin), No. 12-19863 (March 18, 2013). [Read more…] about Acceleration Clause Clears Way for Modification
Some Hope for Student Loan Debtors
Two recent student loan cases shine a ray of hope for debtors crushed by education-based debts. See Kreiger v. ECMC, No. 12-3592 (7th Cir. Apr. 10, 2013) and Roth v. ECMC, No. 11-1233 (B.A.P. 9th Cir. Apr. 16, 2013).
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Trustee May Not Sell Estate Property Free and Clear of Liens
When the sale price exceeds the value of the property but is less than the aggregate of all liens secured by that property, section 363(f)(3) does not authorize sale of the property. In re Jaussi, No. 12-34062 (Bankr. D. Colo. March 18, 2013). In Jaussi, the chapter 7 trustee moved to sell debtor’s land valued at $39,000.00 to the senior mortgagee for $1,500.00 . Between the mortgage holder and two judgment lienholders, the property was encumbered to the tune of $44,040.56 with $40,181.00 of that amount owed on the mortgage. The motion sought to make the sale free and clear of the two junior judgment liens.
The court found that the sale was not permitted by the Code. Specifically, the sale did not fall under either of the two relevant conditions set forth in section 363(f), under which a trustee may sell estate property free and clear of liens when: “(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest,” or “(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property.”
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