Discharge Injunction

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Wells Fargo on the Hook for Misreporting Delinquency

Finding genuine issues of material fact, the district court denied Wells Fargo’s motion for summary judgment on most of the Chapter 13 debtors’ federal and state claims based on Wells Fargo’s misapplication and misreporting of mortgage payments while the debtors were in bankruptcy. Anderson v. Wells Fargo Bank, No. 16-2514, 2018 WL 3426269 (N.D. Tex. July 13, 2018).

Tony and Hanna Anderson were current on their mortgage when they filed their Chapter 13 petition. Their confirmed plan provided for continued payment on the mortgage outside the plan. Though the Andersons made all mortgage payments promptly, the mortgage servicer, Wells Fargo, misapplied the payments and reported the debt as delinquent. The Andersons sent Wells Fargo five qualified written requests for information under RESPA and filed a request for investigation under the FCRA. Wells Fargo admitted its error and sent the corrected information to credit reporting agencies approximately two months later. [Read more…] about Wells Fargo on the Hook for Misreporting Delinquency

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Post-Petition Condo Fees Dischargeable

Condominium association assessments that become due after the debtor has filed for chapter 13 bankruptcy are dischargeable. Goudelock v. Sixty-01 Ass’n of Apartment Owners, No. 16-35384 (9th Cir. July 10, 2018).

When Chapter 13 debtor, Penny Goudelock, stopped her condominium association (CA) payments in 2009, Sixty-01 initiated foreclosure proceedings. In March 2011, Ms. Goudelock moved out of her condominium. She filed for bankruptcy and surrendered her unit. Sixty-01 filed a proof of claim for $18,780.35 for unpaid pre-petition assessments and noted that the assessments continued to accrue at $388.46 per month. The mortgage lender foreclosed on the property in February 2015, and Ms. Goudelock completed her plan in July, 2015. Sixty-01 moved the bankruptcy court for an order finding that the CA assessments that accrued between the time Ms. Goudelock filed her bankruptcy petition and the time the mortgage lender foreclosed were not dischargeable. The bankruptcy court granted summary judgment in favor of Sixty-01, and the district court affirmed. Goudelock v. Sixty-01 Ass’n of Apartment Owners, No. C15-1413-MJP, 2016 WL 1365942 (W.D. Wash. Apr. 6, 2016). [Read more…] about Post-Petition Condo Fees Dischargeable

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Government Penalty Not Dischargeable

A penalty owed to a governmental agency based on fraud falls under section 523(a)(2) and is therefore nondischargeable under section 1328(a) even though the debt also falls under section 523(a)(7), which is not listed in the debts excepted from discharge. Andrews v. Mich. Unemployment Ins. Agency, No. 16-2383, Kozlowski v. Mich. Unemployment Ins. Agency, No. 16-2680 (6th Cir. May 29, 2018).

In two separate cases, Chapter 13 debtors, Priscilla Andrews and Richard Kozlowski, sought to discharge penalties imposed upon them for fraudulent collection of unemployment insurance benefits. The bankruptcy courts denied discharge under section 1328(a). The district courts affirmed in both cases. [Read more…] about Government Penalty Not Dischargeable

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Nationstar Cannot Wriggle Out of Discharge Injunction Violation

Nationstar waived its right to argue that the court could not address the merits of the debtor’s discharge injunction case before ruling on class certification, and several of Nationstar’s post-discharge communications violated the injunction. Forson v. Nationstar Mortgage, LLC., No. 08-61001, Adv. Proc. No. 15-2137 (Bankr. S.D. Ohio March 21, 2018).

Terry Lee Forson reopened his Chapter 13 bankruptcy and filed an adversary complaint against Nationstar Mortgage LLC, alleging violation of the discharge injunction, Section 524(a)(2), based on Nationstar’s continued collection activities post-discharge. Contending that Nationstar’s conduct was part of an ongoing business practice, Mr. Forson sought class certification. He filed a motion for summary judgment to which Nationstar objected, arguing that, under the one-way rule, the court could not address the merits of the case until it had made a finding with respect to class certification. [Read more…] about Nationstar Cannot Wriggle Out of Discharge Injunction Violation

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Post-Petition Condo Fees Discharged in Chapter 13

Although a Chapter 13 debtor continues to accrue post-petition condo fees while in bankruptcy, discharge extends to his in personam liability for those fees. In re Wiley, No. 16-15361 (Bankr. D. Md. Jan. 26, 2018).

Chapter 13 debtor, Christopher Wiley, owned but did not live in a condominium unit subject to a mortgage lien and a lien held by the condominium association based on post-petition fees and assessments. The mortgagee was granted relief from stay to foreclose, but had not done so for over a year. Mr. Wiley’s confirmed plan surrendered the property to the lienholders for foreclosure, with any deficiency in sale proceeds being treated as an unsecured claim. The plan also provided that estate property would not vest in the debtor until discharge. [Read more…] about Post-Petition Condo Fees Discharged in Chapter 13

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Direct Mortgage Payments Not “Payments under the Plan” for Discharge Purposes

Payments made directly by the debtor to the mortgagee are not “payments under the plan,” within the meaning of section 1328, and the debtor’s failure to make those payments is not cause for dismissal without discharge. In re Gibson, No. 12-81186 (Bankr. C.D. Ill. March 5, 2018).

Bryan and Holly Gibson made all payments in accordance with their five-year Chapter 13 plan, and the trustee filed the notice of payment completion. Mortgage creditor, PNC, agreed that the Gibsons were current on their first mortgage and had paid the arrearage on the second mortgage through the trustee. However, it chose that moment to complain that, as of the beginning of the plan, the debtors had made none of the post-petition direct payments on their second mortgage. Based on that default, the trustee moved to dismiss under section 1307(c)(6). [Read more…] about Direct Mortgage Payments Not “Payments under the Plan” for Discharge Purposes

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Second Circuit Finds Arbitration Conflicts with Discharge Injunction

Arbitration of the debtor’s claim for violation of the discharge injunction presented an inherent conflict with the Bankruptcy Code, and the bankruptcy court did not abuse its discretion in refusing to compel arbitration. Anderson v. Credit One Bank, No. 16-2496 (2d Cir. March 7, 2018).

Credit One charged off Orrin Anderson’s credit card debt, sold the account to a debt buyer, and reported the default to the major credit reporting agencies. After Mr. Anderson obtained a Chapter 7 discharge, Credit One refused to change the credit report to reflect the discharge. Mr. Anderson reopened his bankruptcy and filed a class action suit complaining that Credit One’s inaction with respect to his credit reports and those of other putative class members violated Section 524(a)(2). The bankruptcy court rejected Credit One’s efforts to enforce the arbitration clause in the credit card agreement. On Credit One’s interlocutory appeal, the district court affirmed. In re Anderson, 553 B.R. 221 (S.D. N.Y. 2016). [Read more…] about Second Circuit Finds Arbitration Conflicts with Discharge Injunction

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$119,000 Sanctions for Discharge Injunction Violations

Continuous confusing contact with the discharged debtors by the mortgage servicer was appropriately sanctioned at $1,000 per violation, notwithstanding the servicer’s formulaic and contradictory disclaimers in some of the correspondence. Ocwen Loan Servicing v. Marino, Nos. 16-1229, 16-1238 (B.A.P. 9th Cir. Dec. 22, 2017).

Debtors, Christopher and Valerie Marino, surrendered their real property in their Chapter 7 bankruptcy. After they received their discharge in June, 2013, the court granted the mortgagee relief from the automatic stay and closed the case. From June 2013 through April, 2015, Ocwen, as servicer for the mortgagee, sent nineteen letters stating the amount owed on the debt as the “amount you must pay,” and providing payment due dates. Some of the letters contained the disclaimer that, “if you have received a discharge in bankruptcy, this notification is for informational purposes only and is not intended to collect a pre-petition or discharged debt.” Ocwen also made approximately one hundred calls to the Marinos seeking payment on the discharged debt. [Read more…] about $119,000 Sanctions for Discharge Injunction Violations

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No False Representation in Loan Acquisition

Creditors failed to prove that the debtor made false representations with respect to a loan acquired by the debtor’s father claiming to represent the debtor’s company. Hasley v. Irons (In re Irons), No. 15-40876, Adv. Proc. No. 15-4051 (Bankr. D. Neb. March 9, 2017).

Ronald and Vicki Hasley, d/b/a Swite Enterprise, brought an adversary proceeding against the chapter 7 debtor, Tyler B. Irons, seeking an order of nondischargeability under section 523(a) with respect to a state court judgment on a debt.

The litigation between the parties began when the Hasleys filed suit in state court against the debtor; his father, Jack Irons; and his company J & R Motors, LLC, to recover approximately $190,000 Jack Irons borrowed from the Hasleys. The state court rendered judgment against the defendants based, at least in part, on findings of facts resulting from Tyler Irons’s failure to respond to requests for admissions which the court then deemed admitted. Tyler Irons filed chapter 7 bankruptcy shortly thereafter and the Hasleys filed an adversary complaint, seeking an order that the debt was nondischargeable under sections 523(a)(2)(A) and (a)(4).

At trial on the adversary complaint, the debtor, Tyler Irons, testified that neither he nor his company received any money from the Hasleys and further, that the state court judgment was a default judgment caused by the legal malpractice of Mr. Irons’s state court attorney. He admitted that, at his father’s request, he signed an “Accounts Receivable/Specific Assignment,” with respect to the loan and that pursuant to that agreement, he made cash payments to the Hasleys.

Section 523(a)(2)(A) renders nondischargeable a debt acquired through false representation. The Hasleys argued that Jack Irons made such representations by claiming to be an agent of Tyler Irons’s company and that, as 100% owner of the company, Tyler was therefore liable for those misrepresentations. Because the Hasleys did not testify at the trial, they offered the factual findings that led to the summary judgment in state court as support for this claim, arguing that the doctrine of res judicata prevented Tyler Irons from denying those factual findings.

Application of res judicata requires that for a factual finding in a previous action to be admitted in a later case as a matter of law, it must have been directly addressed or litigated in the former proceeding. In this case, however, the state court judgment was based on requests for admissions that Mr. Tyler failed to answer but were not actually litigated. Moreover, Nebraska rules limit use of admissions to the case in which they were admitted. Without those admissions, there was no testimony at the adversary hearing from either Mr. Hasley or Jack Irons to support a claim that Tyler Irons made any representations at all, much less ones that were reasonably relied upon by the Hasleys.

The case also failed under section 523(a)(4) which applies to misconduct by a fiduciary. The court explained that a fiduciary relationship must pre-date the debt and does not apply to “trusts that may be imposed because of the alleged act of wrongdoing from which the underlying indebtedness arose.” As to whether the Assignment document signed by Tyler Irons created a trust, the court found that it did not. Rather, it was a general, common-law contract pursuant to which Tyler Irons apparently made some cash payments to the Hasleys but did not establish a trust or escrow account or otherwise create a trust relationship.

The court granted partial summary judgment in favor of the debtor on the causes of action under sections 523(a)(2)(A) and (a)(4).

Hasley v. Irons (In re Irons) (Bankr.Neb., 2017)