A debt based on a civil judgment for pain and suffering arising out of an incident during which the debtor had an acute psychotic break and severely beat the claimant, was dischargeable in bankruptcy because his psychiatric condition prevented him from acting willfully within the meaning of section 523(a)(6). Lombardi v. Picard (In re Picard), No. 16-15432 Adv. Proc. No. 16-359 (Bankr. E.D. Pa. June 10, 2022). [Read more…] about Act Not Willful Where Debtor Suffered Acute Psychosis
Filing Petition Three Days after Loan Does Not Make Debt Nondischargeable
The debtors were entitled to summary judgment on the issue of dischargeability of their payday loans despite the fact that they took out the loans three days prior to filing for bankruptcy. Ameri Best, LLC, v. Holmes, No. 18-20578, Adv. Proc. No. 18-6044 (Bankr. D. Kans. April 27, 2022).
As they had done many times before, in March, 2018, the debtors, James and Stacy Holmes, each borrowed $500 from payday lender, Ameribest. The loans were due two weeks later with $75 interest. Three days later, they filed for bankruptcy owing Ameribest $1,150. Ameribest filed an adversary proceeding seeking an order that the debt was nondischargeable under sections 523(a)(2)(A) and (a)(6). It moved for summary judgment. The court denied the motion and ordered Ameribest to show cause why it should not enter summary judgment in favor of the debtors. The debtors then filed their own motion for summary judgment seeking an order of dischargeability and an award of attorney fees and costs under section 523(d). [Read more…] about Filing Petition Three Days after Loan Does Not Make Debt Nondischargeable
Failure to Pay Property Taxes Precludes Discharge
A mortgage refinance agreement approved by the court is not equivalent to a motion to modify under section 1329. The debtors, who failed to pay their property taxes directly as required by their plan were not entitled to discharge even though the mortgagee paid those taxes on their behalf and the debtors and mortgagee refinanced their lending agreement to encompass that change. In re Villarreal, No. 16-10106 (Bankr. S.D. Tex. April 12, 2022). [Read more…] about Failure to Pay Property Taxes Precludes Discharge
Discharge Despite Unpaid Mortgage Fees
The chapter 13 debtor was entitled to discharge despite the fact that she had incurred but not paid fees and assessments under her mortgage contract while she was paying the mortgage outside the plan, where the creditor had not sought payment of those fees and assessments prior to plan completion. In re Brown, — B.R. —-, 2021 WL 4480832 (Bankr. D. S.C. Sept. 15, 2021) (case no. 16-4122).
In this case, the debtor’s plan provided for the trustee to pay off the mortgage arrears through the plan and the debtor to maintain all other payments according to the mortgage agreement outside the plan. After she successfully completed her plan, the mortgage creditor, Citizen’s Bank, objected to discharge arguing that the debtor owed $1,085 in post-petition fees and assessments.
While the debtor did not dispute that she had incurred the fees and assessments, she argued that they were not “payments under the plan,” as contemplated by section 1328(a), which would preclude discharge if not paid at plan completion. [Read more…] about Discharge Despite Unpaid Mortgage Fees
Med School Loans Partially Discharged after Debtor Fails to Match for Residency
Finding that the debtor’s string of very bad luck unrelieved by his concerted efforts to increase his earnings, satisfied the Brunner test, a bankruptcy court granted him a partial discharge of his student loan, reducing the debt from $440,000 to $8,291.67. Koeut v. U.S. Dept. of Ed., No. 12-7242, Adv. Proc. No. 18-90130 (Bankr. S.D. Cal. Dec. 4, 2020). [Read more…] about Med School Loans Partially Discharged after Debtor Fails to Match for Residency
State Court May Order Criminal Restitution Relating to Discharged Debt
The Pennsylvania Supreme Court held that its criminal law permits an order of restitution even though it relates to a debt that was discharged in Chapter 7 bankruptcy. Commonwealth v. Petrick, No. 47 MAP 2018 (Pa. Sept. 26, 2019).
The issue came before the Court from the state superior court where the Appellant argued that his sentence for restitution was illegal because the underlying debt had been discharged in bankruptcy. The Court “granted allocatur . . . to address the effect a discharge of a civil debt by a federal bankruptcy court has on the authority of a state trial court to order mandatory restitution as part of a sentence in a criminal case involving the same obligation.” [Read more…] about State Court May Order Criminal Restitution Relating to Discharged Debt
Bankruptcy Court holds Debtor is Entitled to Chapter 13 Discharge even if Co-Debtor is Delinquent on Post-Petition DSO Payments
A bankruptcy court recently reviewed the issue of whether a debtor can receive a discharge under § 1328 even if her co-debtor husband is delinquent on a post-petition DSO payment. The court examined the requirements for discharge using the plain language of § 1328(a).
In this case, the debtors, Mr. and Mrs. Hernandez, filed a joint Chapter 13 bankruptcy. At filing, neither owed a DSO. Approximately two years into their confirmed plan, Mr. Hernandez became liable for a DSO and subsequently fell behind in those payments. Both parties were aware of the DSO and neither reported the delinquency to their attorney nor the trustee.
After completion of the plan payments, Mrs. Hernandez moved for entry of discharge under 11 U.S.C. § 1328(a). The Trustee objected arguing Mrs. Hernandez was unjustly enriched and that failure to amend the plan demonstrates bad faith. No party disputed that all plan payments were made.
To read more and access the opinion click here
Court Rejects Terms Slipped into Reaffirmation Agreement
“A party to a reaffirmation agreement cannot bootstrap contract terms into the reaffirmation agreement through inconspicuous additions to the statutory disclosures on a form represented to be a Director’s Form.” In re Jenkins, No. 17-30753 (Bankr. S.D. Ohio Sept. 26, 2017).
Chapter 7 debtor, Tracy Michelle Jenkins, entered into a reaffirmation agreement with KH Network Credit Union concerning Ms. Jenkins’ 2015 Volvo. After Ms. Jenkins received her discharge, the Credit Union rescinded the reaffirmation agreement. The Credit Union pointed to language it had added to the “Disclosure Statement” on Director’s Form 2400A, in which it asserted a right to rescind the agreement in the manner it followed.
As an initial matter, the court found that it had jurisdiction over the action because, rather than being a disagreement as to the terms of a contract requiring application of state law, the disagreement involved interpretation of Ms. Jenkins’s rights under section 524 of the Code.
The court began its substantive analysis with the general principles that reaffirmation agreements serve the valuable purpose of permitting a debtor to retain necessities but often at the cost of a heavy financial obligation to the debtor. For that reason, safeguards such as the disclosures on Director’s Form 2400A are statutorily mandated and, under section 524(k)(1), must be made “clearly and conspicuously and in writing.”
The court found that, while in theory a creditor may negotiate and add to a reaffirmation agreement terms allowing it to rescind, the Credit Union here did not comply with the requirements necessary to alter the standard terms of the agreement. The court pointed to several deficiencies in the terms the Credit Union sought to enforce: 1) it was not visually conspicuous, 2) it was appended to the disclosure section of the agreement which is a recitation of the debtor’s statutory rights, and 3) it was not included in the Agreement section where it would have been properly included in the negotiated contractual terms. Where the disclosure requirements are intended for the protection of debtors, the Credit Union’s inclusion of its own rescission rights in that section of the agreement contradicted and diluted its purpose.
The Credit Union argued that it rescinded the agreement due to Ms. Jenkins’s failure to enter into a separate reaffirmation agreement with it for an unsecured debt. The court found that there was no evidence of any agreement between the parties as to this separate contractual term and, under Ohio law, a contract may be rescinded upon fraud or mistake of fact, but that no such justification existed here. The credit union opted to sign the reaffirmation agreement with no contingency provision included. Ms. Jenkins could not be said to have breached the contract by reason of noncompliance with a term that was not in it.
The court found that under section 105(b), it had the power to alter the terms of the reaffirmation agreement to conform to the provisions and principles of the Bankruptcy Code.
Husky International Electric v. Ritz, No. 15-145 (USSCt)
Type: Amicus
Date: January 25, 2016
Description: Whether section 523(a)(2)(A)’s exception to discharge for “actual fraud” requires that the debtor make a false representation to the creditor or may be established through fraudulent conveyance.
Result: Reversed and remanded, May 16, 2016
Husky International SCt opinion 2016
Ritz SCt NACBA Amicus Jan 2016
Objection to Discharge Should Have Been Dismissed as Untimely
The chapter 7 trustee failed to continue the creditors’ meeting to a specified date as required by Rule 2003(e) and therefore his later objection to discharge was untimely. In re Jenkins, No. 14-1385 (4th Cir. Apr. 27, 2015). [Read more…] about Objection to Discharge Should Have Been Dismissed as Untimely