The mean-spirited, and legally insupportable approach to chapter 13 cases that led to denial of confirmation and dismissal of the debtor’s case in In re Mycek, has been reversed and remanded by the district court for the Central District of California. No. 12-369 (C.D. Cal. Oct. 22, 2013). [Read more…] about Judge Johnson’s Dismissal of Chapter 13 Reversed by District Court
Creditor Lacks Standing to Move for Dismissal under 707(b)
In In re Gandy, No. 11-30369 (Bankr. E.D. Tenn. July 12, 2013), the court found that a creditor had no standing under section 707(b) to seek dismissal of a chapter 7 petition, after conversion from chapter 13, where debtor’s petition documents showed him to be below-median. [Read more…] about Creditor Lacks Standing to Move for Dismissal under 707(b)
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.
Fifth Circuit Approves “Fee-Only” Chapter 13 Plan
In good news for bankruptcy debtors who cannot afford to file Chapter 7 or for whom Chapter 7 is otherwise impracticable, the Fifth Circuit affirmed the bankruptcy court’s confirmation of the debtor’s “fee-only” Chapter 13 plan, finding that such plans are not per se bad faith. Sikes v. Crager (In re Crager), No. 11-30982 (5th Cir. August 16, 2012), rev’g, W.D. La. 10-1863 (Sept. 30, 2011). [Read more…] about Fifth Circuit Approves “Fee-Only” Chapter 13 Plan
Riverside Bankruptcy Court’s Sua Sponte Dismissal Reversed
The District Court for the Central District of California reversed the bankruptcy court’s dismissal of the debtors’ Chapter 13 case after the debtors filed a notification of conversion to Chapter 7. Taylor v. Danielson (In re Taylor), No. 11-1879 (C.D. Cal April 13, 2012). The court distinguished Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007), where the Supreme Court found that a debtor does not have an absolute right to convert a case from Chapter 7 to Chapter 13 under Section 706(a). In Marrama, the Court reasoned, in part, that conversion from Chapter 7 to Chapter 13 could result in a debtor either escaping the consequences of bad faith by voluntarily dismissing under Chapter 13, or benefiting from the conversion despite bad faith by gaining access to estate assets to the detriment of creditors.
Conversions from Chapter 13 to Chapter 7 are distinguished by the fact that upon such conversion, the trustee has control over estate assets and the court retains jurisdiction over the debtor, so the concerns that were dispositive in Marrama are not present. Additionally, the Bankruptcy Rules treat conversions from Chapter 7 to Chapter 13 differently from conversions from Chapter 13 to Chapter 7. Rule 1017(f)(2) contemplates judicial scrutiny over conversions from Chapter 7 to Chapter 13, while, in contrast, Rule 1017(f)(3) provides that a “chapter 13 case shall be converted without court order when the debtor files a notice of conversion under . . . [§] 1307(a).”
NCBRC’s Tara Twomey assisted in the writing of the debtors’ brief.
Section 1325(b) Requirements Not Applicable to Plan Modification
The Ninth Circuit BAP found that the requirement of Section 1325(b) that all of the debtor’s projected disposable income be paid into the plan during the applicable commitment period is not incorporated into Section 1329 for plan modification. In re Mattson, No. 11-1478 (B.A.P. 9th Cir. April 5, 2012). [Read more…] about Section 1325(b) Requirements Not Applicable to Plan Modification
Beaulieu v. Ragos, No. 11-31046 (5th Cir.)
Type: Amicus
Date: March 27, 2012
Description: Whether social security income may be considered in good faith analysis or for purposes of confirming plan over objection of trustee.
Result: Judgment affirmed. Debtor won.
New Jersey Supreme Court Finds Post-Foreclosure-Judgment Agreement Subject to CFA
In Gonzalez v. Wilshire Credit Corp., (A-99-09) (065564) (N.J. Sup.Ct., August 29, 2011), the New Jersey Supreme Court found that the state Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -195, applies to a post-foreclosure-judgment agreement.In that case, the debtor, an uneducated, disabled woman, who neither spoke nor read English, entered into two new agreements with the servicer of the mortgage secured by her residence. The second agreement specified arrearages greater than the amount found by the trial court, and “packed” the loan with force placed insurance. The court rejected the lender’s characterization of the agreement as a settlement of the foreclosure action and instead determined that the post-judgment agreement was an extension of credit in and of itself and, therefore, constituted a new loan which was subject to the CFA’s prohibition against unconscionable practices. The court noted that the realities of the mortgage industry, in which the original mortgagee rarely continues to hold and service the loan, did not insulate the servicer from the consequences of its fraudulent lending practices. In reaching its conclusion the court cited the article co-authored by NCBRC’s Tara Twomey relating to the role of a servicing agent in the mortgage industry. Adam J. Levitin & Tara Twomey, Mortgage Servicing, 28 Yale J. on Reg. 1, 15, 23, 25-28 (2011).
Opinion