National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

_9th Circuit

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Ninth Circuit Confirms Right to Cramdown Short-Term Mortgages in Major Win for Chapter 13 Debtors

In a resounding victory for Chapter 13 consumer debtors, the U.S. Court of Appeals for the Ninth Circuit affirmed that a debtor may bifurcate and “cram down” a junior mortgage claim—even when the loan is secured solely by the debtor’s principal residence—so long as the loan matures during the plan term. The opinion in Mission Hen, LLC v. Lee reinforces the flexibility and protective power of Chapter 13 and clarifies an important exception to the Bankruptcy Code’s anti-modification provision.

This favorable ruling follows a strong showing of advocacy by the National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA), who filed an amicus brief supporting the debtors, Jason Lee and Janice Chen.

The Legal Dispute: Can Short-Term Mortgages on Principal Residences Be Crammed Down?

The debtors proposed a Chapter 13 plan that bifurcated a junior mortgage held by Mission Hen, treating the unsecured portion separately. Mission Hen objected, arguing the plan violated the anti-modification rule under § 1322(b)(2), which bars modification of claims secured only by a debtor’s principal residence. The creditor also claimed the debtors were ineligible for Chapter 13 and that the plan was not feasible.

All three objections were rejected.

The Ninth Circuit confirmed that § 1322(c)(2)—a little-lit but critical carveout—permits modification of claims when the final payment on a mortgage is due before the Chapter 13 plan ends. Citing the statute’s plain language and a growing consensus among other circuits, the court concluded this provision allows not just for payment schedule tweaks, but for bifurcation of the claim itself. As the court noted, this reading is especially appropriate where the mortgage matures during the plan, placing it squarely within § 1322(c)(2)’s intended scope.

Amicus Advocacy: Clearing the Fog Around § 1322(c)(2)

NCBRC and NACBA’s joint amicus brief was instrumental in reframing the law. The brief:

  • Emphasized that Congress created § 1322(c)(2) to provide flexibility for short-term, high-cost mortgages that often burden working-class families.
  • Underscored the absurdity of allowing only payment-term modification but not bifurcation—especially when the latter is necessary to make a plan feasible.
  • Showed how other circuits, including the Fourth and Eleventh, have correctly interpreted § 1322(c)(2) to permit cramdowns.

Their advocacy helped the Ninth Circuit align with this broader, more debtor-friendly reading—ensuring Chapter 13 remains a viable path for families trying to keep their homes.

Why It Matters for Debtors and Practitioners

This decision carries wide-ranging implications:

  • Validates the use of cramdowns for maturing home loans—a critical tool for affordable plan structuring.
  • Strengthens judicial recognition of § 1322(c)(2) as a real exception, not a paper tiger.
  • Reaffirms the importance of court-determined valuations in assessing eligibility and plan feasibility.
  • Bolsters debtor protections in circuits that had yet to weigh in on this statutory provision.

The Big Picture

The Lee decision is another powerful reminder of how strategic litigation and amicus advocacy protect consumer rights. NCBRC and NACBA continue to ensure that bankruptcy courts do not become blind enforcers of creditor preferences, but remain venues for meaningful financial rehabilitation.

As the housing and debt landscapes evolve, rulings like this one are crucial for preserving Chapter 13’s mission: giving debtors a fair shot at stability and a future.

9th Circuit Court of Appeals Opinion – Mission Hen v Lee

Amici Brief – Mission Hen v Lee

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Ninth Circuit Holds that SSA Cannot Automatically Recoup Overpaid Benefits from a Bankrupt Beneficiary

The Ninth Circuit has issued a significant ruling in In re Cooper, reversing the Bankruptcy Appellate Panel’s (BAP) decision that allowed the Social Security Administration (SSA) to recoup overpaid Social Security Disability Insurance (SSDI) benefits from a debtor who had received a bankruptcy discharge. The court’s decision strengthens the protections afforded to debtors under the Bankruptcy Code by ensuring that the SSA cannot automatically sidestep the discharge injunction through the doctrine of equitable recoupment.

Background

Darrin Lenald Cooper, an SSDI beneficiary, filed for Chapter 7 bankruptcy and received a discharge of his debts in 2020. Before his bankruptcy filing, SSA had mistakenly overpaid Cooper’s benefits due to an administrative error. However, neither Cooper nor SSA realized this mistake at the time of the bankruptcy proceedings. Two years after his discharge, SSA attempted to recover the overpayment by reducing Cooper’s monthly SSDI benefits.

Cooper moved to hold SSA in contempt for violating the discharge injunction, but the bankruptcy court ruled in favor of SSA, allowing the agency to recoup the overpayment. The BAP affirmed the bankruptcy court’s decision, reasoning that Cooper’s entitlement to SSDI benefits and the overpayment were logically related under the equitable recoupment doctrine. Cooper then appealed to the Ninth Circuit.

The Ninth Circuit’s Ruling

The Ninth Circuit reversed the BAP’s decision, rejecting SSA’s argument that it had an automatic right to recoupment. The court clarified that the logical relationship test, which determines whether obligations arise from the same transaction or occurrence, must include an equitable analysis in the bankruptcy context.

Key points from the ruling include:

  • Recoupment is not automatic: The court emphasized that the doctrine of equitable recoupment does not grant creditors an unfettered right to recover discharged debts. Courts must consider the fundamental purpose of the Bankruptcy Code, which is to provide a fresh start for honest but unfortunate debtors.
  • SSA’s own error: The overpayment resulted from SSA’s mistake, and Cooper had engaged in no malfeasance. The court held that allowing SSA to recoup under these circumstances would be inequitable and inconsistent with the protections of bankruptcy law.
  • Protecting Social Security benefits: The ruling aligns with the purpose of both the Social Security Act and the Bankruptcy Code in shielding SSDI benefits from creditors post-bankruptcy. The court reinforced that SSA, like any other creditor, is subject to the discharge injunction.

Implications for Debtors and Consumer Bankruptcy Practitioners

This decision is a crucial victory for consumer bankruptcy debtors, ensuring that SSA cannot unilaterally decide to recoup pre-bankruptcy overpayments from post-bankruptcy benefits. The ruling will likely influence how SSA handles overpayment cases in bankruptcy and may lead to a reevaluation of its internal policies.

For bankruptcy practitioners, this case underscores the importance of challenging improper recoupment claims and advocating for debtors’ rights under the Bankruptcy Code. It also reinforces the need to scrutinize government agencies’ claims in bankruptcy proceedings to ensure they do not overreach.

NACBA and NCBRC’s Role

The National Association of Consumer Bankruptcy Attorneys (NACBA) and the National Consumer Bankruptcy Rights Center (NCBRC) played a vital role in this case. Both organizations submitted an amici brief, authored by NCBRC Board member Tom Mayer of Kramer Levin Naftalis & Frankel LLP, arguing against SSA’s overreach. Mayer also participated in oral argument before the Ninth Circuit, helping to secure this important win for consumer debtors.

This ruling sets an essential precedent for protecting the rights of bankruptcy debtors against improper government recoupment efforts and ensuring that the fresh start promised by the Bankruptcy Code remains intact.

In re Cooper 9th Circuit Opinion

In re Cooper – Amici Brief

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Can Debtors Prioritize Retirement Over Creditors? Trustee Seeks Supreme Court Review in In re Saldana

In a move that could have sweeping implications for Chapter 13 bankruptcy cases nationwide, Martha G. Bronitsky, the Chapter 13 Trustee, has filed a petition for certiorari with the Supreme Court in In re Saldana. The case centers on whether voluntary contributions to retirement accounts should be excluded from a debtor’s disposable income calculation. The Ninth Circuit’s decision in In re Saldana sided with the debtor, holding that voluntary retirement contributions are shielded from creditors, a ruling that some argue disrupts the balance between debtor protections and creditor rights under the Bankruptcy Code. Now, the Supreme Court is being asked to step in, potentially impacting thousands of Chapter 13 cases filed each year.

The National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) have been strong advocates for preserving the rights of consumer debtors and ensuring the integrity of the bankruptcy system. We remain committed to supporting Jorden Marie Saldana as this case progresses, including filing amicus briefs to amplify the voices of debtors nationwide. At stake is not only Saldana’s ability to prioritize her financial future but also the broader rights of Chapter 13 debtors to save for retirement while navigating bankruptcy. Stay tuned as this pivotal case unfolds, with the potential to shape bankruptcy law for years to come.

Petition for Certiorari

9th Circuit Opinion – In re Saldana

NCBRC/NACBA Amici Brief – In re Saldana

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NCBRC and NACBA Stand Firm on Bankruptcy Rights in Duarte v. Hillard

What happens when a creditor misses their deadline but tries to bend the rules to get paid anyway? That’s the central issue in Duarte v. Hillard, a case before the Ninth Circuit Court of Appeals, where the National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) have stepped in to defend the integrity of the bankruptcy system.

In this appeal, creditor Jerry Duarte argues that even though he failed to file a timely proof of claim in Jenna Denise Hillard’s Chapter 13 bankruptcy case, he should still be entitled to receive payment. His legal argument? That the debtor’s amended bankruptcy schedules and plan should count as an “informal” proof of claim—something the law does not support.

NCBRC and NACBA have filed an amicus brief urging the court to uphold long-standing bankruptcy rules that require creditors to take affirmative steps to preserve their claims. If Duarte’s argument were accepted, it would create uncertainty in the Chapter 13 claims process, undermining the predictability that debtors and creditors rely upon.

The Legal Issues at Stake

At the heart of Duarte v. Hillard is whether a debtor’s amended schedules or Chapter 13 plan can serve as an informal proof of claim for a creditor who failed to meet the deadline. The case challenges:

✅ The clear legal requirement that creditors must file a timely proof of claim under Federal Rule of Bankruptcy Procedure 3002 to receive distributions.
✅ The Ninth Circuit’s prior ruling in Barker v. Spokane Law Enforcement Credit Union, firmly rejected the idea that a debtor’s schedules alone could serve as a Proof of Claim.
✅ The role of Rule 3004, which allows a debtor to file a claim on a creditor’s behalf but does not permit an “informal” filing—contrary to Duarte’s argument.

Allowing a debtor’s schedules or plan to substitute for a creditor’s proof of claim would set a dangerous precedent, potentially forcing debtors to make payments on debts that might otherwise be disallowed or discharged.

Why This Case Matters

The outcome of Duarte v. Hillard could reshape how claims are handled in Chapter 13 cases nationwide. If Duarte prevails, it could weaken bankruptcy protections by shifting responsibility from creditors—who must file claims—to debtors, who may inadvertently give creditors a second chance at getting paid by simply amending their schedules.

By joining this case, NCBRC and NACBA reaffirm their commitment to protecting consumer bankruptcy rights and ensuring the fair and just application of bankruptcy laws.

We will continue to monitor this case closely and provide updates as the Ninth Circuit deliberates. Stay tuned for further developments in this critical battle for bankruptcy fairness.

You can read the amici brief here: Amici Brief in Duarte v Hillard

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Ninth Circuit Clarifies Disposable Income Exclusions for Chapter 13 Debtors Concerning Voluntary Contributions to Retirement Plans

Facts

Jorden Marie Saldana, a surgical technician earning approximately $101,776 annually, filed for Chapter 13 bankruptcy to reorganize her finances and address over $64,000 in unpaid taxes and unsecured debts. In calculating her disposable income, Saldana excluded $747 per month in voluntary contributions to her employer-managed retirement plan.

The Chapter 13 trustee objected, arguing that voluntary retirement contributions constitute disposable income under the Bankruptcy Code and must be applied to repay creditors. The bankruptcy court agreed, sustaining the trustee’s objection and requiring Saldana to adjust her Chapter 13 plan. Saldana appealed to the district court, which affirmed the bankruptcy court’s decision. Saldana then appealed to the Ninth Circuit.

Analysis

The Ninth Circuit reversed the lower courts, holding that voluntary contributions to employer-managed retirement plans are excluded from disposable income under Chapter 13. The court relied on the “hanging paragraph” in 11 U.S.C. § 541(b)(7), which explicitly states that such contributions “shall not constitute disposable income as defined in section 1325(b)(2).”

The Ninth Circuit emphasized that the statutory language is unambiguous, allowing Chapter 13 debtors to exclude any amount of voluntary contributions to qualified retirement plans from their disposable income calculations. This interpretation aligns with Congress’s intent in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, which sought to protect retirement savings while encouraging Chapter 13 reorganizations.

The court rejected alternative interpretations that would limit the exclusion to pre-petition contributions or cap it based on historical contribution levels. It also dismissed concerns about debtor abuse, noting that Chapter 13’s good faith requirements and other safeguards adequately address potential misuse of the exclusion.

Conclusion

The Ninth Circuit’s decision in In re Saldana reinforces the broad protections for retirement contributions in Chapter 13 bankruptcy cases. By excluding voluntary contributions from disposable income, the ruling encourages debtors to maintain long-term financial stability while reorganizing their debts.

NCBRC and NACBA filed an amici brief in support of the debtor

In re Saldana – 9th Circuit

Amici Curiae Brief of NCBRC-NACBA

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The 9th Circuit Confirms that Chapter 13 Debtors Have an Absolute Right to Dismiss

In TICO Constr. Co. v. Van Meter (In re Powell), Case No. 22-60052 (9th Cir. October 1, 2024) the court considered whether a debtor has an absolute right to dismiss a Chapter 13 bankruptcy case under 11 U.S.C. § 1307(b), even if the debtor is potentially ineligible for Chapter 13 relief at the time of filing due to bad faith.

 Holding: 

The court held that a debtor has an absolute right to voluntarily dismiss their Chapter 13 bankruptcy case under 11 U.S.C. § 1307(b), regardless of bad faith allegations or ineligibility for Chapter 13 relief at the time of filing.

 Facts:

Powell, the debtor, filed for Chapter 13 bankruptcy.  TICO Construction Company, a creditor, challenged Powell’s eligibility for Chapter 13 relief, asserting that he should proceed under a different chapter of the Bankruptcy Code. Powell sought to dismiss his case under § 1307(b) voluntarily, and the bankruptcy court granted his request. The key issue was whether Powell could dismiss his Chapter 13 case despite his alleged ineligibility.

The case was decided based on a disputed interpretation of the law, particularly whether Powell’s eligibility for Chapter 13 impacted his right to voluntary dismissal under § 1307(b).

 Analysis:

The court focused on the plain language of 11 U.S.C. § 1307(b), which gives a debtor the right to dismiss their Chapter 13 case as long as they meet four requirements: they request dismissal, they are a debtor, the case is under Chapter 13, and the case has not been converted to another chapter under Title 11. The court held that Powell met these requirements, and thus had an absolute right to dismiss his case, regardless of his eligibility for Chapter 13 relief or whether he had filed the petition in bad faith.

The court relied on the precedent set in Nichols v. Marana Stockyard & Livestock Market, Inc. (In re Nichols), which similarly recognized the debtor’s right to dismissal under § 1307(b). The majority emphasized that a debtor’s certification of eligibility when filing under Chapter 13 is presumptively valid and that any challenge to eligibility does not negate the debtor’s right to voluntary dismissal.

In contrast, Judge Collins dissented, arguing that eligibility for Chapter 13 relief is a precondition for the rights and procedures afforded, including the right to voluntary dismissal. According to Collins, Powell’s ineligibility for Chapter 13 should have led the court to deny his request for dismissal and instead convert the case to a different chapter. However, the majority rejected this view, prioritizing the plain language of § 1307(b) over any concerns about eligibility or bad faith at the time of filing.

NCBRC submitted an amicus brief in support of the debtor/appellee.

In re Powell – 9th Circuit Opinion 10-1-24

NCBRCs Amicus Brief In Support of Appellee

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The 9th Circuit Holds A Homestead Exemption Is Limited to Statutory Cap in a Chapter 11 to 7 Conversion

The Ninth Circuit held that the failure to object to a claimed homestead exemption within the 30-day period does not allow the debtor to exempt more than the statutory limit when the case originated as a Chapter 11 bankruptcy and included conflicting representations regarding the exemptions.

Facts

Monte and Rosana Masingale filed for Chapter 11 bankruptcy in 2015, claiming a homestead exemption of “100% of FMV” (fair market value) for their residence. No party in interest objected within the 30-day window. The case was later converted to Chapter 7, and the Masingales sought to sell the home and retain all proceeds, despite the statutory cap on the homestead exemption.

Analysis

The court’s legal analysis focused on whether the initial lack of objection to the homestead exemption claim allowed the Masingales to exempt more than the statutory limit. The court distinguished this case from Taylor v. Freeland & Kronz and Schwab v. Reilly, which involved different circumstances and did not originate in Chapter 11.

The court noted that the Masingales, as Chapter 11 debtors-in-possession, owed fiduciary duties to their creditors. During the Chapter 11 proceedings, they made representations in their Disclosure Statement and Chapter 11 Plan that they were not claiming above-limit exemptions or that such exemptions would only be allowed after creditors were fully paid. These representations indicated that the homestead exemption would be limited to the statutory cap, contrary to their Schedule C notation of “100% of FMV.”

The court reasoned that these conflicting representations within the 30-day objection period affected whether the “100% of FMV” notation created a clear and objectionable exemption. The court emphasized that the fiduciary duties and specific statements made in Chapter 11 documents provided context that negated the need for an early objection based solely on the Schedule C notation. Therefore, the initial failure to object did not permit the Masingales to claim an exemption above the statutory limit.

Tips

  1. Clarify Exemption Claims: Ensure that exemption claims are clear and consistent across all bankruptcy documents to avoid disputes and objections.
  2. Understand Fiduciary Duties: Recognize that debtors-in-possession in Chapter 11 have fiduciary duties to creditors, and their representations can impact exemption claims.
  3. Timely Objections: While objections to facially invalid exemptions should be timely, consider the entire context and any additional representations made by the debtor within the objection period.

NCBRC filed an amicus brief in support of the Debtors and provided a moot court to Debtors’ counsel to prepare for oral arguments.

Masingale 9th Circuit Opinion

NACBA-NCBRC Amicus Brief in Support of Appellee

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The 9th Circuit Reviews Whether Res Judicata Applies to Exemptions

The 9th Circuit Court in Nance v Warfield is considering whether to overrule the District Court of Nevada which held that the bankruptcy court erred in overruling the trustee’s res judicata-based objection to the debtor’s federal exemptions in the property and RV. The court also concluded that the bankruptcy court exceeded its authority by sua sponte granting an exemption for the RV under the federal wildcard exemption.

Facts

Lawrence Warfield, the trustee of Johnie Lee Nance’s bankruptcy estate, objected to Nance’s claimed exemptions for his property and RV under Arizona law. After the court sustained the trustee’s objections, Nance amended his schedule to claim exemptions under Washington law, and the trustee again objected. When those objections were sustained, Nance amended his schedule to claim federal exemptions. The bankruptcy court overruled the trustee’s objections to these federal exemptions and sua sponte granted an exemption for the RV under the federal wildcard exemption.

Analysis

The district court analyzed the applicability of res judicata to the debtor’s successive exemption claims. It noted that claim preclusion, a form of res judicata, bars litigation of claims that were or could have been raised in a prior action. The court applied the three-part test for claim preclusion: identity of claims, final judgment on the merits, and identity or privity between parties. The court found that the debtor’s claims for exemptions in the property and RV, regardless of the legal framework (Arizona, Washington, or federal law), arose from the same nucleus of operative facts and involved the same property. Therefore, the claims were identical.

The court also determined that the previous rulings sustaining the trustee’s objections constituted final judgments on the merits, satisfying the second criterion. Finally, the parties involved in the objections were identical, fulfilling the third requirement for claim preclusion. Consequently, the court concluded that the bankruptcy court erred in overruling the trustee’s objections based on res judicata.

Additionally, the court addressed the bankruptcy court’s sua sponte action to grant an exemption for the RV under the federal wildcard exemption. The court emphasized the principle of party presentation, which requires courts to decide only the questions presented by the parties. The court found that the bankruptcy court exceeded its authority by granting an exemption that the debtor had not claimed, noting that the debtor, represented by counsel, could have asserted the exemption but did not. Therefore, the court held that the bankruptcy court’s action was improper and reversed its decision.

NCBRC and NACBA filed an amicus brief in support of the Debtor/Appellant.

Warfield v Nance Amici Brief NACBA-NCBRC

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The Ninth Circuit Considers Whether the Social Security Administration Can Recoup Overpayments Without Violating the Discharge Injunction

In In re Cooper, Case No. 24-1084 (9th Cir. 2024) the Ninth Circuit is determining whether the Ninth Circuit B.A.P. erred when it held that the Social Security Administration (SSA) could recoup an overpayment of Social Security Disability Insurance (SSDI) benefits from Darrin Cooper’s ongoing SSDI payments, without violating the discharge injunction in bankruptcy.

Darrin Cooper was overpaid SSDI benefits due to an administrative error, receiving $73,112.90 more than he was entitled to because the SSA did not account for his concurrent workers’ compensation benefits. After filing for Chapter 7 bankruptcy and receiving a discharge, Cooper discovered the overpayment and the SSA began deducting the overpaid amount from his ongoing SSDI payments.

The B.A.P.’s legal analysis focused on the equitable doctrine of recoupment, which allows a creditor to offset a debtor’s claim with a counterclaim arising from the same transaction. The court applied the “logical relationship test” to determine whether the overpayment and ongoing SSDI payments arose from the same transaction. The court found that both the overpayment and the ongoing payments stemmed from Cooper’s entitlement to SSDI benefits, establishing a strong logical relationship. Therefore, the SSA’s actions did not violate the discharge injunction. The court distinguished this case from others where recoupment was denied, such as in In re Madigan, by emphasizing that Cooper’s SSDI payments did not involve separate disability periods or different reimbursement agreements. Instead, Cooper’s ongoing SSDI entitlement and the overpayment were part of a continuous disability claim, thereby satisfying the same transaction requirement. The court also noted that Cooper did not seek available remedies under the Social Security Act, such as requesting a waiver or appealing the overpayment decision, which could have addressed his financial concerns.

Both NCBRC and NACBA submitted an amicus brief in support of the Debtor.

In re Cooper – Appellants Brief

In re Cooper – NCBRC-NACBA Amicus Brief

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9th Circuit to Address Whether a Debtor May Deduct Voluntary Retirement Deductions to Determine Disposable Income

The Ninth Circuit Court of Appeals has agreed to hear an appeal whether the bankruptcy court erred in ruling that a Chapter 13 debtor, in calculating projected disposable income, is not permitted to deduct the amount of voluntary retirement plan contributions even where the debtor was making the contributions prepetition. The debtor’s appeal from adverse decisions below.

APPELLANTS OPENING BRIEF

BRIEF OF AMICI CURIAE NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS AND NATIONAL CONSUMER BANKRUPTCY RIGHTS CENTER