NCBRC News

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First-Time-Homeowner Tax Credit Debt Is Tax rather than Loan

The debt created by the IRS’s first-time-homeowner’s tax credit, which requires a debtor to repay the credit over fifteen years, was a nondischargeable “tax” rather than a dischargeable “loan.” In re Shin, No. 17-13509 (Bankr. E.D. Va. Feb. 16, 2021).

The debtor bought a house with his mother and sister, taking the $7,500.00 first-time homeowner federal tax credit offered by the IRS. The Internal Revenue Code, sections 36(f)(1) and (7), provides that homeowners receiving the tax credit must repay that credit over fifteen years by increasing their yearly taxes. The tax recapture is automatically accelerated upon sale of the property within the fifteen-year payback period. For several years, the debtor paid the recapture tax to the IRS, but when he and his co-owners sold the house, there remained $5,000.00 in unpaid recapture tax. The debtor filed for chapter 7 bankruptcy and received a discharge. After the case was closed the debtor moved to reopen to allow him to seek a ruling that the recapture tax was discharged. The IRS opposed the motion. [Read more…] about First-Time-Homeowner Tax Credit Debt Is Tax rather than Loan

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Debtor May Avoid County Tax Foreclosure Sale

A county’s tax sale of the debtor’s farm was avoidable as constructively fraudulent under section 548, where the debtor was insolvent at the time of the title transfer and the tax debt was substantially less than the fair market value of the property. DuVall v. County of Ontario, No.19-20179, Adv. Proc. No. 19-2011 (Bankr. W.D. N.Y. Feb. 18, 2021). [Read more…] about Debtor May Avoid County Tax Foreclosure Sale

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Debtor Loses the Battle but Wins the War

A confirmed plan binds the county tax creditor even though the plan did not provide for the interest claimed in its post-confirmation proof of claim where the county had notice of the plan and failed to object to confirmation. In re Bird, 624 B.R. 841 (Bankr. N.D. Ill., Feb. 2, 2021) (case no. 1:17-bk-2072). [Read more…] about Debtor Loses the Battle but Wins the War

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TitleMax Can’t Have Its Cake and Eat it Too

TitleMax waived its right to forfeiture under a title pawn transaction when it failed to object to treatment of the loan as a secured debt prior to confirmation of the debtor’s plan. TitleMax of Alabama v. Deakle, No. 20-335 (S.D. Ala. March 31, 2021).

Prior to filing for bankruptcy, the debtor entered into a title pawn transaction with TitleMax. The pawn matured and the grace period for redemption expired before the debtor filed her chapter 13 petition. Her proposed plan provided for payments to TitleMax as a secured creditor. TitleMax raised no objection to the treatment of the loan until three months after the debtor’s plan was confirmed. At that time, TitleMax filed a motion to “confirm termination or absence of stay.” The bankruptcy court found that, by failing to object to confirmation, TitleMax had waived the forfeiture provision of Alabama’s Pawnshop Act and was bound by the terms of the confirmed plan under section 1327(a). [Read more…] about TitleMax Can’t Have Its Cake and Eat it Too

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Automatic Homestead Exemption Applies to Trust Interest

A debtor may claim the California automatic homestead exemption with respect to property where he resides even though the property was owned by a trust created by his father and he and his brother were equal beneficiaries of the trust. In re Nolan, 2021 WL 528679, No. 20-1496 (C.D. Cal. 2021). The Ninth Circuit affirmed in Anderson v. Nolan (In re Nolan), No. 21-55204 (9th Cir. Feb. 3, 2022) (unpublished). [Read more…] about Automatic Homestead Exemption Applies to Trust Interest

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Fraudulent Transfer Claim Precluded by Discharge Injunction

Because an action for fraudulent transfer is not merely a collection action, the creditors were precluded by the discharge injunction from pursuing their state court appeal of that action even though the predicate debt was found to be nondischargeable in the debtor’s bankruptcy. SuVicMon Dev. Inc. v. Morrison, No. 20-11681 (11th Cir. March 25, 2021). [Read more…] about Fraudulent Transfer Claim Precluded by Discharge Injunction

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Scotus: Three Denials and a Pending

The Supreme Court recently denied cert petitions in three bankruptcy-related cases: Hull v. Rockwell, No. 20-499 (pet’n denied Feb. 22, 2021); GE Capital Retail Bank v. Belton, 20-481 (pet’n denied March 8, 2021); and Marino v. Ocwen Loan Servicing, No. 20-409 (pet’n denied March 22, 2021). [Read more…] about Scotus: Three Denials and a Pending

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Smattering of Automatic Stay Violations by HOA

Citing six separate stay violations by the homeowner’s association, the district court awarded the debtor damages for emotional distress and property interference. It also upheld the bankruptcy court’s award of punitive damages and attorney’s fees. The court remanded, however, for a determination of whether the damages for property interference should have extended beyond the end of the automatic stay. In re Parker, No. 19-2588 (N.D. Cal. March 22, 2021). [Read more…] about Smattering of Automatic Stay Violations by HOA

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Reasonable Application of Brunner Test Supports Undue Hardship Discharge

Where the fifty-seven-year-old debtor’s current income and anticipated future income would both be insufficient to pay even the interest on his student loans, his expenses were not excessive, and he acted in good faith, he was entitled to partial discharge under section 523(a)(8), and the bankruptcy court had leeway to determine which of his several loans to discharge. ECMC v. Goodvin, No. 20-1247 (D. Kan. March 17, 2021). [Read more…] about Reasonable Application of Brunner Test Supports Undue Hardship Discharge

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Ex-Wife’s Interest In Marital Residence Does Not Enter Debtor’s Estate

The debtor’s ex-wife’s interest in the marital residence did not enter the bankruptcy estate even though the property was titled to the debtor, where their dissolution agreement gave her half interest and the debtor was prohibited from unilaterally disposing of the property. But the debtor’s ex-wife did not show that his failure to comply with the dissolution agreement generally, was an indication that he undertook the debts created by the agreement by fraud where the evidence did not support her contention that he never intended to comply. Williams v. Williams, No. 18-1197 (Bankr. D. Colo. Jan. 8, 2021). [Read more…] about Ex-Wife’s Interest In Marital Residence Does Not Enter Debtor’s Estate