NCBRC News

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The Case of the Vanishing Homestead Exemption

When the debtor failed to reinvest the proceeds from the sale of his exempt homestead within the period required by state homestead exemption law, the exemption vanished. McCallister v. Wells (In re Wells), No. 20-86 (D. Idaho Oct. 14, 2020).

The debtor filed for Chapter 13 bankruptcy and listed the equity in his home as exempt under Idaho law. During his bankruptcy, he sold the home to use the proceeds to pay off one of his creditors. He did not reinvest in a new home as required by the Idaho exemption law. The trustee sought to capture the proceeds of the sale for the bankruptcy estate on the basis that the debtor’s homestead exemption vanished when the debtor sold the home without reinvesting within one year. The bankruptcy court overruled the trustee’s objection to the exemption. The trustee appealed to the District Court. [Read more…] about The Case of the Vanishing Homestead Exemption

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Complete Snapshot Rule Applies to Debtor’s Homestead Exemption

The First Circuit found that a debtor with a legitimate homestead exemption at the time of filing chapter 13 bankruptcy retains that exemption despite post-petition sale of the property, conversion to chapter 7, and failure to reinvest in a new homestead within six months as required by state homestead exemption law. Rockwell v. Hull (In re Rockwell), No. 19-2074 (1st Cir. July 30, 2020), petition for cert. filed (U.S. Oct. 13, 2020) (No. 20-499). [Read more…] about Complete Snapshot Rule Applies to Debtor’s Homestead Exemption

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Debt Paid by Mother Pre-Bankruptcy Not Preferential Transfer

When the debtor’s mother made a direct payment to one of the debtor’s creditors from an account over which the debtor had no interest or control, the transfer was not an avoidable preferential transfer under section 547(b). Walters v. Stevens, Littman, Biddison, Tharp, and Weinberg, LLC. (In re Wagenknecht), No. 19-1206 (10th Cir. Aug. 24, 2020). [Read more…] about Debt Paid by Mother Pre-Bankruptcy Not Preferential Transfer

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Sanctions Against Student Loan Servicer

A student loan servicing company’s failure, over the course of five years, to respond to an adversary complaint and multiple court orders justified a finding of contempt and sanctions against the servicer, requiring it to pay off the debtor’s student loans to the DOE for $354,629.62 and pay damages to the debtor for $24,000. Leary v. Great Lakes Educational Loan Services, No. 15-11583, Adv. Proc. No. 15-1295 (Bankr. S.D.N.Y. Sept. 8, 2020).

[Read more…] about Sanctions Against Student Loan Servicer

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Lifting the Stay only for Debtor in Serial Filings

Where a debtor makes serial filings for bankruptcy, the automatic stay is lifted after 30 days only with respect to the debtor and not with respect to property of the estate. Rose v. Select Portfolio Servicing, Inc., No. 19-50598 (5th Cir. Dec. 10, 2019).

Five years after the debtor and her then husband bought their residence, they divorced, and the debtor’s husband retained the house on the condition that, if he defaulted on the mortgage, he would transfer ownership to the debtor. He defaulted. Although the house did not actually transfer to the debtor until five years after the last payment on the mortgage, the debtor became actively involved in a battle with the mortgage creditor. On four occasions, the creditor set a foreclosure date, and the debtor filed for bankruptcy to forestall the sale of the property. The bankruptcy cases were pending for a total of 269 days. [Read more…] about Lifting the Stay only for Debtor in Serial Filings

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Trustee Absolutely Immune from Personal Liability

A trustee who collects fees from the debtors’ exempt property has absolute immunity from personal liability when the fees were incurred in accordance with a bankruptcy court order authorizing the sale of the debtors’ homestead. Holley v. Corcoran (In re Holley), No. 20-11096 (E.D. Mich. Oct. 7, 2020). [Read more…] about Trustee Absolutely Immune from Personal Liability

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Change in Circumstances Not Required for Plan Modification

A change in circumstances is not a precondition to modification of a confirmed Chapter 13 plan under section 1329(a). Whaley v. Guillen (In re Guillen), No. 17-13899 (11th Cir. Aug. 25, 2020).

When the debtor filed for Chapter 13 bankruptcy, she listed two creditors with security interests in her home. Her proposed plan included payments toward her bankruptcy attorney’s fee of $4,900, as well as a challenge to Wells Fargo’s junior lien. She then initiated an adversary proceeding seeking to avoid that lien. The debtor and Wells Fargo eventually settled the adversary complaint, with Wells Fargo agreeing to be treated as an unsecured creditor. Finding that it met the statutory requirements, including Section 1325’s “best interest of creditors” test, the bankruptcy court confirmed her plan. [Read more…] about Change in Circumstances Not Required for Plan Modification

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Post-Petition Appreciation Not Part of Chapter 7 Estate upon Conversion

A Bankruptcy Appellate Panel for the Tenth Circuit found that the appreciation in value of the debtors’ homestead while in Chapter 13 belongs to the debtors upon conversion to Chapter 7. Rodriguez v. Barrera (In re Barrera), No. 20-3 (B.A.P. 10th Cir. Oct. 10, 2020) (unpublished).

When the debtors filed for bankruptcy, their homestead was valued at $396,606, encumbered by two liens totaling $336,209. They claimed their $75,000 homestead exemption, leaving no equity for the bankruptcy estate. During the course of their Chapter 13 bankruptcy, they sold the homestead for $520,000. They then converted to Chapter 7. The trustee sought turnover of the sale proceeds in excess of the debtors’ exemption. The bankruptcy court denied the trustee’s motion, holding that the value of the property consisted of the value it had on the original petition date. [Read more…] about Post-Petition Appreciation Not Part of Chapter 7 Estate upon Conversion

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IRA Funds Garnished Pre-Petition Not Part of Bankruptcy Estate

Where the judicial lien against the debtor was fully satisfied before the debtor filed his bankruptcy petition, the transfer of funds from his IRA used to satisfy the lien was not an avoidable transfer under Section 547 or Section 522(f) or (h). Elliott v. Pacific Western Bank, No. 18-17421 (9th Cir. Aug. 12, 2020).

When the debtor defaulted on a loan held by Pacific Western Bank, PWB obtained a state court judgment against him and instituted a levy against the debtor’s employee retirement plan (IRA). Under California law, the funds in the debtor’s IRA were exempt only to the extent they were necessary for the debtor’s post-retirement support. The state court issued an executory lien against the debtor’s IRA, and PWB garnished the funds to cover the amount owed. Three months later, the debtor filed Chapter 7 bankruptcy. After he received his discharge, he filed an adversary complaint seeking to recover the funds garnished from his IRA under the theory that they were exempt under state law and Section 522(f) of the Bankruptcy Code. PWB argued that the funds were not exempt in the bankruptcy proceeding because the lien had been fully executed before the filing of the bankruptcy and, therefore, they did not become part of the bankruptcy estate. The bankruptcy court agreed. The district court affirmed. [Read more…] about IRA Funds Garnished Pre-Petition Not Part of Bankruptcy Estate

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6th Circuit Clarifies Treatment of 401(k) Contributions in Chapter 13

Rejecting its own dictum in  Seafort v. Burden (In re Seafort), the Sixth Circuit held that a chapter 13 debtor’s post-petition voluntary contributions to an employer-sponsored retirement plan are not part of her disposable income so long as they are a continuation of pre-petition contributions. Davis v. Helbling (In re Davis), No. 19-3117 (6th Cir. June 1, 2020).

Well before she filed for bankruptcy, the debtor began making monthly contributions in the amount of $220.66 to her retirement account. When she filed for bankruptcy, she included those contributions in her schedule of expenses. The trustee objected to confirmation of the debtor’s proposed Chapter 13 plan on the basis that, because of the monthly contributions to her 401(k), she was not proposing to contribute all of her disposable income to the plan. Adhering to dictum in Seafort v. Burden (In re Seafort), 669 F.3d 662, 674 n.7 (6th Cir. 2012), the bankruptcy court sustained the trustee’s objection. The debtor amended her plan to incorporate the 401(k) amount, and the bankruptcy court certified the case for direct appeal to the Sixth Circuit. [Read more…] about 6th Circuit Clarifies Treatment of 401(k) Contributions in Chapter 13