National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

NCBRC News

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Fifth Circuit Approves Alternative to Judicial Estoppel Reaching Same Result

Finding its decision “odd” and “not the route we would have taken,” the Fifth Circuit affirmed the bankruptcy court’s order declining to apply judicial estoppel to put an end to the debtor’s personal injury litigation against Wal-Mart, but ordering the debtor to turn over any recovery he made through the lawsuit for distribution to creditors. Wal-Mart Stores v. Parker, No. 18-30378 (5th Cir. Jan. 8, 2020) (unpublished).

While Mr. Parker’s chapter 13 case was pending, he suffered a work-related injury during a delivery to Wal-Mart. He filed a civil lawsuit in state court against the company. He failed to notify the bankruptcy trustee or court of the lawsuit. He completed his plan, received discharge, and his case was closed. Wal-Mart moved to reopen to seek dismissal of Mr. Parker’s personal injury case on the basis of judicial estoppel. The bankruptcy court found that the elements of judicial estoppel were met, but declined to apply the doctrine. Instead, the court ordered Mr. Parker to turn over any proceeds from the lawsuit to the bankruptcy trustee for distribution to creditors. Wal-Mart sought and obtained leave to appeal directly to the Fifth Circuit. [Read more…] about Fifth Circuit Approves Alternative to Judicial Estoppel Reaching Same Result

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Non-Debtor Spouse’s Share of Tax Refund Not Part of Estate

The debtor’s non-debtor spouse had no obligation to contribute her share of their joint tax refund to the debtor’s chapter 13 plan even though her income was being used to fund the plan. In re Pelardis, No, 15-10949 (Bankr. S.D.N.Y. Jan. 2020) (unpublished).

The debtor’s confirmed chapter 13 plan committed the amount in excess of $1,500 from his anticipated tax refund. When he and his non-debtor spouse received their joint refund of $6.938, he contributed only his half-share to the bankruptcy estate. The trustee moved to dismiss the case, arguing that because the debtor’s non-debtor spouse had committed her entire income to the debtor’s estate, she was obligated to contribute her portion of the tax refund, and the failure to do so was a material default. [Read more…] about Non-Debtor Spouse’s Share of Tax Refund Not Part of Estate

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Illinois Workers’ Comp Settlement Proceeds Exempt

Answering a question certified to it from the Seventh Circuit Court of Appeals, the Illinois Supreme Court held that, under Illinois law, “the proceeds of a workers’ compensation settlement are still exempt from the claims of medical-care providers who treated the illness or injury associated with that settlement,” notwithstanding 2005 amendments to the Workers’ Compensation Act. In re Hernandez, 2020 IL 124661 (Sup. Ct. Ill. Jan. 24, 2020). The Seventh Circuit found “that authoritative holding of the state supreme court is dispositive. The proceeds of Hernandez’s workers’ compensation settlement are exempt from the claims of the healthcare providers who treated her workplace injuries.” In re Hernandez, No. 18-1789 (7th Cir. Feb. 11, 2020).

Elena Hernandez filed for chapter 7 bankruptcy owing over $120,000.00 in medical bills incurred for treatment of work injuries. In her bankruptcy schedules she listed a pending workers’ compensation claim. Shortly after filing her petition, and without consulting the bankruptcy trustee, Ms. Hernandez settled the workers’ compensation claim with her employer for approximately $30,000.00. Ms. Hernandez maintained that, under the state Workers’ Compensation Act (WCA), the settlement was exempt from liability to creditors. Her medical creditors objected to the exemption arguing that 2005 amendments to the Illinois exemption law had made such settlements accessible to health care providers. The creditors also argued that the settlement was the product of fraud.

The bankruptcy court sustained the objection on process grounds rather than on application of the Illinois exemption. Affirming, the district court relied on its interpretation of the 2005 amendments to the state WCA. On appeal to the Seventh Circuit, (case no. 18-1789), that court determined that both sides offered seemingly valid interpretations of the exemption statute. It certified the question to the state supreme court. [Read more…] about Illinois Workers’ Comp Settlement Proceeds Exempt

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Failure to Disclose Employment is not a Statement under 523(a)(2)(A)

Failure to report a change in employment status is not a “statement respecting financial condition” within the meaning of section 523(a)(2)(A) and, therefore, a debt based on overpayment of public assistance benefits made in reliance on the non-disclosure, is nondischargeable. State of Oregon v. Mcharo, No. 19-1010 (B.A.P. 9th Cir. Jan. 9, 2020).

When applying for public assistance benefits, Blake Mcharo and his wife signed DHS0415R averring that they would inform the DHS of any change in their eligibility status. After signing the application and receiving Temporary Assistance for Needy Families (TANF) benefits, Mr. Mcharo found employment. Neither he nor his wife informed the DHS of his employment.

In the Mcharo’s chapter 7 bankruptcy, the DHS filed a claim for the amount it had overpaid in TANF benefits after Mr. Mcharo was employed. The DHS also sought an order that the debt was non-dischargeable under 523(a)(2)(A). The bankruptcy court issued a default judgment against Ms. Mcharo but declined to do the same against Mr. Mcharo, finding that his failure to report his employment was an unwritten statement respecting financial condition falling outside the purview of either section 523(a)(2)(A) or (B). The State of Oregon appealed to the Ninth Circuit Bankruptcy Appellate Panel. [Read more…] about Failure to Disclose Employment is not a Statement under 523(a)(2)(A)

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District Court Refuses to Dismiss FCRA Class Action Lawsuit For Negligent Incorrect Credit Reporting On Discharged Student Loan Subtitle: Court finds CRA’s failure to have a procedure in place to distinguish which student loans are discharged is negligence.

Prior to filing for bankruptcy, the Debtor incurred a student loan (ultimately held by Navient)  to attend the Reformed Theological Seminary.  The seminary was not a Title IV accredited institution.

The Debtor filed bankruptcy, listed this loan and received an order of discharge.  Both Navient and Experian Information Solutions LLC. (“Experian”) received notice of the discharge order.  Experian prepared the Debtor’s credit report and described the Navient Loan as “account charged off,” with an outstanding balance and a past due balance.

On April 29, 2019, the Debtor filed a Complaint against Experian in the District Court for the Southern District of New York alleging violations of the Fair Credit Reporting Act (“FCRA”) found at 15 U.S.C. § 1681 et seq and the New York Fair Credit Reporting Act (“NY FCRA”) which has similar provisions.  The Debtor claimed that Experian negligently (Count I) and intentionally (Count II) violated 15 U.S.C. § 1681e(b) and the companion New York statutes (Counts III and IV).

15 U.S.C. § 1681e(b) states

Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.

The Complaint pled that Experian prepared Debtor’s credit report with an inaccuracy in that Debtor’s debt with Navient should have been reported as discharged in his bankruptcy.  This is because the loan was for a non-Title IV school and therefore was not subject to the exceptions to discharge found at 11 U.S.C. § 523(a)(8)(B).

Experian filed a motion to dismiss.  Experian first argued that the Complaint pled only a dispute about the legal effect of the discharge, not a factual inaccuracy.  The Court disagreed.

To read more go to NACBA News or click here.

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Denial of Motion for Relief from Stay is Final and Appealable

In a unanimous decision, the Supreme Court held that a bankruptcy court’s denial of a motion for relief from stay constitutes a final, appealable order under section 158(c)(2). Ritzen Group, Inc. v. Jackson Masonry, LLC, No. 18-938, 589 U.S. ___ (2020). NACBA filed an amicus brief in support of the Respondent.

Ritzen Group and Jackson Masonry entered into a land-sales contract. The deal fell through and Ritzen filed suit against Jackson in Tennessee state court for breach of contract. On the eve of trial, Jackson filed for chapter 11 bankruptcy. Ritzen sought relief from stay to allow the state civil trial to go forward. The court denied the motion, and Ritzen did not appeal. After a hearing in which it found Ritzen at fault for the failure of the contract, the bankruptcy court also disallowed Ritzen’s claim against the bankruptcy estate. Ritzen then appealed to the district court challenging both the denial of the motion for relief from stay and the ruling on the contract dispute. The district court found the relief from stay appeal was untimely, and ruled against Ritzen on the merits of the contract appeal. The Sixth Circuit affirmed. In re Jackson Masonry, LLC, 906 F. 3d 494 (2018). [Read more…] about Denial of Motion for Relief from Stay is Final and Appealable

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Debtor Not Required to Turnover Proceeds From Sale of Appreciated Property

A chapter 13 debtor may not be compelled to turn over proceeds from the sale of appreciated real estate which had revested in him post-confirmation and was therefore no longer part of the bankruptcy estate. Black v. Leavitt (In re Black), No. 18-1351 (B.A.P. 9th Cir. Dec. 31, 2019).

The debtor filed chapter 7 bankruptcy listing real property valued at $52,300 for which he sought to take his homestead exemption. The trustee objected on the grounds that the property was used as rental property rather than the debtor’s residence. The debtor received his chapter 7 discharge and moved to convert the case to chapter 13. The bankruptcy court sustained the trustee’s objection to the exemption and granted his motion for turnover. It then granted the debtor’s motion to convert. [Read more…] about Debtor Not Required to Turnover Proceeds From Sale of Appreciated Property

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Fire-Damaged Home Valued as of Pre-Restoration Petition Date

The chapter 7 debtor was entitled to avoid a judicial lien that impaired her homestead exemption where the home, which had been damaged by fire pre-petition, was valued as of the petition date rather than after post-petition restoration had enhanced the residence’s value. Waltrip v. Sawyers (In re Sawyers), No. 19-6016 (B.A.P. 8th Cir. Dec. 19, 2019).

Prior to filing for bankruptcy, Ruby Sawyers’s home was damaged by fire and she received insurance proceeds in the amount of over $132,000 for its restoration. At the time of her petition, she had not yet restored the home and it was valued at $3,000 – $6,000. She claimed a homestead exemption on 100% of the fair market value of the residence to the maximum exemption of $15,000. After the fire and prior to  the bankruptcy petition, David Waltrip and the debtor entered into a consent judgment in the amount of $256,739.31 which resulted in lien against the property. The trustee made no distributions and abandoned all assets. The case was closed. Using the insurance proceeds, Ms. Sawyers then made improvements to the residence increasing its value to $95,000 – $103,000. The judgment creditor instituted a sheriff’s sale of the property. Ms. Sawyers reopened her bankruptcy and moved to avoid the judgment lien as impairing her homestead exemption. Mr. Waltrip objected. Using a formula under which the value of the property was subtracted from the sum of the liens and the exemption amount, the bankruptcy court found that the judicial lien impaired Ms. Sawyers’s homestead exemption and granted her motion for summary judgment to avoid the lien in full. The creditor appealed to the bankruptcy appellate panel for the Eighth Circuit. [Read more…] about Fire-Damaged Home Valued as of Pre-Restoration Petition Date

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State Exemption Need Not Specify that it Applies in Bankruptcy

Reversing the courts below, the Seventh Circuit found that unpaid vacation wages that were exempt under state law were also exempt under bankruptcy law notwithstanding the lack of explicit reference to bankruptcy in the state statute. In re Burciaga, No. 19-2246 (7th Cir. Dec. 13, 2019).

The debtor filed for bankruptcy shortly after losing his job and at a time when his employer owed him $24,000 in unused vacation pay. The debtor sought to exempt 85% of the unpaid vacation time under an Illinois law that allows creditors to reach only 15% of unpaid wages. It was undisputed that Illinois law treats vacation time as wages. The trustee objected to the exemption arguing that there was no suggestion that the state legislature intended the exemption to apply in the federal bankruptcy context. The bankruptcy court sustained the objection, and the district court, agreeing with the trustee’s position, affirmed. [Read more…] about State Exemption Need Not Specify that it Applies in Bankruptcy

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No Abuse of Discretion in Denying Motion to Compel Arbitration

The bankruptcy court did not abuse its discretion in denying the creditor’s motion to compel arbitration of two counts of the debtor’s adversary complaint where one count sought to disallow the creditor’s claim as based on a contract that violated Virginia’s usury and consumer finance laws and the other count asserted claims for violation of those same laws. Allied Title Lending, LLC v. Taylor, 2019 WL 5406039 (E.D. Va. Oct. 22, 2019) (case no. 3:18-cv-845), appeal filed, Taylor v. Allied Title Lending LLC, Case No. 19-2283 (4th Cir. filed Nov. 15, 2019).

The Chapter 13 debtor entered into a credit agreement with Allied Title Lending under which she agreed to pay back a $1,500 loan at an annualized interest rate of 273.75%. Allied filed a proof of claim for $2,756.92 in her bankruptcy, and the debtor filed an adversary complaint alleging, in pertinent part, that the underlying lending agreement was null and void because it violated Virginia’s usury and consumer finance laws. Ms. Taylor sought disallowance of Allied’s claim as well as monetary damages, fees, and costs for herself and a putative class of similarly situated plaintiffs. Allied moved to compel arbitration under the terms of the credit agreement. The Attorney General for the Commonwealth of Virginia then moved to intervene to press a claim against Allied for violation of Virginia consumer protection laws. At that time, the commonwealth had already filed a case against Allied in state court alleging that Allied’s open-end credit plan and interest rates violated state laws. [Read more…] about No Abuse of Discretion in Denying Motion to Compel Arbitration