NCBRC News - Page 50 of 110 - National Consumer Bankruptcy Rights Center

by ncbrc on January 9, 2018

Bankruptcy Court Lacked Power to Order $375,000 in Punitive Damages

A bankruptcy court lacks inherent or statutory power to award $375,000 in punitive damages based on the creditor’s violation of Rule 3002.1(c) and disregard of a court order. PHH Mortgage Corporation v. Beaulieu, Nos. 16-256, 16-257, 16-258 (D. Vt. Dec. 18, 2017).

The debtors in three chapter 13 cases had confirmed plans under which they were able to remain in their homes post-petition and pay their mortgages through the trustee. Two sets of debtors, the Gravels and the Beaulieus, successfully completed their payments and the court issued an order stating that they were current on their mortgages and charges through the completion of their plans. PHH sent all three sets of debtors a monthly statement for fees based on property inspection, late charges, and insufficient funds, all of which were were incurred more than 180 days prior to the statement in violation of Rule 3002.1(c). The trustee moved for sanctions in all three cases for violation of Rule 3002.1(c) and, in the Beaulieus’ and the Gravels’ cases, for violation of the Bankruptcy Court’s Order at the close of their cases. [Read more…] about Bankruptcy Court Lacked Power to Order $375,000 in Punitive Damages

by ncbrc on January 5, 2018

Title-Pawned Vehicle Drops Out of Estate When Not Redeemed Post-Petition

A chapter 13 plan treating a loan secured by property which had been title-pawned prior to bankruptcy should not have been confirmed where the debtor failed to redeem the property within the redemption grace period. TitleMax v. Northington, Nos. 16-17467, 16-17468 (11th Cir. Dec. 11, 2017). In so holding, the Eleventh Circuit deemed TitleMax’s continued prosecution of its motion for relief from stay as equivalent to an objection to confirmation.

Debtor, Gustavius Wilber, entered into a title pawn agreement with TitleMax pledging his car as security for a loan. After the payment due date for the loan expired but before the statutorily-mandated redemption period had lapsed, Mr. Wilber filed for chapter 13 bankruptcy and proposed a plan to repay the loan with interest. TitleMax filed a motion for relief from stay. At the confirmation hearing, which took place after the redemption period had lapsed, TitleMax continued to press for relief from stay but specifically indicated that it was not objecting to confirmation of the plan. The bankruptcy court confirmed the debtor’s plan and later denied TitleMax’s motion for relief from stay. In re Wilber, 551 B.R. 542, 544–47 (Bankr. M.D. Ga. 2016). The district court affirmed. Title Max v. Northington, 559 B.R. 542, 545 (M.D. Ga. 2016). [Read more…] about Title-Pawned Vehicle Drops Out of Estate When Not Redeemed Post-Petition

by ncbrc on January 2, 2018

$119,000 Sanctions for Discharge Injunction Violations

Continuous confusing contact with the discharged debtors by the mortgage servicer was appropriately sanctioned at $1,000 per violation notwithstanding the servicer’s formulaic and contradictory disclaimers in some of the correspondence. Ocwen Loan Servicing v. Marino, Nos. 16-1229, 16-1238 (B.A.P. 9th Cir. Dec. 22, 2017).

Debtors, Christopher and Valerie Marino, surrendered their real property in their chapter 7 bankruptcy. After they received their discharge in June, 2013, the court granted the mortgagee relief from the automatic stay and closed the case. From June, 2013, through April, 2015, Ocwen, as servicer for the mortgagee, sent nineteen letters stating the amount owed on the debt as the “amount you must pay,” and providing payment due dates. Some of the letters contained the disclaimer that, “if you have received a discharge in bankruptcy, this notification is for informational purposes only and is not intended to collect a pre-petition or discharged debt.” Ocwen also made approximately one hundred calls to the Marinos seeking payment on the discharged debt. [Read more…] about $119,000 Sanctions for Discharge Injunction Violations

by NCBRC Editor on December 22, 2017

Traffic Fines Not Given Priority in Chapter 13

Claims based on post-petition traffic fines are not administrative expenses entitled to priority in chapter 13 bankruptcy. City of Chicago v. Marshall, No. 17-2308 (lead case) (N.D. Ill. Nov. 27, 2017).

Bankruptcy debtors in seven separate cases and two courts incurred post-petition traffic fines in the City of Chicago. The City moved the courts to prioritize its claims as “administrative expenses” under sections 503 and 507(a). The courts denied the City’s motions. [Read more…] about Traffic Fines Not Given Priority in Chapter 13

by NCBRC Editor on December 19, 2017

Fourth Circuit Side-Steps Retirement Contribution Issue

Finding that the trustee did not raise the statutory issue of whether and when a chapter 13 debtor may make voluntary contributions to his retirement account, the Fourth Circuit found no clear error in the bankruptcy court’s factual finding of good faith. Gorman v. Cantu (In re Cantu), No. 17-1034 (4th Cir. Dec. 18, 2017) (unpublished).

Ricardo Cantu’s chapter 13 plan proposed to pay $51,240 toward his $148,346 unsecured debt over five years. The plan payments were based on a disposable income calculation which contemplated $338 in monthly repayments to two retirement accounts which Mr. Cantu had taken out against his government-backed Thrift Savings Plan. The trustee argued that one of the loans from the TSP would be paid off shortly after commencement of the plan, and applying the forward-looking approach, the anticipated reduction in retirement contributions should be considered in calculating Mr. Cantu’s disposable income. The trustee also objected to Mr. Cantu’s inclusion of domestic support payments in the amount of $1,625 per month, when his divorce decree ordered monthly payments of $1,500. Mr. Cantu countered that once he paid off the loan from the TSP he intended to resume making contributions in the same amount to that Plan. He also maintained that the discrepancy between the divorce decree and his actual payments was a result of a scrivener’s error in the divorce decree.

With respect to Mr. Cantu’s voluntary contributions to his retirement account, the bankruptcy court adopted the majority view that such payments may be deducted from the disposable income calculation under section 1325(b), so long as they are made in good faith. The court rejected the two contrary approaches under which 1) voluntary retirement contributions may be made only if they were being made prior to bankruptcy and in the same amount, and 2) voluntary contributions are prohibited in all circumstances. The court then addressed the factual issues of whether the contributions were proposed in good faith and whether the domestic support payments were accurate. The court resolved both issues in Mr. Cantu’s favor. In re Cantu, 553 B.R. 565 (Bankr. E.D. Va. 2016). The district court affirmed.

On appeal, the Fourth Circuit side-stepped the statutory issue of which approach to voluntary retirement plan contributions to adopt, concluding that the trustee did not appeal the bankruptcy court’s application of the majority view, but instead, limited his argument to whether the bankruptcy court correctly resolved the factual issue of good faith. The circuit court found that the bankruptcy court did not commit clear error. Mr. Cantu had been making regular contributions to his TSP until he was forced to stop when he took out hardship loans against the account. In addition, the amount of his contributions was far less than the allowable contribution amount.

The court also found that the bankruptcy court did not commit clear error in accepting Mr. Cantu’s testimony, supported by a pre-divorce Separation Agreement, that the divorce decree did not accurately reflect the agreement between the ex-spouses.

Finding that the bankruptcy court’s factual conclusions were supported by the evidence, the circuit court affirmed.

Judge Thacker concurred in part and dissented in part. She maintained that the trustee in fact raised the issue on appeal of whether and when a debtor may make voluntary contributions to a retirement account, and the court should have taken the opportunity to take a position on the issue. With respect to the domestic support payments, Judge Thacker opined that the bankruptcy court was bound to apply the only court-ordered payments, to wit: those specified in the divorce decree, and that it overstepped by applying, instead, an amount not reflected in that document.

Cantu 4th Cir opinion Dec 2017

by NCBRC Editor on December 14, 2017

“Snapshot” Rule Precludes Amended Homestead Exemption

The snapshot rule governs whether the chapter 13 debtor may claim a homestead exemption for one residence after the residence for which she originally claimed the exemption was subject to foreclosure. Earl v. Lund Cadillac, LLC, No. 16-16428 (9th Cir. Nov. 27 2017) (unpublished).

When Rachael Earl filed her chapter 13 petition she owned two residential properties: Claiborne and Sunnyvale. She resided in the Claiborne property and she claimed it as her homestead exemption. Unable to stop the foreclosure proceedings on that property, however, Ms. Earl converted to chapter 7 and sought to claim an exemption in the Sunnyvale property. The bankruptcy court sustained the unsecured creditor’s objection, and the district court affirmed.White v. Stump, 266 U.S. 310, 313 (1924) teaches that exemptions are fixed at the time of filing the petition. Under this “snapshot” rule, exemptions claimed post-petition may be allowed only if they could have been claimed on the petition date. Likewise, while under Rule 1009(a) the debtor has right to amend her exemptions at any time before the case is closed, the amended exemption must still be one she could have claimed on the petition date.

The court looked to Arizona law to determine whether Ms. Earl could have claimed the Sunnyvale property as her homestead at the time she filed her petition. In Arizona, entitlement to a homestead exemption depends upon the debtor’s actually residing on the property. In this case, Ms. Earl lived, at all relevant times, in the Claiborne residence. The fact that she converted from chapter 13 to chapter 7 did not change the result, even if the court were to agree with those cases looking at exemptions as of the conversion date, as Ms. Earl still lived in the Claiborne property at the time of the conversion.

Because Ms. Earl had no right to claim the exemption under state law, she had no right to amend her bankruptcy exemptions to claim it post-petition. The court affirmed.

Earl 9th Cir opinion Nov 2017

by NCBRC Editor on December 11, 2017

Special Counsel Violates Code and Rules by Failure to Disclose Fee Agreements

Special counsel representing a bankruptcy debtor in a separate tort action must comply with bankruptcy statutes and rules relating to disclosure of their employment arrangements, including any fee-sharing agreements. Wright v. Csabi (In re Wright), No. 13-10472, Adv. Proc. No. 16-1004 (Bankr. S.D. Tex. Dec. 2017).

During her bankruptcy, chapter 13 debtor, Vicky Wright, presented to the court an agreement she had entered into with James Grissom to represent her in a contingency-fee tort claim. The court approved the agreement. Unbeknownst to the court, Mr. Grissom had separately entered into fee-sharing agreements with Francisco Rodriguez and William Csabi. After the tort case settled for $650,000, the court ordered that Mr. Grissom be paid $90,000 pursuant to the prior-approved agreement, and that the rest of the settlement proceeds go to the chapter 13 estate for distribution to creditors. Notwithstanding this order, Mr. Grissom distributed $73,330 each to Mr. Rodriguez and Mr. Csabi pursuant to the fee-sharing agreements. Ms. Wright’s bankruptcy counsel, Abe Limon, sent demand letters to Messrs. Rodriguez and Csabi notifying them that the transferred funds were property of the bankruptcy estate and demanding turnover. Mr. Csabi turned the funds over several months later and Mr. Rodriquez did not turn over the funds. Ms. Wright filed an adversary complaint seeking disgorgement and turnover.

The court proceeded to address the allegations in the adversary complaint with the following conclusions having been established in previous orders: 1) Ms. Wright’s portion of the settlement proceeds were part of the bankruptcy estate, and 2) Mr. Grissom never disclosed his fee agreements with either Mr. Rodriguez or Mr. Csabi to the court.

The court began with the admonition that special counsel seeking employment in a tort case related to a chapter 13 bankruptcy must comply with Rule 2014, local rule BLR 2014-1, and section 327(e), including filing an application with the bankruptcy court disclosing the terms of employment and fee-sharing agreements, and that, under Fifth Circuit precedent, this obligation is ongoing. As these violations were not specifically pled in the adversary complaint, the court relied on its power under section 105(a) to “attend to” them.

The court went on to address the statutory violations alleged in the complaint.

Section 329 and Rule 2016 mandate that any lawyer representing a debtor in connection with a bankruptcy case, including in a capacity that will impact the debtor’s case, must disclose to the court the financial arrangement under which he is employed. Section 504 prohibits fee sharing including fee-sharing agreements that might be permitted under non-bankruptcy state bar rules.

The court further found that because the settlement proceeds, except that portion carved out to pay the court-approved fees to Mr. Grissom, were property of the bankruptcy estate, Mr. Grissom’s unauthorized use of those funds to comply with his fee-sharing agreements violated the automatic stay. Both Mr. Rodriguez and Mr. Csabi also violated the automatic stay by accepting and retaining the funds after being made aware of the bankruptcy at the latest, when Ms. Wright’s chapter 13 attorney notified them in a letter seeking turnover of the funds.

As this order dealt only with liability, the court did not address the allegations in the complaint relating to damages. Nor did the court address alleged violation of the Texas Disciplinary Rules of Professional Conduct, citing interests of comity.

Wright Bankr SD Tex opinion Dec 2017

by NCBRC Editor on December 6, 2017

Trustee $65,000 Fee Application Denied

“Trustee’s plan of action from the minute he was assigned these Chapter 7 cases was abundantly clear: he sought to manufacture equity through the Stipulations and Carve-Outs with the IRS to sell the Homesteads and generate funds that would primarily benefit Trustee, Counsel, and other bankruptcy professionals, while only minimally benefitting unsecured creditors.” Based on this conclusion, the Bankruptcy Appellate Panel for the Tenth Circuit, in a lengthy opinion, upheld the denial of over $65,000.00 in fees for the chapter 7 trustee and his counsel. Jubber v. Bird (In re Bird), Nos. 16-39, Jubber v. Christensen (In re Christensen), 16-40 (B.A.P. 10th Cir. Nov. 30, 2017). [Read more…] about Trustee $65,000 Fee Application Denied

by NCBRC Editor on November 30, 2017

Advanced Sick Leave Is Debt Subject to Recoupment

Advanced sick leave created a debt in bankruptcy that was subject to recoupment by the creditor/employer. Patterson v. Social Security Administration, No. 14-65877, Adv. Proc. No. 15-5129 (Bankr. N.D. Ga. Oct. 5, 2017).

Chapter 7 debtor, Tyree Patterson, worked for the Social Security Administration. The SSA had a policy whereby an employee who has exhausted his sick leave can “borrow” against future sick leave and “repay” the borrowed days with later-accrued sick leave. After Mr. Patterson obtained his discharge in bankruptcy, the SSA “collected” on his pre-petition advanced sick leave by reducing his newly accrued sick leave. Mr. Patterson reopened his bankruptcy to complain that the SSA’s conduct violated the discharge injunction. [Read more…] about Advanced Sick Leave Is Debt Subject to Recoupment

by NCBRC Editor on November 29, 2017

Debt to DHS Not Domestic Support Obligation

A payment on a debt to the DHS based on an overpayment of food stamp benefits does not fall under the preferential transfer exception for domestic support obligations simply because the overpayment was made under a program for the support of the debtor’s children. Halbert v. Dimas (In re Halbert), No. 16-13005, Adv. Proc. No. 16-479 (Bankr. N.D. Ill. Nov. 16, 2017).

The DHS overpaid funds to the debtor, Tyeane Halbert, under its Supplemental Nutrition Assistance Program (“SNAP”). Within ninety days of Ms. Halbert’s bankruptcy petition, the DHS intercepted her tax refund to offset the debt based on the overpayment. Ms. Halbert sought to recover the refund under section 522(h) on the grounds that the transfer was a preference under section 547(b). The DHS argued that the payment fell under section 547(c)(7)’s exception to preferences for “domestic support obligations,” pointing to the definition of that term in section 101(14A)(ii) as a debt owed to a governmental unit which is “in the nature of . . . support.”

The court began its analysis with a look at Wisconsin Dep’t of Workforce Dev. v. Ratliff (In re Ratliff), 390 B.R. 607 (E.D. Wis. 2008), where that court found a debt based on overpayment of food stamp benefits was excepted from discharge under section 523(a) as a domestic support obligation. The court in Ratliff, and courts reaching similar holdings, based its conclusion on a finding of causal connection between the purpose of the original payment for support and the debt that arose out of the overpayment.

Cases finding the other way, such as In re Vanhook, 426 B.R. 296, 301 (Bankr. N.D. Ill. 2010), hold that the debt arising out of an overpayment (or wrongful payment), generally has a different character than the original purpose of the payment. While the original payment was intended for support, the debt arose out of a separate obligation arising out of the excess payment amount and does not serve any purpose related to domestic support. As the court in In re Lutzke, 223 B.R. 552, 554 (Bankr. D. Or. 1998), pointed out, any payment on the debt based on overpayment is not intended for the domestic support of the creditor. [The court noted, however, that where one spouse with a child-support obligation overpays to the other spouse sharing child-support, the overpayment debt could be considered to retain the “nature of support” in that it could go to the creditor spouse’s actual child support obligations.]

The court noted that most debts owed to a governmental unit would be the result of an overpayment of support in one form or another and, therefore, finding that the ensuing debt retains the nature of support would apply too broadly. Rather, the court reasoned, the type of domestic support obligations owed to a governmental unit that would be covered by the definition in section 101(14A)(ii) would more appropriately be the type of debt where the support obligation is assigned to the government, or where the payment is owed to the government in situations of “foster care, wardship or residential treatment centers.”

The court thus concluded that the transfer was preferential under section 547(b) and did not fall under the exception set forth in section 547(c) and granted summary judgment in favor of Ms. Halbert.

Halbert Bankr ND Ill opinion Nov 2017