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

Posted by NCBRC - January 3rd, 2020

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

State Exemption Need Not Specify that it Applies in Bankruptcy

Posted by NCBRC - December 31st, 2019

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 that 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 which 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

No Abuse of Discretion in Denying Motion to Compel Arbitration

Posted by NCBRC - December 17th, 2019

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 and 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 in order 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

Rhode Island Exempts Inherited IRAs

Posted by NCBRC - December 13th, 2019

In answer to a question certified from the Bankruptcy Court for the District of Rhode Island, the Rhode Island Supreme Court determined that “under the plain and ordinary meaning of the language in § 9-26-4(11) and § 408, an inherited IRA is defined under § 408, and it is, therefore, exempt under § 9-26-4(11).” In re Kapsinow, No. 2018-94-M.P. (R.I. Dec. 11, 2019) (Bankr. D. R.I. 16-11859).

Chapter 7 debtor, Lynette Kapsinow, inherited an IRA from her mother which she sought to exempt from her bankruptcy estate under the Rhode Island exemption laws. It was undisputed that the account when held by the debtor’s mother was a qualified retirement account under 408 of the Internal Revenue Code. Once her mother died, Ms. Kapsinow had access to the funds without penalty, could not make contributions to the account, and was required to take minimum distributions. Read More

Haven Act Guide

Posted by NCBRC - December 8th, 2019

The Honoring American Veterans in Extreme Need Act of 2019 (“HAVEN Act”) excludes certain benefits paid to veterans or their family members from the definition of current monthly income (“CMI”) found in the Bankruptcy Code. The HAVEN Act amends § 101(10A) of the Bankruptcy Code and supplements the 2005 amendments to the Code that excluded other government benefits, such as social security income.

This Guide provides an overview of the HAVEN Act, identifies benefits that are excluded, and answers frequently asked questions.

HAVEN Act Guide 2019

Court May Not Deny Amendment to Exemptions Based on Bad Faith

Posted by NCBRC - December 6th, 2019

Based on Law v. Siegel the bankruptcy court properly overruled the trustee’s objection to the debtor’s amendment to his exemptions without regard to whether the debtor concealed assets in bad faith. Rucker v. Belew (In re Belew), No. 18-3045 (8th Cir. Nov. 26, 2019).

In his bankruptcy schedules, the debtor initially failed to disclose that he had $30,000 in cash in a home safe. When the trustee learned of the cash, the debtor sought to amend his exemptions to exempt the money. The trustee objected on the grounds that the debtor had intentionally concealed the asset and was therefore precluded from amending on the basis of bad faith. The bankruptcy court overruled the objection and the BAP affirmed. Read More

District Court Misapplied Fugitive Disentitlement Doctrine to Dismiss Appeal

Posted by NCBRC - December 4th, 2019

Sometimes bad facts can lead to good law, and the debtor who appears neither honest nor unfortunate can nonetheless raise a good legal point. In this case, the First Circuit, in a colorful opinion alluding to Whack-a-Mole and haunting specters, found that the district court abused its discretion when it dismissed the debtor’s appeal under the fugitive disentitlement doctrine, where the order on appeal was not affected by the debtor’s flight. In re Kupperstein, Nos. 18-2248, 18-2249 (1st Cir. Nov. 15, 2019).

The case arose when attorney, Donald Kupperstein, and his cohort “helped” a homeowner resolve a $3,379.13 local tax liability by purchasing her home for less than $100 and the payment of the outstanding taxes. The homeowner had inherited the home from her father, and, in addition to the tax liability, it was encumbered by a lien held by the Massachusetts Office of Health and Human Services (MassHealth) for a debt owed by the father’s estate of more than $191,000. The state court reversed the sale of the property as illegal, but Kupperstein continued to possess it and collect rents in defiance of courts orders to release the property and turn over the collected rents.

A tangle of state court judgments, arrest warrants, and contempt sanctions ensued and Kupperstein sought refuge in bankruptcy. After the bankruptcy court lifted the automatic stay to allow MassHealth to pursue its state remedies, Kupperstein disappeared. His bankruptcy attorney filed an appeal of the relief from stay order. When Kupperstein continued to skip probate court dates, MassHealth and the father’s estate moved the district court to dismiss the appeal under the “fugitive disentitlement doctrine.” When Kupperstein then missed yet another state hearing, the district court dismissed the case for the reasons sought in the motion. This appeal followed. Read More

No Stay Violation When Creditor Retains Vehicle Repossessed Pre-Petition

Posted by NCBRC - November 29th, 2019

The Third Circuit joined the Tenth and D.C Circuits to hold that, “upon notice of the debtor’s bankruptcy, a secured creditor’s failure to return collateral that was repossessed pre-bankruptcy petition is [not] a violation of the automatic stay,” because it is not an act “to exercise control over property of the estate.” In re Denby-Peterson, No. 18-3562 (3rd Cir. Oct. 28, 2019).

After Joy Denby-Peterson paid $9,200 over approximately eighteen months toward her used Chevy Corvette, the holder of the loan repossessed the vehicle due to her failure to pay the $2,491 down payment that the purchase agreement required. Ms. Denby-Peterson filed for chapter 13 bankruptcy. She notified the creditor of the petition and demanded return of the vehicle. When the creditor failed to return the vehicle, the bankruptcy court granted Ms. Denby-Peterson’s motion for turnover under section 542(a), but, finding that the creditor’s retention of the vehicle did not violate the automatic stay, denied her demand for sanctions. The district court affirmed. Read More

Tuition Payments for Adult Daughter Subject to Claw Back

Posted by NCBRC - November 22nd, 2019

The chapter 7 trustee could use his strong-arm powers to “claw back” tuition payments the debtors had made for their adult daughter’s education. DeGiacomo v. Sacred Heart University, Inc. (In re Palladino), No. 17-1334 (1st Cir. Nov. 12, 2019).

Steven and Lori Palladino made college tuition payments for their adult daughter within two years of filing for chapter 7 bankruptcy. The bankruptcy trustee filed an adversary proceeding against Sacred Heart University seeking to recover almost $65,000 in tuition payments. Both the trustee and Sacred Heart filed motions for summary judgment and the bankruptcy court granted judgment to Sacred Heart. The First Circuit granted direct appeal. Read More

NCBRC Seeks to Intervene in Student Loan Case and Unseal TERI Documents.

Posted by NCBRC - November 19th, 2019

NCBRC filed a motion to unseal documents in the chapter 7 case of Mata v. National Collegiate Student Loan Trust 2006-1, et al., No. 16-30625, Adv. Proc. No. 18-1089 (Bankr. C.D. Cal.) (motion filed Nov. 15, 2019).

In the underlying adversary proceeding filed by the debtor seeking to discharge student loans, the defendant student loan securitization trusts moved for summary judgment arguing that the loans were nondischargeable under section 523(a)(8)(A)(i), which excepts from discharge “an educational benefit overpayment or loan made, insured, or guaranteed by a . . . nonprofit institution.” The trusts argued that, although they themselves were not non-profit organizations, the loans “were made under a program funded, in whole or in part, by [TERI] a non-profit institution.”

NCBRC’s motion seeks to “unseal (1) two student loan guaranty agreements between National Collegiate Student Loan Trust 2006-1, National Collegiate Student Loan Trust 2006-4, and National Collegiate Student Loan Trust 2007-4, on the one hand, and the now-defunct The Education Resources Institute, Inc. (“TERI”), . . . and (2) two unredacted pleadings that rely on the Guaranty Agreements.” Read More