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.

Posted by NACBA - January 24th, 2020

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.

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Denial of Motion for Relief from Stay is Final and Appealable

Posted by NCBRC - January 16th, 2020

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

Debtor Not Required to Turnover Proceeds From Sale of Appreciated Property

Posted by NCBRC - January 8th, 2020

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

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