SCOTUS Hears Arguments on Discharge Violation Sanctions

Posted by NCBRC - April 27th, 2019

Addressing the reach of a bankruptcy court’s contempt powers in the context of a violation of the discharge injunction, the Supreme Court heard arguments on April 24, in the case of Taggart v. Lorenzen, No. 18-489.

Daniel Geyser appeared for the debtor, Bradley Taggart. Nicole Saharsky represented the creditor, Shelley Lorenzen, executor. Sopan Joshi, from the office of the Solicitor General, argued as amicus not in support of either party. NACBA submitted an amicus brief in support of reversal.

The controversy hinged on a state court finding that Mr. Taggart’s creditor could seek contractual attorney fees in the litigation before it, even though those fees would have been subject to the discharge order injunction had Mr. Taggart not “returned to the fray.” The bankruptcy court found that the “returned to the fray” doctrine did not apply and that the litigation violated the discharge injunction. It awarded sanctions, at least in part representing the debtor’s attorney’s fees. The Ninth Circuit ultimately reversed the sanctions stating broadly that a creditor acting in good faith cannot be held liable for discharge injunction violation even if that belief is unreasonable. Lorenzen v. Taggart (In re Taggart), 888 F.3d 438 (9th Cir. 2018). Read More

Debtor Not a Borrower under Reverse Mortgage

Posted by NCBRC - April 23rd, 2019

The debtor, who had only a remainder interest in her mother’s property and was not a signatory to her mother’s reverse mortgage, was not a “borrower” entitled to remain in the residence after her mother’s death without paying the underlying debt. Reverse Mortgage Solutions v. Nunez, No. 18-22204 (S.D. Fla. March 21, 2019).

Aleida Nunez’s mother borrowed $531,000 secured by a reverse mortgage on her residence. The loan was memorialized in a Home Equity Conversion Note (Note) and a Home Equity Conversion Loan Agreement (Loan Agreement). The Note stated that the loan was secured by property described in a Security Instrument. While Ms. Nunez’s mother was the only signatory to the Note and Loan Agreement, Ms. Nunez was listed on the Security Instrument as having a “remainderman interest,” and she signed the document as “remainderman.” After her mother died, Ms. Nunez filed for chapter 13 bankruptcy and proposed a plan under which she would be treated as a borrower under the reverse mortgage, allowing her to cure tax and insurance defaults on the residence while continuing to live in the house without paying off the underlying loan. RMS objected to the plan, arguing that Ms. Nunez was not a borrower and that her mother’s death rendered the debt due. Read More

Bifurcated Attorney Fee Agreement Gets Thumbs Up

Posted by NCBRC - April 16th, 2019

A Utah bankruptcy court upheld a chapter 7 debtor’s attorney’s bifurcated fee agreement in the face of a motion for sanctions by the U.S. Trustee. In re Hazlett, No. 16-30360 (Bankr. D. Utah Apr. 10, 2019).

Attorney Russell B. Weekes, of Capstone Law, entered into a fee agreement with the chapter 7 debtor, Brett Hazlett, under which Mr. Hazlett would pay no retainer fee, but would pay post-petition costs and expenses in the amount of $2,400 in ten monthly installments. Capstone had an arrangement with BK Billing, under which BK Billing would buy the account from Capstone for $1,800 and collect the fee payments from Mr. Hazlett. Mr. Weekes explained that arrangement to Mr. Hazlett. Mr. Weekes filed all the necessary bankruptcy papers and Mr. Hazlett received his chapter 7 discharge without complications in March of 2017. Read More

District Court Affirms Chapter 13 Debtor’s Absolute Right to Dismiss Despite Bad Faith, Refuses to Extend Marrama

Posted by NACBA - April 10th, 2019

Noting a split in authority, the District Court for the Northern District of New York found that a chapter 13 debtor has the absolute right to dismiss her bankruptcy.

On April 21, 2015, the Debtor filed a voluntary chapter 13 bankruptcy petition. She claimed as exempt an inherited Individual Retirement Account (“inherited IRA”) worth about $800,000. One of her creditors was Endurance American Insurance Company (“Endurance”). At Endurance’s request, the bankruptcy court entered an interim preservation order that limited debtor’s ability to withdraw funds from the inherited IRA. On March 19, 2018, the Debtor filed a request for voluntary dismissal of her bankruptcy case pursuant to 11 U.S.C. § 1307(b). The bankruptcy granted the motion on the same day.

Thereafter, it was discovered that the Debtor had quietly depleted the funds in the inherited IRA and other accounts during the bankruptcy.

Endurance then filed a motion to reconsider or vacate the dismissal of Debtor’s bankruptcy, to convert the case to a chapter 7 proceeding, and to hold Debtor in contempt for violating the IRA preservation order.

After a two day hearing, the Bankruptcy Court found that Debtor had violated the interim preservation order but denied Endurance’s motion to reconsider or vacate the dismissal order relying upon a Second Circuit case, Barbieri v. RAJ Acquisition Corp., 199 F.3d 616 (2d Cir. 1999), which held that debtors, bad faith or no, enjoyed an absolute right to voluntarily dismiss a chapter 13 petition under § 1307(b).

Endurance raised the issue whether the Supreme Court’s decision in Marrama v. Citizens Bank, 549 U.S. 365 (2007) overruled the Barbieri decision. The Bankruptcy Court concluded that Barbieri remained good law after Marrama. The issue was then addressed on appeal by the district court.

To read more click here.

Ninth Circuit Finds No Standing for FCRA Claim Despite Reduced Credit Scores

Posted by NCBRC - April 10th, 2019

In an unpublished opinion, the Ninth Circuit reached the alarming conclusion that plaintiffs alleging inaccuracies on credit reports that lowered their credit ratings, had no constitutional standing to sue the credit reporting agencies under the FCRA because they could not show “that they had tried to engage in or were imminently planning to engage in any transactions for which the alleged misstatements in their credit reports made or would make any material difference.” Jaras v. Equifax, No. 17-15201(9th Cir. March 25, 2019) (unpublished). Read More

Bankruptcy Court Joins Minority, Grants Discharge, and Denies the Trustee’s Motion to Dismiss for Delinquent Post-Petition Mortgage Payments

Posted by NACBA - April 3rd, 2019

On March 28, 2019 the Bankruptcy Court for the District of Arizona Denied the Trustee’s Motion to Dismiss based on the Debtors’ post-petition mortgage default. In doing so, she joined the minority position on this issue.

The Debtors filed their chapter 13 bankruptcy on July 18, 2014. Their plan proposed to pay back mortgage arrears to their mortgage lender through plan payments to the trustee. The plan also indicated that they would make direct payments to the mortgage lender for the future monthly mortgage payments. At the end of the plan the mortgage lender filed Response to Trustee’s Notice of Final Cure for Prepetition Arrears on Mortgage Claim, agreeing that the prepetition default was cured, but stating that the post-petition payments due on and after September 1, 2017 were delinquent. The Trustee then filed a motion to dismiss.

The court addressed the issue whether payments on a mortgage paid directly to mortgage holder and referenced in a chapter 13 plan are “payments under the plan” for purposes of 11 U.S.C. §1328(a) and if delinquent are a legitimate basis to dismiss the bankruptcy and deny a discharge.

Section 1328(a) states in pertinent part: “as soon as practicable after completion by the debtor of all payments under the plan,… the court shall grant the debtor a discharge of all debts provided for by the plan…” Similarly 11 U.S.C. § 1307(c)(6) allows a trustee to move to dismiss for cause including “material default by the debtor with respect to a term of a confirmed plan;…” As a result several chapter 13 trustees file motions to dismiss if they discover that a debtor is delinquent in mortgage payments.

There are two schools of interpretation of “payments under the plan.”

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Court Orders Student Loan Discharge

Posted by NCBRC - April 3rd, 2019

In a compassionate and pragmatic opinion, a bankruptcy court in the Northern District of Georgia found that the debtor met the difficult burden of showing a “certainty of hopelessness,” and that she otherwise satisfied the Bruner test for a hardship discharge of her student loans. Hill v. Educ. Credit Mgmt. Corp., No. 17-56656, Adv. Proc. No. 17-5131 (Bankr. N.D. Ga. April 1, 2019). Read More

SCOTUS Addresses “Debt Collector” Definition

Posted by NCBRC - March 29th, 2019

In a unanimous, narrow, decision, the Supreme Court held that an entity merely carrying out nonjudicial foreclosures is not a “debt collector” within the meaning of the FDCPA. Obduskey v. McCarthy & Holthus LLP, 586 U.S. ___, No. 17-1307 (March 20, 2019).

The action arose when the law firm of McCarthy & Holthus, acting as agent for the mortgagee, initiated nonjudicial foreclosure proceedings against Dennis Obduskey. In response to McCarthy’s notice of foreclosure, sent in compliance with Colorado nonjudicial foreclosure law, Mr. Obduskey invoked the FDCPA and sent a letter disputing the debt. When McCarthy went forward with the foreclosure proceedings, Mr. Obduskey filed a complaint in district court alleging violation of the FDCPA’s requirement that, upon notification of a disputed claim, a debt collector must cease collection activities and obtain verification of the debt. The district court found that McCarthy was not a debt collector to which the FDCPA requirements applied. The Tenth Circuit affirmed. Obduskey v. Wells Fargo, 879 F. 3d 1216 (2018). Read More

7th Circuit Certifies Workers’ Compensation Exemption Question to Illinois Supreme Court

Posted by NCBRC - March 27th, 2019

The Seventh Circuit Court of Appeals has certified a question to the Illinois Supreme Court concerning “whether the Illinois Workers’ Compensation Act [IWCA], as amended, allows care-provider creditors to reach the proceeds of workers’ compensation claims.” In re Hernandez, No. 18-1789 (7th Cir. March 18, 2019). Read More

Attorney Fee Award Upheld Against Student Loan Servicer

Posted by NCBRC - March 21st, 2019

The district court found that the bankruptcy court did not abuse its discretion in holding the student loan servicer in contempt for failing to apply the student debtor’s payments outside the plan in accordance with pre-petition payments as required by the debtor’s confirmed chapter 13 plan. Penn. Higher Educ. Assistance Agency v. Berry, No. 18-444 (D. S.C. March 5, 2019).

Berry had student loans issued by the Department of Education (DOE) and administered by the Pennsylvania Higher Education Assistance Agency (PHEAA). She was paying off her loans under an Income-Driven Repayment plan (IDR) and a Public Service Loan Forgiveness (PSLF) program. In her chapter 13 bankruptcy, her confirmed amended plan provided for continued payments on her student loan debts outside the plan with those payments being applied exactly as before thereby allowing her to continue to benefit from the IDR and PSLF. The PHEAA, however, put the loans into administrative forbearance under which it applied the payments to principal and interest. Ms. Berry filed a Motion to Enforce seeking sanctions in the amount of $22,317.30, representing the attorney fees she incurred pursuing proper application of the payments. The DOE eventually settled its portion of the action for $6,000 and Ms. Berry sought the remaining amount from PHEAA. The bankruptcy court granted Ms. Berry’s entire attorney fee request consisting of $22,317.30 of which, after the DOE’s $6,000 settlement, the PHEAA owed $16,317.30. Read More