National Consumer Bankruptcy Rights Center

Protecting The Rights Of Consumer Debtors In Bankruptcy

bankruptcy

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Supreme Court Asked to Decide Whether Chapter 13 Debtors Can Prioritize Retirement Contributions Over Unsecured Creditors—NCBRC Monitoring Case Closely

The consumer bankruptcy world is watching closely as a critical issue heads to the U.S. Supreme Court in Bronitsky v. Saldana. The case, now pending in a petition for certiorari, asks whether Chapter 13 debtors may continue contributing to retirement accounts at the expense of unsecured creditors. The Ninth Circuit said yes. The petitioning Chapter 13 trustee says absolutely not. And the National Consumer Bankruptcy Rights Center (NCBRC) is paying close attention.

If the Court grants certiorari, NCBRC stands ready to join the fight directly.

The Legal Issue: Retirement Savings vs. Creditor Recovery

At the heart of the case is whether Chapter 13 debtors can exclude voluntary retirement contributions from their “disposable income”—the income they would otherwise use to pay unsecured creditors under their repayment plans.

The Ninth Circuit’s decision in favor of debtor Jorden Saldana held that under 11 U.S.C. § 541(b)(7), such retirement contributions are not disposable income. This aligns with a growing body of appellate decisions recognizing Congress’s intent to shield retirement savings—even for debtors still actively contributing post-petition.

However, the trustee argues this interpretation enables debtors to prioritize future savings over present obligations, potentially leaving creditors with nothing. According to the trustee’s cert. petition, the ruling “creates a stark conflict” with other circuits and “throws the Chapter 13 system into chaos.”

Saldana – Trustee’s Petition for Cert

Saldana – Trustee’s Reply Brief

The Debtor’s Response: No Circuit Split, No Cert Needed

Saldana’s legal team pushed back forcefully, noting that every circuit to reach the question—including the Sixth—allows continued contributions when the debtor had contributed pre-petition. The Ninth Circuit merely affirmed that right. The debtor argues there is no true circuit split, especially not one warranting Supreme Court intervention.

The debtor also points out that the trustee never disputed Saldana’s history of contributions, nor contested her evidence. The core disagreement, then, isn’t about facts—it’s about how § 541(b)(7) should be read.

Debtor’s Brief in Opposition to Pet for Cert

Why This Case Matters

If the Supreme Court takes the case, the outcome could reverberate across every Chapter 13 court in the country. The petition’s logic would effectively ban all voluntary retirement contributions during a plan, drastically reducing flexibility for low- and middle-income debtors trying to maintain long-term financial stability.

More than 180,000 Chapter 13 cases are filed annually. A decision restricting retirement contributions could disproportionately harm older workers and financially precarious families who rely on steady retirement savings to avoid future insolvency.

NCBRC’s Role: Ready to Engage

NCBRC is currently monitoring the petition and has assisted the debtor’s legal team in shaping the response. If the Court grants certiorari, NCBRC will step in directly, likely through a joint amicus effort alongside key consumer advocacy organizations. The goal: ensure that the debtor’s fresh start includes the ability to save for retirement and avoid punishing choices between dignity in old age and minimal creditor returns today.

Stay tuned. This case could redefine the balance between creditor recovery and debtor rehabilitation—and NCBRC is prepared to make sure the scales remain fair.

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Ninth Circuit Confirms Right to Cramdown Short-Term Mortgages in Major Win for Chapter 13 Debtors

In a resounding victory for Chapter 13 consumer debtors, the U.S. Court of Appeals for the Ninth Circuit affirmed that a debtor may bifurcate and “cram down” a junior mortgage claim—even when the loan is secured solely by the debtor’s principal residence—so long as the loan matures during the plan term. The opinion in Mission Hen, LLC v. Lee reinforces the flexibility and protective power of Chapter 13 and clarifies an important exception to the Bankruptcy Code’s anti-modification provision.

This favorable ruling follows a strong showing of advocacy by the National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA), who filed an amicus brief supporting the debtors, Jason Lee and Janice Chen.

The Legal Dispute: Can Short-Term Mortgages on Principal Residences Be Crammed Down?

The debtors proposed a Chapter 13 plan that bifurcated a junior mortgage held by Mission Hen, treating the unsecured portion separately. Mission Hen objected, arguing the plan violated the anti-modification rule under § 1322(b)(2), which bars modification of claims secured only by a debtor’s principal residence. The creditor also claimed the debtors were ineligible for Chapter 13 and that the plan was not feasible.

All three objections were rejected.

The Ninth Circuit confirmed that § 1322(c)(2)—a little-lit but critical carveout—permits modification of claims when the final payment on a mortgage is due before the Chapter 13 plan ends. Citing the statute’s plain language and a growing consensus among other circuits, the court concluded this provision allows not just for payment schedule tweaks, but for bifurcation of the claim itself. As the court noted, this reading is especially appropriate where the mortgage matures during the plan, placing it squarely within § 1322(c)(2)’s intended scope.

Amicus Advocacy: Clearing the Fog Around § 1322(c)(2)

NCBRC and NACBA’s joint amicus brief was instrumental in reframing the law. The brief:

  • Emphasized that Congress created § 1322(c)(2) to provide flexibility for short-term, high-cost mortgages that often burden working-class families.
  • Underscored the absurdity of allowing only payment-term modification but not bifurcation—especially when the latter is necessary to make a plan feasible.
  • Showed how other circuits, including the Fourth and Eleventh, have correctly interpreted § 1322(c)(2) to permit cramdowns.

Their advocacy helped the Ninth Circuit align with this broader, more debtor-friendly reading—ensuring Chapter 13 remains a viable path for families trying to keep their homes.

Why It Matters for Debtors and Practitioners

This decision carries wide-ranging implications:

  • Validates the use of cramdowns for maturing home loans—a critical tool for affordable plan structuring.
  • Strengthens judicial recognition of § 1322(c)(2) as a real exception, not a paper tiger.
  • Reaffirms the importance of court-determined valuations in assessing eligibility and plan feasibility.
  • Bolsters debtor protections in circuits that had yet to weigh in on this statutory provision.

The Big Picture

The Lee decision is another powerful reminder of how strategic litigation and amicus advocacy protect consumer rights. NCBRC and NACBA continue to ensure that bankruptcy courts do not become blind enforcers of creditor preferences, but remain venues for meaningful financial rehabilitation.

As the housing and debt landscapes evolve, rulings like this one are crucial for preserving Chapter 13’s mission: giving debtors a fair shot at stability and a future.

9th Circuit Court of Appeals Opinion – Mission Hen v Lee

Amici Brief – Mission Hen v Lee

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Fourth Circuit Affirms Post-Discharge Protections: Koontz Decision Preserves FDCPA Rights for Bankruptcy Debtors

In a major victory for consumer bankruptcy debtors and their advocates, the U.S. Court of Appeals for the Fourth Circuit reversed a troubling lower court decision in Koontz v. SN Servicing Corporation, holding that a mortgage servicer’s post-discharge collection efforts could still be subject to the Fair Debt Collection Practices Act (FDCPA), even where the debtor’s personal liability had been extinguished. This opinion affirms that a debtor’s in rem obligations after discharge are still “debts” under the FDCPA—and that debtors remain “consumers” protected by its provisions.

This result is due in no small part to the strong advocacy of the National Association of Consumer Bankruptcy Attorneys (NACBA), the National Consumer Bankruptcy Rights Center (NCBRC), and the National Consumer Law Center (NCLC), who filed a powerful joint amicus brief in support of the debtor, John Koontz.

The Legal Issue: Can a Discharged Debtor Still Owe a “Debt”?

After Koontz received a Chapter 7 discharge, SN Servicing Corporation (SNSC) sent him two letters asserting late fees and refusing to apply a payment—despite the discharge. The district court dismissed Koontz’s FDCPA and West Virginia Consumer Credit and Protection Act (WVCCPA) claims, reasoning that post-discharge, Koontz no longer had a “debt” and therefore no statutory protection.

The Fourth Circuit firmly rejected that view.

Citing Johnson v. Home State Bank, the court held that a discharged mortgage debt remains an enforceable obligation, albeit only through in rem remedies like foreclosure. Thus, Koontz was still a “consumer” obligated to pay a “debt” under 15 U.S.C. § 1692a(3)-(5), and SNSC’s letters constituted “collection activity.”

Amici’s Role: Correcting the Record and Reframing the Law

The joint amicus brief filed by NACBA, NCBRC, and NCLC was pivotal. The brief:

  1. Clarified the effect of a bankruptcy discharge:
    Drawing heavily from Johnson, the amici explained that discharge eliminates personal liability but not the obligation itself. The mortgage lender retains rights against the property, and the borrower retains an obligation to pay to avoid foreclosure.
  2. Refuted the “no personal liability, no debt” fallacy:
    The lower court had erroneously concluded that without personal liability, there is no “debt.” The brief dissected this error, showing how such logic would gut consumer protection statutes, including the FDCPA, Truth in Lending Act, and Fair Credit Reporting Act.
  3. Highlighted § 524(j) of the Bankruptcy Code:
    Congress explicitly preserved a creditor’s ability to collect post-discharge payments “in lieu of pursuit of in rem relief.” But, as amici argued, nothing in § 524(j) authorizes deceptive or unfair conduct—FDCPA standards still apply.
  4. Emphasized real-world impact:
    Many debtors like Koontz attempt to keep their homes post-bankruptcy. The lower court’s decision would have undermined that goal by stripping them of protections when they try to pay—essentially penalizing them for compliance.
  5. Explained broad statutory context:
    The amici reviewed other statutes and jurisprudence, showing a consensus that non-recourse or in rem debts are still subject to consumer protection laws. They warned that allowing the district court’s reasoning to stand would sow confusion and injustice across consumer finance law.

Why This Matters for Debtors and Their Counsel

The Fourth Circuit’s decision is more than just a statutory interpretation victory—it’s a win for real people trying to rebuild after bankruptcy:

  • Preserves essential consumer protections post-discharge.
  • Recognizes ongoing obligations and vulnerability of debtors seeking to retain homes.
  • Ensures mortgage servicers must comply with the FDCPA, even if they’re only pursuing in rem remedies.
  • Empowers consumer attorneys to challenge improper fees, misapplied payments, or coercive letters.

In a time when mortgage servicers increasingly push the envelope in post-discharge collections, Koontz provides a much-needed check—and clear precedent that the FDCPA still applies.

The Advocacy Behind the Win

This case once again demonstrates the indispensable role of systemic advocacy. By joining forces, NACBA, NCBRC, and NCLC ensured that the Fourth Circuit understood the broader legal, policy, and practical implications. As their brief argued:

“The implications of the lower court’s error are severe for consumer bankruptcy debtors… The ruling effectively strips discharged debtors of important statutory protections against debt collection abuses… This error of law should be reversed.”

Their voices made a difference—not just for John Koontz, but for thousands of future debtors navigating life after bankruptcy.

Looking Ahead

With the case remanded, Koontz can pursue his FDCPA § 1692f and state law claims. But the bigger picture is already clear: debtors remain consumers, and their rights do not vanish with a discharge.

This decision, and the amicus advocacy behind it, will resonate in courts across the country as consumer advocates continue to push back against unfair post-bankruptcy collection practices.

In re Koontz opinion

Amici brief of NCBRC, NACBA and NCLC

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Does Equitable Mootness Prevent Debtors from Appealing Confirmed Chapter 13 Plans?

The Fourth Circuit is set to decide a significant issue in Cook v. Gorman, a case that could determine whether the doctrine of equitable mootness prevents debtors from appealing the confirmation of a Chapter 13 repayment plan. At the heart of the case is whether equitable mootness—commonly used to dismiss appeals in complex Chapter 11 reorganizations—should apply to a straightforward Chapter 13 consumer bankruptcy case.

Background

Christopher M. Cook, a Chapter 13 debtor, appealed the confirmation of an amended repayment plan that he objected to, arguing that his originally proposed plan complied with bankruptcy law and should have been confirmed instead. However, rather than addressing the merits of Cook’s appeal, the district court dismissed the case on the grounds of equitable mootness, a controversial doctrine that allows courts to decline hearing bankruptcy appeals when the relief sought is deemed impractical due to changes in circumstances.

Cook, represented by bankruptcy counsel, argued that equitable mootness is not applicable to consumer Chapter 13 cases, as these cases lack the complexity of Chapter 11 corporate restructurings. He has now taken his appeal to the Fourth Circuit.

The Issues at Stake

The Fourth Circuit must decide whether equitable mootness should be extended to Chapter 13 cases or if the district court improperly avoided ruling on the appeal’s merits. Cook and his supporters argue that:

  • Equitable mootness was designed for complex Chapter 11 reorganizations where unraveling transactions could harm third-party investors and creditors. It should not apply to a simple Chapter 13 case with only four unsecured creditors.
  • The district court’s ruling denies consumer debtors their statutory right to appellate review by effectively insulating Chapter 13 confirmation orders from challenge.
  • The concept of a “fresh start” in bankruptcy is undermined if debtors are prevented from appealing adverse rulings on procedural grounds rather than legal merit.

NACBA and NCBRC’s Role

Recognizing the broad implications of this case, the National Association of Consumer Bankruptcy Attorneys (NACBA) and the National Consumer Bankruptcy Rights Center (NCBRC) filed an amicus brief in support of Cook. The amicus brief was authored by Richard Cook of Richard P. Cook, PLLC, who provided a thorough analysis of the dangers of extending equitable mootness to Chapter 13 cases. The brief emphasizes that consumer bankruptcy cases involve different considerations from corporate reorganizations and that courts should not use equitable mootness as a tool to sidestep legitimate legal questions.

Potential Impact

If the Fourth Circuit rules in Cook’s favor, it could set an important precedent ensuring that Chapter 13 debtors maintain their right to appeal confirmation orders. A decision restricting the use of equitable mootness in consumer bankruptcy cases would reinforce the fundamental protections of the Bankruptcy Code and uphold the principle that debtors should have access to meaningful judicial review.

This case will be closely watched by consumer bankruptcy attorneys and debtors’ advocates, as its outcome could shape appellate rights in Chapter 13 cases nationwide.

Stay tuned for updates as the Fourth Circuit deliberates on this crucial issue.

NCBRC/NACBA Amici Brief

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Ninth Circuit Holds that SSA Cannot Automatically Recoup Overpaid Benefits from a Bankrupt Beneficiary

The Ninth Circuit has issued a significant ruling in In re Cooper, reversing the Bankruptcy Appellate Panel’s (BAP) decision that allowed the Social Security Administration (SSA) to recoup overpaid Social Security Disability Insurance (SSDI) benefits from a debtor who had received a bankruptcy discharge. The court’s decision strengthens the protections afforded to debtors under the Bankruptcy Code by ensuring that the SSA cannot automatically sidestep the discharge injunction through the doctrine of equitable recoupment.

Background

Darrin Lenald Cooper, an SSDI beneficiary, filed for Chapter 7 bankruptcy and received a discharge of his debts in 2020. Before his bankruptcy filing, SSA had mistakenly overpaid Cooper’s benefits due to an administrative error. However, neither Cooper nor SSA realized this mistake at the time of the bankruptcy proceedings. Two years after his discharge, SSA attempted to recover the overpayment by reducing Cooper’s monthly SSDI benefits.

Cooper moved to hold SSA in contempt for violating the discharge injunction, but the bankruptcy court ruled in favor of SSA, allowing the agency to recoup the overpayment. The BAP affirmed the bankruptcy court’s decision, reasoning that Cooper’s entitlement to SSDI benefits and the overpayment were logically related under the equitable recoupment doctrine. Cooper then appealed to the Ninth Circuit.

The Ninth Circuit’s Ruling

The Ninth Circuit reversed the BAP’s decision, rejecting SSA’s argument that it had an automatic right to recoupment. The court clarified that the logical relationship test, which determines whether obligations arise from the same transaction or occurrence, must include an equitable analysis in the bankruptcy context.

Key points from the ruling include:

  • Recoupment is not automatic: The court emphasized that the doctrine of equitable recoupment does not grant creditors an unfettered right to recover discharged debts. Courts must consider the fundamental purpose of the Bankruptcy Code, which is to provide a fresh start for honest but unfortunate debtors.
  • SSA’s own error: The overpayment resulted from SSA’s mistake, and Cooper had engaged in no malfeasance. The court held that allowing SSA to recoup under these circumstances would be inequitable and inconsistent with the protections of bankruptcy law.
  • Protecting Social Security benefits: The ruling aligns with the purpose of both the Social Security Act and the Bankruptcy Code in shielding SSDI benefits from creditors post-bankruptcy. The court reinforced that SSA, like any other creditor, is subject to the discharge injunction.

Implications for Debtors and Consumer Bankruptcy Practitioners

This decision is a crucial victory for consumer bankruptcy debtors, ensuring that SSA cannot unilaterally decide to recoup pre-bankruptcy overpayments from post-bankruptcy benefits. The ruling will likely influence how SSA handles overpayment cases in bankruptcy and may lead to a reevaluation of its internal policies.

For bankruptcy practitioners, this case underscores the importance of challenging improper recoupment claims and advocating for debtors’ rights under the Bankruptcy Code. It also reinforces the need to scrutinize government agencies’ claims in bankruptcy proceedings to ensure they do not overreach.

NACBA and NCBRC’s Role

The National Association of Consumer Bankruptcy Attorneys (NACBA) and the National Consumer Bankruptcy Rights Center (NCBRC) played a vital role in this case. Both organizations submitted an amici brief, authored by NCBRC Board member Tom Mayer of Kramer Levin Naftalis & Frankel LLP, arguing against SSA’s overreach. Mayer also participated in oral argument before the Ninth Circuit, helping to secure this important win for consumer debtors.

This ruling sets an essential precedent for protecting the rights of bankruptcy debtors against improper government recoupment efforts and ensuring that the fresh start promised by the Bankruptcy Code remains intact.

In re Cooper 9th Circuit Opinion

In re Cooper – Amici Brief

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Can Debtors Prioritize Retirement Over Creditors? Trustee Seeks Supreme Court Review in In re Saldana

In a move that could have sweeping implications for Chapter 13 bankruptcy cases nationwide, Martha G. Bronitsky, the Chapter 13 Trustee, has filed a petition for certiorari with the Supreme Court in In re Saldana. The case centers on whether voluntary contributions to retirement accounts should be excluded from a debtor’s disposable income calculation. The Ninth Circuit’s decision in In re Saldana sided with the debtor, holding that voluntary retirement contributions are shielded from creditors, a ruling that some argue disrupts the balance between debtor protections and creditor rights under the Bankruptcy Code. Now, the Supreme Court is being asked to step in, potentially impacting thousands of Chapter 13 cases filed each year.

The National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) have been strong advocates for preserving the rights of consumer debtors and ensuring the integrity of the bankruptcy system. We remain committed to supporting Jorden Marie Saldana as this case progresses, including filing amicus briefs to amplify the voices of debtors nationwide. At stake is not only Saldana’s ability to prioritize her financial future but also the broader rights of Chapter 13 debtors to save for retirement while navigating bankruptcy. Stay tuned as this pivotal case unfolds, with the potential to shape bankruptcy law for years to come.

Petition for Certiorari

9th Circuit Opinion – In re Saldana

NCBRC/NACBA Amici Brief – In re Saldana

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Langston v. Dallas: The Fifth Circuit’s Chance to Reinforce the Finality of Bankruptcy Deadlines

In consumer bankruptcy, finality and procedural certainty are paramount. The ability of debtors to claim exemptions—and for creditors to challenge those claims—is governed by well-defined rules that ensure the timely administration of cases. Yet, in Langston v. Dallas Commodity Company, the courts have permitted an untimely objection to stand, raising critical concerns about the enforceability of procedural deadlines and the integrity of the bankruptcy process.

At issue is Rule 2003(e) of the Federal Rules of Bankruptcy Procedure, which explicitly requires that a meeting of creditors may only be adjourned by announcing a specific date and time for continuation, followed by prompt docketing of the adjournment. In this case, the Chapter 7 trustee failed to satisfy that requirement. Nevertheless, nearly a year later, Dallas Commodity Company filed an objection to Langston’s claimed exemptions—far beyond the 30-day deadline established under Rule 4003(b)(1).

Despite the clear procedural bar, both the bankruptcy court and district court upheld the late objection, citing Peres v. Sherman (5th Cir. 2008). However, Peres was decided under a prior version of Rule 2003, which then allowed sine die continuances of § 341 meetings. The 2011 amendment to Rule 2003(e) expressly abrogated that practice, imposing a bright-line requirement that an adjourned meeting must have a scheduled continuation date. Courts across jurisdictions have acknowledged this shift, recognizing that the rule change eliminated open-ended meeting adjournments. See In re Jenkins, 784 F.3d 230 (4th Cir. 2015); In re Vierstra, 490 B.R. 146 (Bankr. D. Idaho 2013).

In its amicus brief, the National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) urge the Fifth Circuit to acknowledge this fundamental rule change and apply the law as written. If the trustee failed to continue the meeting in compliance with Rule 2003(e), then the meeting was effectively concluded, and the 30-day deadline under Rule 4003(b)(1) began to run. The consequence is clear: Dallas Commodity’s objection was untimely and should not have been considered.

This case presents an important opportunity for the Fifth Circuit to reinforce the principle that procedural deadlines in bankruptcy are not aspirational—they are mandatory. The Supreme Court has repeatedly emphasized that bankruptcy deadlines must be strictly enforced. See Taylor v. Freeland & Kronz, 503 U.S. 638 (1992) (strictly enforcing Rule 4003’s 30-day deadline for objections to exemptions); Law v. Siegel, 571 U.S. 415 (2014) (holding that bankruptcy courts lack equitable authority to contravene express provisions of the Code). Allowing an untimely objection to stand undermines the predictability and finality that debtors and creditors alike rely upon in bankruptcy proceedings.

If the Fifth Circuit fails to correct the lower courts’ misapplication of Peres, it risks injecting uncertainty into the exemption process and eroding confidence in the enforceability of procedural safeguards. Clarity in bankruptcy law is essential to its function, and adherence to well-defined deadlines is necessary to ensure efficient case administration. The court should take this opportunity to affirm that Rule 2003(e) and Rule 4003(b)(1) mean what they say—and that deadlines in bankruptcy law are to be enforced as written.

Langston v Dallas Amici Brief

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Fighting for Fairness: NCBRC, NACBA, and NCLC File Amicus Brief in Michigan Bankruptcy Exemptions Battle

“Michigan’s most vulnerable debtors deserve protection—not political obstruction.”

That’s the central argument made by the National Consumer Bankruptcy Rights Center (NCBRC), the National Association of Consumer Bankruptcy Attorneys (NACBA), and the National Consumer Law Center (NCLC) in a critical amicus brief filed before the Michigan Court of Claims. These leading consumer advocacy organizations are weighing in on a legal battle that could determine the financial future of countless struggling Michiganders.

At issue is House Bill 4901 (HB 4901)—a long-overdue update to Michigan’s bankruptcy exemption laws that would allow debtors to keep their homes, cars, and basic assets while seeking financial relief. The bill passed both chambers of the Michigan Legislature. But in a stunning act of defiance, House Speaker Matt Hall and Clerk Scott Starr have refused to present the bill to Governor Gretchen Whitmer, effectively blocking it from becoming law.

NCBRC, NACBA, and NCLC have stepped in to argue that this political maneuver not only undermines democracy but has real and devastating consequences for Michigan residents who desperately need relief from crushing debt.

Why This Amicus Brief Matters

The amicus brief filed by these three consumer advocacy powerhouses makes it clear: Michigan’s outdated bankruptcy laws are leaving debtors trapped in financial ruin. The brief highlights several key points:

  • The Michigan House’s refusal to present HB 4901 violates the state’s constitutional process. Once a bill passes both chambers, it must be transmitted to the Governor.
  • Current bankruptcy exemptions are outdated and inadequate. The laws were last updated in 2005, and inflation has left homeowners and car owners with far less protection.
  • Michigan’s most vulnerable residents—seniors, widows, and those on fixed incomes—are being unfairly punished. Many are forced to sell their homes or avoid bankruptcy altogether because the law doesn’t protect enough of their assets.
  • HB 4901 was passed with bipartisan support and must be enacted to ensure that Michigan residents can get the “fresh start” that bankruptcy is meant to provide.

A copy of the brief is here: Amici Brief

What Happens Next?

The Michigan Court of Claims will now decide whether the House Speaker and Clerk must comply with the law and transmit HB 4901 to Governor Whitmer. If the court rules in favor of the Senate, it will be a victory not just for legislative transparency, but for thousands of Michigan families who are struggling to stay afloat.

Stay Updated

NCBRC, NACBA, and NCLC remain committed to fighting for consumer bankruptcy protections. Follow this case closely—its outcome will affect thousands of Michigan families.

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NCBRC and NACBA Stand Firm on Bankruptcy Rights in Duarte v. Hillard

What happens when a creditor misses their deadline but tries to bend the rules to get paid anyway? That’s the central issue in Duarte v. Hillard, a case before the Ninth Circuit Court of Appeals, where the National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) have stepped in to defend the integrity of the bankruptcy system.

In this appeal, creditor Jerry Duarte argues that even though he failed to file a timely proof of claim in Jenna Denise Hillard’s Chapter 13 bankruptcy case, he should still be entitled to receive payment. His legal argument? That the debtor’s amended bankruptcy schedules and plan should count as an “informal” proof of claim—something the law does not support.

NCBRC and NACBA have filed an amicus brief urging the court to uphold long-standing bankruptcy rules that require creditors to take affirmative steps to preserve their claims. If Duarte’s argument were accepted, it would create uncertainty in the Chapter 13 claims process, undermining the predictability that debtors and creditors rely upon.

The Legal Issues at Stake

At the heart of Duarte v. Hillard is whether a debtor’s amended schedules or Chapter 13 plan can serve as an informal proof of claim for a creditor who failed to meet the deadline. The case challenges:

✅ The clear legal requirement that creditors must file a timely proof of claim under Federal Rule of Bankruptcy Procedure 3002 to receive distributions.
✅ The Ninth Circuit’s prior ruling in Barker v. Spokane Law Enforcement Credit Union, firmly rejected the idea that a debtor’s schedules alone could serve as a Proof of Claim.
✅ The role of Rule 3004, which allows a debtor to file a claim on a creditor’s behalf but does not permit an “informal” filing—contrary to Duarte’s argument.

Allowing a debtor’s schedules or plan to substitute for a creditor’s proof of claim would set a dangerous precedent, potentially forcing debtors to make payments on debts that might otherwise be disallowed or discharged.

Why This Case Matters

The outcome of Duarte v. Hillard could reshape how claims are handled in Chapter 13 cases nationwide. If Duarte prevails, it could weaken bankruptcy protections by shifting responsibility from creditors—who must file claims—to debtors, who may inadvertently give creditors a second chance at getting paid by simply amending their schedules.

By joining this case, NCBRC and NACBA reaffirm their commitment to protecting consumer bankruptcy rights and ensuring the fair and just application of bankruptcy laws.

We will continue to monitor this case closely and provide updates as the Ninth Circuit deliberates. Stay tuned for further developments in this critical battle for bankruptcy fairness.

You can read the amici brief here: Amici Brief in Duarte v Hillard

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Tenth Circuit to Decide Dispute Over Child Tax Credit Exemption in Bankruptcy

Facts

The Tenth Circuit is reviewing a case that centers on Colorado’s bankruptcy exemption statute, which allows debtors to exempt the “full amount” of tax refunds attributed to the Child Tax Credit (CTC). The debtor, Jose L. Garcia-Morales, filed for Chapter 7 bankruptcy in 2021 and claimed an exemption for his $1,800 CTC, which resulted in a $1,455 tax refund.

The Chapter 7 trustee, Robertson Cohen, objected, arguing that the refund was only partially exempt and sought to retain $914.40 for the bankruptcy estate using a pro-rata allocation method. The bankruptcy court, and later the district court, sided with Garcia-Morales, finding that the entire refund was exempt under the plain meaning of the statute. The trustee has appealed to the Tenth Circuit.

Issues on Appeal

The case raises significant questions about how bankruptcy exemptions should be applied:

  1. Interpretation of “Attributed To”: Does Colorado’s statute require a pro-rata allocation of tax refunds based on the contribution of different sources, such as wage withholdings and the Child Tax Credit? Or does it exempt the entire refund if the CTC is a “but-for” cause?
  2. Public Policy Goals: How should bankruptcy courts balance the legislative intent of providing debtors with a financial “fresh start” against trustees’ duty to maximize estate value for creditors?
  3. National Implications: Could this case set a precedent for how other courts interpret similar exemption statutes, particularly in states that allow for federal tax credit exemptions?

Amici Brief

The National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) filed an amici curiae brief supporting the debtor. The key arguments include:

  • Fresh Start Policy: Bankruptcy exemptions, such as those for tax credits, are designed to shield essential assets and ensure families can maintain a minimal standard of living. Denying full exemptions for public assistance benefits like the CTC undermines this purpose.
  • Role of the CTC: The CTC is a critical part of the social safety net, aimed at reducing child poverty and supporting working families. Exempting it in full aligns with public policy and ensures its intended benefits reach families in need.
  • Trustee Incentives: Current compensation structures incentivize Chapter 7 trustees to pursue minor assets, often at a net loss to creditors. In this case, litigation costs would likely consume most of the funds the trustee seeks to recover.

Conclusion

This appeal has far-reaching implications for bankruptcy law, particularly regarding the treatment of public assistance benefits. If the Tenth Circuit affirms the lower courts’ decisions, it would bolster protections for vulnerable families by ensuring tax credit exemptions are interpreted broadly. Conversely, a reversal could encourage more aggressive challenges to exemptions, reducing the effectiveness of safety-net programs in bankruptcy.

A decision is expected later this year. Oral arguments have yet to be scheduled.

Garcia-Morales Amici Brief