bankruptcy

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What Is a Loan?

Money need not change hands for a deferred tuition payment plan to be a “loan,” for purposes of nondischargeability under section 523(a)(8). In re Hazelton, No.16-12372 (Bankr. W.D. Wisc. Feb. 23, 2018).

Ms. Hazelton enrolled at the University of Wisconsin, Stout, and entered into a Payment Plan, which deferred her tuition payments until the end of the first week of classes. She completed her degree requirements but did not pay the tuition according to the Payment Plan. Stout withheld her degree pending payment of her tuition and intercepted her state tax return. Ms. Hazelton and her husband obtained a Chapter 7 discharge and sought sanctions against Stout for its collection efforts, arguing that the tuition deferment did not constitute a student loan and that the debt was therefore discharged in Chapter 7 along with her other debts. [Read more…] about What Is a Loan?

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Nationstar Cannot Wriggle Out of Discharge Injunction Violation

Nationstar waived its right to argue that the court could not address the merits of the debtor’s discharge injunction case before ruling on class certification, and several of Nationstar’s post-discharge communications violated the injunction. Forson v. Nationstar Mortgage, LLC., No. 08-61001, Adv. Proc. No. 15-2137 (Bankr. S.D. Ohio March 21, 2018).

Terry Lee Forson reopened his Chapter 13 bankruptcy and filed an adversary complaint against Nationstar Mortgage LLC, alleging violation of the discharge injunction, Section 524(a)(2), based on Nationstar’s continued collection activities post-discharge. Contending that Nationstar’s conduct was part of an ongoing business practice, Mr. Forson sought class certification. He filed a motion for summary judgment to which Nationstar objected, arguing that, under the one-way rule, the court could not address the merits of the case until it had made a finding with respect to class certification. [Read more…] about Nationstar Cannot Wriggle Out of Discharge Injunction Violation

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Student Loans Discharged under Totality-of-Circumstances Test

In two recent student loan cases out of the First Circuit, the bankruptcy courts rejected Brunner and, instead, applied a totality-of-circumstances test to grant discharge under section 523(a)(8). Smith v. U.S. Dept. of Ed., No. 16-10998, Adv. Proc. No. 16-1079 (Bankr. D. Mass. April 4, 2018); Erkson v. U.S. Dept. of Ed., No. 16-20169, Adv. Proc. No. 16-2018 (Bankr. D. Me. April 3, 2018). [Read more…] about Student Loans Discharged under Totality-of-Circumstances Test

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Petition Date Controls Property-Use Determination

An addition to the debtor’s residential property, which he constructed post-mortgage and pre-bankruptcy petition and which he used as a rental unit, made the property multi-use and rendered the anti-modification provision inapplicable. In re Berkland, No. 17-10821 (Bankr. D. Mass. April 6, 2018).

Kenneth Berkland took out a mortgage to purchase his residential property. He later built an addition to the property to be used rent-free by his in-laws. His brother-in-law later moved in and paid $300 per month in rent. At the time he filed for Chapter 11 bankruptcy, the value of his property was less than the amount owed on his mortgage, and he sought to strip down the debt into secured and unsecured portions under Section 1123(b)(5), a provision that mirrors Section 1322(b)(2). The servicer for the mortgagee, Specialized Loan Servicing, LLC,  objected on the basis that the property was subject to the anti-modification provision applicable to debt secured “only by” the debtor’s residence. [Read more…] about Petition Date Controls Property-Use Determination

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Court Takes Self-Enriching Chapter 7 Trustee to Task

The district court went beyond the issue of whether the bankruptcy court properly denied the debtor’s motion for reconsideration and addressed the unappealed substantive issue of whether the Chapter 7 trustee, Kevin McCarthy, properly discharged his duties when he generated substantial fees and costs in pursuit of certain creditor claims. Skubal v. McCarthy, No. 1:17-cv-936 (E.D. Va. May 16, 2018).

Chapter 7 debtor, Megan Skubal, co-owned two real estate parcels as joint tenants with her father, Thomas Skubal. When she filed for bankruptcy, two unsecured creditors filed proofs of claim for a total of approximately $600. The trustee then contacted two additional unsecured creditors to urge them to file proofs of claim. Those creditors were Ms. Skubal’s student loan lender, ASC Education Services, to whom Ms. Skubal owed $46,171.47, and Midland Credit Management, for a credit card debt of $25,818.06. As both creditors declined to file proofs of claim, and despite the U.S. Trustee’s opposition, Mr. McCarthy filed the proofs of claim on their behalf. Mr. McCarthy then sought to sell Ms. Skubal’s real property to pay the $600 claims, the student loan claim, the credit card claim, and his fees and administrative expenses. [Read more…] about Court Takes Self-Enriching Chapter 7 Trustee to Task

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Fourth Circuit Applies Choice of Law Approach to Exemptions

The “state-specific” approach to application of exemption laws applies when determining whether the debtor may use the exemptions from his former domicile state with respect to property located in the bankruptcy state. Sheehan v. Ash, No. 17-1867 (4th Cir. May 4, 2018).

In their Chapter 7 bankruptcy filed in West Virginia, Keith and Phyllis Ash sought to apply the exemption laws of their prior domicile state, Louisiana, to exempt approximately $3,500 in various items of personal property located in West Virginia. The trustee objected to the application of the Louisiana exemption law. The bankruptcy court overruled the objection, and the district court affirmed. Sheehan v. Ash, No. 1:16-cv-109 (N.D. W. Va. June 27, 2017). [Read more…] about Fourth Circuit Applies Choice of Law Approach to Exemptions

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Guarantor May Contest Dischargeability of Student Loan

A guarantor on a student loan is an “accommodation party” who comes within the purview of the student loan nondischargeability provision when she is required to pay the loan on behalf of the debtor. De la Rosa v. Kelly (In re Kelly), No. 17-32295, Adv. Proc. No. 17-3320 (Bankr. S.D. Tex. March 23, 2018).

Mary De la Rosa was the guarantor on a student loan acquired by her friend and fellow church member, Tabitha Kelly. When Ms. Kelly defaulted on the loan, the lender sued Ms. De la Rosa, and she paid the debt pursuant to a state court judgment. Ms. Kelly and her husband later filed for Chapter 13 bankruptcy, and Ms. De la Rosa filed an adversary complaint seeking to have the debt deemed nondischargeable under section 523(a)(8)(A)(ii). [Read more…] about Guarantor May Contest Dischargeability of Student Loan

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Court Refuses to Discard Totality of Circumstances Test for Good Faith

A Chapter 13 plan must still be proposed in good faith under the totality of circumstances test even if it complies with Code provisions for confirmation. Booker v. Johns (In re Booker), No. 16-1604 (W.D. La. April 17, 2018).

Although the trustee did not challenge Webster and Lillie Bookers’ first Chapter 13 plan, which proposed to keep their boat and various other secured items and paid only 4% to unsecured creditors, the bankruptcy court held a hearing and found the plan was not proposed in good faith. After filing a successful plan, the Bookers appealed the denial of confirmation of the first plan to the district court. [Read more…] about Court Refuses to Discard Totality of Circumstances Test for Good Faith

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Court Rejects “No Seal, No Deal” Argument

Parties cannot have a settlement agreement sealed simply because they have agreed to keep the settlement amount secret from the public. In re Thomas, No. 17-20527 (Bankr. E.D. Ky. March 1, 2018).

In the bankruptcy case she shared with her husband Andrew, Brittany Thomas filed an adversary proceeding against AT&T and DirecTV, alleging violation of the automatic stay. She sought to make the case a class action alleging that the complained of conduct extended to other non-party contract-holders with the telecommunications companies. Ms. Thomas and the companies settled their claims as to Ms. Thomas alone, and she agreed to dismiss the class action claims. The parties presented their settlement to the bankruptcy court for approval and sought to have the agreement sealed from public view in perpetuity pursuant to Section 107(b)(1) (though in a separate brief to the court, the companies sought a five-year sealing period and limited the request to the amount of settlement only). [Read more…] about Court Rejects “No Seal, No Deal” Argument

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Brunner Test Does Not Require that Debtor Take Advantage of IBR

Willie West was 60 years old, had been largely unemployed for thirty years, and owed over $60,000 in student loans. He lived rent-free with his aunt and received $197.00 under the Supplemental Nutrition Assistance Program. When he sought to discharge the loans in bankruptcy, the case came before the court on the parties’ cross-motions for summary judgment. West v. U. S. Dept. of Ed., No. 17-20506, AP No. 17-78 (Bankr. W.D. Tenn. Feb. 4, 2018). [Read more…] about Brunner Test Does Not Require that Debtor Take Advantage of IBR