Where the court previously precluded evidence of unpaid escrow advances due to the creditor’s failure to comply with the evidentiary requirements of Bankruptcy Rule 3002.1(g), and the debtor made all plan payments as well as continuing mortgage payments outside the plan, the debtor was entitled to an order deeming the mortgage current under Rule 3002.1(h). In re Howard, No. 10-52527 (Bankr. N.D. Cal. Aug.15, 2016). [Read more…] about Mortgage Current Despite PNC’s Claim for Escrow Advances
DOR Collection Violates Confirmation Order
The Florida Department of Revenue violated the bankruptcy court’s confirmation order when it intercepted the debtor’s travel reimbursement funds for payment toward a domestic relations order. Florida Dept. of Rev.v. Gonzalez, No. 15-14804 (11th Cir. Aug. 11, 2016).
Irain Gonzalez’s confirmed chapter 13 plan provided for payment of his domestic support arrearages and for direct ongoing payments on that support obligation. Nonetheless, the Florida DOR intercepted his work-related travel reimbursement money and applied it to the support obligation. Mr. Gonzalez filed a motion for contempt due to the DOR’s contravention of the terms of the confirmed plan. During the contempt hearing, the DOR agreed to release the funds and cease collection efforts. The bankruptcy court granted the motion for contempt and awarded attorney’s fees. In re Gonzalez, No. 11-23183-BKC-LMI, 2012 WL 2974813 (Bankr. S.D. Fla. July 20, 2012). The district court affirmed. In re Irain Gonzalez, No. 1:15-CV-20023-KAM, 2015 WL 5692561 (S.D. Fla. Sept. 29, 2015). [Read more…] about DOR Collection Violates Confirmation Order
Late-Filed Return Not Honest and Reasonable Attempt to Comply
A tax return filed seven years after it was due and three years after the IRS conducted its independent assessment does not meet the test for an “honest and reasonable” attempt to comply with tax laws. Smith v. IRS, No. 14-15857 (9th Cir. July 13, 2016). [Read more…] about Late-Filed Return Not Honest and Reasonable Attempt to Comply
District Court Gets it Wrong in Chapter 13 Lien Strip Case
A district court in Maryland mistakenly applied Section 506(d) when it held that a debtor may not strip off a wholly unsecured lien in Chapter 13 where the creditor failed to file a proof of claim. Burkhart v. Community Bank of Tri-County, No. 14-315 (D. Md. July 27, 2016).
Edwin Michael and Teresa Stein Burkhart’s home was subject to several liens, two of which were held by Tri-County and were wholly unsecured. Tri-County did not file a proof of claim in the Burkharts’ bankruptcy. The Burkharts filed an adversary complaint seeking to strip off the wholly unsecured liens under Section 1322(b). Tri-County did not respond, and the Burkharts moved for default judgment.
The bankruptcy court relied on Section 506(d)(2), which provides: “to the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless . . . such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim. . .” Because Tri-County had not filed a proof of claim, the court held that its liens could not be stripped. (The court granted default judgment against PNC, the holder of another wholly unsecured junior lien, because PNC had filed a timely proof of claim). [Read more…] about District Court Gets it Wrong in Chapter 13 Lien Strip Case
Eighth Circuit Lets the Fox in the Henhouse
The Eighth Circuit held that because of protections offered by the Bankruptcy Code, a debtor cannot file a separate action for violation of the FDCPA when a debt collector files a proof of claim for a stale debt. Nelson v. Midland Credit Management, Inc., No.15-2984 (8th Cir. July 11, 2016).
[Read more…] about Eighth Circuit Lets the Fox in the Henhouse
Federal Reserve of St. Louis Issues Debt Report
The Federal Reserve Bank of St. Louis issued its inaugural edition of Quarterly Debt Monitor, reporting on trends in consumer debt. The report, titled “Consumer Debt Rises for Tenth Quarter in a Row,” by Don E. Schlagenhauf and Lowell R. Ricketts, compared the four largest metropolitan statistical areas in the district of the Eighth Federal Reserve District with national averages. The focus was on mortgages, home equity lines of credit (HELOC), automobile and student loans, and credit card balances. The article concludes that after a period of deleveraging following the recession of 2007-2009, consumer debt is on the rise again, particularly in the areas of automobile and student loans. Home mortgage debt went up to a lesser degree for people in the 31- to 40-year and 66- to 75-year age ranges, but went down in the age range in between. [Read more…] about Federal Reserve of St. Louis Issues Debt Report
Incompetence Does Not Excuse Stay Violation
A mortgage creditor violated the automatic stay by mistakenly filing a claim to which it had no rights and by failing to immediately return payments on that claim it had received by the trustee. In re Mocella, 552 B.R. 706, No. 10-42287 (Bankr. N.D. Ohio 2016).
Joseph J. and Kimberly A. Mocella filed Chapter 13 bankruptcy in June 2010, and listed a debt to GMAC of approximately $10,000.00, secured by their car. GMAC filed a proof of claim (claim 2) for the secured debt. Nationstar Mortgage filed a proof of claim for over $76,000.00 secured by the Mocellas’ residence. On December 4, 2014, Nationstar filed a Transfer of Claim in which it stated that GMAC had transferred claim 2 to Nationstar. In fact, Nationstar intended to file the Transfer of Claim for a bulk servicing transfer from Ocwen Loan Servicing relating to an unsecured HomeSaver Loan that Nationstar had given the Mocellas. [Read more…] about Incompetence Does Not Excuse Stay Violation
Funds in Joint Account Belong Solely to Non-Debtor
Where the non-debtor co-owner of a joint account was responsible for all the funds in the account at the time the debtor filed her bankruptcy petition, the funds were not part of the bankruptcy estate. In the Matter of Thornton, No 11-13222 (Bankr. N.D. Ga. March 25, 2016).
In anticipation of getting married, the debtor, Verna A. Thornton, and Chuck Sylvester opened a joint checking account into which they each made deposits and withdrawals intended to cover their respective living expenses. A medical malpractice judgment creditor of Ms. Thornton sought a Writ of Garnishment against that account. The credit union turned over the funds, totaling approximately $6,700.00, to the state court. When Ms. Thornton filed for Chapter 7 bankruptcy, the funds were turned over to the trustee, and Mr. Sylvester brought an Assertion of Superior Claim in the bankruptcy court. The trustee opposed the claim, arguing that the funds were part of the bankruptcy estate. [Read more…] about Funds in Joint Account Belong Solely to Non-Debtor
State Court Application of Automatic Stay Is Res Judicata
A state court’s final ruling as to the application of the automatic stay to a case before it was res judicata and could not be overruled by the bankruptcy court. Bank of North Georgia v. Vanbrocklin, 2016 Bankr. LEXIS 2176, No. 15-11761 (Bankr. N.D. Ga. May 15, 2016).
Bank of North Georgia (BNG) filed a state court lawsuit against several parties, including several entities as principals on four notes and against James P. Vanbrocklin as guarantor on the notes. When Mr. Vanbrocklin filed for Chapter 7 bankruptcy, he listed BNG as holding a contingent, unliquidated claim for approximately $1.2 million. BNG responded with an adversary complaint asserting that its claim was nondischargeable because Mr. Vanbrocklin, as a member and manager of Axiom Labs, a principal on the loans, had sold Axiom property, misappropriated proceeds, and wrongfully transferred property to a company called USA Labs. In the state case, BNG issued subpoenas and sought discovery as to transfers of property from either Mr. Vanbrocklin or USA Labs.
Mr. Vanbrocklin filed an emergency motion in the state court arguing that the discovery sought by BNG was in furtherance of its adversary proceeding in the bankruptcy court and requesting that the state court enforce the automatic stay by precluding such discovery. The state court granted the motion and stayed all proceedings in the state court as to Mr. Vanbrocklin. [Read more…] about State Court Application of Automatic Stay Is Res Judicata
Modification Based on Increased Ability to Pay
The trustee may modify a Chapter 13 plan based on the debtor’s post-confirmation increase in ability to pay. Germeraad v. Powers (In re Powers), No. 15-3237 (7th Cir. June 23, 2016). Elvie Owens-Powers and Myrick Powers had a confirmed plan under which they would pay off their secured creditors and pay $22,000 toward their unsecured debts. Upon receiving their tax return during the plan, the trustee noticed a $50,000 increase in Mr. Powers’ income and sought an order requiring them to modify their plan under Section 1329 to increase their monthly plan contributions. The bankruptcy court denied the motion to modify on the basis that it was not supported by any provision of the Code, and, alternatively, that the facts did not support modification. In re Powers, 507 B.R. 262 (Bankr. C.D. Ill. 2014). The district court affirmed on the basis that the Code did not permit the modification. It did not address the alternative factual basis for the bankruptcy court’s decision. In re Powers, __ B.R. __, 2015 WL 5725701, at *2 (C.D. Ill. Sep. 30, 2015). [Read more…] about Modification Based on Increased Ability to Pay