Chapter 13

No Discharge of Unsecured Debt for Non-Filing Co-Debtors

Posted: 43 weeks 5 days ago

By: Carly S. Krupnick

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

Recently, in In re Faulkner, the Bankruptcy Court for Central District of Illinois held that a lien release provision in a debtor’s chapter 13 plan only released a secured creditor’s lien as to the debtor’s interest, and did not require the secured creditor to release its lien and surrender title to the debtor’s vehicle until the remaining deficiency balance was paid in full by a non-filing co-debtor.[1]  In Faulkner, a secured creditor held a lien on an SUV that the debtor co-owned with a non-filing debtor.[2]  Under the debtor’s chapter 13 plan, the secured creditor’s claim was bifurcated.[3]  The plan also stated that “secured creditors shall retain their liens upon their collateral until they have been paid the value of said property.”[4]  After the debtor completed her plan and received her discharge, however, the secured creditor refused to return the certificate of title to the debtor’s SUV because the non-filing debtor had not satisfied the remaining deficiency balance in full.[5]  The debtor responded by filing an adversary proceeding alleging that the secured creditor violated the discharge injunction.[6]  The court found that “there is nothing in [section] 524 that prevent[ed the secured creditor] from asserting its rights against the non-filing co-debtor for the deficiency balance,”[7]  and therefore, the secured creditor was not barred from bringing action against a non-filing co-debtor once the case was closed.[8]  Thus, the court concluded that “the debtor’s plan, no matter how clear and conspicuous, can only serve to release [the secured creditors]’s lien as to the debtor’s interest in the vehicle. . . [and the secured creditor]’s lien remains in place and can be enforced against the non-filing co-debtor’s interest in the vehicle” until the entire amount owed under the contract was paid in full.[9]  

Mortgagee’s Misapplication of Plan Payments Not Tortious

Posted: 1 year 46 weeks ago

By: Benjamin Yeamans

St. John’s Law Student

American Bankruptcy Institute Law Review Staff
 
 
In In re Oliver, the Bankruptcy Court for the District of Kansas held that a debtor did not meet the threshold requirements to proceed on a claim of outrage (i.e., intentional infliction of emotional distress)[1] by alleging that a creditor had misapplied payments received from the debtor and the trustee in violation of the debtor’s chapter 13 plan.[2] Mr. and Mrs. Oliver (the “Debtors”) entered into a loan agreement with CitiCorp Trust Bank FSB (the “Creditor”) to finance the purchase of their home.[3] Roughly three years later, the Debtors filed a chapter 13 bankruptcy petition.[4] The Debtors’ confirmed chapter 13 plan stipulated that the Creditor must apply any mortgage payments to the mortgage balance immediately upon receipt as opposed to holding the payments in a suspense account.[5] The plan also required the Creditor to apply payments made by the chapter 13 trustee and the Debtors to pre-petition arrearages and post-petition claims respectively.[6] The Debtors alleged that the creditor violated the terms of its chapter 13 plan by holding partial mortgage payments in suspense accounts, which resulted in improper interest calculations.[7] Additionally, the Debtors alleged that the Creditor had also violated the plan by failing to provide complete and accurate accountings of payment received from the Debtor and the chapter 13 trustee.[8] Finally, the Debtors also claimed that the Creditor’s misapplication of payments caused the Debtors to file incorrect tax returns, and that as a result, they were denied credit or offered credit at a higher rate.[9]

Means Test Does Not Require Dismissal if Chapter 13 Is Zero

Posted: 3 years 47 weeks ago

By: Bryan Kotliar
St. John's Law Student
American Bankruptcy Institute Law Review Staff 

Recently, in In re Siler,[1] the court allowed a debtor whose monthly disposable income created the presumption of abuse under the means test to remain in chapter 7 since the creditors would not receive any distribution under a chapter 13 plan.[2] Generally, if a debtor cannot rebut the presumption of abuse, the case must be dismissed or converted to chapter 13, which is why the Bankruptcy Administrator[3] moved to dismiss.[4] However in this case, under a chapter 13 plan, the debtor would be entitled to deduct her ERISA contributions and 401(k) loan obligation repayments from her monthly disposable income—deductions not available for her CMI calculation under chapter 7.[5] Because of these deductions, creditors would not receive any distribution under an alternate chapter 13 plan.[6] Therefore, the court held that the debtor was entitled to remain in chapter 7, notwithstanding the language of 707(b), because dismissing or converting her case to chapter 13 would create absurd results contrary to Congress’s intent.[7]

Can a Utility Company Discontinue Service for Failure to Pay Post-Petition Bills?

Posted: 3 years 51 weeks ago

By: David P. Griffin
St. John's Law Student
American Bankruptcy Law Review Staff

Recently, in Weisel v. Dominion Peoples Gas Company (In re Weisel),[1] a Pennsylvania district court held that a utility company could terminate a chapter 13 debtors’ gas service after the debtors defaulted on their post-petition contract, without seeking either leave of the court or relief from the automatic stay.[2] The debtors listed in their schedules an unsecured debt owed to the gas utility company for pre-petition services.[3] As a result of the bankruptcy petition, the utility company closed the debtors’ pre-petition account.[4] At the same time the utility opened a new post-petition account for the debtors, after the debtors posted a deposit.[5] The utility continued to provide service under the contract until the debtors amassed a post-petition delinquency.[6] After the post-petition default, the utility company provided proper notice to the debtors pursuant to state law and terminated gas utility services, without first seeking court approval.[7] The bankruptcy court held that the gas company had not violated section 362(d) of the Bankruptcy Code by terminating debtors’ post-petition gas service without obtaining relief from the automatic stay because the debtors had failed to provide adequate assurance of payment within the twenty day period set forth in section 366(b).[8] On appeal, the district court held that the gas utility company was permitted to terminate service, albeit for different reasons than the bankruptcy court. Specifically, the district court allowed the utility to unilaterally terminate gas service because section 366 allows a utility to terminate service to debtors who have posted adequate assurance, but have subsequently failed to make post-petition payments on the utility service.[9]

Repossessed Vehicles Must Be Returned to Debtor upon Filing Chapter 13

Posted: 4 years 29 weeks ago
By: Michael Vanunu
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
It is not uncommon for a chapter 13 debtor to file for bankruptcy after certain assets have already been repossessed.  This leaves the courts in the position of having to decide whether a particular creditor can continue to hold the asset it has repossessed, or must return it to the bankruptcy estate. Recently, in a case of first impression for the circuit, the Seventh Circuit, in Thompson v. General Motors Acceptance Corp.,[1] was called upon to determine whether an asset lawfully seized pre-petition must be returned to the estate after debtor files for chapter 13 bankruptcy, and if so, whether the asset must be returned even without a showing by the debtor that he can adequately protect the creditor’s interest.[2] In the case, Thompson had his car repossessed by General Motors Acceptance Corp (“GMAC”), a secured creditor.  A few days later Thompson filed for chapter 13, and sought the return of his vehicle from GMAC through the automatic stay provision of § 362(a)(3), which provides that “a petition filed [for bankruptcy] . . . operates as a stay . . . of any act to obtain possession of property of the estate . . . or to exercise control over property of the estate.”[3] GMAC refused because it claimed that Thompson could not adequately protect its interest.[4]
 

When Are Taxes “Payable” in Chapter 13 Cases?

Posted: 4 years 30 weeks ago

By: Katarina Galic
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 

When do state income taxes become “payable” to taxing authorities for purposes of chapter 13 bankruptcy? This was the precise question the Ninth Circuit recently answered in Joye v. Franchise Tax Bd. (In re Joye).[1] Disagreeing with the Fifth Circuit, the Ninth Circuit Court of Appeals adopted a liberal view and held that taxes become due when they are “capable of being paid.”[2]

A Fork in the Road: Courts Split on Transportation Ownership Deductions

Posted: 4 years 33 weeks ago
By: Tracy Keeton
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
In the case of Tate v. Bolen (In re Tate),[1] the Fifth Circuit held that for the purposes of calculating monthly income deductions under the “means test,”[2] a chapter 7 debtor may deduct a transportation ownership expense for a vehicle that is not encumbered by any debt or lease. In January 2007, the Tates sought to file for Chapter 7 bankruptcy. After filing, they were subject to the “means test” added to the Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The purpose of the means test is to determine whether debtors have sufficient disposable income to repay a portion of their debt to creditors, which was at least $166.67 a month (or at least $10,000 over 5 years) at the time of the Tates’ bankruptcy filing, and if so, a chapter 7 proceeding is presumptively abusive.[3] 
 

Calculating “Projected Disposable Income” under Section 1325(b): A Tale of Two Approaches

Posted: 4 years 36 weeks ago

By: Gary A. Ritacco
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
The Fifth Circuit, in Nowlin v. Peake (In re Nowlin),[1] recently held that reasonably certain future events that will have an effect on a chapter 13 debtor’s financial state should be taken into account in confirming a debtor’s proposed payment plan.[2] The Fifth Circuit reached this conclusion by determining the phrase “projected disposable income” in section 1325(b)(1)(B) can have a different meaning than “disposable income” under 1325(b)(2).[3]
 

Chapter 13 Plan Cannot Avoid Lien Absent Adversary Proceeding

Posted: 5 years 24 weeks ago

By: Michael Buccino
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
In SLW Capital, LLC v. Mansaray-Ruffin (In re Mansaray-Ruffin), the Third Circuit held that a creditor’s lien could not be avoided through the confirmation of a Chapter 13 plan that treated the claim as an unsecured claim.[1]  Notwithstanding the importance of finality in bankruptcy proceedings and statutory language binding creditors to the terms of a confirmed plan, since the Federal Rules of Bankruptcy Procedure require an adversary proceeding to invalidate liens, the order confirming the confirmed plan was not res judicata with respect to the status of the creditor’s lien.[2]
 

Chapter 13 For a Week?: Pulling an End-Run Around the “Applicable Commitment Period”

Posted: 5 years 33 weeks ago

By: Christpher J. Hunker
St. John's Law Student
American Bankruptcy Institute Law Review Staff
 
The Ninth Circuit Court of Appeals has ruled that a voluntary Chapter 13 bankruptcy filed by above-median income debtor with no “projected disposable income” is not subject to the “applicable commitment period” prescribed by 11 U.S.C. § 1325.[1]  In so ruling, the Court agreed with the Trustee’s interpretation of “applicable commitment period” as mandating a temporal requirement.[2]  Nevertheless, the Court found that the “applicable commitment period” is inapplicable where the debtor can show a negative or zero “projected disposable income” as calculated on Form B22C.[3]  Thus, an above-median income debtor can escape the required five-year “applicable commitment period” if, at the time of filing for Chapter 13 bankruptcy, the debtor can prove that his “projected disposable income” would be zero or a negative number.

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