AMERICAN BANKRUPTCY INSTITUTE
CONSUMER BANKRUPTCY SEMINAR
NOVEMBER 11, 2015
Case Law Update
Honorable John Gustafson
United States Bankruptcy Court
Northern District of Ohio
Thomas DeCarlo, Esquire
Staff Attorney – Office of David Wm. Ruskin
Page 9 – Section 3.37
Moore v. Caliber Home Loans, Inc., 2015 WL 5162482
(S.D. Ohio 2015) – Complaint stated cause of action
for violation of stay where lender received payments
from debtor under confirmed plan but failed to apply
payments to debtor’s loan account as required by
Plan terms; and lender demanded mortgage
payments higher than amount set out in agreed order
without explanation or justification.
Page 9 – Section 3.81
Weary v. Poteat, 2015 WL 4747883 (E.D. Tn. 2015),
aff’d 2015 WL 5712191 (6th Cir. 2015) – Creditor does
not violate stay by filing police report, speaking with
prosecutors or otherwise asking government to
commence criminal prosecution, regardless of
creditor’s motive for doing so. However, creditor
violates stay when creditor threatens to file criminal
charges unless debtor pays, or does so in a way that is
designed to coerce payment from debtor.
Page 11 – Section 3.109
In re Phillips, 2015 WL 4256641 (Bankr. E.D. Tn. 2015) –
Debtor has duty to mitigate damages before seeking
sanctions for alleged violation of stay.
Schang v. Muller, Muller, Richmond, Harms & Myers,
P.C., 2015 WL 3441178 (E.D. Mi. 2015) – Debtor has
duty to mitigate harm before seeking sanctions for
creditor’s violation of stay.
Page 12 – Section 3.114
America’s Servicing Co. v. Schwartz-Tallard, Case No.
12-60052 (9th Cir. 2015) – Sanctions for violation of
stay include attorney fees incurred in prosecution of
action for damages for stay relief. Court rejected prior
decisions that limited to fees necessary to end the
stay violation but not to prosecute action for violation
of stay.
Page 14 – Section 4.19
In re Acevedo, 2015 WL 3373030 (Bankr. W.D. Mi.
2015) - Attorney must amend Rule 2016 statement
to disclose additional compensation paid directly by
debtor or attorney comes into possession of property
or funds of debtor that are to be used to pay attorney
fees.
In re Sorter, Case No. 08-57829 (Bankr. E.D. Mi. 2015)
– Attorney who seeks compensation for services in
bankruptcy case must have fees approved by
bankruptcy court even if fees are to be paid directly.
Page 23 – Section 5.52
In re Hall, Case No. 15-30749 (Bankr. E.D. Mi. 2015) –
Debtor is not required to include Social Security in
calculating disposable income or plan payment. Plan
must still be in good faith. Retained income must not
result in extravagant lifestyle.
In re Mihal, 2015 WL 2265790 (Bankr. E.D. Mi. 2015)
– Social Security income received by debtor is
excluded in calculation of Current Monthly Income.
Debtor’s Chapter 13 Plan did not lack good faith
where plan payment excluded debtor’s social
security income.
Page 27 Section 6.37
The Gladys Ragsdale Trust v. Tostige, 2015 WL 5449997
(Bankr. E.D. Mi. 2015) – Debtor had interest as
beneficiary in revocable trust which had not been
revoked as of petition date. Interest was vested and
became property of estate where trust had not been
revoked.
Page 27 - Section 6.38
Kohut v. Lewiston, 2015 WL 3894609 (Bankr. E.D. Mi.
2015), aff’d, 2015 WL 4771285 (E.D. Mi. 2015) –
Spendthrift clause in trust is unenforceable where
beneficiary of trust is also a settlor.
Page 28 - Section 6.47
In re Colcord, 2015 WL 5461543 (Bankr. E.D. Mi. 2015)
– Michigan Law invalidates any assignment of rents in
apartment building with less than 6 units.
Page 28 Section 6.47
In re Town Center Flats, LLC, 2015 WL 2265842 (Bankr.
E.D. Mi. 2015) – Under Michigan law, upon perfection
of assignment, creditor acquires perfected security
interest in rents but does not acquire ownership of
rents or divest debtor of interest in rents.
In re Madison Heights Group, Inc., 2013 WL 8059810
(Bankr. E.D. Mi. 2013), reh’g denied, 2014 WL 1075809
(Bankr. E.D. Mi. 2014) – Properly implemented
assignment of rents is absolute and transfers ownership
of rents to mortgagee, such that there is no cash
collateral for debtor to use.
Page 35 - Section 8.1
Mediofactoring v. McDermott, 2015 WL 5515229 (6th
Cir. 2015) – Creditors who make substantial
contribution to estate in Chapter 7 proceedings are
entitled to administrative expense claim for attorney
fees and costs incurred by creditor.
Page 35 - Section 8.6.1
HSBC Bank v. Blendheim, 2015 WL 5730015 (9th Cir.
2015) – Disallowance of claim for reasons other than
the failure to file a claim or that claim was late filed or
Section 502(b)(5) as unmatured debt or Section 502(e)
where the claim is based on contribution voids
associated lien under Section 506(d).
Page 40 - Section 8.78
Matteson v. Bank of America, NA, 2015 WL 4719556
(6th Cir. BAP 2015) – Secured creditor is not required to
file proof of claim even where Chapter 13 Plan
contemplates payments to the creditor on long term
debt. Failure to file proof of claim does not affect
validity, priority or extent of lien.
Page 47 Section 8.147
Husky International v. Ritz, 787 F.3d 312 (5th Cir. 2015),
cert granted, 2015 WL 4600346 (2015) – Supreme
court to consider standard for “actual fraud” under
Section 523.
Page 52 Section 8.162
Michigan Unemployment Insurance Agency v. Andrews,
2015 WL 5813418 (Bankr. E.D. Mi. 2015) – Penalties
owed to governmental agency, normally made nondischargeable in Chapter 7 under Section 523(a)(7) are
not listed in Section 1328 as debts that are excluded
from discharge.
Page 52 Section 8.162
Branch v. 30th District Court, 2015 WL 515391 (Bankr.
E.D. Mi. 2015) – 11 USC Section 523(a)(7) excepts from
discharge any fines, penalties or forfeitures payable to
and for the benefit of a governmental unit that is not
compensation for any actual pecuniary loss. Traffic
tickets issued pre-petition are fines and penalties for
the benefit of the governmental unit and are not
compensation for actual pecuniary loss.
Page 33 - Section 7.47.1
In re Kizer, 2015 WL 6437435 (Bankr. E.D. Mi. 2015) – Debtor’s
interest in former spouse’s retirement account, acquired by
debtor through QDRO entered in prior domestic proceeding,
was not exempt as retirement account under Section
522(d)(12).
In re West, 507 B.R. 252 (Bankr. N.D. Ill. 2014) – Transfer of IRA
pursuant to QDRO expressly preserved retirement nature of
the plan such that spouse’s interest remained exempt in her
Chapter 7 case.
In re Swarup, 521 B.R. 382 (Bankr. M.D. Fla. 2014) – Florida
statutory exemption for retirement accounts encompassed
debtor’s interest in ex-spouse’s retirement account received as
part of division of marital assets.
Pages 52 - Section 8.163
Tetzlaff v. Educational Credit Management Corp., 2015
WL 4461845 (7th Cir. 2015), cert pending, Case no. 15485 (2015) – Whether “undue hardship” standard is
unconstitutionally vague, and whether Supreme Court
should reconcile split among the circuits regarding
whether Brunner is correct standard or lesser “totality
of circumstances” standard adopted by 8th Circuit.
Murphy v. US Department of Education, Case No. 141691 (1st Cir. 2015) – Student Loans and undue
hardship. First Circuit considering whether Brunner test
for undue hardship is obsolete.
Page 54 – Section 8.175
Jenkins v. Schmank, 2015 WL 4555582 (Bankr. E.D. Tn.
2015) – Attorney fees can be awarded in action under
Section 523 if underlying state law supports award.
Page 54 - Section 8.176
Jackson v. Spencer, 2015 WL 6162945 (Bankr. W.D. Mi.
2015) – State court award of treble damages was not
discharged where underlying conduct created nondischargeable debt.
Page 54 – Section 8.176.1 - Jenkins v. Schmank, 2015
WL 4555582 (Bankr. E.D. Tn. 2015) – Punitive damages
can be awarded as part of non-dischargeability action
under Section 523(a)(6) where there is clear and
convincing evidence that debtor acted intentionally,
fraudulently, maliciously or recklessly.
Page 75 – Section 11.56
Jordahl v. Burrell, Case no. 15-6009 (8th Cir. BAP 2015) –
Debtor’s plan proposed to treat one student loan as
“cure and maintain” direct payments unfairly
discriminated in violation of Section 1322(b)(1) by
proposing to pay one unsecured claim in full via cure
and maintain while paying all other unsecured claims
including other student loans at a far lower rate and
would result in one student loan creditor receiving
payments of principal and interest while other
unsecured creditors received less than full payment in
violation of Section 1322(b)(10).
Page 63 - Section 9.54
In re Jackson, 2015 WL 5677317 (Bankr. N.D. Ohio
2015) – Creditor violated discharge injunction by
scheduling property for foreclosure sale post-discharge
where amount owed on superior mortgage far
exceeded value of property, leaving there no possibility
that sale of property would produce funds to creditor.
Page 73 - Section 11.24
In re Maike, 2015 WL 5776007 (Bankr. E.D. Mi. 2015) –
Attorney fees can be paid ahead of mortgage even if
doing so delays ongoing payments to mortgage holder.
In re Hammon, 2015 WL 4462179 (Bankr. W.D. Mi.
2015) – Attorney fee cannot be paid ahead of mortgage
if doing so delays ongoing payments to mortgage
holder.
Page 74 - Section 11.49
In re Reyes, Case no. 15-45618 (Bankr. E.D. Mi. 2015) –
Debtor is not permitted to deduct voluntary retirement
contributions in calculating disposable income over
objection of creditor or Trustee.
In re Rogers, Case No. 12-32558 (Bankr. E.D. Mi. 2012)
– Debtors cannot exclude post-petition voluntary
retirement contributions in calculating disposable
income.
Properties
Page 74 – Section 11.42
In re Sagendorph, 2015 WL 3867955 (Bankr. C.D. Mass.
2015) – Debtor can propose to treat secured creditor
by vesting property in creditor at confirmation in
satisfaction of the claim.
In re Zair, Case No. 14-74456 (Bankr. E.D. N.Y. 2015) –
Section 1322(b)(9) allows debtor to vest title in secured
creditor and provide that confirmation operates as
deed of conveyance. Secured creditor must retain right
to file deficiency claim.
Page 74 – Section 11.42
Bank of New York v. Watt, 2015 WL 1879680 (D. Ore.
2015) – Section 1325 does not permit confirmation of
plan over objection of secured creditor where plan
proposes to vest title to property in creditor.
In re Davis, Case No. 14-60616 (Bankr. S.D. Ga. 2015) –
Plan that proposed to vest property in secured lender
did not comply with Section 1325. Vesting involves
immediate and non-consensual transfer of title, which
is not the equivalent of surrender for purposes of
Section 1325(a)(5).
Page 79 - Section 11.129
In re Davis, 2015 WL 3484561 (Bankr. E.D. Mi. 2015) –
Section 1328(f) precludes entry of discharge where
debtor received discharge in Chapter 7 case filed less
than four years prior to commencement of Chapter 13
case. Court can enter order determining that debtor is
not entitled to discharge even in absence of motion
filed by creditor.
Page 82 Section 11.181
In re Kirk, 2015 WL 5097741 (Bankr. N.D. Ohio 2015) –
Harris does not apply to case dismissed before
confirmation. Section 1326 provides that after
dismissal, the trustee is to pay allowed administrative
expenses and any payments due to creditors, and to
refund any remaining amount to debtor.
page 82 section 11.182
In re Edwards, 2015 WL 5601577 (Bankr. S.D. Ill. 2015)
– Funds on hand with Trustee when case is dismissed
post-confirmation must be returned to the debtor.
page 82 section 11.187
In re Brandon, Case no. 14-23735 (Bankr. D. Md. 2015)
– In case converted prior to confirmation, Trustee has
lingering duty to complete administration of case.
Section 1326 that requires payment of attorney fees
and other administrative expenses prior to refunding
balance to debtor.
In re Zulinsky, Case no. 15-47315 (Bankr. E.D. Mi. 2015)
– Funds on hand with chapter 13 trustee when case
converts prior to confirmation must be refunded to
debtor.
page 83 Section 11.188
In re Spraggins, 2015 WL 5227836 (Bankr. D.N.J. 2015)
– Funds on hand in case converted after confirmation
must be returned to debtor.
In re Beauregard, 533 BR 826 (Bankr. D.N. Mex. 2015)
– Funds on hand with Chapter 13 Trustee when case is
converted after confirmation must be refunded to
debtor without offset for payment of administrative
expenses.
Page 23 - Section 5.49
In re Currie, 2015 WL 5474475 (Bankr. C.D. Ill. 2015) –
Debtor who does not have mortgage or rent expense
but who pays taxes and insurance is entitled to full
housing expense.
Page 74 - Section 11.40
In re Ware, 2015 WL 4389688 (Bankr. N.D. Il. 2015) –
Debtor can surrender property where debtor is unable
to deliver physical possession through no fault of
debtor.
In re Prior, 2014 WL 585284 (Bankr. S.D. Ga. 2014) –
Debtor cannot surrender collateral if debtor is not able
to deliver possession or control of collateral. Surrender
requires an affirmative act beyond merely abandoning
of interest.