Georgia Bankruptcy Blog

Georgia Bankruptcy Blog

Filing Proof Of Claim For Time Barred Debt Violates FDCPA, Says Eleventh Circuit, But They Leave An Escape Hatch.

Posted in Eleventh Circuit Cases, Miscellaneous Cases

fdcpa1In the last couple of years, claims against creditors for alleged violations of the Fair Debt Collection Practices Act (FDCPA) have become a hot item in Bankruptcy Courts.  One such question is whether the filing of a proof of claim for a stale debt (i.e., one that has become unenforceable pursuant to the applicable statute of limitations) constitutes a violation.  The Eleventh Circuit Court of Appeals appeared to have answered the question for federal courts in Georgia, Alabama and Florida in the case of Crawford v. LVNV Funding, 758 F.3d 1254 (11th Cir. 2014)(cert. denied) (read opinion here).  According to the Court’s introductory paragraph (which provides a hint to the outcome), there had been a deluge of debt buyers “armed with hundreds of delinquent accounts purchased from creditors—… filing proofs of claim on debts deemed unenforceable under state statutes of limitations.”

The Court began by acknowledging the many courts that have held that the filing of a lawsuit by a collector to collect a stale debt was a violation of the FDCPA. Continue Reading

Chapter 13 Debt Limits Apply Equally To Individual and Joint Cases, Says Judge Sacca

Posted in Northern District Cases

In In re Pete, Ch. 13 Case No. 15-63725-JRS, 2015 WL 8540438 (Bankr. N.D. Ga. Dec. 8, 2015), the debtor husband and wife filed a joint Chapter 13 case, disclosing a combined total of unsecured debt of more than $475,000.  The Chapter 13 Trustee objected to confirmation and filed a motion to dismiss, alleging that the debtors were ineligible for Chapter 13 because their unsecured debt was above the limit of section 109(e) ($383,175).  The debtors countered that if each of their debt totals were considered independently, each would qualify for Chapter 13.  The husband’s total individual and joint unsecured debts were about $285,000, and the wife’s total obligations were about $250,000 — both well below the limits of §109(e).  Thus, the debtors argue that because they would be allowed to file separate cases, they should be eligible to file a joint case.

After acknowledging a split of authority among other Bankruptcy Courts, Judge Sacca concluded that the statute clearly states that the debt limits apply in all cases, whether it is an individual case or a joint case.

Continue Reading

Agreement To Pay Mortgage On Prior Marital Home Is Not Nondischargeable Domestic Support Obligation

Posted in Northern District Cases

Divorce DebtIn In re Lawson, Ch. 13 Case No. 13-73476-WLH (click here for .pdf of opinion) the issue was whether a settlement agreement between the Debtor and his former spouse, whereby the Debtor retained (via quit claim deed) the marital home and agreed to make the loan payments, was a nondischargeable domestic support obligation pursuant to 11 U.S.C. §523(a)(5) and 11 U.S.C. §1328(a) or a dischargeable property division.  Like many in his situation, the Debtor tried to refinance and sell the house to pay off the loans but was unable to do so.  When he could not make the payments, he filed a Chapter 13 petition and his plan that provided for surrender of the house.  His former spouse (who then bore the burden of the mortgage debt but no longer had ownership) then filed an adversary proceeding for a declaration that the Debtor’s obligation to pay the mortgage was a non-dischargeable support obligation.  After a trial and a very fact-intensive analysis, Judge Hagenau ruled in favor of the Debtor and held that the debt was dischargeable. Continue Reading

Debtors Cannot Claim Homestead Exemption In Carve-out Funds Recovered By Trustee.

Posted in Northern District Cases

underwaterhouse In a July 2015 case the Chapter 7 Trustee sold a house that was underwater with three liens, and received a carve-out from the lender that held the second and third liens.  The Debtors did not object to the sale, but to the Trustee’s Final Report because it did not allow for payment of their homestead exemptions from the carve-out funds.  In re Diener, Case No. 11-83085-mhm (July 6, 2015).  The house had a first priority loan of $227,000 and second and third liens (from the same lender) in the combined amount of $129,000.  Presumably, the payments were not being made and the first lender was going to foreclose and wipe out the junior liens.  The Trustee negotiated with the creditor holding the second and third liens and reached an agreement to sell the house and pay that creditor $9,000 from the sale proceeds.  After the first lien was paid in full, closing costs were paid and the junior creditor was paid $9,000 it left about $25,000 for the Chapter 7 Estate. Debtors’ objection to the Final Report took the position that they were entitled to their $10,000 exemption from the proceeds even though there was no equity in the property and the funds were from the sale and carve-out. Continue Reading

Judge Diehl: Undisbursed Funds Paid Into Court For Garnishment Are Property Of The Estate

Posted in Northern District Cases

In In re Cochran, Ch. 7 Case No. 13-43242, 2014 Bankr. LEXIS 1178 (Bankr. N.D. Ga. Feb. 10, 2014), the issue in the motion to avoid lien was whether funds paid into court pursuant to a Summons of Garnishment are property of the Bankruptcy estate after a case is filed.  Judge Mary Grace Diehl held as follows:

  1. Garnished funds already disbursed to the creditor before the Chapter 7 case was filed are property of the creditor and the debtor and estate have no interest in those funds.  See O.C.G.A. § 18-4-93. The exception is when the court improperly disburses the funds before the  fifteen day objection period required by O.C.G.A. § 18-4-89, in which case the debtor still retains an interest in the funds until the 15 days has run.  Although the debtor argued that he could avoid the disbursement as a preferential transfer and exempt the funds, no avoidance action had been filed and the Judge declined to rule on that issue.
  2. Garnished funds not disbursed by Court, but subject to Order of Disbursement.  Where the state court had entered pre-petition orders of disbursement, but the funds had not yet been disbursed, the debtor still had the right to file a traverse and other parties who asserted a higher priority lien could also contest disbursement.  See O.C.G.A. § 18-4-93, § 18-4-95. Therefore, the debtor still had an interest in the funds not yet disbursed and, therefore, they were property of the Chapter 7 estate.  The lien could be avoided pursuant to §522(b)(1).

It follows that funds held by the state court that are not the subject of an order of disbursement are also property of the estate.  See also In re Williams, 460 B.R. 915 (Bankr. N.D. Ga. 2011)(J. Drake)(debtor retained an interest in the garnished funds until at least the time for filing a traverse has expired, and creditor’s lien could be avoided).

N.D. Ga – Trustee Cannot Use Reverse Piercing of Veil To Recover Alleged Preferential Transfer

Posted in Northern District Cases

In Howell v. U.S. Foods, Inc., Ch. 7 Case No. 11-13160, Adv. Proc. No. 13-1054, 2014 Bankr. LEXIS 681 (Bankr. N.D. Ga. Feb. 5, 2014) (click here for .pdf of Order), the individual debtor owned and managed a restaurant incorporated as Bilbo’s Bar-B-Que, Inc.  However, the Trustee alleged that the Debtor operated the business as a sole proprietorship known as “Bilbo’s BBQ.”    During the 90 day preference period, payments were made to U.S. Foods by checks which identified the drawer as “Bilbo’s BBQ.”  The account agreement states that the account is owned by a “Corporation-For Profit,” with another individual identified as the “Owner/Signer” and Debtor as the “Non-Individual Owner.”    The Trustee filed a complaint against U.S. Foods to recover the alleged preferential transfers, contending that because Debtor operated the business as a sole proprietorship rather than a corporate entity, the payments were a transfer of an “interest in the debtor” in property and on account of an antecedent debt owed by the Debtor.  U.S. Foods filed a motion to dismiss for failure to state a claim, contending “that the corporation is distinct and separate from the Debtor and that the complaint is ‘devoid’ of any justification for attributing the corporation’s debts and asset transfers to the Debtor.”  Judge Drake granted the Motion. Continue Reading

11th Circuit: Non-Filing Spouse’s Income And Expenses Can Be Used To Find Abuse Under Section 707(b)(3)(B).

Posted in Eleventh Circuit Cases

In In re Kulakowski, No. 12-15294, 2013 U.S. App. LEXIS 23110 (11th Cir. Nov. 15, 2013) (click here for .pdf of opinion), the issue was the extent to the Court could consider the income and expenses of the non-filing spouse in determining whether a Chapter 7 case could be dismissed for “substantial abuse” under 11 U.S.C. 707(b)(3)(B).  The basic facts are as follows: Debtor and her spouse have been married for over 20 years.  Debtor is unemployed, and they use her spouse’s income for their household expenses.  They have always operated as one “financial unit,” with joint checking, joint tax returns and pooling their income and expenses.  The spouse’s monthly take-home pay is $5,491, or $1,100 more than their household expenses.  Most of the debtor’s debt was credit card debt, much of which was incurred for household expenses or the sole benefit of the spouse.  The U.S. Trustee sought dismissal of the Chapter 7 case based on “substantial abuse.”  The Bankruptcy Court dismissed the case, and the District Court affirmed.  On appeal, the question before the 11th Circuit was the statutory interpretation of Section 707(b)(3)(B).

The Eleventh Circuit agreed with the dismissal of the case and analysis of the Bankruptcy Court.  The court rejected the debtor’s argument that her spouse’s income could only be considered to the extent he contributed to household expenses in determining “current monthly income” under §101(10A). Continue Reading

SD Ga – Debtors Cannot Reopen Ch. 7 Case To Enter Into Reaffirmation Agreement For Home Loan

Posted in Southern District Cases

In the case of In re Conner, Ch. 7 Case No. 09-42532, 2013 Bankr. LEXIS 4481 (Bankr. S.D. Ga. October 25, 2013), the issue was whether the Debtors could reopen their Chapter 7 case about three years after it was closed in order to enter into a reaffirmation agreement with Wells Fargo Home Mortgage.  Debtors argued that Wells Fargo had offered to enter into a reaffirmation agreement in order to assist Debtors with a modification of their home loan.  The Court declined to reopen the case, as any reaffirmation would be unenforceable pursuant to 11 U.S.C. §524(c)(1).

Reaffirmation agreements are unenforceable unless the “agreement was made before the granting of the discharge . . . .”11 U.S.C. § 524(c)(1).. “[B]ecause reaffirmation agreements are not favored, strict compliance with § 524(c) is mandated.” … For the purposes of § 524(c)(1), “a reaffirmation agreement is ‘made’ no earlier than the time when the requisite writing which embodies it has been fully executed by the debtor…”

No evidence has been produced establishing that a reaffirmation agreement was made prior to discharge, and indeed, Debtors’ counsel expressly stated that no agreement was made either in principle or in writing before the discharge. Therefore, as the reaffirmation agreement was not made prior to discharge, it cannot be enforceable under § 524(c). Because the reaffirmation agreement is unenforceable, reopening Debtors’ case would be futile. Accordingly, the Court finds that Debtors’ case may not be reopened.



Debtor Cannot Take Means Test Deduction For Student Loan Payments In Chapter 13, But May Pay Outside Plan With Interest, Says Southern District

Posted in Southern District Cases

In In re Brown, Ch. 13 Case No. 12-12316, 2013 Bankr. LEXIS 3696 (Bankr. S.D. Ga. Sept. 6, 2013), the Chapter 13 debtor deducted, on Line 57 of the Means Test, monthly student loan payments of $500 as a “deduction for special circumstances.”  In her Chapter 13 plan, she proposed to make direct payments of $500 on her student loans and make a 1% distribution to unsecured creditors.  The Chapter 13 Trustee objected to the plan on the grounds that the debtor was not contributing all of her disposable income to the plan.  The Court sustained the objection.

Section 707(b)(2) states:

(B)(i) In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative.

Section 1325(b)(3) incorporates §707(b)(2) in Chapter 13 cases.   The Court reviewed the split of authority in cases that addressed the issue of whether student loans could be deducted as special circumstances and held that such payments did not qualify for deduction on the Means Test.

While it is commendable to try and advance one’s education for career and personal advancement, the issue is whether these educational costs constitute “special circumstances” under the parameters established by Congress in §707(b)(2). There may be instances where a student loan constitutes a “special circumstance.” See In re Pageau, 383 B.R. 221 (Bankr. D.N.H. 2008) (“special circumstances” may be found where the student loan was necessitated by permanent injury, disability, or an employer closing or layoffs); see also In re Cribbs, 387 B.R. 324, 329 (Bankr. S.D. Ga. 2008) (finding that “special circumstances” must be similar to the examples set out in the statute, and finding special circumstances in the repayment of a 401(k) loan). However, under the facts of this case, the student loans do not qualify as a “special circumstance” warranting a deduction on her means test. There is nothing unique or special about Debtor’s student loans. She obtained her loans to better herself and to obtain promotions, but that does not make the loans special or unique. She was never layed off from work or forced to get an education in order to maintain her job. The fact that a bachelor’s degree may have later become a requirement does not make her loan a special circumstance. For these reasons, while Debtor’s pursuit of higher education is admirable, it is not a special circumstance under §707(b)(2)

The Court then addressed whether the debtor could make student loan payments outside the plan pursuant to §1322(b)(5), which allows a debtor to cure defaults and maintain payments on long term debts, or whether such a plan unfairly discriminates against other creditors under §1322(b)(1). Continue Reading