N.D. Ga. – Judge Sacca Holds Interest Rate Paid Pursuant To 11 U.S.C. §726(a)(5) Is Federal Judgment Rate.

By Scott Riddle Posted in Northern District Cases

It is the rare Chapter 7 case that ends up with sufficient estate assets to pay all claims in full, plus interest as required by 11 U.S.C. §726(a)(5). The question addressed by Judge Sacca in In re Robinson, Ch. 7 Case No. 15-51556, 2017 WL 713571 (Bankr. N.D. Ga. February 22, 2017) (click here for .pdf) concerned the interest rate to be paid pursuant to this statute.

The issue before the Court is what does “interest at the legal rate” mean under Section 726(a)(5) of the Bankruptcy Code for purposes of a distribution on unsecured claims in a Chapter 7 case if the estate has sufficient assets to pay post-petition interest on those claims. Does the phrase mean interest at the federal judgment rate or does it mean the applicable nonbankruptcy rate on the unsecured claim that existed prepetition?

11th Circuit Addresses Split Of Authority: Oral Statement Respecting Single Asset Falls Within Scope Of §523(a)(2)(A) Rather Than §523(a)(2)(A)

By Scott Riddle Posted in Eleventh Circuit Cases

In In re Appling (Appling v. Lamar, Archer & Cofrin, LLP), No. 16-11911, 2017 WL 603833 (11th Cir. February 15, 2017) (click here for .pdf), the Court addressed a question that has divided several other courts – Can a statement about a single asset be a “statement respecting the debtor’s … financial condition” for purposes of 11 U.S.C. §523(a)(2)? In other words, if a debtor makes an oral material misrepresentation about a single asset (or liability?) that affects his overall financial condition, does it fall within the fraud exception of §523(a)(2)(A) or does it fall within the scope of §523(a)(2)(B), which requires that such statements be in writing in order to be excepted from discharge? If the latter, arguably, it would allow dishonest debtors a “safe harbor” even after making significant material misrepresentations.

The debtor falsely stated to the creditor law firm that he expected a large tax refund of around $100,000 that he would use to pay the debt to the firm of approximately $61,000. In reliance on this representation, the creditor continued its representation of the debtor and incurred more fees and expenses. In fact, the tax refund was only about $60,000 and the debtor spent that money on his business rather than paying the creditor as he had promised. After the creditor obtained a judgment against the debtor for ~$104,000, the debtor filed a Bankruptcy case. The creditor filed an adversary proceeding to have the debt declared nondischargeable based upon the debtor’s fraud pursuant to §523(a)(2). The Bankruptcy and District Courts held that the debt was excepted from discharge pursuant to §523(a)(2)(A).

The bankruptcy court ruled that because Appling made fraudulent statements on which Lamar justifiably relied, Appling’s debt to Lamar was nondischargeable, 11 U.S.C. § 523(a)(2)(A). The district court affirmed. The district court rejected Appling’s argument that his oral statements “respect[ed] … [his] financial condition,” 11 U.S.C. § 523(a)(2)(B), and should have been dischargeable. The district court ruled that “statements respecting the debtor’s financial condition involve the debtor’s net worth, overall financial health, or equation of assets and liabilities. A statement pertaining to a single asset is not a statement of financial condition.” The district court agreed with the bankruptcy court that Appling made material false statements with the intent to deceive on which Lamar justifiably relied.

Judge Basier: Debtor May Redeem Real Property Sold At Tax Sale And Pay Redemption Amount Over Term Of Chapter 13 Plan.

By Scott Riddle Posted in Northern District Cases

In In re Jimerson, Ch. 13 Case No. 16-60838, 2017 WL 393675 (Bankr. N.D. Ga. January 26, 2017 (Basier, J.) (click here for .pdf of opinion), the debtor’s property had been sold at a tax sale for non-payment of Fulton County property taxes. The purchaser at the tax sale sent the appropriate Barment Notice providing that the debtor had until June 27, 2016 to redeem the property pursuant to O.C.G.A. §44-4-40. On June 20, 2016, Debtor filed a Chapter 13 case and a Chapter 13 plan, in which he proposed to redeem the property and pay the redemption amount (then $22,045.75) over the term of the plan. The purchaser objected to confirmation of the plan.

The two (2) issues before the Court regarding the confirmation of the Plan both relate to the right of redemption that the Debtor seeks to exercise in his Plan. They are (1) whether the Debtor, having been transferred an interest in the Property after the tax sale and after the delivery of the Barment Notice, has a right of redemption under Georgia law and, if so, (2) whether the Debtor can pay the Redemption Amount over the term of his Plan.

Fourth Circuit: Debtors Entitled To Full National And Local Standard Amount Of Expenses If They Incur An Expense In That Category.

By Scott Riddle Posted in Miscellaneous Cases

Our neighbors to the north recently had a key, debtor-friendly, decision in a Chapter 7 case regarding what expenses may be used in the means test calculations. In In re Jackson, 2017 WL 59011, Ch. 7 No. 16-1358 (4th Cir., January 5, 2017) the debtors had used the entire amount allowed by the “National and Local Standards” for certain expenses even though their actual expenses for those categories were lower. The Bankruptcy Administrator moved to dismiss.

We granted the appeal as to the following question: whether 11 U.S.C. § 707(b)(2) permits a debtor to take the full National and Local Standard amounts for expenses even though the debtor incurs actual expenses that are less than the standard amounts.

In their means test calculations, the debtors included the full local standard amount of $1548.00 for their home loan payments, even though their actual monthly payment was only $878.00. They also claimed the entire local standard amount for vehicles of $488.00 each, even though the actual payments for their two vehicles was $111.00 and $90.50, respectively. In her Motion, the Bankruptcy Administrator argued that this was “abuse” and that the official forms were incorrect because they should state that debtors are “limited to” the National and Local Standards. The debtors argued that the statute was unambiguous and allowed them to use the entire amount of the National and Local Standards even if their actual expenses for those categories was lower. Continue Reading

Can Non-Citizens, “Undocumented Workers,” and “Illegal Aliens” File For Bankruptcy In The United States?

By Scott Riddle Posted in Miscellaneous Cases

Quite obviously, both immigration and the status of “undocumented” or “illegal” aliens currently in the United States is a hot topic now, and surely will be for a long time. One issue that shows up in Bankruptcy Courts, albeit rarely, is whether non-citizens, whatever their official status, have access to Bankruptcy Courts in the United States. The first place to start is Section 109 of the Bankruptcy Code (11 U.S.C. §109), aptly titled “Who May Be a Debtor.” In short, there is no requirement in §109 that an individual be a citizen, or even lawfully in this country. For obvious reasons, people who are in this country unlawfully are not likely to file Bankruptcy petitions. However, it is not uncommon for green card holders to file for Bankruptcy protection. As with any debtor in Bankruptcy, the person will have to provide the appropriate identification and meet all other requirements of the Bankruptcy Code.

However, another important issue has arisen in some cases – exemptions. The availability of exemptions pursuant to 11 U.S.C. §522 is generally based on residency. Courts in Florida have addressed this issue in cases involving non-citizens. For example, in In re Fodor, 339 B.R. 519 (Bankr. M.D. Fla. 2006), the Court stated: Continue Reading

One Year Time Period For §727(e) Revocation Of Discharge Cannot Be Extended Or Equitably Tolled.

By Scott Riddle Posted in Northern District Cases

In In re Anzo, Ch. 7 Case No. 14-22766-jrs, 2017 WL 432787 (Bankr. N.D. Ga. January 30, 2017) (click here for .pdf of opinion), the debtor had been granted a discharge on September 29, 2015 and the case was closed on the same date. Almost a year later, on September 27, 2016 (two days prior to the deadline to file a complaint to revoke discharge) a creditor filed a Motion to Extend Time to file a complaint to revoke the debtor’s discharge pursuant to 11 U.S.C. §727(e). The creditor subsequently filed a Motion to Reopen the case two days later, on September 29, 2016. As support for the two Motions, the creditor alleged “the possibility of fraud” in the related Chapter 11 case of a business in which the debtor was a member. The creditor requested that the personal Chapter 7 case be reopened and he be given the opportunity to investigate whether there was fraudulent activity to support revocation of the debtor’s discharge. Judge Sacca denied both Motions.

In the absence of binding authority in the Eleventh Circuit, Judge Sacca first addressed the issue of whether the deadlines of §727(e) could be equitably tolled, and compared this subsection with the statute of limitations found in 11 U.S.C. §546(a). Continue Reading

Georgia Supreme Court And Eleventh Circuit Agree: Health Savings Accounts NOT Exempt In Georgia.

By Scott Riddle Posted in Eleventh Circuit Cases, Georgia State Cases, Middle District Cases

Health Savings Accounts were adopted by federal law in 2003, and allowed in Georgia in 2008. They have been a tremendous benefit to many families since that time. A simple explanation of a Health Savings Account (“HSA”), from Judge Wiki, is:

[An HSA] is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan… The funds contributed to an account are not subject to federal income tax at the time of deposit… HSA funds roll over and accumulate year to year if they are not spent. HSAs are owned by the individual, which differentiates them from company-owned Health Reimbursement Arrangements (HRA) that are an alternate tax-deductible source of funds paired with either HDHPs or standard health plans. .. HSA funds may currently be used to pay for qualified medical expenses at any time without federal tax liability or penalty… Withdrawals for non-medical expenses are treated very similarly to those in an individual retirement account (IRA) in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier.

When individuals file for Bankruptcy in Georgia, a question has arisen as to whether the funds in an HSA are exempt from the Trustee and creditors. In a prior post, we discussed the case of In re Mooney, Ch. 7 Case No. 13-10835, 503 B.R. 916, 2014 Bankr. LEXIS 29 (Bankr. M.D. Ga. January 3, 2014), in which Judge Walker of the Middle District held that HSAs are not exempt. That case was appealed, affirmed by the District Court, and eventually wound up in the Eleventh Circuit Court of Appeals. See In re Mooney (“Mooney I”), 812 F.3d 1276 (11th Cir. 2016). In Mooney I, the Eleventh Circuit certified three questions to the Georgia Supreme Court: Continue Reading

When Is A Discharge Proceeding For Student Loans Ripe In Chapter 13? Judge Bonapfel Answers.

By Scott Riddle Posted in Northern District Cases

In In re Vines, Adv. Proc. No. 16-4045, 2017 WL 213806 (Bankr. N.D. Ga. January 18, 2017), the Chapter 13 debtor filed an adversary proceeding to discharge her student loan debt pursuant to 11 U.S.C. §523(a)(8). The lender, Educational Credit Management Corporation, moved to dismiss, arguing that the matter was not ripe for adjudication until after the debtor completed her Chapter 13 plan payments.

Ripeness has two components: constitutional ripeness and prudential ripeness… The determination of constitutional ripeness “goes to whether the district court had subject matter jurisdiction to hear the case…” Even if a court has jurisdiction, prudential ripeness requires consideration of whether a court, in its discretion, should consider the matter at that time. Thus, courts must resolve “whether there is sufficient injury to meet Article III’s requirement of a case or controversy and, if so, whether the claim is sufficiently mature, and the issues sufficiently defined and concrete, to permit effective decision-making by the court.”

In a chapter 13 case, a debtor’s discharge is contingent on the completion of payments under the plan which often takes three to five years. Coupled with the forward-looking nature of
prong two of the undue hardship test, this suggests, but does not require, the conclusion that a determination of dischargeability is best made near the end of a chapter 13 case.

Ms. Vines has not filed a response to ECMC’s motion. In the absence of any showing by her that the Court should now proceed with determination of dischargeability, the Court will exercise its discretion to postpone the determination until completion of her chapter 13 plan payments.

(citations omitted). As noted in the quote above, the debtor did not respond to the lender’s motion, so it is not clear whether the result would have been different had she filed a response with meritorious arguments. I read Judge Bonapfel’s opinion as leaving that open for other cases, with the assumption that the proceeding would not be ripe until the completion of plan payments.

Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.

Can A Secured Manufactured Home Loan Be Modified In Chapter 13? Yes, Says Alabama Court.

By Scott Riddle Posted in Miscellaneous Cases

From our neighbors to the west in Alabama, the issue before the Court in In re Atchison, 557 B.R. 818 (Bankr. M.D. Ala. 2016) was whether a debtor can modify the secured claim of a lender where the security is a manufactured home that serves as the debtor’s residence. Section 1322(b)(2) provides: “the plan may …modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, …”. Thus, lenders whose claims are undersecured cannot have their liens stripped entirely, or down to the value of the collateral. Is a manufactured home “real property” such that the claim cannot be modified in a Chapter 13 Plan?

The first place the Court looked for the answer was Alabama state law, since property interests are typically “created and defined by state law.”

Under Alabama law, a manufactured home is personal property at the time of its sale. See ALA. CODE § 32B20-20(a) (requiring that manufactured homes in Alabama with designated model years of 1990 or later must have a certificate of title which is indicative of its chattel character)…

However, there are exceptions under which the manufactured home could be deemed real property. Continue Reading

Section 362(c)(3) Expiration of Automatic Stay For Repeat Filings: What Does It Cover?

By Scott Riddle Posted in Northern District Cases

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), as the name implies, included several amendments to the Bankruptcy Code that were intended to curb alleged “abuses” of the Code and Bankruptcy system. One of the amendments was limiting or eliminating the protections of the automatic stay of §362(a) for repeat filings within a one year period. Judge Sacca in the Northern District of Georgia recently addressed the applicability and limitations of §362(c)(3), which limits the stay for the second case filed within a one year period. In re Keeler, Ch. 13 Case No. 16-59261, 2016 WL 6892464 (Bankr. N.D. Ga. Nov. 22, 2016).

Section 362(c)(3) states:

[I]f a single or joint case is filed by or against a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b)—

(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case;

(B) on the motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed…

(emphasis added). Like many of the BAPCPA changes to the Code, this subsection has led to some confusion. In Keeler, Debtors filed their second Chapter 13 case three days after the dismissal of their prior Chapter 13 case, but did not move to extend the stay pursuant to §362(c)(3)(B). After the second filing, and after the 30 day stay expired, the Debtors entered into a residential lease. Debtors subsequently defaulted on the lease and the Landlord filed a Motion for an order confirming that the automatic stay was not in effect so they could proceed with eviction. Debtors argued that the automatic stay still protected them as the lease was property of the estate, even though they did not seek an extension of the stay beyond the initial 30 days. Continue Reading