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

Judge Bonapfel: Above-Median Chapter 13 Debtor Can Deduct Title Pawn Or Non-Purchase Money Debt As Vehicle Ownership Costs In Calculating Disposable Income

By Scott Riddle Posted in Northern District Cases

In In re Feagan, 549 B.R. 811, Ch. 13 Case No. 15-40823 (Bankr. N.D. Ga. April 8, 2016) (click here for .pdf of opinion), the issue before Judge Bonapfel was “whether an ‘above-median’ Chapter 13 debtor with car payments on account of a nonpurchase-money debt may deduct the Ownership Costs allowance for purposes of calculating his projected disposable income (“PDI”) under 11 U.S.C. § 1325(b).” In his Chapter 13 Plan, the Debtor deducted a vehicle ownership expense of $517 per month for his payments on a title pawn transaction. The Chapter 13 Trustee objected to the proposed Plan arguing that the allowed deduction is only applicable to purchase money debt or a vehicle lease, and not to non-purchase money debt such as title pawns.

Section 707(b)(2)(A)(ii)(I) of the Code allows above-median income debtors to deduct “applicable monthly expense amounts specified under the National Standards and Local Standards . . . issued by the Internal Revenue Service for the area in which the debtor resides.” Local standards applicable in Georgia allow a deduction of $517 for the debtor’s first vehicle. As the total debt owed to the pawnbroker was $3085.16, the parties agreed that the monthly payment in the Debtor’s 60-month Plan was $51.43. Continue Reading

Massachusetts Supreme Court: Black Males May Be Justified In Fleeing From Police

By Scott Riddle Posted in Miscellaneous Cases, News and Comments

No, you have not accidentally stumbled upon the Georgia Criminal Law Blog, and I am not going to change my practice area just yet (though on the slow days I often think about it). I happen to come across this case today and thought it may be of interest, especially with the news we see every day now. With the BAPCPA now approaching 11 years in age and Bankruptcy slow, I may make a habit of occasionally straying from the topic.

In the case of Commonwealth v. Warren, No. SJC 11956 (September 20, 2016) (click here for .pdf of opinion) the issue before the Massachusetts Supreme Judicial Court was whether the police had “reasonable suspicion” to stop the defendant after a burglary in the neighborhood. If they did not, statements made by the defendant and a firearm apparently in his possession would be suppressed in his trial. A very brief description of the facts: The police responded to a “breaking and entering in progress” call. When they arrived, the victim said he saw a black male wearing a red hoodie going out the window, and two other black males outside – one wearing a black hoodie and the other wearing dark clothing. The perpetrators ran down the street, after taking a backpack, computer and other items. The call went out to be on the alert for persons meeting the description. Continue Reading

Denial Of Chapter 13 Discharge for Potential Future Debts.

By Scott Riddle Posted in Miscellaneous Cases

One hard and fast rule in Bankruptcy is that debts and claims are “set in stone” as of the petition date, or perhaps post-petition if added to the Chapter 13 plan. Bankruptcy Courts and Trustees do not normally police potential debts that may come up later. There are some exceptions to the general rule, and a Texas Bankruptcy Court addressed one of them recently.

In In re Sinclair, Ch. 13 Case No. 11-34564 (Bankr. S.D. Tex. September 7, 2016)(click here for opinion), the Debtors filed their Chapter 13 case in May 2011, proposed a confirmed plan, made all payments and completed their financial management course. Thus, they were eligible for a discharge. “But, there is a rub,” said Judge Jeff Bohm. There existed a criminal case against Mr. Sinclair arising from an alleged sexual relationship with a minor. The alleged relationship started after the Chapter 13 petition was filed, and is discussed in a little more detail in the Court’s Order. It resulted in a felony indictment against the Debtor in July 2014, which was still pending as of September 2016.

The issue before the Court was whether the Debtor could be granted a discharge given the language of 11 U.S.C. §1328(h)(2), added as part of the BACPA in 2005. This subsection states – Continue Reading

Balloon Payments Are Allowed In Chapter 13 Plans, Says Judge Carter In Middle District Of Georgia

By Scott Riddle Posted in Middle District Cases

In In re Cochran, Ch. 13 Case No. 15-52314-aec, 2016 WL 4575557 (Bankr. M.D. Georgia, September 1, 2016), the primary issue was “whether a plan that calls for distributions in the form of monthly payments followed by a balloon payment to a creditor holding a claim secured by the debtor’s real property complies with §1325(a)(5)(B)(iii)(I) of the Bankruptcy Code.”

Debtor pledged his real property for a loan from the Bank of Perry to fund the purchase of equipment for his automobile repair business. The loan matured in 2012, but the Bank continued to accept payments. In 2015, the loan was assigned to RREF II PB-GA (“RREF”), which initiated foreclosure, and the Debtor filed a Chapter 13 Petition. In his Plan, Debtor proposed to continue the previously-established adequate protection payments of $2500 for one year, then pay off the RREF balance ($649,990.09 POC) with a balloon payment. To make the balloon payment, Debtor would transfer the property to his wife, who would then obtain a loan in her name to make the balloon payment. RREF objected on two grounds: 1) the Plan did not satisfy §1325(a)(5)(B)(iii)(I) because the balloon payment was not equal to the adequate protection payments, and 2) the Plan was not feasible. The Chapter 13 Trustee did not oppose confirmation. Continue Reading

What?!? Debtors Claim Fraudulent Conveyance For Benefit Of Daughter Was In Return For (Theoretical) Future Care, And They Won!

By Scott Riddle Posted in Miscellaneous Cases

This opinion just seems a little crazy on the surface. The short version of the facts — The debtors paid for their daughter’s college education to the tune of almost $65,000, and the Trustee filed suit against the school, Sacred Heart University, to recover that amount as a fraudulent conveyance under §548 and the Mass. UFTA. The basis for the “fraud” element, the Trustee contended, was that the Debtors were actively engaged in a Ponzi Scheme at the time and, therefore, all fruits of the scheme were considered as part of the fraud. As the debtors were convicted of the scheme, that element was met. The Judge, however, found that the Debtors received “reasonably equivalent value” for the transfers because…

I find that the Palladinos paid SHU because they believed that a financially self-sufficient daughter offered them an economic benefit and that a college degree would directly contribute to financial self-sufficiency. I find that motivation to be concrete and quantifiable enough. The operative standard used in both the Bankruptcy Code and the UFTA is “reasonably equivalent value.” The emphasis should be on “reasonably.” Often a parent will not know at the time she pays a bill, whether for herself or for her child, if the medical procedure, the music lesson, or the college fee will turn out to have been “worth it.” But future outcome cannot be the standard for determining whether one receives reasonably equivalent value at the time of a payment. A parent can reasonably assume that paying for a child to obtain an undergraduate degree will enhance the financial well-being of the child which in turn will confer an economic benefit on the parent. This, it seems to me, constitutes a quid pro quo that is reasonable and reasonable equivalence is all that is required.

Thanks to Mark Duedall at Bryan Cave for the initial tip on this case. His article on the case can be found at the Bankruptcy Cave Blog. I would expect the decision to be appealed. While not all parents are convicted of running a Ponzi Scheme, Bankruptcy Courts are probably full of parents who have paid their child’s educational expenses (or for housing, vehicles, and living expenses). As Mark points out, this new twist on the defense could create a safe haven for many otherwise fraudulent transfers to children. It could also lead to some novel pre-Bankruptcy planning.

Future debtors, please take note of this remarkable opinion. If you want to help a family member, then give them money before bankruptcy, for any plausible (or implausible reason). Sick relative? Down on their luck relative? Relative that wants to invest in uranium stock, purchase the Brooklyn Bridge, or bail a Nigerian prince out of jail? The Palladino ruling creates a debtor-friendly “it tugs on your heartstrings” / “blood is thicker than water” defense to fraudulent transfer actions. And preferences too! Why not? Palladino is a safe haven for most or all of these wrongful actions.

The case is Degiacomo v. Sacred Heart, Case No. 15-01126 (Bankr. E.D. Mass. August 10, 2016). Click here for the .pdf of the opinion.

Thanks to Mark Duedall at Bryan Cave for the initial tip on this case. His article on the case can be found at the Bankruptcy Cave Blog.

Who Owns The Money In Joint Bank Accounts?

By Scott Riddle Posted in Northern District Cases

Funds in joint bank accounts can generally be accessed by all account-holders — each of them can withdraw all of the money in the account regardless of who actually deposited the funds in the account. This is often the reason for having a joint account. This can create a huge problem for the account holders when one of them is subject to a garnishment or files a Bankruptcy case. If the account is garnished because one of the account holders has a judgment against them, neither the bank nor the creditor have to determine the source of the funds prior to attaching them. If one of the parties files a Bankruptcy case, the Trustee may lay claim to all or a portion of the funds as property of the Bankruptcy estate.

Georgia law provides that “[a] joint account belongs, during the lifetime of the parties, to the parties in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent.” O.C.G.A. §7-1-812(a). If a creditor or Bankruptcy Trustee of one account holder makes a claim to the funds in the account, the other account holder(s) will often have to come forward to show that the money, or a part of it, really belongs to them. In a garnishment, the debtor account holder will have to complete the answer to the garnishment and state that the funds at issue belong to another party.

In a recent Bankruptcy case in the Northern District of Georgia, the Court addressed the “intent” clause in the statute. The Chapter 7 Trustee claimed that the funds in a Debtor’s joint account were property of the estate. However, the other account holder objected and claimed that the funds were his, rather than the Debtor’s, as he had deposited the money in the account. Prior to the filing of the Bankruptcy case, the non-debtor testified under oath in a garnishment case that both he and the Debtor would deposit money into the account, but the Debtor was the only one who ever withdrew money from the account. He also stated that the Debtor would use the money in the account for her personal expenses, and the account’s purpose “was to have a convenient place to deposit a reasonable sum of money for safekeeping and that…she could use it, or I could use it as we may need to.” Before the state court ruled on the matter, the Chapter 7 case was filed. The Trustee alleged that the testimony above evidenced an intent of the non-debtor to transfer ownership of the funds to the Debtor.

Judge Drake ruled that the state court testimony was not sufficient to overcome, by clear and convincing evidence, the presumption that the fund belonged to the non-debtor account holder.

In determining the intent of the parties to the account, the Georgia statute “creates a presumption that a party funding a joint account does not intend to make a gift of the funds of the account during her life.” Caldwell v. Walraven, 268 Ga. 444, 448 (1997); accord Wallace v. McFarland (In re McFarland), 619 F. App’x 962, 970 (11th Cir. 2015) (per curiam). However, as the statute itself states, this presumption may be overcome by clear and convincing evidence of a contrary intent. See Caldwell, 268 Ga. at 448; Lamb v. Thalimer Enters., Inc., 193 Ga. App. 70, 71 (1989)…

The Trustee maintained that Sylvester’s testimony that only the Debtor ever withdrew funds from the account, and that the Debtor used the funds in the account for her personal expenses, showed that Sylvester must have intended his deposits into the account as gifts.

While that testimony is certainly some evidence of intent to make a gift, the Court cannot conclude that it is clear and convincing proof of such intent. To begin with, the fact that only the Debtor ever withdrew funds from the account is immaterial because the “authority to withdraw funds from a joint account does not equate to ownership of the funds.” In re McFarland, 619 F. App’x at 970-71 (citing Parker v. Kennon, 242 Ga. App. 627, 629 (2000))… What is more, [the non-debtor account holder] testified at the State Court hearing that both he and the Debtor intended to make use of the account when they opened it. That he failed to withdraw funds in the relatively short time between the opening of the account in February and the initiation of the garnishment proceeding in August, on its own, is not clear and convincing evidence that he never intended to withdraw the funds he deposited…

[The non-debtor account holder] proffered at the hearing before this Court that he and the Debtor had an understanding that each spouse was to deposit funds into the account to cover that spouse’s withdrawals from the account. The Trustee did not call the Debtor as a witness or present any other evidence suggesting that there was no such arrangement between Sylvester and the Debtor.

Based on the evidence submitted at the hearing, Judge Drake ruled that the Trustee did not overcome the presumption, by clear and convincing evidence, that the non-debtor account holder intended that the deposit of the funds constituted a gift or voluntary transfer to the Debtor. Therefore, the account funds were not property of the Bankruptcy estate.

The case is In re Thornton, Ch. 7 Case No. 11-13222-whd (Bank. N.D. Ga. March 25, 2016).

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Southern District of Georgia: Absolute Priority Rule Applies In Individual Chapter 11 Cases

By Scott Riddle Posted in Southern District Cases

After a hearing on the approval of a disclosure statement, Judge Edward J. Coleman of the Middle District of Georgia ruled that the absolute priority rule and new value exception apply in individual Chapter 11 cases. In re Rogers, Ch. 11 Case No. 14-40219, 2016 WL 3583299 (Bankr. M.D. Ga June 24, 2016) (click here for .pdf of opinion).

Debtors were the sole owners of Wetdog LLC, which in turn owns the Foley House Inn in Historic Savannah. After a default in payments to Wetdog’s secured creditors, Wetdog filed a Chapter 11 petition. Wetdog’s Chapter 11 Plan was confirmed in September 2014. The individual Debtors, because they were guarantors of the Wetdog debt, filed their own Chapter 13 petition in February 2014 and subsequently converted their case to a Chapter 11 case. Their principal asset was their 100% ownership interest in Wetdog. Debtors filed a Plan and Disclosure Statement that called for a 25% distribution to unsecured creditors other than the two secured creditors of Wetdog. Debtors’ Plan called for no distribution to those creditors as they were being paid in full in the Wetdog Plan. Debtors also proposed to retain all non-exempt, pre-petition property, including their interest in Wetdog which they valued at $~~00.00~~. Continue Reading