Pending cases throughout the country to watch for …

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, and pay particular attention to cases close to home!

It is brought to you by Consumer Bankruptcy Abstracts & Research (www.cbar.pro) and the National Consumer Bankruptcy Rights Center (www.ncbrc.org).

 

Consumer debts: The Chapter 7 debtor’s student loan debt, incurred in undertaking a doctorate program in business administration, was not consumer debt, although the debtor’s employer did not require that he take the courses and did not pay for the program, where the debtor undertook the program with a profit motive, in that his personal goal in undertaking the program was to advance his business knowledge and, ultimately, own and run a profitable business. The debtor’s education could properly be characterized as a business investment in himself. Palmer v. Laying, 559 B.R. 746 (D. Colo. Nov. 15, 2016) (case no. 1:15-cv-2856).

Dischargeability of debt—Student loan debt under Code § 523(a)(8)—Establishing undue hardship: The debtor showed, under the Brunner test, that repayment of the non-Stafford portion of her student loan debt would impose an undue hardship on her and her family, warranting the discharge of that portion of her debt under Code § 523(a)(8). The debtor, a 36-year-old single mother of two daughters, was in her fourth year as an elementary school teacher and earned $35,300 annually. Unless she returned to school for graduate classes (an expense her budget showed no ability to fund), her salary was capped by her school district’s pay scale, and the debtor’s realistic budget demonstrated that it was difficult for her to cover her reasonable living expenses, leaving her without funds to make any payments to her student loan creditor. And, while the debtor admittedly had not made any payments on the loans in the last six years, the debtor demonstrated to the court’s satisfaction that she was really unable to make anything but a de minimis payment, if at all, on her student loans during those years. In re Edwards, 2016 WL 7451337 (Bankr. D. Kan. Nov. 22, 2016) (adv. proc. no. 2:15-ap-6100).

Dischargeability of debt—Student loan debt under Code § 523(a)(8)—Status of obligation as encompassed by provision: The debtor’s obligation under a “Financial Agreement” between the debtor and a college, requiring the debtor to pay for tuition, fees and other registration costs at some unspecified future time, did not come within Code § 523(a)(8). Because no “loan” existed, neither § 523(a)(8)(A)(i) nor § 523(a)(8)(B) applied, and, given that no funds were received by the debtor, § 523(a)(8)(A)(ii) had no application either. In re Tucker, 560 B.R. 206 (Bankr. W.D. N.Y. Nov. 1, 2016) (adv. proc. no. 1:16-ap-1001).

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also find his website at http://www.mtvernonbankruptcylawyer.com.

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Brief analysis of the Higgins case (Florida) – keeping foreclosure cases at their word!

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country as eventually, it will affect bankruptcy attorneys here in Mount Vernon and all of southern Illinois.

 

 

Here we have Higgins v. Dyck-O’Neal, Inc., — So. 3d —-, 2016 WL 3191146 (Fla. 1st DCA 2016). It is a long and involved case, and I split the decision into two blogs – Part One and Part Two.

 

A trial court’s reservation of jurisdiction to consider the entry of a deficiency decree requires the plaintiff seek a deficiency in that action, and further prohibits the plaintiff from filing a separate suit at law seeking a deficiency.

 

At first glance it appears that the court is splitting hairs. A mortgage company cannot bring a separate action to collect a deficiency judgment.  Fine, they will do that. Isn’t the Mortgagee simply delaying the inevitable?

 

But it is a good case explaining the powers of the court. The congress (state or federal) make the laws and the courts interpret those laws. If the law says you must go from A to B to C, you cannot go from A to C. “It has the same result…” True, but it emphasizes that we are a nation bound by the Rule of Law. And we the people (or the courts or the corporations) must abide by that Rule of Law. It is the glue that binds us as a nation of individuals.

 

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also find his website at http://www.mtvernonbankruptcylawyer.com.

 

Part two of the Higgins foreclosure case from Florida -no separate lawsuit for deficiency collection!

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country as eventually, it will affect bankruptcy attorneys here in Mount Vernon and all of southern Illinois.

 

 

Here we have Higgins v. Dyck-O’Neal, Inc., — So. 3d —-, 2016 WL 3191146 (Fla. 1st DCA 2016). It is a long and involved case, and I split the decision into two blogs – Click here to read Part One.

 

 

On first examination of the petition for certiorari, the Supreme Court concluded that argument should be heard on the matter because of apparent conflict with its prior decisions. Id. The Supreme Court summarized some of its prior decisions, including Reid, McLarty, and Luke. Id. It distinguished Reid because in the case at hand “the request [for a deficiency decree] was made in the complaint and apparently was not immediately considered but was deferred as the court retained jurisdiction to settle any motion for deficiency.” Id. The Supreme Court set forth, “So it may be said that the request for deficiency was neither considered nor overlooked. Here again on the salient facts the plaintiff was not at this point free to seek an adjudication elsewhere, hence a conflict was not developed.” Id. The Supreme Court stated of McLarty, “[T]here was a prayer for a deficiency but thereafter request for that relief was ignored.” Id. It found that the holding in Luke was essentially the same as the one in Reid. Id. The Supreme Court was ultimately unable to discover the conflict that would vest jurisdiction with it because “there appears to be no inconsistency between what was held here and what was decided in the cited cases.” Id. It set forth, “There has been no disturbance of the rule that if a deficiency is sought and the relief is overlooked or not considered, the one entitled to the recovery of the balance of the debt left over after the proceeds of the mortgage sale have been credited may sue for the remainder at law.” Id. at 859. The court found, however, that the “principle would have to be stretched out of form to condone what the plaintiff undertook in this case.” Id. It concluded that the Fourth District’s decision was sound and did not disrupt the law that “appears firmly established.” Id.

In support of its argument on appeal that its action at law was permissible, Appellee relies not only on Reid but also upon the plain language of section 702.06, both before and after the 2013 amendment. While we agree that the plain language of both versions of section 702.06 supports an argument that a party may file an action at law to recover a deficiency so long as a trial court has not actually ruled upon a request for a deficiency judgment in the foreclosure case, cases such as Belle Mead and First Federal Savings suggest otherwise. We note also that any question as to whether Reid permits a party to file an action at law after including a prayer for a deficiency judgment in a foreclosure complaint and after the trial court reserves jurisdiction to consider such a request was resolved by the Supreme Court in First Federal Savings. There, as here, the foreclosure complaint contained a prayer for a deficiency decree, and the foreclosure judgment expressly reserved jurisdiction to rule upon a deficiency request. As the Supreme Court noted in First Federal Savings, there was not a reservation of jurisdiction in Reid. As such, Appellee’s reliance upon Reid is misplaced.

Notwithstanding the fact that First Federal Savings supports the argument that a party is not entitled to pursue an action at law on a promissory note where that party includes a prayer for a deficiency judgment in its foreclosure complaint and the trial court reserves jurisdiction to enter a deficiency judgment, we have determined that affirmance is warranted in this case based upon the circumstances presented. Unlike the situation in First Federal Savings where the foreclosure court entered an order terminating its jurisdiction, the trial court in this case granted Appellee’s motion to consolidate the foreclosure case and the action at law. Therefore, in contrast to the Palm Beach County Circuit Court in First Federal Savings, the trial court in this case still had jurisdiction in the foreclosure case. Although Appellant cites case law for the proposition that consolidated cases maintain their independent status with respect to the rights of the parties involved, Appellant does not contend on appeal that the trial court erred in granting Appellee’s motion to consolidate or in denying his motion to dismiss the action at law. We note also that although Appellant moved to dismiss the action at law prior to Appellee moving for consolidation, the record does not contain any argument put forth below by Appellant in opposition to consolidation. As such, any question as to whether consolidation was proper is not before us. Compass Bank, 164 So. 3d at 52-57 (footnotes omitted).

Regardless of whether this prior analysis on the merits of the issue was dicta in Reid, we now adopt this analysis in our holding here. And we disagree with our sister court’s holding in in Garcia v. Dyck-O’Neal, Inc., 178 So. 3d 433 (Fla. 3d DCA 2015), that the revised relevant statutory language compels a different result.

The facts in Garcia are very similar to this current appeal. In 2009, BAC Home Loans Servicing brought a successful foreclosure action against Garcia and others, and the prayer for relief included the court taking jurisdiction for the purpose of a deficiency judgment. 178 So. 3d at 434. The final judgment of foreclosure reserved jurisdiction to adjudicate any claim seeking a deficiency judgment. Id. After the foreclosure sale, the appellee was assigned the judgment and note, and filed a separate action in the same county as the foreclosure action against Garcia seeking the deficiency. Id. Garcia did not respond, the clerk’s default was entered in September 2014, and the appellee moved for entry of a final default judgment. Id. Garcia filed a motion to dismiss, arguing that the trial court lacked subject matter jurisdiction of the deficiency action because BAC sought deficiency relief and the foreclosure court expressly retained jurisdiction to adjudicate the deficiency. Id. The trial court rejected this argument, and Garcia appealed, relying on First Federal Savings and Compass Bank.

The Third District found that the portions of the opinions relied upon by Garcia were dicta and, in relevant part, held:

  1. First Federal Savings’ Dicta

In First Federal Savings, the plaintiff obtained a judgment of foreclosure in Palm Beach County; the foreclosure court retained jurisdiction to determine a deficiency judgment. The plaintiff then filed an action in Broward County to recover the deficiency. On plaintiff’s motion, the circuit court in Palm Beach County terminated its jurisdiction. The Broward County circuit court, however, dismissed the case because the Palm Beach County circuit court originally had retained jurisdiction. First Fed. Sav., 195 So.2d at 857.

The Fourth District Court of Appeal held that the Palm Beach County circuit court should not have abandoned its jurisdiction. Initially, the Florida Supreme Court granted certiorari review based on an apparent conflict among the districts. In discharging the writ of certiorari, however, the Florida Supreme Court determined that no conflict existed after all. In its conclusion, the Florida Supreme Court’s glancing reference to the rule for recovering a deficiency judgment does not constitute the holding of the case. First Fed. Sav., 195 So.2d at 859.

. . .

  1. Statutory Authority Eclipses Dicta

When the clear and unambiguous language of a statute commands one result, as here, while dicta from case decisions might suggest a different result, we must apply the statute so as to give effect to legislative intent. Citizens Prop. Ins. Corp. v. Perdido Sun Condo. Ass’n, Inc., 164 So.3d 663, 666 (Fla.2015). In determining legislative intent, we first look to the language of the statute. State v. Hackley, 95 So.3d 92, 93 (Fla.2012) (“The first place we look when construing a statute is to its plain language—if the meaning of the statute is clear and unambiguous, we look no further.”).

We need look no further than the plain language of section 702.06. The dicta in First Federal Savings and Compass Bank does not carry the weight of authority of section 702.06 as it is now constituted. The remedial nature of the 2013 amendment to section 702.06 militates against our further interpreting an inconsistent body of case law.  178 So. 3d at 435-36 (footnotes omitted).

We respectfully disagree with the Third District’s opinion, which does not dissuade us from adopting this court’s analysis in Compass Bank. In particular, we cannot ignore that part of the Supreme Court’s First Federal Savings’ holding that its certiorari jurisdiction was unadvisedly granted, based on the fact that the Fourth District’s underlying opinion in First Federal Savings did not disrupt the law that appeared firmly established, and the facts of the case were specifically distinguishable from Reid, as that prior Florida Supreme Court opinion did not involve a reservation of jurisdiction like First Federal Savings. Furthermore, we cannot read the statutory language to effect a monumental change in the law, which would allow a mortgagee to sue to foreclose on the mortgaged property, successfully request the court to reserve jurisdiction to enter a deficiency judgment in the event of a shortfall after the sale of the property, and then after the court reserves jurisdiction at the request of the mortgagor (or the successor), then permit the mortgagor to seek a deficiency judgment at common law. The statute expressly prohibits such a result if the original suit in foreclosure results in an order granting or denying the deficiency judgment. In our view, when the original court in foreclosure reserves jurisdiction to grant or deny the deficiency judgment, the statute cannot be logically or fairly read to permit the plaintiff in the original action to disregard the court’s reservation of jurisdiction, and file another action at law. When the court in the foreclosure action has been requested to grant a deficiency judgment and has reserved jurisdiction to do so, the plaintiff is bound by that court’s ultimate exercise of jurisdiction to rule on the matter.

We agree with the federal district court in Wells Fargo Bank, N.A. v. Jones, 2014 WL 1784062 (M.D. La. May 5, 2014), that to interpret this statute as read by the Third District and asserted by Appellee would permit forum shopping and contravene the Florida Supreme Court case law to the contrary, which the statute does not specifically abrogate. In Jones, like here, the lender had sought a deficiency judgement in the original foreclosure action, that court had reserved jurisdiction to render such relief, but the lender then sought a deficiency judgment at common law in federal court, disregarding its earlier request for relief in the Florida state court which still retained jurisdiction to grant relief. The court in Jones stated: “This Court finds that the Florida law providing the lender with `the right to sue at common law to recover such deficiency’ was never meant to apply to the present situation.” We agree, and further note that the statute cannot be reasonably read to allow a lender to seek a deficiency judgment in the original foreclosure action, where the court is granted the discretion to deny such relief, and retains jurisdiction to do so, and then grant the lender the right to forum shop and file yet another action based on contract principles where the subsequent court is not authorized to deny relief in common law, absent unusual circumstances. Absent specific direction from the legislature, such a reading is not justified. Rather, we read the revised statutory language as simply clarifying and reiterating long-standing judicial holdings that if the original foreclosure court ignores a claim for a deficiency judgment, or one is not sought there, the lender may seek relief at common law.

As we acknowledged in Compass Bank, “While we agree that the plain language of both versions of section 702.06 supports an argument that a party may file an action at law to recover a deficiency so long as a trial court has not actually ruled upon a request for a deficiency judgment in the foreclosure case, cases such as Belle Mead and First Federal Savings suggest otherwise.” 164 So. 3d at 56 (emphasis added). We now hold that while the statutory language may “support” such an argument, it does not persuade us that the legislature intended to actually overrule Florida Supreme Court decisions that address the issue more specifically and hold to the contrary. Thus, we fully agree with our prior opinion that Appellee’s reliance on Reid is misplaced, and we hold that a party is not entitled to pursue an action at law on a promissory note where that party includes a prayer for a deficiency judgment in its foreclosure complaint and the trial court reserves jurisdiction to enter a deficiency judgment. Accordingly, we reverse the trial court’s denial of Appellants’ motion for relief from judgment and remand for the trial court to void the default judgment.

REVERSED and REMANDED.

LEWIS, J., CONCURS; MAKAR, J., DISSENTING WITH OPINION.

MAKAR, J. dissenting.

A final judgment of foreclosure entered against Sylvia and Collier Higgins resulted in their home being sold at auction. Dyck-O’Neal, Inc., which was assigned the judgment and underlying note, sued in a separate proceeding to collect the deficiency between the amount due on the note and the property’s value. A final judgment of default was entered against the Higgins because they failed to respond in the deficiency proceeding. A year later, the Higgins sought to void the default judgment, claiming the trial court lacked jurisdiction because the foreclosure court had reserved jurisdiction to consider a request for a deficiency judgment in that proceeding.

The trial court properly denied the Higgins‘ request because the Legislature had just recently enacted a clearly worded statute that established a “right to sue” for a deficiency judgment “unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment.” § 702.06, Fla. Stat.; Ch. 2013-137, Laws of Fla. Because the “court in the foreclosure action” had neither “granted” nor “denied” the claim for a deficiency judgment in that proceeding, Dyck-O’Neal had a clear statutory “right to sue” separately for a deficiency judgment. The statute contemplates this precise situation, i.e., where a foreclosure court has been presented, but not acted upon, a request for a deficiency judgment; in such a case, the complainant has the “right to sue” to recover the deficiency. The statute doesn’t say the complainant must sue in the same court as the foreclosure action; instead, the plain words of the statute envision the possibility of two separate proceedings, perhaps in two different courts.

The plain, unambiguous language of the statute has not escaped judicial notice. Every Florida court addressing the issue of whether section 702.06 jurisdictionally bars a separate suit for a deficiency judgment has said unequivocally that it does not. Instead, the only statutory jurisdictional bar is if the “court in the foreclosure action has granted or denied a claim for a deficiency judgment.” § 702.06, Fla. Stat. The Third District, in two cases with facts like this one, have viewed the 2013 statutory language as “clear,” “plain,” and “unambiguous.” Dyck-O’Neal, Inc. v. Weinberg, 41 Fla. L. Weekly D329 (Fla. 3d DCA Feb. 3, 2016) (reversing an order dismissing for lack of jurisdiction based on “unambiguous” and “plain language of the statute”); Garcia v. Dyck-O’Neal, Inc., 178 So. 3d 433, 436 (Fla. 3d DCA 2015) (“When the clear and unambiguous language of a statute commands one result, as here, . . . we must apply the statute so as to give effect to legislative intent.”); see also Cheng v. Dyck-O’Neal, Inc., 41 Fla. L. Weekly D1076b (Fla. 4th DCA May 6, 2016) (agreeing with Third District decisions “that section 702.06, Florida Statutes, is unambiguous”). As summarized by the Third District in Garcia:

According to the statute, unless the foreclosure court has granted or has declined to grant a deficiency judgment, a plaintiff may pursue deficiency relief in a separate action. In the instant case, the foreclosure court did not grant or decline to grant the deficiency judgment claim; therefore, the trial court below had jurisdiction to consider Dyck-O’Neal’s deficiency claim.

178 So. 3d at 436. Likewise, the Fourth District in Cheng concluded that the “foreclosure judgment’s reservation of jurisdiction does not preclude a separate suit to recover the deficiency where the foreclosure court has not granted or denied a claim for a deficiency judgment.” Cheng, 41 Fla. L. Weekly D1076b. The clarity of the 2013 statutory language decides this case; affirmance is required.

Two additional points are warranted. First, the lengthy discussion of erstwhile case law in Reid v. Compass Bank, 164 So. 3d 49, 57 (Fla. 1st DCA 2015), is dicta, immaterial, and misplaced. Because it is dicta, it has only persuasive value; but it has failed to persuade both the Third and Fourth Districts. It is immaterial because the 2013 statutory language at issue trumps whatever perceived inconsistency the panel in Reid may have imagined with prior precedents. See Garcia, 178 So. 3d at 436 (“Statutory Authority Eclipses Dicta”). In addition, the case law recited cannot be said to be inconsistent with the 2013 revision. Rather, though the older case law is not entirely consistent, it appears that a complainant had the right to pursue an action at law for a deficiency judgment if a deficiency is not sought or entered in the foreclosure proceeding. See Reid v. Miami Studio Props., 190 So. 505, 506 (Fla. 1939); see also First Fed. Sav. & Loan Ass’n of Broward Cnty. v. Consol. Dev. Corp., 195 So. 2d 856, 859 (Fla. 1967) (“There has been no disturbance of the rule that if a deficiency is sought and the relief is overlooked or not considered, the one entitled to the recovery of the balance of the debt left over after the proceeds of the mortgage sale have been credited may sue for the remainder at law.”).

Second, whatever disagreement may exist about the efficiency of allowing a separate proceeding to pursue a deficiency judgment is best left to the Legislature, which has recently addressed and settled the matter. As the Third District said: “In our view, the Legislature drafted a clear statute that resolved the courts’ struggle with the issue in this case.” Garcia, 178 So. 3d at 436. If the statutory “right to sue” in section 702.06 results in significant problems—which appears unlikely given the right in some form has existed for over 75 years—the legislative branch may wish to address them.

 

 

A quick analysis of the case is locate here.

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also find his website at http://www.mtvernonbankruptcylawyer.com.

 

The Higgins foreclosure case from Florida -no separate lawsuit to collect a deficiency! Part One

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country as eventually, it will affect bankruptcy attorneys here in Mount Vernon and all of southern Illinois.

 

 

Here we have Higgins v. Dyck-O’Neal, Inc., — So. 3d —-, 2016 WL 3191146 (Fla. 1st DCA 2016). It is a long and involved case, and I split the decision into two blogs – This is Part One.

 

 

SYLVIA HIGGINS AND COLLIER HIGGINS, APPELLANTS,

V.

DYCK-O’NEAL, INC., APPELLEE.

Case No. 1D15-4784.

District Court of Appeal of Florida, First District.

Opinion filed June 9, 2016.

Austin Tyler Brown of Parker & DuFresne, P.A., Jacksonville, for Appellants.

Susan B. Morrison, Tampa, for Appellee.

THOMAS, J.

 

Appellants, Collier Higgins & Sylvia Higgins, seek review of an order denying their motion for relief from a Final Default Judgment, wherein the trial court determined that Appellants were indebted to Appellee, Dyck-O’Neal, Inc. Appellants argued below and reassert here that the trial court lacked subject matter jurisdiction and thus erred in denying their motion for relief, based in part on our decision in Reid v. Compass Bank, 164 So. 3d 49 (Fla. 1st DCA 2015). Appellants argue that Appellee was precluded from filing an action at law seeking damages based on Appellants’ failure to satisfy their promissory note on the property at issue, because Appellees had filed a prior foreclosure action which included a prayer for a deficiency judgment, and the trial court in that action reserved jurisdiction to enter a deficiency judgment. We agree with Appellants, and for the reasons stated herein, we reverse the trial court’s denial of Appellants’ motion for relief from judgment.

FACTS

In 2009, Freedom Mortgage Corporation (Freedom) sued Appellants in Duval County to foreclose the mortgage on Appellants’ property. It is undisputed that in its complaint, Freedom included a request for a deficiency judgment against Appellants, if the proceeds were insufficient to pay Freedom’s claim. In September 2009, the trial court entered a Final Summary Judgment in Foreclosure that retained jurisdiction “for the purpose of making any further orders as may be necessary and appropriate herein, including but not limited to all claims for deficiencies.” (Emphasis added.) After the foreclosure sale, the Judgment and Note was assigned to Appellee.

Almost five years later, Appellee filed a new Complaint in law against Appellants in Duval County, seeking damages as a result of Appellants’ failure to satisfy the promissory note on the property. Appellants did not respond to the Complaint, and Appellee moved for default, which was granted. Appellee filed a motion for final default judgment along with supporting affidavits. The trial court ultimately entered a Final Default Judgment against Appellants, totaling $89,724.15.

Approximately 11 months later, Appellants filed a motion for relief from judgment pursuant to rule 1.540(b), Florida Rules of Civil Procedure, asserting the final judgment was void, as it was entered without subject matter jurisdiction, citing Compass Bank. Appellee filed a memorandum of law in opposition to Appellants’ motion for relief from judgment, asserting in part that our decision in Compass Bank which discussed the relevant issue here was dicta. Following a hearing, the trial court denied Appellants’ motion for relief from judgment, and this appeal followed.

ANALYSIS

Appellants argue here that Appellee was prevented from filing an action at law, based on the prayer for a deficiency judgment in the prior foreclosure action, where the prior foreclosure court unequivocally reserved jurisdiction to enter a deficiency judgment. It is undisputed that the argument on appeal concerns an issue of law, which is reviewed de novo. Compass Bank, 164 So. 3d at 52 (citing Fla. Ins. Guar. Ass’n, Inc. v. Bernard, 140 So. 3d 1023, 1027 (Fla. 1st DCA 2014)).

In addressing the legal issue presented here, we return to the analysis of this court’s decision in Compass Bank:

Prior to June 7, 2013, section 702.06, Florida Statutes, which is entitled “Deficiency decree; common-law suit to recover deficiency,” provided:

In all suits for the foreclosure of mortgages heretofore or hereafter executed the entry of a deficiency decree for any portion of a deficiency, should one exist, shall be within the sound judicial discretion of the court, but the complainant shall also have the right to sue at common law to recover such deficiency, provided no suit at law to recover such deficiency shall be maintained against the original mortgagor in cases where the mortgage is for the purchase price of the property involved and where the original mortgagee becomes the purchaser thereof at foreclosure sale and also is granted a deficiency decree against the original mortgagor.

(Emphasis added). Section 702.06 was amended in 2013 to read:

In all suits for the foreclosure of mortgages heretofore or hereafter executed the entry of a deficiency decree for any portion of a deficiency, should one exist, shall be within the sound discretion of the court; however, in the case of an owner-occupied residential property, the amount of the deficiency may not exceed the difference between the judgment amount, or in the case of a short sale, the outstanding debt, and the fair market value of the property on the date of sale. For purposes of this section, there is a rebuttable presumption that a residential property for which a homestead exemption for taxation was granted according to the certified rolls of the latest assessment by the county property appraiser, before the filing of the foreclosure action, is an owner-occupied residential property. The complainant shall also have the right to sue at common law to recover such deficiency, unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment.  See Ch. 13-137, § 5, Laws of Fla. (Emphasis added).

In addressing Appellant’s argument, a review of the case law construing section 702.06 is instructive. In Younghusband v. Ft. Pierce Bank & Trust Co., 100 Fla. 1088, 130 So. 725, 727 (1930), the supreme court held that “[i]f no deficiency judgment is entered in foreclosure sale, it is clear that a suit at law for any amount still due is available to the holder.” In Cragin v. Ocean & Lake Realty Co., 101 Fla. 1324, 135 So. 795, 797 (1931), the supreme court set forth that a plaintiff “having applied for and obtained a deficiency decree in their favor in the court of equity, could not, under the act of 1927, go into a court of law and maintain therein suits for the recovery of the balance due on the notes.” In Provost v. Swinson, 109 Fla. 42, 146 So. 641, 643 (1933), a case relied upon by Appellant, the supreme court set forth, “When the complainant filed his bill in equity to foreclose the mortgage and therein prayed for a deficiency decree, he elected that forum in which to have his right adjudicated and became bound by that choice.”

In Belle Mead Development Corp. v. Reed, 114 Fla. 300, 153 So. 843, 844 (1934), another case relied upon by Appellant, the supreme court explained that in August 1928, the appellee executed three promissory notes payable to the McElroys. It was alleged that the notes were assigned and delivered before maturity to the appellant, the plaintiff in the case. Id. The appellant filed suit for the foreclosure of the mortgage, praying for a deficiency decree. Id. A foreclosure decree was obtained, the property was sold, and the proceeds were applied to the payment of the debt. Id. The appellant asked for a deficiency decree which was “resisted” by the “defendant,” and the chancellor refused to enter a deficiency judgment. Id. The appellant subsequently filed an action at law to recover on the promissory notes, and the trial court “struck those pleas.” Id. The supreme court, in affirming, set forth, “In the case at bar there was a special prayer for affirmative relief [for a deficiency decree]. The complainant thereby elected that forum in which to have its rights adjudicated and became bound by that choice.” Id. The Supreme Court further set forth, “After specifically praying for a deficiency, the complainant may waive the relief prayed for in that regard, but it does not avoid the choice of the forum by not applying for the deficiency decree.” Id.

In Reid v. Miami Studio Properties, 139 Fla. 246, 190 So. 505, 505 (1939), a case relied upon by Appellee in support of its argument that the action at law was permissible, the supreme court noted that the complainant, in his bill to foreclose, prayed for a deficiency decree in the event the property at issue did not bring enough to pay the amount of the indebtedness and costs. The Chancellor did not enter a deficiency decree and did not consider this phase of the prayer for relief. Id. The Supreme Court explained that the sole question presented was “whether or not under the facts stated the plaintiff Reid can now maintain an action at law to recover the amount of the deficiency judgment which he prayed for in the foreclosure but which prayer was not considered.” Id. The Supreme Court noted that the defendant contended that the question should be answered in the negative because “the plaintiff in error elected his forum and is bound by the result of his election.” Id. at 505-06. The defendant relied upon Provost and Belle Mead in support of its argument. Id. at 506. The Supreme Court set forth:

We understand the law to be that where there is no prayer for a deficiency and where one is not sought or entered in the foreclosure proceeding the law courts may be resorted to recover one. Since the entry of a deficiency decree under Section 5751, Compiled General Laws of 1927, is within the sound discretion of the Chancellor and if entered, the one in whose favor it is entered may resort to a suit at law to recover it, we see no basis for the logic that he is precluded from an action at law to recover one if the chancellor is importuned to enter it and declines to consider the question or to make any ruling thereon.

The cases relied on by defendant in error have been examined. They involve other factual situations affecting deficiencies but we do not consider that they rule the question we have here nor are we convinced that the elements essential to constitute an election of remedies are present.

In fine, we understand Section 5751, Compiled General Laws of 1927, to mean that if a deficiency decree is asked for in a foreclosure and granted, that settles the question of what forum may be sought for relief but if not asked for or if asked for and overlooked or not considered, the right of the claimant is not affected. He may sue at law and recover such portion as he may prove himself entitled to. Id. (Emphasis added).

In Crawford v. Woodward, 140 Fla. 38, 191 So. 311, 311 (1939), the supreme court, relying on Provost, Cragin, and Belle Mead and finding Reid distinguishable, determined that the plaintiff could not maintain an action at law after the foreclosure where the plaintiff prayed for a deficiency decree, notwithstanding the facts that the plaintiff later stated in the confirmation of the foreclosure sale that “Complainants are not asking for a deficiency decree” and none was rendered by the chancellor.

In Luke v. Phillips, 148 Fla. 160, 3 So.2d 799, 799 (1941), the Supreme Court addressed the plaintiff’s contention that Reid overruled Belle Mead. The supreme court, without setting forth the facts of the case, set forth, “[T]he instant case is ruled by Reid . . . wherein we pointed out that the facts of that case were distinct from those in the Belle Mead . . . case and that line of cases which were not inferentially or otherwise overruled.” Id.

In McLarty v. Foremost Dairies, 57 So.2d 434, 434 (Fla.1952), the supreme court considered a petition for writ of certiorari to review a judgment of the Duval County Circuit Court which affirmed the judgment of the Civil Court of Record for Duval County. The Supreme Court explained that the respondent was the owner and holder of a note secured by chattel mortgage and brought suit in Volusia County against the petitioner to foreclose the mortgage. Id. In the suit to foreclose, the respondent prayed for a deficiency decree. Id. No further action was taken with regard to the prayer for deficiency. Id. The personal property mortgaged was sold pursuant to a final decree entered in the foreclosure proceedings and after crediting the proceeds of the sale to the note, there remained due and owing to the plaintiff $1,548.41. Id. “At no time during the entire proceedings was any request made for a deficiency nor was the matter called to the attention of the Court in any way.” Id. The only time or place where the matter of deficiency appeared in the proceedings was the prayer for deficiency contained in the bill of complaint. Id. The respondent “[i]n due course” filed suit in Duval County for the balance due under the note after crediting the proceeds of the foreclosure sale. Id. The petitioner, the defendant below, pleaded as a defense the foreclosure suit and the prayer for deficiency contained in the bill of complaint. Id. It was the contention of the petitioner that the respondent “having prayed for a deficiency without obtaining one, could not sue upon the note to recover the balance due upon the mortgage note.” Id.

The Supreme Court found that the case was controlled by Reid and Luke and noted the alleged confusion between those cases and the cases of Crawford and Belle Mead. Id. The Supreme Court explained that although the facts in Luke did not state that a deficiency decree was prayed for, its review of the record in that case showed that the bill to foreclose the mortgage contained a prayer for a deficiency judgment. Id. at 435. It also explained that the facts of the case at hand were identical to the facts of Luke where the “sale of the mortgage property and disbursements were approved and confirmed by the Chancellor but no deficiency decree was entered or requested.” Id. After noting that it’s holding in Reid was reaffirmed in Luke, the Supreme Court set forth, “If the opinion in Reid . . . as affirmed in Luke . . . is in conflict with any other holdings with reference to the subject matter, such holdings, or opinions, are over-ruled to the extent of such conflict.” Id. The Supreme Court found no departure from the essential requirements of the law in the case before it. Id.

Thereafter, in First Federal Savings & Loan Association of Broward County v. Consolidated Development Corp., 195 So.2d 856, 858 (Fla. 1967), the Supreme Court addressed McLarty, Reid, and Luke. In First Federal Savings, the petitioner brought a foreclosure suit in Palm Beach County and prayed for a deficiency decree if the proceeds of the mortgage sale were less than the amount due on the mortgage. Id. at 857. The final decree of foreclosure expressly reserved jurisdiction in the court for the determination of any motion for a deficiency decree. Id. The petitioner then brought an action to recover the deficiency in Broward County and represented to the foreclosure court in Palm Beach County that inasmuch as no motion had been made there for a deficiency decree, there was no longer a need for retention of jurisdiction of the cause in that court. Id. The foreclosure court entered an order terminating jurisdiction. Id. The Broward County court dismissed the case before it, ruling that the petitioner, after having selected its forum in Palm Beach County, should not be permitted to subject the respondents to further harassment and expense. Id. The dismissal was appealed to the Fourth District Court of Appeal. Id. After noting that the abandonment of jurisdiction in Palm Beach County did not occur until twenty-six days after the action at law was filed in Broward County, the Supreme Court explained that the Fourth District decided the case “on the principle that a court may not switch its jurisdiction, or power, on and off as one would an electric light.” Id. at 857-58. The Supreme Court also noted the Fourth District’s determination that “[f]or the purposes of deficiency decrees vel non this power is not for the benefit of the court; hence, it cannot waive its jurisdiction in that regard. It may refuse or refrain from exercising the power, but the chancellor cannot abjure a court of equity of its innate or inborn jurisdiction by mere words of jacitation.” Id. at 858. The Fourth District concluded that the Palm Beach County Circuit Court still had jurisdiction of the subject matter and the question of a deficiency decree and held that the dismissal in Broward County constituted a dismissal without prejudice to the plaintiff’s right to have the question of deficiency determined by the Palm Beach County Circuit Court. Id.

 

Continued in Part Two

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also find his website at http://www.mtvernonbankruptcylawyer.com.

Discharging Student Loans: a crack in the wall? By Jillian Berman of Marketwatch

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country. This is from Jillian Berman of MarketWatch. There may be a loophole that will help discharge student loans!

These lawyers may have discovered a way to wipe away student debt in bankruptcy – MarketWatch

By Jillian Berman, Reporter

Bankruptcy lawyers are filing cases in states from New Hampshire to Florida, to test strategies with the hopes of establishing paths bankrupt borrowers and their lawyers can use to get rid of or, at least, better manage their debts in the future.

This burgeoning niche practice area — which includes paid seminars and new software programs — comes amid a rise in the share of bankruptcy filers with student debt and growth in their average balances. In 2005, roughly 15.7% of bankruptcy filings included educational debt with an average balance of $15,350, according to a 2014 paper in the Suffolk Law Review. That’s compared with 22.3% of filers with an average balance of $32,096 in 2013.

“Nobody is doing anything for these people in terms of laws to benefit them,” said Richard Gaudreau, a New Hampshire-based bankruptcy attorney, who’s been working on student loan issues for the past few years. “We’re just forced to be creative.”

So instead of trying to meet that standard, these attorneys are turning to other legal strategies that challenge private lenders’ ability to collect on the loan and in the case of federal debt — which is much harder to challenge — help borrowers better manage the loans while in bankruptcy.

These lawyers may have discovered a way to wipe away student debt in bankruptcy

 

A law student’s experiment

When Austin Smith, a New York City-based lawyer, was researching a law review article at the University of Maine in 2014, he realized bankruptcy attorneys rarely objected to lenders’ classification of their clients’ debts as non-dischargeable in bankruptcy, likely because they weren’t familiar with the ins and outs of bankruptcy law as it pertains to student loans. But Smith discovered that in many cases, the debts didn’t meet the standard of a qualified student loan under the bankruptcy code. That could be because the lender extended the loan to the borrower to attend an unaccredited program or lent the borrower more than the cost of attendance.

As a young corporate lawyer, Smith tested the strategy working pro-bono for a client who racked up $15,000 in debt from a bar study program. He successfully got the loan discharged and shortly thereafter struck out on his own doing solely this kind of work. He has about 20 cases pending and there are some early signs he may be onto something.

In December, a Minnesota bankruptcy judge responded to a motion Smith filed on behalf of a client in a case against Navient, one of the nation’s largest student loan companies, disputing the way Navient, other lenders and bankruptcy judges have historically interpreted a provision of the bankruptcy code as it relates to student debt.

In order for a student loan to be non-dischargeable in bankruptcy, it has to fit into one of a few categories. Some examples include:

  • A federal student loan
  • Debts made under a program funded in whole or in part by a nonprofit institution (typically these are loans made by the school)
  • A qualified educational loan — this can be a loan made by a private company, but it has to be made for qualified higher education expenses, typically defined as the cost of attendance, for a student attending an eligible institution.
  • Funds received as an “educational benefit”

Lawyers and judges have long taken the phrase “educational benefit” to include loans. But Smith’s interpretation, which the judge concurred with, is that the category refers to scholarships and grants that must be paid back if certain stipulations are violated. For example, if a student accepts a scholarship for medical school with the premise that they’ll work in a low-income community and then they violate that condition and are on the hook for the money.

Taking that logic one step further means that student loans from private lenders can be discharged in bankruptcy if they were made to students who didn’t attend an accredited program or were lent more money than the cost of attendance. Possible debts that fit into this category could include the aforementioned bar study loan or a loan to attend an unaccredited trade school, Smith said.

“A loan is not like a scholarship or a stipend and such a private loan cannot be included in this definition. If I were to interpret educational benefit to include loans that has some relation to attaining an education, it would render the other two provisions of [the bankruptcy code as it relates to student debt] totally superfluous,” the judge said, according to a transcript.

“I have yet to go in front of a judge who disagrees with my overall thesis, which is that not all student loans are not dischargeable,” Smith said. “I do think the tide is now turning on that.”

Patricia Christel, a Navient spokeswoman, declined to comment on the specific case. She wrote in an emailed statement that the company “continues to support” reforms that would allow both federal and private student loans to be discharged in bankruptcy for borrowers who made a “good-faith” effort to repay the debt for five to seven years and still experienced financial difficulty.

Burden of proof

And soon more attorneys may give Smith’s strategy a try. Dayton, Ohio-based CINgroup, which makes a software used by bankruptcy attorneys to prepare their filings, called Best Case, plans to introduce an update later this year that will help scan a client’s student loans to see if they qualify for any discharges and help prepare the filings to challenge the debt.

Dave Danielson, the chief executive of CINgroup says the company estimates that of the 750,000 consumer bankruptcies filed each year, there could be as many as 50,000 with some kind of dischargeable student debt, but it rarely gets challenged. “Most attorneys, they process bankruptcies every day and their heads are down and it’s easy to fall under the assumption that student loan debt — you can’t do anything about it,” he said. “What we’re trying to do in a very simple sense is help the attorney realize that (a) maybe they can do something about it and (b) if it’s is dischargeable, try to prepare some legal proceedings.”

Gaudreau first realized he had the power to help bankruptcy filers with student debt a few years ago, after he almost took a client’s case all the way to the Supreme Court. Now he uses a variety of strategies to help his clients get rid of or better cope with their loans. In many cases, he challenges private lenders to provide evidence they can legally collect on the debt. Often, in scenarios reminiscent of the mortgage crisis, since the loan has changed hands many times, the lenders struggle to provide that evidence.

“They’re not very good at supplying the documents that prove that they own the debt,” he said. If the lender can’t prove they own the debt, then it makes it much more difficult for them to collect on it.

Lawyers may still be in the early stages of pioneering these strategies, but they’ve been available all along, said Rafael Pardo, a professor at Emory University’s law school who has studied bankruptcy and student loans. The burden of proof both that the borrower owes the debt and that it’s a type of debt that qualifies for exemption falls on the creditor. But borrowers and attorneys may be hesitant to pursue this path if they don’t have the money or experience to pay for it.

“The overwhelming majority of the litigation has always turned on was there undue hardship or not,” he said. “The type of debt or the amount of debt was a forgone conclusion. When you’re stuck with limited resources in terms of the representation, you have to pick and choose your battles.”

In the case of federal student loan debt, trying to get it discharged is likely a losing battle if the attorney can’t make a particularly compelling case that the debt qualifies as an undue hardship for the borrower, said Lewis Roberts, a Florida bankruptcy attorney. In most jurisdictions, a borrower is only considered to be suffering from undue hardship if she’s in a situation where she currently can’t pay the debt, there’s no reason to believe she’ll be able to pay the debt in the future and she’s made a good-faith effort to repay the loan. Judges have said prolonged unemployment, alcoholism, and even a criminal record aren’t enough to qualify a borrower for the undue hardship designation.

‘The fight is just in its infancy’

In cases where borrowers don’t meet the undue hardship standard, Roberts is working to at least help his clients better manage the debt once in bankruptcy.

Typically, federal student loan debt is categorized in bankruptcy the same as other unsecured debts owed by the filer. Roberts’s intervention is to get judges and trustees to classify the federal student loan debt separately so that his clients can take advantage of special payment plans the government offers borrowers to manage their student loans. Using this method, he’s helped clients who are in bankruptcy put their student loans into income-driven repayment plans that allow borrowers to pay as little as zero dollars a month and stay current on their loans. Borrowers who are on these plans are also able to make payments toward loan forgiveness programs.

Lewis said he first started doing this work about three years ago after attending a seminar about legal issues relating to student loans, including bankruptcy, hosted by two lawyers who had already begun working in the space. The attorneys offer these so-called student loan workshops either as videos, phone calls, in-person trainings or a combination. The workshops, which cost between $1,500 and roughly $2,500, depending on what services you purchase are pitched both as a way to help student loan borrowers, but also as a way for attorneys looking to drum up business in a struggling bankruptcy market. So far about 300 lawyers have participated in the student loan workshops since they launched in 2012.

As more lawyers learn both about the problem of student debt in bankruptcy and the opportunity to solve it, the challenges to the conventional wisdom that student loans are impossible to get rid of will only increase, said Jay Fleischman, one of the attorneys who runs the student loan workshops. “This fight is just in its infancy,” he said. “We’re seeing the birth of it in many ways.”

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also go to my websight through www.mtvernonbankruptylawyer.com

Alaska, Georgia and Louisiana Top CFPB’s List for Consumer Complaint Filings

Posted by NCBRC – February 13th, 2017

In its monthly complaint report, the CFPB reported that the top three financial products or services receiving complaints in December, 2016, were, in descending order, debt collection, credit-reporting, and mortgages. Mortgage servicers garnered complaints for such things as misapplication of payments and ineffective resolution of borrowers’ problems with their loans. To account for monthly and seasonal fluctuations, the report compares complaints against companies in three-month segments to the same period the prior year. Equifax, Wells Fargo and TransUnion had the dubious honor of being the top three complained–about companies in the period from August to October, 2016. With respect to complaints relating to types of loans, the three-month average for complaints concerning student loans rose by 109% over the same period last year. The three states with the greatest increase in consumer complaints were Alaska, Georgia and Louisiana.

CFPB Monthly-Complaint-Report Feb 2017

 

***

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also get to my website at www.mtvernonbankruptcylawyer.com

 

 

 

Goudelock (homeowner’s association dues) brief continued…

 

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, this one is a biggie!

The Ninth Circuit will soon hear a case as to whether Homeowner’s Association dues and fees COULD be dischargeable! The case is Goudelock v Sixty-01 Association of Apartment Owners and everyone in bankruptcy will be watching for the decision.

Jon Erik Heath of the National Association of Consumer Bankruptcy Attorneys prepared a brief for the case and it is reproduced here and in the next few blogs. It is excellently well-plead and I wanted to share it with you. Read Part one here.

  1. The Text And Structure Of The Bankruptcy Code Enable HOA Debts Coming Due Postpetition To Be Discharged In Chapter 13 Cases.

  1. The History And Effect Of Section 523(a)(16) Guides The Outcome In This Context.

In the months after Rosenfeld was decided, Congress sought to resolve the split in authority over the appropriate treatment of postpetition dues. It did so by reinforcing the central holding from Rosteck, while carving out some circumstances in which these debts should be excepted from discharge. Specifically, the legislative history notes that Section 523(a)(16) is intended

… to except from discharge those fees that become due to condominiums, cooperatives, or similar membership associations after the filing of a petition, but only to the extent that the fee is payable for time during which the debtor either lived in or received rent for the condominium or cooperative unit. Except to the extent that the debt is nondischargeable under this section, obligations to pay such fees would be dischargeable. See Matter of Rosteck, 899 F.2d 694 (7th Cir. 1990). Bankruptcy Reform Act of 1994, 140 Cong. Rec. H. 10,752 (Oct. 4, 1994) (emphasis added).

The addition of Section 523(a)(16) conclusively answers the question whether these postpetition assessments are “claims” for bankruptcy purposes. First, as the Supreme Court has reasoned with other 523(a) exceptions, “[h]ad Congress believed that [such] obligations were not ‘debts’ giving rise to ‘claims,’ it would have had no reason to except such obligations from discharge.” Davenport, 495 U.S. at 562 (concerning restitution debts). Likewise here, if homeowners’ association dues payable postpetition were not claims, then Section 523(a)(16) would be superfluous. Second, by recognizing that condominium fees assessed postpetition remained dischargeable, as long as the homeowner neither “lived in [n]or received rent” from the unit, Congress clearly intended to adopt the general rationale of Rosteck, but with some limits on its effect.[1]

Importantly, in enacting this exception, Congress chose not to amend Section 1328(a), thus still allowing such debts to be discharged in a Chapter 13 proceeding. See Pub. L. No. 103-394, § 309, 108 Stat. 4129, 4137 (1994). It is highly unlikely that this decision was a “statutory misstep,” as questioned by the Foster Court. See Foster v. Double R Ranch Ass’n (In re Foster), 435 B.R. 650, 659 (B.A.P. 9th Cir. 2010). At the time Section 523(a)(16) was enacted, the Chapter 13 superdischarge (described above) still allowed the discharge of debts such as those incurred by fraud. If fraud debts could have been discharged in a Chapter 13, it would have made little sense indeed to except these HOA assessments from the same discharge.

Because Section 1328(a) does not reference the 523(a)(16) exception, many cases continue to adhere to the Rosteck rule for Chapter 13 cases as a simple matter of statutory construction. See In re Ramirez, 547 B.R. 449, 452-53 (Bankr. S.D. Fla. 2016); In re Coonfield, 517 B.R. 239 (Bankr. E.D. Wash. 2014); In re Khan, 504 B.R. 409, 412 (Bankr. D. Md. 2014); In re Colon, 465 B.R. 657 (Bankr. D. Utah 2011); In re Kelly, No. 09-42376 TG, 2010 Bankr. LEXIS 1409, at *3 (Bankr. N.D. Cal. Apr. 28, 2010); In re Hawk, 314 B.R. 312, 316 (Bankr. D. N.J. 2004).

  1. Foster Should Not Be Followed In This Case.

This Circuit’s B.A.P. revisited the Rosteck/Rosenfeld split in its Foster decision. Characterizing its rule as “you stay, you pay,” the Foster Court was apparently more concerned with the outcome of the case than the language of the Bankruptcy Code. Foster, 435 B.R. at 661. This Court should decline to adopt the Foster rule, at least in the context of this case.

First and foremost, the Foster debtor was in a very different position than debtors like Ms. Goudelock. In Foster, the debtor sought to discharge all prepetition and postpetition HOA assessments, but continue residing in his home. Foster, 435 B.R. at 655. The court was concerned with this attempt at a “have your cake and eat it too” approach, and refused to believe that Congress intended to “discharge postpetition HOA dues under § 1328(a) when the debtor uses the cure and maintenance provisions under the chapter 13 to stay in his or her property after the order for relief.” Foster, 435 B.R. at 655. To drive this concern home, the court explained that the “rule in this case boils down to one of ‘you stay, you pay.’” Id. at 661. Here, by contrast, Ms. Goudelock did not choose to stay, and like many debtors in her position, apparently sought shelter under the Bankruptcy Code in order to help extricate herself from the property.

In order to reach its result, the Foster Court correctly noted that Section 523(a)(16) was “inapplicable” to Chapter 13 cases, but then remarkably extended the exception to Chapter 13 cases anyway. Compare Foster, 435 B.R. at 661 (“we hold that, as a matter of law, debtor’s personal liability for HOA dues continues postpetition as long as he maintains his legal, equitable or possessory interest in the property and is unaffected by his discharge.”), with 11 U.S.C. § 523(a)(16) (excepting such dues from discharge “for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest” in the property). Extrapolating this provision to Chapter 13 provisions, the court questioned whether it was a statutory misstep to exclude such obligations from the 1328(a) discharge, and disregarded entirely the fact that the mere existence of Section 523(a)(16) was an implicit recognition by Congress that such obligations were, in fact, claims arising prepetition. See Foster, 435 B.R. at 659. However, as described above, this logic ignores the plain text of Section 1328(a) and misses the importance of Section 523(a)(16).

Finally, citing Rosenfeld, the Foster decision also rested on the same misguided distinction between covenants running with the land (as determined by state law) and contracts. As described above, there is no basis for this distinction in the Code. Further, the Washington Supreme Court has subsequently described such assessments in a way showing that they fit squarely within the definition of claim. See Fulbright, 180 Wash. 2d at 763 (characterizing the obligation as a “a future lien for unpaid condominium assessments”).

In short, Foster was not guided by the text of the Bankruptcy Code, but by its concern that debtors would continue to reside in units without paying HOA fees. As shown below, there are other ways to treat that concern.

  1. There Are More Equitable Ways To Effect A Rule Resembling “You Stay, You Pay” While Allowing Debtors Like Ms. Goudelock A Fresh Start.

The authority reaching a different result than Rosteck, from Rosenfeld through Foster, has largely been guided by a concern that debtors will remain in homes without contributing to the HOAs governing their lots. To the extent that concern should be handled judicially, the answer is not to interpret Section 523(a)(16) as applying to Chapter 13 cases, which it clearly does not, but to treat these HOA liens as any other lien in bankruptcy. Fashioning such a rule would implicitly require those debtors who wish to keep the property to pay, while finally releasing those who seek a fresh start away from their property.

“More than a century ago, the Supreme Court held that a bankruptcy discharge of a secured creditor’s claim does not affect the status of the creditor’s underlying lien on the debtor’s property.” Hamlett v. Amsouth Bank (In re Hamlett), 322 F.3d 342, 347-48 (4th Cir. 2003) (citing Long v. Bullard, 117 U.S. 617, 620-21 (1886)). This long-standing principle is codified in the current version of the Bankruptcy Code, which enjoins collection of a discharged debt “as a personal liability of the debtor,” 11 U.S.C. § 524(a)(2), but largely preserves a secured creditor’s rights to the property itself, 11 U.S.C. § 524(c)(2). Thus, a lien can still be exercised against a debtor’s property post-bankruptcy, even if a debtor’s personal liability on that debt was extinguished by the discharge. See In re Isom, 901 F.2d 744, 745 (9th Cir. 1990).

This effect of discharge is most commonly apparent with mortgage debts. The discharge injunction protects the mortgage debtor from being sued personally on the debt post-bankruptcy. However, “a creditor’s right to foreclose on the mortgage survives or passes through the bankruptcy.” Johnson v. Home State Bank, 501 U.S. 78, 83 (1991). As a practical matter, this long-standing principle creates the result desired by the Foster Court: “you stay, you pay.” Debtors who wish to remain in their homes must continue paying on the discharged debt, or they risk foreclosure of the property.

This situation could be viewed as analogous. See Khan, 504 B.R. at 414. As described above, Washington law views such assessments as a lien on property. In accordance with Long, that lien survives bankruptcy, which encourages debtors like Foster who wish to remain in a property to pay the dues or risk losing it. But at the same time, debtors like Ms. Goudelock who surrendered the property in bankruptcy and obtained no benefit from the HOA whatsoever would be protected from a post-discharge lawsuit on an obligation that quietly accrued during the bankruptcy case. That fair result is a truly fresh start.

This fresh start fits well within the Chapter 13 framework that Congress created. First, while narrowing the Chapter 13 superdischarge in 2005, Congress chose not to incorporate the Section 523(a)(16) exception in the 1328(a) discharge. Otherwise, as described by one court, “the Debtors are not enjoying the benefits of the HOA and to hold Debtors liable for postpetition HOA dues when they no longer live at the Property and indeed have surrendered the Property to the secured lienholder is not only inequitable, but in contrast to the plain language of § 1328(a).” Colon, 465 B.R. at 663.

There are other ways that this approach fits within the structure of the Bankruptcy Code. For example, Congress crafted the Means Test to determine a debtor’s eligibility to file a Chapter 7, and help calculate a debtor’s monthly payment in a Chapter 13 case. Under this test, debtors may deduct HOA fees from their income to the extent they seek to “maintain possession of [their] primary residence.” See 11 U.S.C. § 707(b)(2)(A)(iii)(II)[2]. This deduction illustrates that Congress fully intended debtors to maintain HOA payments on properties they desire to keep, but not on properties whose possession is not to be maintained.

Allowing debtors a fresh start in these circumstances is equitable for their individual cases, but it also produces wider-scale economic benefits. By stripping personal liability from the debtor, HOAs have incentive to exercise a security interest promptly, thus allowing new residents to move in and start paying assessments. Further, removing this burden from debtors who have given up their property also helps them get past the effects of the mortgage crisis, and allows them to obtain their fresh start and become more economically productive citizens.

Finally, such a result would avoid conflict with the takings clause of the Fifth Amendment. Because the HOA would retain its property interest, the enforceable lien, there would be no taking that would invoke Fifth Amendment concerns.

CONCLUSION

For the reasons stated above, amicus curiae asks this court to reverse the decision of the district court.

Respectfully submitted, /s/ Jon Erik Heath

 

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also get to my website at www.mtvernonbankruptcylawyer.com

[1] This provision was amended again in 2005 to create the current-day exception, which includes all HOA assessments, and applies “for as long as the debtor or the trustee has a legal, equitable, or possessory ownership in such unit.” See Pub. L. No. 109-8, § 412, 119 Stat. 23, 107 (2005).

 

[2] This provision is incorporated into Chapter 13 calculations. 11 U.S.C. § 1325(b)(3).

 

Homeowner’s Association dues and bankruptcy. This. is. big.

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, this one is a biggie!

The Ninth Circuit will soon hear a case as to whether Homeowner’s Association dues and fees COULD be dischargeable! The case is Goudelock v Sixty-01 Association of Apartment Owners and everyone in bankruptcy will be watching for the decision.

Jon Erik Heath of the National Association of Consumer Bankruptcy Attorneys prepared a brief for the case and it is reproduced here and in the next few blogs. It is excellently well-plead and I wanted to share it with you.

***

SUMMARY OF ARGUMENT

Debtors like Ms. Goudelock are textbook examples of the honest but unfortunate debtors the Bankruptcy Code is intended to assist. She surrendered her property as part of her Chapter 13 bankruptcy, and devoted a portion of her income to repayment of her debts for more than four years before receiving a discharge. Yet, instead of receiving a fresh start, she now owes more money to her former homeowners’ association (HOA) than when she filed bankruptcy.

This result is backwards. Chapter 13 bankruptcy serves a rehabilitative purpose, but that purpose is thwarted if the debtor emerges from the bankruptcy with lingering, or even growing, debts to HOAs from which the debtor had long extricated herself.

Most importantly, the broad definition of “claim” under the Bankruptcy Code mandates a different result – one more in line with the Supreme Court’s Davenport decision and the Rosteck line of cases. Cases reaching the opposite result, such as Rosenfeld and Foster, do so by creating a distinction between covenants running with the land and contract claims, which does not exist anywhere in the broad definition of “claim.”

This Court should adhere to the text of the Bankruptcy Code, and cases such as Davenport and Rosteck that properly apply it, and reverse the decision below.

ARGUMENT

The oft-cited principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor. Harris v. Viegelahn, — U.S. —, 135 S. Ct. 1829, 1838 (2015); Kokoszka v. Belford, 417 U.S. 642, 645 (1974). This purpose can only be achieved by casting a wide net over the debtor’s financial affairs, assets and liabilities alike. Once that net is cast, the way those assets and liabilities are administered depends on the bankruptcy chapter, with Chapter 13 being the legislatively preferred route for individuals.

This particular Chapter 13 issue – the dischargeability of HOA assessments payable postpetition – is governed by the plain language of the term “claim,” and the lessons drawn from Section 523(a)(16), both of which have been convoluted by the Rosenfeld line of cases. See River Place E. Hous. Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833 (4th Cir. 1994). Even the policy concerns raised by those cases could be treated in less extreme fashion by treating HOA obligations as any other secured debts. In order to help effectuate the policy behind Chapter 13 repayment plans, this Court should adhere the plain text of the Code, and follow the Rosteck line of authority. See In re Rosteck, 899 F.2d 694 (7th Cir. 1990).

  1. The Bankruptcy Code Is Intentionally Broad In Both Its Coverage of “Claims” And The Scope Of The Chapter 13 Discharge.

Because the proper treatment of HOA assessments requires some explanation of how the Bankruptcy Code treats debts more generally – especially in a Chapter 13 context – it is important first to discuss how some of the relevant process actually works.

  1. Congress Gave “Debt” The Broadest Possible Definition, While Narrowly Limiting The Exceptions Of Such Debt From Discharge.

The end goal in most bankruptcy cases is the discharge order. That order marks the “fresh start” for the debtor by generally discharging all “debts” rooted in his or her pre-bankruptcy past. See e.g., 11 U.S.C. §§ 727(b); 1228(a) & (c); 1328(a) & (c); Cal. Dep’t of Health Servs. v. Jensen (In re Jensen), 995 F.2d 925, 929-30 (9th Cir. 1993).

For this discharge, and its resulting fresh start, to have any meaning, Congress mandated that it cover a broad spectrum of “debts.” The Code defines “debt” as any “liability on a claim,” and in turn, defines “claim” as the “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(4)(A) & (11). By design, this language creates “’the broadest possible definition’ of claims so that ‘all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case.’” In re Christian Life Ctr., 821 F.2d 1370, 1375 (9th Cir. 1987) (quoting S. Rep. No. 989, 95th Cong., 2d Sess. 21, 22, reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 5807, 5808). Thus, this definition, which “makes no reference to purpose” of the obligation even includes debts that are outside the “traditional creditor-debtor relationship.” Pa. Dep’t of Pub. Welfare v. Davenport, 495 U.S. 552, 558-9 (1990).[1]

If a debt meets this broad definition, then there are only narrow circumstances when it is to be excepted from the bankruptcy discharge. “[W]here Congress has intended to provide… [such] exceptions to provisions of the Bankruptcy Code, it has done so clearly and expressly.” FCC v. NextWave Pers. Communs. Inc., 537 U.S. 293, 302 (2003); see also Davenport, 495 U.S. at 563. Those clear exceptions mostly exist within Section 523(a), which enumerates 19 different categories of generally nondischargeable debt – some of which do not apply to every bankruptcy chapter. See 11 U.S.C. § 523(a)(1)-(19). Because of the importance of providing honest debtors with a fresh start, these exceptions are construed narrowly, and in favor of the debtor. Fezler v. Davis (In re Davis), 194 F.3d 570, 573 (5th Cir. 1999); Inst. of Imaginal Studies v. Christoff (In re Christoff), 527 B.R. 624, 629 (B.A.P. 9th Cir. 2015).

  1. By Design, Chapter 13 Repayment Offers Greater Relief To Debtors Than Chapter 7 Liquidation.

The Code offers a number of avenues for a consumer debtor to obtain this broad discharge of debt, most commonly by liquidation (Chapter 7) or by repayment plan lasting three to five years (Chapter 13). Because Chapter 13 is the preferred route to discharge, there are a number of incentives to encourage such filings, such as a broader discharge.

“The legislative history behind chapter 13 relief supports and promotes debtor rehabilitation,” Frazer v. Drummond (In re Frazer), 377 B.R. 621, 631 (B.A.P. 9th Cir. 2007), and its use over Chapter 7 has always been encouraged. Bobroff v. Continental Bank (In re Bobroff), 766 F.2d 797, 803 (3d Cir.1985) (citing H.R. Rep. No. 595, 95th Cong., 1st Sess. 118 (1977), U.S. Code Cong. & Admin. News p. 5904). This is so because “[p]roceedings under Chapter 13 can benefit debtors and creditors alike.” Harris, 135 S. Ct. at 1835. “Debtors are allowed to retain their assets, [while]… creditors… usually collect more under a Chapter 13 plan than they would have received under a Chapter 7 liquidation.” Id.

In order to steer debtors away from liquidation and towards the preferred Chapter 13 debt adjustment plans, Congress created a number of incentives for filers under the chapter. Most notably, a “discharge under Chapter 13 is broader than the discharge received in any other chapter.” United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 268 (2010) (quoting 8 Collier on Bankruptcy ¶ 1328.01, p. 1328-5 (rev. 15th ed. 2008)). It is well-established that this “broad discharge was provided by Congress as an incentive for debtors to opt for relief under that chapter rather than under chapter 7.” Ryan v. United States (In re Ryan), 389 B.R. 710, 719 (B.A.P. 9th Cir. 2008). Indeed, the breadth of the Chapter 13 discharge under Section 1328(a) is so expansive that, at least prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), it was colloquially known as the “superdischarge.” See id.

“Although § 1328(a)’s so-called chapter 13 ‘superdischarge’ was eroded by BAPCPA, there are still at least eleven categories of debt that are dischargeable in chapter 13 but not in chapter 7: 11 U.S.C. §§ 523(a)(6) (in part), (7), (10), (11), (12), (14B), and (15)-(19).” Fridley v. Forsythe (In re Fridley), 380 B.R. 538, 544 n.5 (B.A.P. 9th Cir. 2007). These categories of debt that remain dischargeable in Chapter 13 cases include those arising from the willful and malicious injury to property, 11 U.S.C. § 523(a)(6), property divisions from divorce, 11 U.S.C. § 523(a)(15), some securities fraud, 11 U.S.C. § 523(a)(19), and as relevant here, homeowners’ association dues payable postpetition, 11 U.S.C. § 523(a)(16. [2]

It is important to keep in mind both the incentive structure supporting the Chapter 13 discharge, and its ultimate power, when analyzing homeowners’ association dues that are clearly covered under the Section 523(a)(16) the exception, and thus included in the Chapter 13 discharge.

  1. The Text And Structure Of The Bankruptcy Code Enable HOA Debts Coming Due Postpetition To Be Discharged In Chapter 13 Cases.

On its face, an HOA obligation existing at the time of bankruptcy falls squarely within the definition of claim. It is an existing right to payment that is contingent on future events. This is especially true for condominiums in Washington, where “a future lien for unpaid condominium assessments is established at the time the condominium declaration is recorded, even though it may not be enforceable until the unit owner defaults on his or her assessments, if ever.” BAC Home Loans Servicing, LP v. Fulbright, 180 Wash. 2d 754, 763 (2014).

Cases such as Rosteck support this straightforward statutory analysis, especially when coupled with the subsequent input from Congress in its enactment of Section 523(a)(16). By contrast, the Rosenfeld line of authority, including the B.A.P.’s Foster decision, creates a distinction between claims running with the land and contractual claims, which is not referenced anywhere in the Code. Instead, the Rosenfeld cases were apparently decided based on, or strongly influenced by, a “you stay, you pay” policy, which can be handled in more equitable ways that better support the fresh start promised by the Code.

  1. The Language And Structure Of The Bankruptcy Code Support The Adoption Of Rosteck.

The seminal case on this issue is Rosteck. When the Seventh Circuit was confronted with the question almost 30 years ago, it rightly turned to the text of the Bankruptcy Code. Relying on the broad definition of “claim,” the court reasoned:

…the Rostecks had a debt for future condominium assessments when they filed their bankruptcy petition. It is true that the Rostecks did not actually owe money to Old Willow for assessments beyond those Old Willow had assessed before their bankruptcy. But the condominium declaration is a contract, and by entering that contract the Rostecks agreed to pay Old Willow any assessments it might levy. Whether and how much the Rostecks would have to pay in the future were uncertain, depending upon, among other things, whether the Rostecks continued to own the condominium and whether Old Willow actually levied assessments. But, as we have seen, contingent, unmatured, unliquidated, and unfixed debts are still debts.

Rosteck, 899 F.2d at 696-7 (internal citations omitted). This straightforward rationale was widely followed in the following years. See In re Cohen, 122 B.R. 755, 758 (Bankr. S.D. Cal. 1991); In re Garcia, 168 B.R. 320, 324-25 (Bankr. E.D. Mich. 1993); In re Lamb, 171 B.R. 52, 55 (Bankr. N.D. Ohio 1994); In re Wasp, 137 B.R. 71, 72 (Bankr. M.D. Fla. 1992) (“Any Association fees coming due after Debtors’ filing of their bankruptcy petition were no more than unmatured portions of their original liability to the Association.”); In re Affeldt, 164 B.R. 628, 631 (Bankr. D.Minn. 1994), aff’d on other grounds 60 F.3d 1292 (8th Cir. 1995).

As noted by the courts below, in 1994, the Fourth Circuit chimed in on this issue in the leading case going the other direction. See generally Rosenfeld, 23 F.3d 833. In the view of the Rosenfeld Court, “the obligation to pay assessments is a function of owning the land with which the covenant runs. Thus, Rosenfeld’s obligation to pay the assessments arose from his continued post-petition ownership of the property and not from a pre-petition contractual obligation.” Id. at 837. However, the Court did not explain where it got this distinction between an obligation running with the land and a pre-petition contract for purposes of deciding a claim. In fact, the broad statutory definition of “claim” does not support such a distinction. See 11 U.S.C. § 101(4)(A). [3]

Some of Rosenfeld’s logic was also divorced from reality – at least present-day reality. The Court found its holding sustainable because it believed that the solution was simple for a debtor who wished to obtain a fresh start: simply “transfer title to the property, if necessary by a deed in lieu of foreclosure.” Rosenfeld, 23 F.3d at 838. However, for many debtors who seek to surrender their homes in Chapter 13 proceedings, especially in recent years, this advice is unworkable. The process to complete a deed-in-lieu-of-foreclosure transaction is a wholly voluntary one by the bank, and it can sometimes be lengthy to fully consummate it even if the bank agrees, which it often does not. Further, completing the bank’s application process can be difficult, if not impossible, if there are outstanding HOA assessments or any other liens secured to the property, because the bank cannot obtain clear title through a deed in lieu of foreclosure. Instead, debtors such as Ms. Goudelock find themselves in the absurd position of being deprived of a fresh start on account of an asset that they surrendered as part of the bankruptcy.

 

I’ll present the rest of the brief in my next blog.

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also go to my websight through www.mtvernonbankruptylawyer.com

 

[1] The specific result from Davenport was partially superseded when Congress amended Section 1328(a) to exclude some restitution from the Chapter 13 discharge, see Criminal Victims Protection Act of 1990, Pub. L. No. 101-647, 104 Stat. 4789, but the principles upon which Davenport is based are still valid.

[2] The provision dealing with homeowners’ association dues refers to those fees “becom[ing] due and payable after the order for relief.” 11 U.S.C. § 523(a)(16). The phrase “after the order for relief” means postpetition. See 11 U.S.C. § 301(b) (“The commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter.”).

 

[3] Presumably, this was the Rosenfeld Court’s attempt to distinguish Rosteck, where the Court in dicta reasoned that “the condominium declaration is a contract, and by entering that contract the Rostecks agreed to pay Old Willow any assessments it might levy.” Rosteck, 899 F.2d at 696.

 

Pending bankruptcy cases around the country …

As a bankruptcy attorney in Mount Vernon, IL for over 20 years, I read through and analyze court rulings throughout the country, and pay particular attention to cases close to home!

It is brought to you by Consumer Bankruptcy Abstracts & Research (www.cbar.pro) and the National Consumer Bankruptcy Rights Center (www.ncbrc.org).

 

Chapter 13—Allowance of attorney’s fees: Although Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158, 192 L.Ed.2d 208 (2015) was a Chapter 11 case, its reasoning applies equally in Chapter 13 cases. Accordingly, Code § 330(a)(4) does not permit an award of attorney’s fees to a Chapter 13 debtor’s attorney for defending a fee application unless one of the exceptions to the American Rule applies, and neither of the two general exceptions to the rule was applicable here. In re Rose, — B.R. —-, 2016 WL 6993738 (Bankr. W.D. Mich. Nov. 29, 2016) (case no. 1:14-bk-4308).

Chapter 13—Confirmation of plan—Effect on secured claim: The law has long recognized that, when a secured creditor elects to be paid as fully unsecured, that creditor’s right to later assert a secured claim is waived. The record here established such a waiver, where the creditor filed a wholly-unsecured proof of claim, the claim was expressly allowed as unsecured, and the claim was treated and paid as unsecured for five years under a confirmed Chapter 13 plan. In re Barrera, 2016 WL 6990876 (Bankr. M.D. Fla. Nov. 29, 2016) (case no. 8:10-bk-26730).

Chapter 13—Confirmation of plan—Treatment of secured claims—Cure of default: In a Chapter 11 case that will probably apply as well to Chapter 12 and 13 cases, the Ninth Circuit Court of Appeals held that, where the debtor seeks to cure a default on a secured claim, the amount necessary to cure the default is based on a default interest rate if the debtor’s default triggered a default interest rate and state law permits the imposition of such a rate. A debtor may not nullify a preexisting obligation to pay post-default interest solely by proposing a cure, although once a cure is effected, the debtor can return to pre-default conditions as to the remainder of the loan obligation. In re New Investments, Inc., 840 F.3d 1137 (9th Cir. Nov. 4, 2016) (case no. 13-36194).

Chapter 13—Confirmation of plan—Treatment of unsecured claims—Payment of interest: Addressing an issue as to which the courts and commentators disagree, the bankruptcy court held that, when a Chapter 13 plan pays unsecured claims in full under Code § 1325(b)(1)(A), the plan is not required to pay interest on those claims. In re Egger, 560 B.R. 797 (Bankr. W.D. Wash. Nov. 22, 2016) (case no. 3:16-bk-43428).

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also find his website at http://www.mtvernonbankruptcylawyer.com.

 

WSJ Article on Student Loans and Bankruptcy

Wow!

 

Bankruptcy Becomes an Option for Some Borrowers Burdened by Student Loans

Argument that focuses on legal definition of student loan is at crux of efforts to discharge debt

By

SARAH CHANEY

Updated Dec. 27, 2016 7:15 p.m. ET

Borrowers are beginning to win battles to erase some student loans in bankruptcy court, overcoming stiff obstacles that have generally blocked that path except in extreme cases of financial hardship.

Since March, several bankruptcy courts have allowed borrowers to cancel private student loans with a new legal argument that relies on vague wording about the legal definition of a student loan.

Bankruptcy law says that, without proving extreme hardship, a borrower can’t discharge a loan made for an “educational benefit.” This language has opened a window to cancel loans for students who argue their loans falls outside this category of debt. Such reasoning has been applied to loans obtained to attend schools without accreditation or to study for a bar exam.

 

The argument applies only to a slice of the private student-loan market, which makes up less than 10% of the more than $1.3 trillion in outstanding student debt. The federal government dominates the student-loan market and isn’t as vulnerable in bankruptcy proceedings.

For years, bankruptcy wasn’t a realistic way for Americans to get help with student-loan debt. Now, lawsuits that offer a gateway to debt cancellation are “popping up all over the country,” said Austin Smith, a consumer-bankruptcy lawyer who has led the charge in courts.

Although no one keeps statistics on how often such cases arise, bankruptcy experts say they expect the number of student-loan-related lawsuits to climb as the amount of student-loan debt increases.

“Bankruptcies in and of themselves are on the decline,” said D.J. Rausa, a San Diego consumer-bankruptcy lawyer. “That may change if more and more people and bankruptcy lawyers get informed there are provisions in the bankruptcy code to manage student loans.”

The argument worked for Lesley Campbell, 37 years old, who in 2014 filed for bankruptcy and later was able to discharge the unpaid portion of a $15,000 loan she took out from Citibank to study for a bar exam.

Judge Carla Craig of the U.S. Bankruptcy Court in Brooklyn, N.Y., ruled that loan debt for bar exams is akin to consumer debt and doesn’t fall into the category of a student loan that sticks with a borrower in bankruptcy.

In April, Judge Robert E. Grossman ruled in favor of Lorelei Decena, who borrowed $161,592 to attend St. Christopher Iba Mar Diop College of Medicine in Senegal.

The school “falsely represented to her that it was licensed and accredited,” providing her with a loan application from Citizens Bank that reflected a code for an accredited institution, court papers state. Because the school was in fact unaccredited, according to court papers, Ms. Decena, 43, was ineligible to sit for medical-board exams in multiple states.

“There’s no educational benefit in this case because she couldn’t have a license that she could use,” said Darren Aronow, Ms. Decena’s lawyer.

St. Christopher referred requests for comment to a New York lawyer, who didn’t respond to multiple requests for comment.

Citizens Bank appealed Judge Grossman’s ruling, and a district court recently sent the case back to bankruptcy court, finding that the bank wasn’t properly notified of the lawsuit.

A spokeswoman for Citizens Bank declined to comment.

Lauren Baez, 31, who took out private and federal loans to attend a visual-arts school in 2008, also argued that she should be able to cancel her private debt without needing to prove extreme financial hardship. Her gross salary of $45,000 as a retail employee won’t cover the repayment costs, she said.

“If I was forced to pay back all my student loans at this moment in time, I wouldn’t have enough money to pay my rent,” Ms. Baez said. “I’m making more money than I ever have before, but I still can’t afford to make these payments.”

Ms. Baez owed private-loan servicer Navient Corp., formerly part of Sallie Mae, $158,400 as of Nov. 28. The case settled before a judge could rule. The terms of the settlement haven’t been disclosed.

A Navient spokeswoman declined to comment on the case, but said the company “continues to support reform that would allow federal and private student loans to be dischargeable in bankruptcy for those who have made a good-faith effort to repay their student loans.”

By

SARAH CHANEY

Updated Dec. 27, 2016 7:15 p.m. ET

Posted by Maureen Thompson

The Hastings Group LLC

http://www.wsj.com/articles/bankruptcy-becomes-an-option-for-some-borrowers-burdened-by-student-loans-1482834600?mod=djem10point

 

 

About the blogger:

Michael Curry of Curry Law Office in Mount Vernon, Illinois (http://michaelcurrylawoffice.com/) has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!