The Reaffirming Dead, part two…

The Reaffirming Dead

Part Two – read Part One here.

Kudos to the Honorable Judge for taking the matter seriously and addressing a legitimate question of law … and then coming quickly to the inevitable and obvious conclusion.

Zombie house 2

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From the Middle District of Florida, In re Charles James McHale, Jr., and Susan McHale, Case #10-02527. Entered March 9, 2018.

 

No Relief is Possible against Mr. McHale or His Estate

The Eleventh Circuit Court of Appeals in Failla recently addressed the issue of possible relief to grant creditor when a debtor fails to perform his intent to surrender property. The Faillas owned a home, filed a Chapter 7 bankruptcy case, indicated they intended to surrender the home, and got a discharge. Yet, post-bankruptcy, they continued to fight their lender’s foreclosure action. The Eleventh Circuit concluded that when a debtor says they intend to surrender property they must surrender it to both the trustee and to the creditor and that “surrender” necessarily prohibits a debtor from contesting a foreclosure action post-bankruptcy.

The authority of bankruptcy courts to craft appropriate remedies when debtors fail to perform their intentions under § 521(a)(2) is found in § 105(a) of the Bankruptcy Code giving bankruptcy courts the discretion to enter any order “necessary or appropriate to carry out the provisions of this title” and the “broad authority…to take any action that is necessary or appropriate ‘to prevent an abuse of process.” The Eleventh Circuit then affirmed the Bankruptcy Court’s order directing the Faillas to stop contesting the pending state court foreclosure action.

However, the Eleventh Circuit did not opine that forcing a debtor to relinquish all defenses in a pending foreclosure action is the only relief possible when a debtor fails to perform his intention under § 521(a)(2), particularly when a debtor indicates he intends to reaffirm a debt as opposed to surrendering his interest in a home.  The power granted to bankruptcy courts under §105 is to use their discretion guardedly fashioning an appropriate remedy that preserves the integrity of the bankruptcy system but does not overreach.

When a debtor says he is going to surrender his home and then continues to fight a foreclosure action, in most cases, the appropriate remedy is for the bankruptcy court to squelch the debtor’s defenses. The debtor is doing the exact opposite of what he promised. But, when a debtor states he intends to reaffirm a debt but fails to act, other remedies often are more appropriate, such as confirming the creditor can continue to pursue collection in state court forums irrespective of the debtor’s discharge.

Debtors who agree to reaffirm a debt want to pay their creditors. With a home mortgage, they are not trying to escape financial liability. They are trying to honor their promises to pay. This is different from a debtor who says he intends to surrender his home, has not made a payment for years, and then fights a pending foreclosure action simply to get more time to live for free in a house.

Here, Mr. McHale acted entirely consistent with his intent to reaffirm his debt to Bank of America. He was current on his mortgage payments at all times during the bankruptcy, kept his payments current post-discharge for many months, modified the mortgage with Bank of America when his illness advanced, and only stopped making payments when he died. He was not trying to “game” the system or get any “head start.” Instead, this was an honorable man who tried desperately to preserve the family home until the day he died. The testimony of Mrs. McHale was particularly poignant on the number of calls he made to Bank of America, literally on his deathbed.

Mr. McHale was not trying to flout his obligations to reaffirm the debt. He was trying to pay his creditor.

If the lender, like every other diligent creditor, timely had asked for the Court’s help to compel Mr. McHale to sign a reaffirmation agreement when he was still alive, the request would have been granted. Debtors who state they want to retain property secured by a lien must either sign a reaffirmation agreement or redeem the property. However, Christiana Trust or its predecessor did not make a timely request. They waited over four years after Mr. McHale died before filing their motion to reopen this case. Christiana Trust simply waited too late to ask. I cannot now compel Mr. McHale to do anything. He is dead and beyond the injunctive reach of this or any other court.

Nor is relief possible against Mr. McHale’s estate. The law is clear that bankruptcy courts lack jurisdiction to intercede in non-bankruptcy probate and domestic actions. I appropriately lack jurisdiction to order Mr. McHale’s estate to do anything. Bankruptcy courts may not interfere with the administration of a probate estate. The Eleventh Circuit Court of Appeals has explained that it is inappropriate for bankruptcy courts to decide issues that are better left to specialized state courts. “This idea has been extended to prevent [b]ankruptcy [c]ourts from deciding issues [that] should be decided by a state probate court.” The issue then is whether Christiana Trust has shown good cause why they are entitled to reopen this case to get relief against Mrs. McHale as the surviving widow.

No Relief is Justified against Mrs. McHale

Mrs. McHale contends she has valid defenses to the pending foreclosure action prosecuted by Christiana Trust. Although she may or may not succeed, I cannot find any reason to compel her stop raising these defenses. Mrs. McHale never signed the promissory note payable to Bank of America. She was never personally liable to the lender and was never required to sign any reaffirmation agreement.

Moreover, just because she and her husband filed this joint bankruptcy case, she never assumed liability for her husband’s debts. Section 302(a) of the Bankruptcy Code allows a married couple to file a joint petition. When a joint petition is filed, Federal Rule of Bankruptcy Procedure 1015(b) provides that the Court may jointly administer a married couple’s bankruptcy estates.

Local Rule 1015-1 provides if a married couple files a joint petition, joint administration happens automatically without court order. When a case is jointly administered, “‘the estate of each debtor remains separate and distinct.” So, while this was a jointly administered bankruptcy case, Mr. and Mrs. McHale retained separate and distinct bankruptcy estates. Mrs. McHale did not assume personal liability on the promissory note due to Bank of America simply because she filed a joint bankruptcy petition with her husband.

And, even if another court determines that the principles articulated in Taylor and Failla somehow apply to Mrs. McHale’s situation, I would find that no relief is justified. First, the circumstances now are significantly different than when the bankruptcy was pending. During the bankruptcy case, Mr. McHale was current on his mortgage payments. The lender accepted all of these payments. No default had occurred. No foreclosure was pending or needed.

After the bankruptcy ended, everything changed. Mr. McHale was terminally ill. He lost his income. The lender modified the loan with Mr. McHale. The lender also continued to accept payments under the loan modification for ten months. They only refused these payments when Mr. McHale died. The lender waited two years to file a foreclosure action against Mrs. McHale and dismissed it because they could not prove their case. The lender then filed a second foreclosure action and has sought at least three continuances. Whatever debt was due in the bankruptcy case changed significantly post-bankruptcy due to the actions of both Mr. McHale and the lender. Any claim held by the lender or any defenses held by Mrs. McHale are dramatically different seven years later. Too much has changed to simply require Mrs. McHale to surrender the home because her husband failed to sign a reaffirmation agreement during the bankruptcy case.

Second, the Court critically questions the propriety of the Creditor’s actions. They could have asked for this Court to compel Mr. McHale to execute the reaffirmation agreement when he was alive. The stipulated facts indicate that the lender voluntarily dismissed its first foreclosure action and that they have repeatedly sought continuances in the second foreclosure action, waiting six years to ask the Bankruptcy Court to reopen this case. Mrs. McHale contends she has valid defenses to the foreclosure and that the lender cannot succeed. She very much desires her “day in court.” After listening carefully to the testimony and weighing the evidence, I believe Mrs. McHale’s concerns are valid, although I render no opinion as to whether any of Mrs. McHale’s defenses are legitimate.

Christiana Trust now is asking this Court to order Mrs. McHale to stop pursuing her foreclosure defenses primarily to shortcut their litigation so they do not have to actually prove their case in state court. The arsenal of enforcement powers granted Bankruptcy Courts under § 105 was never intended to reward such creditors trying to game the system.

The spirit of our Bankruptcy Code promises honest debtors a “fresh start.” Creditors are not entitled to use the extraordinary powers bestowed by § 105 as a cudgel to avoid having to actually prove their case in state court. As Bankruptcy Judge Colton held in Ayala, “Failla should not be viewed as carte blanche for post-bankruptcy lender misconduct. Instead, each case must be evaluated on its own facts, and careful consideration should be exercised before issuing any order the impacts pending state court proceedings.”

Third, Christiana Trust was not injured by Mr. McHale’s failure to sign a reaffirmation agreement. The remedy sought by the lender, requiring Mrs. McHale to forfeit her foreclosure defenses, is not a logical or justified punishment to impose on Mrs. McHale. Let’s assume Mr. McHale did perform his intention under § 521, and he signed a reaffirmation agreement with the lender during his bankruptcy. If he had, the post-bankruptcy events would have occurred exactly like they did regardless of whether a reaffirmation agreement was signed or not. Mr. McHale still would have defaulted on his payments post-bankruptcy, and the lender still would have filed a foreclosure action and still would have had to prove its case. So, the fact that a reaffirmation agreement was or was not signed is absolutely irrelevant to Mrs. McHale’s current situation.

Christiana Trust is not prejudiced. The lender is trying to get a “pass” on proving their case in state court, not seriously arguing that Mr. McHale’s failure to sign a reaffirmation agreement damaged them.

Christiana Trust relies heavily and mistakenly on a recent per curiam and unpublished decision of the Eleventh Circuit Court of Appeals−Jones v. Citimortgage.  In Jones, the debtor, acting pro se, sued his mortgage lender and a state court judge in the United States District Court for the Northern District of Georgia. The procedural history is convoluted and confused. It is unclear if the Debtor intended to reaffirm, redeem, or surrender his home to Citimortgage during his bankruptcy. But, we know he did sue Citimortgage in federal district court in a 58-count complaint asserting various civil rights claims under U.S.C. §§ 1983 and 1985, the Fair Housing Act, a violation of his bankruptcy discharge, the Fair Credit Reporting Act, and various state statutes. The Eleventh Circuit dismissed the majority of Mr. Jones’s complaint with prejudice but sent the count relating to the discharge violation back to the appropriate Bankruptcy Court. In dicta, the Appellate Court cited In re Taylor and In re Failla for the established proposition that debtors must redeem or reaffirm their secured debts if they want to retain property.

But, the Eleventh Circuit in Jones is utterly silent as to what is the proper remedy under §105 of the Bankruptcy Code when a debtor fails to perform their stated intention, the issue in this case. Jones merely restates established law and imposes no new nuance with one possible exception. The Eleventh Circuit in Jones confirmed that a debtor who arguably failed to perform his intent under § 521(a)(2) still was entitled to return to the bankruptcy court to seek relief against his lender for violating his discharge. Significantly, the Eleventh Circuit opined that, even though the Debtor failed to surrender, reaffirm, or redeem, he could continue “to maintain mortgage liability payments on a principal residence after discharge without reaffirming the debt, and a creditor can take such payments rather than pursue an in rem foreclosure” under § 524(j) of the Bankruptcy Code. So, at least according to the Eleventh Circuit in this unpublished opinion, if a creditor voluntarily accepts payments post-bankruptcy, they may lessen or lose their ability to force a debtor to comply with his obligations under § 521(a)(2). The take-away lesson from Jones, if any, is that creditors who accept post-bankruptcy payments from debtors who do not sign reaffirmation agreements may lose their ability to force compliance with § 521 of the Bankruptcy Code when the debtor later defaults post-bankruptcy.

Christiana Trust has failed to establish cause to reopen this case. No relief is possible against Mr. McHale because he is dead and beyond the injunctive power of this or any other court.

No relief is possible against Mr. McHale’s estate because this Court lacks jurisdiction.

And, no relief is justified against Mrs. McHale. She is not now and never was personally liable to the lender. Mr. McHale’s failure to sign or to not sign a reaffirmation agreement caused no prejudice to the lender. They still would have to pursue a foreclosure action. And, given the change in circumstances due to the passage of time, Mr. McHale’s death, the lender’s post-bankruptcy modification of the loan, Mrs. McHale’s current foreclosure defenses necessarily are different from those during the bankruptcy when the Debtors were current on their payments. The only appropriate result in this case is to allow the Florida State Court to continue its in rem foreclosure action to conclusion. The only limitation is that Mrs. McHale, if she ever had any liability to the lender given she never signed the promissory note, certainly has no in personam liability to Christiana Trust or its predecessors after her bankruptcy discharge.

Accordingly, it is ORDERED that the Motion to Reopen Case and to Compel Surrender is DENIED.

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Thanks for reading!

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, Centralia, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

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The Reaffirming Dead … (bankruptcy beyond the grave)

Company asks Bankruptcy Court to compel a dead man to surrender his home.

Zombie house

Although it sounds like the beginning of a spoof of a “Walking Dead” skit, the court in Florida took a serious look at the issue.

Dead serious…

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From the Middle District of Florida, In re Charles James McHale, Jr., and Susan McHale, Case #10-02527. Entered March 9, 2018:

Debtors filed this routine and uneventful Chapter 7 bankruptcy case over eight years ago on February 19, 2010. They received their discharge on July 1, 2010.  In their Statement of Intentions, the Debtors indicated they wanted to reaffirm the mortgage debt encumbering their home, which was held by Bank of America. Only the husband Debtor, Charles, signed the promissory note connected to the mortgage. The Debtor/wife, Susan, had no debt to reaffirm.

Bank of America never sent the husband a reaffirmation agreement for him to sign. Instead, the lender sent a letter to the Debtors’ lawyer inviting him to explore the bank’s “home retention programs” with his clients. Bank of America had actual knowledge of the bankruptcy filing but filed no proof of claim with the Bankruptcy Court and took no action in this Chapter 7 case.

Similarly, husband never prepared, signed, or filed any reaffirmation agreement with the Bankruptcy Court. But, he always acted consistently with his intent to reaffirm the debt. He was current with his payments when his bankruptcy case was filed and remained current when he received a discharge. He made multiple payments, all accepted by the lender, after his bankruptcy case was closed.

Trust acknowledges the Debtors were current on their mortgage payments when they filed bankruptcy on February 19, 2010, and they made all future payments through February 2011.  Husband, by this point, was dying. Because he could no longer earn his regular income and despite his declining medical condition, husband valiantly tried to restructure the loan.

Bank of America eventually offered a loan modification to Mr. McHale in August 2011. Debtors made ten full payments under the temporary loan modification agreement that was only supposed to last for three months. Bank of America accepted every payment, the last one being made by the Debtors’ daughter on May 23. Husband died on April 26, 2012.

Bank of America refused to accept any of the many later payments tendered by wife. The lender also refused to issue a permanent loan modification or to assist wife, the surviving Debtor, with restructuring the mortgage encumbering her home. The testimony was uncontroverted that wife, assisted by her family, was willing and able to continue paying for her home. Bank of America simply failed to work with their borrower’s widow.

Bank of America and later the Trust instead pursued two separate foreclosure actions against wife. The first foreclosure case was filed on January 4, 2013. Because the lender could not procure a witness to prove its alleged debt, Trust voluntarily dismissed the first foreclosure on October 3, 2014.

Trust filed a second foreclosure action on May 19, 2015. The second foreclosure action remains pending. Trust, not the wife, has asked to continue the trial in this second foreclosure case at least three times. Then, on June 18, 2016, almost six years after the Debtors received their discharge in this bankruptcy case and three and a half years after the initial foreclosure action was filed, Trust filed its motion to reopen this closed Chapter 7 case.  Trust argues the Debtors did not properly reaffirm the debt then due to Bank of America, and the Bankruptcy Court should compel the surrender of the home.

Section 350(b) of the Bankruptcy Code allows a bankruptcy court to reopen a case for “cause.” Bankruptcy courts use their discretion to determine whether the moving party has demonstrated sufficient cause to reopen the case based on the circumstances and equities of the case. The decision to reopen a long-closed bankruptcy case rests on a balancing test weighing the benefits and prejudices to the creditors and the debtors as well as many other equitable factors. Courts also should consider the suitability of alternative forums and how long a movant waited to seek reopening, requiring a more compelling justification to reopen when the delay is extensive.

Under § 521(a)(2)(A) of the Bankruptcy Code, a Chapter 7 debtor who owes money to a secured creditor with a lien must decide whether they want to surrender the property secured by a lien or, if they would like to retain the property, whether they want to reaffirm or redeem the debt.

Debtors must choose one of these three options. They cannot simply continue making payments to the lender because it would allow them to turn a recourse loan into a non-recourse obligation giving them a “head start” instead of a “fresh start.” Here, Mr. McHale chose to reaffirm the debt due to Bank of America.

Section 524(c) of the Bankruptcy Code governs reaffirmation agreements and the reaffirmation process. Reaffirmation allows a debtor to reaffirm the debt it owes to a creditor and excuses that creditor’s debt from the debtor’s discharge. To reaffirm a debt, the parties must come to an agreement where the otherwise dischargeable debt is renegotiated. Section 524(c) provides certain requirements that must be met for a reaffirmation agreement to be valid and binding. For example, a reaffirmation agreement must be executed before the discharge is granted and certain disclosures must be made by the creditor that contain specific language outlined in the statute. “Case law construing § 524(c) … supports the conclusion that the requirements … must be strictly complied with in order for a reaffirmation agreement to be enforceable.” As Chief Bankruptcy Judge Williamson noted in the In re Pitts decision, it is up to the creditor to protect its own rights. If a debtor does not fully proceed through the reaffirmation process, the creditor should seek to ensure the agreement is properly executed.

But, § 521(a)(2)(B) of the Bankruptcy Code requires debtors to perform some act consistent with their stated intention within 45 days. Mr. McHale did not reaffirm the debt within 45 days. Mrs. McHale’s testimony was credible and unrebutted, however, that the Debtors’ lawyer never explained to Mr. McHale what he needed to do to reaffirm the mortgage debt. Nor did the lender take any action during the bankruptcy to compel Mr. McHale to sign a reaffirmation agreement or otherwise comply with his duties under § 521. Rather, both parties continued the status quo for years following the bankruptcy discharge and closing.

Mr. McHale made regular monthly payments to Bank of America. The lender accepted these payments and eventually modified the mortgage loan long after the bankruptcy case was closed. The lender has filed and dismissed one foreclosure action. A second, still-pending foreclosure action was filed. Christiana Trust waited until June 2016, almost six years after Mr. McHale received his bankruptcy discharge in July 2010, to ask the bankruptcy court to reopen this case to force the deceased Mr. McHale and his surviving widow to surrender the family home because Mr. McHale failed to sign a reaffirmation agreement.

The issue now is what relief, if any, is appropriate against Mr. McHale, his estate, and his widow, Mrs. McHale? Is there any relief possible against Mr. McHale or his estate for his failing to sign the reaffirmation agreement? Should I automatically compel the surviving widow, who never was obligated to reaffirm the debt, to surrender her defenses in the pending foreclosure action, as Christiana Trust seeks? Are there other factors that dictate another remedy or no relief?

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Read the answers to these excellent questions as the Order concludes here.

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Thanks for reading!

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, Centralia, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

Student Loan providers kicking out Income Driven Plan participants after bankruptcy?

Here is a notice from NACBA (the National Association of Consumer Bankruptcy Attorneys).

I want to share it with my clients and attorneys who subscribe to my blog.

“In direct violation of 11 USC 525, NACBA has received distressing news from members that the Department of Education and its student loan servicers are kicking bankruptcy debtors out of their Income Driven Repayment plans. This can happen if debtors file Chapter 7 or Chapter 13 and regardless of whether they were current on the student loan payments.

This potentially illegal expulsion, even if temporary, can upend the debtor’s progress towards getting a Public Student Loan Forgiveness or other cancellation of their loans, resulting in clients angry with their attorney or worse.

NACBA is immediately mobilizing to address this concerning situation.

John Rao, Attorney for the National Consumer Law Center, Dr. Rajeev Darolia, Associate Professor of Public Policy at the University of Kentucky and Mark Redmiles, Assistant Director, United States Attorney’s Office will discuss this latest violation of 11 USC 525 on Sunday, April 22, 2018 at 10:15 AM, NACBA’s Annual Convention in Denver, CO. The panel will offer suggestions to keep your clients on track with their student loan payments. This information will also assist in expanding your practice. 

If you have been contacted by the Department of Education and or its student loan servicers with similar news as it relates to your clients, please contact NACBA.”

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Thanks for reading!

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, Centralia, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

Title-Pawned Vehicle Drops Out of Estate When Not Redeemed Post-Petition

Here is a recent case courtesy of the National Consumer Bankruptcy Rights Center regarding title loan companies …

Posted by NCBRC – January 5, 2018

A chapter 13 plan treating a loan secured by property which had been title-pawned prior to bankruptcy should not have been confirmed where the debtor failed to redeem the property within the redemption grace period. TitleMax v. Northington, Nos. 16-17467, 16-17468 (11th Cir. Dec. 11, 2017). In so holding, the Eleventh Circuit deemed TitleMax’s continued prosecution of its motion for relief from stay as equivalent to an objection to confirmation.

Debtor, Gustavius Wilber, entered into a title pawn agreement with TitleMax pledging his car as security for a loan. After the payment due date for the loan expired but before the statutorily-mandated redemption period had lapsed, Mr. Wilber filed for chapter 13 bankruptcy and proposed a plan to repay the loan with interest. TitleMax filed a motion for relief from stay. At the confirmation hearing, which took place after the redemption period had lapsed, TitleMax continued to press for relief from stay but specifically indicated that it was not objecting to confirmation of the plan. The bankruptcy court confirmed the debtor’s plan and later denied TitleMax’s motion for relief from stay. In re Wilber, 551 B.R. 542, 544–47 (Bankr. M.D. Ga. 2016). The district court affirmed. Title Max v. Northington, 559 B.R. 542, 545 (M.D. Ga. 2016).

On appeal, it was undisputed that the pawned vehicle, in Mr. Wilber’s possession at the time of the petition, entered the bankruptcy estate under section 541(a)(1) and that the loan remained outstanding and amenable to modification under section 1322(b)(2). The question was whether Mr. Wilber’s failure to redeem the vehicle within the redemption grace period triggered Georgia’s law, Ga. Code Ann. § 44-14-403(b)(3), automatically transferring ownership of the vehicle to the pawnbroker thereby removing it from the estate.

The circuit court began with the initial question of whether, as the bankruptcy held, the doctrine of res judicata bound TitleMax to the confirmed plan under section 1327, due to TitleMax’s failure to timely object. It found that it did not. The court distinguished the case relied on by the bankruptcy court, In re Young, 281 B.R. 74 (Bankr. S.D. Ala. 2001). Young involved a pawnbroker who failed to respond in any way to the bankruptcy proceedings, but simply attempted to sell the pawned property post-confirmation. In contrast, the circuit court reasoned, while TitleMax did not object to confirmation, it introduced the court to its position that the car was not property of the estate prior to the confirmation hearing and continued to promote that position during and after confirmation. The court determined that, “on the unique facts of this case,” while TitleMax failed to object to confirmation, it nonetheless preserved its rights to complain about its treatment under plan by presenting its argument in its motion for relief from stay.

Turning to the issue of the property status of the vehicle, the circuit court stated, “we must decide whether the filing of a bankruptcy petition necessarily freezes the debtor’s estate and thereby forestalls the operation of the state-law rules that define and regulate the property interests that comprise that estate.” The court found that the bankruptcy court failed to adequately address the impact the lapse of the redemption period post-petition had on the status of the property.

The court began with the reminder that while bankruptcy law determines what property rights enter the estate, state law determines the nature of those rights. The court found that the Code can be read to circumvent state property law only upon indications of clear congressional intent. Given the extensive history of state regulation of the pawn industry, the court did not find that such intent was manifest. It rejected the “minority view” that the automatic stay prevents the lapse of a redemption period as ignoring section 108(a)’s more specific tolling provision, and it noted that the automatic stay prohibited action on the part of the creditor while, in this case, the only action was the automatic operation of state law.

Turning to section 541(a)’s provision “freezing” assets in their petition-date form, the court found that even that provision allows for contraction or expansion of property rights post-petition depending upon the static or non-static nature of the state property right. The court offered as examples increases to the bankruptcy estate through the accumulation of interest, or diminution of the estate due to the debtor’s failure to exercise an option in an option contract. The court concluded that while the debtor’s interest in the property as of the petition date entered the estate, operation of automatic state law extinguished that interest by automatically turning ownership interest over to the pawnbroker.

The court reversed and remanded.

Circuit Judge Wilson dissented on the basis that TitleMax’s failure to object to confirmation should have precluded TitleMax from later protesting its treatment under the plan. This was particularly so where counsel for TitleMax specifically informed the court at the confirmation hearing that his client did not object despite the court’s repeated invitations to lodge an objection. “Title Max did not merely sleep on its rights; it woke up, entered an appearance, and then affirmatively renounced them.” Where the bankruptcy court relied, at least in part, on TitleMax’s failure to object and TitleMax did not dispute that finding, the dissent argued that the circuit court had no basis for a finding of clear error on appeal. Judge Wilson further expressed concern that the majority decision would set a precedent requiring courts to disregard assurances of non-objection, and scour previous filings for any argument that could later be construed as an objection.

The dissent noted that the practical effect of TitleMax’s conduct was to put itself in a win/win situation. By not objecting to plan confirmation it stood to benefit from the plan’s favorable treatment of its claim, and by later casting its motion for relief from stay as an objection it stood to benefit from ownership of the vehicle and favorable precedential case law.

The dissent also disagreed with the majority’s decision on the merits, finding that the bankruptcy court’s treatment of TitleMax’s claim was within its power to modify claims. Furthermore, where section 541(a) lists the property that becomes part of the estate upon filing, section 541(b)(8) specifies situations in which pawned property does not enter the estate. One such exception is when pawned property is in the possession of the lender and the redemption period has lapsed. The dissent maintained that, under the doctrine of expressio unius est exclusio alterius, where the statute specifically treats property in the possession of the lender as an exception to the estate property presumption, the implication is that property in the hands of the debtor does not fall under that exception.

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A bankruptcy attorney needs to keep track of state laws that are tangential to bankruptcy. This is a Georgia case and not necessarily applicable in Illinois, but it is worth keeping an eye on in the event a creditor brings this case up in a repossession matter!

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Curry Law Office joins Mighty Networks

I have started a page on Mighty Networks.

https://curry-law-things-that-matter.mn.co/home

Here is a quote from CEO Gina Bianchini:

“Mighty Networks are designed to scale a social model where people start off as strangers and want to build relationships with each other around a specialty, profession, interest, cause, discipline, value system, condition, identity, life stage, diagnosis or passion. … Mighty Networks are designed for strangers to build relationships with each other when a network has tens, if not hundreds of thousands of members.”

Here is an article covering its debut. https://www.fastcompany.com/40401906/gina-bianchini-is-taking-on-facebook-once-again-with-mighty-networks

Time will tell if Mighty Networks builds itself into a good contact point with local clients or more akin to LinkedIn used (by me at least) for professional networking. From my business standpoint, frankly, I prefer the former as it generates interest to my potential clients.

Join me! Why not?

I do want to keep with the current social media trends – an attorney that relies solely on phone book ads will not build a new client base. That is why I continue to blog and to post on Facebook and Twitter.

I hope that Mighty Networks helps potential clients get to know my firm exists and what it does. As Earl Nightingale said, “Our rewards will always be in exact proportion to our service.”

This is another way I can be of service…

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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, Centralia, McLeansboro, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

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

Riding the Circuit: Jasper County, Illinois

As a Mount Vernon, Illinois attorney, I travel throughout the state practicing law and meeting with clients about topics ranging from bankruptcy to estate law, from divorce to litigation. In my travels, I enjoy seeing the courthouses in our county seats. Occasionally in my blog I will stop to describe these wonderful buildings and the towns and cities in which they set.

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Jasper_County

From Wikipedia: Jasper County is a county located in the U.S. state of Illinois. According to the 2010 census, it has a population of 9,698. The county was formed in 1831 out of Clay and Crawford Counties. It was named for Sgt. William Jasper, a Revolutionary War hero from South Carolina. During the defense of Fort Moultrie in 1776, the staff of the American flag was shot away. Sgt. Jasper attached the flag to a pole and stood on the wall waving the flag at the British until a new staff was erected.

Newton is its county seat and has a population of 3,069 at the 2000 Census. Newton is home to a large coal-fired power plant and Newton Lake State Fish and Wildlife Area.

Newton is also home to the Drive ‘n Theatre, formerly known as the Fairview Drive-In, that opened in 1953. It is one of 10 drive-ins left standing in Illinois.

Newton has produced several notable natives. These include Texas Ranger pitcher Ross Wolf, Illinois state representative Norman L. Benefiel, folk singer Burl Ives, and Irene Hunt, who set the historical novel about the Civil War, Across Five Aprils, in and around Newton.

Catty-corner from the courthouse is a lovely statue of Burl Ives. He and I are fellow Eastern Illinois University alums!

Burl Ives

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The courthouse was built in 1876 but has been extensively renovated since. The main courtroom is on the second floor and is massive with high ceilings and ample seating. The lobby is immense and airy. I have only appeared there once, but it was enough to leave a positive impression of its charms!

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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 Grayville, West Salem, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

A Scorched-Earth Policy as to Student Loans?

This case “fits the pattern of the Department of Education fighting a scorched earth battle over student loans … (t)he costs to the federal government in opposing this discharge likely equal or exceed the amount that it might eventually collect … “

A good example of the strange and frustrating attempts to discharge student loans.

I am reprinting this wonderful article by Diane Davis from https://www.bna.com/decision-reversed-mom-n73014475007/

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Decision Reversed, Mom Can’t Wipe Out Student Loans in Bankruptcy

By Diane Davis

A mother separated from her husband with three small children failed to show that having to repay more than $25,000 in student loan debt would cause undue financial hardship and so can’t wipe out the debt in bankruptcy, the U.S. District Court for the Eastern District of Pennsylvania held.

Kristin Price didn’t demonstrate “that it is more likely than not that she will be unable to maintain a minimal standard of living for a significant portion of her loan term,” Judge Edward G. Smith wrote Jan. 24, reversing the bankruptcy court’s ruling in favor of Price in her Chapter 7 case.

Even though Smith agreed with the bankruptcy court that it was a “close case” and a “difficult decision,” he ultimately found the bankruptcy court’s analysis “flawed.”

The bankruptcy court’s ruling was considered a “win” by consumer advocates, gaining new ground for young, healthy, and working debtors who are trying to repay their debts but still need a bankruptcy discharge due to undue hardship. The district court’s reversal, however, is in line with the U.S. Department of Education’s tough stance on debtors, encouraging them not to even try to get their student loan debts discharged.

Student loan debt is dischargeable in bankruptcy under Bankruptcy Code Section 523(a)(8) but only if a debtor can show that repayment of the debt would impose an “undue hardship” on her and her dependents.

The bankruptcy court applied the so-called Brunner test for determining undue hardship. It requires that the debtor prove she can’t maintain a minimum standard of living for herself and her dependents, that this state of affairs is likely to persist for a significant portion of the repayment period, and that she made a good faith effort to repay the loans.

Because courts view Section 523(a)(8) as a narrow exception, they place a high burden of proof on a debtor seeking discharge. The determination of undue hardship is based on law and fact and is made on a case-by-case basis.

Appeal Ruling

Two bankruptcy attorneys familiar with student loan cases found the district court’s analysis “flawed” and so did the debtor’s counsel, who said they plan to appeal to the U.S. Court of Appeals for the Third Circuit.

“We are disappointed, but not surprised,” Price’s attorney Scott F. Waterman, Waterman & Mayer, LLP, in Media, Pa., told Bloomberg Law via email Jan. 29.

“The district court reversed the decision on a narrow factual basis,” Waterman said. “We believe it misinterpreted the bankruptcy court’s discussion on the burden of proof, confusing it with the proper burden of persuasion that exists when one party provides unrebutted evidence supporting its position,” he said.

The district court “failed to provide proper deference to the bankruptcy court’s findings of fact—findings of fact can only be reversed based upon abuse of discretion,” Waterman said.

“The issue of what is the proper standard of review of findings of fact and the application of those facts is actually pending before the U.S. Supreme Court in U.S. Bank National Association v. The Village at Lakeridge , Waterman said.

Price, a licensed vascular sonographer, is only working part-time because she says the market is “saturated” with sonographers and she can’t get more work.

She also falls under the “childcare squeeze” because two of her children have several years before they will attend school full time. As a result, if Price were to work full time, her additional employment would be offset by additional childcare expenses.

The district court focused on whether Price could find additional employment in her field in the future. The bankruptcy court based its decision on an analysis of the next five years, but the record lacked any evidence of Price’s chances of finding full-time employment with a different employer in the future, the court said.

Further, the bankruptcy court made an assumption about the level of saturation in the market and the likelihood it would persist without any additional information, the court said.

Considering all of the facts as a whole, the district court said it couldn’t conclude it was “more likely than not that Price will be unable to maintain a minimal standard of living for the next five years.”

Deference to Bankruptcy Court

The district court failed to give the proper weight to factual findings of the judge conducting the hearing, according to bankruptcy attorneys.

“Deference should be given to the trial judge” who is in a better position after hearing testimony to make these decisions, John Rao, an attorney with the National Consumer Law Center in Boston who specializes in bankruptcy and mortgage servicing, told Bloomberg Law Jan. 29.

These cases are challenging to win, he said.

“We were thrilled with the initial decision,” Rao said, because it gained new ground applying the undue hardship standard to a debtor who is working and isn’t handicapped.

Rao said he found similarities in this case and a 2013 case in the Seventh Circuit, Krieger v. Educ. Credit Mgmt. Corp . In Krieger, the judge had to apply a “multi-factor standard interpreting an open-ended statute,” he said. The more “vague the standard, the harder it is to find error in its application,” the Krieger court said.

Edward C. Boltz, a consumer advocate and partner with the Law Offices of John T. Orcutt, P.C., Durham, N.C., told Bloomberg Law Jan. 29, the district court gave “little weight to the judge that conducted the hearing.”

Similar to Acosta-Conniff v. Educ. Credit Mgmt. Corp. , the “district court mouths the standard that it ‘reviews the bankruptcy court’s factual findings for clear error’ but then really appears to review all of the bankruptcy court’s factual findings de novo,” Boltz said.

He “hopes the Third Circuit follows the Eleventh Circuit in Acosta-Conniff and reminds district courts to defer to the bankruptcy court on factual issues,” Boltz said.

Looking at Bigger Picture

Looking at the “bigger picture,” consumer bankruptcy attorneys view the district court’s reversal in other ways.

This case “fits the pattern of the Department of Education fighting a scorched earth battle over student loans,” according to Boltz, who is the former president of the National Association of Consumer Bankruptcy Attorneys.

“The costs to the federal government in opposing this discharge likely equal or exceed the amount that it might eventually collect from Ms.Price,” Boltz pointed out. “That leads to the conclusion that it isn’t these loans that matter, but squashing the idea that any debtor should try [to discharge them],” he said.

Even if the Third Circuit rules in Price’s favor and vacates the district court’s decision, it will most likely remand the case back to the bankruptcy court so the court can hear more evidence about the “saturation” in the marketplace, Rao said.

The Education Department wouldn’t comment on the case.

Scott F. Waterman, Media, Pa., and Matthew Hamermesh, Hangley Aronchick Segal & Pudlin, Philadelphia, represented Price; Anthony St. Joseph Philadelphia, represented DOE and U.S.; Trustee Gary F. Seitz, Philadelphia, represented himself.

The case is DeVos v. Price, E.D. Pa., 17-3064, 1/24/18 .

To contact the reporter on this story: Diane Davis in Washington at ddavis@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

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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, Centralia, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

Can I keep using my credit cards?

Frequently Asked Questions about Bankruptcy

I help people file for bankruptcy throughout southern Illinois to help eliminate their crushing debt and protect their assets.  For almost 25 years and in over five thousand bankruptcy filings, I answer many questions people have about the process. I thought I would share some of the more common questions here.

“Can I keep using my credit cards?”

You decided you are filing for bankruptcy; for sure, no question that it is going to happen. You are saving up the paperwork and the fees. Can I still use the credit cards?

No.

For heaven’s sake, no.

The same goes for cash advances and money from the loan companies.

A creditor can object to the bankruptcy if you have charge on their cards (or got a loan from them) just before you file bankruptcy. It is fraud. Not a “go-to-jail” fraud, but fraud regardless

“When did you see your attorney about bankruptcy?” “July 1st.”

“When did you get that $2,000.00 cash advance on your credit card?” “July 2nd.”

You see the problem with that.  I don’t side with creditors very often, but here I do: It’s not fair to them to run up their bill and file bankruptcy.

And think of it this way: the credit cards will cancel the accounts when you file your case, so in a very short time you will not be able to use them. Best to start now.

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About the author:

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 (probate, 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 Salem, Centralia or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

You can also access my website at http://www.mtvernonbankruptcylawyer.com

 

Free Fallin’ … Financially

Celebrity Spotlight: Tom Petty

Bankruptcy affects people of every age, creed, sex or ethnicity from every part of the country. Even celebrities both loved and disliked have their financial problems and depend on the bankruptcy laws to get out from under crippling debt.

From Wikipedia:

Thomas Earl Petty (October 20, 1950 – October 2, 2017) was an American singer-songwriter, multi-instrumentalist, record producer, and actor. Petty served as the lead singer of Tom Petty and the Heartbreakers formed in 1976. He was also a member and co-founder of the late 1980s supergroup the Traveling Wilburys with George Harrison, Bob Dylan, Roy Orbinson and Jeff Lynne.

Petty recorded a number of hit singles with the Heartbreakers and as a solo artist. In his career, he sold more than 80 million records worldwide, making him one of the best-selling music artists of all time. In 2001, Petty was inducted into the Rock and Roll Hall of Fame. He died, aged 66, of cardiac arrest on October 2, 2017.

In 1979, he was involved in a legal dispute when ABC Records was sold to MCA Records. He refused to be transferred to another record label without his consent, insisting the sale cancelled his liability. MCA sued for breach of contract resulting in Petty being a half-millions dollars in debt. In May 1979, he filed for bankruptcy and was signed to the new MCA subsidiary Backstreet Records

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Check my blog for more Celebrity Spotlights.

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Michael Curry is the author of helpful ebooks on bankruptcy and debt relief, available on Kindle: What Bankruptcy Can Do, What Bankruptcy Can’t Do and Finally Be Financially Free.

At Curry Law Office in Mount Vernon, IL, we are here to help you through your financial difficulties. Our down-to-earth bankruptcy attorney offers common sense advice and solutions for your bankruptcy filing.

Debt problems come in all shapes and sizes. For some of our clients, the issue that drives them to seek a lawyer’s advice is mounting credit card bills. For others, it may be an abusive creditor or a home foreclosure. At Curry Law Office in Mount Vernon, IL, we offer a free debt-relief planning session to discuss your financial problems and identify solutions. Call or text today (618) 246-0993 or email michael.curry.law@gmail.com. Finally Be Financially Free by calling now.

 

European Court Finds It’s Not Possible to Trademark a Color

 Well, this is interesting …

 From Mediation.com

Although famous for the iconic red soles, shoe designer Christian Louboutin recently experienced a blow to his recognized signature when a European court that it was not possible to trademark a color.

Louboutin filed a trademark infringement lawsuit in 2012 against a Dutch shoe retailer that sold shoes with the famous red soles that were not part of Louboutin’s premium brand. The Dutch retailer sold the shoes to customers for a much lower price point than the famous brand. Louboutin’s trademark was registered in the Netherlands as well as Belgium and Luxembourg and was described as the color red that was applied to shoe soles.

The case made its way to the highest court in the European Union, which found that the red soles could be refused the protection of the trademark. The case was remanded to the Dutch court to determine how to proceed. The decision comes as a major blow to a well-known fashion designer. Famous designers have often sought protection in court from knock-off designers and others that take advantage of the original designer’s creative license.

The decision was also contrary to a recent decision made in favor of Mr. Louboutin in a United States federal appeals court. That court identified the red soles as a source-identifying trademark that provided protection to his brand. However, the recent decision could imply that the designer may not be able to protect his signature red soles from other international designers.

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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, McLeansboro, Centralia 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.