A fellow bankruptcy attorney recently posed an interesting question regarding a threatened foreclosure sale before the automatic stay is lifted in a Chapter 13 bankruptcy.  Here is the exchange I had with her:

Question:

            Background Facts:

I just got an email from a Chapter 13 client who has a confirmation hearing on 8/21.  She told me that auction.com just came by her house and posted a sign that her house is up for auction on 8/14.  There has been no relief from the automatic stay issued in this case, nor has a motion for relief from the automatic stay been filed.  When we filed the case in March, we stopped a foreclosure action and the client was going to try to save her home so we put the arrears and some IRS tax debt in the plan.  Her original confirmation hearing was on 6/21 but the Chapter 13 Trustee’s office continued it to 8/21.  In the interim she lost one of her jobs and decided that she would just surrender the home and pay the priority tax debt in the plan.  We amended the plan indicating that she would be surrendering the home, but no arrangements have been made yet on the terms of the surrender.

            The Question:

Doesn’t the bank still need relief from the automatic stay to auction the house?

My Answer:

I.          The Terms Of The Confirmed Plan Will Bind The Debtor

The Bankruptcy Code provides:  “[T]he court shall confirm a plan if — . . .  [for an] allowed secured claim provided for by the plan — . . . the debtor surrenders the property securing such claim to such holder . . .”  11 U.S.C. § 1325(a)(5)(c).  Thus, your client is entitled to propose a plan in which she surrenders her home to the creditor holding the first mortgage.  Once the Court confirms the plan, its provisions will “bind the debtor . . .”  11 U.S.C. § 1327(a), meaning that she will have to surrender the home. Continue Reading The Automatic Stay In Chapter 13, And Foreclosure Sales

Cartoon of man with billA very recent Eleventh Circuit decision, Crawford v. LVNV Funding, LLC, No. 13-12389 (11th Cir., July 10, 2014), highlights an interesting split among the circuits, which makes things ripe for an appeal to the Supremes.

First let’s get a little background.

BACKGROUND

I.                The Automatic Stay And The Discharge Injunction

When a person files for bankruptcy protection, the automatic stay is triggered.  The stay prevents creditors from taking action against the debtor, the debtor’s possessions, and the bankruptcy estate that is created upon filing.  I have written about the automatic stay in many previous posts, so I won’t spend a lot of time exploring it here.

[T]he stay . . . continues until the earliest of —

(A) the time the case is closed;

(B) the time the case is dismissed; or

(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied.

11 U.S.C. § 362(c) (2).

If the debtor receives a discharge, then once the stay terminates it is replaced by the permanent discharge injunction of 11 U.S.C.  § 524(a), that forever prohibits creditors from attempting to collect discharged debts.

 

II.              The Fair Debt Collection Practices Act

The Bankruptcy Code is federal law, made pursuant to Congress’s enumerated power “to establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.”  U.S. Const. art. I, § 8, cl. 4.  It affords debtors marvelous protections — including the automatic stay and the discharge injunction — against the depredations of their creditors.

Another federal law that protects debtors, in this case from debt collectors, is the Fair Debt Collection Practices Act (“FDCPA”) found in 15 U.S. Code § 1692, et seq.  The FDCPA contains significant limitations on what a debt collector can do.  By the way, the limitations here are not on the creditor, just on the collector.

 

III.            The Doctrine Of Federal Preemption

The U.S. Constitution contains the following provision:

This Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

U.S. Const., art. VI, para. 2.

This means that federal laws are binding on everyone.  Thus, if there is a conflict between a federal statute and a state statute, the federal statute always wins.  This is sometimes referred to as the doctrine of federal preemption.

But notice what the Constitution does not say.  It does not say anything about the relationship between two federal statutes.  Therefore, if there were an inconsistency between two federal statutes, there is no formula for determining which statute controls.  And if there were no conflict between two federal statutes, there is no indication that one should be preferred above the other.

 

IV.            The Ninth Circuit’s Walls Decision

In 2002 the U.S. Court of Appeals for the Ninth Circuit issued a decision in Walls v. Wells Fargo Bank, N.A., 276 F. 3d 502 (9th Cir. 2002), that has created a problem for Ninth Circuit practitioners. Continue Reading Fair Debt Collection Practices Act And Bankruptcy

Multiple clocksI recently had an email exchange regarding statute of limitations tolling in bankruptcy, with a friend who is a fellow bankruptcy attorney.  My friend posed a couple of questions based on an interesting fact pattern.  Herewith I offer a slightly edited version of the exchange.

First, here is my friend’s email:

Salient Facts:   Chapter 7 case filed.  Debtor has some accounts receivable.   On the petition filing date, there are 4 months left on the Statue of Limitations to bring an action on the accounts receivable.  The Chapter 7 Trustee sold the accounts receivable to someone we’ll call, Doug.

Questions:

1.  How long does Doug have to bring suit on the accounts receivable he purchased from the Trustee?

2.  Section 108(a) gives the Trustee 2 years from the petition date to commence an action.  It also seems to extend the statute of limitations by some period, which I used to assume was the pendency of the bankruptcy case, ending when it closed.  But now that I read the language, it is not at all clear.  Section 108(a)(1) has the statement:  “[I]ncluding any suspension of such period occurring after the commencement of the case…”; What the heck does that mean?  Does there need to be a formal suspension, or is it automatic, and if so, for how long?

Before I give you my response, here is some helpful background.

 

I.              Statutes Of Limitations

At the risk of gross oversimplification, we can think of noncriminal law as a mechanism for resolving competing interests.  In particular, litigation is the means we use for resolving disputes without the parties resorting to duels.  If only Aaron Burr had resolved his dispute with Alexander Hamilton through litigation.

One of the goals in this process is to resolve disputes in a reasonably timely fashion, before the witnesses’ memories become distorted with the passage of time.  Therefore, the statutes under which plaintiffs bring their suits contain time windows during which the actions must be initiated.  If a plaintiff fails to take action within the relevant time window, the suit is time-barred.  The plaintiff is said to have “slept on his rights.” Continue Reading Tolling A Statute Of Limitations In Bankruptcy

Debt collectors serve the useful role in society of forcing many debtors who otherwise wish to pay their debts into bankruptcy.  They also provide a source of additional income for bankruptcy attorneys when they violate the automatic stay of 11 U.S.C. § 362(a), the discharge injunction of 11 U.S.C. § 524(a), and the Fair Debt Collections Act of 15 U.S.C. § 1692 et seq..

In spite of these important roles, the California Attorney General, Kamala D. Harris, has filed a lawsuit against JPMorgan Chase, based on the fact that JPMorgan Chase violated various collection laws.  As Andrew Tangel and Alejandro Lazo reported in the May 27, 2013 edition of the Los Angeles Times:

In a lawsuit that echoes the worst abuses of the foreclosure crisis, the state’s top law enforcement official is suing the nation’s largest bank, accusing it of using aggressive and illegal tactics to collect credit card debt from thousands of California consumers.  Atty. Gen. Kamala D. Harris on Thursday accused JPMorgan Chase & Co. of operating a “debt collection mill” that flooded courts with more than 100,000 lawsuits to obtain speedy judgments before consumers could fight back. Much as banks did during the housing crisis, JPMorgan used so-called robo-signing to churn out documents without reviewing them, Harris said.  The state alleges that JPMorgan relied on incomplete records and erroneous information to make its cases; in some instances, key documents allegedly were signed by low-level employees posing as assistant treasurers and bank officers.  Harris also alleges that the bank revealed customers’ credit card numbers, potentially exposing them to identity theft.  JPMorgan also failed to notify some customers that lawsuits had been filed against them, a practice known as “sewer service” litigation, according to Harris.  The bank ”abused the judicial process and engaged in serious misconduct against California credit card borrowers,” Harris said. “This enforcement action seeks to hold [JPMorgan] accountable for systematically using illegal tactics to flood California’s courts with specious lawsuits against consumers.”

Picky, picky, picky.

Let’s look at just one of the charges against JPMorgan Chase:  Failing to notify customers that a lawsuit had been filed against them.  What’s the big deal?  Does the bank have to tell you everything it does?  After all, the government doesn’t have to tell you everything.

For example, I knew a guy — let’s call him Joseph K — who faced criminal charges, and had a trial without ever finding out what the charges were.  He was eventually executed without ever learning what the charges were against him.  No problem, right?  Oops.  I just remembered:  I didn’t know Joseph K personally.  Joseph K’s story, called The Trial, was told by a writer named Franz Kafka.  It illustrated what could go wrong in a society without the rule of law.

Maybe JPMorgan Chase’s behavior wasn’t acceptable after all.

But surely the other debt collectors are all above board.  Not according to Mr. Tangel and Mr. Lazo — and stop calling me Shirley.  Later in the article they state:

[D]ebt buyers appear to have business models in which they are able to go into California superior courts and get default judgments against consumers.  A majority of these debt collection cases go to default judgments, indicating that many of these firms do not make adequate efforts to notify people that they are being sued . . .

In fact, I have seen remarkably illegal and wicked behavior by debt collectors, and have written about it in great detail.  I even discussed the way debt collection practices have corrupted Sheriff’s departments.  And still the problem persists.

If you’ve been troubled by debt collectors —especially those attempting to collect money while you’re in bankruptcy, or attempting to collect debts that were discharged in bankruptcy — the good news is you can get relief.  Call a high quality bankruptcy attorney to discuss your options.

 

 

My previous post dealt with the first of two possible settings involving a previous bankruptcy.  The first setting was when you received a discharge in the previous bankruptcy.  Today’s post deals with the second situation, i.e., your previous bankruptcy was dismissed.

II.        Your Previous Case Was Dismissed

Other than the 180-day bar of § 109(g), or some other time bar imposed on you by the Court because of naughty behavior, there is no time bar to filing another case after a dismissal.

However, there is a serious loss of protection with serial filing.  Most particularly, you lose the protection of the automatic stay, which is perhaps the most important benefit of filing — other than the discharge.  A little history will help to set the stage. Continue Reading Can I File For Bankruptcy More Than Once? (Part 2)

An ongoing source of distress for debtors is truly abusive debt collectors.  Many of these alleged humans ignore the due process rights of debtors, lie, and break the law in their efforts to shake down debtors.  Can anything be done?  Finally, the federal and state governments are starting to take some action.

I.          The Problems

A.        Collectors Fail To Follow The Due Process Rules

I regularly have clients show me abstracts of judgment from state court cases in which they knew nothing about the suit until receiving the judgment.  Are my clients lying?  I don’t think so.  In fact, a California state senator had the same thing happen to him.  According to Jim Puzzanghera, in the August 20, 2012 Los Angeles Times:

Several years ago, debt collectors began pursuing state Sen. Lou Correa (D-Santa Ana) for an unpaid Sears bill they said he owed.  He told them they had the wrong man, but the debt collectors never wavered.  “These folks are very aggressive,” Correa said. “They’ll call back repeatedly and say, `Tell us some personal information so we can tell it’s not you.’  When all of a sudden is the burden of proof on me?”  Last year, Correa discovered his Senate paycheck was being garnisheed [sic] because of a $4,329 lien for the Sears debt.  Brachfeld had obtained a default judgment in court, even though, Correa said, the lawsuit was never served on him and he knew nothing of the claim or the court hearing.  He later learned that the debt belonged to a Luis Correa from Santa Ana. The man had a different Social Security number, different address, even different first name — the senator is legally Jose Luis Correa.  “I always pay my bills on time.  Then to have somebody garnish my wages, I thought was pretty astounding,” the lawmaker said.  He later resolved the problem and stopped the wage garnishment.  Now Correa is supporting a bill by state Sen. Mark Leno (D-San Francisco) to require debt collectors to document that they are pursuing the right person for the correct amount of money.  The bill passed the Senate and is pending in the Assembly.

If these entities can abuse a state senator, where does that leave the average person without any political clout? Continue Reading A Crackdown On Abusive Debt Collectors

I have written several times about the automatic stay of 11 U.S.C. § 362(a)

I.          The Automatic Stay

I wrote:

Simply put, the automatic stay stays all actions by the debtor’s creditors against the debtor as a person (in personam), and against the property (in rem) of the debtor and of the bankruptcy estate that is created upon the filing of the papers.  In practical terms – with a few exceptions listed in § 362(b) – this means that creditors must stop all direct communications with the debtor, all attempts to collect money or other assets from the debtor, all lawsuits against the debtor, and all attempts to exercise control over the debtor’s (or the estate’s) property.  Willful violations of the automatic stay can be expensive mistakes because the debtor who successfully sues in the Bankruptcy Court under § 362(k) can collect damages including costs, attorney’s fees, and punitive damages.

Thus, the automatic stay provides some very important protection to a debtor who files for bankruptcy protection. 

II.        The Chapter 13 Codebtor Stay

If the debtor files under Chapter 13 there is another stay that is triggered that protects, not only the debtor, but also codebtors of the debtor.  Unsurprisingly, it is referred to as the codebtor stay, and it is found in 11 U.S.C. § 1301(a).  The portion I will focus on today is:

[A]fter the order for relief under this chapter, a creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor . . . Continue Reading The Codebtor Stay In Chapter 13 Bankruptcy

This post gathers my thoughts on three eye openers.  Some were in the news, and some I experienced first-hand in my bankruptcy practice.  The common thread among these eye openers is a profound threat to the freedom and wellbeing of the citizenry.

I.          Debt Collector Abuses

A.        Whole Lotta Collectin’ Goin’ On

In the February 16, 2012 Los Angeles Times, Jim Puzzanghera reported on the recently formed Consumer Financial Protection Bureau and noted:

Debt collection has been second only to identity theft in consumer complaints to the Federal Trade Commission in recent years. The bureau estimated that 30 million Americans have debts in the collection process.

Thirty million!  Wow!  That’s one-tenth of the entire U.S. population.  So it’s not just my clients who are facing debt collection agencies and their corrupt and abusive tactics.  And given the volume of complaints it appears that abuses by debt collectors are widespread – it’s not just a few bad apples. Continue Reading Debt Collectors; Sheriff’s Department Corruption; A Justice’s Nutty Opinion

A fellow attorney recently asked me this question because she had a client who failed to attend the reaffirmation hearing.  As a result, the judge disapproved the reaffirmation agreement.  She wondered if the creditor could now repossess the car.  The short answer is: Yes.  What’s going on here?

I.          To Reaffirm Or Not To Reaffirm, That Is The Question

Last month I posted a fairly detailed discussion of reaffirmation.  In that post I described secured debts and the reaffirmation process.  I won’t reproduce the entire post here – you can, after all, read it yourself.  However, I will reproduce a little bit of it because it is particularly germane to the question at hand:

. . . if you refuse to reaffirm or redeem, the creditor can repossess the car even if you’re current on the payments!  See, e.g., In re Dumont, 581 F. 3d 1104 (9th Cir. 2009) . . . .  If the judge approves the reaffirmation agreement the in personam liability survives bankruptcy. . . . If the judge refuses to approve the reaffirmation agreement can the creditor repossess the car?  . . . [I]f the debtor has complied with the requirements of §§ 524(c) and 521(a)(6), and if the only reason there is no reaffirmation agreement in place is because of the judge’s refusal to approve it, then the creditor has no authority to repossess as long as the debtor is current on the payments.

While most debtors would prefer not to reaffirm the debt, but still keep the car and continue to make regular payments, some creditors insist on reaffirmation.  My colleague wondered if her client’s car was safe since she had signed the reaffirmation agreement, even though she hadn’t attended the reaffirmation hearing.  Hadn’t her client complied with the requirements of the Bankruptcy Code?

II.        Attendance At The Hearing Is A Requirement Of Reaffirmation

As I discussed in the December 15 post, § 521(a)(6), coupled with the hanging paragraph immediately after § 521(a)(7) and In re Dumont, 581 F.3d 1104 (9th Cir. 2009), make clear that if the debtor fails either to reaffirm the debt or redeem the item within 45 days after the first meeting of creditors, then the stay terminates and the creditor can repossess, even if the debtor is current on the payments.

The steps necessary (but not sufficient) for the debtor to reaffirm the debt are:  (1) signing the proposed reaffirmation agreement, and (2) attending the hearing on reaffirmation, if there is one.  Failure to complete either step is a failure on the debtor’s part to reaffirm the debt, resulting in stay termination and possible repossession.  After all, signing the agreement and attending the hearing are within the debtor’s power.

The reason the two steps are insufficient by themselves to accomplish reaffirmation is the possibility that the judge will refuse to approve the agreement.  Since the debtor cannot force the judge to approve the reaffirmation agreement, this final step is not required for the debtor’s compliance with § 521(a)(6).  This is why all of the judges I have heard opine on the matter say that repossession is not permitted under Dumont when the debtor is current on the payments, if the only reason there is no reaffirmation is the judge’s refusal to approve the agreement.  Unfortunately, there is no case law establishing this last proposition, probably because no creditor has had the temerity to repossess under those circumstances.

The answer differs depending on the nature of the debt and under which chapter the bankruptcy case was filed.

I.          The Key Exception To Discharge

The key provision of the Bankruptcy Code that we use to answer the question is 11 U.S.C. § 523(a)(3), which states (with emphasis added):

A dischargeunder section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt— . . . neither listed nor scheduled under section 521 (a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit

(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or

(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request;

If you’re not used to reading statutory language you may naturally ask:  What does all of this mean?  One thing is clear:  this statutory provision concerns debts that were “neither listed nor scheduled” in the bankruptcy papers “in time to permit . . .”  But to permit what?  There are two things that the creditor would have been able to do in a timely fashion if the debt had been properly scheduled, but cannot because of the oversight. Continue Reading What Happens If I Forgot To List A Creditor In My Bankruptcy Papers?