California Bankruptcy Attorney Blog

At Howard Law, P.C., Vincent Howard and our Loma Linda foreclosure defense lawyers handle a lot of cases involving mortgage borrowers who are suffering because of mistakes by their lenders and loan servicers. So we were interested to read a case in which an apparent mistake by a loan servicer hurt its standing as a creditor in a bankruptcy. In Perrino v. BAC Home Loans Servicing, the Bankruptcy Appellate Panel for the First U.S. Circuit Court of Appeals upheld a Maine bankruptcy court's determination that trustee Pasquale Perrino had an interest in a bankrupt couple's property superior to that of BAC, the servicing arm of Bank of America. When Sara and Douglas Trask refinanced their home, the lender accidentally described a different but adjacent property of theirs, a mistake revealed only when they filed for bankruptcy.

The Trasks refinanced their loan on the 1.74 acres their home is on in 2007. They also owned an unimproved 16-acre lot (Lot #6) directly next door. At trial, both sides agreed that while it is undisputed that the Trasks and the lender both intended to mortgage the house, the intended collateral on the mortgage securing their promissory note was actually described as Lot #6. After filing for Chapter 7 bankruptcy in late 2009, the Trasks filed an adversary proceeding to resolve the mortgage issue; Perrino later joined this. BAC, the successor in interest to the mortgage lender, argued that it had an equitable mortgage, among other arguments. After two hearings, however, the bankruptcy court found for Perrino, saying that as a trustee with the status of a lien creditor, his interest in the property was superior to BAC's. BAC appealed to the First Circuit's Bankruptcy Appellate Panel.

On appeal, BAC argued that the bankruptcy court should have allowed the mortgage to be reformed under Maine law allowing equitable reforms for mutual mistakes in fact. While this is allowable, the BAP wrote, Maine courts (and bankruptcy courts following Maine law) may not reform documents when a third party has intervened or has rights that would be affected. The trustee, as a hypothetical lien holder, is such a third party under well established bankruptcy law, the BAP said. However, BAC argued that any such lien holder would have had constructive notice of BAC's interest in the property, because anyone who inquired would have gone to the correct address listed on the mortgage and realized there was an error. The BAP disagreed. Using the street address of the adjoining house would not have raised an inquiry by a prudent creditor, the court wrote. Nor is it clear whether the properties do have different street addresses. Thus, it upheld the bankruptcy court.

Vincent Howard and our team of Costa Mesa foreclosure defense attorneys are always pleased to see homeowners left in a better position by lenders' errors. The fallout from the housing bubble has made it clear that many of them made serious mistakes in their haste to cash in when the real estate market was good. These range from failure to complete basic paperwork to entering wrong information on paperwork that was later adopted into state law. In some cases, it even veered into outright, knowing wrongdoing by lenders who lied about borrowers' incomes on forms or lied to borrowers about loan conditions, both serious legal matters. At Howard Law, P.C., our Long Beach foreclosure defense lawyers have been able to help clients whose loans have major flaws like these, either fighting off foreclosure or in some cases canceling loans through the Truth in Lending Act.

Continue reading "Bankruptcy Pane Allows Trustee to Avoid Mortgage With Incorrect Property Description - Perrino v. BAC Home Loans Servicing" »

Vincent Howard and our team of Rubidoux personal bankruptcy lawyers frequently counsel clients about the fact that child support payments are not dischargeable in bankruptcy. This is built into bankruptcy law and is very difficult to overcome, but we're often able to make enough room in the client's budget to make payments workable -- and bankruptcy allows some debtors a much-needed chance to catch up on arrearages. In State of New Hampshire v. McGrahan, debtor Robert McGrahan planned to pay off his past-due child support through his bankruptcy, but had to modify his plan because the state Department of Health and Human Services seized his income tax refund to reduce the arrearage. The bankruptcy court ultimately decided to disallow any further seizure, but the Bankruptcy Appellate Panel of the First U.S. Circuit Court of Appeals reversed.

McGrahan filed for Chapter 13 bankruptcy in September of 2009, listing the New Hampshire DHHS as a creditor for $13,000 in child support. His first amended plan noted that the DHHS would seize his income tax refunds annually and the proof of claim amount would be lowered. After the plan was confirmed, the DHHS seized $4,257 in tax refunds, but did not amend its proof of claim; McGrahan's trustee continued paying off the full amount. More than a year into the bankruptcy, McGrahan filed an amended proof of claim for the full amount owed to DHHS minus the seizure, and asked to remove the income tax seizure language as overly burdensome. DHHS moved in response for a ruling allowing it to continue seizing tax refunds. The bankruptcy court denied this, finding no interception is allowed if the bankruptcy plan will pay off the full amount owed. DHHS appealed.

In its analysis, the First Circuit BAP said the issue was whether the effect of the plan's modification was to prevent further tax refund seizures. Though confirmed plans are generally considered final, the panel said, this is only true when the issues were actually litigated by the parties; it found that the tax refund seizures were not. It said the silence in McGrahan's second modified plan on the issue of refund seizures cannot be taken as prohibiting the interceptions. Furthermore, the bankruptcy court itself had ruled earlier in the case that nothing in the first amended plan prohibited DHHS from exercising its right to collect, the panel said -- and that ruling is now the law of the case. Thus, the First found that the bankruptcy court erred in ruling that the tax refund interception is not permitted, and reversed that decision.

At Howard Law, P.C., our Newport Beach consumer bankruptcy attorneys often help clients wrestle with the issue of how to handle child support payments. Clients sometimes come to us after they've fallen far behind in their payments due to financial difficulties, and the state in which they owe support has taken a drastic measure like seizing their tax refunds or garnishing their wages. Vincent Howard and our team of Carson individual bankruptcy lawyers can help clients undo this damage and work out a way to repay what they owe through bankruptcy, often by limiting what they owe on debts that are dischargeable. However, we agree with McGrahan that filing an amended plan each year is burdensome, particularly if the state is not going to amend its proof of claim to reflect the lowered amount the debtor owes.

Continue reading "Bankrupt Man Must Allow Seizure of Tax Refunds to Pay Child Support Arrears - New Hampshire v. McGrahan" »

At Howard Law, P.C., Vincent Howard and our team of Highland foreclosure defense attorneys were interested to see a case in which a mortgage lender was penalized for failing to foreclose after the borrowers gave up the property. In Canning v. Beneficial Maine, Ralph and Megan Canning of Sanford, Maine, filed for Chapter 7 bankruptcy after falling behind on their mortgage payments, and ultimately agreed to surrender the property. However, after the surrender and after their discharge, Beneficial Maine wrote the Cannings to demand that they repay the considerable balance on their underwater loan. They reopened their bankruptcy case and filed an adversary proceeding to require Beneficial to either repossess or give up lien to the home. The bankruptcy court found that the collection letters violated the Cannings' discharge, but that failure to foreclose did not.

The Cannings bought their home in 2007 and found themselves unable to refinance a year later because of a price drop. This led to a default and their Chapter 7 bankruptcy petition in 2009. With their petition and a separate letter to Beneficial, the couple indicated that they would surrender the home. Their trustee filed a notice of abandonment and Beneficial dismissed its foreclosure voluntarily two months after the bankruptcy filing. The Cannings received their discharge in June of 2009, and in August of that year, they received a letter from Beneficial demanding payment of the outstanding loan balance. Their bankruptcy attorney responded by reminding Beneficial of the bankruptcy discharge and demanding that Beneficial either foreclose or release the home's title, or he would seek sanctions in court. Two more rounds of letters in this vein followed, and the bankruptcy lawyer finally filed an adversary proceeding over the failure to foreclose as well as the demand letters violating the discharge order.

In a hearing, a Beneficial employee testified that it hadn't foreclosed because that would cost more than the property was worth. The bankruptcy court found that Beneficial's letters and stance were plain violations of the bankruptcy discharge. However, it found that the failure to foreclose did not violate the discharge, because it did not coerce the Cannings to pay or violate their surrender rights. The Cannings appealed.

In its analysis, the Bankruptcy Appellate Panel for the First U.S. Circuit Court of Appeal affirmed the trial court's decision. The law of the First Circuit does not require creditors to take possession of surrendered property, it said. Debtors like the Cannings are no longer personally liable for a debt discharged in bankruptcy, but the lien survives. However, under In re Pratt, Beneficial may be liable for impermissibly failing to discharge the mortgage. In Pratt, an auto dealer declined to repossess a car that was so old as to be worthless, leaving the debtors who had surrendered it the financial liability of maintaining it but no way to sell it to a junkyard. The Pratt court found that this violated their discharge by coercing them to reaffirm the debt. The Cannings relied heavily on Pratt, but the BAP found differences; the value of the home could go up, and there does not appear to be significant cost associated with maintaining it. Thus, the BAP upheld the bankruptcy court.

Vincent Howard and our team of Garden Grove foreclosure defense lawyers have seen this situation before. When a home is deep underwater -- the Cannings apparently owed about $110,000 more than the most recent appraisal said the home was worth -- the lender may decide it's not financially worthwhile to pursue a foreclosure. This is its legal right, but it sticks the borrowers with the costs and headaches of maintaining a home they no longer actually own. In some cases, this includes the cost of homeowners association fees, which banks are legally responsible for paying after a foreclosure, thanks to the 2005 changes in bankruptcy law. Though the Cannings do not appear to have that obligation, it's not hard to think of other potential liabilities raised by homeownership -- taxes, maintenance, insurance and more. Part of the job of our San Diego County foreclosure defense attorneys is to help borrowers eliminate or minimize this kind of liability.

Continue reading "First Circuit BAP Finds Lender Did Not Violate Discharge by Failing to Foreclose - Canning v. Beneficial Maine" »

Vincent Howard and our team of Corona foreclosure defense attorneys were interested to see a recent ruling that penalized a loan servicer for sleeping on its rights. As a rule, this is more likely to happen with borrowers, who don't have the legal know-how or financial resources of a large bank. However, legal requirements involving deadlines and paperwork apply to both sides -- and thanks to the robo-signing scandal, courts are more likely to pay attention to paperwork mistakes at large lenders instead of dismissing them as routine. A paperwork mistake was behind the ruling in BAC Home Loans Servicing v. Grassi et al., in which a Maine couple was permitted to sell their condominium after their servicer, BAC, failed to object to the request. BAC did notice after the fact and raised a variety of arguments for reopening the issue, but the First U.S. Circuit Court of Appeals Bankruptcy Appellate Panel rejected the appeal.

Anthony Grassi and Kelley Lovejoy-Grassi of Maine filed for Chapter 7 bankruptcy in September of 2008 and converted the bankruptcy to Chapter 13 in January of 2009. More than a year after filing their amended plan, the Grassis filed a motion to sell their condo free and clear of its liens. The purchase price offered was $137,300; the condo had a total of $550,000 in two mortgage liens plus a $10,000 lien from its condo association. Like all such notices, it permitted the sale to go forward if no lienholder objected; the documents were served on all relevant lienholders. However, no party objected and the sale went through. After the sale order was granted, BAC filed a motion to reconsider and file a late objection, explaining that it missed the deadline because of bureaucratic errors. It also argued that the proposed sale price was not necessarily a good-faith offer, since it fell below the lien amount as well as a BAC broker's estimate. The bankruptcy court disagreed and chided BAC for sleeping on its rights.

BAC appealed both the denial of the motion to reconsider and the price issue. The First Circuit's BAP started by noting that numerous federal courts have agreed that a lienholder's silence can be taken as implied consent or a waiver of objection to this type of sale. BAC admits that it received notice and simply failed to respond in time, the court,said, so it must bear the consequences. A motion to reconsider a previous order is an extraordinary remedy that should be applied only in narrow circumstances, the court noted, including when the court made a serious legal error or the motion presents newly discovered evidence. This case presents no such problem, the court said. Though BAC attempted to present the sale as an error of law, the BAP did not believe the record supported this. It was silent on the issue of whether the purchase price was fair, deferring to the bankruptcy court. Thus, it upheld the sale.

Our Huntington Beach foreclosure defense lawyers are always pleased to see cases requiring loan servicers and lenders to bear the consequences of their own mistakes. That's because it's far more common to see cases in which financial companies' mistakes cause hardship for clients like ours. In particular, borrowers seeking loan modifications have found that no step of the process is free from red tape and serious mistakes. Some of these mistakes incorrectly keep borrowers from qualifying for loan modifications when they meet all requirements; others allow the foreclosure arm of the lender to start a foreclosure even though the borrowers were told they were safe. Vincent Howard and all of our Santa Fe Springs foreclosure defense attorneys aggressively represent such people when they get tired of this poor treatment and assert their rights in court.

Continue reading "First Circuit Upholds Order Allowing Debtors to Sell Condo After Bank Failed to Object - BAC Home Loans Servicing v. Grassi" »

Vincent Howard and our team of Riverside County foreclosure defense lawyers were interested to see another ruling allowing a bankruptcy debtor to successfully avoid a lien on a manufactured home. In In re Barbee, the Bankruptcy Appellate Panel for the Sixth U.S. Circuit Court of Appeals found that Gary D. Barbee of Kentucky may avoid a lien on his manufactured home because the lender, U.S. Bank, never perfected its lien on the home. Barbee mortgaged the land and all improvements, including a double-wide trailer built onto the land. When he later filed for bankruptcy, he argued that the bank never perfected its lien because it never acquired title to the manufactured home. The bankruptcy court agreed, and after review, the Sixth Circuit BAP allowed that ruling to stand.

Barbee and Rebecca Gaunce borrowed about $75,500 from Countrywide to buy the land in 1999, encumbering "all improvements and fixtures" on it. They never acquired title to the home, but the record shows it was gutted and rebuilt as a non-mobile home in 1997. In 2009, Barbee filed for Chapter 13 bankruptcy; Gaunce filed a separate case in which there was no controversy with the lender. Six months later, the bankruptcy court allowed Barbee to pursue an adversary complaint alleging that the bank's interest is avoidable because it was not perfected by acquiring title. Both sides filed for summary judgment, with the bank arguing that Barbee lacked standing to bring the adversary proceeding in the first place because he also has no title and no interest in the home other than as an improvement or fixture on real estate. The bankruptcy court disagreed, ruling the lien avoidable because ownership was never noted on the title and the home had not been converted to real property.

In a ruling that relied heavily on the Sixth Circuit's 2011 manufactured home case, Countrywide Home Loans v. Dickson, the Sixth Circuit BAP upheld the bankruptcy court. The BAP in Dickson ruled that the debtor did have standing to avoid a lien even though she was not the trustee, and while the Sixth Circuit itself never reached the issue, the BAP adhered to that precedent. The BAP also ruled that the home is a part of Barbee's bankruptcy estate, because he has an equitable interest regardless of whether he has the title. However, under Kentucky law, a manufactured home is personal property, which means perfecting a lien requires noting it on the title or converting it n court. Bankruptcy law says a property interest must be created by state law or federal interest, the court said, rending the bank's mortgage argument incorrect. Other bank arguments were waived because they were used for the first time on appeal. Thus, the BAP agreed that the lien is avoidable.

Our San Juan Capistrano foreclosure defense attorneys are pleased to see another opinion requiring lenders to answer for the consequences of their inaction when it comes to legal technicalities. Very often, borrowers are the ones who suffer when lenders aren't prompt or make mistakes with paperwork, and it takes an experienced attorney like Vincent Howard to keep these mistakes from doing lasting harm. This case and Dickson rely to some extent on the fact that a manufactured home is treated as a different kind of property in Kentucky -- more akin to a car than a home. It's unclear whether this is true everywhere, but because Dickson reportedly created a split in the circuits, the issue is likely to be revisited. At Howard Law, P.C., our Oceanside foreclosure defense lawyers help clients find quirks like these that can help them fight a rushed or unfair foreclosure.

Continue reading "Sixth Circuit BAP Allows Debtor to Avoid Unperfected Mortgage on Manufactured Home - In re Barbee" »

At Howard Law, P.C., our San Bernardino consumer bankruptcy attorneys take any risk of bankruptcy fraud very seriously. When bankruptcy filers are dishonest about their assets, they can lose their discharges, have the bankruptcy canceled or even go to prison, and a bankruptcy lawyer seen as an accomplice might also get in trouble. That’s why we urge clients to be completely honest and help them avoid honest mistakes that could be interpreted as fraud. A federal jury found that the mistakes of James Moser in United States v. Moser were not honest; Moser failed to disclose several important financial assets on his bankruptcy schedules, which he signed under penalty of perjury, and also lied about them under oath in court. A jury ultimately sentenced him to 121 months in prison, or more than 10 years, and the Tenth U.S. Circuit Court of Appeals upheld the conviction and sentence.

Moser was a manager at a business that offered horse boarding and riding lessons in Kansas. The business leased land and a barn from Jeff Miller Enterprises, but fell behind on payments and was evicted about a month before Moser and his wife filed for Chapter 7 bankruptcy. His debt was discharged in 2006, but his bankruptcy attorney noted that there was still confusion about Moser’s assets at the time of the discharge, in part because Moser was not forthcoming about his assets. After Moser’s initial hearings at which he answered creditor questions, he failed to disclose multiple business dealings, some valuable to the estate; misrepresented a pledge of collateral to be returned as a transfer of assets. About a year after his Chapter 7 discharge, he filed for Chapter 13 bankruptcy and caught the attention of a trustee who questioned him under oath about his collateral pledge and his option to buy the Miller land. He amended his disclosures after the hearing, but federal prosecutors eventually prosecuted and convicted him for conspiracy to commit bankruptcy fraud; and eight counts of bankruptcy fraud.

On appeal, Moser argues that the eight counts of bankruptcy fraud are multiplicitious and should have been reduced to one count (substantially reducing his sentence). The Tenth Circuit disagreed. Charges can be multiplicitous if they describe the same act in different ways, it said, but Moser’s charges each pertain to different acts of disclosure. It noted that other circuits have already ruled that each separate act of concealment in a bankruptcy fraud case counts as its own act of fraud. To do otherwise, as the Second Circuit noted in a previous case, is to allow defendants to break the law as many times as they like without further penalty. Moser’s choice not to disclose business dealings involving the same plot of land gave rise to multiple counts because each was a separate act of deception with a separate decision about whether to tell the trustee, the Tenth said. And there was ample evidence for several of the acts of deception, it noted. Thus, it upheld the conviction and sentence.

Our Costa Mesa personal bankruptcy lawyers would like to use this case as an opportunity to remind clients and potential clients that lying to the court has consequences. It’s unclear whether Moser was actively trying to conceal his assets or just extremely naïve, but in either case, he had an opportunity to know better when his duties in bankruptcy were explained to him. In fact, he had a bankruptcy attorney, which means he could have gone to an expert if unsure or confused about his duty to report business dealings. Bankruptcy provides certain valuable legal protections to filers, including protection from debt collection (and related harassment) and the potential to have some debts outright forgiven. In exchange, debtors are required to give up the freedom to make certain financial decisions. Vincent Howard and our team of Torrance individual bankruptcy attorneys work closely with clients to ensure they understand and take that obligation seriously, because the consequences of deception are severe.

Continue reading "Tenth Circuit Upholds Long Prison Sentence for Failure to Disclose Assets in Bankruptcy - U.S. v. Moser" »

At Howard Law, P.C., our Riverside County foreclosure defense attorneys have written here many times about the paperwork problems that have flooded the courts since the mortgage crisis. This includes some instances of shady or semilegal behavior by lenders, such as robo-signing, post-dating documents and failure to check into evidence. However, we have never read a case in which the lender was accused of outright forgery, until Sutter v. U.S. National Bank, a Sixth U.S. Circuit Court of Appeals decision. Daniel and Sheryl Sutter refinanced their Michigan mortgage in 2004, but never signed a mortgage at the closing. The refinance proceeded normally otherwise, but the Sutters began missing payments and filed for Chapter 13 bankruptcy. U.S. National Bank, the assignee of the mortgage, filed a proof of claim with an attached mortgage bearing false signatures. The bankruptcy court ultimately decided to impose an equitable mortgage, but the district court voided the mortgage outright and the Sixth Circuit agreed.

The Sutters caught the forgery because they had arranged to close the loan in Sacramento, California, where they happened to be vacationing at the time their refinance closed. The forged mortgage expressly said it had been signed and notarized in Michigan. The Sutters used the forgery to object to the proof of claim, then filed an adversary proceeding seeking to disallow the claim or avoid the transfer of the debt. The bankruptcy court granted both requests and expressly reserved the right to decide on an equitable mortgage. The court then allowed the trustee to sell the mortgage back to the bank for $30,000, then abandon the home to allow foreclosure to finish, in exchange for a waiver of any additional claims on the estate. The Sutters appealed to the district court, which sent the case back for an equitable mortgage ruling. The bankruptcy court imposed an equitable mortgage, holding that the Sutters had gotten the benefit of the mortgage and the assignee did not have unclean hands. The district court voided this on appeal, however, saying the mortgage was void because no transfer ever occurred.

U.S. National appealed the ruling that there was no mortgage on the property and that the original mortgage was void under Michigan law. After dismissing some threshold issues, the Sixth Circuit considered the question of whether the mortgage is void in Michigan. It is undisputed that the Sutters could not have signed the mortgage; U.S. National admitted that forgery by its predecessor was the most likely explanation, and steps have been taken to penalize the notary. Furthermore, the Sixth said, caselaw says a forged mortgage is void ab initio in Michigan, even when innocent successors in interest are affected. An equitable mortgage is possible, the court noted, but Michigan does not allow an equitable mortgage when one party has unclean hands, and assignees stand in the shoes of their predecessors. Thus, U.S. National cannot benefit from an equitable mortgage. Finally, the court dismissed claims that the Sutters would inequitably get a "free house" from this decision, since they intended to grant a mortgage in the first place. Filing for bankruptcy is not inherently inequitable, the court said, and the Sutters will remain obligated on the unsecured note they actually did sign.

As Irvine foreclosure defense lawyers, we're pleased to see the courts take such a firm stance on the rights of mortgage borrowers to be free of illegal and deceptive conduct. The case ultimately did not leave the Sutters in a great position, since they were ultimately unable to receive a bankruptcy discharge. (They converted to Chapter 7 but were unable to obtain a discharge because they had filed a previous Chapter 7 case.) However, nor did it allow the forgers or their successors in interest to benefit from patently illegal behavior -- and that's as it should be. It's becoming clear that during the mortgage bubble, when the Sutters refinanced their home, many untrustworthy companies sought to make a quick dollar from refinances like this one, without regard to the risk of the loans. In this case, apparently it was also done sloppily and fixed in a blatantly illegal manner. Led by experienced attorney Vincent Howard, our San Diego County foreclosure defense attorneys aggressively defend cases with these kinds of improprieties.

Continue reading "Sixth Circuit Affirms Voiding of Mortgage Due to Banks Alleged Forgery of Signatures - Sutter v. U.S. National Bank" »

At Howard Law, P.C., our Moreno Valley personal bankruptcy lawyers have written here before about exemptions from discharge. This is a bad thing for bankruptcy filers, because it means the debt will have to be paid off in full despite the protections bankruptcy offers. Thus, it's generally used in cases where the debtor has done something wrong. In Van Daele Bros. Inc. v. Thoms, the Bankruptcy Appellate Panel for the Eighth U.S. Circuit Court of Appeals agreed that the behavior of debtor Jeffrey Thoms did not rise to that level. Thoms, of Iowa, owed money to Van Daele because of a sale-leaseback of cattle he had brokered, but then failed to pay his lease. Van Daele argued that this was "willful and malicious," a reason for exception from discharge, but the bankruptcy court and the BAP disagreed.

Thoms was employed as a loan officer at Kerndt Bros. Savings Bank when he approached Jerry Van Daele about the sale-leaseback idea. Van Daele agreed to buy the cattle and lease them back to Thoms. To finance the purchase, he took out a $75,000 loan from Kerndt Bros. Savings Bank. Five months after the deal was finalized, however, Thoms lost his job at Kerndt Bros., causing his income to drop substantially. He was unable to make the first lease payment when it came due, and Van Daele eventually repossessed the cattle. (This triggered separate state-court cases by Thoms's father, who claims some of the repossessed cattle belonged to him.) A few days after the repossession, Thoms attempted to make the installment payment with money borrowed from his daughter, who had in turn borrowed it from a friend under the pretense of a student loan. Van Daele refused to accept less than the full $75,000.

After Thoms filed for bankruptcy, Van Daele moved to except the debt to him from discharge. He alleged the following actions by Thoms were willful and malicious: failing to adequately explain a decrease in the number of cattle; having his father as an undisclosed partner in the cattle business; failing to adequately disclose the debt and repossession in his bankruptcy papers; and trying to pay the installment with a loan gotten under false pretenses. The bankruptcy court found none of this persuasive, and Van Daele appealed.

He had no better luck with the Eighth Circuit BAP. The bankruptcy court had found little evidence that Thoms and his father were partners, the BAP noted -- and in any case, the existence of such a partnership would not be evidence of intent to defraud Van Daele. Similarly, the bankruptcy court found Thoms's explanation for the decrease in herd size credible; he said some had succumbed to disease. The record also does not show any evidence that Thoms disposed of the missing cattle with the intent to harm Van Daele, the panel noted. The BAP said the omissions Van Daele alleges in Thoms's filing papers would, if true, actually undermine the version of events Van Daele had presented. And finally, the fact that Van Daele was willing to get a deceptive loan to pay off the debt actually suggests there was no conspiracy to defraud Van Daele, the panel said. Thus, it said, the bankruptcy court's interpretation of the evidence was actually more plausible than Van Daele's, and it was correct not to except the debt from discharge.

As Los Angeles County individual bankruptcy attorneys, we don't handle a lot of cases involving cattle -- but we know plenty about the standards for excepting debts from discharge. To meet that standard, Van Daele or anyone else would have to demonstrate an intentional attempt to defraud. This is a high standard for good reason. The protections of bankruptcy come at a price, which the filer voluntarily pays in order to wipe the slate clean and start over. Courts generally decline to take away those protections unless the debtor can be shown to have intentionally abused or defrauded someone. Vincent Howard and our team of Anaheim consumer bankruptcy lawyers work hard to protect our clients from this kind of claim for non-dischargeability, because when a debt is not dischargeable, they are stuck paying it off over many years.

Continue reading "Eighth Circuit Bankruptcy Panel Affirms Denial of Exemption From Discharge - Van Daele Bros. Inc. v. Thoms" »

One job of our Riverside County personal bankruptcy attorneys, led by experienced lawyer Vincent Howard, is to help our clients get the maximum benefit from bankruptcy. Of course, this means minimizing the amount of debt clients are required to pay back, within the confines of the law. And that means ensuring that better-funded creditors will not use the legal process to squeeze unwarranted extra payment out of them. In In re Bakay, a debtor won a minor victory in this area when the Tenth U.S. Circuit Court of Appeals denied prejudgment interest to creditors who had already gotten the debt in question declared non-dischargeable. Debtor Scott Bakay of Colorado borrowed money from neighbors George and Georgia Diamond under false pretenses, giving rise to a determination of nondischargeability after Bakay filed for Chapter 7 bankruptcy. But the Tenth Circuit agreed with the bankruptcy court that the Diamonds had waited too long.

Bakay operated a Denver mortgage company and had helped the Diamonds refinance their home. He also, fraudulently, told them in 2004 that he was developing condominiums in Cancún and offered to give them $200,000 in repayment on a $100,000 loan within six months, personally guaranteed by Bakay. In reality, the money was put toward the mortgage company and the Diamonds never saw a cent of it again. In 2009, Bakay filed for Chapter 7 bankruptcy, and the Diamonds filed an adversary proceeding seeking to have their $100,000 loan declared nondischargeable. They were successful, and the court ordered Bakay to pay interest from the date of the nondischargeability judgment. The Diamonds then moved to amend, seeking prejudgment interest at Colorado's 8 percent rate. The court found Colorado's statutory rate inapplicable, so they re-filed for the federal interest rate, starting at the time they made the loan. That motion was also denied. The court found that because the Diamonds had failed to pursue their money for more than four years, they could not pursue interest now. It also found the proposed interest rate of 200% "criminally usurious."

The Tenth Circuit's Bankruptcy Appellate Panel upheld the decision on appeal, and the Diamonds appealed to the Tenth Circuit itself. That court also affirmed. Under federal law, prejudgment interest may be awarded if the interest is equitable, a legal concept "governed by fundamental considerations of fairness." The bankruptcy court found that the Diamonds had unreasonably delayed a lawsuit to recover the money Bakay owed them. They argued at trial that this was in part due to Bakay's repeated promises and occasionally leaving the country, but the Tenth agreed with the BAP that this does not necessarily justify continuing to delay. The Tenth Circuit agreed with the BAP that the phrase "criminally usurious" was troubling, but agreed that the agreed-upon rate of return for the loan was far too high, more than 4.5 times the highest interest rate allowed by Colorado law. Thus, it agreed with the BAP that the bankruptcy court had not abused its discretion when it denied the prejudgment interest.

The Newport Beach individual bankruptcy lawyers at Howard Law, P.C., rarely face this kind of challenge. If Bakay had told the Diamonds the truth about where their money was going, or even genuinely believed someone else's lie, the debt would probably remain dischargeable. In this respect, the Diamonds are already victorious in their case; they will get their original $100,000, though perhaps not quickly. For a debtor like Bakay, who did intend to defraud (and apparently did not oppose their adversary proceeding) an outcome that denies the creditor any further payment may be the best possible outcome. When a debt is declared nondischargeable, it yokes the debtor to that debt for the foreseeable future, which is why the bar is and should be high for such a declaration. Our Whittier consumer bankruptcy attorneys work hard to minimize or eliminate nondischargeable debts for debtor clients.

Continue reading "Creditors Not Entitled to Prejudgment Interest on Nondischargeable Debt, Court Rules - In re Bakay" »

At Howard Law, P.C., we've written frequently in this space about the changes in bankruptcy law created by the 2005 bankruptcy law. Among these is a requirement that bankruptcy filers complete credit counseling before they are permitted to file for bankruptcy. This requirement has been criticized as patronizing and burdensome, but it has rarely been called ambiguous. So our Claremont consumer bankruptcy attorneys were interested to see a decision from the Bankruptcy Appellate Panel of the Sixth U.S. Circuit Court of Appeals about a debtor who completed only part of the counseling before filing. In In re Ingram, the BAP affirmed the bankruptcy court's decision to dismiss the case for lack of meeting this basic requirement.

William Warren Ingram of Ohio filed for Chapter 13 bankruptcy on Nov. 17, 2010. The next day, he filed a certificate of credit counseling saying he had completed the counseling as of Nov. 18, 2010. At a December hearing, Ingram told the bankruptcy court this was a mistake and he'd actually finished the counseling as of Nov. 17. The court invited his trustee to look into the matter, and the trustee discovered that Ingram had completed online counseling on Nov. 17 but the phone portion of the counseling on Nov. 18. The bankruptcy court ultimately found that Ingram had not completed the counseling session by the date of the petition, making him ineligible for bankruptcy. In its order, the court noted that the counseling requirement was "a trap for the unwary," particularly people without attorneys. It also denied a motion to reconsider in which Ingram argued that the credit counseling company was misleading. Ingram appealed.

The BAP of the Sixth Circuit agreed with the court that Ingram's bankruptcy case could not stand. The bankruptcy code requires that debtors complete credit counseling within 180 days before filing; this requirement is waived only when "exigent circumstances" merit a waiver; when counseling is not available in the seven days before filing; or the certification is otherwise satisfactory to the court. Some appeals courts have held that bankruptcy courts have the discretion to waive the counseling requirement; others have found that courts may not waive it because the lack of credit counseling robs them of jurisdiction. An earlier Sixth Circuit BAP case permitted a waiver because the debtor had waited until after several advantageous decisions had been made. Nonetheless, it declined to create a waiver for Ingram. The law's requirements are clear and the bankruptcy court was correct in applying them to require dismissal of Ingram's bankruptcy, the BAP said.

We believe this case is a good example of why it's so important to hire an experienced Orange County personal bankruptcy lawyer like Vincent Howard, when so much is at stake. If Ingram was self-represented, as the bankruptcy court's comments imply, he lacked access to the advice of an attorney who has been doing this job for years. Experienced bankruptcy attorneys don't just fill out forms -- they understand how to balance legal requirements like credit counseling with the practicalities facing bankruptcy filers, like avoiding eviction. Most importantly, our San Diego individual bankruptcy attorneys can advise clients on how to avoid small mistakes like these that have vitally important consequences for their cases.

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In legal terms, a lien -- a legal encumbrance on property that secures a debt, like a house or a car -- cannot be enforced unless it is "perfected" by meeting standards set out by state law. Since the housing downturn began, some bankruptcy filers have sought to avoid debts by claiming they are based on liens that were not perfected, but this is a tough claim to prove. That's why the Claremont foreclosure defense lawyers at Howard Law, P.C., were interested to see a case where the Sixth U.S. Circuit Court of Appeals agreed that a lien had not been perfected, canceling a large debt owed by a couple from Kentucky. In Salyersville National Bank v. Bailey, Jackie and Peggy Bailey took out two secured loans from the bank, but were unable to pay even in bankruptcy and ultimately had their home repossessed and sold. They had reaffirmed the debts, thinking the loans were secured, but this was later proven false. In this action, the Sixth voided their reaffirmation based on mutual mistake.

The Baileys filed for bankruptcy four months after filing for divorce (actions that often go together, in our experience as Anaheim foreclosure defense attorneys). They had taken out a loan secured by their home and another secured by their truck, and reaffirmed both debts in the bankruptcy. However, they stopped paying after reaffirmation, in part because the truck had been stolen and partially destroyed. For the truck-secured loan, the bank then filed an unsecured claim. The bankruptcy trustee sued to avoid the mortgage because it had never been perfected, an action that was settled by an agreement to sell the property at auction, with the proceeds going to the estate. If the bank bought the property, the agreement said the avoidance action would be dismissed and the mortgage still in effect. The bank bought the property from the trustee at auction and immediately sold it to a third party for a $33,400 profit, then filed an unsecured claim in the bankruptcy for the full balance owed on the mortgage.

The Baileys paid $37,000 toward the unsecured debts in bankruptcy. After the bankruptcy ended, however, the bank immediately sued them for balances owed on both loans. They moved to reopen their bankruptcy case and have their reaffirmation declared void. The bankruptcy court agreed to void the reaffirmation on the grounds of mutual mistake -- both parties had incorrectly believed the bank had security interests in the debts when the debt was reaffirmed. The district court in Kentucky affirmed, and the bank appealed.

In a reaffirmation, the Sixth Circuit observed, bankruptcy filers agree to exclude some debt from discharge at the end of their bankruptcy, a sacrifice they make in order to keep the property. On appeal, the bank argues that it was in fact a secured creditor, so there was no mutual mistake. This argument contradicts the past history of the case, the Sixth said. The bank had elected to treat the truck loan as an unsecured claim, in part because the vehicle's bad condition made it bad collateral. It cannot legally change its mind later, the court said. On the real estate, the trustee had disputed whether there was a perfected lien, resolved by the sale and the bank's unsecured claim. Again, the bank had waived its right to pursue a secured claim by acting as an unsecured creditor, the Sixth said, and being treated like one. The court also rejected the bank's argument that Kentucky law allowed it to enforce the reaffirmation even if it's a unsecured creditor. Reaffirmations of debt must be enforceable under state law, and Kentucky law allows cancellation of contracts made when both parties were mistaken about a material fact. In this case, they were mistaken as to whether the debts were secured, an extremely material fact for the Baileys. Thus, it affirmed the district and bankruptcy courts.

Our Escondido foreclosure defense lawyers are pleased that the Sixth chose to protect this couple from the legal maneuverings of their mortgage lender. As the Sixth noted dryly, "people do not generally agree to pay more than $150,000 in exchange for nothing." It's also worth noting that the bank was attempting to collect the full unpaid balance of the loan despite having collected $33,400 in the foreclosure sale -- essentially squeezing a profit from recently bankrupt (and divorced) people. Reaffirming a debt may make sense in bankruptcy cases where the filer wants to keep the home, but doesn't have a big enough exemption to do it. However, this puts the filer on the hook for large payments, and as this case shows, those payments will continue to be enforceable after bankruptcy.

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The Upland personal bankruptcy attorneys at Howard Law, P.C., routinely help clients think about how best to disclose their assets and debts in a bankruptcy. Presenting your situation strategically is part of smart bankruptcy planning, but we never hide our clients' assets or allow them to do so, because this is illegal and can cancel the bankruptcy entirely. That kind of penalty was assessed against the debtor in Lincoln Savings Bank v. Freese, a decision of the Eighth U.S. Circuit Court of Appeals Bankruptcy Appellate Panel. The bankruptcy court denied a discharge to Jay Freese of Iowa, saying he omitted material information when he listed his assets, and made a false oath. Freese appealed, arguing that he did not understand the questions and intended no deceit, but the BAP upheld the denial of his discharge.

When Freese filed for Chapter 7 bankruptcy, he signed his schedules and statement under oath just like any other debtor. However, one of his creditors, the Bank, brought an action alleging that he made numerous false statements under that oath. Among them was the omission of a livestock business he was running in addition to his full-time job, and its profits; co-ownership of his wife's car; $25,000 in income from 2007; and sales of two ATVs, a Bobcat utility vehicle and a tractor. At trial, Freese testified that he misunderstood the meaning of "gross profits" in the form and thus excluded his livestock business because he ran it at a loss, as a "hobby farm." He also testified that he didn't report his ownership of his wife's car because it was his wife's, and he didn't report the utility vehicles because he did not believe they were part of the Bank's collateral. He noted that he freely disclosed information about his livestock business to the Bank and the bankruptcy trustee and answered all the trustee's questions, but the trial court was unimpressed. It denied him a discharge of his debts.

To make a false oath, bankruptcy law requires that the debtor make a statement under oath with fraudulent intent, knowing that statement to be false and materially related to the bankruptcy case. On appeal, Freese argued that his oath was not false because he mistakenly interpreted the questions differently, and thus he lacked the required knowledge and intent. He also argued that his omissions were immaterial. However, the BAP found, the record supports the finding that Freese made a false oath. The bankruptcy court noted that Freese is experienced in the business world and "selectively understood" certain concepts. For example, while he claimed he failed to list the livestock business because it ran at a loss, he had correctly listed gross profits from his employee job. This is not the law, the BAP said -- and furthermore, failure to understand the question is not grounds to withhold information. These are material omissions, the BAP said. By finding for Freese, it said it would have to allow each bankruptcy filer to adopt his or her own subjective standards for interpreting forms. Thus, it upheld the denial of discharge.

As Huntington Beach individual bankruptcy lawyers, we wonder whether Freese had an attorney when he originally filed for bankruptcy. It's possible that he genuinely didn't understand the forms he was asked to submit to the court, and that all of this stems from a genuine misunderstanding rather than intent to deceive. This is why experts recommend that bankruptcy filers, particularly people with complicated bankruptcies, get help from an experienced bankruptcy attorney like our own Vincent Howard. Here at Howard Law, P.C., we work with our clients to make sure they fully understand what is being asked of them, as well as the penalties for not being completely honest. Our San Diego County consumer bankruptcy attorneys can help debtors structure their filings to ensure that they stay within the law, while still putting their best foot forward.

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The Fontana foreclosure defense lawyers at Howard Law, P.C., represent a lot of clients who believe they were pushed around and mistreated by their lenders. While mortgage servicers and lenders have the same rights to legal remedies that everyone else has, some of the practices that have become widespread during the mortgage crisis cross the line into illegal or negligent behavior. Our lead attorney, Vincent Howard, has won many victories for clients who were foreclosed without a discussion of alternatives, for example, or issued a predatory loan to begin with. So we were interested to see a decision from the South Dakota Supreme Court about a bank's attorney who allegedly abused his position as a prosecutor to pressure an older woman into giving up title to her home. In Fix v. First State Bank of Roscoe, the court ultimately sent the case back for a new examination of a claim for intentional infliction of emotional distress.

Rita Fix sold her home to her son and daughter-in-law in 1997, but retained a life estate on the property. Two years later, the couple took out a farm loan from the Bank and borrowed against the home, which required Fix to sign a warranty deed to the couple. The Bank assured her in writing that she would retain possession even if the couple defaulted. In 2004, Fix filed for bankruptcy. In 2005, her son and daughter-in-law defaulted on their loan and conveyed the home to the Bank in lieu of foreclosure. The Bank sold the house and sought to remove Fix, despite its written promise. Fix sued the Bank in federal bankruptcy court, and the case eventually made its way to the Eighth Circuit, which ruled that Fix's trustee must bring each of her claims except the one for intentional infliction of emotional distress. She brought this in state court.

Meanwhile, the family was indicted in state court for a fraudulent scheme in which Fix's son sold grain in her name and had her send him the profits, in order to avoid having the income taken by the Bank to satisfy his debt. The son pleaded guilty, but the charges against Fix remained dormant despite her attorney's requests to proceed or dismiss. The county prosecutor on that case also represented the Bank civilly. He eventually approached Fix and offered to drop the charges if she would deed her house to the Bank. She modified her state-court lawsuit to include a claim for abuse of process against the prosecutor as well as the Bank, alleging they conspired to use the criminal case to resolve the dispute over the home's ownership. The prosecutor settled; the court dismissed the count for intentional infliction of emotional distress. The abuse of process count against the bank went to a jury, which found for Fix but awarded no damages.

On appeal, Fix argued that the trial court was incorrect to tell jurors she needed to suffer "extreme and disabling" emotional distress to recover for emotional distress from the abuse of process. The South Dakota Supreme Court agreed. The trial court incorrectly relied on a previous decision that was not a tort action like this one, it said. Indeed, that case said emotional damages were unavailable except in cases accompanied by an independent tort. For an intentional tort like abuse of process, the court said, South Dakotans may claim emotional distress damages without proving the heightened standard of "extreme and disabling" emotional distress. Because the jury received bad instructions, the high court reversed and remanded for a new trial. Fix had less luck with her other arguments, but the court also noted that any damages awarded on retrial, not just compensatory damages, should be reduced by the amount of the prosecutor's settlement.

As Aliso Viejo foreclosure defense attorneys, we're pleased to see penalties are again possible for what appears to have been an abuse by the bank and its attorney. Southern California's larger legal community makes this kind of case less likely in Orange County, but businesses and lawyers across the United States should be barred from abusing their power. At Howard Law, P.C., we very often work with mortgage borrowers who believe their lenders and loan servicers abused their power by railroading them into foreclosure. Often, these clients are facing a foreclosure after months of fruitless attempts to work with the lender on a loan modification, and sometimes after intentionally hurting their finances in order to qualify for help that never appeared. Our Perris foreclosure defense lawyers help clients hold these lenders responsible whenever they broke the law.

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At Howard Law, P.C., our San Bernardino consumer bankruptcy attorneys frequently represent clients who are fighting to hold on to their cars. Here in southern California, a car is an important tool for making a living and meeting other basic obligations. Bankruptcy law recognizes this somewhat and often makes allowances for filers who want to hold on to their cars, but those allowances have limits. The limits were on display in the decision in In re Rice, by the Bankruptcy Appellate Panel of the Sixth U.S. Circuit Court of Appeals. Megan Lynn Rice of Ohio filed for Chapter 7 bankruptcy shortly after Wells Fargo Bank repossessed her car. WFB moved for relief from the automatic stay, but the bankruptcy court found that it was not entitled to so move because the title of the car had not been properly assigned. The BAP disagreed, finding Ohio law does not require assignments to be noted on titles.

Rice bought the 2003 Chevy Trailblazer in 2008 and financed it. The security interest was assigned by the dealer to Wells Fargo Auto Finance, and from there to WFB. About two years later, Rice defaulted on the payments. The car was repossessed on Jan. 4, 2011, and Rice filed for bankruptcy on Jan. 28, 2011. On Feb. 9, WFB moved for relief from the automatic stay, including a copy of the assignment from WFAF to WFB and a copy of the title. After a disagreement arose between WFB and the court as to whether the assignment was valid, it gave the parties 30 days to brief the issue. It ultimately decided WFB had no right to ask for relief from the stay because the assignment was not valid, saying the assignment must be noted on the title under Ohio law. It rejected arguments that the security interest was perfected, saying the issue was that WFAF appeared to hold the lien while WFB had the note. WFB appealed.

The BAP started its analysis by saying the question here is who is the "party in interest" entitled to file for relief from stay under bankruptcy law. Construing caselaw from around the United States, the BAP found that a party may seek relief from the automatic stay if it can show that it has an interest in the relevant note, and has been injured by the debtor's default or other injurious conduct. An assignee may seek relief if the assignment is valid. State law governs these determinations, the BAP said. In this case, the dispute is only over whether Ohio law requires the assignment must have been noted on the vehicle's title to make WFB a party in interest. The BAP with approval an earlier case, In re Fields, which had strikingly similar facts but a different underlying dispute. Notwithstanding that difference, the panel said, Fields is controlling. If an assignee is not required by Ohio law to note the assignment on the title of the vehicle, the panel said, "surely its perfected status" gives it standing to seek relief from stay. Thus, it reversed the bankruptcy court's decision.

As Yorba Linda personal bankruptcy lawyers, we wonder whether this case will be appealed to the Sixth Circuit. After all, the lower court expressly held that perfection of the interest was irrelevant. Our lead partner, Vincent Howard, sees problems with the chain of title much more often in Howard Law, P.C.'s work with mortgage holders. However, with the rise of buying and selling loans as investments, it's likely that few borrowers are immune to this problem. While this can create headaches like the kind experienced by Rice, it can also create opportunities for experienced Los Angeles individual bankruptcy attorneys to fight a repossession or foreclosure attempt by an entity that cannot prove ownership. We do not believe courts should drop their standards for proof of ownership, especially when a large investment like a home or a vehicle is at stake.

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In bankruptcy, a trustee stands in for the people who filed for bankruptcy, assuming financial responsibilities that most people handle for themselves. Depending on the situation, the trustee may not serve the best interests of the debtors; he or she has obligations to creditors as well. So our Riverside consumer bankruptcy lawyers were interested to see a recent bankruptcy appeals ruling that pitted debtors against their trustee. In McDow v. Dudley, David and Anne Dudley of Virginia filed for Chapter 13 bankruptcy in 2008, but converted to a Chapter 7 case. Their bankruptcy trustee, W. Clarkson McDow, Jr., then moved to dismiss the case as abusive, but the bankruptcy court denied it. On appeal, the district court ruled that the order was not appealable and dismissed it. The Fourth Circuit reversed, finding that a motion to dismiss for abuse is appealable.

McDow originally moved in bankruptcy court to convert to a Chapter 7 case or dismiss, so the Dudleys moved themselves to convert to a Chapter 7 case. After this was granted, McDow moved to dismiss for abuse. He argued that the Dudleys should not hve a Chapter 7 case because they failed the means test devised in the 2005 bankruptcy law changes, and that their entire case was abusive because they had the means to pay back their creditors. The Dudleys countered that the means test does not apply to conversion cases. The bankruptcy court agreed, breaking with legal authorities to find that the means test applies only to cases filed under Chapter 7 originally. It entered summary judgment for the Dudleys, and McDow appealed to the district court. That court found that it lacked jurisdiction because the bankruptcy judge's order was not final. While McDow's appeal to the Fourth Circuit was pending, the Dudleys finished their case and discharged their debts.

The Fourth reversed, finding that the district court should have been willing to consider the order final and appealable. Generally speaking, it said, finality is handled by the courts in a more practical and less legalistic way in bankruptcy. Thus, previous Fourth Circuit caselaw says bankruptcy orders may be immediately appealed if they dispose of "discrete disputes in the larger case." McDow argued that this is such a discrete dispute, and that the nature of a motion to dismiss as abusive requires expedited review. After all, he said, distributing assets to creditors in a case that is later dismissed can create inefficiency and potentially cheat creditors. Overruling the bankruptcy court, the Fourth Circuit found that the 2005 bankruptcy law changes showed Congressional intent to police all Chapter 7 cases for abuse, including converted cases. This shows the importance of resolving abuse claims quickly, the court said. Thus, it agreed with McDow that such an order should be appealable. Several appeals courts have ruled in the same way, it noted -- one after 2005. Thus, it vacated and reversed the dismissal order.

As Irvine personal bankruptcy attorneys, we agree with the Fourth Circuit that it is most efficient to appeal a motion to dismiss for abuse earlier in the case. However, we'd like to note that the courts are using the word "abuse" in a way that we find misleading. The means test in the 2005 bankruptcy law did not just establish a threshold for Chapter 7 cases; it redefined any Chapter 7 filing that doesn't meet that threshold as "abusive." Thus, starting out with a certain amount of income is now enough to make a Chapter 7 case "abusive," regardless of other circumstances. Our San Diego County individual bankruptcy lawyers believe bankruptcy judges should be given more flexibility than this, given the wide variety of circumstances faced by bankruptcy debtors in this economy.

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