Recent Entries

Secured Creditors Must File Timely Proofs of Claims to be Paid: Seventh Circuit

Profile ImageBy Monette Cope, Attorney

The Seventh Circuit just issued an opinion holding that if secured creditors wish to participate in Chapter 13 bankruptcy plan distributions, they must not only file a secured proof of claim, but also file it in a timely manner. Up until now, it was widely held that the proof of claims deadline only applied to unsecured claims.

This is especially important in the Northern District of Illinois because the practice has been that if a secured creditor was provided for in the plan with monthly payments from the Chapter 13 trustee, that creditor did not need to file a claim to get paid.

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What are a Debtor’s Obligations to accomplish surrender of Personal Property under 11 U.S.C. 1325 (a)(5)(C)?

Profile ImageBy Casey Hicks, Attorney

The Bankruptcy Code does not provide specific instructions on how to accomplish the surrender of personal property. In some jurisdictions, a “surrender” can only occur when physical possession is tendered. In others, the debtor does not need to tender possession of the property or provide sufficient location information for repossession.

In some jurisdictions, proposing to surrender property but not actually making the property available for turnover to the secured creditor is not a surrender of property under section 1325(a)(5)(C). IRS v. White (In re White), 487 F.3d 199 203, 204 (4th Cir. 2007). The Court states, in the absence of actual turnover of possession the creditor can only collect the value of the property through judicial enforcement. Id at 206. Thus, the debtor’s proposal is not a “surrender” under the statute. By admitting the creditor could obtain the property with adversarial litigation, the debtors all but admit their proposed surrender would not result in the relinquishment of all of their legal rights in the property. Id at 206. Likewise, at issue in In re Robertson, was debtor’s intention to surrender a vehicle pursuant to section 1325(a)(5)C). In re Robertson, 72 B.R. 2, 4 (Bankr. D. Colo. 1985). The debtor stated his wife was in possession of the vehicle and it was the creditor’s duty to discover its whereabouts. The Court held that “surrender” meant the debtor had to provide the secured creditor with possession of the vehicle. Id.

Other courts have found the debtor does not need to deliver the vehicle to accomplish a surrender. See In re Gabor, 155 B.R. 391 (Bankr. N.D. W. Va. 1993). In fact, a debtor may be able to surrender a vehicle without having knowledge of its whereabouts. See In re Alexander, 225 B.R. 665, 667 (Bankr. E.D. Ark. 1998). Debtor’s husband, whose whereabouts were unknown, was purportedly in possession of the vehicle. The court stated, the fact that debtor cannot physically drive the vehicle to creditor’s place of business, through no fault of her own, does not prohibit surrender. Id. The Court added, evidence of bad faith or fraud on the part of the debtor may lead to a different result. Id.

Despite the courts differing opinions on what constitutes a “surrender” of property under 11 U.S.C. 1325(a)(5)(C), there are penalties creditors can pursue if a debtor fails to turn over collateral. Pursuant to 11 U.S.C. 727(a)(2), the transfer, removal, destruction mutilation or concealment of property of the estate with the intent to hinder, delay or defraud a creditor or an officer of the estate is grounds for a denial of discharge. Additionally, pursuant to 11 U.S.C. 1307(c)(6), a creditor may file a motion to dismiss if the debtor fails to surrender the property in accordance with the terms of a confirmed Chapter 13 plan. Further, the debtor’s actions might also be criminal. The U.S. Code contains a number of bankruptcy related crimes including knowing and fraudulent concealment of property from creditors. See 18 U.S.C. § 152, et seq. Many states also have laws that criminalize concealing property with the intent to defraud creditors. See 720 ILCS 5/17-27(a); Wis. Stat. § 943.84; Ind. Code § 35-43-5-4(8).

Third Circuit Case Law Update: Mortgage Foreclosure Complaints are under the Purview of FDCPA

Profile ImageBy Keri Ebeck, Partner

On April 7, 2015, the Third Circuit Court of Appeals issued a decision in the case of Kaymark v. Bank Of America; Udren Law Offices, P.C., holding that attorney fees and costs alleged in a mortgage foreclosure complaint must be actually incurred and in accordance with the mortgage loan documents and Pennsylvania law. In the Kaymark case, the dispute stemmed from allegations in a foreclosure complaint for amounts listed as attorney fees due and owing that had not been actually incurred but were estimated. These alleged misrepresentations as to the amounts actually due and owing by the borrower were sufficient to bring a cause of action under the Fair Debt Collections Practices Act (FDCPA). The Court in Kaymark relied upon its decision in McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F.3d. 240 (3d Cir. 2014), in which its opinion was based upon very similar facts of estimated fees in a demand letter, those estimated fees were held to be violations under the FDCPA as misrepresentations as to the actual amounts due and owing. The Court here expands its view and reaching of the FDCPA to mortgage foreclosure complaints filed within the courts.

That being said and in light of the recent case law, our firm has taken steps to ensure that our practice is and has been in compliance with the recent decision. It is and has been our firm’s best practices to only include those attorney fees and expenses which have already been incurred in the mortgage foreclosure complaints filed with the various courts. In the Third Circuit, mainly, the active real estate default practice in Pennsylvania, has already taken steps to add language to the complaint averments specifically addressing that any and all attorney fees and costs alleged in the complaint are incurred as of the date of filing.

Weltman, Weinberg & Reis, Co. LPA continues to update its clients with recent case law decisions, including but not limited to those stemming from FDCPA applications. Should you have any questions or concerns regarding the above, please reach out directly to counsel for further clarification on the decision and the best practice.

Defective Mortgages and Trustee Avoidance

Profile ImageBy Stephen Franks, Attorney

Defective mortgages and Trustee avoidance actions may be a thing of the past in Ohio. The Ohio Supreme Court recently accepted the certification of questions of law relating to Ohio Revised Code (O.R.C) Section 1301.401. On March 27, 2013, O.R.C. § 1301.401 became effective. This code section purports to cure any mortgage defects of recorded mortgages and provide constructive notice to third parties. The question before the Supreme Court is whether this statue applies retroactively to all recorded mortgages. If the Supreme Court does indeed apply the statute retroactively, all recorded mortgages will have any defects cured. This outcome could have a major impact on a Chapter 7 Trustee’s ability to recover funds for the estate, but would also provide security for mortgage lenders. The parties have yet to brief the issue, so an answer from the Court is still some time away. However, the potential outcome for lenders is well worth the wait.

Mandatory Mediation Procedure in NJ

Profile ImageBy: Karina Velter, Attorney

In May 2014, the Board of Judges of the United States Bankruptcy Court for the District of New Jersey adopted a comprehensive, Court-supervised mediation program for all contested matters and adversary proceedings. Local Ruel D.N.J. LBR 9019-2 sets forth the procedure for this program.

The rule provides that once an answer is filed, all adversary proceedings shall be referred to mediation. An exception has been carved out for pro se litigants, parties seeking a temporary restraining order or preliminary injunction, or for actions initiated by the US Trustee. These parties may submit to meditation at the request of the parties or by order of Court. Furthermore, any contested matter (non-adversary) may be referred to mediation either by joint request of the parties or by the Court.

Why is this important to our clients?
While in many instances the mediation process has a direct benefit for the parties (facilitating a resolution and settlement, saving time, and avoiding substantial litigating expenses), there is, however, a cost associated with this benefit. The Board of Judges has established a registry of approved mediators, whose rates range between $250 and $500 per hour. That means, a party may incur fees upwards of $10,000.00 before the case even gets to trial.

Some examples of how this new requirement has created an undue hardship for certain creditors:

The first instance is where a represented debtor files an adversary complaint pursuant to 11 USC 523(a)(8) seeking a hardship discharge of his/her student loans. The problem arises because defending a student loan adversary is costly enough, without adding several thousand dollars of mediator fees into the mix. On the other hand, when the loan amount in question is substantial enough, or the debtor’s case is strong in favor of discharge, an impartial third party may be in the best position to point out the strengths and weaknesses of each party’s case and propose a compromise that is acceptable to the litigants.

Another example is where a creditor files a complaint objecting to the dischargeability of certain debt pursuant to 11 USC 523(a)(2)(A) or (C) and the amount in controversy may not justify the cost of proceeding with mediation. The creditor may find itself in a position where the hourly fees to be paid to the mediator are double or triple those paid to the creditor’s counsel. Clearly, this is not a cost effect method for such creditor to proceed.

What to do?
The rule provides that where a party seeks to be excused from the mediation process, the party may file a motion pursuant to D.N.J. LBR 9013-1 seeking that relief, or notify all parties to the adversary proceeding and the Court, at least seven days prior to the pretrial conference to be held pursuant to D.N.J. LBR 7016-1, that an objection to mediation will be raised at the hearing. The court will then hear the party’s reasons for seeking to be excused from mediation and enter the appropriate order.

Where the parties are in agreement and do not seek to be excused from mediation, they must file Joint Mediation Order together with the Joint Order Scheduling Pretrial Proceedings and Trial. The parties must then confer and select a mediator. If the parties cannot agree on a mediator, the Court may designate a mediator.

The Mediation Process
Mediation must commence within sixty days after the entry of an order assigning a matter to mediation. Parties may seek an extension of time to conduct the mediation by Consent Order, or by motion, after notice and hearing.

Prior to the date scheduled for mediation, each party is required to submit a Mediation Statement, which should contain (1) legal or factual issues, (2) the history of any prior settlement discussions, and (3) an estimate of the cost and time to be expended for further discovery, pretrial motions and trial.

The parties are required to personally appear at the mediation. For corporations or governmental entities, a representative, who is not the party’s attorney, is required to attend, unless excused by the mediator or the Court. The representative appearing at the mediation must have full authority to negotiate and settle the matter on behalf of the party. Failure to appear at the mediation, without justifiable cause, may result in sanctions imposed by the Court.

Following the conclusion of the mediation, the mediator shall have seven days to report to the Court in writing whether the matter has been settled. If a settlement is reached, the written fully executed agreement (signed by all parties and counsel) must be presented to the court. If the matter is not resolved, a pretrial conference will be scheduled within thirty days.