by Herbert Wiggins | Nov 29, 2022 | bankruptcy, student loans
On August 24, 2022, President Joe Biden announced a proposed plan, through the Department of Education, to forgive a portion of student loan debt owed by millions of Americans. The plan proposed to allow cancellation of up to $10,000 for certain loan recipients, and up to $20,000 for Pell Grant recipients. This forgiveness would be given only to holders of federal loans, and would not guarantee full cancellation of all debt owed by every borrower, such as those who owe more than $20,000 in Pell grants. The program also does not apply to those whose loans come from private lenders, such as Sallie Mae.
As of this writing, over 26 million borrowers have applied for relief, and the Biden Administration has approved certain applicants for relief. But no loan relief has been granted.
No relief has been granted because several Republican Attorneys General, from Nebraska, Missouri, Kansas, Iowa, Arkansas, and South Carolina, sued to stop the program (Eastern District of Missouri, Case No. 4:22CV1040, filed 9/29/2022). Briefly, the States claimed that the loan relief would harm them financially, based on lost loan repayments (the States apparently did not discuss how they might benefit from increased tax payments if the borrowers were not tied to low-wage jobs to make their current payments; nor did the States discuss how much more money they would receive through the federal infrastructure bill).
Eastern District of Missouri Judge Autrey threw the case out, based on lack of “standing” (i.e., lack of an actual harm that the States had suffered), but the 8th Circuit Court of Appeals, which oversees several Midwestern states, placed this loan relief program on hold, pursuant to an injunction. State of Missouri, et al. v. Joseph R. Biden, etc., et al., Case No. 22-3179, published 11/14/22
Unfortunately, the 8th Circuit’s logic, particularly on the issue of immediate, actual harm (“standing”) appears disingenuous, and suggests a political motive behind the decision. For example, the 8th Circuit ruled that the state of Missouri has standing, because a loan fund created by the state of Missouri would potentially lose money if some of the loans granted through that fund were reduced or forgiven. That no relief has yet been granted means that no funds have yet been lost. And thus the state of Missouri has no standing. Lujan v. Defenders of Wildlife (1992) 504 US 555, 575-578 [opinion of Scalia, J].
Even more worrisome is the court’s assertion that because a federal decision causes a state to lose money, the state can sue to stop that program. Taken to its logical extreme, if the federal government decides from year to year to spend less money on highway repair for roads in Ohio than in Kansas, Ohio can sue and stop the program. Or if, year to year, the federal government decides to grant more funds for cancer research to universities in Minnesota than in California, California can sue to stop the program. This is the sort of chaos that Scalia warned against; the courts would assume day to day authority over the acts of a co-equal branch of government. Lujan v. Defenders of Wildlife (1992) 504 US at 577.
In other words, the 8th Circuit Court’s reasoning leads to chaos, and no federal spending program could ever be approved, because by definition, some agency, state, or individual will receive less money than another.
Additionally, how these States might benefit eventually from the improved financial health of borrowers apparently played no role in the 8th Circuit’s decision.
The Biden Administration has asked the US Supreme Court to intervene and overturn the 8th Circuit. (SCOTUS Blog, 11/18/2022) However, given the Court’s extreme conservative nature, as well as its willingness to disregard long-established precedent, a favorable ruling is not assured.
by Herbert Wiggins | Dec 3, 2021 | bankruptcy, creditors, debt relief, mortage, Real Estate
As of January 2021, California’s Homestead Exemption increases from a minimum of $300,000, to a maximum of $600,000. This means that many more homeowners in liquidation, Chapter 7 bankruptcy proceedings can keep their homes.
The California Civil Code will be amended as follows:
Sec. 704.730. (a) The amount of the homestead exemption is the greater of the following:
(1) The countywide median sale price for a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption, not to exceed six hundred thousand dollars ($600,000).
(2) Three hundred thousand dollars ($300,000).
(b) The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.
The statute does not say whether this will apply in bankruptcy as the “automatic homestead,” or whether the debtor must file a Declaration of Homestead. Based thereon, the debtor should strongly consider filing the Declaration with the County Recorder.
by Herbert Wiggins | Nov 26, 2021 | bankruptcy, creditors, debt relief
The primary purpose of the bankruptcy stay [11 USC Sec. 362] is to protect the debtor. (In re Fuel Oil Supply and Terminaling, Inc., 30 BR 360, 362 (Bankr.N.D.Tex.1983), cited in In re Globe Investment & Loan Co., Inc., 867 F.2d 556 (1989)). By stopping all collection actions against the debtor, the bankruptcy stay acts 1) as an injunction to preserve the estate, and 2) to prevent the creditors from trying to go around the bankruptcy process to collect.
Once the debtor receive the discharge (11 USC Sec. 727), creditors are no longer able to collect the discharged debts. A creditor who, despite the discharge, seeks to collect a pre-bankruptcy debt, runs the risk of a contempt citation and punishment by the federal court.
And so it was held recently by the US Supreme Court which held that a business dispute with the debtor, that had begun prior to the debtor’s filing for bankruptcy, was discharged by the bankruptcy, and no further collection activity would be allowed.
Writing for a unanimous US Supreme Court, Associate Justice Breyer opined that the business creditors, who had initiated the lawsuit against the debtor (Mr. Taggart) had no reasonable basis to believe that the bankruptcy stay, and the subsequent discharge would not act to bar the continued litigation against the debtor. The debt was considered wiped away, and the creditors actions, seen objectively, were not only impermissible, but gave rise to contempt sanctions:
“Under the fair ground of doubt standard, civil contempt therefore may be appropriate when the creditor violates a discharge order based on an objectively unreasonable understanding of the discharge order or the statutes that govern its scope.”
Taggart v. Lorenzen, ___ U.S. ___, 139 S.Ct. 1795, 1801, 204 L.Ed.2d 129 (2019).
The facts showed that the creditors had a working knowledge of the effects of bankruptcy law, and objectively should have realized that the pre-bankruptcy debt was no longer collectible. Therefore, the Supreme Court remanded the matter back to the 9th Circuit, to impose appropriate sanctions:
“We conclude that the Court of Appeals erred in applying a subjective standard for civil contempt. Based on the traditional principles that govern civil contempt, the proper standard is an objective one. A court may hold a creditor in civil contempt for violating a discharge order where there is not a “fair ground of doubt” as to whether the creditor’s conduct might be lawful under the discharge order.”
The Takeaway: Creditors Who Know that a Debtor has Filed for Bankruptcy Should Take No Action Against the Discharged Debtor, without First Having a Very Detailed, Careful Conversation with an Attorney, Lest Those Creditors End Up Held in Contempt!!
by Herbert Wiggins | Oct 15, 2021 | bankruptcy, creditors, Fair Credit Reporting Act, TRUTH IN LENDING
TRUTH IN LENDING: : If a consumer feels that the information in her credit file (i.e., information held by the credit reporting agency, but not necessarily sent to inquiring lenders or other agencies) is inaccurate, her ultimate remedy is to file a lawsuit pursuant to the Fair Credit Reporting Act, 15 U.S.C. Secs. 1681–1681x. To succeed in such a lawsuit, however, the Plaintiff will need to compile evidence. For example, the courts have held that “to state a claim under § 1681i [incorrect information in credit file], the plaintiff must show that the agency’s report contained factually inaccurate information, and that damages followed as a result.” Collins v. Experian Info. Sols., Inc., 775 F.3d 1330, 1335 (11th Cir. 2015) (“A `consumer report’ requires communication to a third party, while a `file’ does not.”); cited in Losch v. Nationstar Mortgage, LLC, 995 F.3d 937, 944 (Ninth Circuit, 2021). [Quotations reproduced as commentary.]
by Herb Wiggins | Aug 13, 2021 | bankruptcy, creditors, debt relief, Preferential Transfer, Real Estate
Whether a non-judicial foreclosure sale, carried out under State law in the 90 days to 1 year before bankruptcy, will be considered a “preferential transfer,” and therefore invalid, will depend upon many factors. The court must hear evidence regarding whether or not the foreclosing creditor received more in the pre-bankruptcy foreclosure sale than it would have received through the bankruptcy. The court cannot say, as a matter of law, that such creditors always receive more in a pre-bankruptcy non-judicial foreclosure than they would have received in the bankruptcy. Therefore, whether a particular sale is barred as a preferential transfer will be determined on a case-by-case basis.
In re: Buckskin Realty Inc., Case No. 1-13-40083-nhl, Adv. Pro. No.: 15-01004-nhl
United States Bankruptcy Court, E.D. New York filed March 26, 2021, interpreting 11 USC Sec. 547 and BFP v. Resolution Trust Corp., 511 U.S. 531 (1994).