Saturday, January 14, 2012

Bankruptcy Decsions around the First Circuit: Last few cases in 2011.

Debtor had no exemption and only a contingent interest in her own Thrift Savings Plan when the funds were held in Custodia Legis, pursuant to a state court order:

In re LILLIAN M. O'NEAL, 2011 Bankr. LEXIS 4942 (Bankr. D. Mass. 12/16/11)(Joan N. Feeney, Bankruptcy Judge).
PROCEDURAL POSTURE: Debtor claimed an exemption, pursuant to 11 U.S.C. § 522(b)(3)(C), in her thrift savings plan (TSP) account funds, and in funds she had borrowed from the account which were held in an escrow account at the commencement of the case pursuant to an order of a state probate and family court. Creditor, the attorney for an opposing party in the state court litigation, asserted a claim to the funds based upon the state court's orders.
OVERVIEW: In the state court action, debtor had sought the rescission of a deed from her parents to her brother, who was represented by creditor attorney. The state court entered a judgment against the debtor in the sum of $32,630, plus attorney's fees, and enjoining her from withdrawing, transferring, encumbering or otherwise depleting assets contained in her TSP account until the judgment was paid. Debtor did not make any payments, but withdrew funds from her TSP account, and was found to be in contempt. The bankruptcy court found that any sums in the TSP account at the commencement of the case were not property of the bankruptcy estate. The state court order served to place the funds in custodia legis, thereby divesting the debtor of legal title to the funds. The debtor held only a contingent interest in those funds.

OUTCOME: The creditor's attorney's motion to enforce the prior order restore the escrow funds was granted, and debtor's claimed exemptions were overruled.

Entire Student Loans discharged, Court initially receptive to considering a partial discharge; Court did not require expert testimony as to Debtors’ medical condition:

(In re:Ackley, Debtors) Ackley v. Sallie Mae Student Loans, et al., 2011 Bankr. LEXIS 5051 (Bankr. D. Maine 12/23/11)(Louis H. Kornreich, Bankruptcy Judge).

Kathleen and Terry Ackley seek to discharge all of their student loan obligations based upon undue hardship pursuant to 11 U.S. C. Section 523(a)(8)Following a day-long trial, it appeared that they might be able to pay a small portion of their student loan debt without undue hardship and that the balance would be discharged. This preliminary conclusion presented two issues: (a) whether the debtors' student loan obligations could be apportioned into dischargeable and nondischargeable claims; and, (b) if so, how such an apportionment should be accomplished. On the recommendation of counsel, the parties were invited to submit written arguments on these questions. Thoughtful memoranda were provided. However, upon the Court’s attempt to apply the law to the facts in this case, it became apparent that the payment of even a small portion of the student loan obligations would impose an undue hardship on the debtors. Thus it was the conclusion that all of the student loan obligations shall be discharged. Debtor was disabled and receiving social security disability; debtor’s wife was also in poor health but employed.

The First Circuit Bankruptcy Appellate Panel has adopted the totality of the circumstances test to measure undue hardship. See Bronsdon v. Edu. Credit. Mgt. Corp., 435 B.R. 791, 800 (1st Cir. BA) 2010). This test has been applied routinely by this court and will be applied in this instance.  See, e.g., Kopf v. U.S. Dept. of Edu., (In re Kopf), 245 B.R. 731, 741 (Bankr. D. Me. 2000). Under this test, the court will look at (1) the debtor's past, present and reasonably reliable future financial resources; (2) the debtor's and his dependent's reasonable necessary living expenses; and (3) any other relevant facts and circumstances. Bronsdon, 245 B.R. at 798.

Court accepted the debtors description of their physical condition without need for expert testimony, as has been required in other cases. Having weighed the debtors' past, present and future financial resources, their reasonable necessary living expenses, and other relevant facts and circumstances, particularly the debtors' age and current health issues, I conclude that excepting their educational loans from discharge would impose an undue hardship on them.
Creditor had standing for stay relief, showing chain of assignments, testimony as to allonges:

In re: PERRETTA, 2011 Bankr. LEXIS 4913 (Bankr. D.R.I. 12/16/11)(Arthur N. Votolato, Bankruptcy Judge).

OVERVIEW: In a Chapter 13 case, a secured creditor filed a motion for relief from stay in order to foreclose on the debtors' mortgage. The debtors objected on the ground that the creditor lacked standing to bring such a motion. The court stated that the creditor had established a colorable claim to property of the estate and thus had standing to request relief from stay. The creditor's witness had testified at length about the assignments of the mortgage, the industry-wide practice of the use of allonges, and the record-keeping practices of the creditor and its servicing agent. The witness's testimony, together with the recording of the assignments, easily established that the creditor had at least a colorable claim against the bankruptcy estate. The witness had fully addressed and explained the purported deficiencies in the signing or execution of the various allonges. Furthermore, under RI state law, an assignment of mortgage substantially following the form entitled "Assignment of Mortgage," when duly executed, had the force of granting title and interest in the mortgage to the assignee. Here, the form was substantially followed. The debtors here could not claim to have experienced any difficulty in ascertaining the party with whom they could negotiate their loan. They had listed the creditor's servicing agent in their Schedule D, and all of the assignments had been duly recorded.
Outcome: Motion for relief from the stay granted.

Creditors secured claim reduced, decision made on the record of dueling appraisals:

In re MAIOLINO,  2011 Bankr. LEXIS 5061 (Bankr. D.R.I. 12/22/11)(Arthur N. Votolato, Bankruptcy Judge).
DECISION AND ORDER MODIFYING SECURED CLAIM:  Heard on Debtor’s Francisco Maiolino's Motion to
Modify (i.e., reduce) the Secured Claim of Creditor JP Morgan Chase Bank, N.A. ("Chase") to the fair market value of Debtor's house on which Chase holds a mortgage. Debtor contends that the value of his house at 57-59 Corinth Street, Providence, Rhode Island, is $80,000. Chase places the value of the property at $97,000. The parties submitted a Joint Pre-Trial Order with exhibits including an opinion of value of $80,000 by Peter H. Hurley ("Hurley") for the Debtor, and an appraisal of $97,000 by Melissa M. Perrille ("Perrille") for Chase. It is stipulated that both witnesses are qualified as experts in real estate valuation, and the parties have submitted the matter for a decision based on the record, and without an evidentiary hearing.

Peter Hurley used the comparable (or comparative) sales approach in arriving at his opinion of value of the subject property, and Melissa Perrille used both the comparable sales approach and the income approach. Hurley and Perrille utilized different properties in this case, except for one point of agreement. Perrille used 232 Baker Street as a comparable rental property in applying her income approach, while Hurley used the same property as one of his comparable sales. Although their other examples differ, the appraisers agree that 232 Baker Street is similar to the Debtor's house. The Baker Street property sold for $80,000, on December 6, 2010. Upon careful consideration, all of the evidence supporting a value higher than $80,000 for the subject property was unpersuasive, and based on the appraisals and independent analysis of the evidence, this Court adopts $80,000 as the correct
estimate of the value of 57-59 Corinth Street.

OUTCOME:  Debtor’s 's Motion to Modify Chase's Secured Claim is granted.

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