Source: https://www.southerncaliforniabankruptcylawblog.com/2015/01/
Timestamp: 2019-04-20 15:05:26+00:00

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Many ― but not all ― debt collectors working for loan sharks are alleged humans who do the bidding of the dark side of the force. I have written about abusive debt collectors several times, in unflattering terms. It turns out that I’m not the only one who has noticed their abusive tactics. The feds are paying attention too.
A Georgia-based debt-collection company, its owner and six employees have been criminally charged in what is described by federal authorities as a $4.1 million national scheme that took advantage of more than 6,000 people. U.S. Attorney Preet Bharara of Manhattan, who is overseeing the case, says a larger investigation of “an absolute epidemic of abusive debt-collection practices” is ongoing by the Consumer Financial Protection Bureau, the Federal Trade Commission, the Federal Bureau of Investigation and federal prosecutors in his own office. This appears to be the first time these agencies have coordinated on such a probe, which could signal that a major enforcement effort is underway, reports CNN Money. The Atlanta Journal-Constitution, Newsday (sub. req.) and Reuters also have stories. “[R]uthlessly persistent” collectors at Williams, Scott & Associates in Norcross, Georgia, bullied thousands of people nationwide into paying millions between 2009 and 2014, sometimes even when they didn’t owe money, said Bharara. Collectors falsely claimed affiliations with government agencies and threatened people with arrest or other enforcement action, he said.
Collectors lied! I’m shocked, shocked. Actually, I’m not shocked because I’ve had clients tell me that collectors have threatened to jail them for not paying a debt.
One of the putative motivations for enacting Obamacare (a.k.a. The Patient Protection And Affordable Care Act; have fun reading it, and make sure you have industrial quantities of coffee on hand) was to ensure that no one would be financially ruined by a health care catastrophe. After all, many bankruptcies are filed because of massive medical debt. How have things played out in the Obamacare regime?
Can The Chapter 7 Bankruptcy Trustee Seize Your Postpetition Commissions?
I recently answered a question posed by a fellow bankruptcy attorney, and thought you might find the discussion interesting.
A Chapter 7 debtor who is a real estate broker had some listings prepetition. He opened escrow postpetition, and eventually sold the properties. He received a $20,000 commission, none of which can be exempted. The Trustee has demanded all the commission received. What can be done?
Three cases that help to answer the question from different vantage points are: In re Fit zsimmons, 725 F. 2d 1208 (9th Cir. 1984), In re Ryerson, 739 F. 2d 1423 (9th Cir. 1984), and In re Wu, 173 B.R. 411 (B.A.P. 9th Cir. 1994).
According to 11 U.S.C. § 541(a), when a debtor files for bankruptcy protection, the act of filing the papers “creates an estate.” The prepetition debts then become postpetition claims against that estate.
In a Chapter 7 bankruptcy, the Chapter 7 Trustee liquidates the estate to produce a dividend to the debtor’s creditors. The debtor can exclude assets from that estate by appealing to an appropriate exemption table (Cal. Civ. Proc. Code § 704 for homeowners with equity in their principal residence, and Cal. Civ. Proc. Code § 703.140 for everyone else). Anything the debtor cannot exempt is fair game for the Trustee to seize.
What goes into the estate? The gist of 11 U.S.C. § 541(a) is that everything the debtor owns or has an interest in on the day of filing the bankruptcy papers, anything the debtor becomes entitled to through bequest, inheritance, devise, or through life insurance proceeds during the 180 days after the petition day, and anything that is the fruit of estate assets (e.g., interest earned on an estate asset) is part of the estate.
I have already written about discharging student loans in bankruptcy. As I discussed in that previous blog post, although under special circumstances it is possible to discharge them, it is devilishly hard.
I recently came across an interesting twist on student loans in the bankruptcy context that I thought might interest you. The setting: A debtor wants to file for Chapter 7 bankruptcy protection. The nonfiling spouse died prior to the bankruptcy filing, and left a large student loan debt, for which the debtor did not cosign. What happens to the student debt? What happens to the deceased spouse’s other debts? Can the creditors attach heaven’s streets of gold to satisfy the debts?
If you live in a community property state such as California, you can have some liability for your spouse’s debts. Why?
When a couple gets married in a community property state, all of the assets are divided into three categories: The husband’s separate property, the wife’s separate property, and the community property. How is this done? In the absence of a prenuptial agreement, community property consists of all assets except those assets with which a spouse enters the marriage, those assets a spouse inherits, and the offspring of such assets. See Cal. Fam. Code § 770. A moment’s thought reveals that community property must include post-wedding day wages, and anything purchased with those wages, because the wage earner didn’t enter the marriage with the wages or the stuff bought with the wages, and didn’t inherit them.
By default then, a spouse’s separate property is comprised of those assets that that spouse enters the marriage with, anything that spouse inherits, and the offspring of those assets.
Ocwen is familiar to bankruptcy attorneys because it is the name of a dark force in real estate predation. (At the end of this post I’ll tell you an Ocwen war story from my own practice that gives a little taste of what my clients have faced with them.) It is also a name that has been in several recent articles in the Los Angeles Times. The articles chronicle the fall of Ocwen in California, leading up to California’s move to deport Ocwen from the Golden State. It couldn’t happen to a more deserving entity.
Tyesha Hansborough and her husband, Christley Paton, had paid the property insurance on their Inglewood home along with their mortgage, putting the money in escrow like most homeowners. Trouble is, the couple said, their mortgage servicer — Ocwen Financial Corp. — didn’t pass that money on to the insurance company for this year’s premiums. They battled unsuccessfully for months to reinstate the lapsed policy without additional costs, the couple said. Ocwen instead imposed so-called force-placed insurance — expensive coverage that protects the lender’s interest but doesn’t shield the homeowners from loss.
Isn’t that a cute trick? Collect insurance premiums from the homeowner and then charge them again, for Rolls-Royce priced insurance. That’s how to turn a real profit. Don’t waste time with honest business practices: That’s for suckers.
What Is Defalcation In Bankruptcy?
In 2013 the U.S. Supreme Court handed down an opinion that shed light on the meaning of the word “defalcation” as it is used in the Bankruptcy Code’s list of nondischargeable debts. The opinion disabuses of their error those who thought the word had something to do with a bathroom bodily function. In this post we will look at the Supremes’ decision in the larger context of nondischargeability under 11 U.S.C. § 523(a)(4).
A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt— . . . for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.
The list of debts that are nondischargeable in a completed Chapter 13 plan discharge ― found in 11 U.S.C. § 1328(a) ― is shorter than the list of exceptions to discharge found in 11 U.S.C. § 523(a). However, § 1328(a) includes § 523(a)(4) by reference, so a debt incurred through “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny” is never dischargeable in any personal bankruptcy.
[T]he debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.
I recently received an email that posed an interesting scenario in Chapter 7 bankruptcy liquidation. Although I have written on the subject of Chapter 7 liquidation I haven’t addressed the specific fact pattern in detail. This post fills that lacuna.
The question posed was a bit long, so I will summarize it. The questioner asked whether a sufficiently large tax lien on a debtor’s principal residence would dissuade a Chapter 7 Trustee from seizing and liquidating the house. My answer not only deals with the question posed, it also includes a discussion of the exemption implications as well.
The analysis depends primarily on 724(a), 726(a)(4), and 11 U.S.C. §§ 551. Based on these Code sections, the tax lien has two potentially negative implications to the case.
Is A DUI/DWI Debt Dischargeable In Bankruptcy?
Is a debt incurred as a result of a DUI (or DWI depending on the argot used where you live) dischargeable in bankruptcy? There are three parts to the answer. Although my discussion makes use of California and Ninth Circuit law, its substance will undoubtedly apply, mutatis mutandis, to any jurisdiction in the United States.
If a debtor tied one on, got behind the wheel, and received a citation for drunk driving, the resultant fine is not dischargeable in bankruptcy. To establish this requires a two-step analysis.
A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt— . . . to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit . . .
11 U.S.C. § 523(a)(7) (emphasis added).

References: § 541
 § 704
 § 703
 § 541
 § 770
 § 523
 § 1328
 § 523
 § 1328
 § 523
 § 523