Category Archives: Blog

1st Circuit Upholds Two Student Loan Discharge Cases

Criticizes In Re Brunner as outdated and “hard-hearted”

By: Craig W. Stewart
Debtors filed separate Chapter 7 bankruptcy cases in Maine and Massachusetts with
Different fact patterns but with underlying similarities to undermine Brunner.

The First Circuit upheld the bankruptcy court when it ruled that both student loans were discharged. This Court criticized the Brunner and “totality of the circumstances” tests stating “Any test that allows for the Court to determine a student’s good or bad faith while living at a subsistence level, virtually strait-jacketed by circumstances, displaces the focus from where the statute would have it: Hardship. I believe this is the first crack in the iceberg moving forward towards resolving the billion dollars of outstanding student loan debt some of whom are calling the next mortgage crisis about to burst.

We believe and we would strongly argue the same legal principles the Court applied in this case to our bankruptcy judges here in Maryland.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The Law Firm of Laura Margulies & Associates, LLC has assisted thousands of clients through the bankruptcy process and is sensitive to their needs. Please call me for a free consultation today. Laura Margulies is a principal and Craig Stewart is the managing partner in the law firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

9th CIRCUIT UPHOLDS $119,000 SANCTION AGAINST OCWEN

By: Craig W. Stewart

Debtors filed a Chapter 7 and received an Order of Discharge in 2013. From 2013
through 2015, the debtors received letters from Ocwen Loan Servicing in the form of statements,
notices regarding foreclosure insurance and escrow statements. Debtors’ intent was to surrender
the property. Ocwen’s disclaimers advised that they were informational only and not meant to
collect pre-petition or discharged debt. Debtors reopened their case and filed a motion holding
Ocwen in contempt for discharge violations.

The Ninth Circuit overruled the bankruptcy court when it ruled that it lacked authority to impose punitive damages against Ocwen. “In this modern age of technology, Ocwen could and should prepare notices that are consistent with the known legal status of its borrowers.” We believe and we would strongly argue the same legal principles the Court applied in this case to our bankruptcy judges here in Maryland.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The Law Firm of Laura Margulies & Associates, LLC has assisted thousands of clients through the bankruptcy process and is sensitive to their needs. Please call me for a free consultation today. Laura Margulies is a principal and Craig Stewart is the managing partner in the law firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

MORTGAGE MODIFICATION CURES PLAN DEFAULT

By: Craig W. Stewart

The Chapter 13 debtor’s confirmed plan required her to make mortgage payments
directly to her lender, she completed her plan in September 2016, and the Trustee filed a
Notice of Final Cure Payment in December. The mortgagee’s servicer responded that she had
not made 39 mortgage payments due post-petition. The Chapter 13 Trustee moved to dismiss
the case which was placed on hold while the debtor filed and received a loan modification.

A Fifth Circuit Bankruptcy Court overruled the Chapter 13 Trustee’s argument that the debtor was not allowed to modify her plan. It ruled “the debtor’s loan modification cures the default as surely as if the debtor had made the missing payments timely.” This issue seems to be common in our jurisdiction as well. We believe and we would strongly argue the same legal principles the Court applied in this case to our bankruptcy judges here in Maryland.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The Law Firm of Laura Margulies & Associates, LLC has assisted thousands of clients through the bankruptcy process and is sensitive to their needs. Please call me for a free consultation today. Laura Margulies is a principal and Craig Stewart is the managing partner in the law firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

DEBTORS MAY DEDUCT 401(k) PAYMENTS STARTED POST-PETITION

By: Craig W. Stewart

The above-median income Chapter 13 debtors began taking 401(k) deductions post-
Petition and took deductions on the Means Test for those contributions to husband’s retirement
Plan. The Chapter 13 Trustee objected and the Court noted that much of the confusion in this
Case stemmed from how the debtors should calculate their projected disposable income.
Section 541(b)(7) of the Code resulted in different interpretations by the Debtor and the Trustee.

A 5th Circuit Bankruptcy Court overruled the Chapter 13 Trustee’s objection to Confirmation based on their deduction of voluntary 401(k) payments that began post-petition. It found that this comports with the notion of the debtors getting a fresh start and stated that if any time the debtors ceased the contribution, the money would be become disposable income. This remains a hot topic in the 4th Circuit and feel free to contact our office if you have this issue orknow anyone who may be in this situation in their own case.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The Law Firm of Laura Margulies & Associates, LLC has assisted thousands of clients through the bankruptcy process and is sensitive to their needs. Please call me for a free consultation today. Laura Margulies is a principal and Craig Stewart is the managing partner in the law firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

EX-SPOUSE’S MOTIONS TO MODIFY DIVORCE JUDGMENT VIOLATED STAY

By: Craig W. Stewart
Debtor is jointly liable on a promissory note with ex-spouse and files a Chapter 13 plan
proposing to discharge $3,164.00 as a DSO and lists the note as a general unsecured debt. Ex
wife objects to confirmation of the plan and nearly a year after confirmation of debtor’s plan,
files motions in state court to force the debtor to contribute to payment of marital debt. Debtor
files an Adversary Proceeding and ex spouse withdraws and modifies her motions.

The Court held that the state court motions violated the automatic stay and that withdraw of the motion(s) may have reduced damages, but did not undo the stay violation. “Creditors should not be permitted to use the spousal support modification exception for the sole purpose of recharacterizing an otherwise dischargeable property division as a nondischargeable domestic support obligation.” The Court imposed damages of $3,000.00 for attorney’s fees in defending the state court motions.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The Law Firm of Laura Margulies & Associates, LLC has assisted thousands of clients through the bankruptcy process and is sensitive to their needs. Please call me for a free consultation today. Laura Margulies is a principal and Craig Stewart is the managing partner in the law firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

Debtor’s Attorney Must Reimburse Trustee For 707(b) Motion

By: Craig W. Stewart

A Chapter 7 Trustee files a motion to dismiss debtor’s case after ascertaining debtor had
disposable income of $1,636.21 despite debtor’s Schedule J reflecting a deficit of $239.06. The debtor did not oppose the dismissal and the bankruptcy dismissed the case. The only question remaining was whether the debtor’s attorney sufficiently conducted due diligence, and if not whether he should be required to reimburse the Trustee for fees and costs.

The Court held that a reasonable investigation requires more than just relying on the information provided by the debtor. “The attorney must independently verify publicly available facts to determine whether the client’s representations are objectively reasonable … by asking questions and obtaining additional documents or by some other means.” The attorney was required to reimburse the Trustee because he did not perform a satisfactory investigation on his own prior to the filing of the case.

The above case shall warn debtor’s attorneys in their initial and follow-up consultations with clients. The Trustee will be able to recover fees and costs if attention to detail is not part and parcel to each and every client’s case.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The attorneys at the law firm of Laura Margulies & Associates, LLC have assisted thousands of clients through the bankruptcy process and are sensitive to their needs. Please call us for a free consultation today. Laura Margulies is a principal and Craig Stewart is also a principal in the law firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

BANK ACCOUNT DEPOSIT IS NOT A ‘TRANSFER’

By: Craig W. Stewart

A ‘transfer’ does not include a bank account holder’s regular deposit into his own unrestricted checking account. A Chapter 7 debtor, running a Ponzi scheme, deposited funds from his victims into his checking account. The Ponzi scheme collapsed, an involuntary Chapter 7 was filed, and the Chapter 7 Trustee commenced a fraudulent transfer action arguing the deposits were made with actual intent to hinder, delay or defraud creditors. The bankruptcy court ruled they were not avoidable as fraudulent transfers and the District Court affirmed.

On appeal, the Fourth Circuit concluded that deposits by a debtor into his own unrestricted checking account in the regular course of business did not constitute transfers. The above case protects the debtor in his ordinary course of business. The Trustee will not be able to recover funds in cases involving even fraudulent transfers to and from the debtor’s own bank account. This is a key component to allow debtors in bankruptcy to continue using their checking accounts without the fear of Trustee intervention.

If you are caught in an endless cycle of debt and are struggling to break free, please call us for a free consultation. The attorneys at the law firm of Laura Margulies & Associates, LLC have assisted thousands of clients through the bankruptcy process and are sensitive to their needs. Laura Margulies and Craig Stewart are attorneys in the firm who represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

Chapter 13 Confirmation Denied Due to Excessive Retirement Contributions

By Laura Margulies, Esq.

In the recent case of In re Miner, 2017 wL 1011419 (Bankr. W.D. La. 3/14/17), the court denied confirmation of the debtor’s Chapter 13 plan because the court believed the debtor was contributing too much to his retirement plan at the expense of his unsecured creditors. Furthermore, the court found that the plan could not be confirmed since it did not provide for a step up in payments once his 401K loan was paid off. In this case the debtor had testified that he contributed approximately $700 per month towards his 401K plan for the last 5 years. However, the court did its own calculation and found that if that were true, he would have more funds in his 401K plan than what the debtor actually had. The court decided to give guidance to debtors and indicated that a 3% contribution would be presumed reasonable, but any contribution above 3% would be evaluated on a case by case basis.

Basically, the courts frown on debtors who start contributing more towards their retirement accounts than they did prior to filing. In addition, all Chapter 13 trustees will expect debtors to increase the funding of their plans if during the life of the plan the debtors’ 401K loan is paid off.

If you are considering filing a bankruptcy case, please first consult with the attorneys at the law firm of Laura Margulies & Associates, LLC. They have assisted thousands of clients through the bankruptcy process and are sensitive to their clients’ needs. Laura Margulies and Craig Stewart are attorneys in the firm with decades of bankruptcy experience. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com or call us at 301-816-1600 to schedule an appointment.

Using Bankruptcy to Break the Cycle of Payday Loans

By Craig Stewart

A recent article in the Washington Post, “The Trap of Payday Loans” highlights the very serious problems that consumers face with payday loans. Payday loans fill a very important need for people in a financial bind, which leads to exploitation–how do I pay the electric cut-off bill to keep my family warm or cool? How do I pay the car insurance to keep from driving illegally? How do I pay the rent after being out a week sick on my hourly job? The quick solution offered to people is to take out a payday loan. No credit needed. Just a job and a checking account, they say. You can borrow the $200 you need to keep your electric on for only a small fee.

Sounds good at first, maybe even a miracle. But the interest rates are frequently in the triple digits. Because the payday lenders do not take into account your ability (or lack thereof) of repaying the loan, most consumers end up in an endless cycle of having to take out one payday loan to pay off their prior payday loan. Once this cycle starts, it can seem impossible to break. Especially because the payday lenders are taking the payments directly out of your checking account. If you fall behind, the payday lenders harass you to no end, some even threatening criminal prosecution in violation of consumer protection laws.

If you find yourself unable to break out of the cycle of payday loans, despite your best efforts, filing for bankruptcy can be a powerful solution. As soon as you file for bankruptcy, the automatic withdrawals must stop under the bankruptcy laws. In addition, the amounts you owe the payday lenders can be fully discharged in bankruptcy. Filing for bankruptcy can also discharge past due utility bills, rent due from current and prior leases, as well as stopping repossessions and evictions under certain circumstances.

If you are caught in an endless cycle of payday loans and are struggling to break free, please call us for a free consultation. The attorneys at the law firm of Laura Margulies & Associates, LLC have assisted thousands of clients through the bankruptcy process and are sensitive to their needs. Please call us for a free consultation today. Laura Margulies and Craig Stewart are attorneys in the firm with decades of bankruptcy experience. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at http://www.law-margulies.com.

Debtor Must Tell Creditor That Bankruptcy Case Was Filed, Not Just Attorney Hired

By Laura J. Margulies, Esq.

Once I am hired as an attorney for a debtor, I advise my client to let any creditors who call know that he or she has retained my firm as his or her counsel and that any questions regarding them must be made to my office. Once the bankruptcy case is filed, I advise my clients to let any creditor who calls them know that they filed bankruptcy and give the creditor their case number. Once the creditor knows about the filing and is given a case number, it generally does not contact the debtor again.

In the recent case of Ferrer v. Lou Sobh Automotive of Jax, Inc. (In re Ferrer), 2017 WL 401188 (Bankr. M.D. Fla. 1/30/17), a car lender contacted the debtor after he filed for bankruptcy and asked him to stop by to sign a new contract for the purchase of his vehicle. The car was purchased just two days prior to his filing. The debtor advised the lender that he had hired a bankruptcy attorney, and directed the lender to call his attorney. The debtor did not list the lender on his Schedules and the lender did not get notice of the bankruptcy filing. Ultimately, the debtor did enter into a new loan agreement with the lender. The debtor believed that the lender’s contact with him violated the automatic stay and brought an action against it. The court however, found that the lender did not wilfully violate the automatic stay, as just telling a creditor that you hired a bankruptcy attorney is not the same as letting the creditor know that you actually filed a bankruptcy case. Furthermore, the court stated that even if it found that the lender had violated the automatic stay, the debtor presented no evidence that the violation caused him any actual damage.

If you are considering filing for bankruptcy, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com .