Puerto Rico is not a State. The District of Columbia lacks certain privileges that other states have. These are subjects I could spend all day talking about. However, this is a bankruptcy blog. So we will talk about Puerto Rico’s attempt to authorize bankruptcy for its utility companies by enactment of a law.
In the recent United States Supreme Court decision of Puerto Rico v. Franklin California Tax-Free Trust, the Court held that Puerto Rico had been preempted from adopting its own bankruptcy laws by the federal government. The Court acknowledged that all 49 States (excluding notably the District of Columbia) could authorize a municipality to file bankruptcy; however, Puerto Rico was not a State under the Bankruptcy Code definition that applied; therefore, Puerto Rico simply did not have the power to authorize a municipal bankruptcy filing (DC doesn’t either). A power every one of the 49 States has.
Judge Martin Teel’s recent Maryland decision in In re Weaver confirms how difficult it is to obtain a discharge from student loans. Even though the debtor in that case received only social security income and suffered from “ongoing psychological problems”, she was not granted a discharge, because she had not done enough to address her psychological issues and had not attempted a reduced payment workout to the court’s satisfaction.
One of the benefits of filing a chapter 13 bankruptcy is that it can be dismissed or converted to a chapter 7 bankruptcy at any time. However, care needs to be taken to insure that a bankruptcy filer or debtor does not lose assets in the process. In the recent case of In re Goins, Judge Brian Kenney of the United States Bankruptcy Court for the Eastern District of Virginia ruled that, when a case was converted to a chapter 7 from a chapter 13, any increase in the value of a house during the course of a chapter 13 case was property of the estate which would not be kept by the debtors, but would instead go to pay creditors. The court held that the debtors were entitled only to the amount of principal which they were able to pay off during the time that that the 13 case was pending.
Under the bankruptcy code, a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, is generally non-dischargeable. In other words, while you can generally get rid of just about all debt in a bankruptcy case, you cannot get rid of a fine, penalty, or forfeiture. Criminal restitution is generally considered to be a fine, penalty, or forfeiture. However, Judge J. Frederick Motz of the United States District Court in Baltimore recently determined, in the case of Cregger v. Maryland, that restitution, owed by a parent, as a result of criminal activity of their child, was dischargeable.
Judge Martin Teel, sitting in the United States Bankruptcy Court in Greenbelt, recently ruled in the case of In re: Mitchell that a law firm, who received timely notice of a bankruptcy filing, could not get a pass on its failure to file a timely proof of claim. As a result, the claim was denied and the law firm was barred from receiving any portion of the Chapter 13 plan payments. This case underscores the need to be aware of the claims filing deadline and procedures for filing a proof of claim. If you are a creditor in a bankruptcy case, make sure you consult with an experienced bankruptcy attorney!
In the Maryland case of In re: Miller, Bankruptcy Judge Martin Teel determined that the automatic stay should be lifted to allow a sale in lieu of partition case to proceed between previously divorced parties. He also decided that the Maryland State Court could determine that the proceeds of sale could be disbursed in a manner which differed from the parties’ separation agreement. Counsel for the debtor argued that the request to deviate from the settlement agreement penetrated the bankruptcy estate and was thus, subject to continued protection by the stay. However, the bankruptcy court indicated that the division of proceeds was a state court function.
In the case of In re Madeoy, Maryland Bankruptcy Judge Thomas Catliota has ruled that the purchase of a bankruptcy debtor’s home by an insider, followed by the renting back of the home to that debtor, does not, in and of itself, create a general right for other creditors to equitably subordinate the insider’s claim. Judge Catliota noted that there was no evidence that the insider took advantage of his relationship to extract favorable terms. In particular, he negotiated at arms length with the secured lender in order to purchase the home in the first place.
An oldie but a goodie — this New York Times article talks about the difficulty in getting rid of student loans in bankruptcy:
The United States Supreme Court in the case of Bank of America v. Caulkett has ruled that a junior lien secured by real property can never be stripped off in a Chapter 7 case. In doing so, the court affirmed the rulings of most lower courts on this issue. The party seeking to strip the lien in the Bank of America case argued that the Supreme Court’s prior ruling in Dewsnup v. Timm (which previously barred lien strips in Chapter 7 cases) only applied to cases in which some equity remained after deducting the payoffs of senior liens. Such liens are labelled “partially underwater liens” in the Bank of America opinion. The court held that liens that are completely underwater cannot be stripped even though the lender would receive nothing if the property were sold for market value.
In Maryland, a mortgage lender is required to send detailed notice before filing a foreclosure case. In the case of Ramon Granados, his lender brought two foreclosure cases. Prior to filing the first case, it sent the required notice. However, it dismissed the first case. Later it filed a second case and sent no notice before this case was filed. The Maryland Court of Special Appeals determined that the failure to send the notice before the filing of the second foreclosure case was fatal to the second foreclosure case. As a result the foreclosure sale was invalidated.