4th Cir. : Morgan v. Bruton- Tax Lien not Required for IRS to Pierce Tenancy by the Entireties Ed Boltz Sun, 04/21/2024 - 04:37 Summary: The Court of Appeals affirmed the decision of the district court regarding Ronald Lee Morgan's Chapter 7 bankruptcy filing. Morgan had sought to exempt his home, owned as tenancy by the entirety with his wife, from the bankruptcy estate to shield it against an outstanding tax debt owed to the IRS. The bankruptcy court, however, disallowed the exemption, and the district court affirmed this decision. The appeal centered on whether Morgan's home could be exempt from the bankruptcy estate under 11 U.S.C. § 522(b)(3)(B), which allows for the exemption of certain property interests from creditors under applicable nonbankruptcy laws. The courts found that while North Carolina law protects such properties from creditors of a single spouse, federal tax law under 26 U.S.C. § 6321 creates a lien for unpaid taxes that can attach to property owned in entirety. The Supreme Court's decision in United States v. Craft supported this interpretation, allowing the IRS's claim against the property despite the non-joint nature of the tax debt. Morgan argued that an actual lien must be perfected by the IRS before filing for bankruptcy, which was refuted based on precedents that do not require such a lien for the property to be considered non-exempt under federal law. The court concluded that federal law permits a tax lien to attach to an individual's interest in entirety properties, rendering Morgan's home not exempt from the bankruptcy estate concerning the IRS debt.  Commentary: Even after navigating through the Tenancy by the Entireties  dangers that  having overtly joint debts present,  the risk that a modest IRS tax claim can result in the loss of the marital home, means that,  with utterly insufficient an homestead exemption in North Carolina,  debtors simply cannot file Chapter 7 if they own real estate. To read a copy of the transcript, please see: Blog comments Attachment Document morgan_v_bruton.pdf (140.95 KB) Category 4th Circuit Court of Appeals

th Cir.: Berman v. PHEA- Derivative Sovereign Immunity for Student Loan Servicer Ed Boltz Sun, 04/21/2024 - 04:32 Summary: TheCourt of Appeals affirmed the district court's decision to dismiss Todd Berman's lawsuit  against the Pennsylvania Higher Education Assistance Agency (PHEAA) for lack of subject matter jurisdiction, as PHEAA was entitled to derivative sovereign immunity. Berman had sued PHEAA, alleging their misinformation cost him the chance for student loan forgiveness under the Public Service Loan Forgiveness program, especially after he worked for Blue Cross Blue Shield of North Carolina, which PHEAA initially and incorrectly said did not qualify as a public service employer. The court found that the Department of Education, which had contracted with PHEAA to service loans, authorized PHEAA’s actions, and thus, PHEAA was acting under derivative sovereign immunity. The contract stipulated procedures PHEAA needed to follow in verifying employers for loan forgiveness eligibility, and PHEAA adhered to these, including consulting the Department on ambiguous cases. Furthermore, the Department of Education explicitly directed and later confirmed the actions PHEAA took in Berman’s case. Hence, any error in employer qualification was on part of the Department, not PHEAA. The court suggested Berman could challenge the Department’s decision under the Administrative Procedure Act but not seek damages against it or its agent, PHEAA. Commentary: This case should be used as Exhibit A in and SLAP where the bankruptcy court  questions whether a student borrower might have been mistreated and lied to by servicers and USED.  That this often led to those borrowers often not participate in the various IDR and other relief programs,  might,  just might (as explicitly recognized by both the CFPB,  by USED, and by the Department of Justice,) explain their skepticism. As this decision would further insulate student loan servicers against their own incompetence,  student loan borrowers need to find ways to ensure  that failures by those servicers have remedies.  This is likely harder for student loan borrowers who do not have any judicial supervision over their loans,  but fortunately this is not the situation for those in Chapter 13.  With  the HEA regulations becoming final and effective on July 1,  2024,  that will provide credit towards IDR forgiveness for the time in a Chapter 13,  it is not unreasonable to be concerned  that these servicers will not comply (or even understand)  these obligations.  Adding plan provisions which incorporated these regulations  could provide authority for the bankruptcy courts to hold servicers and even USED in contempt,  including providing for damages.   Paralleled on the obligations against mortgage servicers that were made subject to review by Bankruptcy Rule 3002.1,  hopefully not only the E..D.N.C. and M.D.N.C., where I have the greatest involvement,  but also the National Bankruptcy Rules Committee,  will consider amending the standard Chapter 13 Form Plan to include the following provisions: Notice of Number of Months of IDR Credit.  After the debtor completes all payments under the plan, the debtor may file and serve on the  U.S. Department of Education and [name of student loan servicer, guarantor, or holder] a notice stating that the debtor has completed all plan payments and the number of months credit toward loan forgiveness  for each month that the debtor made a payment under the plan to the trustee, as indicated on the Trustee's Final Report.  The notice shall also inform  U.S. Department of Education and/or [name of student loan servicer, guarantor, or holder]  of their obligation to file a Response to the  Notice of Final Plan Payment and Number of Months of IDR Credit as described in the following section. Response to the  Notice of Number of Months of IDR Credit.   Within 21 days after service of the above notice under subdivision (f) of this rule,  U.S. Department of Education and/or [name of student loan servicer, guarantor, or holder] shall file and serve on the debtor, debtor’s counsel, and the trustee a statement indicating (1) whether it agrees with the number of months of credit towards loan forgiveness in the notice, and (2) whether  U.S. Department of Education and/or [name of student loan servicer, guarantor, or holder]  has credited the the debtor with that number of months towards loan forgiveness. The  response  shall itemize the remaining balance owed  as of the date of the response and will identify the current  [name of student loan servicer, guarantor, or holder], its address, and the amount and next due date of payment. The response shall be filed as a supplement to the holder’s proof of claim and is not subject to Rule 3001(f). Determination of  Number of Months of IDR Credit.  On motion of the debtor filed within 21 days after service of the response described above, the court shall, after notice and hearing, determine the number of months of IDR Credit. To read a copy of the transcript, please see: Blog comments Attachment Document berman_v._pheaa.pdf (130.45 KB) Category 4th Circuit Court of Appeals

Before Bankruptcy, There Are Two Ways Your Credit Score Tricks You   Are you worried about what bankruptcy will do to your credit score? Your credit score is the tool the banks and credit card companies use to trick you into paying them, even when you can’t afford it. Think for a moment. Is your credit score more important than feeding your children?  Probably not. Is it more important to pay Capital One or take care of you family? Back in 1934, the Supreme Court said that a fresh start in bankruptcy is “of public, as well as private, interest.” Here’s what they meant. The country is better off if you take care of your family; Capital One will be ok without your help. The fear of your after-bankruptcy credit score tricks people into worrying about the wrong thing. There’s a second reason it really is trick. When you file bankruptcy, your credit score will go up.  (At least for most people.) I talk to people whose score is around 550 and assume with bankrutpcy it will drop into the 400;s.  The opposite will actually happen. For most people, your credit score after bankrutpcy will shoot up over 600. Not only that. Within six months, Capital One will be offering you a new credit card.     The post Before Bankruptcy, Don’t Let Your Credit Score Trick You appeared first on Robert Weed Bankruptcy Attorney.

Before Bankruptcy, There Are Two Ways Your Credit Score Tricks You   Are you worried about what bankruptcy will do to your credit score? Your credit score is the tool the banks and credit card companies use to trick you into paying them, even when you can’t afford it. Think for a moment. Is your credit score more important than feeding your children?  Probably not. Is it more important to pay Capital One or take care of you family? Back in 1934, the Supreme Court said that a fresh start in bankruptcy is “of public, as well as private, interest.” Here’s what they meant. The country is better off if you take care of your family; Capital One will be ok without your help. The fear of your after-bankruptcy credit score tricks people into worrying about the wrong thing. There’s a second reason it really is trick. When you file bankruptcy, your credit score will go up.  (At least for most people.) I talk to people whose score is around 550 and assume with bankrutpcy it will drop into the 400;s.  The opposite will actually happen. For most people, your credit score after bankrutpcy will shoot up over 600. Not only that. Within six months, Capital One will be offering you a new credit card.     The post Before Bankruptcy, Don’t Let Your Credit Score Trick You appeared first on Robert Weed Bankruptcy Attorney.

Bankr. E.D.N.C.: In re Rogers- Social Security Income not Available for Administrative Claims of Nursing Home Ed Boltz Fri, 04/19/2024 - 18:42 Summary: Bankruptcy Court  denied Brunswick Health & Rehab Center, LLC's application for the allowance of post-petition expenses as an administrative expense under 11 U.S.C. § 503. Brunswick sought to classify approximately $39,821 in expenses related to the ongoing care of debtor Sue P. Rogers as necessary costs to preserve the estate, asserting these costs support her ability to fund her Chapter 13 bankruptcy plan through her social security income.  However, the Trustee and Debtor objected, arguing that these expenses are personal to the Debtor and do not benefit the bankruptcy estate. The court agreed with the objections, stating that the social security income, which is excluded from the debtor’s "Current Monthly Income," cannot be used to fund the plan, and hence, the post-petition expenses are not essential to preserving the estate.  Despite the denial, the court noted that the Debtor’s plan might be supported by the sale proceeds of her real property, potentially covering pre-petition creditors, including Brunswick. Commentary: Ms.  Rogers was admitted to the nursing facility before filing Chapter 13 bankruptcy,  but this result could lead nursing facilities,  which obviously have tremendous day-to-day control over  access,  to attempt to prevent their residents  from consulting with bankruptcy counsel out of justified fears that they will be prevented from being paid from Social Security income.    What if every resident of Brunswick Health & Rehab Center  (or at least those that could not be moved due to non-bankruptcy law) similarly filed Chapter 13 cases?  Those residents (even those without any other assets) would then retain their Social Security income.  Perhaps Chapter 13 is another tool for Medicare Impoverishment that the Elder Law section should keep in its toolbox. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_rogers.pdf (165.65 KB) Category Eastern District

Proposed USED Regulations for Student Loans Ed Boltz Fri, 04/19/2024 - 04:05 Summary: The Department of Education proposes amendments to the regulations governing the waiver of student loan debts under the Higher Education Act of 1965. These changes aim to provide targeted debt relief by specifying conditions under which the Secretary may exercise discretion to waive student debts.  The new rules, which will be open for public comment starting April 17, involve nine specific regulations under the Higher Education Act.  A second set of rules will also be introduced soon to help borrowers facing hardship,  including proposals to authorize the automatic forgiveness of loans for borrowers at a high risk of future default as well as those who show hardship due to other indicators, such as high medical and caregiving expenses. Key provisions include the waiver of outstanding loan balances for borrowers meeting certain criteria related to loan forgiveness eligibility, loans for attendance at institutions affected by specific secretarial actions, and loans linked to institutions or programs with poor financial outcomes. These proposed regulations would, among other things: Cancel excessive interest accumulation, which has significantly increased the debt for over 25 million borrowers.   Eliminating student debt for borrowers who entered repayment at least 20 years ago  for undergraduate debt and 25 years for graduate debt. Authorizing the automatic discharge of debt for borrowers who are otherwise eligible for loan forgiveness under SAVE, closed school discharge, PSLF, or other forgiveness programs, but have not successfully applied due to paperwork requirements, bad advice, or other obstacles. Waive debts for students who attended institutions that lost eligibility due to failure in accountability standards or that closed following such actions. Include provisions specifically for loans associated with closed Gainful Employment programs known for high debt-to-earnings ratios or low earnings. The rationale behind these changes is to alleviate the financial burdens of student loans for borrowers, particularly those affected by institutional failures or mismanagement, thereby reducing the risk of delinquency or default for these individuals. The proposed amendments aim to make the process of obtaining relief more transparent and equitable, providing a clearer path for those whose educational investments did not yield the expected financial value. Commentary: I remain very proud to have been an alternate on the Negotiated Rulemaking Committee that the Department of Education convened to assist in drafting these regulations and believe that these will provide real and meaningful relief for student loan borrowers,  particularly those in such severe financial distress that they file bankruptcy. The proposed amendments to the regulations governing student loan debts by the Department of Education are specifically targeted at providing relief from student loans under certain conditions, which can have significant implications for debtors considering or currently in bankruptcy. Here are the main effects these proposed changes could have on such debtors: Enhanced Discharge Opportunities: Traditionally, student loans are difficult to discharge in bankruptcy due to stringent requirements to demonstrate "undue hardship". The proposed regulations could provide an alternative pathway for relief, particularly for those who have loans tied to institutions that failed to meet educational or financial standards, or that closed under adverse conditions. This could reduce the need for some debtors to seek a student loan discharge through bankruptcy proceedings. Impact on Bankruptcy Proceedings: For those already in bankruptcy or who still need to file due to other debts, having student loans waived could simplify their bankruptcy proceedings. With fewer debts to resolve or reorganize, the process could be quicker and outcomes potentially more favorable.  Coupled with the changes that go into effect on July 1,  2024,  under  34 C.F.R. § 685.209(k)(4)(iv)(K),  which provides that all Chapter 13 Debtors  will receive credit towards their IDR forgiveness period for every month in their case- regardless of payment on the student loans,  bankruptcy provides even greater options for dealing with student loan debt. Potential for Financial Recovery Post-Bankruptcy: Debtors who successfully have their student loans waived due to the regulations may find it easier to recover financially post-bankruptcy. Without the burden of student loan repayments, they might better manage their remaining debts and rebuild their credit faster. Bankruptcy Filings: If borrowers can have their student loans waived under the new rules, this may reduce the total debt burden that leads some individuals to file for bankruptcy. By decreasing the amount of nondischargeable debt (like student loans), the regulations could lessen the financial strain that compels individuals to consider bankruptcy as a viable option.   That said,  bankruptcy can provide,  with both the Student Loan Adversary Proceeding guidance from the DOJ making discharge easier and because starting very soon Chapter 13 debtors automatically will make progress towards IDR forgiveness,  greater options and relief than these regulations alone.   Further,  while some of these forgiveness and relief programs might trigger state and,  if not renewed before 2025, federal tax consequences,  by incorporating that relief to a bankruptcy plan those taxes might be avoided. Since these new regulations,  together with other programs,  are going to be very complicated for borrowers to navigate successfully on their own.  (Especially as the historically negligent,  if not openly hostile, assistance provided by student loan servicers shows no indications of changing.)  That should lead many consumer bankruptcy attorneys to broaden the scope of their practice and breadth of their knowledge to include student loan relief,  both with and without bankruptcy.   To read a copy of the transcript, please see: Blog comments Attachment Document biden-harris_administration_releases_first_set_of_draft_rules_to_provide_debt_relief_to_millions_of_borrowers_u.s._department_of_education.pdf (197.82 KB) Document 2024-07726_negotiated_rule_making_consensus_language.pdf (805.75 KB) Category Student Loan Debt

4th Cir.: Ford v. Sandhills Medical- Data Breach not Related To Protections for the Provision of Medical Services Ed Boltz Mon, 04/15/2024 - 22:20 Summary: Ford brought claims against Sandhills for negligence, breach of implied contract, invasion of privacy, and breach of confidentiality due to the mishandling of her personally identifying information (PII). This information was stolen from a third-party computer system used by Sandhills in a cyberattack. Ford's lawsuit stemmed from her concerns about the misuse of her stolen data, which was used to fraudulently apply for a loan in her name. Sandhills argued that they were immune from the lawsuit under 42 U.S.C. § 233(a), which provides immunity for entities performing “medical, surgical, dental, or related functions.” They claimed that the storage and protection of PII were part of these related functions because the data was collected as a condition of providing medical treatment. The district court accepted this argument and granted immunity to Sandhills, substituting the United States as the defendant, which led Ford to appeal the decision. The United States Court of Appeals vacated and remanded the district court's decision. The appellate court concluded that Sandhills' data security practices did not constitute a "related function" under the law because these functions must be closely associated with the delivery of medical, surgical, or dental services. Since the mishandling of PII occurred in a data breach by a third party and was not directly related to the provision of healthcare services, § 233(a) did not apply. The court noted that treating data security as a related function would overly broaden the scope of the statute and could lead to misuse of the immunity provision. Commentary: While most of the medical creditors in North Carolina (and hopefully nationwide)  seem to have learned the sometimes costly lesson that the disclosure of PII,  medical or otherwise,  in Proofs of Claim filed in bankruptcy cases is improper,  this case does reject the immunity argument.  By looking at whether data security practices are a "related function"  to providing  protected medical services,  this decision could also be used to narrow the "learned profession" to North Carolina debt collection restrictions.   To read a copy of the transcript, please see: Blog comments Attachment Document ford_v._sandhills.pdf (191.96 KB) Category 4th Circuit Court of Appeals

Research Paper: Murto, Michael, Student Loans and College Majors- The Role of Repayment Plan Structure (February 22, 2024). Consumer Financial Protection Bureau Office of Research Working Paper No. 24-01 Ed Boltz Mon, 04/15/2024 - 21:11 Abstract:   This paper highlights the role loan repayment plan structure has in students’ human capital investments. I link academic records from a major public university to credit records to assess the empirical evidence for shifting major selection. After an expansion in Income Driven Repayment (IDR) options increased generosity and use, borrowers are more likely to select majors with worse initial labor market outcomes but higher wage growth, consistent with theoretical predictions. These results are robust to specifications that account for nonrandom selection into borrowing status as well as compositional shifts in borrowers over time. This sheds light on how changes in student loan repayment plans affected major selection and, given the new SAVE plan, how students may respond in future human capital investments. Commentary: As something of a mathematical Casca (which discloses my English Literature degree),  I cannot really comment on or even understand much of the statistical analysis here as "it was Greek to me".  Here''s a short one (which hopefully survives into Google group and Listserv emails):             2019 Yi,c =  ∑         γcLoanP cti,c + ϕc + βcXi,c + εi,c             c=2009 My Sigma ignorance aside, This research does indicate that IDR plans "offer insurance against low monetary returns and offer the flexibility to trade off these initially low income realizations with higher income growth."  This does not,  however, support the recurring rants in the media regarding the humanities, especially the Gender Studies  Straw-person,  that student loan relief encourages  pursuit of degrees that have perpetually low income and low income growth. To read a copy of the transcript, please see: Blog comments Category Student Loan Debt

N.C. Ct. of App.: Dan King Plumbing v. Harrison- New Jury Trial following Appellate Remand Ed Boltz Mon, 04/15/2024 - 19:36 Summary: The dispute originated from plumbing and HVAC services provided by Dan King  at  Harrison's  home. After services were rendered, Dan King filed a small claims action for unpaid monies, which was dismissed, leading to an appeal and a counterclaim by Harrison alleging misrepresentation and contractual breaches, among other issues. The case escalated to a trial where the jury found in favor of Harrison, awarding damages for breach of contract and unfair and deceptive trade practices (UDTP). Upon that first appeal, the NCCOA affirmed some parts of the trial court's decisions but found errors in others, particularly concerning the jury's findings on the UDTP claims. The case was remanded for further proceedings, specifically to explore whether Harrison's reliance on Dan King's misrepresentations about duplicate warranties was reasonable and whether expert testimony was required to support claims of substandard workmanship. Subsequent hearings involved interpreting the appellate court's remand orders. The trial court, under a new judge, interpreted the orders to necessitate a new trial for the duplicate warranties claim under the UDTP action and for the workmanship claim under the breach of contract action. The Court of Appeals affirmed the trial court’s decisions, finding no abuse of discretion in ordering a new trial for the specified issues. This decision was based on the need for further exploration of facts not sufficiently addressed in the original proceedings, particularly the lack of evidence on whether the Defendant's reliance on the Plaintiff’s misrepresentations was reasonable and the absence of expert testimony on the workmanship quality.Commentary: This case highlights the complexities of appellate remands and the discretionary powers of trial courts in interpreting and implementing higher court directives. The decision reaffirms the trial court's role in seeking additional evidence and clarifications to resolve legal disputes comprehensively.  An unmentioned but likely basis for conducting a completely new trial  would also seem to be that the new trial judge,  supported by the Court of Appeals,  expected that it would be difficult and an unfair burden to reconvene the same jury a second time.   To read a copy of the transcript, please see: Blog comments Attachment Document dan_king_plumbing_v._harrison.pdf (134.5 KB) Category NC Court of Appeals

Research Paper: The Effects of Medical Debt Relief: Evidence from Two Randomized Experiments Raymond Kluender, Neale Mahoney, Francis Wong, and Wesley Yin NBER Working Paper No. 32315 Ed Boltz Mon, 04/15/2024 - 18:39 Abstract: Two in five Americans have medical debt, nearly half of whom owe at least $2,500. Concerned by this burden, governments and private donors have undertaken large, high-profile efforts to relieve medical debt. We partnered with RIP Medical Debt to conduct two randomized experiments that relieved medical debt with a face value of $169 million for 83,401 people between 2018 and 2020. We track outcomes using credit reports, collections account data, and a multimodal survey. There are three sets of results. First, we find no impact of debt relief on credit access, utilization, and financial distress on average. Second, we estimate that debt relief causes a moderate but statistically significant reduction in payment of existing medical bills. Third, we find no effect of medical debt relief on mental health on average, with detrimental effects for some groups in pre-registered heterogeneity analysis. Commentary: Relief for medical debt alone  perpetuates the assumption that there are some debtors who are innocent and deserving of relief and others,  whether for student loans,  credit cards, etc.,  that are not. The minimal benefits of medical debt relief on financial outcomes,  credit scores or mental health demonstrates the limits of piecemeal debt forgiveness.  A likely reason being that people burdened with medical debt likely have substantial other financial burdens (with those other debts often resulting from the same health issues as the medical debt).  This should be remembered for other targeted debt relief,  including student loans,  which might merely divert a debtor's financial resources to other creditors.  Bankruptcy remains,  with the most glaring exception being automatic relief for student loans,  the only real and complete form of debt relief.   While it would be obviously self-interested to suggest that charities such as RIP Medical Debt  hire private consumer debtor attorneys to file bankruptcies for those in serious financial distress,  it would certainly be reasonable for those to support Legal Aid organizations,  where a $100  contribution could relieve far more than $10,000 in debt. To read a copy of the transcript, please see: Blog comments Attachment Document the_effects_of_medical_debt_relief_evidence_from_two_randomized_experiments-1-64_compressed.pdf (429.44 KB) Document the_effects_of_medical_debt_relief_evidence_from_two_randomized_experiments-65-126_compressed.pdf (804.05 KB)