Bankruptcy Court Rules Chapter 13 Debtors Must Assume or Reject Leases in 120 Days

In a recent decision from the Bankruptcy Court for the District of Maine, In re Cho, the Court ruled that 11 U.S.C. § 365(d)(4)(A) applies to debtors in Chapter 13 cases. In this case, the debtors operated a dry cleaning business and had an unexpired lease with a creditor. The creditor moved for relief from the automatic stay. The debtors subsequently filed their Chapter 13 plan, 188 days after filing, and attempted to assume the lease with the creditor. The creditor objected to the debtors’ plan. After a discussion of the issue of assumption/rejection in the context of Chapter 13 case, the Court stated that the language regarding the assumption of nonresidential leases was “clear, unambiguous and commanding,” and held that it applied in Chapter 13 cases. The Court granted relief from stay to the creditor. In dealing with landlords and tenants in the bankruptcy context, counsel should be consulted early on concerning the leasehold rights and responsibilities of both debtors and creditors. (Hyegu & Jen Cho - Chapter 13 - 15-20638 - , Bankr. D. Me. 2016).

Bankruptcy Filings May Be Trending Upward

The latest statistics show bankruptcy filings are down compared to last year. In New Hampshire, filings are off 13%. In Maine, filings have decreased 26%. In Massachusetts, filings are lower by 16%. With a few exceptions, such as Texas and Alaska, bankruptcy filings have been off nationwide.

A closer look at the monthly trends, however, suggests an increase in new filings may be on the horizon. For instance, in Maine, 183 petitions were filed this past March, nearly matching the combined total of 190 filings in January and February. The New Hampshire data is similar, though not as dramatic. A total of approximately 250 petitions were filed in January and February. In March, New Hampshire filings increased to 217.

There is no denying bankruptcy filings are well off the mark compared to a year ago. However, filings over the first quarter of 2016 indicate bankruptcy courts may soon see an increase in traffic.

11th Circuit Finds that Bankruptcy Code and FDCPA Can Coexist

In a recent decision from the Court of Appeals for the 11th Circuit, In re Johnson, the Court found that the Bankruptcy Code and the Fair Debt Collection Practices Act can coexist.  Whether an FDCPA claim may lie against a creditor filing a proof of claim in a bankruptcy case appears to be an open issue around the country.  The debtor in Johnson argued that a creditor has no right to file a proof of claim where the underlying debt may be time-barred. The Court disagreed and held that creditors may file such proofs of claim, but noted also that any unwarranted filing may have consequences under the FDCPA.  The case also closed an apparently open issue in the 11th Circuit as to whether the FDCPA is preempted by the Bankruptcy Code.  It is now clear, at least in the 11^th Circuit, that FDCPA actions may be brought against creditors or debt collectors who file bankruptcy proofs of claim that they know are stale or unenforceable under state or other nonbankruptcy law.  A cautionary tale for creditors, especially for those in the bankruptcy claims trading market.  (Aleida Johnson v. Midland Funding, LLC, 11^th Cir. 2016) 

Bankruptcy Court Finds Student Loan Debt Dischargeable

Student loan debt in the United States continues to mushroom, and according to the Federal Reserve, is approaching the $1 trillion mark.  As bankruptcy practitioners and many in the public well know,, the Bankruptcy Code generally prohibits debtors from discharging student debt.  The Bankruptcy Court for the District of Idaho recently invoked the seldom used exception to this rule when it discharged $83,000 of $93,000 in student loan debt.  In re McDowell, __ B.R. __ (Bankr. D. Id. 2016).

The Court found that the debtor, a 43-year old single mother of two children, was entitled to the undue hardship exception because she was unable to maintain a minimum standard of living, which would continue for a long period of time. The debtor worked 32 hours a week, earning $3,400 per month.  After an extensive analysis, the Court ruled that the $83,000 discharge was appropriate, citing the debtor’s health issues, notwithstanding the fact that the debtor had used credit to purchase a motorcycle and spent thousands on a trip to South America.  The Court explained “while her financial decisions have not been perfect…she would have nonetheless been unable to make any substantial student loans payments while meeting her normal living expenses.”

The increasing prevalence of burdensome student loan debt raises the question of whether the reasoning of In re McDowell will set a trend for other bankruptcy courts across the country.