Consumer Bankruptcy Journal Summer 2017 - Page 36

CASES IN REVIEW Property of the estate—Avoidance of lien impairing exemption: On remand from In re O'Sullivan, 841 F.3d 786 (8th Cir., Nov. 14, 2016), the bankruptcy court held that a creditor's judgment recorded against property owned by the debtor in tenancy by the entireties was an "extant but unenforceable" lien that could be avoided under Code § 522(f)(1). The court reasoned that, under Missouri law, a judgment against tenancy by the entireties property is a "cloud" that gives rise to an “interest in property” such that it constitutes a "lien" as defined in Code § 101(37) as a "charge against or interest in property to secure payment of a debt or performance of an obligation.” In re O'Sullivan, 2017 WL 1047228 (Bankr. W.D. Mo. March 17, 2017), appeal filed, Case No. 17-6012 (B.A.P. 8th Cir. filed April 5, 2017). Property of the estate—Exclusions—Social Security benefits: Agreeing with In re Carpenter, 614 F.3d 930 (8th Cir. 2010), the Bankruptcy Appellate Panel held that 42 U.S.C. § 407 operates as a complete bar to the forced inclusion of past and future Social Security proceeds in the bankruptcy estate. In re Buenviaje, 2016 WL 8467650 (B.A.P. 9th Cir. March 10, 2017) (case no. 16-1347). Violation of stay—Damages—Punitive damages: Concluding that "Franz Kafka lives" and that "he works at Bank of America," which held the debtors' mortgage, the bankruptcy court awarded the debtors $1,075,000 in compensatory damages for the bank's multiple violations of the automatic stay and imposed $45 million in punitive damages on Bank of America, with the debtors entitled to $5 million and the balance to be awarded to the National Consumer Law Center and the National Consumer Bankruptcy Rights Center ($10 million each) and the five public law schools of the University of California system ($4 million each). The "mirage of promised mortgage modification," the court said, lured the debtors into a "kafkaesque nightmare of stay- violating foreclosure and unlawful detainer, tardy foreclosure rescission kept secret for months, home looted while the debtors were dispossessed, emotional distress, lost income, apparent heart attack, suicide attempt, and post-traumatic stress disorder," for all of which Bank of America disclaimed responsibility. Under applicable tort concepts, however, damages encompassed all consequences proximately caused by the conduct violating the stay for so long as those consequences continued, regardless of whether the stay had expired. Here, Bank of America engaged in a multi-year dual- tracking game of cat-and-mouse. With one paw, Bank of America batted the debtors between some 20 loan modification requests or supplements that routinely were either lost or declared insufficient, or incomplete, or stale and in need of re-submission, or denied without comprehensible explanation. With the other paw, Bank of America repeatedly scheduled foreclosures. The evidence included an internal Bank of America document in which it conceded that its loan modification process had been a charade. The high degree of reprehensibility, the court said, coupled with the significant involvement by the office of Bank of America's chief executive officer, called for ©National Consumer Bankruptcy Rights Center 36 CONSUMER BANKRUPTCY JOURNAL Summer 2017 National Association of Consumer Bankruptcy Attorneys