Judge Bucki, in holding that the debtors could claim the homestead exemption, noted that nothing in C.P.L.R. § 5206(a) even suggests that the homestead exemption is to be conditioned on an intent for long term residency. Rather, the statute allows an exemption to any owner who resides on the property on the date of bankruptcy. In as much as Mr. and Mrs. Martiny owned the property jointly, they may each receive an exemption for $50,000 of equity value, for a total exemption of $100,000.

The Court looked to the debtors’ pre-bankruptcy planning (they transferred non-exempt asset of $36,000 to pay down their mortgages prior to filing) as an allowable move. It was noted that 11 U.S.C. § 522(b)(3)(A) looks to state exemptions applicable “on the date of the filing of the petition.” Similarly, 11 U.S.C. § 522(b)(3)(B) recognizes exemptions for interests that the debtor has in property “immediately before the commencement of the case.” Thus, the statutes focus on the status of ownership as of the moment of bankruptcy filing, and not as of the date of any pre-petition event. Absent evidence of fraud, the court will allow any recognized exemption for assets that debtors own at the commencement of the bankruptcy proceeding, even when the debtors may have enhanced the value of that exemption by reason of careful planning with the advice of counsel.

Finally, it was noted that the legislative history for section 522 states that “the debtor will be permitted to convert nonexempt property into exempt property before filing a bankruptcy petition…. The practice is not fraudulent as to creditors, and permits the debtor to make full use of the exemptions to which he is entitled under the law.” H.R. REP. No. 95-595, at 363, to accompany H.R. 8200, 95th Cong., 1st Sess. (1977), reprinted in BANKRUPTCY CODE, RULES & OFFICIAL FORMS, at 268 (Thompson West 2007).

Score one for the consumer!

[S]tipulated attorneys’ fees are no part of the original debt; [and] the right to them does not accrue until the payee incurs the liability, and then only to the extent of the reasonable value of the attorneys’ services actually performed or to be performed, which must be proved. . . . The full amount for which the maker is liable on such stipulations is not really due when suit is brought, for the services of the attorney are not then fully performed.

Therefore, if a collection letter include legal fees then that collection letter violates the FDCPA.

In the past, the answer was clear-cut; in my home courts, a trustee usually wouldn’t bother with a small asset because it just wasn’t worth it. Other places, however, tell a different tale - I’ve heard of trustees would would administer a $200 asset.

So my research into the subject led me to the case of In re Heath, 115 F.3d 521 (7th Cir. 1997). In Heath, Judge Posner was confronted with an adversary proceeding filed by a bankruptcy trustee seeking to recover $50. The court rendered judgment for the trustee, but the district court reversed, 198 B.R. 298 (S.D. Ind. 1996), and the trustee appealed.

Judge Posner, in reversing the district court, stated:

The trustee’s motivation in pursuing this minuscule claim through three courts eludes us. But as there is no minimum amount in controversy required to litigate under the Bankruptcy Code, we must treat this $50 case - which in fact involves important questions of law - with all the gravity of a $50 million case.

The Court in Sanchez held that post-petition, pre-confirmation attorney fees, costs and property inspection fees charged by the mortgage servicer had to be regarded as per se unreasonable, where the servicer, by failing to disclose that it was charging such fees pursuant to terms of mortgage documents, and by simply applying payments that it received from trustee to these undisclosed charges, acted in manner antithetical to spirit of the Bankruptcy Code, and deprived the court of the opportunity to assess reasonableness of charges as required by § 506(b).

This decision is, in my opinion, a pretty good one because it not only lays out the fact that a mortgage servicer must disclose all post-petition fees and obtain approval from the bankruptcy court pursuant to Rule 2016, but also that the Court looks to the argument that the protections of Section 1322(b)(2), which allows a mortgage creditor to “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims,” allows the servicer to do an end run around § 506(b) as well as Rule 2016.

In rejecting this argument, the Court notes that Section 1322(b)(2) does not give the holders of secured homestead interests carte blanche to charge any fees that follow the letter of the contract. In addressing this issue, the Court notes:

It is not difficult to harmonize § 506(b) and Rule 2016 with § 1322(b)(2), and the Defendant has not provided any case law to the contrary. Requiring a creditor to file a Rule 2016 application with the bankruptcy court in order to collect fees from the estate does not modify that creditor’s right to collect those fees. Similarly, requiring a creditor to affirmatively demonstrate that its fees are reasonable does not modify that creditor’s right to collect such fees. Creditors have a panoply of contractual rights under § 1322(b)(2), but the right to charge unreasonable fees has never been among them. Thus, the Defendant’s rights to collect fees pursuant to § 1322(b)(2) are not modified by having to file a Rule 2016 application with the Court, nor by having to make an affirmative showing that its fees are reasonable under § 506(b).

As I continue to advocate for my clients on issues such as these, I am pleased to see that courts around the country are beginning to see the mortgage servicing industry for what it is rather than as the benevolent entities that are looking out to help their customers and comply with the law.

Part of what I do is defend these cases. Why? Because so often the plaintiff is a debt buyer and the defendant, a consumer, in unable to determine (a) who they owed the money to; (b) if they are responsible for payment of the debt; (c) whether the account was rightfully sold; and (d) whether the debt is valid.

The newest tactic is arbitration, when a credit card issuer submits the claim to “binding arbitration.” The consumer wakes up one day to find that there has been a finding of liability, and runs to a lawyer to file for bankruptcy.

Often a bankruptcy filing is justified, but sometimes it isn’t. Even if bankruptcy is the proper avenue, it’s important for the lawyer to review the pre-petition judgments to make sure that no violations of the debtor’s state and/or federal rights have occurred.

If the lawyers fails to do so then the right of recovery - which may be significant - are lost forever due to non-scheduling on the bankruptcy papers.

I submit to you the case of MBNA America Bank, N.A. v. Nelson, 15 Misc.3d 1148(A), Slip Copy, 2007 WL 1704618 (N.Y.City Civ.Ct, 2007).

MBNA America Bank, N.A. brought an action in Richmond County Civil Court to confirm, pursuant to CPLR § 7510, an arbitration award issued in the amount of $9,459.70. In suport of the action MBNA provided an affidavit from an employee, a copy of the “Credit Agreement Additional Terms and Conditions,” indicating that the agreement was subject to arbitration, a copy of the “Notice of Arbitration,” proof of service of process by a process server of the arbitration claim, a copy of the code of procedure for the National Arbitration Forum, and a copy of a signed arbitration award.

The Court refused to confirm the arbitration award because the petition brought by MBNA lacked all of the following: Allegation and proof of the Petitioner’s legal status, and whether it is authorized to do business in New York, in accordance with New York law; Complete copy of the actual retail credit contract, including any subsequent amendments, alleged to have been entered into between the Petitioner and the Respondent; Affidavit establishing Respondent received notice of the alleged agreement, including any subsequent amendments; Objective proof that the alleged agreement, and any amendments, issued by Petitioner are binding on Respondent; Allegation and proof that the arbitration award was affirmed; Submission of the calculations used by the arbitrator to arrive at the final award, the specific claims submitted by Petitioner for arbitration and the claims ruled upon by the arbitrator; Current and complete non-military affidavit.

So what happens now? I’d say that the consumer may want to speak with a lawyer about his or her rights against MBNA and their lawyers, Wolpoff & Abramson, L.L.P. in bringing what is clearly a bogus case.