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As of the Petition Date, the Debtors owned and operated the largest private physician-owned for-profit healthcare network in the United States. Headquartered in Dallas, Texas, the Debtors’ operations on the Petition Date included 31 hospitals across eight states, approximately 400 facility locations, 4,500 primary and specialty care physicians, 3,600 staffed beds, and a company-wide workforce of nearly 30,000 employees that provide care to more than two million patients annually.

Amann Burnett has successfully defended a so-called Preference Target Letter by explaining that its client has valid defenses (ordinary course, contemporaneous exchange for new value, subsequent value) defenses.  The Trustee has “gone away”, hopefully for good as the applicable statute of limitations is fast approaching.  A “preference” is defined by Section 547 of Title 11 of the United States Code (the “Bankruptcy Code”).

The case includes the following list of debtors:

The post AMANN BURNETT defends Preference Claim……Successfully So Far-STEWARD HEALTHCARE SYSTEM, LLC, Bankr. S.D., Texas appeared first on Amann Burnett Law.

Click on the link above to read the Memorandum Decision.  Amann Burnett, PLLC specializes in Bankruptcy Litigation and Chapter 11 matters for creditors and debtors.

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The term “zombie mortgage” has recently gained notoriety as long-silent mortgage servicers have surfaced to attempt to collect old (or even ancient) second mortgages, many of which date back to the recession of the late 2000s. With many of the thousands of these zombie mortgages, borrowers have not received statements or any correspondence for years during which time interest has continued to accrue. A second mortgage that may have been $25,000 in 2009 might have a balance two or three times that amount some 15 years later in 2024, and where residential properties may have had little to no equity in the 2000s or early 2010s, those same properties have increased significantly in value – the perfect scenario for a second mortgage holder to foreclose.

If this sounds unfair or even illegal, it might be.

The Massachusetts Attorney General recently announced an unprecedented settlement with a mortgage servicer that was attempting to collect loans secured by zombie mortgages. The Attorney General alleged that the servicer, Franklin Credit Management Corporation, had failed to comply with numerous state and federal mortgage and debt collection regulations, all in violation of the Massachusetts Consumer Protection Act (G.L. c. 93A). According to the filings, Franklin Credit is prohibited from collecting anything from the 518 accounts that it was servicing (totaling roughly $10,000,000) and is further prohibited from transferring or selling the loans. In short, the loans are uncollectable and the mortgages will be discharged.

This is promising news for others who may be experiencing something similar. Although this is still very much a developing area, there may be options available to attempt to address a zombie mortgage or a threatened foreclosure. If you are one of the thousands of borrowers who have been affected, contact us to discuss those options.

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Automatic Homestead: All homeowners receive an automatic homestead exemption of $125,000 even if they have not recorded a declaration of homestead.

Declared Homestead: All homeowners who have recorded a declaration of homestead now receive an exemption of $1,000,000.

Elderly or Disabled: All homeowners who are over the age of 62 or who are disabled receive an exemption of $1,000,000. This exemption is doubled for a married couple who are co-owners ($1,000,000 each).

The Homestead Act is complicated. There are limited protections for dependents who live in the home. There are special protections for divorcing homeowners. There are limitations to the exemption for certain types of debts. It also has specific application and some possible limitations when asserted in connection with a bankruptcy case. It’s important to consult an attorney to understand the extent of the protection available to you before you record a declaration of homestead.

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In each of the consolidated cases, the Chapter 13 debtors failed to disclose a pre-petition personal injury claim. From the record, it appears that each of these were an innocent nondisclosure and the claims may not have been known to exist at the time the bankruptcy cases were filed. Notwithstanding, the claims were pre-petition assets that should have been included in the bankruptcy estate.

The Court made the distinction between bankruptcy estate property in a Chapter 7 case in which estate property consists of “all legal or equitable interests” in property as of the date of filing (see 11 U.S.C. § 541(a)) and estate property in a Chapter 13 case, which consists of the same pre-petition assets plus any assets a debtor acquires until the case is “closed, dismissed, or converted.” (see 11 U.S.C. § 1306(a)). The Court made the further distinction between how estate property is treated in each kind of case. In a Chapter 7 case, non-exempt assets are generally liquidated and the proceeds distributed to creditors, whereas in a Chapter 13 case, debtors generally make distributions to creditors from post-petition income in an amount at least equal to the value of non-exempt assets. If these cases had been filed originally under Chapter 7, the undisclosed assets would have been subject to liquidation. Furthermore, notwithstanding the language at 11 U.S.C. § 544, which states that all property “scheduled” (i.e., listed) in the bankruptcy case remains property of the estate until abandoned, and 11 U.S.C. § 1327, which states that “all” assets vest with the debtor upon confirmation of a Chapter 13 plan, the local Chapter 13 plan as adopted in Massachusetts and the standard confirmation order contain language that states that assets remain property of the estate until the debtor receives a discharge.

Applying a strict interpretation of § 1327 and § 544, The Court stated: “Some courts have construed Section 1327 … to vest in the debtor only property of the estate that is “administered” or “dealt with” under the plan. Citation omitted. Courts have suggested that if an asset is not disclosed, it cannot be abandoned or administered. This ignores the plain text of both Section 1327 and Section 554. Unlike Section 554, Section 1327 does not say that “only property that is scheduled and administered” vests in the debtor. It instead provides that “all of the property of the estate” vests in the debtor. … When a debtor completes payments under a Chapter 13 plan and a discharge is entered, the case is fully administered. In these cases, as provided in the confirmation orders, all property of the estate, including any undisclosed assets, was administered and vested in the debtors upon entry of their discharges. As a result, there is no property of the estate to be administered if the cases were reopened and converted to cases under Chapter 7.”

Bankruptcy debtors should view this opinion for the narrow proposition for which it stands rather than as an invitation not to disclose assets. A wilful failure to disclose assets could lead to significant sanctions including the denial of an exemption, the denial of a discharge, or criminal prosecution for bankruptcy fraud.

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Demona Freeman secured a loan to purchase her home, which was assigned to the Bank of New York Mellon (BNY Mellon) and serviced by Ocwen Loan Servicing, LLC. After falling behind on her mortgage payments, BNY Mellon initiated a foreclosure action. Freeman filed for bankruptcy and eventually cured her mortgage default through bankruptcy payments. Despite this, Ocwen inaccurately reported her loan as delinquent and began rejecting her monthly payments, leading BNY Mellon to file a second foreclosure action, which was later dismissed. Freeman sued Ocwen and BNY Mellon, alleging violations of the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA).

The United States District Court for the Southern District of Indiana dismissed Freeman’s FCRA claim and granted summary judgment against her, on her FDCPA claim, citing lack of standing.  Freeman appealed both rulings.  She argued that Ocwen failed to conduct a reasonable investigation after being notified by consumer reporting agencies (CRAs) of her dispute over the delinquent loan reporting.  She also claimed that Ocwen’s erroneous reporting and collection practices caused her various injuries.

The United States Court of Appeals for the Seventh Circuit reviewed the case.   The court affirmed the district court’s dismissal of the FCRA claim, finding that Freeman failed to specify which CRA she notified, thus not providing Ocwen fair notice of the claim.  The court also upheld the summary judgment on the FDCPA claim, concluding that Freeman lacked standing.  The court determined that Freeman did not provide sufficient evidence of concrete injuries, such as monetary harm or intangible injuries closely related to common law analogues like defamation or invasion of privacy.  Consequently, the court affirmed the district court’s rulings.

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In Mahabir v. Crocker, 235 N.E.3d 322 (Mass. App. Ct. 2024), the plaintiff and her spouse filed a Chapter 13 bankruptcy case in 2017, a few months after the plaintiff had been allegedly wrongfully terminated. The plaintiff did not disclose the potential claim against her former employer in the bankruptcy petition, but two years later filed suit against her former employer in Superior Court alleging sexual harassment and other torts. The defendant in the Superior Court case noticed the omission in the bankruptcy case and filed a motion for judgment on the pleadings, arguing that the plaintiff is judicially estopped from prosecuting her claim because of her failure to disclose the claim in the bankruptcy case. After the motion was served, but before it was filed, the plaintiff moved to amend her bankruptcy petition to include the claim as property of the bankruptcy estate, which was promptly allowed by the Bankruptcy Court, and also filed a motion to employ her state court attorney to prosecute the case on behalf of the bankruptcy estate. The plaintiff filed an opposition to the motion for judgment on the pleadings and noted, among other things, that the amendment had already been allowed. The Superior Court judge granted the defendant’s motion without a hearing, stating that the plaintiff had benefited from the nondisclosure, but without taking into consideration that the omission had been cured and that the plaintiff’s attorney had been employed to prosecute the case. The Appeals Court reversed.

Judicial estoppel stands for the proposition that a litigant who has taken a contrary position in a different proceeding is barred from taking a directly contradictory position in another proceeding. There is no formulaic application, and courts have recognized exceptions where the litigant had acted in good faith or had some legitimate reason rather than simply to gain an advantage.

The Appeals Court explained the rather complicated interplay between the two legal proceedings. In a Chapter 13 case, a debtor must use future income to fund a repayment plan to creditors. The amount that must be paid in order for a plan to be confirmed (approved) by the court depends, in part, on the value of the debtor’s assets and whether or to what extent those assets are exempt under either state law or the Bankruptcy Code. If a debtor’s assets are not exempt or are not fully exempt, the debtor must pay the equivalent value to his or her unsecured creditors over the term of the plan – effectively ‘buying back’ those non-exempt assets from the claims of creditors. The Appeals Court recognized that the non-disclosure of the claim could be prejudicial to creditors in the bankruptcy case, but that by disclosing the claim (albeit very late) and prosecuting the claim on behalf of the bankruptcy estate would potentially benefit all creditors. While admonishing the plaintiff for correcting the issue late and only after having been called out by the defendant, the Appeals Court was ultimately persuaded by the fact that the plaintiff had amended the bankruptcy petition while the case was still pending, during the repayment period, and before discharge had entered, and that the Bankruptcy Court had allowed the amendment. Although not specifically cited in the opinion, Federal Bankruptcy Rule 1009 states that a petition can be amended by a debtor “as a matter of course at any time before the case is closed.” Bankruptcy Courts usually permit amendments freely unless the amendment is requested in bad faith.

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NBC Boston – To Catch a Contractor

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