A question I often encounter from credit unions concerning bankrupt members with delinquent accounts is whether they can setoff the debtor's funds on deposit to apply to unpaid loans. The simplest answer is often “no,” because such an action during an active bankruptcy would be a violation of the stay provisions of 11 U.S.C. § 362, or, if done after the bankruptcy has been discharged, a violation of the discharge provisions of 11 U.S.C. § 727, 11 U.S.C. § 1328, and 11 U.S.C. § 524. This article focuses on credit union accounts in which there is no agreement securing the loan with money on deposit as collateral.

The panel further reasoned that because bankruptcy discharge, by definition, affects only in personam liability, it has never served as the historical means for ensuring that the Bankruptcy Code’s various mechanisms for modifying or voiding a creditor’s in rem rights remained in place at the conclusion of the plan. Thus, ineligibility for a discharge does not prohibit the permanent voidance of a lien under § 506. Joining the Fourth and Eleventh Circuits,[3] the Ninth Circuit thus concluded that Chapter 20 debtors – while otherwise ineligible for a discharge under 11 U.S.C. §1328(f)[4] – may still utilize Chapter 13’s lien-voidance mechanism on completion of their Chapter 13 plans. Going forward, secured creditors should consider the implications of filing a proof of claim in Chapter 13 cases.

Bankruptcy Relief. The Act amended several provisions in the US Bankruptcy Code, specifically Titles 11 and 13.Section 1001 (b) of the Act (“Discharge”), amends 11 U.S.C. § 1328 by creating a new procedure that provides bankruptcy courts discretion in deciding whether or not to grant discharges for a Chapter 13 debtor who has not completed payments to the trustee or creditor holding a security interest in a principal residential residence. This relief may only be considered if the debtor did not default on more than three monthly payments on or after March 13, 2020 and the default was caused by a material financial hardship due to the COVID-19 pandemic, among other requirements that must be met.

In Guerra, the debtors sought to strip off a second mortgage through their chapter 13 plan. Under the chapter 13 plan, the second mortgage was treated as a wholly unsecured claim subject to discharge under 11 U.S.C §1328(a). The second mortgage holder objected and argued that Caulkett prohibits the debtor from treating an “underwater” second mortgage as unsecured.

Notes:[1]See http://www.supremecourt.gov/orders/courtorders/frbk16_4h25.pdf.[2]See 11 U.S.C. § 1322(b)(5) (“The plan . . . may . . . provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due.”); see also Rake v. Wade, 508 U.S. 464, 469 (1993).[3]See 11 U.S.C. § 1328(a).[4]See Fed. R. Bankr.

However, you may be able to eliminate them through a chapter 13 bankruptcy filing. The bankruptcy code (11 U.S.C. § 1328) excludes criminal fines from being discharged but does not address civil penalties such as parking tickets. Whether you can eliminate this debt may depend on whether it was a civil parking ticket or a speeding ticket that was a violation of the criminal code.