Seventh Circuit Ruling Against Debtor in Recent Bankruptcy Case


In a recent decision from the Seventh Circuit Court of Appeals—which includes residents of Oak Park, Illinois—the court ruled in favor of a bank as opposed to the debtor who had filed for consumer bankruptcy protection. More specifically, the case concerns the co-debtor stay and whether a spouse (who has not filed for bankruptcy protection) can benefit from the co-debtor stay in certain situations involving the other spouse’s application for bankruptcy protection. To better understand the implications of the case, we would like to take a closer look at the facts and to discuss the Seventh Circuit’s holding.
Facts of the Case in Smith v. Capital One Bank
The case at issue here is Smith v. Capital One Bank (2016). The facts of the case, according to the court, are as follows:
A debtor, Karen Smith, filed for Chapter 13 bankruptcy back in 2011. Before she filed for bankruptcy, her husband applied for and obtained a Capital One credit card, which he “used for consumer debts for the Smith family.” When Karen Smith filed for personal bankruptcy, her husband did not join in the bankruptcy petition, and she did not list him as a co-debtor in her application for Chapter 13 bankruptcy. In bankruptcy court, Karen Smith’s Chapter 13 plan was confirmed.
However, in July 2014—during Karen Smith’s repayment period as part of her Chapter 13 plan—Capital One filed a lawsuit against Smith’s husband in relation to debts owed on his Capital One credit card. The bank won the lawsuit in state court. In response, Karen Smith argued in bankruptcy court that, under the co-debtor stay of 11 U.S.C. Section 1301(a), as well as other relevant laws including the Fair Debt Collection Practices Act (FDCPA), her husband should be consider a co-debtor in connection with her Chapter 13 bankruptcy, and as such Capital One should not be permitted to attempt collections on the credit card debt.
The bankruptcy court in Karen Smith’s claim agreed with her, and held that the Capital One credit card debt initiated by Smith’s husband was subject to the co-debtor stay. However, the district court disagreed.
Analysis of the Case
As the Seventh Circuit explains, the bank “sought and obtained leave for an interlocutory appeal to the district court.” In its decision, the district court determined that “the husband’s credit card debt was not Smith’s consumer debt, [and] reversed the bankruptcy court.” Specifically, it explained that “consumer debt of the debtor . . . does not include a debt for which a debtor is not personally liable but that may be satisfied from the debtor’s interest in marital property.”
The “stay of action against codebtor” under 11 U.S.C. Section 1301 states that, after a debtor’s Chapter 13 bankruptcy plan has been confirmed, “a creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor.”
As such, the primary issue for the Seventh Circuit was whether the husband’s debts on the credit card should be considered the debts of Karen Smith (inasmuch as they were debts of the Smith family), or whether they should be considered debts only of Smith’s husband. The Seventh Circuit ultimately ruled that, because Karen Smith did “not demonstrate that her husband’s credit card debt is her own, the co-debtor stay does not apply.”
Contact an Oak Park Bankruptcy Lawyer
The case could impact future bankruptcy proceedings, particularly in cases involving married couples. In the meantime, if you have questions about filing for personal bankruptcy, an experienced bankruptcy attorney in Oak Park can speak with you today. Contact the Emerson Law Firm for more information.
See Related Blog Posts:


Comments

Post a Comment

Popular posts from this blog

Phantom Debt Collection Scams on the Rise in Illinois

Have you been contacted by a person claiming to be a debt collector who is seeking to recover a debt you allegedly owe? If so, you are not alone. According to a recent report from CBS Chicago , such parties claiming to be debt collectors are on the rise, and they are scamming Chicago-area residents. These alleged debt collectors are part of schemes known as “phantom debt collection scams,” since they involve the attempt to collect on a debt that the consumer does not actually owe. How can you avoid becoming a victim in a debt-collection scam ? What should you do if you have been targeted by a fake debt collector? How Do Phantom Debt Collection Scams Work? Now, you might be thinking to yourself: I would never agree to make payment on a debt that I did not owe. But the scam is not always that simple. Parties at the center of debt-collection scams often target consumers who do actually owe debts (to someone or to some entity), and they prey on the fact that these c...
Read more

Payday Lending and Predatory Lenders in Illinois

If you are in substantial debt in the Chicago area and are living in a paycheck-to-paycheck cycle, you may have taken out a payday loan to make ends meet. While payday lending is illegal in a number of states due to the predatory nature of these loans, it remains legal in Illinois. As a result, many debtors in the state have used payday lenders, and far too many of those borrowers cannot repay what they owe. According to a recent article from Progress Illinois , consumers have filed complaints about payday lenders in the state, illuminating a need for federal rules that address harmful lending practices . Predatory Payday Lenders and Protections for Consumers Due to the perceived predatory nature of payday loans, twelve states in the country have banned these lenders from operating completely, according to a fact sheet from loans.org . The states that currently have laws prohibiting payday lenders from operating include Arkansas, Arizona, Connecticut, Georgia, Mary...
Read more

New Information on Debts That Bankruptcy Cannot Discharge

If you are thinking about filing for bankruptcy in the Oak Park area, it is important to know that certain kinds of debts cannot be discharged in a bankruptcy case. Under U.S. bankruptcy law, these are known as non-dischargeable debts, or exceptions to discharge. There are certain types of debts that have long been identified clearly as non-dischargeable debts, while there are misconceptions about other types of debts that may or may not be dischargeable. As an article in CNBC discusses, the U.S. Supreme Court recently issued a ruling in the case of Bartenwerfer v. Buckley , which clarifies that debts incurred due to another party’s fraud cannot be discharged in an individual’s bankruptcy case. Our Oak Park bankruptcy attorneys can explain the Court’s recent ruling and provide you with additional information on dischargeable and non-dischargeable debts. Supreme Court Says Debt Incurred Due to Another’s Fraud is Non-Dischargeable The recent Bartenwerfer case involved a debtor attempti...
Read more