All posts by collectionind723

Connecticut Bankruptcy Courts Rule That New Homestead Act Applies Retroactively to Claims Arising Before Act’s Effective Date

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A homestead exemption is a law that protects a certain amount of equity in an individual’s primary residence from the claims of his or her creditors or, in some states like Florida, the amount of the exemption is unlimited provided the residence is within a specified acreage.  Equity is typically defined as the fair market value of the residence less the amount of any mortgage, other consensual liens, or statutory lien (such as for real estate taxes) against the residence.

Individual filing bankruptcy can utilize the homestead exemption of his or her state to protect whatever the state will allow as an exemption to its residents.  11 U.S.C. § 522(b)(3)(A).  Thus, many issues relating to the applicability and scope of a state’s homestead laws are commonly decided in the context of a bankruptcy proceeding.

Most states have had homestead exemption laws on their books for many years, but up until 1993, Connecticut did not have one.  The original Connecticut homestead exemption was enacted into law on June 29, 1993, with an effective date of October 1, 1993, and shielded from the claims of creditors a homeowner’s primary residence up to the value of $75,000, with value defined as the fair market value of the residence less the amount of any statutory or consensual lien (like a mortgage) which encumbers it (“Original Act”).   Section 3 of the Original Act expressly provided: “This act shall take effect October 1, 1993, and shall be applicable to any lien for any obligation or claim arising on or after said date.”  Even back in 1993, most other states had some form of homestead protection for their residents.  See In re Duda, 182 B.R. 662, 668 (Bankr. D. Conn. 1994) (observing that the Original Act was enacted “to bring Connecticut law in line with that of other states which generally provide some homestead exemption or [other] protection”).

On July 12, 2021, Governor Ned Lamont signed into law Public Act 21-161 (the “2021 Act” or “Amendment”), which amended Connecticut’s homestead exemption  by repealing the prior version of the statute, renumbering its provisions, and increasing the homestead exemption from $75,000 to $250,000, effective October 1, 2021.  The 2021 Act provides, in pertinent part, as follows:

The following property of any natural person shall be exempt:

(21) The homestead of the exemptioner to the value of two hundred fifty thousand dollars, provided value shall be determined as the fair market value of the real property less the amount of any statutory or consensual lien which encumbers it, except that, in the case of a money judgment arising out of a claim of sexual abuse or exploitation of a minor, sexual assault or other willful, wanton, or reckless misconduct committed by a natural person, to the value of seventy-five thousand dollars.

Unlike the Original Act, however, the 2021 Act did not come with a provision that confined the exemption to claims arising after its effective date of October 1, 2021.

In two recent decisions, Connecticut bankruptcy courts have ruled that the new $250,000 homestead exemption is applicable to any claim arising either before or after the effective date of the 2021 Act, i.e. that it has retroactive effect, principally because, as mentioned, the 2021 Act was not accompanied by a statutory provision which limited its application to claims arising after its effective date.  See In re Cole, 2022 WL 1134626 (Bankr. D. Conn. Apr. 15, 2022) (Tancredi, J.); In re Faherty, 2022 WL 1191256 (Bankr. D. Conn. Apr. 20, 2022) (Nevins, C.J.).  The ruling in Cole is on appeal to the Connecticut District Court.  In re Cole, 3:22-cv-00587-VAB (appeal filed Apr. 25, 2022).

More recently in the Cole case, Judge Tancredi denied the chapter 7 trustee’s motion for a stay pending his appeal which, if granted, would have held up the distribution of the proceeds of the debtor’s $250,000 homestead exemption that were derived from a sale of her homestead during the chapter 7 case.  See In re Cole, 2022 WL 2196737 (Bankr. D. Conn. June 17, 2022).  The stay request was denied on the basis that the trustee could not establish a substantial possibility of success on the merits and, resultingly, was unable to establish irreparable harm if a stay was not granted.  Id. at *7-8.

As a result of the stay ruling, the Court granted the debtor’s motion for distribution of her homestead proceeds, which was ordered to be made within 21 days of it ruling.  Id. at *9.  This latter ruling may imperil the trustee’s appeal based on the doctrine of equitable mootness, which can be the basis for dismissal of an appeal if actions taken under the order appealed from, such as the payment of money, cannot easily be undone or if a court considers it inequitable to unscramble those actions.  See generally In re BGI, Inc., 772 F.3d 102, 107 (2d Cir. 2014) (applying equitable mootness in chapter 11 liquidation proceedings and describing it as a “pragmatic” doctrine “that is grounded in the notion that, with the passage of time after a judgment in equity and implementation of that judgment, effective relief on appeal becomes impractical, imprudent, and therefore inequitable”); ANR Co., Inc. v. Rushton, 2012 WL 1556236, at *4 (D. Utah May 2, 2012) (applying equitable mootness in chapter 7 case).  But see In re Bodenheimer, Jones, Szwak, & Winchell L.L.P., 592 F.3d 664, 668-69 (5th Cir. 2009) (questioning whether equitable mootness applies in chapter 7 cases).

For the time being, the existing law in Connecticut is that its new homestead exemption protecting up to $250,000 in equity in a primary residence from the claims of the homeowner’s creditors is available to assert as against such claims whether they arise before or after October 1, 2021.  This is a significant benefit for Connecticut homeowners who find themselves in troubled financial condition.

The author of this alert appeared in the appeal of the Purdue Pharma confirmation order to the District Court for the State of Connecticut and several other appealing States.

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Millions of California taxpayers to get ‘inflation relief’ payments

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June 27 (UPI) — California lawmakers have reached a budget deal that will offer “inflation relief” payments to millions of taxpayers in the state.

“California’s budget addresses the state’s most pressing needs, and prioritizes getting dollars back into the pockets of millions of Californians who are grappling with global inflation and rising prices of everything from gas to groceries,” said Gov. Gavin Newsom, Senate President pro Tempore Toni Atkins, and Assembly Speaker Anthony Rendon in a joint statement Sunday.

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“The centerpiece of the agreement, a $17 billion inflation relief package, will offer tax refunds to millions of working Californians,” it added. “Twenty-three million Californians will benefit from direct payments of up to $1,050. The package will also include a suspension of the state sales tax on diesel, and additional funds to help people pay their rent and utility bills.”

The payments may come through direct deposit refunds to tax filers by late October, according to the Newsom administration, KCRA 3 reported.

State suspension of diesel sales tax, now 23 cents per gallon, for a year, will start on Oct. 1.

“The state will provide local government with the equivalent amount of revenue, estimated at $439 million, so that there will be no impact on local transportation funding projects,” H.D. Palmer with the Department of Finance told KCRA 3.

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The budget also includes funding to “respond to severe wildfires,” and other climate change issues, a $47 billion multi-year infrastructure and transportation package, and other investments in education and healthcare resources, according the joint statement.

Under the new budget, state leaders also noted that “California will become the first state to achievement universal access to healthcare coverage.”

State leaders also reaffirmed a commitment to invest $200 million in additional funding for reproductive health care services in the wake of Friday’s Supreme Court decision.

Travis Credit Union to offer free youth financial education at Diablo Valley College

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Adulting can be challenging when it comes to finances. That’s why Travis Credit Union (TCU) is offering an in-person Mad City Money Youth Financial Boot Camp, designed to prepare the next generation with personal finance skills for the workforce. All young adults between the ages of 12 – 18 are encouraged to attend and learn these financial skills that will last a lifetime.

Mad City Money is a three-and-a-half-hour simulation that gives young adults the chance to make decisions regarding budgeting, spending, and saving in an assigned-life scenario. For example, each participant will be given a temporary identity that includes an occupation, salary, debt, marital status, children, etc. The goal is to show the reality of financial responsibilities and equip them with the skills needed to make better financial decisions.

Travis Credit Union is offering a free Mad City Money event in Pleasant Hill.

July 8, 11:30 a.m. to 3 p.m. at Diablo Valley College, 321 Golf Club Road.

Students will learn how to practice budgeting as an adult under realistic circumstances. They will be able to distinguish between good and poor financial decisions. and begin making good judgments regarding spending.

Admission to this event is free. To register, please visit traviscu.org/mad-city-money.

About 2 million people are about to get a new student loan servicer

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About 2 million federal student loan borrowers, many of whom are seeking debt relief from the Public Service Loan Forgiveness program, will get a new federal student loan servicer as soon as early July.

FedLoan – an arm of the Pennsylvania Higher Education Assistance Agency known as PHEAA – is currently servicing those loans.

But a year ago, PHEAA decided to end its contract with the federal government. Beginning last fall, the federal loans serviced by FedLoan have been transferred in stages to several other servicers. About 2 million accounts still need to be transferred.

In July, loans held by borrowers enrolled in the Public Service Loan Forgiveness program will start being transferred to the Missouri Higher Education Loan Authority, known as MOHELA. These transfers will continue throughout the summer, according to the Department of Education.

In recent years, FedLoan was tasked with handling the loans for every borrower seeking debt relief from the Public Service Loan Forgiveness program, which cancels the debt of government and nonprofit workers after making 10 years of qualifying payments. Once a borrower indicated they want to enroll in the program, their loans were transferred to FedLoan.

But FedLoan drew criticism from borrower advocates for making errors and providing misinformation to borrowers about the qualifications. In 2021, PHEAA settled a lawsuit brought by Massachusetts Attorney General Maura Healey, alleging the loan servicer violated state and federal consumer protection laws. PHEAA agreed to provide individual audits to all 200,000 Massachusetts borrowers it services.

Last year, the Biden administration temporarily expanded eligibility for the Public Service Loan Forgiveness program to include borrowers who have older loans that didn’t originally qualify as well as those who were in the wrong repayment plan but met the other requirements. By the end of May, the Department of Education had approved forgiveness for close to 145,000 borrowers under this waiver.

What borrowers can expect

Public Service Loan Forgiveness borrowers can expect to receive several notices as their loans are transferred.

A notice from FedLoan is expected to be sent at least 15 days before the transfer occurs, followed by a welcome notice from MOHELA once the transfer is complete.

Borrowers’ full account details should be available from MOHELA no later than 10 business days after the loan transfer date included in the transfer notification sent from FedLoan, according to the MOHELA website.

The loans are being transferred, not sold. That means the change will not impact the existing terms, conditions, interest rates, loan discharge or forgiveness programs, or available repayment plans on the loans. The repayment plan a borrower is enrolled in does not change once transferred unless the borrower opts to make a change.

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Borrowers are not required to do anything during the transfer process.

FedLoan also services some non-PSLF borrowers. The vast majority of those accounts have already been transferred from FedLoan to other loan servicers, including Aidvantage, EdFinancial or Nelnet.

Two other loan servicers also ended their contracts with the Department of Education last year. Loans serviced by Navient were transferred to Aidvantage and loans that were serviced by Granite State were transferred to Edfinancial Services. Those transfers were complete by the end of 2021.

The Department of Education post updates about PSLF processing and loan transfers to its website Studentaid.gov.

How to qualify for the PSLF waiver

To take advantage of the temporary PSLF waiver, some borrowers may need to take action by October 31.

Borrowers who previously had a non-qualifying loan, such as the Federal Family Education Loan, must consolidate their debt into a federal Direct Loan and then submit a PSLF form to show qualifying employment by the October deadline. After the consolidation is complete, the new loan will be transferred to MOHELA.

For those who are currently serviced by FedLoan and are enrolled in the PSLF program, no action is required. Their loans will automatically be transferred to MOHELA over the summer.

The Department of Education continues to review PSLF borrowers’ past payments to count those who are newly eligible for the forgiveness program. Due to the temporary waiver, it no longer matters what kind of federal student loan a borrower had or what payment plan he or she was enrolled in. All payments will be eligible for the PSLF program if the borrower was working full time for a qualifying employer.

More changes could be coming for federal student loan borrowers

The transfer of federal student loans from FedLoan to MOHELA this summer comes as borrowers await to hear whether President Joe Biden decides to extend the pandemic-related pause on payments, as well as if he will act to broadly cancel student loan debt.

Payments are set to resume on federal student loans after August 31 after being paused since March 2020. Federal student loan borrowers’ balances have effectively been frozen during this time. Interest has stopped adding up and collections on defaulted debt have been on hold.

Biden has already extended the pause several times and is facing political pressure to delay the restart date again, which is currently set two months before the midterm elections.

The President is also facing pressure to cancel some student loan debt for every borrower. In April, Biden said he was considering some broad student loan forgiveness.

On the campaign trail, he said he would support $10,000 in forgiveness. White House officials have indicated that he is also looking at setting an income threshold so that high-earning borrowers would be excluded from the debt relief.

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Florida mortgage delinquency, foreclosure rates slightly worse than national average

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In the first quarter of 2022, Florida ranked almost exactly in the middle of the pack in three key categories of the national homeowner economy: delinquent mortgages, total non-current mortgages, and foreclosure rates, according to a report issued by Jacksonville-based Black Knight Data & Analytics, Inc., a mortgage and loan data broker.

Nationally, the delinquency rate fell in May to a low of 2.75 percent, while Florida stayed slightly higher at 2.9 percent. Delinquencies are defined as any loan with overdue payments of 30, 60 or 90 days, but do not include loans in foreclosure. Year-over-year, Florida’s non-current mortgage rate fell by 43.9 percent, an improvement good enough to rank 6th in the nation over last year, when families were struggling to make ends meet during the pandemic.

Despite the negative impact of inflation on the national economy, there has not been a noticeable uptick in homeowners struggling to make payments. As of May, early-stage delinquencies – that is, borrowers who have missed just a single mortgage payment – have edged only marginally higher (+0.2%) month over month, but serious delinquencies (those 90 or more days past due but not yet in foreclosure) saw strong improvement – falling 7% from April – even though the total number of those loans is still 45 percent above pre-pandemic levels.

Florida foreclosures, at 0.4 percent of all loans, are in line with the national average at 0.3 percent.

Black Knight’s report also said that despite the volatility in interest rates, homeowners across the nation are currently sitting on a $1.2 trillion gain in “tappable equity” since the start of 2022.

“That’s the largest such quarterly growth ever recorded,” said Black Knight President Ben Graboske. “In total, American mortgage holders have more than $11 trillion in tappable equity, also a history-making total.”

One major contributing factor to the recent spike in home prices and the decline of affordability is a record-low number of homes listed for sale. Black Knight’s report says that despite a rise of 27,500 new listings on the real estate market from March to April, “the total number of active listings remains 67% below pre-pandemic levels, with 820,000 fewer listings than would be typical at this point in most homebuying seasons.” Black Knight’s data suggests that the number of homes hitting the market remains well below what would be considered “normal” levels.

View the full report from Black Knight here.