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Consumer Bankruptcy Law and Practice: 9.4.6.4 Continued Withholding of Income for Loans from Retirement Funds

Another exception enacted in 2005 authorizes the continued withholding of wages for repayment of retirement fund loans.223 The wage withholding must be for repayment of a loan from a plan under section 408(b)(1) of the Employee Retirement Income Security Act (ERISA) or that is subject to section 72(p) of the Internal Revenue Code, or from a thrift savings plan in the Federal Employee’s Retirement System.

Consumer Bankruptcy Law and Practice: 9.4.6.5.2 In rem orders

Another provision added by the 2005 Act allows creditors with claims secured by real property to seek in rem stay relief in certain limited circumstances.228 If the court enters an in rem order under new section 362(d)(4), and the order is properly recorded, section 362(b)(20) provides that the stay does not apply with respect to the particular property covered by the order in a later case filed within two years after the date of the order.229

Consumer Bankruptcy Law and Practice: 9.4.6.6.2 Prepetition judgment for possession

Under section 362(b)(22), the eviction of a debtor from residential property in which the debtor resides as a tenant under a lease or rental agreement is not stayed by section 362(a)(3) if the lessor has obtained a judgment for possession prior to the filing of the bankruptcy petition, unless the debtor meets certain conditions.

Consumer Bankruptcy Law and Practice: 9.4.6.8 Setoff of Tax Refunds

Section 362(b)(26) permits taxing authorities to set off tax refunds for prepetition tax periods against prepetition tax debts. If there is a pending action to determine tax liability, the taxing authority may hold the refund pending the outcome of the action. However, on motion by the trustee and after notice and a hearing, the court may order turnover of the refund, but only if the taxing authority is granted adequate protection for any secured claim it has under section 506(a) of the Code based on its setoff rights.

Consumer Bankruptcy Law and Practice: 9.6.5 Other Possible Remedies

The same actions that can be penalized as violations of the automatic stay might also be unfair trade practices under state law or violations of federal debt collection protections.358 In some cases it may be a good idea to assert such claims in the alternative because of the availability of enhanced damages. But, in any event, the bankruptcy court has exclusive jurisdiction over sanctions for violation of the automatic stay itself.359

Consumer Bankruptcy Law and Practice: 9.7.3.2.1 For cause

The first of the grounds listed in the statute for relief from the stay is a catchall. It provides that the stay may be lifted “for cause.” While it is clear that a lack of adequate protection, as discussed below, is one such cause, the provision is meant to allow courts considerable discretion to grant relief for other reasons. Thus, legal proceedings against the debtor that have nothing to do with bankruptcy would ordinarily be allowed to go forward. Similarly, the court may lift the stay with respect to other activities that will have no effect on the bankruptcy.

Consumer Bankruptcy Law and Practice: 9.7.3.2.4 Leases involving residential property

Special problems are posed under the stay provisions in cases that involve leases of residential property.513 While it may be quite possible for a debtor to give a lessor adequate protection, perhaps in the form of a security deposit, it is usually difficult to argue that the debtor has equity in the leased premises unless the debtor has a long-term lease at a rate below current market values, or receives other benefits from remaining in possession, such as the special rights available in public housing or in a rent-control jurisdiction.

Consumer Bankruptcy Law and Practice: 9.7.3.3.2 Other tactics

Discovery may be helpful, as always, in narrowing the issues or pointing up flaws in an opponent’s case. In any case, because of the time deadlines involved in stay litigation, a motion for expedited discovery is usually necessary to complete discovery within the thirty days before the preliminary hearing. One positive result of such a motion is often a quick stipulation from the party seeking relief from the stay agreeing that the hearing (and the stay) can be continued beyond the thirty-day deadline.

Consumer Bankruptcy Law and Practice: 9.7.3.3.3 Stays pending appeal

If an appeal is contemplated after the automatic stay is terminated by order of the court or otherwise, it may be essential to obtain a stay pending appeal. The rules provide a fourteen-day delay in the effectiveness of an order granting relief from stay in order to provide time to seek a stay pending appeal, but a court may order otherwise.537 Therefore, if a possible appeal is contemplated, a debtor should argue against any language in the court’s order changing the normal fourteen-day delay of relief from the stay.

Consumer Banking and Payments Law: 1.5.10.2.2 Affirmative misrepresentations

There is broad agreement that federal law does not preempt claims that banks made affirmative misrepresentations about the operation of their overdraft programs.202 As the Ninth Circuit has stated, “[s]tate laws of general application, which merely require all businesses (including national banks) to refrain from fraudulent, unfair, or illegal behavior, do not necessarily impair a bank’s ability to exercise its . . . powers.”203

Consumer Banking and Payments Law: 1.5.10.2.3 Duty of good faith and unconscionability

A number of courts have held that federal law does not preempt a claim that a bank violated the duty of good faith and fair dealing by measures such as manipulation of posting order.204 Since the duty of good faith and fair dealing is uniformly imposed on all parties as an element of contract law, courts have recognized that compliance with that duty has no more than an incidental effect on a bank’s exercise of its deposit-taking powers, so it falls within the savings clause of the preemption regulation.2

Consumer Banking and Payments Law: 6.7.5.2 Consumer Liability for Unauthorized Transfer If Bound by Agency

A consumer can be liable for an unauthorized funds transfer if the consumer authorized the payment order or if the consumer is otherwise bound by the payment order under applicable laws of agency.458 However, it is highly unlikely that a bank would be able to assert that a consumer is bound under the applicable laws of agency. As the First Circuit explained, “ ‘in a very large percentage of cases covered by Article 4A, . . .

Consumer Banking and Payments Law: 6.7.5.3.1 Transfer deemed authorized if validated by agreed-upon, commercially reasonable security procedure

Article 4A provides a second way for a bank to shift liability to the consumer for unauthorized funds transfers.460 A funds transfer is deemed authorized by the consumer if the bank verified the authenticity of the instruction with a security procedure agreed to by the consumer.461 The bank must verify the authenticity of the payment order in good faith using a commercially reasonable security procedure t

Consumer Banking and Payments Law: 6.7.5.3.2 Consumer must agree to the security procedure

To shift the liability of an unauthorized transfer to a consumer, the security procedure used by the bank must be one “established by agreement of a customer and a receiving bank.”464 The term does not apply to “procedures that the receiving bank may follow unilaterally in processing payment orders.”465 The consumer must agree to a specific security procedure, not merely the fact that the bank will use so

Consumer Banking and Payments Law: 6.7.5.5 Consumer Liability for an Unauthorized Transfer Can Be Limited by Agreement or By Showing That It Was Not Caused Directly or Indirectly by the Consumer

Although an unauthorized funds transfer may be deemed authorized because the consumer’s bank verified the authenticity of the instruction with a security procedure agreed to by the consumer—i.e., the bank validated the funds transfer—Article 4A does provide a mechanism for limiting or eliminating the consumer’s liability.494