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District court overrules bankruptcy court decision

A bankruptcy ruling may have implications for Florida residents who file for bankruptcy. In Vermont, a district court ruled that a bankruptcy court in the same state did not have the power to impose sanctions. Mortgage company PHH Mortgage Corp. had been ordered to pay a total of $375,000 to the Legal Services Law Line of Vermont relating to its actions in Chapter 13 filings.

All sanctions were imposed based on Bankruptcy Rule 3002.1(i). PHH faced the sanctions after it had improperly billed debtors for property inspection fees. To do so, the company would have had to file a special notice as per Rule 3002.1(c). Under payment plans reached in those Chapter 13 motions, debtors had arranged to pay past balances owed in addition to regular future payments.

In its ruling, the court found that there were significant differences between bankruptcy court judges and those labeled as Article III judges. However, the ruling did make clear that parties involved in a Chapter 13 bankruptcy case could act with disregard to court orders. Instead, the ruling said that a bankruptcy court should refer matters to a district court where appropriate action could then be taken.

By filing for bankruptcy, individuals may be able to put a stop to creditor harassment. It may also be possible to reorganize existing debts and repay them over a period of three or five years. During a repayment period, creditors generally cannot repossess or foreclose on a property. Therefore, it may be possible for an individual to remain in his or her home, and this may increase the odds of negotiating new mortgage or other secured loan terms.

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