In In re Jones, 327 B.R. 297 (Bankr. S.D. Tex. 2005), Bankruptcy Judge Jeff Bohm addressed a motion by the chapter 7 trustee to deny the debtor's discharge based on a failure to keep and preserve financial records. The chapter 7 trustee had requested additional documents to support transactions between the debtor and third parties. The debtor provided the chapter 7 trustee with bank statements and cashier's check deposits, but did not supply any other evidence to support the debtor's expenditures. The bankruptcy court began by noting that under §727(a)(3), the chapter 7 trustee was not required to demonstrate any fraudulent intent on the part of the debtor, and a mere showing of negligence was sufficient to deny the debtor's discharge. In considering whether the debtor's records prevented the chapter 7 trustee from ascertaining the debtor's financial condition, the bankruptcy court canvassed several related opinions. The bankruptcy court denied the debtor's discharge, finding that the case was analogous to those where the debtor had failed to provide sufficient documentation.

Court Has No Authority under §363 for Nonconsensual Distribution of Sale Proceeds

In In re Westpoint Stevens Inc., 333 B.R. 30 (S.D.N.Y. 2005), the bankruptcy court entered an order authorizing the sale of substantially all of the debtors' assets outside the ordinary course of business in exchange for cash and a transfer of certain unregistered securities and unregistered subscription rights to acquire securities of the corporate parent of the purchaser. The sale order provided that certain secured creditors would receive replacement liens in the securities, placed a value on the securities, and directed a distribution of a portion of the securities to the senior secured creditors in full and complete satisfaction of their claims and a partial distribution of the securities to junior lienholders, free and clear of the senior secured lenders' liens. The first-lien creditors appealed the "in kind" distribution of the securities, the rulings on satisfaction of the senior secured claims and the lien releases, and obtained a stay of any distribution to the junior lienholders, while the actual sale closed. The underlying argument was that the sale order converted more than $240 million of secured monetary claims against the debtors into an illiquid minority equity interest in the parent of successor entities. District Judge Laura Taylor Swain noted that the "bankruptcy court pointed to no authority, nor has this court despite the extensive research efforts of counsel and the undersigned's own chambers found any standing, for the proposition that an action in permanent derogation of a senior creditor's contractual rights can be forced upon that creditor for the purpose of providing 'adequate protection' to a junior creditor... Taken to its logical extreme, the bankruptcy court's notion of adequate protection would allow a powerful creditor and a debtor anxious to achieve some value for its favored constituencies to run roughshod over disfavored creditors' rights, so long as a §363(b) asset sale transaction could be defended as an exercise of reasonable business judgment in the context of dire economic circumstances." The district court reversed the provisions of the sale order relating to imposition of the distribution, claim satisfaction and lien-elimination provisions, holding that nothing in §363 or 105 provides the authority to impair the claim satisfaction rights of objecting creditors or to eliminate the replacement liens granted by the court.

Substantial Abuse Standards

In In re Beitzel, 333 B.R. 84 (Bankr. M.D.N.C. 2005), the issue was whether a case should be dismissed as a substantial abuse (pre-BAPCPA). Bankruptcy Judge Thomas W. Waldrep Jr., relying on In re Green, 934 F.2d 568 (4th Cir. 1991), held that a "totality of the circumstances" test is used in determining whether a case should be dismissed under the former §707(b). Factors to be considered include whether (1) the bankruptcy petition was filed because of sudden illness, calamity, disability or unemployment; (2) the debtor incurred cash advances and made consumer purchases far in excess of ability to repay; (3) the proposed family budget is unreasonable or excessive; (4) the true financial condition is reflected in the debtor's schedules and statement of current income and expenses; (5) the petition was filed in good faith; and (6) most important, the debtor has an ability to repay a significant portion of the debt, which can be determined by calculating the amount of such indebtedness that could be repaid in a hypothetical chapter 13 plan.

Letter to Debtor's Counsel Is Not "Communication" under Fair Debt Collection Law

In In re Holloway, 337 B.R. 6 (Bankr. D. Mass. 2006), counsel for the creditor sent a letter to debtor's counsel that stated, in part, "[p]lease be advised that our client holds a purchase-money security interest in the consumer goods in regards to the above-referenced claim." The letter also requested the debtor's intent and listed three options that a consumer debtor may select under §521(2)(A). A copy of a proposed reaffirmation agreement was included with the letter. In response, the debtor's attorney demanded documentation of the security interest and value of the consumer goods "within 30 days and threaten[ed] future legal action if the documents are not timely received." The debtor then filed a "Motion to Determine Secured Status of Claim Pursuant to 11 U.S.C. §506(d) and for Further Others (sic)." The creditor failed to respond to the motion, and an order was entered that found that the creditor was unsecured. The debtor then filed an adversary proceeding alleging that the letter from the creditor's counsel constituted a violation of the Fair Debt Collections Practices Act and/or the automatic stay. Bankruptcy Judge Joel B. Rosenthal, on cross motions for summary judgment, found that a subsequent determination regarding secured status cannot be the basis for finding that the letter was unlawful. Further, the court held that the letter to debtor's counsel regarding the debtor's intentions can neither be a violation of the stay nor a violation of the Fair Debt Collection Practices Act.

Miscellaneous

• In re American Plumbing & Mechanical Inc., 327 B.R. 273 (Bankr. W.D. Tex. 2005) (indenture trustee was not entitled to recover fees as an administrative expense of the estate since efforts provided by indenture trustee were for the benefit of its constituents, not the estate in general);

• In re Braun, 327 B.R. 447 (Bankr. N.D. Cal. 2005) (nondischargeable debt for willful and malicious injury could include an award for sanctions, attorney fees and costs);

• Muegler v. Bening, 413 F.3d 980 (9th Cir. 2005) (where award of compensatory and punitive damages is based on same conduct, punitive damages award is nondischargeable under "willful and malicious" provision if compensatory-damage award is found to be nondischargeable);

• In re TWA Inc. Post-Confirmation Estate, 327 B.R. 706 (Bankr. D. Del. 2005) (payment made within terms of the invoice did not qualify as being made in the "ordinary course of business," where history of dealings between the parties demonstrated payments well outside such terms);

• In re Murphy, 327 B.R. 760 (Bankr. E.D. Va. 2005) (sale of chapter 13 debtor's home for amount significantly above value listed in schedules constituted a substantial change in debtor's financial circumstances and warranted a modification of the debtor's confirmed plan to increase the dividend to creditors);

• In re United American Inc., 327 B.R. 776 (Bankr. E.D. Va. 2005) (critical vendor motion denied where the debtor could not demonstrate that such creditors were necessary for the debtor's successful reorganization);

• In re Quinn, 327 B.R. 818 (W.D. Mich. 2005) (debtor's interest in retirement plan was excluded from property of the estate due to restrictions placed on the ability of the trust to distribute to debtor);

• In re U.S. Aeroteam Inc., 327 B.R. 852 (Bankr. S.D. Ohio 2005) (creditor entitled to exercise right of setoff, where surety established mutuality with debtor upon assignment of the right to collect following satisfaction of debt owed to third party);

• In re Hutchinson, 328 B.R. 30 (Bankr. W.D.N.Y. 2005) (chapter 7 debtor denied a discharge for failing to list a $3,000 promissory note as an asset);

• In re Binns, 328 B.R. 126 (BAP 8th Cir. 2005) (Rooker-Feldman doctrine did not apply in determining whether state court fraud judgment was a nondischargeable debt);

• In re Wind n' Wave, 328 B.R. 176 (BAP 9th Cir. 2005) (attorney for petitioning creditors is entitled an administrative expense claim against the estate for reasonable fees and expenses, even if petitioning creditors expenses have not been allowed); and

• In re Schlitzer, 332 B.R. 856 (Bankr. W.D.N.Y. 2005) (§521(a)(2) requirement that debtor file a statement of intention applies only in chapter 7, thus §362(h) early stay termination does not apply in chapter 13).