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Benchnotes Mar 1998

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In In re Marino, 213 B.R. 846 (Bankr. 9th Cir. 1997), a creditor had filed a dischargeability action, which was dismissed as untimely. The case was subsequently converted to chapter 7 and the creditor filed a new dischargeability action. The debtor objected on the grounds of res judicata. The court, after reviewing the tortuous history, held that the correct interpretation of Fed. R. Bankr. P. 1019(2) and Fed. R. Bankr. P. 41(b) is that a creditor that does not file dischargeability action in a chapter 11 case has an opportunity pursuant to Rule 1019(2) to file that action upon conversion to chapter 7. However, a creditor who files a dischargeability action in the chapter 11 that was dismissed or otherwise unsuccessful, is barred by Rule 41(b) from refiling that litigation in the chapter 7 case after conversion.

Extending Leases Post-petition

In In re Circle K Corp., 127 F.3d 904 (9th Cir. 1997), the court addressed a challenge to a debtor’s post-petition extension of certain leases. The leases prevented any exercise of an option to extend the lease if the lessee was in default. The debtor was clearly in default, but still sought to exercise the option without assuming the lease or curing the pre-petition defaults. The 9th Circuit noted that, if the bankruptcy court could not allow a debtor-lessee to renew a lease without first curing defaults, õ365’s "basic purpose would be frustrated." The court held that "no principle of bankruptcy or contract law precludes us from permitting the debtors here to extend their leases in a manner contrary to the leases’ terms, when to do so will effectuate the purpose of õ365." It therefore affirmed the decision that the debtors could exercise the option to renew the leases without assuming the lease or curing the pre-petition defaults.

Retaining Collateral

In a case of first impression before the Second Circuit, the court held in In re Boodraw, 126 F.3d 43 (2nd Cir. 1997), that the requirement in õ521(2)(a) that a debtor file a statement of intention with respect to retention or surrender of collateral securing consumer debt does not prevent the bankruptcy court from allowing a debtor who is current on all loan obligations to retain the collateral and keep making payments under the original loan agree-ment without surrendering or redeeming the collateral.

Dischargebability of Homeowner’s Association Fees

In In re Lozada, 214 B.R. 558 (Bankr. E.D. Va. 1997), Bankruptcy Judge Stephen S. Mitchell addressed the issue of whether the 1994 amendments to õ523 with respect to the dischargeability of post-petition condominium and cooperative assessments also apply to post-petition assessments by a homeowner’s association. The debtors had vacated their home during the pendency of the chapter 7 case with the intent of permitting the secured creditor to foreclose. The property was not foreclosed for a number of months. The court, having reviewed the statute, found that Congress had drafted a very precise and specific õ523(a)(16), and, if it had intended

to include homeowner’s association assessments, it could have done so. Thus, the court found that post-petition property owners’ homeowner’s assessments and fees do not fall within the discharge provisions of õ523(a)(16). The court then went on to hold that it was bound by the decision of Riverplace East Housing Corp. v. Rosenfeld, 23 F.3d 833 (4th Cir. 1994), and, as the right to collect the assessments arose post-petition, the right to collect those fees was unaffected by the debtors discharge.

Landlord’s Administrative Expense Claim

In In re Exchange Recourses Inc., 214 B.R. 366 (Bankr. D. Minn. 1997), a former landlord filed a proof of claim for legal fees incurred during the bankruptcy case. The lease specifically provided that the debtor would be liable for attorneys’ fees, and the court held that, until such time as the lease was assumed or rejected, post-petition attorneys’ fees incurred as a result of the debtor’s post-petition default in payment of rent were includeable as damages in the claim. The lease expired by its own terms, but the court allowed the landlord an administrative expense claim for the attorneys’ fees as actual and necessary costs of preserving the estate pursuant to 11 U.S.C. õõ365(d)(3) and 503(b)(1)(A).

Failure to Notify Creditor of Confirmation Hearing

In In re ONeal, 214 B.R. 405 (Bankr. N.D. Ala. 1997), the chapter 13 debtor filed his petition with three names on the service list. Thereafter, the debtor amended his petition to include other names, including his former wife. However, none of those who were added by this amendment were sent notice of the bankruptcy filing or notice of upcoming hearings, including the hearing on confirmation of the debtor’s plan. The confirmation order was entered and thereafter amended. The debtor’s former wife received a copy of the confirmation order and a copy of the order amending the confirmation order. The issue before Bankruptcy Judge Benjamin Cohen was whether the former wife was bound by the terms of the plan, which did not provide any payment for alimony and child support as priority debts pursuant to 11 U.S.C. õ507(a)(7). The court provides a succinct and complete analysis of the law regarding the consequences of a failure to give

a creditor notice of a bankruptcy confirmation hearing, holding that hearings on confirmation of plans require reasonable notice to ensure that due process is provided. Since no notice was provided to the debtor’s former wife, she was not bound by the confirmation order or the amended confirmation order.

Retirement Plan

In Matter of Swift, 129 F.3d 792 (5th Cir. 1997), a debtor claimed that the actions of the administrator of his Keogh retirement plan in not amending the Keogh plan to comply with new laws resulted in his loss of his exemption. The debtor brought suit against the administrator in state court after the bankruptcy case had been filed. In the bankruptcy case, the debtor elected the state exemptions and asserted that the IRA into which he had converted his Keogh plan (valued at $126,000 plus at the time) was exempt. Two creditors objected, and the court found that the IRA was not exempt. The debtor filed suit in state court alleging that the Keogh plan administrator was liable for his lost exemption, alleging theories of negligence and breach of fiduciary duty. After removal of the action to bankruptcy court, the debtor sought remand, and the administrator filed a motion for summary judgment, arguing that the causes of action the debtor sought to pursue were property of the bankruptcy estate and not those of the debtor individually. The Fifth Circuit held that the causes of action were property of the estate pursuant to õ541 of the Bankruptcy Code. However, the court also ruled that these causes of action were exempt under the Texas Property Code, õ42.0021 as replacements for the lost exemption and that the debtor had standing to pursue those causes of action against the administrator.


In re Smart, 214 B.R. 63 (Bankr. D. Conn. 1997), (appropriate reference date for determining whether property was a principal residence for purposes of õ1322(b)(2) is date on which the security interest was created—not the date of the filing of the bankruptcy petition or the date of any hearing);

In re Cummings, 214 B.R. 126 (D.N.J. 1997), (õ1322(b)(2) "antimodification provision" allows modification of rights of creditors with security interest in property in addition to the debtor’s residence, regardless of whether additional collateral is personal property of the debtor or property of the third party);

In re Bressman, 214 B.R. 131 (Bankr. D.N.J. 1997), (although non-refundable retainers are permissible under New Jersey law, equitable and due process consideration did not require the court to allow a debtor to use such payment to fund non-dischargeability defense as payment constituted the property of the bankruptcy estate and such retainers are "inherently unreasonable" in the bankruptcy context);

In re Valley Steel Products Co., 214 B.R. 202 (E.D. Mo. 1997), (ordinary course of business exception to preference avoidance action does not cover payments made in settlement of contractual claims, nor do payments made pursuant to settlement constitute "new value");

In re 83-84 116th Owners Corp., 214 B.R. 530 (Bankr. E.D.N.Y. 1997), (housing co-op corporations fall within the definition of "single asset real estate");

In re Siegel, 214 B.R. 329 (Bankr. W.D. Tenn. 1997), (law books, software, computer and related equipment and furniture are exempt as "tools of the trade");

In re Envirodyne Industries Inc. at 214 B.R. 338 (N.D. Ill. 1997), (excellent review and analysis of the notice required in a bankruptcy context to satisfy the Fifth Amendment due process for "known" and "unknown" creditors);

In re Cambridge Biotech Corp., 214 B.R. 429 (D. Mass. 1997), (good review of the issues of "jurisdictional mootness" and the "equitable mootness" doctrines in the bankruptcy context);

In re Ben Franklin Retail Stores Inc., 214 B.R. 852 (Bankr. N.D. Ill. 1997), (consolidated election for a common trustee in five chapter 11 bankruptcy cases converted to chapter 7 and ordered consolidated for administrative purposes approved over the objection of the interim trustee and the United States.

Journal Date: 
Sunday, March 1, 1998

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