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Specific Intent is not Required to Establish a Willful Injury under Section 523(a)(6)

By: Robert Garafola

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

In Jendusa-Nicolai v. Larsen, the Seventh Circuit held that section 523(a)(6) of the Bankruptcy Code prevented the debtor, David Larsen, from discharging his debt from a civil judgment stemming from the attempted murder of his former wife, Teri Jendusa-Nicolai.[1] Larsen savagely beat Jendusa-Nicolai with a baseball bat, sealed her in a snow-filled trash can, and left her to die in a storage facility.[2] Jendusa-Nicolai miraculously survived, but she lost all of her toes to frostbite and suffered a miscarriage.[3]  Larsen was sentenced to life imprisonment for his crimes and lost a civil action to Jendusa-Nicolai and her family, who were awarded a judgment in excess of $3.4 million.[4] Larsen attempted to discharge the debt from the judgment by filing for bankruptcy under Chapter 7. Larsen argued that his debt should be discharged because he did not willfully injure his ex-wife within the meaning of section 523(a)(6) since he did not specifically intend to cause his ex-wife to lose her unborn child and toes.[5]  However, the court found that the statute did not require that the debtor intend to cause specific injuries and that a broader analysis of the debtor’s intended results is proper.[6]

Failure to Apply for Income Based Repayment Does Not Bar Discharge of Student Loans

By: Gabriella Formosa

St. John’s Law Student

American Bankruptcy Institute Law Review Staff
 
In In re Krieger,[1] the Bankruptcy Court for the Southern District of Illinois permitted a discharge of federal student loans despite the debtor’s failure to apply for an Income Contingent Repayment Plan (“ICRP”).[2] Under an ICRP, a borrower’s annual loan payments can be reduced after applying a formula that takes into account poverty guidelines and the borrower’s adjusted gross income.[3] However, if the borrower has no discretionary income, the monthly payment due will be zero.[4] Here, the debtor, a twice divorced, fifty-two year old woman had been unemployed for over ten years despite countless attempts to secure employment.[5] She lives with her elderly mother and her sole income is a monthly government assistance check for $200.[6] She is unable to afford health or dental care, a cellular phone, or her car payments.[7] The court held that application for an ICRP would be nothing more than a formality because the debtor was currently destitute, and was likely to remain that way for rest of her life.[8] As such, application was not dispositive of a good faith attempt to repay her loans.[9]

Developing Consensus Among Delaware Bankruptcy Courts to Narrowly Construe Stern v. Marshall Concerning Avoidance Claims

By: Joseph P. Donnelly IV

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 
Adopting a narrow interpretation of the holding of Stern v. Marshall,[1] the Bankruptcy Court for the District of Delaware, in In re DBSI,[2] held that Stern does not preclude a bankruptcy court from adjudicating avoidance claims.[3] In November 2008, DBSI Inc. and several of its affiliates (the “Debtors”) filed for Chapter 11 bankruptcy protection.[4] Following confirmation of the Debtors’ liquidating plan, a litigation trustee commenced several adversary proceedings relating to, inter alia, preferential or fraudulent transfer claims.[5] Certain defendants (the “Movants”) sought to have these adversary proceedings dismissed, arguing that the bankruptcy court lacked jurisdiction under 28 U.S.C. § 157 and the United States Supreme Court’s decisions in Stern v. Marshall and Granfinanciera, S.A. v. Nordberg,[6]to adjudicate causes of action sounding in preference or fraudulent conveyance.[7]

Definition of Reasonably Equivalent Value Narrowed as Pool of Potential Litigants is Expanded in Fraudulent Transfer Context

By: Steve Traditi

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

In In re TOUSA, Inc.,[1] the Eleventh Circuit held that subsidiaries of a parent company did not receive “reasonably equivalent value” in exchange for liens granted to secure the obligations of the parent company in an attempt by the group to avoid bankruptcy.[2] The court also held that third party beneficiaries could be liable as parties “for whose benefit” the transfer was made.[3] In 2005, TOUSA, Inc., a large homebuilding company, entered into a joint venture in order to acquire homebuilding assets from Transeastern Properties, Inc., using monies borrowed from the so-called “Transeastern Lenders” to fund the acquisition.[4] When the housing market took a downturn in 2006, TOUSA defaulted and the Transeastern Lenders sued for more than $2 billion.[5] TOUSA agreed to settle the case for $421 million with money borrowed from a collection of lenders (the “New Lenders”). The New Lenders secured their loans by taking liens on the assets of certain of TOUSA’s subsidiaries (the “Conveying Subsidiaries”).[6]  After TOUSA and its subsidiaries, including the Conveying Subsidiaries, went into bankruptcy, TOUSA sought to avoid the New Lenders’ liens as fraudulent transfers arguing that the Conveying Subsidiaries did not receive reasonably equivalent value.[7] In addition, TOUSA sought to recover from the Transeastern Lenders by claiming that the Transeastern Lenders were the entities for whose benefit the transfer was made.[8]  The bankruptcy court agreed with TOUSA, but the district court reversed.[9] TOUSA then appealed to the Eleventh Circuit.

Mortgagees Misapplication of Plan Payments Not Tortious

By: Benjamin Yeamans

St. John’s Law Student

American Bankruptcy Institute Law Review Staff
 
 
In In re Oliver, the Bankruptcy Court for the District of Kansas held that a debtor did not meet the threshold requirements to proceed on a claim of outrage (i.e., intentional infliction of emotional distress)[1] by alleging that a creditor had misapplied payments received from the debtor and the trustee in violation of the debtor’s chapter 13 plan.[2] Mr. and Mrs. Oliver (the “Debtors”) entered into a loan agreement with CitiCorp Trust Bank FSB (the “Creditor”) to finance the purchase of their home.[3] Roughly three years later, the Debtors filed a chapter 13 bankruptcy petition.[4] The Debtors’ confirmed chapter 13 plan stipulated that the Creditor must apply any mortgage payments to the mortgage balance immediately upon receipt as opposed to holding the payments in a suspense account.[5] The plan also required the Creditor to apply payments made by the chapter 13 trustee and the Debtors to pre-petition arrearages and post-petition claims respectively.[6] The Debtors alleged that the creditor violated the terms of its chapter 13 plan by holding partial mortgage payments in suspense accounts, which resulted in improper interest calculations.[7] Additionally, the Debtors alleged that the Creditor had also violated the plan by failing to provide complete and accurate accountings of payment received from the Debtor and the chapter 13 trustee.[8] Finally, the Debtors also claimed that the Creditor’s misapplication of payments caused the Debtors to file incorrect tax returns, and that as a result, they were denied credit or offered credit at a higher rate.[9]

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