Collier Bankruptcy Case Update April-7-03

Collier Bankruptcy Case Update April-7-03

 

  • West's Bankruptcy Newsletter
  • A Weekly Update of Bankruptcy and Debtor/Creditor Matters

    Collier Bankruptcy Case Update

    The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.

    April 7, 2003

    CASES IN THIS ISSUE
    (scroll down to read the full summary)

     

    1st Cir.

    § 362 Oversecured creditor granted relief from stay due to debtor’s failure to propose feasible plan.
    In re National/Northway, Ltd. P’ship (Bankr. D. Mass.)

    § 1129 Plan confirmation denied due to insufficient cash flow to reliably meet demands for payment.
    In re National/Northway (Bankr. D. Mass.)


    2d Cir.

    § 330 Dispute over attorneys’ fees for representation in bankruptcy that was dismissed for cause could be appropriately resolved by state court.
    In re Kent Funding Corp. (Bankr. E.D.N.Y.)

    § 544(b) Creditors’ committee had standing to commence and prosecute fraudulent transfer claim on behalf of the estate.
    Official Comm. of Unsecured Creditors v. Pardee (In re Stanwich Fin. Servs. Corp.) (Bankr. D. Conn.)


    3rd Cir.

    § 363(f) Sale of debtor’s assets to successor airline free and clear of discrimination claims by EEOC and flight attendants affirmed.
    In re TWA (3d Cir.)

    § 541(a)(1) Debtor’s civil rights claims against employer and co-workers were property of the estate, despite debtor learning of right to sue only after chapter 7 discharge.
    Anderson v. Acme Mkts., Inc. (E.D. Pa.)

    4th Cir.

    § 365 Debtors in possession allowed to reject or abandon unspecified aircraft and engines 3 business days after notice to creditors, subject to right of creditors to object within 10 days.
    In re U.S. Airways Group, Inc. (Bankr. E.D. Va.)

    § 524 Bank and its attorney sanctioned for attempting to collect discharged debt.
    In re Evans (Bankr. E.D. Va.)


    5th Cir.

    § 109(g) Bankruptcy court did not abuse its discretion in dismissing bankruptcy due to debtor’s failure to comply with court orders.
    In re Mendy (E.D. La.)

    § 523(a)(8) Alcoholism and work restrictions on debtor nurse during rehabilitation did not constitute undue hardship that would permit discharge of student loans.
    Roach v. United Student Aid Fund, Inc., (In re Roach) (Bankr. E.D. La.)


    6th Cir.

    § 523(a) Judgment for debtors’ intentional misrepresentation of insect infestation in sale of home was nondischargeable.
    Redmond v. Finch (In re Finch) (Bankr. S.D. Ohio)


    7th Cir.

    Rule 7037(a)(4)
    Debtor sanctioned for failure to comply with discovery regarding creditor’s dischargeability challenge despite repeated requests.
    Johnson v. Wood (In re Wood) (Bankr. C.D. Ill.)


    8th Cir.

    § 522(d)(1) State law prevented debtor from claiming homestead exemption in property that had been abandoned.
    In re Holman (Bankr. D. Minn.)

    § 541 Property that was subject of finalized foreclosure sale and in which debtor’s right of redemption had expired was not property of the estate.
    In re Sugarloaf Props. (Bankr. E.D. Ark.)

    § 541(a) Property in which homestead exemption was denied both in bankruptcy court and on appeal was property of the estate.
    Alexander v. Jensen-Carter (In re Alexander) (B.A.P. 8th Cir.)


    9th Cir.

    § 524(a)(2) Creditor’s calls on late auto loan payments did not violate stay as debtor had elected to retain possession and make voluntary payments.
    Garske v. Arcadia Fin. Ltd. (In re Garske) (B.A.P. 9th Cir.)

    § 548(a)(1) Use of corporate debtor’s funds deposited in officer’s bank account to satisfy officer’s debt to depository bank was a fraudulent transfer.
    Hopkins v. D.L. Evans Bank (In re Fox Bean Co.) (Bankr. D. Idaho)

    § 1126(f) Unimpaired creditor lacked standing to object to plan by claiming discrimination in interest rates.
    Platinum Capital, Inc. v. Sylmar Plaza, LP (In re Sylmar Plaza, LP) (9th Cir.)


    10th Cir.

    § 523(a)(5) Debtor’s obligation to pay attorneys’ fees awarded in divorce and custody proceeding was dischargeable as payment would affect ability to financially support child.
    Lowther v. Lowther (In re Lowther) (10th Cir.)

    § 706 Debtor’s request for conversion to chapter 13 could be granted provided failure to give proper notice was cured and no timely objections filed.
    In re Rigales (Bankr. D.N.M.)

    Rule 1017(f)(2) Procedural notice requirement cannot limit debtor’s substantive right to convert from chapter 7 to chapter 13.
    In re Rigales (Bankr. D.N.M.)


    11th Cir.

    § 522 Florida opt-out statute did not prevent non-immigrant domiciled outside the U.S. from claiming federal personal property exemption.
    In re Arispe (Bankr. S.D. Fla.)

    § 1112(b) Bankruptcy filed by board of directors to derail sale of oceanfront property agreed to while board was under different control dismissed for lack of good faith.
    The Bal Harbour Club, Inc. v. AVA Dev., Inc. (In re The Bal Harbour Club, Inc.) (11th Cir.)


    Collier Bankruptcy Case Summaries

    1st Cir.

    Oversecured creditor granted relief from stay due to debtor’s failure to propose feasible plan. Bankr. D. Mass. PROCEDURAL POSTURE: The court determined that a debtor’s original plan could not be confirmed because it impermissibly classified a creditor’s deficiency claim. The court, rather than allow the creditor relief from an automatic stay, gave the debtor a short period of time to file a new plan. The debtor filed an amended plan. The creditor filed a proof of claim in the amount of $3,826,015. The debtor objected on several grounds. OVERVIEW: The debtor disputed the principal amount of the creditor’s claim as set forth in the proof of claim. The debtor contended that the payments were applied two weeks after they were received. However, the debtor provided no proof that he principal balance was effected. The debtor objected to the charges accessed for attorney’s fees. The court allowed the debtor to receive what was contemplated under the original loan documents and gave debtor a credit. The creditor contended that it was entitled to interest on its claim because it was oversecured. The court agreed, and the creditor was entitled to interest from the petition date forward at the contract rate. The debtor argued that its proposed plan was feasible. However, by the debtor’s own calculations, the cash flow which will have been generated by the debtor, assuming that the debtor’s numbers were accepted as true, was barely enough to meet the demands for payment under the plan. Thus, cause existed to grant relief from the automatic stay. In re National/Northway, Ltd. P’ship, 2002 Bankr. LEXIS 1482, — B.R. — (Bankr. D. Mass. December 20, 2002) (Rosenthal, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back to top]

    ABI Members, click here to get the full opinion.

    Plan confirmation denied due to insufficient cash flow to reliably meet demands for payment. Bankr. D. Mass. PROCEDURAL POSTURE: The court determined that a debtor’s original plan could not be confirmed because it impermissibly classified a creditor’s deficiency claim. The court, rather than allow the creditor relief from an automatic stay, gave the debtor a short period of time to file a new plan. The debtor filed an amended plan. The creditor filed a proof of claim in the amount of $3,826,015. The debtor objected on several grounds. OVERVIEW: The debtor disputed the principal amount of the creditor’s claim as set forth in the proof of claim. The debtor contended that the payments were applied two weeks after they were received. However, the debtor provided no proof that he principal balance was effected. The debtor objected to the charges accessed for attorney’s fees. The court allowed the debtor to receive what was contemplated under the original loan documents and gave debtor a credit. The creditor contended that it was entitled to interest on its claim because it was oversecured. The court agreed, and the creditor was entitled to interest from the petition date forward at the contract rate. The debtor argued that its proposed plan was feasible. However, by the debtor’s own calculations, the cash flow which will have been generated by the debtor, assuming that the debtor’s numbers were accepted as true, was barely enough to meet the demands for payment under the plan. Thus, cause existed to grant relief from the automatic stay. In re National/Northway, 2002 Bankr. LEXIS 1482, — B.R. — (Bankr. D. Mass. December 20, 2002) (Rosenthal, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 7:1129.01 [back to top]

    ABI Members, click here to get the full opinion.


    2d Cir.

    Dispute over attorneys’ fees for representation in bankruptcy that was dismissed for cause could be appropriately resolved by state court. Bankr. E.D.N.Y. PROCEDURAL POSTURE: A debtor filed a voluntary petition for relief. This closed chapter 11 case had been dismissed for cause. The debtor filed an order to show cause seeking to reopen the case to fix the appropriate legal fees to be awarded its former bankruptcy counsel, under 11 U.S.C. §§ 350(b) and 105. OVERVIEW: The jurisdictional issues raised by the order to show cause were whether the court had jurisdiction over a case after dismissal and whether 11 U.S.C. § 350(b) was the appropriate section of the Bankruptcy Code to employ, given the case was dismissed without having been administered. Once the debtor’s chapter 11 case was dismissed, the debtor reverted back to its pre-bankruptcy status. However, dismissal of the bankruptcy case did not terminate all proceedings in the bankruptcy court. In this instance, the debtor’s case was not “closed” pursuant to section 350(a). Without having closed the case under section 350(a), the court could not “reopen” the case under section 350(b). Therefore, the order reopening the case was entered in error. Also, although the court had the discretion to hear the fee dispute, such relief was not warranted. The state court was capable of determining the appropriate fees to award, comparing the reasonableness of the fees requested under 11 U.S.C. § 330 to the fees charged by attorneys in non-bankruptcy cases. There was nothing peculiar about the fee request which would compel the bankruptcy court to grant relief. In re Kent Funding Corp., 2003 Bankr. LEXIS 220, — B.R. — (Bankr. E.D.N.Y. March 5, 2003) (Eisenberg, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 3:330.01 [back to top]

    ABI Members, click here to get the full opinion.

    Creditors’ committee had standing to commence and prosecute fraudulent transfer claim on behalf of the estate. Bankr. D. Conn. PROCEDURAL POSTURE: Pursuant to a court approved stipulation by the debtor and the Official Committee of Unsecured Creditors (Committee), the Committee filed an adversary proceeding to recover, on behalf of the bankruptcy estate, certain transfers to the defendants arising out of a prepetition transfer of stock. Defendants challenged the Committee’s standing to prosecute the adversary proceeding. OVERVIEW: Defendants, relying on the plain language of 11 U.S.C. §§ 506 and 544(b), asserted that the Committee lacked standing because the bankruptcy code only authorized a trustee or debtor in possession to commence a fraudulent transfer claim. They argued that the language “the trustee may” utilized generally in the bankruptcy code necessarily eliminated all other parties from prosecuting a fraudulent transfer claim. The court found defendants’ argument flawed. The court reasoned that the core objectives of bankruptcy could not be achieved if those who would otherwise be exposed to transfer avoidance actions, e.g., 11 U.S.C. §§ 544, 547, 548, and 549, were insulated by the reluctance or inability of a debtor in possession to commence and prosecute such actions. The derivative standing of an Official Committee of Unsecured Creditors filled that void where there was a reasonable basis for the action. Rather than a flat prohibition, impartial judicial balancing of the benefits of a committee’s representation better served the bankruptcy estate. Official Comm. of Unsecured Creditors v. Pardee (In re Stanwich Fin. Servs. Corp.), 2002 Bankr. LEXIS 1479, 288 B.R. 24 (Bankr. D. Conn. December 27, 2002) (Shiff, C.B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 5:544.09 [back to top]

    ABI Members, click here to get the full opinion.


    3rd Cir.

    Sale of debtor’s assets to successor airline free and clear of discrimination claims by EEOC and flight attendants affirmed. 3d Cir. PROCEDURAL POSTURE: The United States District Court for the District of Delaware affirmed the bankruptcy court’s order approving the sale of the assets of a bankrupt airline to appellee, a successor airline. Appellants, the government and flight attendants who were awarded a travel voucher program and Equal Employment Opportunity Commission (“EEOC”) claims in a class-action lawsuit, challenged extinguishment of the claims. OVERVIEW: The primary question was whether the district court erred in affirming the bankruptcy court’s order, which had the effect of extinguishing the liability of the airline, as successor to an airline it purchased the assets of, for: (1) employment discrimination claims against the predecessor; and (2) for the travel voucher program awarded to the predecessor’s flight attendants in settlement of a sex-discrimination class action. The parties’ dispute concerned the meaning of the phrase “interest in such property” as that phrase was used in section 363(f) of the Bankruptcy Code. Appellants asserted the voucher Program and pending EEOC charges were not interests in property, so the claims were improperly extinguished by the sale order. The airlines argued that the phrase should be broadly read to authorize the bankruptcy court to bar any interest that could travel with the property being sold. Because section 363(f) permitted a sale of property free and clear of an interest in such property, and because the claims against the predecessor were connected to or arose from the assets sold, the bankruptcy court’s order approving the sale free and clear of successor liability was affirmed. In re TWA, 2003 U.S. App. LEXIS 4530, — F.3d — (3d Cir. March 13, 2003) (Fuentes, C.J.).

    Collier on Bankruptcy, 15th Ed. Revised 3:363.06 [back to top]

    ABI Members, click here to get the full opinion.

    Debtor’s civil rights claims against employer and co-workers were property of the estate, despite debtor learning of right to sue only after chapter 7 discharge. E.D. Pa. PROCEDURAL POSTURE: Plaintiff employee sued defendants, employer and co-workers, alleging racial discrimination in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and 42 U.S.C. § 1981 and § 1985. The employer and the co-workers moved to dismiss the claims on the ground that the employee did not have standing to pursue the action because it was part of his bankruptcy estate and thus could only be asserted by the trustee. OVERVIEW: The employee was suspended from work on November 16, 2000, after he was involved in an altercation. The employee filed a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”). The employee filed an amended petition in bankruptcy under chapter 7 on January 16, 2001. A trustee was appointed. The employee’s schedules of assets and liabilities did not list his discrimination claims against the employer. After the bankruptcy case was closed, the employee received a right-to-sue letter from the EEOC. The court found that the employee’s claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and 42 U.S.C. § 1981 and § 1985 accrued as of his last day at work for the employer, two months before he filed his amended chapter 7 petition, notwithstanding the fact that he did not receive an EEOC right-to-sue letter until after the chapter 7 case was closed. Thus, the employee’s claims were property of the bankruptcy estate. Because the employee failed to schedule his claims in his amended chapter 7 petition, and because those claims were part of the bankruptcy estate, only the trustee in bankruptcy had standing to pursue the claims. Anderson v. Acme Mkts., Inc., 2002 U.S. Dist. LEXIS 24842, 287 B.R. 624 (E.D. Pa. December 31, 2002) (Dubois, D.J.).

    Collier on Bankruptcy, 15th Ed. Revised 5:541.05 [back to top]

    ABI Members, click here to get the full opinion.


    4th Cir

    Debtors in possession allowed to reject or abandon unspecified aircraft and engines 3 business days after notice to creditors, subject to right of creditors to object within 10 days. Bankr. E.D. Va. PROCEDURAL POSTURE: A debtor and several subsidiaries (the debtors) filed voluntary chapter 11 petitions and the cases were jointly administered. The debtors remained debtors in possession and filed a motion: (1) to reject an unspecified number of aircraft and engine leases; and (2) to abandon an unspecified number of encumbered aircraft and engines out of a pool. Creditors filed a total of 18 objections. OVERVIEW: The debtors admitted that they did not intend to abandon or reject all of the aircraft in the pool of aircraft in issue. Instead, the debtors sought the court’s authority to designate which aircraft in the pool would be abandoned or rejected. The court found that the strategy was attempt to renegotiate the terms of those loans and leases that the debtors believed were financially burdensome. The debtors sought to have rejection or abandonment effective as to particular aircraft or engines simply by giving notice to the affected lender or lessor without further court review. The court allowed abandonment or rejection to be effective 3 business days after notice, as the debtor requested, but subject to the right of the creditors’ committee or the affected lender to file an objection within 10 days of the effective date. If the objection were sustained, then the effective date of abandonment or rejection would remain unchanged. In re U.S. Airways Group, Inc., 2002 Bankr. LEXIS 1660, 287 B.R. 643 (Bankr. E.D. Va. October 2, 2002) (Mitchell, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 3:365.01 [back to top]

    ABI Members, click here to get the full opinion.

    Bank and its attorney sanctioned for attempting to collect discharged debt. Bankr. E.D. Va. PROCEDURAL POSTURE: A debtor initiated an action against creditors, a bank and its attorney, for attempting to collect a discharged debt in violation of 11 U.S.C. § 524 of the Bankruptcy Code. The court directed the bank and attorney to show cause why they should not be held in contempt of court. The matter was tried to the court. OVERVIEW: The debtor leased a car from the bank but failed to make payments. While the bank was attempting to repossess the car, the debtor filed for chapter 7 bankruptcy protection. The bank received notice of the bankruptcy but took no action in the bankruptcy proceeding. The lease expired while the bankruptcy was pending. The car was sold to satisfy a storage lien. The bank received notice of the intended sale. The bank also received notice of the chapter 7 discharge. Later, the bank, through the attorney, filed a replevin action against the debtor. When the car was not recovered, the bank obtained a judgment against the debtor and the attorney received an attorney fee award. The bank later filed interrogatories in aid of enforcement of its judgment. The debtor filed a suggestion of bankruptcy. When the bank appealed the denial of its motion to strike the suggestion of bankruptcy, the debtor commenced the instant contempt proceeding. The court found that the bank and attorney had intended not to obtain recovery of the car but, instead, to collect a discharged debt in violation of 11 U.S.C. § 524. The replevin action was simply a subterfuge for their attempt to obtain damages. In re Evans, 2002 Bankr. LEXIS 1677, — B.R. — (Bankr. E.D. Va. September 9, 2002) (Mayer, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 4:524.01 [back to top]

    ABI Members, click here to get the full opinion.


    5th Cir

    Bankruptcy court did not abuse its discretion in dismissing bankruptcy due to debtor’s failure to comply with court orders. E.D. La. PROCEDURAL POSTURE: The debtor appealed two orders of the bankruptcy court, one which granted the creditor bank relief from stay to enforce its security rights in the debtor’s residence, and one which dismissed the debtor’s bankruptcy proceeding with a 11 U.S.C. § 109(g) finding on the basis that the debtor failed to comply with the court’s orders. The bank sought dismissal of the appeal. OVERVIEW: The debtor filed his brief more than two months after filing the notice of appeal and also failed to file the transcript. Dismissal of an appeal for a breach of procedural rules was within the discretion of the court. As to the order lifting the stay, the procedural deficiencies notwithstanding, the debtor did not show that the bankruptcy court abused its discretion in lifting the stay. The record showed that there was no equity in the property and it was encumbered beyond its worth. The appeal was fraught with incurable procedural deficiencies and was otherwise moot. In re Mendy, 2003 U.S. Dist. LEXIS 4411, — B.R. — (E.D. La. March 20, 2003) (Beer, D.J.).

    Collier on Bankruptcy, 15th Ed. Revised 2:109.08 [back to top]

    ABI Members, click here to get the full opinion.

    Alcoholism and work restrictions on debtor nurse during rehabilitation did not constitute undue hardship that would permit discharge of student loans. Bankr. E.D. La. PROCEDURAL POSTURE: The debtor filed a complaint to have student loans discharged under 11 U.S.C. § 523(a)(8), arguing that repaying the loans would be an undue hardship. The creditor argued that the debtor’s earning potential as a nurse would increase after the restrictions placed on the debtor under an alcohol rehabilitation program were lifted. OVERVIEW: Two years earlier, the debtor’s nursing license was reinstated subject to five years of restrictions. The debtor had no expenses that could be eliminated or cut back, and still maintain a minimal standard of living. Her husband’s potential income was ignored, because, due to a heart condition, he did not make enough to contribute to expenses. Although the debtor could not maintain a minimal standard of living and repay the loans, and although the debtor was found to have consistently made a good faith effort to obtain employment, to maximize her income, and to minimize her expenses, the history of alcoholism and the temporal restrictions on her career were not circumstances that satisfied the second prong of the section 523(a)(8) test. The debtor’s participation in the recovering nurses program was successful. According to a licensed rehabilitation and professional counselor who was an expert in vocational rehabilitation, who testified for the creditor, the debtor would be able to improve her status at the end of the restrictions and significantly improve her income. A partial discharge was not permitted under section 523(a)(8). Roach v. United Student Aid Fund, Inc., (In re Roach), 2003 Bankr. LEXIS 174, 288 B.R. 437 (Bankr. E.D. La. January 13, 2003) (Brown, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 4:523.14 [back to top]

    ABI Members, click here to get the full opinion.


    6th Cir.

    Judgment for debtors’ intentional misrepresentation of insect infestation in sale of home was nondischargeable. Bankr. S.D. Ohio PROCEDURAL POSTURE: Plaintiffs, married debtors, filed a petition under chapter 7. Defendants, married creditors, commenced an adversary action against the debtors and sought a determination that a judgment obtained against the debtors was not subject to discharge pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (a)(6). OVERVIEW: The creditors asserted that the debtors were fraudulent in the sale of the home by: (1) failing to disclose defects and water damage in the basement; (2) failing to disclose an insect infestation; and (3) giving the false impression that the home had been completely renovated. The court found that the willful and malicious injury provision of 11 U.S.C. § 523(a)(6) was not applicable where there was no evidence in the record that the debtors ever intended to harm the creditors. The court found no evidence of fraud regarding the alleged structural and water problems with the basement. However, the court reached the opposite conclusion related to the insect infestation. The court found that the debtors knew of the problem yet remained silent and allowed the transaction to close. They also allowed the creditors and their children to move into the home and put their health at risk. The creditors met the burden of proof required for 11 U.S.C. § 523(a)(2)(A) and showed that the debtors intentionally misrepresented the condition of the home by their silence. Redmond v. Finch (In re Finch), 2003 Bankr. LEXIS 218, 289 B.R. 638 (Bankr. S.D. Ohio February 28, 2003) (Caldwell, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 4:523.01 [back to top]

    ABI Members, click here to get the full opinion.


    7th Cir.

    Debtor sanctioned for failure to comply with discovery regarding creditor’s dischargeability challenge despite repeated requests. Bankr. C.D. Ill. PROCEDURAL POSTURE: Defendant debtor filed a chapter 7 petition. Plaintiff creditor filed an adversary action against the debtor to challenge the dischargeability of a debt under 11 U.S.C. § 523(a)(6). The debtor answered the complaint. The creditor filed a motion to compel a response to a discovery request and a motion for leave to file an amended complaint. OVERVIEW: The creditor’s attorney served a discovery request for document production on the debtor’s attorney. The creditor’s attorney never received a majority of these requested documents, despite repeated requests. The creditor’s attorney sought the remaining undiscovered documents and requested a sanction be imposed against the debtor pursuant to Fed. R. Bankr. P. 7037(a)(4). The court agreed that the conduct warranted a sanction under Fed. R. Bankr. P. 7037, 9011. The sanction amount the court determined was equivalent to the amount of time required by the creditor’s attorney to acquire the requested discovery documents. The court found that leave to file an amended complaint was not appropriate where the creditor sought to add two additional counts objecting to the debtor’s discharge. Johnson v. Wood (In re Wood), 2002 Bankr. LEXIS 1460, 287 B.R. 735 (Bankr. C.D. Ill. December 19, 2002) (Fines, C.B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 10:7037.02 [back to top]

    ABI Members, click here to get the full opinion.


    8th Cir.

    State law prevented debtor from claiming homestead exemption in property that had been abandoned. Bankr. D. Minn. PROCEDURAL POSTURE: A debtor filed a chapter 7 petition and scheduled a homestead exemption pursuant to 11 U.S.C. § 522(d)(1). The chapter 7 trustee objected to the debtor’s homestead exemption. OVERVIEW: The debtor vacated the homestead claimed as exempt when she and her spouse separated pending divorce, and the debtor rented another residence. At the time the debtor’s divorce was final, the debtor had not occupied the homestead property for 19 months before filing for bankruptcy relief. At the time of filing bankruptcy, the debtor maintained her joint tenancy ownership interest in the homestead property with her former spouse. By filing bankruptcy, however, the joint tenancy was severed. The trustee’s objection was based upon the debtor’s departure and absence from the homestead property without an intent to return or preserve the property as her residence. The court agreed with the trustee that the debtor’s abandonment of the homestead property precluded her from exempting such property in bankruptcy, pursuant to Minn. Stat. § 510.07. The court also noted that the debtor failed to spend time with her minor child at the homestead property. The court rejected the debtor’s assertion that her former spouse’s valid homestead exemption in the property extended to the debtor by virtue of their joint tenancy ownership of the homestead property. In re Holman, 2002 Bankr. LEXIS 1490, 286 B.R. 882 (Bankr. D. Minn. December 18, 2002) (O’Brien, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 4:522.09[1] [back to top]

    ABI Members, click here to get the full opinion.

    Property that was subject of finalized foreclosure sale and in which debtor’s right of redemption had expired was not property of the estate. Bankr. E.D. Ark. PROCEDURAL POSTURE: A corporate debtor filed a chapter 7 petition and listed real property on its schedules. The debtor’s president moved to compel the trustee to administer the property. OVERVIEW: The debtor’s president sought: (1) a court determination that the property at issue was property of the debtor’s bankruptcy estate under 11 U.S.C. § 541; and (2) to compel the trustee to administer the property pursuant to 11 U.S.C. § 704. The trustee asserted that the debtor’s right of redemption expired under a prior foreclosure decree. In addition, the sale of the debtor’s property was finalized prior to the bankruptcy filing. The court agreed with the trustee and found that the debtor had no equitable right to redeem the property from the foreclosed mortgage prior to filing bankruptcy. The foreclosure decree extinguished the debtor’s right of redemption upon 30 days nonpayment. The debtor failed to make any offer to redeem the property from the foreclosure sale. The court found that where the debtor had no interest in the property at the time of sale, the issue of when the sale was final was not controlling. Because the order confirming sale was entered the day before the debtor filed bankruptcy, the property was not property of the estate under 11 U.S.C. § 541. In re Sugarloaf Props., 2002 Bankr. LEXIS 1483, 286 B.R. 705 (Bankr. E.D. Ark. December 17, 2002) (Evans, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 5:541.01 [back to top]

    ABI Members, click here to get the full opinion.

    Property in which homestead exemption was denied both in bankruptcy court and on appeal was property of the estate. B.A.P. 8th Cir. PROCEDURAL POSTURE: Appellant debtor filed a chapter 13 petition and claimed a homestead exemption, which was denied after a trustee’s objection. The case was converted to chapter 7. The debtor appealed the disallowed exemption, but the order was affirmed. The debtor moved to remove appellee chapter 7 trustee and abandon the property, but was denied. The debtor appealed from the United States Bankruptcy Court for the District of Minnesota. OVERVIEW: The bankruptcy appellate panel noted that the debtor was involved in litigation in different attempts to reclaim the property subject to the dispute related to the debtor’s disallowed homestead exemption. The panel found that this property was included in the chapter 7 bankruptcy estate, pursuant to 11 U.S.C. § 541(a). It was already determined that the debtor was not entitled to any exemption in the property. Under 11 U.S.C. § 704 the trustee was obligated to administer the property in issue with all of the estate property. The panel rejected the debtor’s motion to remove the trustee as without merit. Where the debtor failed to show any cause to remove the trustee, the bankruptcy court properly denied the debtor’s removal motion. Where the debtor did not meet the burden of establishing that the property was burdensome or of inconsequential value and benefit to the estate, then the bankruptcy court properly denied the motion for abandonment. Finally, the panel held that the bankruptcy court did not abuse its discretion when it enjoined the debtor against future litigation on the same matter. Alexander v. Jensen-Carter (In re Alexander), 2003 Bankr. LEXIS 179, 289 B.R. 711 (B.A.P. 8th Cir. March 13, 2003) (Schermer, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 5:541.01 [back to top]

    ABI Members, click here to get the full opinion.


    9th Cir.

    Creditor’s calls on late auto loan payments did not violate stay as debtor had elected to retain possession and make voluntary payments. B.A.P. 9th Cir. PROCEDURAL POSTURE: After the chapter 7 debtor received her discharge, she filed a class action complaint alleging violations of 11 U.S.C. § 524(a)(2) due to the secured creditor’s calls on late payments. The United States Bankruptcy Court for the Northern District of California granted the debtor’s motion for class certification, and granted the creditor’s cross motion for summary judgment. Both parties appealed. OVERVIEW: The debtor had not reaffirmed the debt or redeemed the car; she therefore elected to make voluntary payments and let the lien on the car ride through the bankruptcy. She had to make payments to retain the car. Contact between them was unavoidable, and could encompass both written and oral communications. Phone calls to collect payments in a ride-through jurisdiction were not per se improper collection activities under section 524(a)(2). The discharge injunction prohibited collection efforts as to discharged debts as the “personal liability of the debtor.” The secured creditor had a right to repossess the car if the debtor failed to make payments. There was no evidence that the creditor made any demands for payment other than as a condition for the debtor to retain possession of the car. The debtor admitted that the creditor never threatened to sue her personally for the payments owing on the car. Because the creditor had not sought to collect the discharged debt as the debtor’s personal liability, the bankruptcy court did not err in denying the debtor’s motion for summary judgment and granting the creditor’s cross motion. It was unnecessary to review the certification order. Garske v. Arcadia Fin. Ltd. (In re Garske), 2002 Bankr. LEXIS 1492, 287 B.R. 537 (B.A.P. 9th Cir. December 20, 2002) (Ryan, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 4:524.02[2] [back to top]

    ABI Members, click here to get the full opinion

    Use of corporate debtor’s funds deposited in officer’s bank account to satisfy officer’s debt to depository bank was a fraudulent transfer. Bankr. D. Idaho PROCEDURAL POSTURE: Plaintiff bankruptcy trustee brought an adversary proceeding against defendant creditor bank, seeking to recover an allegedly fraudulent transfer of the debtor corporation’s funds and an amount by which the bank improved its position by offsetting funds in the corporation’s account against a debt owed to the bank by the debtor. The bankruptcy court conducted a trial. OVERVIEW: Although the account with the bank was in the individual names of officers of the debtor corporation, the account was used solely for the corporation’s deposits. The trustee contended that the bank’s use of the corporation’s funds, with an officer’s authorization, to satisfy a debt of the officer to the bank constituted a fraudulent transfer, and that the setoff of account funds to a balance on the corporation’s debt improperly resulted in the bank’s improvement of its position in relation to other creditors. The court first held that, even though the account was in the officers’ names, and despite state laws permitting the bank to recognize only the account owner, the account funds remained the property of the corporation. Thus, the use of the funds to satisfy the officer’s debt was a transfer of the corporation’s property which was avoidable by the trustee. Further, the setoff of mutual debts between the bank and the corporation permitted the trustee to recover the offset, since the insufficiency in the corporation’s debt balance was greater 90 days before the petition was filed than at the time of the setoff occurred by an amount greater than the full amount of the setoff. Hopkins v. D.L. Evans Bank (In re Fox Bean Co.), 2002 Bankr. LEXIS 1481, 287 B.R. 270 (Bankr. D. Idaho December 26, 2002) (Pappas, C.B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 5:548.02 [back to top]

    ABI Members, click here to get the full opinion

    Unimpaired creditor lacked standing to object to plan by claiming discrimination in interest rates. 9th Cir. PROCEDURAL POSTURE: Appellate creditor challenged an order of the Bankruptcy Appellate Panel, which affirmed a bankruptcy court order confirming the chapter 11 plan of reorganization of appellees, a limited partnership and associated individuals. OVERVIEW: The creditor’s predecessor made a secured loan to the individuals. After they became delinquent, the individuals transferred the secured property to a limited partnership. The predecessor filed a foreclosure action, and sold its note to the creditor. The limited partnership filed a chapter 11 case, and the bankruptcy court confirmed a plan of reorganization that provided for payment in full of the creditor’s claim, thereby treating the creditor’s claim as unimpaired. By curing the default, interest would not be payable at a higher default rate. The creditor contended that the entire plan was per se in bad faith under 11 U.S.C. § 1129(a)(3) because it was conceived solely to deprive it of $1 million in default interest. The court held that lack of good faith was not established as a matter of law merely because the plan was crafted solely to permit the debtors to take advantage of the Bankruptcy Code to profit personally at the expense of a creditor. As an unimpaired creditor, the creditor had no standing to complain of discrimination in the interest rates paid to other creditors because under 11 U.S.C. § 1126(f), it was conclusively presumed to have accepted the plan. Platinum Capital, Inc. v. Sylmar Plaza, LP (In re Sylmar Plaza, LP), 2002 U.S. App. LEXIS 27123, 314 F.3d 1070 (9th Cir. December 30, 2002) (Schwarzer, D.J.).

    Collier on Bankruptcy, 15th Ed. Revised 7:1126.07 [back to top]

    ABI Members, click here to get the full opinion


    10th Cir.

    Debtor’s obligation to pay attorneys’ fees awarded in divorce and custody proceeding was dischargeable as payment would affect ability to financially support child. 10th Cir. PROCEDURAL POSTURE: Appellant ex-husband appealed from a decision of the Bankruptcy Appellate Panel that reversed the bankruptcy court and held that the appellee debtor’s obligation to pay attorneys’ fees awarded in a divorce and custody proceeding were dischargeable in bankruptcy under 11 U.S.C. § 523(a)(5). OVERVIEW: The appellate panel correctly ruled that under section 523(a)(5), the circumstances were sufficiently unusual to warrant exception from the general rule of nondischargeability. The debtor had an income of $893 monthly and the ex-husband was obligated to pay her $167 monthly in child support. In addition, the debtor was to pay the ex-husband $9,000 in attorneys’ fees. It would take the debtor approximately five years to pay that amount at $167 monthly if no interest accrued. To require the debtor to pay the $9,000 would essentially negate the support payments awarded by the state court for at least five years and would clearly affect her ability to financially support the child. Custodial status had to be weighed with the totality of the circumstances. In light of the debtor’s financial condition, and considering the needs and constraints of the custody relationship, it was clear that the obligation to pay the attorneys’ fees would adversely affect her ability to financially support the child. Those facts constituted unusual circumstances warranting the narrow exception to nondischargeability. Lowther v. Lowther (In re Lowther), 2002 U.S. App. LEXIS 27262, 321 F.3d 946 (10th Cir. December 31, 2002) (McKay, C.J.).

    Collier on Bankruptcy, 15th Ed. Revised 4:523.11 [back to top]

    ABI Members, click here to get the full opinion

    Debtor’s request for conversion to chapter 13 could be granted provided failure to give proper notice was cured and no timely objections filed. Bankr. D.N.M. PROCEDURAL POSTURE: A debtor filed a chapter 7 petition and received a discharge. The debtor then moved to covert the chapter 7 case to a chapter 13 case, and the chapter 7 trustee objected. OVERVIEW: The court agreed that the debtor failed to send out notice of the motion to convert as required by the Federal Rules of Bankruptcy Procedure. Because the debtor had not issued an appropriate notice of her motion to convert, the court held onto the motion to convert until the notice period lapsed. The court applied 11 U.S.C. § 706 and Fed. R. Bankr. P. 1017(f)(2), 9013. The court also reviewed a decision by the Tenth Circuit that allowed a debtor to convert from a chapter 7 case to a chapter 13 case if the debtor had not previously converted. The court stated that it would enter the conversion order after the notice period and if not objections were filed. In re Rigales, 2003 Bankr. LEXIS 222, — B.R. — (Bankr. D.N.M. March 17, 2003) (McFeeley, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 6:706.01 [back to top]

    ABI Members, click here to get the full opinion

    Procedural notice requirement cannot limit debtor’s substantive right to convert from chapter 7 to chapter 13. Bankr. D.N.M. PROCEDURAL POSTURE: A debtor filed a chapter 7 petition and received a discharge. The debtor then moved to covert the chapter 7 case to a chapter 13 case, and the chapter 7 trustee objected. OVERVIEW: The court agreed that the debtor failed to send out notice of the motion to convert as required by the Federal Rules of Bankruptcy Procedure. Because the debtor had not issued an appropriate notice of her motion to convert, the court held onto the motion to convert until the notice period lapsed. The court applied 11 U.S.C. § 706 and Fed. R. Bankr. P. 1017(f)(2), 9013. The court also reviewed a decision by the Tenth Circuit that allowed a debtor to convert from a chapter 7 case to a chapter 13 case if the debtor had not previously converted. The court stated that it would enter the conversion order after the notice period and if not objections were filed. In re Rigales, 2003 Bankr. LEXIS 222, — B.R. — (Bankr. D.N.M. March 17, 2003) (McFeeley, B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 9:1017.01 [back to top]

    ABI Members, click here to get the full opinion


    11th Cir.

    Florida opt-out statute did not prevent non-immigrant domiciled outside the U.S. from claiming federal personal property exemption. Bankr. S.D. Fla. PROCEDURAL POSTURE: The debtor filed a chapter 13 and scheduled exemptions for personal property pursuant to 11 U.S.C. § 522. The trustee objected to the exemptions. OVERVIEW: On the bankruptcy petition date, the debtor owned property and was living in Florida. The debtor informed the trustee that the debtor was not a United States citizen or resident. The trustee argued that the debtor was not entitled to utilize Florida’s exemptions since he was not domiciled in Florida. The trustee also argued that as a Florida resident, Florida’s opt-out statute, Fla. Stat. ch. 222.20, precluded the debtor from utilizing the federal exemptions of 11 U.S.C. § 522. The court framed the issue as whether a non-immigrant alien debtor, who was entitled to file a bankruptcy petition under the U.S. Bankruptcy Code, was entitled to the federal exemptions when the debtor was not domiciled in any state. It was the trustee’s burden to prove that the Florida statute applied to non-immigrant alien debtors that resided in the state of Florida, and precluded the debtor from use of the federal exemptions. The parties stipulated that the debtor was not domiciled in Florida or any state in the 180 days prior to filing the bankruptcy petition. The court found that Florida’s opt-out statute did not apply where the debtor was not domiciled in Florida when he filed his bankruptcy case. In re Arispe, 2002 Bankr. LEXIS 1475, 289 B.R. 245 (Bankr. S.D. Fla. December 23, 2002) (Mark, C.B.J.).

    Collier on Bankruptcy, 15th Ed. Revised 4:522.01 [back to top]

    ABI Members, click here to get the full opinion

    Bankruptcy filed by board of directors to derail sale of oceanfront property agreed to while board was under different control dismissed for lack of good faith. 11th Cir. PROCEDURAL POSTURE: Debtor-plaintiff appealed from an order of the United States District Court for the Southern District of Florida that affirmed a bankruptcy court order dismissing the debtor’s chapter 11 bankruptcy case for cause, pursuant to 11 U.S.C. § 1112(b), for abuse of the bankruptcy process. OVERVIEW: After the debtor’s board of directors agreed to sell its oceanfront property to the adversary defendant purchaser, a different individual acquired control of the board and actively attempted to derail the sale. The strategy included filing the bankruptcy petition. The purchaser moved to dismiss the petition pursuant to 11 U.S.C. § 1112(b), and the bankruptcy court found that the purchaser carried its burden, showing the bankruptcy filing in this case was an improper use of the bankruptcy process and the court. On appeal, the debtor argued that review of its action in filing the petition should have been governed by the business judgment rule, and thus presumed to have been in good faith. The court of appeals noted that the purchaser had had the burden of proving an improper filing, and had clearly rebutted any assumption that the debtor had acted in good faith by prevailing on its section 1112(b) motion. The lower courts had properly applied the law, and the judgment was affirmed. The Bal Harbour Club, Inc. v. AVA Dev., Inc. (In re The Bal Harbour Club, Inc.), 2003 U.S. App. LEXIS 9, 316 F.3d 1192 (11th Cir. January 2, 2003) (Tjoflat, C.J.).

    Collier on Bankruptcy, 15th Ed. Revised 7:1112.01[2][a] [back to top]

    ABI Members, click here to get the full opinion