Collier Bankruptcy Case Update April-9-01
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 9, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
§ 523(a)(8) Debtor’s circumstances warranted discharge of student loan obligation.
Gotay v. Educational Credit Management Corp. (In re Gotay) (Bankr. D. Mass.) 042029
2d Cir.
§ 327(a) Prepetition creditor did not qualify for employment as debtor’s accountant.
United States Trustee v. Andover Togs, Inc. (In re Andover Togs, Inc.) (S.D.N.Y.) 042004§ 523(a)(8) Student Loan obligation was not dischargeable.
Thoms v. Educational Credit Management Corp. (In re Thoms) (Bankr. S.D.N.Y.) 042030§ 523(a)(15) Debtor who made payments toward pension plan, student loans, and personal loan failed to demonstrate inability to pay divorce obligation.
Foto v. Foto (In re Foto) (Bankr. S.D.N.Y.) 042034§ 525(a) District court reversed bankruptcy court order that lifted stay and allowed landlord to evict debtor from publicly subsidized apartment.
Stoltz v. Brattleboro Housing Auth. (D. Vt.) 042035§ 1101(2) Substantial consummation occurred, precluding appeal of plan confirmation order.
In re Home Holdings, Inc. (S.D.N.Y.) 042042§ 1325(b) Pension contributions made by payroll deduction were not part of disposable income if determined to be reasonably necessary.
The New York City Employees’ Retirement System v. Sapir (In re De Ann Taylor) (2d Cir.) 04204528 U.S.C. § 158 Noncreditor did not have standing to appeal chapter 11 plan confirmation.
In re Home Holdings, Inc. (S.D.N.Y.) 042049
3d Cir.
§ 523(a)(6) Creditor denied summary judgment on motion seeking determination that sanctions imposed against debtors by state court were nondischargeable.
Mortgage Capital Advisors, Inc. v. Hawkins (In re Hawkins) (Bankr. D. Del.) 042028§ 553 Related entities who entered into prepetition dealer agreements with chapter 11 debtors had rights of recoupment and setoff.
In re Telephone Warehouse, Inc. (Bankr. D. Del.) 042039§ 553(a) IRS was allowed to set off refund.
In re Haizlett (Bankr. W.D. Pa.) 042040
4th Cir.
§ 365(d)(10) Lessor of vehicles to debtor in possession was entitled to an rent payments for the period beginning 60 days postpetition until surrender.
In re D.M. Kaye & Sons Transp. (Bankr. D.S.C.) 042011
5th Cir.
§ 363(a) Bankruptcy court order that granted debtor’s motion for permission to use rents affirmed.
In re Dimitri (E.D. La.) 042009§ 506(c) Court of Appeals held that bankruptcy court erred in not hearing creditor’s objection to imposition of surcharge.
TNB Financial, Inc. v. James F. Parker Interests (In re Grimland, Inc.) (5th Cir.) 042014§ 507(a)(8) Income tax assessment not discharged where assessment was not made before, but was assessable after, commencement of the debtor’s case.
Waugh v. IRS (In re Waugh) (N.D. Tex.) 042015§ 522(f) Mississippi creditor’s construction lien was statutory lien that could not be avoided by chapter 7 debtors.
In re Mitchell (Bankr. N.D. Miss.) 042018
6th Cir.
§ 329(a) Failure to disclose compensation was basis for denial of fee allowance.
In re Campbell (Bankr. N.D. Ohio) 042005§ 523(a)(2)(A) Debt for bounced checks was nondischargeable.
Mellon Bank, N.A. v. Vitanovich (In re Vitanovich) (B.A.P. 6th Cir.) 042023§ 523(a)(8) Debtor asserted defense, but failed to present evidence, of undue hardship.
United States of America v. Totzkay (In re Totzkay) (W.D. Mich.) 042031
7th Cir.
§ 523(a)(2)(A) Purchaser of building who possessed inspection report could not claim misrepresentation regarding the number of units available for condominium use.
Bletnitsky v. Jairath (In re Jairath) (Bankr. N.D. Ill.) 042024§ 523(a)(2)(A) Default judgment based on RICO charges had collateral estoppel effect on dischargeability action.
Herbstein v. Bruetman (In re Bruetman) (Bankr. N.D. Ill.) 042025
8th Cir.
§ 522(b)(2)(B) Joint tenant was entitled to full homestead exemption.
Abernathy v. LaBarge (In re Abernathy) (B.A.P. 8th Cir.) 042017§ 523(a)(8) Debtor’s lack of good faith was not relevant to student loan dischargeability determination.
Crowley v. United States Department of Education (In re Crowley) (Bankr. W.D. Mo.) 04203228 U.S.C. § 157 Rooker-Feldman doctrine did not bar bankruptcy court from determining fraudulent transferee’s ownership interest in proceeds from sale of painting.
Blackwell v. Lurie (In re Popkin & Stern) (B.A.P. 8th Cir.) 04204628 U.S.C. § 158(d) Order approving reorganization plan affirmed over debtors’ objections to valuation.
Northwest Village Ltd. Partnership v. Franke (In re Westpointe) (8th Cir.) 042050
9th Cir.
§ 522(b)(2)(A) Debtor properly claimed retirement account exempt.
In re Atwood (B.A.P. E.D. CAL.) 042016§ 522(l) Trustee’s objection to exemptions was untimely despite the failure to conclude the section 341(a).
In re Blethen (B.A.P. C.D. CAL.) 042020
10th Cir.
§ 330(a)(1) After remand, chapter 7 trustee was still entitled to three million dollars in fees.
Connolly v. Harris Trust Co. (In re Miniscribe Corp.) (Bankr. D. Colo.) 042006
11th Cir.
§ 105(a) Bankruptcy court was authorized to extend time sua sponte for objections to debtor’s exemptions.
In re Booth (Bankr. M.D. Fla.) 042002§ 350(b) Motion to reopen was denied.
In re Graves (Bankr. N.D. Ala.) 042008§ 523(a)(5) Remand required for determination of intent.
Cummings v. Cummings ( MISSING S.D. FLA.) 042027
Collier Bankruptcy Case Summaries
1st Cir.
Debtor’s circumstances warranted discharge of student loan obligation. Bankr. D. Mass. The fifty year old chapter 7 debtor, raising her emotionally disturbed grandson, earned gross income of less than $20,000 per year and had to relinquish her second job in order to care for her grandson. Her student loan obligations were incurred not for her own education but for her sons’ education. When the debtor sought a determination that the student loan debts were dischargeable, the bankruptcy court held that the debtor’s straightened circumstances were unlikely to improve so that an undue hardship existed. Applying the totality of the circumstances test, there was no likelihood that her ability to repay the loans would increase, she was barely surviving on the income she received, and all of her funds were necessary to support herself and her grandson.Gotay v. Educational Credit Management Corp. (In re Gotay), 2001 Bankr. LEXIS 188, – B.R. – (Bankr. D. Mass. February 27, 2001) (Rosenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
2nd Cir.
Prepetition creditor did not qualify for employment as debtor’s accountant. S.D.N.Y. Prior to filing a chapter 11 petition, the debtor retained an accounting firm to complete an audit in connection with a required 10K filing with the SEC. As a result of the auditing work, the debtor incurred a prepetition unsecured debt in the amount of $126,331. After the chapter 11 filing, the debtor filed an application seeking to employ the same firm as accountants to finish the auditing work it had already substantially completed. The firm advised the debtor that the cost of completing the audit would be approximately $15,000. The other creditors did not object but the United States Trustee filed an objection, arguing that pursuant to section 327(a) the firm, as a prepetition creditor, could not be retained by the debtor. The debtor argued that the cost of hiring another accounting firm would have been approximately $100,000 since a new firm would not have been able to utilize the work already performed. The bankruptcy court approved the retention of the firm, providing a limited exception to section 327(a), and permitted the firm to serve as accountants for the purpose of completing the audit. The court reasoned that although the firm was not disinterested, it did not hold any interest adverse to the estate. The United States Trustee appealed the retention order.The district court reversed, holding that the bankruptcy court had erred in authorizing the retention. The district court found that, in light of section 327(a)’s clear prohibition against retention of disinterested professionals, it could not extend to the accounting firm the express exception given to attorneys under section 327(e) (citing Collier on Bankruptcy, 15th Ed.).United States Trustee v. Andover Togs, Inc. (In re Andover Togs, Inc.), 2001 U.S. Dist. LEXIS 2690, – B.R. – (S.D.N.Y. March 13, 2001) (Batts, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:327.04
Student Loan obligation was not dischargeable. Bankr. S.D.N.Y. The chapter 7 debtor obtained 14 loans to fund her masters degree, but, over a 9 year period of time, paid less than $700 on the obligation. After filing her chapter 7 petition, she sought a determination that the debt was dischargeable based upon an undue hardship. Applying the Brunner test, Brunner v. N.Y. Higher Educ. Serv., 46 B.R. 752 (S.D.N.Y. 195), aff’d, 831 F.3d 395 (2d Cir. 1987), the bankruptcy court held that payment of the student loan obligation did not impose an undue hardship upon the debtor or a dependent of the debtor. The debtor had a current ability to pay and yet maintain a minimal standard of living since, under the most liberal analysis, she had $550 per month available to pay toward the obligation. Her future ability to pay would substantially increase after she ceased supporting her adult siblings. Finally, there was a lack of good faith effort to repay since she failed to explore alternatives with the lender, had made no effort to seek child support, and made no attempt to pay the obligation after earning her master’s degree.Thoms v. Educational Credit Management Corp. (In re Thoms), 2001 Bankr. LEXIS 199, – B.R. – (Bankr. S.D.N.Y. January 5, 2001) (Gonzalez, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
Debtor who made payments toward pension plan, student loans, and personal loan failed to demonstrate inability to pay divorce obligation. Bankr. S.D.N.Y. The creditor obtained a judgment of divorce against the debtor and received an award for child support, maintenance, and a distributive award payable over 20 years at the rate of approximately $17,700 per year. The debtor, a medical doctor, never made a voluntary payment toward any of those obligations. The debtor came to cohabit with an individual whose yearly income was approximately $100,000 and began a private medical practice in addition to his hospital employment. After the debtor filed a chapter 7 petition, the creditor commenced an adversary proceeding to determine the dischargeability of the obligations under the divorce judgment. The creditor contended that: (1) the income of the individual with whom the debtor cohabited should be factored into the computation of disposable income, and that (2) certain items of the debtor’s scheduled expenditure were questionable, such as pension plan payments, student loan payments, unexplained credit card charges and repayment of a personal loan to the debtor’s sister. The debtor argued that he did not have the ability to pay his obligations to the creditor, pursuant to section 523(a)(15). The bankruptcy court followed the majority opinion that the income of the individual with whom the debtor resided should be factored into the determination of the debtor’s ability to pay. The court went on to hold that the debtor did not sustain his burden of proving an inability to pay within the meaning of section 523(a)(15). The court found that the debtor had used substantial amounts of funds for other purposes which he could have chosen to allocate to the obligations to the creditor, such as the payments to his sister, to student loan obligations, and to contributions toward the pension plan.Foto v. Foto (In re Foto), 2000 Bankr. LEXIS 1696, – B.R. – (Bankr. S.D.N.Y. June 20, 2000) (Hardin, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.21
District court reversed bankruptcy court order that lifted stay and allowed landlord to evict debtor from publicly subsidized apartment. D. Vt. In a case that was converted from chapter 13 to chapter 7, the debtor appealed from a bankruptcy court order that lifted the automatic stay and allowed her landlord to evict her from her publicly subsidized apartment. The debtor challenged the bankruptcy court’s order on grounds that the bankruptcy judge erroneously construed the effect of the section 525 antidiscrimination provision to the facts of her case. The district court vacated the bankruptcy court’s order and reinstated the automatic stay. The court held that the bankruptcy court erred in finding that section 525(a) worked only to protect public housing debtor/tenants’ rights to access subsidized housing in the future. The district court based its decision on precedent and legislative, and its conclusion that the real consequences of the bankruptcy court’s limited reading of section 525 were too detrimental to the debtor’s ability to survive, let alone to begin afresh, to permit the bankruptcy court’s order to stand.Stoltz v. Brattleboro Housing Auth., 2001 U.S. Dist. LEXIS 2560, – B.R. – (D. Vt. February 14, 2001) (Murtha, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:525.02[5]
Substantial consummation occurred, precluding appeal of plan confirmation order. S.D.N.Y. The chapter 11 debtor holding company owned an insurance company and a land development company, and filed the chapter 11 petition in order to resolve the financial difficulties of its insurance company. The bankruptcy court, with some reservation, permitted a policy holder to intervene to contest the impact of the chapter 11 plan upon the insurance company. The chapter 11 plan provisions providing for releases of liability and exchange of assets and tax benefits were confirmed as essential to the formulation and implementation of the plan. The district court affirmed and dismissed the appeal, holding that substantial consummation occurred on the effective date of the plan because on that date, securities were issued, a $15.2 million settlement was executed, a $21 million cash distribution was made, and ownership of the insurance company was transferred (citing Collier on Bankruptcy, 15th Ed. Revised).In re Home Holdings, Inc., 2001 U.S. Dist. LEXIS 2797, – B.R. – (S.D.N.Y. March 13, 2001) (Batts, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1101.02
Pension contributions made by payroll deduction were not part of disposable income if determined to be reasonably necessary. 2d Cir. The chapter 13 debtor, a city (New York) employee, was a member of a retirement plan in the public sector. According to the debtor’s schedules, a monthly amount was deducted from her salary and placed into the retirement plan. The chapter 13 trustee objected, arguing that the debtor’s pension contributions were not reasonably necessary expenses and needed to be included in her disposable income. Pursuant to the trustee’s objection, the debtor filed a motion in bankruptcy court requesting a termination of the payroll deduction for the duration of the chapter 13 plan. The retirement system objected to the debtor’s motion on the grounds that state (New York) statutes required certain public employees to participate in the retirement plan and contribute to the fund. Because of this mandate, the retirement system argued that the pension contributions were reasonably necessary expenses that could not be included as disposable income in the chapter 13 plan. The court held that pension withholdings from a chapter 13 debtor’s salary were disposable income and thus must be included in the plan. The retirement system appealed to the district court, which affirmed. The court relied on the fact that the debtor would not be terminated from employment if she failed to make the contributions. This second appeal followed. The Court of Appeals for the Second Circuit reversed and remanded. The court held that the issue hinged on whether or not pension contributions were reasonably necessary for the debtor, the determination of which must be made by examining a range of factors, including: the age of the debtor and the amount of time until retirement; the amount of the monthly contributions and the total amount of contributions the debtor would have to buy back if payments were discontinued; the likelihood that the buy-back payments would jeopardize the debtor’s fresh start; and, the number and nature of dependents. The Court of Appeals remanded for the determination of the reasonably necessary inquiry.The New York City Employees’ Retirement System v. Sapir (In re De Ann Taylor), 2001 U.S. App. LEXIS 4125, – F.3d. – (2d Cir. March 20, 2001) (Patterson, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.08[4]
Noncreditor did not have standing to appeal chapter 11 plan confirmation. S.D.N.Y. The chapter 11 debtor holding company owned an insurance company and a land development company, and filed the chapter 11 petition in order to resolve the financial difficulties of its insurance company. The bankruptcy court, with some reservation, permitted a policy holder to intervene to contest the impact of the chapter 11 plan upon the insurance company. The chapter 11 plan provisions providing for releases of liability and exchange of assets and tax benefits were confirmed as essential to the formulation and implementation of the plan. The bankruptcy court denied a stay pending appeal of the confirmation order, as did the district court. Reaching the merits of the appeal, the district court affirmed and dismissed the appeal, holding that the policy holder was not pecuniarily affected and, thus, had no standing to appeal the confirmation order. Each of the policy holder’s arguments that he was pecuniarily affected were analyzed and dismissed. Moreover, the fact that the state (New Hampshire) department of insurance approved the plan undermined the policy holder’s arguments. Finally, inasmuch as the plan had been substantially consummated and unraveling the transactions completed would undermine the reorganization, the appeal was moot. The court rejected the argument that if a bankruptcy court lacks jurisdiction over the subject matter, the appellate court may not cannot dismiss the appeal as moot (citing Collier on Bankruptcy, 15th Ed. Revised).In re Home Holdings, Inc., 2001 U.S. Dist. LEXIS 2797, – B.R. – (S.D.N.Y. March 13, 2001) (Batts, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:5.06; 10:8005.02
3rd Cir.
Creditor denied summary judgment on motion seeking determination that sanctions imposed against debtors by state court were nondischargeable. Bankr. D. Del. A judgment creditor moved for summary judgment on its complaint seeking a determination that an award of monetary sanctions imposed against the chapter 7 debtors by a state (Delaware) court (plus interest, attorneys’ fees and costs) was nondischargeable under section 523(a)(6). The creditor argued that the state court’s finding of contempt collaterally estopped the debtors from contesting the nature of their conduct. Alternatively, the creditor argued that the uncontested facts compelled the conclusion that the debtors’ conduct was willful and malicious. The bankruptcy court denied the creditor’s summary judgment motion. The court held that because the state court’s bases for imposing sanctions did not require a finding that the debtors willfully acted to cause harm to the creditor, the court could not conclude that the state court necessarily addressed the issue and collateral estoppel did not apply. The court also held that contrary to the creditor’s assertion, there was a genuine issue of material fact that precluded summary judgment regarding whether the debtors willfully and maliciously disobeyed the orders of the state court.Mortgage Capital Advisors, Inc. v. Hawkins (In re Hawkins), 2001 Bankr. LEXIS 221, – B.R. – (Bankr. D. Del. March 1, 2001) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12
Related entities who entered into prepetition dealer agreements with chapter 11 debtors had rights of recoupment and setoff. Bankr. D. Del. Related entities entered into prepetition dealer agreements with the debtors, who were among the largest independent specialty retailers of cellular and wireless products, services, and accessories in the United States. After the debtors filed their chapter 11 cases, the entities moved for determination that they had rights of recoupment or setoff against obligations owed to chapter 11 the debtors under the agreements. The debtors moved to compel payment from the related entities. The bankruptcy court held that all the sums due between the parties were part of a single integrated business transaction and subject to the rights of recoupment and that, even if the related entities were not entitled to recoup the amounts due them against the amounts they owed, they had the right to setoff those amounts. With respect to the setoff, the court found that there was mutuality of debt, and that the obligations arose prepetition. The court noted that for purposes of setoff, the timing of payment does not affect when the obligation arose.(citing Collier on Bankruptcy 15th Ed. Revised).In re Telephone Warehouse, Inc., 2001 Bankr. LEXIS 222, – B.R. – (Bankr. D. Del. February 28, 2001) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:553.01
IRS was allowed to set off refund. Bankr. W.D. Pa. The chapter 7 debtors filed a motion to enforce the discharge order. At the time the debtors filed their petition, they were both obligated to the IRS for dischargeable income taxes and entitled to an income tax refund. Subsequent to the entry of the discharge order, the IRS set off the debtors’ refund and applied it to the debtors’ income tax obligations. The debtors asserted that their income tax refund constituted a postpetition asset because they did not file their return until after their petition was filed. The debtors thus claimed that there was no prepetition debt owed by the IRS which could be set off against prepetition tax liabilities. The bankruptcy court rejected the debtors’ argument, holding that the IRS could offset the balance due for the debtors’ prepetition tax liability from the refund. For purposes of section 553, the tax refund arose at the end of the taxable year to which it related, which was prepetition.In re Haizlett, 2000 Bankr. LEXIS 1704, – B.R. – (Bankr. W.D. Pa. December 28, 2000) (Bentz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:553.03, .06[3]
4th Cir.
Lessor of vehicles to debtor in possession was entitled to an rent payments for the period beginning 60 days postpetition until surrender. Bankr. D.S.C. The debtor was a flatbed and dry van carrier that operated a fleet of tractors and trailers. The creditor was a corporation engaged in the equipment leasing business. From March 1999 through October 1999, the debtor entered into 10 vehicle lease agreements with the creditor as lessor. In June 2000 the debtor filed its chapter 11 petition. Shortly thereafter the creditor filed a motion for relief from the automatic stay or, alternatively, for adequate protection, claiming that the debtor continued use and possession of the vehicles. The matter was settled by stipulation, under which the debtor would tender possession of the vehicles but retained the right to use the vehicles until tender. The stipulation did not provide for lease payments. The creditor then filed a motion seeking administrative expense status pursuant to section 503(b)(1)(A) for rent payments due under the leases for the first 59 days postpetition and to timely rent payments pursuant to section 365(d)(10) for the period starting on the sixtieth day following the petition filing and continuing until rejection of the leases. The bankruptcy court held that the debtor was obligated to the creditor for payment for the period between 60 days after the petition filing and the various dates the vehicles were returned to the creditor, which represented the dates the leases were rejected. The court reasoned that the purpose of section 365(d)(10) was to mandate the performance of the debtor’s duties and obligations under an unexpired lease beginning 60 days after filing, regardless of whether the claim is granted administrative expense status.In re D.M. Kaye & Sons Transp., 2001 Bankr. LEXIS 218, – B.R. – (Bankr. D.S.C. February 1, 2001) (Waites, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365[6],[7]
5th Cir.
Bankruptcy court order that granted debtor’s motion for permission to use rents affirmed. E.D. La. A mortgagee failed a petition to foreclose on several real estate parcels that were owned by the debtor and her late husband and were subject to three mortgages given to secure the debtors’ indebtedness to the mortgagee. Each of the mortgages contained an assignment of rents clause. As a result of the foreclosure petition, a state district judge signed an order directing the clerk to issue writs of seizure and sale against the property and ordered seizure of all rents and revenues. After the debtor filed her chapter 11 case, the mortgagee moved to prohibit her use of rents as cash collateral and the debtor moved for permission to use those same rents. The bankruptcy court denied the mortgagee’s motion and granted the debtor’s motion. The mortgagee appealed. The district court affirmed. The court rejected the mortgagee’s argument that the rent assignments at issue became absolute upon the debtor’s default, and that the bankruptcy court had no authority to allow the debtor to use the rents as cash collateral. The court held that based on the appellate record, the district court could not conclude that the debtor was in default or, even if she were, that the mortgagee took the steps necessary to perfect its interests in the rents. Thus, the mortgagee presented no evidence or compelling reason to believe that the bankruptcy court erred in granting the debtor permission to use the rents. The court also noted that there appeared to be adequate protection for purposes of section 363.In re Dimitri, 2001 U.S. Dist. LEXIS 2773, – B.R. – (E.D. La. March 6, 2001) (Clement, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.03[4]
Court of Appeals held that bankruptcy court erred in not hearing creditor’s objection to imposition of surcharge. 5th Cir. The debtor operated an automotive transmission and engine rebuilding business, storing waste oil on premises leased from the lessor. After the debtor filed a chapter 7 petition, the trustee moved to abandon all of the debtor’s personal property, including the waste oil. The lessor objected to the abandonment, but it was eventually stipulated that it be granted an administrative expense claim of $45,000 to cover the costs of removing the waste oil and as a reasonable rental for storing the estate’s personal property on its premises pending liquidation. The trustee auctioned off all of the debtor’s personal property. The creditor who held a perfected purchase money security interest in the debtor’s personal property, securing a debt of approximately $20,000, did not object to the sale based on assurances from the trustee that its position would be protected. The sale generated proceeds of approximately $70,000, which left the estate with funds of approximately $75,000 for distribution. The actual costs to dispose of the waste oil were over $65,000 and the rental for storage nearly $24,000. The total costs of the waste oil remediation and the rental were thereby almost twice the amount that the lessor had been allowed as an administrative expense. The lessor then moved to have the collateral securing the creditor’s lien surcharged for remediation and rental costs, pursuant to section 506(c). The creditor did not file opposition to the motion until more than 20 days beyond its original filing. By that time, the lessor had filed a supplementary motion seeking surcharge, and the court treated the creditor’s untimely filed objection as a response to the second motion. The bankruptcy court, noting that the creditor failed to file objections to the first motion, granted the two surcharge motions, which effectively stripped the creditor of its entire lien. After the court refused to reconsider its surcharge order, the creditor appealed to the district court, which affirmed. This appeal followed. The Court of Appeals for the Fifth Circuit reversed and remanded, holding that the bankruptcy court had erred in not ruling on the merits of the creditor’s objection. The Court of Appeals reasoned that the issue of benefit to a creditor was dispositive in determining entitlement to a surcharge under section 506(c), and that the bankruptcy court abused its discretion by not hearing the creditor’s claim on the merits and by refusing to reconsider its denial, despite the late filing of objections to the first motion. TNB Financial, Inc. v. James F. Parker Interests (In re Grimland, Inc.), 2001 U.S. App. LEXIS 3714, – F.3d. – (5th Cir. March 12, 2001) (Restani, J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.05
Income tax assessment not discharged where assessment was not made before, but was assessable after, commencement of the debtor’s case. N.D. Tex. The chapter 7 debtor appealed a bankruptcy court order that granted summary judgment in favor of the IRS and ruled that an income tax assessment against the debtor for the 1986 tax year was not discharged by the court’s December 23, 1997 discharge order. On appeal, the debtor argued that that summary judgment was not proper because his 1986 tax return was filed more than two years before his bankruptcy petition, and the associated tax liabilities were therefore dischargeable. The debtor also argued that the bankruptcy court erred by not entering specific findings of fact and conclusions of law supporting its grant of summary judgment. The district court affirmed. The court held that the debtor failed to establish a genuine issue of material fact regarding whether the debt in question was dischargeable as a result of a return having been filed in 1987, and that, as a matter of law, an unsigned copy of the 1986 tax return was not filed when it was mailed to the IRS by the debtor’s wife in 1989. The court also held that since the assessment in question was not assessed before, but was assessable after, the commencement of the debtor’s case, even if the return were filed in 1987 or 1989 and therefore not exempt from discharge under section 523(a)(1)(B)(i), it would still be exempt from discharge under sections 523(a)(1)(A) and 507(a)(8)(A)(iii). Finally, the court found that remand to the bankruptcy court to enter specific findings of fact and conclusions of law was unnecessary since it reviewed the bankruptcy court’s grant of summary judgment de novo.Waugh v. IRS (In re Waugh), 2001 U.S. Dist. LEXIS 2246, – B.R. – (N.D. Tex. February 28, 2001) (Lindsay, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.10
Mississippi creditor’s construction lien was statutory lien that could not be avoided by chapter 7 debtors. Bankr. N.D. Miss. A judgment creditor moved for relief from the stay to assert its construction lien and proceed with the execution sale of the debtors’ homestead property. The debtors objected, claiming that the creditor was attempting to enforce a judicial lien against their homestead property, and that section 522(f)(1) was therefore triggered to allow them to avoid the lien. The creditor argued that 522(f)(1) did not apply because the lien in question, which arose because the creditor furnished labor in the construction of the debtors’ home, was a statutory lien rather than a judicial lien. Based on its analysis of the state (Mississippi) statutes applicable to the creation, perfection, and enforcement of construction liens, the bankruptcy court held that the lien at issue was a statutory lien that could not be avoided by the debtors pursuant to section 522(f)(1). Since the creditor held an unavoidable claim against the debtors for constructing their residence, and because state law provided that the debtors could not claim an exemption in their homestead property against such a claim, the court found that sufficient cause existed to lift the automatic stay for the limited purpose of allowing the creditor to proceed with enforcement of its statutory construction lien and resulting judgment.In re Mitchell, 2001 Bankr. LEXIS 223, – B.R. – (Bankr. N.D. Miss. March 1, 2001) (Houston, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11
6th Cir.
Failure to disclose compensation was basis for denial of fee allowance. Bankr. N.D. Ohio At the time the debtor filed his chapter 13 petition, he was obligated under a note to a creditor secured by a mortgage on the debtor’s residence. After the plan was confirmed, the debtor entered into an agreement with an attorney for representation in effectuating a refinancing for the purpose of assisting the completion of the chapter 13 plan. The agreement provided for a flat fee. The attorney did not file a fee application or a fee disclosure with the bankruptcy court. The United States Trustee filed a motion to review fees paid to the attorney postconfirmation, to cancel the fee agreement, and to order a refund of the fees. The attorney argued that her services to the debtor only involved an examination of his total indebtedness, and the preparation of necessary documents for the refinancing. The court held that the attorney’s failure to comply with section 329(a) was the basis for denial of compensation and an order to return the sums already paid. The court reasoned that the attorney’s services were rendered toward the goal of obtaining the chapter 13 discharge, which fell within the ambit of the disclosure requirements of section 329(a). In re Campbell, 2001 Bankr. LEXIS 229, (Bankr. N.D. Ohio February 22, 2001) (Morgenstern-Clarren, B.J.) (for electronic publication only).
Collier on Bankruptcy, 15th Ed. Revised 3:329.03
Debt for bounced checks was nondischargeable. B.A.P. 6th Cir. The debtor appealed the bankruptcy court’s finding that he had engaged in a check kiting scheme and that the debt owed to the bank was nondischargeable under section 523(a)(2)(A). Within a short period of time, the debtor drew checks on an account in one bank and deposited them in an account in a second bank when neither account had sufficient funds to cover the amounts drawn. Just before the checks were returned for payment, the debtor deposited checks drawn on the account in the second bank. Eventually, checks were returned from the creditor bank for insufficient funds. The B.A.P. affirmed, holding that the check kiting scheme engaged in by the debtor constituted actual fraud and the debt was nondischargeable under section 523(a)(2)(A). The panel adopted a broad definition of actual fraud which included the debtor’s intentional scheme to deprive the creditor of propertyMellon Bank, N.A. v. Vitano