Collier Bankruptcy Case Update August-18-03
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.
August 18, 2003
Completion of foreclosure
sale was subject to automatic
stay where debtor retained equity
of redemption at time of filing.
In re Grassie (Bankr. D. Mass.)
§ 304 Debtors under Mexico’s Business Reorganization Act granted preliminary injunction against New York creditors.
In re Avila (Bankr. S.D.N.Y.)
§ 330(a) Attorneys’ fee application granted in reduced amount because of failure to promptly file necessary foreign administration proceedings.
In re Cenargo Int’l, PLC (Bankr. S.D.N.Y.)
§ 362(a)(3) Tax foreclosure on property inherited by debtor violated stay and was void.
Burg v. City of Buffalo (In re Burg) (Bankr. W.D.N.Y.)
Court granted creditor’s
motion for relief from automatic
stay to pursue state court action
against the debtor.
In re Ware Window Co. (Bankr. E.D. Pa.)
§ 523(a)(5) Despite labels in settlement agreement, debtor’s obligations to former spouse were maintenance and not dischargeable.
Gunn v. Froncillo (In re Froncillo) (Bankr. W.D. Pa.)
§ 348(d) Postconfirmation debt allowed as general unsecured prepetition claim upon conversion from chapter 11 to chapter 7.
In re O’Connor (Bankr. N.D. Tex.)
§ 546(a)(1)(A) Liquidating trustee had standing to bring avoidance actions as successor to chapter 11 trustee.
Reynolds v. Feldman (In re Unger & Assocs., Inc.) (Bankr. E.D. Tex.)
§ 727(a) Discharge denied because of debtor’s prepetition and postpetition attempts to conceal assets.
Melancon v. Jones (In re Jones) (Bankr. E.D. Tex.)
§ 521(1) Debtor could not claim state exemption for personal injury settlement that had not been properly disclosed.
In re Robinson (Bankr. S.D. Ohio)
§ 1325(b)(1)(B) Plan confirmation denied because of failure to include income and expenses of non-filing spouse.
In re Williamson (Bankr. N.D. Ill.)
§ 509 Motion to dismiss complaint of creditor that was contingent on debtor’s payment of third party denied due to application of equitable subrogation.
Jones v. Hall (In re Hall) (Bankr. W.D. Ark.)
§ 523(a)(8) Debtor’s need to care for disabled child did not provide grounds for undue hardship discharge of student loan debt.
Mulherin v. Sallie Mae Serv. Corp. (In re Mulherin) (Bankr. N.D. Iowa)
§ 548 Avoidable fraudulent transfer affirmed where debtor was insolvent and transfer was for less than reasonably equivalent value.
Moon v. Anderson (In re Hixon) (B.A.P. 8th Cir.)
§ 727(a) Discharge denied because of debtor’s omission of assets from schedules, false statements during examination and failure to turn over information and documents as ordered by court.
Clark v. Reed (In re Reed) (Bankr. D. Kan.)
§ 523(a)(6) District court judgment of conversion was nondischargeable in bankruptcy.
NBA Props., Inc. v. Moir (In re Moir) (Bankr. S.D. Ga.)
§ 548 Pre-transfer creditor’s prepetition lien attached to fraudulently transferred property recovered by trustee, but did not attach to property recovered as preferential transfers.
Coleman v. J & B Enters., Inc. (In re Veterans Choice Mortg.) (Bankr. S.D. Ga.)
Collier Bankruptcy Case Summaries
Completion of foreclosure sale was subject to automatic stay where debtor retained equity of redemption at time of filing. Bankr. D. Mass. PROCEDURAL POSTURE: A mortgage creditor filed a motion for an order confirming that the automatic stay of 11 U.S.C. § 362(a) did not preclude the conclusion of a foreclosure sale, and/or for nunc pro tunc relief from the stay. The debtor objected, arguing that the auction sale did not satisfy the statute of frauds, Mass. Gen. Laws ch. 259, § 1, when the debtor filed bankruptcy, and thus, he retained the right to redeem under Mass. Gen. Laws ch. 244, § 21. OVERVIEW: The fall of the hammer at the auction signified the acceptance of the bid and an agreement between the creditor and the buyer, but did not alone terminate the debtor’s equity of redemption under the statute of frauds. Under Mass. Gen. Laws ch. 259, § 1, the “party to be charged” was the party to be charged with the legal action. The buyer’s signature was on the memorandum of sale, which the buyer signed just before the bankruptcy was filed. The creditor had not signed the memorandum of sale until after the bankruptcy was filed. Without the creditor’s signature or the signature of the auctioneer as the creditor’s agent, the buyer could not compel the creditor to transfer the property. Therefore, the party to be charged, under ch. 259, section 1, was the creditor. Because the creditor did not sign the memorandum of sale prior to time the debtor filed his petition, the memorandum did not extinguish the debtor’s equity of redemption. The debtor retained his equity of redemption at the time of his filing. The property remained in the debtor’s bankruptcy estate. The automatic stay applied to the property and prevented completion of the transfer of the property to the buyer. In re Grassie, 2003 Bankr. LEXIS 585, 293 B.R. 829 (Bankr. D. Mass. April 25, 2003) (Hillman, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03 [back to top]
under Mexico’s Business
Reorganization Act granted preliminary
injunction against New York creditors.
Bankr. S.D.N.Y. PROCEDURAL
POSTURE: Mexican bankruptcy
debtors, a company and its subsidiary,
contemplated funding their reorganization
plan with the proceeds of a bond
offering. A group of creditors
sought to enforce their New York
judgments against the bond proceeds.
Petitioner, the debtors’
foreign representative, commenced
an ancillary case under 11 U.S.C.
§ 304 and moved for a preliminary
injunction against the New York
Mexican creditors initiated involuntary
bankruptcy proceedings against
the debtors in Mexico. Under Mexican
law, the New York creditors’
judgment liens were ranked as
unsecured claims. To fund the
plan, a trust was created and
the trust raised proceeds through
the sale of bonds to be paid off
with toll road collections. Pursuant
to the plan, the bond proceeds,
which belonged to the trust and
not the debtors, would be used
to pay administrative expenses
of the bond offering and to pay
the debtors’ creditors.
The court determined that the
debtors were entitled to a preliminary
injunction against the New York
creditors under 11 U.S.C. §
304(b). The bond proceeds were
“involved in” the
Mexican bankruptcy case under
11 U.S.C. § 304(b). Also,
the debtors were likely to succeed
on the merits under 11 U.S.C.
§ 304(c), regarding deference
to the Mexican bankruptcy proceeding,
despite the treatment of the New
York creditors as unsecured creditors.
In addition, the New York creditors
failed to show that they would
be adversely affected by the absence
of a “best interests”
test under Mexican law. The debtors
also demonstrated irreparable
harm. In re Avila,
LEXIS 866, — B.R. —
(Bankr. S.D.N.Y. July 31, 2003)
Collier on Bankruptcy, 15th Ed. Revised 2:304.01 [back to top]
fee application granted in reduced
amount because of failure to promptly
file necessary foreign administration
counsel and financial advisor
applied for fees and expenses
in connection with debtor’s
chapter 11 case. OVERVIEW:
Counsel sought $757,080 in fees
and $121,179.70 in out-of-pocket
expenses. The advisor sought $43,225.81
in fees and $52,916.57 in expenses.
The joint administrators argued
the fees should be reduced or
denied based on the professionals’
role in debtor’s original
decision not to file English administration
proceedings. They also argued
there should be no compensation
for services performed after January
28, 2003, the date secured creditors
with interests in two of debtor’s
vessels obtained ex parte provisional
liquidation orders for certain
debtors in the English court.
They finally argued that the professionals
should not be compensated for
litigation against those creditors
to enforce the automatic stay.
The court found counsel had an
independent obligation to start
the automatic stay litigation,
whether based on a fiduciary duty
to the estate and creditors, or
because failing to do so would
have breached the requirement
that it be disinterested. The
conduct of such litigation was
reasonable. The court concluded,
however, that counsel should bear
a portion of the cost of confusion
and disruption caused by not originally
filing English administration
proceedings. In re
Cenargo Int’l, PLC,
2003 Bankr. LEXIS 819, 294 B.R.
571 (Bankr. S.D.N.Y. June 27,
2003) (Dain, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.01 [back to top]
foreclosure on property inherited
by debtor violated stay and was
void. Bankr. W.D.N.Y.
After defendant city commenced
an in rem proceeding to foreclose
on property plaintiff debtor inherited
from her mother, she filed a chapter
13 petition. The city refused
to honor the automatic stay, foreclosed
on the property, and sold it to
defendant purported purchasers.
The debtor sought an ex parte
preliminary injunction and filed
an adversary proceeding against
the city and purchasers. The purchasers
sought relief from stay. OVERVIEW:
The debtor’s mother’s
will left everything except certain
dishes to the debtor, and appointed
her to serve as executrix. As
the debtor failed to pay property
taxes on what had been her mother’s
home, in which she resided after
her mother died, the city commenced
foreclosure. The debtor then filed
a chapter 13 petition and paid
the back taxes (but not current
taxes) under the plan. After the
plan was completed, the city again
filed a foreclosure action, and
the debtor again filed chapter
13. The city claimed it did not
have to honor the automatic stay
because the debtor never had the
property titled in her own name.
The foreclosure sale purchasers
sought to evict the debtor from
the property. The court held that
the automatic bankruptcy stay
applied to both the eviction action
and the underlying foreclosure
proceedings. The debtor possessed
legal and equitable interests
in the property that derived both
from her status as executrix and
from her rights as an heir of
her mother’s estate. As
an act to obtain possession of
that property, the foreclosure
was stayed under 11 U.S.C. §
362(a)(3), the foreclosure sale
was void, and the purchasers lacked
good title to the property.
Burg v. City of Buffalo
(In re Burg), 2003 Bankr.
LEXIS 822, — B.R. —
(Bankr. W.D.N.Y. July 11, 2003)
Collier on Bankruptcy, 15th Ed. Revised 3:362.03 [back to top]
Court granted creditor’s motion for relief from automatic stay to pursue state court action against the debtor. Bankr. E.D. Pa. PROCEDURAL POSTURE: Debtor filed a chapter 7 petition. Creditor moved for relief from the automatic stay, pursuant to 11 U.S.C. § 362, to pursue a state court action against debtor. Chapter 7 trustee objected to the motion. OVERVIEW: The court found that in all of the cases that addressed relief from the automatic stay under 11 U.S.C. § 362(d)(1) to allow the commencement or continuation of nonbankruptcy litigation, the overriding consideration was whether a debtor’s estate or a debtor would be prejudiced if the litigation was permitted in another forum. Absent a showing of prejudice, relief was generally granted. The court found that trustee failed to provide authority for the proposition that debtor had an “economic interest” in the hotel improvements that precluded creditor from the exercise of its rights under the Hawaii’s Mechanic’s and Materialman’s Lien Law, Haw. Rev. Stat. § 507-41 et seq. The court found that filing a notice of lien would not violate 11 U.S.C. § 362(a)(4); thus, the exception of 11 U.S.C. § 362(b)(3) that allowed certain liens to be perfected postpetition to the extent the trustee’s rights and powers were subject to perfection under 11 U.S.C. § 546(b) was not relevant. Creditor showed adequate cause for the court to grant relief from the automatic stay. In re Ware Window Co., 2003 Bankr. LEXIS 885, — B.R. — (Bankr. E.D. Pa. July 28, 2003) (Sigmund, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07 [back to top]
labels in settlement agreement,
debtor’s obligations to
former spouse were maintenance
and not dischargeable.
Bankr. W.D. Pa. PROCEDURAL
POSTURE: Defendant debtor
filed a voluntary chapter 7 petition.
Plaintiff creditor filed three
adversary complaints to determine
the dischargeability of debts,
all of which arose from a marital
separation and property settlement
agreement between the parties.
The creditor asserted that these
marital debts were nondischargeable
under 11 U.S.C. § 523(a)(5)
and (15). OVERVIEW:
The debtor sought to discharge
his obligations to his former
spouse related to: (1) car payments;
(2) credit card obligations; and
(3) monthly alimony. The debtor
asserted that these obligations
were not alimony or support and
arose from an equitable distribution
of property, which was dischargeable.
The former spouse claimed that
all of the obligations at issue
were intended to provide for support
and were nondischargeable under
11 U.S.C. § 523(a)(5). She
asserted that if any of the obligations
were not in the nature of alimony
or support, then the obligations
were not dischargeable under 11
U.S.C. § 523(a)(15) as a
settlement. The court found that
the agreement allowed the debtor
to maintain his business interests
and continue to earn a significant
income. All of the payments required
under the agreement were structured
and designed as payments in the
nature of alimony, maintenance,
or support for purposes of the
Bankruptcy Code, despite the labels
given the various obligations
in the agreement. These obligations
were not dischargeable under 11
U.S.C. § 523(a)(5) and the
court did not apply 11 U.S.C.
§ 523(a)(15). Gunn
v. Froncillo (In re Froncillo),
2003 Bankr. LEXIS 888, —
B.R. — (Bankr. W.D. Pa.
August 1, 2003) (Bentz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.11 [back to top]
debt allowed as general unsecured
prepetition claim upon conversion
from chapter 11 to chapter 7.
Bankr. N.D. Tex.
Debtor filed a chapter 11 petition
that was converted to chapter
7 when debtor could not implement
the chapter 11 plan. Creditor
filed a proof of claim and debtor
Bankruptcy court found that 11
U.S.C. §§ 501, 502 and
Fed. R. Bankr. P. 3001 provided
that a party correctly filing
a proof of claim was deemed to
have established a prima facie
case against the debtor’s
assets. The claimant prevailed
unless a party who objected to
the proof of claim produced evidence
to rebut the claim. The creditor’s
proof of claim as a secured claim
was prima facie valid, unless
debtor produced evidence to rebut
the presumption. The court found
that the notes in issue were executed
after the entry of the order that
confirmed the chapter 11 plan
and the notes did not show administrative
expenses under 11 U.S.C. §
503(b). The notes did not evidence
loans to a debtor in possession
under 11 U.S.C. § 364 where
they were executed postconfirmation.
The claim based on the extension
note was deemed a prepetition
claim. The automatic stay typically
did not apply to post confirmation
obligations. The promissory note
and the extension note were executed
postconfirmation. Conversion resulted
in the obligations deemed as prepetition
claims. Under these circumstances,
the court found that these notes
should not be voided. In
re O’Connor, 2003
Bankr. LEXIS 816, — B.R.
— (Bankr. N.D. Tex. July
10, 2003) (Felsenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:348.05 [back to top]
trustee had standing to bring
avoidance actions as successor
to chapter 11 trustee. Bankr.
E.D. Tex. PROCEDURAL
POSTURE: Several days
after confirmation of a liquidating
plan, but before the plan’s
effective date, the liquidating
trustee filed avoidance actions
against numerous defendants, including
several of the debtor’s
insiders. Two groups of defendants
moved to dismiss the complaint,
arguing that the trustee lacked
standing and was not the real
party in interest under Fed. R.
Civ. P. 17, and that the complaint
was untimely under 11 U.S.C. §
Because no governmental action
was involved, standing was not
in issue. The parties had agreed
to numerous extensions of time
to answer the complaint, but the
issue of capacity was not raised.
Thus, defendants waived their
right to object under Fed. R.
Civ. P. 17 notwithstanding the
reservation of rights in the numerous
agreed orders. Equity and judicial
estoppel prevented negotiating
the extensions and potential settlement,
acknowledging the trustee’s
authority to do so, then asserting
a Rule 17 objection as a defense
a year into the proceeding. Any
lack of capacity was cured on
the effective date of the plan
and through filing an amended
complaint, once the trustee became
qualified under the plan and confirmation
order. And, the trustee was an
indispensable party under Fed.
R. Civ. P. 19. The liquidating
trustee was the successor to the
chapter 11 trustee. Dismissal
under Fed. R. Civ. P. 17 would
have resulted in a forfeiture
of the cause of action. The filing
of the amended complaint, which
ratified the earlier filing, related
back to the date of the filing
of the original complaint under
Fed. R. Civ. P. 15(c), and thus,
the action was timely under 11
U.S.C. § 546(a)(1)(A). Reynolds
v. Feldman (In re Unger &
Assocs., Inc.), 2003
Bankr. LEXIS 568, 292 B.R. 545
(Bankr. E.D. Tex. March 18, 2003)
Collier on Bankruptcy, 15th Ed. Revised 5:546.02[c] [back to top]
denied because of debtor’s
prepetition and postpetition attempts
to conceal assets. Bankr.
E.D. Tex. PROCEDURAL
POSTURE: Defendant debtor
filed a chapter 7 petition after
a failed chapter 13 attempt. Plaintiff
debtor filed an objection to the
debtor’s discharge, which
started an adversary proceeding
under 11 U.S.C. §§ 727(a)(2),
(a)(4)(A). The creditor filed
a summary judgment motion, which
was denied. The creditor moved
to amend the record and for reconsideration
of the summary judgment motion.
creditor alleged that a discharge
in bankruptcy should be denied,
pursuant to 11 U.S.C. §§
727(a)(2), (a)(4)(A), to the debtor
on the grounds that the debtor
engaged in both prepetition and
postpetition attempts to conceal
his assets. The creditor’s
amendment was sought not to add
new evidence but to conform the
evidence already filed in the
record for the creditor’s
summary judgment reconsideration.
The court concluded that the debtor
defaulted in response to the creditor’s
motion to amend. The court found
that the debtor submitted false
statements. The court found that
given the: (1) transfers; (2)
the admissions; (3) the debtor’s
errors or misinformation in his
sworn bankruptcy schedules; and
(4) the debtor’s two defaults
in answering pleadings, the creditor
had carried his burden by a preponderance
of the evidence, pursuant to Fed.
R. Bankr. P. 4005, that the debtor
dishonestly prepared his schedules.
The court held that the debtor
transferred or concealed assets
with the intent to hinder or defraud
creditors, particularly the creditor,
in addition to the chapter 7 trustee
and the court. The debtor was
not entitled to a discharge.
Melancon v. Jones (In
re Jones), 2003 Bankr.
LEXIS 576, 292 B.R. 555 (Bankr.
E.D. Tex. March 28, 2003) (Sharp,
Collier on Bankruptcy, 15th Ed. Revised 6:727.01 [back to top]
could not claim state exemption
for personal injury settlement
that had not been properly disclosed.
Bankr. S.D. Ohio
PROCEDURAL POSTURE: The trustee
in bankruptcy filed an objection
to the debtor’s claimed
exemption in an amount received
for a personal injury settlement,
on the grounds that the debtor
failed to initially disclose the
personal injury settlement, in
addition to failing to disclose
other assets. The debtor sought
to claim an exemption to the personal
injury proceeds pursuant to Ohio
Rev. Code § 2329.66(A)(12)(c).
OVERVIEW: Some five months before
the debtor filed her petition
for bankruptcy relief under chapter
7 of the U.S. Bankruptcy Code,
the debtor slipped and fell in
a store parking lot. The personal
injury claimed settled, and the
debtor did not list the proceeds
from the settlement as part of
her estate as required by 11 U.S.C.
§ 521(1). When the trustee
sought to turnover the assets
from the personal injury lawsuit,
along with other undisclosed assets,
the debtor asserted that she should
be able to claim a $5,000 exemption
from the personal injury proceeds
under Ohio Rev. Code § 2329.66(a)(12)(C).
The court held that the trustee
had met his burden of proving
that the debtor’s non-disclosure
of the personal injury claim was
in bad faith and that the exemption
should not apply. The debtor made
no effort to report the claim
as part of her estate, and the
trustee only learned of it through
a telephone conversation when
the debtor was discussing other
assets that had not been reported
as part of the estate. The debtor’s
conduct showed bad faith and an
attempt to conceal, and the debtor
should not be allowed to claim
the exemption on her claim that
the non-disclosure was inadvertence.
In re Robinson,
2003 Bankr. LEXIS 591, 292 B.R.
599 (Bankr. S.D. Ohio March 31,
2003) (Hoffman, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:521.03 [back to top]
Plan confirmation denied because
of failure to include income and
expenses of non-filing spouse.
Bankr. N.D. Ill.
PROCEDURAL POSTURE: Debtor
moved to confirm her chapter 13
plan. The debtor’s spouse
did not join in the bankruptcy
filing. The chapter 13 trustee
objected to confirmation because
the plan: (1) provided for payment
for a joint income tax debt; (2)
did not include the non-filing
spouse’s income and expenses;
(3) did not pledge all of the
debtor’s disposable income;
and (4) did not provide for an
increase after full payment on
a car loan. OVERVIEW:
The debtor properly included the
joint unsecured tax debt in the
plan pursuant to 11 U.S.C. §
1322(a)(2) because this was an
unsecured priority claim under
11 U.S.C. § 507(a)(8) and
the plan was required to provide
for full payment of this debt.
The fact that the non-filing spouse
would benefit at the expense of
other unsecured creditors was
not a legal basis to deny confirmation.
The debtor’s plan did not
meet the disposable income requirements
of 11 U.S.C. § 1325(b)(1)(B)
because it failed to include the
income and expenses of the non-filing
spouse. The debtor and her spouse
leased a 1996 Porsche 911, which
the trustee claimed was not “reasonably
necessary.” However, only
the non-filing spouse drove the
Porsche, and to have required
the couple to surrender the vehicle
would not have benefited creditors.
The bankruptcy court required
the debtor to change her plan
to provide for an increase in
payments once the loan on her
vehicle was paid in full. Finally,
payment for a whole life insurance
policy on the non-filing spouse
was not necessary because there
was already a term life insurance
policy on him that would have
provided adequate coverage in
the event of his death. In
re Williamson, 2003
Bankr. LEXIS 814, — B.R.
— (Bankr. N.D. Ill. July
16, 2003) (Schmetterer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.08 [back to top]