Collier Bankruptcy Case Update August-27-01

Collier Bankruptcy Case Update August-27-01


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

Collier Bankruptcy Case Updates

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 27, 2001

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

 

  • 1st Cir.

    § 110(a)(1) Petition preparer’s request for compensation of $295 per case denied.
    In re Brewer (Bankr. D.N.H.)

    § 110(a)(1) Bankruptcy court granted bankruptcy petition preparer’s request for $175 in fees and $26 in copying and mailing expenses.
    In re Pavlis (Bankr. D.R.I.)

    § 350(b) Court denied debtor’s motion to reopen chapter 7 case to amend two-year-old order entered in dischargeability proceeding.
    Bay Loan Inv. Bank v. Gauvin (In re Gauvin) (Bankr. D.R.I.)

    § 1322(b)(1) Plan that proposed to pay 100 percent of portion of one unsecured creditor’s claim did not unfairly discriminate against other unsecured creditors.
    In re Foster (Bankr. D.R.I.)

    § 1322(b)(5) Mortgage arrears did not include 'securitized' arrearage pursuant to agreement between debtors and mortgagee’s predecessor in interest.
    In re Gellerman (Bankr. D.R.I.)

    § 1322(b)(5) Chapter 13 plan that provided for continuation of payments on long-term student loan debt could not unfairly discriminate against other unsecured creditors.
    In re Edwards (Bankr. D.R.I.) 084029



  • 2d Cir.

    § 541(a)(6) Portion of year-end bonus received by debtor, a lawyer, from his law firm was property of chapter 7 estate.
    Daly v. Soboslai (In re Soboslai) (Bankr. D. Conn.)


    3d Cir.

    § 362(a)(1) Contempt proceeding based on failure to pay money was stayed by section 362(a)(1).
    In re Lincoln (Bankr. E.D. Pa.)

    § 362(d) Chapter 13 debtor who was unable to reorganize could not defend against relief from stay motion.
    In re Easley (Bankr. E.D. Pa.)

    § 1307(c) Serial filing case was dismissed.
    In re Dulisse (E.D. Pa.)

    28 U.S.C. § 1334 Court had jurisdiction over tribe member.
    Stringer v. Chrysler (In re Stringer) (Bankr. W.D. Pa.)


  • 6th Cir.

    § 362(b)(4) Exception to stay was not applicable.
    Emberton v. Lobb (In re Emberton) (Bankr. W.D. Ky.)

    § 523(a)(8) Portion of obligation was nondischargeable.
    Logan v. N. C. State Educ. Assistance Auth. (In re Logan) (Bankr. W.D. Ky.)

    § 548(a)(1)(A) Conversion of assets was not fraudulent.
    Noland v. Wadley (In re Wadley) (Bankr. S.D. Ohio)


  • 7th Cir.

    § 304 Liquidators did not have power to submit untimely claims.
    In re Griffin Trading Co. (Bankr. N.D. Ill.)

    § 547(b)(2) Order granting summary judgment to an unsecured creditor was reversed.
    Warsco v. Preferred Tech. Group (7th Cir.)


    8th Cir.

    § 523(a)(8) Nondischargeability ruling was upheld on appeal.
    Svoboda v. Educational Credit Mgmt. Corp. (In re Svoboda) (B.A.P. 8th Cir.)


    9th Cir.

    § 502(a) Debtor’s objection to claim, based on insufficient notice of repossession, was overruled.
    In re Hernandez (Bankr. N.D. Cal.)

    § 506(c) Agreement for payment of surcharge was allowable.
    Debbie Reynolds Hotel & Casino, Inc. v. Calstar Corp. (In re Debbie Reynolds Hotel & Casino, Inc.) (9th Cir.)

    § 1325(a)(3) Court did not find bad faith where a debt to be discharged in chapter 13 would be nondischargeable in chapter 7.
    In re Manthey (Bankr. N.D. Cal.)


    11th Cir.

    § 523(a)(5) Lump-sum alimony obligation was nondischargeable.
    Smith v. Smith (In re Smith) (Bankr. M.D. Fla.)


Collier Bankruptcy Case Summaries

 

1st Cir.

Petition preparer’s request for compensation of $295 per case denied. Bankr. D.N.H. A bankruptcy petition preparer requested compensation in each of three chapter 7 cases in the amount of $295. The United States trustee objected, citing the court’s decision in In re Moran, 256 B.R. 842 (Bankr. D.N.H. 2000). In Moran, the court held, generally, that a reasonable case fee for a petition preparer is $150, but that petition preparers may file requests for compensation for amounts over $150. The bankruptcy court approved the petition preparer’s request for compensation in each case at issue in the amount of $164.41. The court found no evidence that the three chapter 7 cases at issue were anything but ordinary and noted its conclusions in Moran that reasonable compensation for petition preparers is $20 per hour, that reasonable overhead is an additional $10 per hour and that a reasonable time for preparing a petition should be no greater than five hours. The court emphasized that its findings were based on the evidence presented at trial, were applicable only to the three cases at issue and did not change the presumptions set forth in Moran.In re Brewer, 2001 Bankr. LEXIS 792, – B.R. – (Bankr. D.N.H. May 25, 2001) (Vaughn, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:110.02

ABI Members, click here to get the full opinion.

Bankruptcy court granted bankruptcy petition preparer’s request for $175 in fees and $26 in copying and mailing expenses. Bankr. D.R.I. The chapter 7 debtor’s bankruptcy petition preparer requested payment of $175 in fees and $26 in copying and mailing expenses for 9.9 hours spent meeting with the debtor, preparing the petition and matrix, and copying and mailing. The United States trustee and the chapter 7 trustee objected to the petition preparer’s request on the grounds that the time she expended was excessive for a 'garden variety' no-asset chapter 7 case. The United States trustee and chapter 7 trustee asserted that $100 would reasonably compensate the petition preparer for services rendered. The bankruptcy court awarded fees in the amount requested by the bankruptcy petition preparer. The court increased the presumed reasonable threshold hourly rate for bankruptcy petition preparers in its district to $30 per hour (including all overhead) and also held that petition preparers should be able to provide complete, competent service to debtors in five hours or less in routine individual or joint consumer bankruptcy cases. The court emphasized that its ruling was intended to be fact specific and that nothing in its opinion was to be construed as limiting the United States trustee or case trustee from reviewing fees charged by bankruptcy petition preparers under section 110, regardless of the fee charged, and seeking disgorgement in appropriate circumstances.In re Pavlis, 2001 Bankr. LEXIS 791, 264 B.R. 57 (Bankr. D.R.I. June 4, 2001) (Votolato, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:110.01

ABI Members, click here to get the full opinion.

Court denied debtor’s motion to reopen chapter 7 case to amend two-year-old order entered in dischargeability proceeding. Bankr. D.R.I. Approximately two years after the entry of an order against the debtor in a judgment creditor’s dischargeability proceeding, the debtor moved to reopen his chapter 7 case for the purpose of amending the judgment. The debtor alleged that the bankruptcy court’s order, which was based on civil and criminal judgments that were entered against the debtor after he was convicted of bank fraud, double counted the criminal restitution judgment and the civil judgment and gave the creditor a huge windfall. The creditor objected to the debtor’s motion and argued that he failed to show just cause why such relief should be granted at such a late date. The bankruptcy court denied the debtor’s motion to reopen his case. The court explained that the only possible basis for the debtor’s motion for relief from the prior order was for 'mistake, inadvertence, surprise, or excusable neglect' pursuant to Fed. R. Civ. P. 60(b)(1). The court then held that there is an absolute bar to relief under Fed. R. Civ. P. 60(b)(1), where, as here, the motion is made after the expiration of one year. The court also noted that the debtor could not invoke the 'catch-all' provision of Fed. R. Civ. P. 60(b)(6) since this provision may be invoked only when the other reasons contained in the Rule do not apply. Moreover, the court found that even if the debtor somehow overcame the time bar obstacle, he still provided no reason for his failure to act in a more timely manner nor any explanation for his decision not to contest the amount of the judgment in the first place.Bay Loan Inv. Bank v. Gauvin (In re Gauvin), 2001 Bankr. LEXIS 788, 264 B.R. 54 (Bankr. D.R.I. May 31, 2001) (Votolato, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:350.03

ABI Members, click here to get the full opinion.

Plan that proposed to pay 100 percent of portion of one unsecured creditor’s claim did not unfairly discriminate against other unsecured creditors. Bankr. D.R.I. Before filing their chapter 13 case, the debtors drew down on an unsecured line of credit with a bank and used those funds to pay priority federal and state income tax obligations. After their chapter 13 case was commenced, the debtors proposed a plan that would separately classify a portion of the bank’s unsecured claim, pay the bank 100 percent of its claim and pay other unsecured creditors approximately two percent of their claims. The debtors wished to separately classify only that portion of the bank’s claim that they used to pay priority tax creditors, and proposed to pay the balance of the bank’s unsecured claim at the rate of two percent along with their other unsecured creditors. The trustee objected to confirmation of the plan on the ground that it unfairly discriminated in favor of the bank in violation of section 1322(b)(1). The bankruptcy court overruled the trustee’s objection and confirmed the debtors’ plan. The court noted, and the trustee acknowledged, that if the taxing authorities had been unpaid on the date of the debtors’ petition, they would have been entitled to payment ahead of other unsecured creditors. The court held that because unsecured creditors were receiving exactly what they would have received even without the debtors’ strategy, there was no effective discrimination even though the plan appeared to take aim unfairly at nonpriority creditors. In re Foster, 2001 Bankr. LEXIS 787, 263 B.R. 688 (Bankr. D.R.I. May 11, 2001) (Votolato, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1322.05

ABI Members, click here to get the full opinion.

Mortgage arrears did not include 'securitized' arrearage pursuant to agreement between debtors and mortgagee’s predecessor in interest. Bankr. D.R.I. Prior to filing their chapter 13 case, the debtors fell behind on their mortgage payments and entered into various forbearance agreements with HUD, their mortgagee. The arrearage apparently remained unpaid when the debtors completed the forbearance agreements. The debtors alleged an agreement with HUD whereby the prior defaults were 'securitized,' and the evidence indicated that HUD segregated the arrearage, but did not pressure or pursue the debtors to make any payments against the securitized arrearage. When HUD’s successor in interest took over the debtors’ mortgage, the securitized arrearage was still unpaid. Thereafter, the debtors again fell behind on their mortgage payments and entered into another forbearance agreement. Prior to filing their chapter 13 case, the debtors failed to comply with the terms of the latest forbearance agreement. They claimed that for purposes of section 1322(b)(5), their total arrearage should not include the segregated securitized arrearage. The bankruptcy court agreed. The court noted that pursuant to the terms of the mortgage assignment, HUD’s successor in interest was bound by any prior agreements between the debtor and HUD that modified payments under the mortgage note. Based upon this factor, the parties’ prebankruptcy contracts and their prior course of dealing, the court concluded that the intent of HUD and the debtors was to place the securitized arrearage at the end of the note and not to require current payments on that amount. The court held that for purposes of section 1322(b)(5), the arrearage to be cured under the note did not include the securitized arrearage. The court concluded that allowing HUD’s successor in interest to add the securitized arrearage to the total arrearage amount would give it a windfall and would deny the debtors the benefit of their earlier bargain with HUD.In re Gellerman, 2001 Bankr. LEXIS 793, – B.R. – (Bankr. D.R.I. June 19, 2001) (Votolato, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1322.09

ABI Members, click here to get the full opinion.

Chapter 13 plan that provided for continuation of payments on long-term student loan debt could not unfairly discriminate against other unsecured creditors. Bankr. D.R.I. The chapter 13 debtor proposed a plan that would retire all priority debt and the mortgage arrears on her home in full, with no payment to unsecured creditors. The debtor’s schedules listed an ongoing student loan obligation, which the debtor proposed to pay outside her plan. The trustee objected to confirmation of the debtor’s proposed plan on the ground that it impermissibly classified the debtor’s nondischargeable student loan obligation and unfairly discriminated against other unsecured creditors. The debtor argued that because the last scheduled payment on the student loan debt was due after the final payment was due under her plan, she was allowed to maintain payments to her student loan creditor during the life of the plan. The bankruptcy court sustained the trustee’s objection. The court held that even though a plan calls for the continuation of payments on long-term unsecured debts in accordance with section 1322(b)(5), it must also provide that such treatment does not unfairly discriminate against other unsecured creditors under section 1322(b)(1). Since the debtor’s attorney advised the court at the confirmation hearing that he was not prepared to address the specific issue of whether the monthly payment of the student loan obligation during the life of the plan unfairly discriminated against other unsecured creditors in the event of a ruling that section 1322(b)(1) applied, the confirmation hearing was reset for a hearing to determine that issue.In re Edwards, 2001 Bankr. LEXIS 786, 263 B.R. 690 (Bankr. D.R.I. May 31, 2001) (Votolato, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1322.05


2d Cir.

Portion of year-end bonus received by debtor, a lawyer, from his law firm was property of chapter 7 estate. Bankr. D. Conn. The married chapter 7 debtors filed their joint chapter 7 case on October 15, 1997. At the end of 1997, the debtor husband, a member of a law firm, received a $37,000 calendar-year bonus from his employer. The chapter 7 trustee brought an adversary proceeding against the debtors to recover the after-tax value of the bonus. The trustee argued, among other things, that because a substantial portion of the bonus payment was earned and unpaid on the petition date, it constituted property of the estate that had to be turned over to him. The bankruptcy court held that the bonus constituted earnings of the debtor husband that were attributable to personal services rendered on behalf of the law firm over the course of the entire 1997 calendar year; thus, the portion of the bonus that was earned as of the petition date was property of the bankruptcy estate. Since the debtor had not claimed any exemption in the bonus, the court concluded that the debtors had to turn over a portion of the bonus equivalent to the portion of the calendar year that had passed at the time the debtors filed their petition; i.e., 78.5 percent.Daly v. Soboslai (In re Soboslai), 2001 Bankr. LEXIS 799, 263 B.R. 700 (Bankr. D. Conn. June 29, 2001) (Dabrowski, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:541.17

ABI Members, click here to get the full opinion.

3d Cir.

Contempt proceeding based on failure to pay money was stayed by section 362(a)(1). Bankr. E.D. Pa. The debtor and creditor, who resided together and were engaged to be married, ended their engagement in February 2000. The creditor left the residence without her personal property, and the debtor changed the locks and would not permit the creditor to retrieve her belongings. The creditor then filed an action in state (Delaware) court seeking a protection from abuse order, and at the hearing the debtor claimed he was no longer in possession of the property. The state court issued an order directing that the creditor be permitted to enter the debtor’s premises with a police escort to retrieve her property. When she did so, the creditor did not find or recover her property. She thereafter filed a petition for contempt in the same state court proceeding, alleging that the debtor had informed her he was still in possession of the property, which the debtor denied having said. The state court found the debtor to be in civil contempt of its previous order, directed that he relinquish the creditor’s personal property and, if he failed to do so, pay approximately $9,500 to the creditor. The debtor filed a chapter 13 petition on November 30, 2000. The creditor filed a motion seeking relief from the stay to hold the debtor accountable for failing to comply with the contempt order. The bankruptcy court denied the motion, holding that the contempt order was not of the kind designed to uphold the dignity of the court by punishing the debtor for his behavior, but instead provided the debtor with the means to purge his contempt by the payment of money. The court concluded that the creditor’s intention was to pursue a contempt proceeding based on failure to pay money, which was subject to the automatic stay. In re Lincoln, 2001 Bankr. LEXIS 803, 264 B.R. 370 (Bankr. E.D. Pa. June 2, 2001) (Carey, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.03[3]

ABI Members, click here to get the full opinion.

Chapter 13 debtor who was unable to reorganize could not defend against relief from stay motion. Bankr. E.D. Pa. The debtor and her nondebtor spouse defaulted on their home mortgage, after which the mortgage creditor commenced a foreclosure action. A sale of the property was scheduled for November 14, 2000, but on October 25, 2000 the debtor filed a chapter 11 petition. Debtor’s counsel did not notify the creditor, its counsel or the sheriff of the petition filing and the resulting stay. Accordingly, the sale proceeded and the property was sold. Because of failure to file certain documents, the petition was dismissed and, again, no notice of the dismissal was sent to the interested parties. The debtor filed a second chapter 13 petition on January 4, 2001. It developed that the creditor had no notice of the second filing when, on January 22, 2001, the sheriff’s deed was issued conveying the property. The creditor then filed a motion for relief from the stay in the second case, and to annul the stay in the first case, which was in effect at the time of the sheriff’s sale. The bankruptcy court granted the creditor’s motion. The court found that, notwithstanding the issues of possible bad faith and unsound advice from debtor’s counsel, the pertinent issue was whether there was any legitimate purpose to be realized by enforcing the stay. The court concluded that, because the debtor’s counsel admitted that reorganization was unfeasible and that there was no basis to defend the relief motion, the motion should be granted. The court reasoned that the consequence of denying the creditor relief from the stay would be to compel it to needlessly repeat the foreclosure action.In re Easley, 2001 Bankr. LEXIS 804, – B.R. – (Bankr. E.D. Pa. June 26, 2001) (Sigmund, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.07

ABI Members, click here to get the full opinion.

Serial filing case was dismissed. E.D. Pa. The chapter 13 debtor appealed the bankruptcy court’s order granting the undersecured creditor’s motion to dismiss his case. The debtor had filed two prior chapter 13 petitions, both of which had been dismissed after the debtor defaulted on his mortgage and the creditor was granted relief from the automatic stay. The third petition was filed two days before the rescheduled sheriff’s sale of the debtor’s property. The bankruptcy court dismissed the case, modified the automatic stay and prohibited the debtor from filing another petition for 180 days. The district court affirmed, holding that the bankruptcy court acted properly within its power to dismiss the petition. The chronology of the filings in relation to the dates of the sheriff’s sales was evidence that the petitions were not intended for reorganization, but to delay the foreclosure sales.In re Dulisse, 2001 U.S. Dist. LEXIS 9307, – B.R. – (E.D. Pa. July 5, 2001) (Ludwig, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1307.04

ABI Members, click here to get the full opinion.

Court had jurisdiction over tribe member. Bankr. W.D. Pa. The chapter 11 debtors filed an amended complaint against the defendant to compel turnover of property of the estate. The defendant moved to dismiss the complaint on the basis that the bankruptcy court lacked jurisdiction because the debtors’ property was located on tribal land and the defendant was a native conducting business on tribal land. The bankruptcy court denied the motion to dismiss, holding that while an Indian tribe or nation was not amenable to suit in the bankruptcy court, the sovereign immunity enjoyed by the tribe did not impair jurisdiction over the individual tribe member. The court noted that the defendant was neither an acting representative of the tribe nor operated her business in an official capacity for the tribe.Stringer v. Chrysler (In re Stringer), 2001 Bankr. LEXIS 777, 263 B.R. 347 (Bankr. W.D. Pa. April 5, 2001) (Bentz, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:3.01


6th Cir.

Exception to stay was not applicable. Bankr. W.D. Ky. The chapter 13 debtors filed a claim against the creditors and commonwealth (Kentucky) attorney for a willful violation of the automatic stay. The debtors had entered into a contract with the creditors prepetition for the sale of real estate, with payments to be made over the course of three years. The debtors’ confirmed plan provided for rejection of the contract and for repayment to the creditors of their full claim. During the confirmation process, the creditor husband sought and obtained a criminal indictment against the debtors for theft, resulting in their arrest and incarceration. The debtors also entered into a pretrial diversion agreement, whereby they agreed to complete their plan payments in lieu of additional incarceration. Although the contract did not include any representations concerning the state of the title, the indictments stated that the debtors knew the real estate was encumbered by multiple judgments and failed to advise the creditors of the judgments. The land was, in fact, encumbered by only one unknown judgment and a disclosed mortgage. The bankruptcy court entered judgment for the debtors, holding that the creditor’s actions in instituting criminal proceedings against the debtors to collect a debt and gain an advantage over other creditors violated the automatic stay. The debtors were awarded actual and punitive damages against the creditor, and the commonwealth attorney was directed to take all actions required to expunge the debtors’ criminal records.Emberton v. Lobb (In re Emberton), 2001 Bankr. LEXIS 768, 263 B.R. 817 (Bankr. W.D. Ky. May 22, 2001) (Cooper, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.05[5]

ABI Members, click here to get the full opinion.

Portion of obligation was nondischargeable. Bankr. W.D. Ky. The chapter 7 debtor filed a complaint to have various student loan obligations declared nondischargeable. The debtor was a divorced mother of three children, all of whom lived at home with her. The debtor incurred the loans while obtaining a master’s degree and doctorate in English studies, and eventually obtained employment as a tenure-track assistant professor with a university. Although her children were ages 20, 18 and 15, and the debtor lived on a tight budget, none of her children contributed to the payment of household expenses. The bankruptcy court granted partial judgment to the creditors, holding that the debtor failed to demonstrate that she could not maintain a minimal standard of living for herself and her dependents if forced to repay some portion of the loans. Because the court further found that the debtor did establish that her current income was insufficient to maintain a minimal standard of living and completely repay the loans, the court devised a repayment schedule for a portion of the obligations. The payments increased with the expected improvement in the debtor’s financial state of affairs.Logan v. N. C. State Educ. Assistance Auth. (In re Logan), 2000 Bankr. LEXIS 1844, 263 B.R. 796 (Bankr. W.D. Ky. December 12, 2000) (Cooper, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.14

ABI Members, click here to get the full opinion.

Conversion of assets was not fraudulent. Bankr. S.D. Ohio The chapter 7 trustee filed an adversary proceeding to avoid prepetition transfers made by the debtors. After the debtors met with an attorney regarding the filing of bankruptcy, the debtor husband sold his motorcycle and used a portion of the proceeds to purchase a whole life insurance policy and to augment his retirement account. The trustee asserted that the conversion of the proceeds into exempt assets constituted fraudulent pre-bankruptcy planning. The bankruptcy court entered judgment in favor of the debtors, holding that the debtor husband’s pre-bankruptcy conversions to maximize his exemptions were not fraudulent. The debtor’s pre-bankruptcy planning was not accompanied by concealment of conduct calculated to mislead creditors, and the sale of the motorcycle and purchase of exempt assets were disclosed on the debtor’s schedules. The court further noted that the debtor husband could no longer use the motorcycle due to limitations in the use of his hands.Noland v. Wadley (In re Wadley), 2001 Bankr. LEXIS 767, 263 B.R. 857 (Bankr. S.D. Ohio June 21, 2001) (Clark, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:548.04

ABI Members, click here to get the full opinion.

7th Cir.

Liquidators did not have power to submit untimely claims. Bankr. N.D. Ill. The foreign liquidators in a proceeding ancillary to the chapter 7 debtor’s case moved to allow informal proofs of claims. The liquidators mistakenly assumed that the foreign creditors were allowed to submit their claims to the liquidators, who would then transmit the claims to the trustee. The claims were eventually submitted to the trustee after the bar date had passed. The liquidators argued that they qualified as trustees because they were court-appointed representatives of the ancillary estate, and, as such, had standing to act on behalf of the foreign creditors. The bankruptcy court denied the liquidators’ motion, holding that the foreign liquidators in the ancillary proceeding did not have the powers of the trustee because they were not appointed under the Code. Thus, the rights of the trustee to file claims on behalf of the creditors did not extend to the liquidators (citing Collier on Bankruptcy, 15th Ed. Revised).In re Griffin Trading Co., 2001 Bankr. LEXIS 801, – B.R. – (Bankr. N.D. Ill. July 3, 2001) (Katz, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:304

ABI Members, click here to get the full opinion.

Order granting summary judgment to an unsecured creditor was reversed. 7th Cir. The chapter 7 trustee appealed an order of the district court granting the unsecured creditor’s motion for summary judgment. The trustee had filed a complaint against the creditor to avoid an alleged preference made to the creditor by the purchaser of the debtor’s assets. As a condition of the parties’ prepetition purchase agreement, the purchaser agreed to buy an unsecured promissory note held by the creditor for a value less than the principal amount due. Within one month of the sale of the debtor’s assets, an involuntary petition was filed against the debtor, resulting in a zero dividend to unsecured creditors. The district court determined that the trustee failed to prove that the payment to the creditor was a transfer of an interest of the debtor or that the payment was for or on account of an antecedent debt owed by the debtor. The Court of Appeals for the Seventh Circuit reversed, holding that because the trustee demonstrated that the purchaser’s prepetition payment to the creditor in connection with the asset sale may have been a transfer of an interest of the debtor in property that was made for or on account of an antecedent debt, the district court’s entry of summary judgment was in error. The court noted that the record evidence permitted two rational interpretations of the complex transactions that occurred. Warsco v. Preferred Tech. Group, 2001 U.S. App. LEXIS 15033, – F.3d – (7th Cir. July 3, 2001) (Ripple, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:547.03

ABI Members, click here to get the full opinion.

8th Cir.

Nondischargeability ruling was upheld on appeal. B.A.P. 8th Cir. The chapter 7 debtor appealed the bankruptcy court’s determination that her student loan obligation was nondischargeable under section 523(a)(8). The debtor was a 38-year-old elementary school teacher and in good health. She received child support from her former husband and expected to receive annual raises at work. As part of her employment, she was required to obtain a master’s degree, which would increase her expenses. The debtor argued, in part, that her income fluctuated because she did not receive regular child support payments. The B.A.P. affirmed, holding that the totality of the circumstances supported the bankruptcy court’s finding that repayment of the student loan obligation would not impose an undue hardship on the debtor. The bankruptcy court considered both the possibility that child support payments could be missed and that the debtor’s financial situation would improve in the future.Svoboda v. Educational Credit Mgmt. Corp. (In re Svoboda), 2001 Bankr. LEXIS 771, 264 B.R. 190 (B.A.P. 8th Cir. July 6, 2001) (Hill, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.14

ABI Members, click here to get the full opinion.

9th Cir.

Debtor’s objection to claim, based on insufficient notice of repossession, was overruled. Bankr. N.D. Cal. The debtor objected to the claim of the secured creditor that had sold her repossessed motor vehicle 17 days after giving the debtor statutory notice. The debtor objected to the creditor’s deficiency claim, arguing that the creditor should have given her 20 days’ notice pursuant to state (California) statute, because service was effectuated by mail. The bankruptcy court overruled the objection and allowed the claim as filed. The court determined that notice had been in compliance with the state statute, which required 20 days only if service by mail was made to a debtor residing outside the state. The court also rejected the debtor’s reliance on a Code of Civil Procedure provision requiring a 10-day extension of the notice period if service was by mail, because that provision did not have effect in contravention of the specific exception provided by the operative state statute. In re Hernandez, 2001 Bankr. LEXIS 781, 262 B.R. 84 (Bankr. N.D. Cal. February 6, 2001) (Jarslovsky, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:502.02[2][c]

ABI Members, click here to get the full opinion.

Agreement for payment of surcharge was allowable. 9th Cir. The chapter 11 debtor and secured creditor appealed an order of the B.A.P., which had reversed the bankruptcy court’s order approving the parties’ settlement agreement that provided for a payment from the creditor to debtor’s counsel pursuant to section 506(c). The secured creditor agreed to pay the surcharge in exchange for assurance that there would be no further challenges to collection of its secured debt. On appeal, another creditor that held a postpetition superpriority claim argued that the agreement foreclosed its right to seek a surcharge and that it was entitled to collect ahead of debtor’s counsel. The B.A.P. held that the settlement impermissibly abrogated the rights of the superpriority creditor to surcharge the collateral and that the bankruptcy court improperly permitted payment of the surcharge directly to debtor’s counsel rather than into the estate to be distributed according to priority. The Court of Appeals for the Ninth Circuit reversed the B.A.P., holding that the agreement did not improperly abrogate the superpriority claimant’s right to a surcharge because the creditor had no standing to seek a surcharge. In Hartford Underwriters Ins. Co. v. Union Planters Bank, 530 U.S. 1 (2000), which the court noted was retroactively applicable, the Supreme Court limited standing under section 506(c) to the trustee or debtor in possession. Additionally, because the surcharge was not an administrative claim, but an assessment against the secured party’s collateral, debtor’s counsel was authorized to receive the payment directly (citing Collier on Bankruptcy, 15th Ed. Revised).Debbie Reynolds Hotel & Casino, Inc. v. Calstar Corp. (In re Debbie Reynolds Hotel & Casino, Inc.), 2001 U.S. App. LEXIS 15084, 255 F.3d 1061 (9th Cir. July 6, 2001) (Sneed, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:506.05

ABI Members, click here to get the full opinion.

Court did not find bad faith where a debt to be discharged in chapter 13 would be nondischargeable in chapter 7. Bankr. N.D. Cal. The debtor, an entertainment agent, filed his first chapter 13 petition in 1997, and his plan was confirmed. In 2000, before the plan was completed, a creditor who had not been scheduled appeared to assert a prepetition claim. The creditor, a bar owner, entered into a contract with the debtor whereby the debtor supplied entertainment for the bar. The shows that the debtor booked apparently contained lewd acts, resulting in liquor license suspension proceedings against the creditor. In addition, the IRS filed an amended claim for additional priority debt. The trustee filed a motion to dismiss the chapter 13 case, since the amended claims would require 103 months of plan payments, beyond the statutory limit. The debtor did not oppose the trustee’s motion, and the case was dismissed on October 30, 2000. On December 8, 2000, the debtor filed a second chapter 13 petition. The creditor objected to confirmation, alleging that the plan was not proposed in good faith and was, therefore, in violation of section 1325(a)(3). The creditor argued that the debt owed to him would not be dischargeable in chapter 7 and that the debtor should not be permitted to file a new chapter 13 petition after the dismissal of the prior case. The bankruptcy court overruled the objection and confirmed the debtor’s plan. The court held that it could, but need not, make a finding of bad faith because a debt to be discharged in chapter 13 would not be dischargeable in a chapter 7 case. Specifically, the court noted that the creditor made no prima facie showing that his claim would be nondischargeable as a result of willful or malicious injury, only the bald assertion that the debtor intended to inflict harm. In re Manthey, 2001 Bankr. LEXIS 783, 262 B.R. 89 (Bankr. N.D. Cal. March 9, 2001) (Jarslovsky, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1325.04

ABI Members, click here to get the full opinion.

11th Cir.

Lump-sum alimony obligation was nondischargeable. Bankr. M.D. Fla. The former wife of the chapter 7 debtor filed an adversary proceeding seeking a determination that the debtor’s dissolution of marriage obligation to pay lump-sum alimony in periodic installments was nondischargeable under section 523(a)(5). During their marriage, the parties operated a bakery, and the income generated from the business provided the sole means of support for the family. After the parties separated, the debtor continued to operate the business. Pursuant to the parties’ mediated settlement agreement, the debtor agreed to pay certain expenses of his former wife, as well as pay weekly installments on a lump-sum alimony award. The bankruptcy court granted judgment for the former spouse, holding that the debtor’s obligation was nondischargeable because, at the time the agreement was made, the parties intended that the lump-sum alimony be for the wife’s maintenance and support. The court considered the language of the agreement, the parties’ financial circumstances, and the function served by the obligation at the time of the settlement.Smith v. Smith (In re Smith), 2001 Bankr. LEXIS 770, 263 B.R. 910 (Bankr. M.D. Fla. June 29, 2001) (Corcoran, III, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.11

ABI Members, click here to get the full opinion.