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.

December 17, 2002

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

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4th Cir.

§ 365(a) Bankruptcy court denied late motion for assumption of lease where risk to creditors far outweighed any potential profit.
Trak Auto Corp. v. Ramco-Gershenson, Inc. (In re Trak Auto Corp.) (Bankr. E.D. Va.)
28 U.S.C. § 157 Action to enforce a mechanic’s lien against estate property was a core proceeding.
Abner v. Mate Creek Loading, Inc. (In re Mid-Atlantic Res. Corp.) (S.D. W. Va.)

Collier Bankruptcy Case Summaries

2d Cir.

Bankruptcy court refused to set aside court ordered sale, entered into in good faith, to avoid irreparable injuries to participants. S.D.N.Y. PROCEDURAL POSTURE: The bankruptcy court entered an order approving the sale of certain assets to a company. The United States sought to appeal the order and applied for a stay pending appeal. OVERVIEW: The debtors argued that, since the sale had been consummated, the United States’ appeal was moot under 11 U.S.C. § 363(m). The United States contended that the sale was never properly consummated because the sale occurred between the time the order was signed by the bankruptcy judge and the time that order was entered. The debtors responded that, even though the documents were signed prior to the sale, the entry of the bankruptcy court order approving the sale was an express condition of the sale and, therefore, the sale was not consummated until that order was entered. The court did not doubt that in closing the asset sale, the debtors, the purchaser, and the banks that released their liens acted in the good faith belief that their actions were fully authorized by the order signed by the bankruptcy court. It would have been inconsistent with the policy embodied in section 363(m) to set aside a transaction entered into in good faith. The United States had not demonstrated a substantial possibility that it would have prevailed. This factor together with the irreparable injury that would have been suffered by the purchaser and the banks made it inappropriate to enter a stay of the sale. In re Standard Auto. Corp., 2002 U.S. Dist. LEXIS 16698, — F. Supp.2d — (S.D.N.Y. September 5, 2002) (Martin, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:363.11   [back to top]

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Bankruptcy court acted within its discretion in declining to exercise abstention over core proceeding. 2d Cir. PROCEDURAL POSTURE: Appellant creditor appealed from three bankruptcy court orders enjoining the creditor from suing appellees, the debtors’ successor in interest on a lease, a distribution company, and another entity, for relief contingent upon the interpretation of the lease, denying the creditor’s request for an administrative claim, and striking parol evidence, which were approved by the district court. OVERVIEW: The creditor sought to recover from the debtors and its successor amounts owed under a lease of commercial property in Puerto Rico. The assignment of the debtors’ assets to the successor was approved by the bankruptcy court, as was the reorganization plan which incorporated the terms of the sale order. The creditor filed a suit in Puerto Rico seeking an order that the successor was in default of the lease. The successor moved for an order in aid of consummation of the plan. The appeals court found that (1) the bankruptcy court had subject matter jurisdiction over the contract dispute as it was a core proceeding under 28 U.S.C. § 157(b)(1); (2) the bankruptcy court had personal jurisdiction over the creditor which had filed a proof of claim, filed a motion for payment of an administrative rent claim, and objected to the debtors’ motions and their plan of reorganization; (3) the bankruptcy court did not error in failing to abstain as permissive abstention from core proceedings was within the court’s discretion under 28 U.S.C. § 1334(c)(1); and (4) the parol evidence was properly excluded. Luan Inv. S.E. v. Franklin 145 Corp. (In re Petrie Retail, Inc.), 2002 U.S. App. LEXIS 18443, 304 F.3d 223 (2d Cir. September 5, 2002) (Oakes, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:3.05   [back to top]

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  Trustee’s fees reduced as excessive in chapter 7 proceeding with only one asset. Bankr. D. V.I. PROCEDURAL POSTURE: Chapter 7 trustee and professionals retained by him submitted applications requesting compensation for services provided and for reimbursement of their expenses, pursuant to 11 U.S.C. § 330(a). They requested a total amount almost equal to the value of the estate. OVERVIEW: The court acknowledged that professionals who perform services in a bankruptcy case should be amply compensated for their time and effort, but found the compensation requested in this case to be excessive and reduced the amounts significantly. Prior to the discovery that the individual shareholder had pursued a claim in another district in the name of the debtor, the estate had no assets and was closed. Upon discovery of the shareholder’s success on the unscheduled claim, the case was reopened, and the professionals succeeded in making the shareholder’s counsel disgorge its fees earned in the civil suit, creating the res from which the fees were paid. The court found the fees requested excessive and limited the awards. In re Caribbean Constr. Servs., 2002 Bankr. LEXIS 951, 283 B.R. 388 (Bankr. D. V.I. August 29, 2002) (Markovitz, B.J.).

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

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Administrative expense claim granted for employer contributions due from debtor hospital for postpetition employment. Bankr. D.N.J. PROCEDURAL POSTURE: The creditors’ committee filed a motion to reclassify the claims of the creditor New Jersey Department of Labor as general unsecured claims, arguing the priority and administrative claim reimbursement charges asserted against the nonprofit debtor hospital under N.J. Stat. Ann. § 43:21-7.2 were not taxes and therefore were not subject to classification under 11 U.S.C. §§ 507(a)(1), (8)(D), (E), 503(b)(1)(B). OVERVIEW: The reimbursement charges were involuntary exactions under N.J. Stat. Ann. § 43:21-7.2(a)(1), (9), and served a public purpose enacted under the state’s police or taxing power. The statute did not permit private or self-insurance options. The exaction was universally applicable and the government claim did not disadvantage private creditors with like claims. Nonprofit employers were subject to pay unemployment compensation taxes notwithstanding their exemption from federal income taxes. The reimbursement charges were entitled to priority under 11 U.S.C. § 507(a)(8)(E)(ii), but not under 11 U.S.C. § 507(a)(8)(D) because they were based on the amount of benefits paid to former employees. Under 11 U.S.C. § 503(b)(1)(B), only taxes not specified in 11 U.S.C. § 507(a)(8) incurred by the estate could be classified as administrative expenses. Only postpetition taxes could be administrative claims. The only administrative claim was the claim based on employer contributions due on employment in the postpetition period that were based on wages paid to the few employees that remained after the hospital shutdown. In re United Healthcare Sys., 2002 Bankr. LEXIS 944, 282 B.R. 330 (Bankr. D.N.J. September 3, 2002) (Winfield, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:503.07 [back to top]

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Denial of Medicare/Medicaid recertification to debtor nursing home was prohibited discriminatory treatment. D. Del. PROCEDURAL POSTURE: The United States Bankruptcy Court for the District of Delaware granted the debtor’s motion under 11 U.S.C. § 525(a), and ordered the creditor Health Care Financing Administration ('HCFA') to recertify the debtor, finding that the debtor’s Medicaid/Medicare provider agreements were licenses and that by conditioning the recertification upon the repayment of prepetition debt, HCFA unfairly discriminated against the debtor. HCFA appealed. OVERVIEW: Even if the provider agreements were not per se licenses, they could still fall under 11 U.S.C. § 525. The provider agreements authorized the providers to pursue an endeavor, namely caring for elderly patients, and receive a governmental benefit. Although the debtor did not require a Medicare provider 'license' to participate in the program, without the provider agreement, the debtor would lose the governmental benefit of compensation. It was sufficiently similar to a license for section 525 purposes. Although financial condition was relevant to the services, there was no showing that the regulations dictated that a provider’s creditworthiness was a primary concern. Under 11 U.S.C. § 1141, the debt would only be dischargeable if the debtor remained in business, and there was no conduct proscribed by 11 U.S.C. § 727 that would render the debt nondischargeable. The debtor had complied with HCFA’s dictates except for the payment. HCFA’s actions were discriminatory because a solvent provider would not find itself in that position. HCFA’s focus on the debtor’s financial condition to the exclusion of other factors favoring reinstatement raised an inference of discriminatory treatment. Health Care Financing Admin. v. Sun Healthcare Group, Inc. (In re Sun Healthcare Group, Inc.), 2002 U.S. Dist. LEXIS 17868, — F. Supp.2d — (D. Del. September 4, 2002) (Sleet, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:525.01 [back to top]

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Security interest granted within 90 days of filing was avoidable absent convincing rebuttal of presumption of insolvency. Bankr. D. Del. PROCEDURAL POSTURE: In this chapter 11 action, plaintiff debtor sought to avoid a security interest granted to defendant creditor pursuant to 11 U.S.C. §§ 547 and 550. OVERVIEW: The creditor argued that the security interest was not avoidable as a preference because the debtor was not insolvent at the time. The court found that creditor’s expert’s comparable transaction analysis of the debtor was unconvincing. The court reasoned that the net revenue multiple used by the expert did not accurately reflect the debtors’ value, because it ignored the fact that the debtor had never been profitable while comparing it to profitable companies. The court also reasoned that the sales considered by the expert were outdated. The court also concluded that the expert’s market multiple methodology failed to establish that the debtor was solvent on the valuation date. The court reasoned that it was not persuaded that the expert’s choice of multiples accurately reflected the comparable companies’ values for the reasons asserted by the debtor. Moreover, the court found that the expert had improperly relied on the debtor’s projections to calculate value. Thus, the court concluded that the presumption of insolvency was not rebutted. Lids Corp. v. Marathon Inv. Partners, LP, 2002 Bankr. LEXIS 949, 281 B.R. 535 (Bankr. D. Del. August 6, 2002) (Walrath, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:547.01 [back to top]

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Bankruptcy court denied late motion for assumption of lease where risk to creditors far outweighed any potential profit. Bankr. E.D. Va. PROCEDURAL POSTURE: Plaintiff debtor filed a voluntary chapter 11 petition under the U.S. Bankruptcy Code and remained a debtor in possession. The debtor failed to timely assume defendant managing agent’s lease before an assumption deadline. The debtor filed an adversary action against the agent and filed a motion under 11 U.S.C. § 365(a) for approval to assume to lease. The agent objected to the motion. OVERVIEW: The bankruptcy court used four factors to assess whether the assumption of the lease was appropriate under section 365(a), which included: (1) the effect of the debtor’s proposed assumption or rejection upon the estate; (2) how the lessor would be impacted by the assumption or rejection of the lease; (3) whether any benefit or harm to the unsecured creditors would occur from the lease assumption or rejection; and (4) the significance of the lease to the debtor’s overall reorganization efforts. The court found that the debtor’s payment defaults at the lease location and other locations showed the debtor’s dire financial position. The court would not approve the assumption of a lease where the impact on the debtor’s estate could be serious. The debtor failed to establish that the assumption of the lease would benefit the bankruptcy estate. The debtor was not able to offer the lessor adequate assurance of future performance under the lease. The court found that the risk to the unsecured creditors outweighed the marginal profit which was expected from the rental property. The court was unable to determine the importance of the lease and the rental property to the debtor’s reorganization. Trak Auto Corp. v. Ramco-Gershenson, Inc. (In re Trak Auto Corp.), 2002 Bankr. LEXIS 938, — B.R. — (Bankr. E.D. Va. January 9, 2002) (Adams, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.03[back to top]

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Action to enforce a mechanic’s lien against estate property was a core proceeding. S.D. W. Va. PROCEDURAL POSTURE: Debtor and its employees appealed the bankruptcy court’s denial of their motion to remand their wage payment and collection dispute to the county court. Appellees, corporations, asserted that the bankruptcy court’s decision should be affirmed. Much of the district court case centered around whether the previous actions were a core proceeding within the meaning of 28 U.S.C. § 157. OVERVIEW: Appellants asserted that the bankruptcy court erred because it did not have jurisdiction over their state action and the removal petition was procedurally and substantively infirm. The corporations asserted that the bankruptcy judge properly found that the debtor’s case was a core proceeding within the meaning of section 157, there were no defects in the removal procedure, and the principles of abstention and equitable remand were unwarranted under the circumstances. Specifically, the corporations claimed that the debtor’s action sought to enforce a mechanic’s lien against property included in debtor’s bankruptcy estate and the action fell within the definition of a core proceeding pursuant to section 157(b)(2). The court held that (1) the failure of some corporations to file an appropriate statement or responsive pleading was not a fatal jurisdictional defect; (2) the debtors claim was a core proceeding because it arose in a case under Title 11, as described in 28 U.S.C. § 1334(b); and (3) application of abstention and equitable remand principles were not warranted. Thus, the decision of the bankruptcy was affirmed. Abner v. Mate Creek Loading, Inc. (In re Mid-Atlantic Res. Corp.), 2002 U.S. Dist. LEXIS 16462, 283 B.R. 176 (S.D. W. Va. August 26, 2002) (Chambers, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:3.02[back to top]

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  Creditor with oral and inquiry notice of bankruptcy willfully violated stay by withholding services pending payment of prepetition debt. Bankr. N.D. Tex. PROCEDURAL POSTURE: In this chapter 11 action, before the court was an order directing a creditor to appear and show cause for sanctions not to issue for violation of the automatic stay previously entered. OVERVIEW: The creditor was in the delivery business and had a prepetition relationship with the debtor. According to the owner of the creditor business, the debtor had a poor history of paying for the creditor’s services prepetition and had, on occasion, misrepresented the status of payments due to the creditor. The debtor filed for bankruptcy on November 11. The creditor continued to refuse to deliver (or return to the debtor) the water blaster system until funds were wire transferred to it in the amount of $5,697 in payment of prepetition debt and interest and the cost of the postpetition delivery. On January 15, desperate to avoid a problem with a large customer, the debtor complied. The court found that both the creditor and its president had notice of the debtor’s chapter 11 case. The court reasoned that oral notice of a filing is sufficient to require a party to observe the stay. Moreover, the court held that the creditor also had inquiry notice as to whether the automatic stay applied. The court also found that the creditor wilfully violated the stay. In re Freemyer Indus. Pressure, Inc., 2002 Bankr. LEXIS 947, 281 B.R. 262 (Bankr. N.D. Tex. June 24, 2002) (Lynn, B.J.).

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

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Secured creditor’s assent to chapter 13 plan was not required where plan met all standards and requirements under the bankruptcy code. Bankr. N.D. Ohio PROCEDURAL POSTURE: A creditor, the county treasurer, objected to the debtor’s chapter 13 plan of arrangement. The debtor objected to the allowance of a claim. OVERVIEW: The creditor was not prohibited by statute from initiating a foreclosure action for taxes remaining unpaid subsequent to earlier taxes which were the subject of sold tax certificates. That was the situation in this case. The taxes claimed in the creditor’s proof of claim were for 1999, 2000, and 2001. The buyer purchased the tax certificate for the year 1998. To the extent that the debtor’s plan addressed what might happen to the property after the debtor’s surrender, the court found that such language did not bind the creditor. The debtor was surrendering the property, and the creditor presumably then would act in accordance with his statutorily created duties. If the secured creditor did not accept a debtor’s chapter 13 plan, the debtor could either surrender the collateral to the creditor under 11 U.S.C. § 1325(a)(5)(C), or keep the collateral over the creditor’s objection and provide the creditor, over the life of the plan, with the equivalent of the present value of the collateral. Chapter 13 did not provide for the secured creditor to veto a plan when the debtor complied with § 1325. In Re White, 2002 Bankr. LEXIS 930, 282 B.R. 418 (Bankr. N.D. Ohio August 2, 2002) (Shea-Stonum, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1325.01 [back to top]

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Trustee’s intervention in pending suit on behalf of plaintiff debtor did not eliminate debtor’s discovery obligations. N.D. Ill. PROCEDURAL POSTURE: Plaintiff, trustee of the bankruptcy estate, filed a motion for protective order. Defendant, on the other hand, filed a motion to dismiss. OVERVIEW: The trustee argued in his motion that the original plaintiff was no longer a party and could not be compelled to answer discovery requests. Defendant argued that because the original plaintiff would not cooperate with discovery requests, the claim by the original plaintiff against defendant should be dismissed. The court held that, because the trustee merely intervened in the pending claim, the original plaintiff remained a party accessible to discovery. The court further held that, although the trustee’s avoidance of all discovery requests appeared to be deliberate, the court did not believe such action to be done in bad faith. As such, the court did not grant defendant’s motion to dismiss. Venn v. Blackhawk Area Credit Union, 2002 U.S. Dist. LEXIS 16351, — F. Supp.2d — (N.D. Ill. September 3, 2002) (Mahoney, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:323.01 [back to top]

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Bankruptcy court did not abuse its discretion in extending discovery where debtor persistently failed to comply. N.D. Ill. PROCEDURAL POSTURE: Appellant debtor sought judicial review of several rulings of the bankruptcy court. He appealed the denial of his summary judgment motion as a sanction for failing to appear for his deposition and the court’s award of attorney’s fees as a sanction for his failure to comply with discovery. OVERVIEW: The bankruptcy court extended discovery after finding that the debtor had resisted discovery throughout the proceedings and that he failed to appear for his deposition after the court had directed that his deposition was needed in order to proceed with his summary judgment motion. He did not seek to quash the notice of deposition. Instead, he made the decision not to attend the deposition after he previously informed that court that he was available for such deposition. Based on those facts, the bankruptcy court did not abuse its discretion in extending discovery. Regarding the summary judgment motion, the bankruptcy court found, in part, that he failed to establish prima facie in his motion for summary judgment. Alternatively, his summary judgment motion was denied because the debtor failed to appear for his deposition. The bankruptcy court granted attorney’s fees to the investment company and two individuals after several issues of noncompliance with discovery were addressed by the court, and the debtor was ordered to comply with court orders. That court found that he failed to comply with such orders. The materials provided on appeal supported the imposition of sanctions. Chapman v. Charles Schwab & Co. (In re Chapman), 2002 U.S. Dist. LEXIS 16346, — F. Supp.2d — (N.D. Ill. August 28, 2002) (Darrah, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:7037.01 [back to top]

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Expenses incurred by corporation in attempt to obtain lease assignment from estate were not entitled to administrative expense priority. Bankr. N.D. Iowa PROCEDURAL POSTURE: Corporation sought allowance of an administrative expense claim from debtor’s estate of approximately $47,000 for expenses arising from its pursuit of a lease assignment. OVERVIEW: The corporation argued that the amount it sought was fair, reasonable, and necessary as part of its due diligence and lease negotiations. It asserted that but for its offer to the trustee, the lease would have been rejected and no assets would have remained in the bankruptcy estate. The corporation contended that its involvement in the case ultimately generated $153,000 from a successful lease assignee for the benefit of the estate. The court held, however, that the corporation’s claim for attorney fees and other expenses was not entitled to administrative expense priority. The expenses incurred did not constitute actual, necessary costs and expenses of preserving the bankruptcy estate. The corporation did not show that it was subjected to loss as a result of the administration of the bankruptcy estate. Also, the corporation did not incur the costs in order to preserve the bankruptcy estate. The costs arose from its attempt to obtain an asset from the bankruptcy estate. In re Tama Beef Packing, Inc., 2002 Bankr. LEXIS 929, 283 B.R. 274 (Bankr. N.D. Iowa August 20, 2002) (Kilburg, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:503.05 [back to top]

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Claim resulting from debtor’s willful and malicious violation of state whistleblower act excepted from discharge. Bankr. N.D. Iowa PROCEDURAL POSTURE: Defendant debtor filed a chapter 7 petition under the Bankruptcy Code. Plaintiff creditor filed an adversary action against the debtor and objected to the dischargeability of her claim resulting from a debt for willful and malicious injury. The creditor moved for summary judgment. OVERVIEW: A jury trial found that the debtor had discriminated against or dismissed the creditor, a former employee, for filing a complaint or for providing testimony or other records to a state licensing board. The bankruptcy court concluded that the creditor’s claim arose from the debtor’s conduct before the bankruptcy filing and was a prepetition claim. The verdict and award of punitive damages established that the debtor’s conduct was wrongful. The bankruptcy court rejected the debtor’s position that he acted out of justifiable concern for patient confidentiality. This contradicted the state court jury’s findings and the claim was barred. The creditor asserted that the doctrine of collateral estoppel, or issue preclusion, established that the debt owed was for willful and malicious injury, and the bankruptcy court agreed. The jury finding established malice and intentional injury under the standard in the Eighth Circuit. The debtor could not challenge or relitigate the issue in bankruptcy court. Suggitt v. Foushee (In re Foushee), 2002 Bankr. LEXIS 941, 283 B.R. 278 (Bankr. N.D. Iowa August 27, 2002) (Edmonds, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.12 [back to top]

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Utility’s plan of reorganization preempted state regulation to the extent necessary for successful implementation. N.D. Cal. PROCEDURAL POSTURE: Debtor utility filed a voluntary petition under 11 U.S.C. § 11 in the bankruptcy court. The utility appealed the bankruptcy court’s order. The bankruptcy court certified its decision for immediate appeal, pursuant to FRCP 54(b). The utility contended that the preemption authorized by 11 U.S.C. § 1123(a) occurred at the time the Plan was implemented. OVERVIEW: Appeal posed important statutory interpretation question in one of the largest bankruptcies in U.S. history. The utility sought freedom only from nonbankruptcy requirements that threatened reorganization under the plan. The commission challenged the utility’s attempt to evade regulation, and transfer of regulatory control to FERC over several lines of business. The court chose between two radically different arguments about what sort of laws Congress meant expressly to preempt; it did not base its ruling on a presumption, but used principles of statutory construction. Congress intended expressly to preempt nonbankruptcy laws that would otherwise apply to bar, among other things, transactions necessary to implement a plan. The preemption of laws otherwise applicable to restructuring transactions would not authorize ongoing illegality by the reorganized debtor or new entities created through reorganization. The legislative history supported the utility’s interpretation of 11 U.S.C. § 1123(a)(5), but merely supported the plain language. The implication of 11 U.S.C. § 1129(a)(6) was that state regulatory approval is not required for plan provisions unrelated to rate changes. In re Pacific Gas & Elec. Co., 2002 U.S. Dist. LEXIS 16449, 283 B.R. 41 (N.D. Cal. August 30, 2002) (Walker, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1123.01[back to top]

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Security interest in motor vehicles was perfected prior to bankruptcy through compliance with state certificate of title statute and was not avoidable by trustee. D. Kan. PROCEDURAL POSTURE: Appellant trustee sought judicial review of a decision by the bankruptcy court, which concluded that the lienholder’s substantial compliance with the Kansas certificate of title statute perfected its security interest in the debtors’ vehicles at issue. The bankruptcy court judge ruled that the lienholder had perfected its interest by listing itself on the titles as owner. OVERVIEW: The trustee claimed that a master lease entered into between the lienholder and one debtor was a disguised sale, and that the lienholder’s security interest was not perfected as of the date of the bankruptcy. No state court had addressed the issue of whether a lienholder’s interest was properly perfected by the placement of the lienholder’s name on the certificate of title as owner instead of the lienholder. A lienholder could perfect its security interest by having its security interest noted on the certificate of title and then duly filed, or by filing a notice of security interest. The trustee’s argument that the lienholder being listed as the owner as opposed to the lienholder may have provided a third party with knowledge of defendant’s interest but did not perfect defendant’s security interest went against the weight of authority. The trustee’s argument that the bankruptcy judge’s decision lacked support from any existing Kansas cases was undercut by the fact that the trustee’s position was similarly barren of state law on point. Charles v. CIT Group/Equip. Fin., 2002 U.S. Dist. LEXIS 16402, — F. Supp.2d — (D. Kan. February 13, 2002) (Belot, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:548.01 [back to top]

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Guarantors of debtor’s promissory note held an allowed secured claim only to the extent payment was made to lender. Bankr. M.D. Ga. PROCEDURAL POSTURE: The debtor filed a chapter 11 petition under the Bankruptcy Code. The creditors filed a motion for allowance of an 11 U.S.C. § 502(e) claim and for recognition of assignment of the claim under Fed. R. Bankr. P. 3001(e)(2). OVERVIEW: The creditors had filed a proof of claim and asserted a contingent claim for their guaranty. The creditors sought to have their claim allowed as a secured claim and the assignment of that claim to another party recognized by the court. The court found that when the creditors filed their proof of claim, their entire claim was contingent upon a demand by a third party that they pay the debtor’s debt. When they made a postpetition payment, their claim became fixed to the extent of the payment. Under 11 U.S.C. § 502(e), their claim, to the extent of payment, was treated as a prepetition claim. It was also a secured claim. The assignment was recognized under Fed. R. Bankr. P. 3001(e)(2). The court found that the creditors and the third party understood that the promissory note given by the creditors to the third party was to serve as payment on the guaranty. The court found that there was not a valid basis for disallowing the claim. In re Alliance Aerospace, LLC, 2002 Bankr. LEXIS 940, 280 B.R. 752 (Bankr. M.D. Ga. April 19, 2002) (Walker, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:502.06[back to top]

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Federal tax liability excepted from discharge where debtor failed to file returns, sign substitute returns or cooperate in any way with IRS. M.D. Ga. PROCEDURAL POSTURE: Plaintiff debtor filed a petition under chapter 7 of the Bankruptcy Code. The debtor filed a complaint against defendant federal government to determine the dischargeability of income taxes. The government filed a motion for summary judgment. OVERVIEW: The debtor had failed to file timely federal income tax returns for several years in issue. The IRS filed substitute returns on behalf of the debtor for those years and sent the debtor statutory notices of deficiency for each year, but the debtor never signed the substitute returns. The IRS later assessed the income taxes due for those years without the debtor’s written consent. The debtor sought a determination that his federal income tax liability were dischargeable. The court found that the debtor had submitted no evidence. The court also found that the debtor did not sign the substitute returns. There were no facts to show that the debtor cooperated with the IRS in determining his tax liability. The debtor did not allege that the installment agreement he signed contained the information necessary for computing tax liability, and failed to provide any facts to determine that the agreement constituted a filed tax return. Brown v. U.S. (In re Brown), 2002 Bankr. LEXIS 939, 280 B.R. 760 (M.D. Ga. May 14, 2002) (Walker, B.J.).

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

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