Collier Bankruptcy Case Update December-2-02

Collier Bankruptcy Case Update December-2-02

 


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.

December 2, 2002

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

 

1d Cir.

§ 541(d) Debtor service provider who remitted federal funding from administrator to city was mere conduit and funds were not estate property.
City of Springfield v. Lan Tamers, Inc. (In re Lan Tamers, Inc.) (Bankr. D. Mass.)

28 U.S.C. § 1334(b) Bankruptcy court lacked jurisdiction over claim against estate that had been disposed of and no longer existed.
United States v. Fleet Nat’l Bank (In re Calore Express Co., Inc.) (D. Mass.)


2d Cir.

28 U.S.C. § 1412 Debtor’s application for cash collateral relating to transferred adversary proceeding was consistent with initial transfer order.
In re Scott Cable Communications, Inc. (Bankr. D. Conn.)


3d Cir.

§ 109 Airport with substantial debt was eligible chapter 11 debtor even though it was not insolvent at time of filing.
In re Central Jersey Airport Servs., LLC (Bankr. D.N.J.)

§ 365 Executory contract for sale of debtor’s airport rejected as a faster sale at the higher current market price would benefit the estate.
In re Central Jersey Airport Servs., LLC (Bankr. D.N.J.)

§ 1121 Debtor with at least 14 creditors, actively restructuring, with probability of successful reorganization and valid purpose, filed in good faith.
In re Central Jersey Airport Servs., LLC (Bankr. D.N.J.)


4th Cir.

§ 101(15) A casino is an entity as defined by the bankruptcy code.
In re Simonini (W.D.N.C.)

§ 503(b) Award of attorneys’ fees in chapter 13 case where no plan had been filed was still an administrative expense.
In re Hall (Bankr. E.D. Va.)

§ 541(c)(2) Bankruptcy court properly excluded debtor’s 401(k) plan from the estate.
Internal Revenue Service v. Wingfield (E.D. Va.)

§ 1326 Attorneys’ fees in soon to be dismissed chapter 13 filing were to be deducted by trustee prior to returning funds to debtor.
In re Hall (Bankr. E.D. Va.)


5th Cir.

§ 327(a) Attorneys retained as special counsel after claiming to be disinterested persons precluded from claiming prepetition attorneys’ fees.
W. Delta Oil Co. v. Hof (In re W. Delta Oil Co.) (E.D. La.)

Rule 3001(f) Bankruptcy court properly disallowed asbestos-related claim where creditor failed to establish that claim had been settled.
Rovida v. Babcock & Wilcox Co. (In re Babcock & Wilcox Co.) (E.D. La.)


7th Cir.

§ 548 Bankruptcy court correctly held that debtor’s transfer of stock, for less than reasonably equivalent value, while insolvent, was fraudulent.
Chapman v. Baldi (In re Gropman, Inc.) (N.D. Ill.)


8th Cir.

§ 727 Discharge denied on motion of judgment creditor where debtor failed to properly disclose all income or ownership of motor vehicle.
Weese v. Lambert (In re Lambert) (Bankr. W.D. Mo.)


10th Cir.

§ 541(a)(1) Cash surrender values of debtors’ life insurance policies were not exempt under state law and were property of their estates.
Michaels v. Zubrod (In re Michaels) (B.A.P. 10th Cir.)


11th Cir.

§ 362 Debtor and attorney sanctioned for violating injunction against attempts to void bankruptcy court’s order for sale of interest in probate estate.
Henkel v. Lickman (In re Lickman) (Bankr. M.D. Fla.)

§ 541 Subcontractor, who failed to pay sub-subcontractors, had no claim to remaining funds held by general contractor which were not estate property.
Halstead Contractors, Inc. v. C & C Excavating, Inc. (In re C & C Excavating, Inc.) (Bankr. N.D. Ala.)

§ 1328(a) Debt resulting from slander of creditor, though nondischargeable in chapter 7, is dischargeable upon completion of chapter 13 plan.
In re McGovern (Bankr. S.D. Fla.)



Collier Bankruptcy Case Summaries

1st Cir.

Debtor service provider who remitted federal funding from administrator to city was mere conduit and funds were not estate property. Bankr. D. Mass. PROCEDURAL POSTURE: Plaintiff city filed an adversary proceeding against the debtor, two creditors including a bank, and defendant administrator of a federal fund under the Telecommunications Act of 1996, arguing that reimbursements under 47 U.S.C. § 254(h)(B), 47 C.F.R. § 54.501 (2002), were not property of the estate, seeking payment to the city. The bank’s counterclaim asserted a perfected security interest in the reimbursements. OVERVIEW: Under the federal program, the debtor was to remit the reimbursements to the city within 10 days of receipt. The debtor was only a vehicle to deliver the funds to the city. The city’s right to the funds was not a claim against the debtor under 11 U.S.C. § 101(5). Because all reimbursements owed by the administrator were made by check payable to the debtor as the telecommunications service provider, the debtor had bare legal title thereto. The terms of the transaction satisfied a resulting trust. The fund’s forms were part of a federal statutory scheme designed to elevate and equalize telecommunications capability. No state agency was involved, thus, a broader federal standard of constructive trusts applied. The debtor was merely a conduit responsible for remitting the funds to the city. The reimbursements were not property of the estate under 11 U.S.C. § 541(d); they were held in constructive trust. The bank, a secured creditor, was not a 'purchaser' of a security interest in the reimbursements under Mass. Gen. Laws ch. 106, § 1-201(32), (33).The court had no 'related to' jurisdiction under 28 U.S.C. § 1334(b) as to the city’s request for payment from the administrator. City of Springfield v. Lan Tamers, Inc. (In re Lan Tamers, Inc.), 2002 Bankr. LEXIS 911, 281 B.R. 782 (Bankr. D. Mass. August 16, 2002) (Boroff, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
5:541.27

ABI Members, click here to get the full opinion.

Bankruptcy court lacked jurisdiction over claim against estate that had been disposed of and no longer existed. D. Mass. PROCEDURAL POSTURE: The district court considered its jurisdiction of a bankruptcy appeal, after the case was remanded from the appeals court. OVERVIEW: The recurring and resounding theme of the appellate court’s decision was the insufficiency of the record to support the bankruptcy court’s decision and the district court’s affirmance of that decision. The appellate court found that the bankruptcy court’s ruling was insufficiently supported by the record, and thus unwarranted at this stage — not that it was necessarily or ultimately incorrect. Thus, the district court was not able to agree with the creditor bank that the bankruptcy court had 'related to' jurisdiction in this matter. Both the case law and the legislative history made it clear that the lodestar of bankruptcy jurisdiction was the effect of a given action on a bankruptcy estate; thus, where there was no estate, the only logical conclusion was that there was no bankruptcy jurisdiction. Accordingly, because the bankruptcy estate of the debtor had been entirely disposed of, the district court found that there was no longer bankruptcy jurisdiction over the matter. If the government wished to proceed with a restitution suit, it was required to do so in a court of general jurisdiction. United States v. Fleet Nat’l Bank (In re Calore Express Co., Inc.), 2002 U.S. Dist. LEXIS 15706, — F. Supp.3d — (D. Mass. July 19, 2002) (Gertner, D.J.).

Collier on Bankruptcy, 15th Ed. Revised
1:3.01[4]

ABI Members, click here to get the full opinion.


2d Cir.

Debtor’s application for cash collateral relating to transferred adversary proceeding was consistent with initial transfer order. Bankr. D. Conn. PROCEDURAL POSTURE: The debtor filed a petition for relief under chapter 11. The debtor applied for cash collateral, which was opposed by federal and state taxation authorities, as well as the United States Trustee’s office (the government). They also filed motions. The court transferred the adversary proceeding along with any administrative expense and cash collateral applications associated with it to another bankruptcy court. OVERVIEW: The bankruptcy court had transferred the authority to the Delaware bankruptcy court, and had given that court the ability, by the transfer order, to consider any requests by the debtor for the payment of administrative expenses arising out of that adversary proceeding. The bankruptcy court had stated that any such determination by the Delaware court would be paid from cash collateral allowed back in the bankruptcy court, after notice and a hearing. The government claimed that the debtor had a conflict of interest and its intervention in the transferred adversary proceeding was redundant to the efforts of the defendant in that matter. The government also claimed that it would also impose an unwarranted and unreasonable economic burden on the creditors of the debtor’s estate. The bankruptcy court disagreed and noted that the Delaware court had found that the debtor’s intervention in the adversary proceeding was warranted. In re Scott Cable Communications, Inc., 2002 Bankr. LEXIS 897, — B.R. — (Bankr. D. Conn. July 18, 2002) (Shiff, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised
1:4.04[1]

ABI Members, click here to get the full opinion.


3d Cir.

Airport with substantial debt was eligible chapter 11 debtor even though it was not insolvent at time of filing. Bankr. D.N.J. PROCEDURAL POSTURE: The debtor airport filed a voluntary chapter 11 bankruptcy petition. Movants sought reconsideration of the court’s approval of a settlement agreement, and also sought dismissal, alleging that the debtor filed its petition in bad faith. The debtor filed a motion to reject an agreement of sale between the debtor and movant individual pursuant to 11 U.S.C. § 365 and a motion to extend the exclusivity period pursuant to 11 U.S.C. § 1121(d). OVERVIEW: The court found that whether the $874,000 in unsecured debt was owed to the debtor’s affiliates and managing members was irrelevant to the question of good faith in filing the bankruptcy petition, as it was still indebtedness for which the debtor was liable. Clearly, the debtor was an eligible debtor under 11 U.S.C. § 109. The debtor’s petition listed two other state court actions involving parties other than the movants, and the court’s list of creditors contained 13 creditors, not including the movants. Based on the public policy of the state in facilitating businesses through accessibility to smaller airports throughout the state, and the financial distress of the airport industry as a whole, the debtor had a legitimate and valid purpose for filing bankruptcy regardless of its solvency at the time of filing. Since the filing, the debtor had demonstrated a good faith effort in restructuring its business by resolving issues of corporate governance amongst its managing members, restructuring its secured debt, and entering into a consent agreement with an unsecured creditor. In re Central Jersey Airport Servs., LLC, 2002 Bankr. LEXIS 892, 282 B.R. 176 (Bankr. D.N.J. August 20, 2002) (Gindin, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
2:109.01

ABI Members, click here to get the full opinion.

Executory contract for sale of debtor’s airport rejected as a faster sale at the higher current market price would benefit the estate. Bankr. D.N.J. PROCEDURAL POSTURE: The debtor airport filed a voluntary chapter 11 bankruptcy petition. Movants sought reconsideration of the court’s approval of a settlement agreement, and also sought dismissal, alleging that the debtor filed its petition in bad faith. The debtor filed a motion to reject an agreement of sale between the debtor and movant individual pursuant to 11 U.S.C. § 365 and a motion to extend the exclusivity period pursuant to 11 U.S.C. § 1121(d). OVERVIEW: The court found that whether the $874,000 in unsecured debt was owed to the debtor’s affiliates and managing members was irrelevant to the question of good faith in filing the bankruptcy petition, as it was still indebtedness for which the debtor was liable. Clearly, the debtor was an eligible debtor under 11 U.S.C. § 109. The debtor’s petition listed two other state court actions involving parties other than the movants, and the court’s list of creditors contained 13 creditors, not including the movants. Based on the public policy of the state in facilitating businesses through accessibility to smaller airports throughout the state, and the financial distress of the airport industry as a whole, the debtor had a legitimate and valid purpose for filing bankruptcy regardless of its solvency at the time of filing. Since the filing, the debtor had demonstrated a good faith effort in restructuring its business by resolving issues of corporate governance amongst its managing members, restructuring its secured debt, and entering into a consent agreement with an unsecured creditor. In re Central Jersey Airport Servs., LLC, 2002 Bankr. LEXIS 892, 282 B.R. 176 (Bankr. D.N.J. August 20, 2002) (Gindin, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
3:365.01

ABI Members, click here to get the full opinion.

Debtor with at least 14 creditors, actively restructuring, with probability of successful reorganization and valid purpose, filed in good faith. Bankr. D.N.J. PROCEDURAL POSTURE: The debtor airport filed a voluntary chapter 11 bankruptcy petition. Movants sought reconsideration of the court’s approval of a settlement agreement, and also sought dismissal, alleging that the debtor filed its petition in bad faith. The debtor filed a motion to reject an agreement of sale between the debtor and movant individual pursuant to 11 U.S.C. § 365 and a motion to extend the exclusivity period pursuant to 11 U.S.C. § 1121(d). OVERVIEW: The court found that whether the $874,000 in unsecured debt was owed to the debtor’s affiliates and managing members was irrelevant to the question of good faith in filing the bankruptcy petition, as it was still indebtedness for which the debtor was liable. Clearly, the debtor was an eligible debtor under 11 U.S.C. § 109. The debtor’s petition listed two other state court actions involving parties other than the movants, and the court’s list of creditors contained 13 creditors, not including the movants. Based on the public policy of the state in facilitating businesses through accessibility to smaller airports throughout the state, and the financial distress of the airport industry as a whole, the debtor had a legitimate and valid purpose for filing bankruptcy regardless of its solvency at the time of filing. Since the filing, the debtor had demonstrated a good faith effort in restructuring its business by resolving issues of corporate governance amongst its managing members, restructuring its secured debt, and entering into a consent agreement with an unsecured creditor. In re Central Jersey Airport Servs., LLC, 2002 Bankr. LEXIS 892, 282 B.R. 176 (Bankr. D.N.J. August 20, 2002) (Gindin, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
7:1121.01

ABI Members, click here to get the full opinion.


4th Cir

A casino is an entity as defined by the bankruptcy code. W.D.N.C. PROCEDURAL POSTURE: Plaintiff debtor moved for an injunction and any other equitable relief from defendant state’s attempt to collect a prepetition debt, in violation of the automatic stay of 11 U.S.C. § 362, under the guise of a criminal prosecution. OVERVIEW: The debtor filed bankruptcy on his debts, including gambling and bad check debts. The state and casino (state) failed to file a complaint with the bankruptcy court to determine the dischargeability of the debt. Instead, the state attempted to collect on the prepetition unsecured debt by instituting criminal prosecution. The debtor sought an injunction from the criminal prosecution and the state’s attempt to extradite him, claiming that the criminal prosecution was simply a postpetition attempt to collect a prepetition debt. The court agreed, finding that the casino fell within the 11 U.S.C. § 101(15) definition of an entity and its claim was of the type automatically stayed. Just as the casino could not bring prepetition claims against the debtor outside the bankruptcy process, neither could the state bring claims for the debts owed to the casino by the debtor on the casino’s behalf. The state was not subject to the automatic stay of 11 U.S.C. § 362, but because the criminal prosecution was actually an attempt to collect a debt, injunctive relief was warranted under 11 U.S.C. § 105. In re Simonini, 2002 U.S. Dist. LEXIS 15626, 282 B.R. 604 (W.D.N.C. August 8, 2002) (Mullen, C.D.J.).

Collier on Bankruptcy, 15th Ed. Revised
2:101.15

ABI Members, click here to get the full opinion.

Award of attorneys’ fees in chapter 13 case where no plan had been filed was still an administrative expense. Bankr. E.D. Va. PROCEDURAL POSTURE: A debtor filed a voluntary chapter 13 bankruptcy petition. The debtor’s attorney applied for approval and payment of compensation as counsel for the debtor. The chapter 13 trustee did not object to the amount of the requested fees but questioned whether there was any legal authority to pay them from the funds he had on hand, since no plan had been confirmed and the case was ripe for dismissal. OVERVIEW: The court had previously ruled, in connection with a prior fee application by the same attorney, that $90 per hour was an excessive rate for paralegal time. Based on the court’s general familiarity with prevailing rates in the area (derived from reviewing fee applications in other cases), the court determined that $75 per hour was currently the general market rate for paralegal time. A rate of $185 per hour for attorney time was within the range of prevailing local rates for an attorney of the attorney’s experience. An award of compensation to the attorney for a chapter 13 debtor plainly constituted compensation awarded under 11 U.S.C. § 330(a), which in turn qualified the award as an expense of administration under 11 U.S.C. § 503(b). Since 11 U.S.C. § 1326 directed the trustee to deduct any unpaid claim allowed under 11 U.S.C. § 503(b) before returning funds to the debtor, it followed that the approved compensation was able to be, and should have been, paid by the chapter 13 trustee before returning funds to the debtor. In re Hall, 2002 Bankr. LEXIS 898, — B.R. — (Bankr. E.D. Va. February 14, 2002) (Mitchell, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
4:503.04

ABI Members, click here to get the full opinion.

Bankruptcy court properly excluded debtor’s 401(k) plan from the estate. E.D. Va. PROCEDURAL POSTURE: Appellant Internal Revenue Service ('IRS') appealed an order of the bankruptcy court, which found that debtor’s 401(k) plan was not property of the bankruptcy estate for purposes of securing the IRS’s claim. OVERVIEW: Both parties agreed that a 401(k) plan was normally excluded from the bankruptcy estate. The issue was whether the IRS could secure its claim in the chapter 13 bankruptcy against property that was not property of the bankruptcy estate. The court agreed with the bankruptcy court’s rejection of a 'split personality' characterization of 401(k) plans, i.e., allowing the 401(k) plan to secure the claims of some bankruptcy parties but not others. Thus, debtor’s interest in his 401(k) plan was not property of the estate for the purposes of establishing the IRS’s secured claim. The court also found that the IRS’s tax claims maintained their priority status, despite the fact that some taxes were outside the three-year look back period. The look back period of 11 U.S.C. § 507(a)(8)(A)(i) was tolled during the pendency of the series of bankruptcy petitions that debtor filed. Internal Revenue Service v. Wingfield, 2002 U.S. Dist. LEXIS 15885, — F. Supp.2d — (E.D. Va. July 12, 2002) (Friedman, D.J.).

Collier on Bankruptcy, 15th Ed. Revised
5:541.07

ABI Members, click here to get the full opinion.

Attorneys’ fees in soon to be dismissed chapter 13 filing were to be deducted by trustee prior to returning funds to debtor. Bankr. E.D. Va. PROCEDURAL POSTURE: A debtor filed a voluntary chapter 13 bankruptcy petition. The debtor’s attorney applied for approval and payment of compensation as counsel for the debtor. The chapter 13 trustee did not object to the amount of the requested fees but questioned whether there was any legal authority to pay them from the funds he had on hand, since no plan had been confirmed and the case was ripe for dismissal. OVERVIEW: The court had previously ruled, in connection with a prior fee application by the same attorney, that $90 per hour was an excessive rate for paralegal time. Based on the court’s general familiarity with prevailing rates in the area (derived from reviewing fee applications in other cases), the court determined that $75 per hour was currently the general market rate for paralegal time. A rate of $185 per hour for attorney time was within the range of prevailing local rates for an attorney of the attorney’s experience. An award of compensation to the attorney for a chapter 13 debtor plainly constituted compensation awarded under 11 U.S.C. § 330(a), which in turn qualified the award as an expense of administration under 11 U.S.C. § 503(b). Since 11 U.S.C. § 1326 directed the trustee to deduct any unpaid claim allowed under 11 U.S.C. § 503(b) before returning funds to the debtor, it followed that the approved compensation was able to be, and should have been, paid by the chapter 13 trustee before returning funds to the debtor. In re Hall, 2002 Bankr. LEXIS 898, — B.R. — (Bankr. E.D. Va. February 14, 2002) (Mitchell, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
8:1326.01

ABI Members, click here to get the full opinion.


5th Cir.

Attorneys retained as special counsel after claiming to be disinterested persons precluded from claiming prepetition attorneys’ fees. E.D. La. PROCEDURAL POSTURE: Appellant firms and attorneys appealed an order of the bankruptcy court, which granted summary judgment in favor of appellee company on the issue prepetition attorneys’ fees claimed by the firms and attorneys. OVERVIEW: The two attorneys had failed to disclose their prepetition claims. Thus, the effectively averred that no such claims existed. The attorneys argued that their failure to disclose resulted not from an intent to deceive the bankruptcy court, but out of inexperience in bankruptcy proceedings and ignorance of bankruptcy law. The instant court found that, even if the failure to disclose the fees due to inexperience or lack of knowledge of bankruptcy law, such a justification would be insufficient to preclude application of judicial estoppel to their claims. The appeals court did not require bad faith or intentional non-disclosure in bankruptcy cases. W. Delta Oil Co. v. Hof (In re W. Delta Oil Co.), 2002 U.S. Dist. LEXIS 15776, — F. Supp.2d — (E.D. La. August 21, 2002) (Barbier, D.J.).

Collier on Bankruptcy, 15th Ed. Revised
3: 327.02

ABI Members, click here to get the full opinion.

Bankruptcy court properly disallowed asbestos-related claim where creditor failed to establish that claim had been settled. E.D. La. PROCEDURAL POSTURE: Appellant creditor asserted that he and appellee debtor had agreed to settle his asbestos-related injury claim before the debtor filed for bankruptcy relief. The debtor objected to the creditor’s proof of claim, and the bankruptcy court disallowed the claim. The creditor appealed. OVERVIEW: Pennsylvania contract law was the appropriate state law to resolve the issues on appeal. The creditor was a Pennsylvania resident, his alleged exposure to asbestos-containing products occurred in Pennsylvania, and the settlement negotiations took place in Pennsylvania. The court uncovered no case in which the Pennsylvania Supreme Court retreated from its position that an attorney must have a client’s express authority to settle a case. There was no evidence that the creditor, as opposed to his attorneys, accepted the terms of debtor’s settlement offer, and there was no evidence that the creditor cloaked his lawyers with the authority to settle his claim on the terms discussed in the letters. Further, the creditor presented no evidence that the creditor or his estate ever had knowledge of the terms of the alleged settlement prior to the bankruptcy. Therefore, ratification did not apply. Finally, the court found that promissory estoppel was inapplicable because the creditor could not establish one of the essential elements of promissory estoppel, that the enforcement of debtor’s promise was necessary to avoid injustice. Rovida v. Babcock & Wilcox Co. (In re Babcock & Wilcox Co.), 2002 U.S. Dist. LEXIS 15742, — F. Supp.2d — (E.D. La. August 13, 2002) (Vance, D.J.).

Collier on Bankruptcy, 15th Ed. Revised
9:3001.09

ABI Members, click here to get the full opinion.


7th Cir.

Bankruptcy court correctly held that debtor’s transfer of stock, for less than reasonably equivalent value, while insolvent, was fraudulent. N.D. Ill. PROCEDURAL POSTURE: Appellant sought to set aside the decision of the United States Bankruptcy Court for the Northern District of Illinois which was entered in favor of appellee bankruptcy trustee for the debtor. OVERVIEW: Appellant and his brother owned stock in the debtor along with another individual. The debtor was a corporation. The other individual and his family wanted to become the sole owners of the debtor. Appellant entered into a stock redemption agreement, a consulting agreement, and a covenant not to compete. An involuntary petition for relief under chapter 7 was filed against the debtor. The trustee filed a complaint to recover the transfers from the debtor to appellant. The court held that the trustee successfully carried its evidentiary burden of showing that the debtor did not receive a reasonable equivalent value for the value it transferred to appellant and successfully carried its evidentiary burden of showing that the debtor was insolvent at the time of the transfers to appellant. Appellant did not establish the value of either the consulting agreement or the covenant not to compete therefore was not entitled to the defense under 11 U.S.C. § 548(c). Appellant was the initial transferee of the payments having dominion and control over the money and thus beholden to the avoidance powers of the trustee. Chapman v. Baldi (In re Gropman, Inc.), 2002 U.S. Dist. LEXIS 15654, — F. Supp.2d — (N.D. Ill. August 20, 2002) (Holderman, D.J.).

Collier on Bankruptcy, 15th Ed. Revised
5:548.01

ABI Members, click here to get the full opinion.


8th Cir.

Discharge denied on motion of judgment creditor where debtor failed to properly disclose all income or ownership of motor vehicle. Bankr. W.D. Mo. PROCEDURAL POSTURE: Defendant debtor filed a chapter 7 petition under the Bankruptcy Code. Plaintiff, a judgment creditor, filed an action and objected to the debtor’s discharge under 11 U.S.C. § 727. The debtor filed a motion to dismiss. OVERVIEW: The creditor alleged that the debtor failed to list a vehicle on the bankruptcy schedules and also failed to disclose all of his income. The debtor amended his schedules but failed to list the vehicle. The debtor also failed to appear at trial to respond to the creditor’s allegations. The creditor had obtained a state court judgment against the debtor for unsatisfactory construction work the debtor performed. The debtor later admitted that he had additional income at a creditors’ meeting. At trial, the creditor introduced a certified copy of the debtor’s application for the vehicle’s title and license, which was dated before the date of the bankruptcy petition. A witness also testified that the debtor owned the car before bankruptcy. The court concluded that the creditor had met his burden of proof and the burden had shifted to the debtor. The court found that the debtor owned the car when he filed his petition, despite the fact that he did not list it as an asset. The debtor failed to meet his burden of proof that he did not own the vehicle. The court found that the debtor also did not accurately amend his schedules to reflect his income. A discharge under section 727 was not warranted. Weese v. Lambert (In re Lambert), 2002 Bankr. LEXIS 900, 280 B.R. 463 (Bankr. W.D. Mo. April 4, 2002) (Federman, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised
6:727.01

ABI Members, click here to get the full opinion.


10th Cir.

Cash surrender values of debtors’ life insurance policies were not exempt under state law and were property of their estates. B.A.P. 10th Cir. PROCEDURAL POSTURE: Appellants, a debtor in one bankruptcy case and married debtors in a second bankruptcy case (collectively, the debtors), appealed from separate orders of the bankruptcy court sustaining the appellee trustee’s objections to their exemptions in the cash surrender value of certain life insurance policies. The cases were consolidated for appeal. OVERVIEW: The debtors had purchased insurance policies with cash surrender values and claimed an exemption in the cash surrender value on their bankruptcy schedules, and the trustee objected. The bankruptcy court applied state law and found that Wyo. Stat. Ann. § 26-15-129 was unambiguous and this statute precluded the debtors from claiming an exemption in the cash surrender values of the life insurance policies. On appeal, the trustee claimed that the statute prohibited the exemption claimed by the debtors. The bankruptcy appellate panel disagreed with the debtors’ argument that the bankruptcy court’s interpretation rendered the statute ambiguous. The plain language of the statute expressly prohibited the insured or the person executing the insurance from receiving proceeds of the policy free from creditors’ claims. Both the panel and the bankruptcy court agreed with this analysis. Specifically, in the case of the married debtors, the panel found that when they filed their chapter 7 petition, neither could claim as exempt any interest as a beneficiary in a life insurance policy owned by the other. Michaels v. Zubrod (In re Michaels), 2002 Bankr. LEXIS 896, 282 B.R. 234 (B.A.P. 10th Cir. August 20, 2002) (Michael, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
5:541.04

ABI Members, click here to get the full opinion.


11th Cir.

Debtor and attorney sanctioned for violating injunction against attempts to void bankruptcy court’s order for sale of interest in probate estate. Bankr. M.D. Fla. PROCEDURAL POSTURE: The bankruptcy court previously approved the chapter 7 trustee’s motion for the sale of the bankruptcy estate’s interest in a probate estate. The trustee filed an adversary proceeding against defendants, the debtor and debtor’s attorney, seeking sanctions against them for violating an injunction which barred defendants from prosecuting any actions to void the sale ordered by the bankruptcy court. OVERVIEW: Debtor filed for chapter 7 relief and received a discharge of her debts. During the administration of the bankruptcy estate, debtor’s aunt died and left debtor 15 percent of the residuary estate. The debtor did not disclose to the chapter 7 trustee her interest in the probate estate. Debtor’s bankruptcy case was reopened. The bankruptcy court held that the debtor’s rights in the probate estate were property of the bankruptcy estate. The trustee then negotiated a sale of the bankruptcy estate’s interest in the probate estate to the probate executor. The bankruptcy court approved and authorized the trustee’s sale of that estate asset. Debtor filed actions in state and federal court challenging the sale, claiming the sale was an illicit conspiracy between the trustee and the executor to deprive the debtor of her inheritance. The trustee sought to enjoin debtor from pursuing legal challenges to the sale. The bankruptcy court granted the injunction. The bankruptcy court found that debtor and her attorney willfully violated the injunction and ordered sanctions against them. Henkel v. Lickman (In re Lickman), 2002 Bankr. LEXIS 901, 282 B.R. 709 (Bankr. M.D. Fla. August 19, 2002) (Corcoran, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
3:362.01

ABI Members, click here to get the full opinion.

Subcontractor, who failed to pay sub-subcontractors, had no claim to remaining funds held by general contractor which were not estate property. Bankr. N.D. Ala. PROCEDURAL POSTURE: Plaintiff, a general contractor, brought an adversary proceeding against defendants, the debtor/subcontractor, a secured creditor, a lienholder, the Internal Revenue Service ('IRS'), and others, seeking a ruling that a contract balance that it was holding was not property of the bankruptcy estate and that it could be paid to the sub-subcontractors. Before the court were the parties’ motions for summary judgment and the response of the IRS. OVERVIEW: The debtor agreed to be a subcontractor to the general contractor. The debtor did not pay its sub-subcontractors, then filed for bankruptcy protection. The general contractor was holding the contract balance and sought a ruling that it could pay the funds to the sub-subcontractors and vendors. The court ruled that it could. It was undisputed that the debtor breached the terms of the contracts by not paying the sub-subcontractors. Hence, under Alabama law, the debtor had no legal or equitable rights in the contract balance; moreover, due to the breach, the funds did not represent an 'account receivable' or 'contract right' of the debtor, and therefore, none of the other creditors had a claim to the funds based on their arguments that their liens attached to accounts receivable or contract rights of the debtor. The contract balance was not estate property under 11 U.S.C. § 541; thus, it was not subject to the distribution scheme enacted under the Bankruptcy Code. A secured claim did not attach to property that was not part of the estate. The general contractor was not entitled to attorneys’ fee because the action was not filed as an interpleader, per Fed. R. Bankr. P. 7022. Halstead Contractors, Inc. v. C & C Excavating, Inc. (In re C & C Excavating, Inc.), 2002 Bankr. LEXIS 905, — B.R. — (Bankr. N.D. Ala. June 17, 2002) (Sledge, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
5:541.01

ABI Members, click here to get the full opinion.

Debt resulting from slander of creditor, though nondischargeable in chapter 7, is dischargeable upon completion of chapter 13 plan. Bankr. S.D. Fla. PROCEDURAL POSTURE: The debtor filed a petition for relief under chapter 13 of the U.S. Bankruptcy Code. At a plan confirmation hearing, a creditor objected to confirmation, while the trustee recommended confirmation of the plan. OVERVIEW: The creditor claimed that a liability was owed by the debtor, which arose from the debtor’s false representations that the creditor had been involved with, or implicated in, the commission of child molestation. The court found that under 11 U.S.C. § 523(a)(6), a debt incurred as a result of willful and malicious injury inflicted upon a person or that person’s property was not dischargeable in a chapter 7 case. The court found that the debtor’s plan satisfied the requirements as to the minimum amount to be paid under such a plan. The court noted that while the creditor wanted the debtor to pay a larger aggregate due amount to the creditor under the plan, the debtor was not required to do so because the requirements had been met. The plan satisfied all requirements of 11 U.S.C. § 1325(a). In re McGovern, 2002 Bankr. LEXIS 894, 282 B.R. 506 (Bankr. S.D. Fla. August 14, 2002) (Friedman, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
8:1328.02

ABI Members, click here to get the full opinion.