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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 9, 2002

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

 

Collier Bankruptcy Case Summaries

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2d Cir.

Debts to ex-wife pursuant to divorce decree were nondischargeable upon debtor’s default to the extent that debts fell within terms of section 523(a)(5). Bankr. E.D.N.Y. PROCEDURAL POSTURE: Plaintiff ex-wife filed a timely adversary complaint against defendant debtor in the debtor’s chapter 7 bankruptcy. The ex-wife alleged certain debts owed to her were nondischargeable pursuant to 11 U.S.C. § 523(a)(5). The debtor appeared for one pretrial conference but failed to appear for later proceedings and failed to answer the complaint. Seeking entry of a default judgment, the ex-wife filed a proposed order. OVERVIEW: The ex-wife claimed that the following debts, created by the parties’ divorce decree, were nondischargeable: $39,000 for post-divorce maintenance; $2,400 for retroactive maintenance; $2,000 for attorney fees; $2,000 for 'contribution to the marriage'; $5,000 for the sale of certain property; and statutory interest. The debtor had received notice of, and an opportunity to respond to, the ex-wife’s motion for default judgment. Thus, the requirements of Fed. R. Civ. P. 55(b), made applicable by Fed. R. Bankr. P. 7055, had been satisfied. Entry of default, however, did not entitled the ex-wife to a default judgment as a matter of right. Therefore, the court considered whether each of the debts owed to the ex-wife fell within the provisions of 11 U.S.C. § 523(a)(5). The debts for post-divorce maintenance, retroactive maintenance, and attorney fees were nondischargeable. In addition, the ex-wife was entitled to receive the statutory interest that had been accruing on those debts from the time of the money judgment to the present, including the postpetition period. Finally, the debts for the 'contribution to the marriage' and the sale of certain property were dischargeable. Nickolas v. Boccio (In re Boccio), 2002 Bankr. LEXIS 788, 281 B.R. 171 (Bankr. E.D.N.Y. July 3, 2002) (Cyganowski, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.11 [back to top]

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3d Cir.

State statute allowed trustee to recover fraudulent transfers made to charity within four years prior to filing. Bankr. E.D. Pa. PROCEDURAL POSTURE: The trustee filed a complaint against defendant charity to recover the debtor partnership’s charitable contributions as fraudulent transfers under 11 U.S.C. §§ 544(b), 548, and the Pennsylvania Uniform Fraudulent Transfer Act ('PUFTA'), 12 Pa. Cons. Stat. Ann. § 5101 et seq., alleging that the debtor had operated a Ponzi scheme. The charity argued there was insufficient evidence of the 'badges of fraud' of 12 Pa. Cons. Stat. Ann. § 5104(b). OVERVIEW: The good faith exceptions of 12 Pa. Const. Stat. Ann. § 5108(a) and 11 U.S.C. § 548(c) did not apply because the it was admitted that the transfers were not made for reasonably equivalent value. In operating a Ponzi scheme, the debtor’s partner knew of the eventual collapse. Knowledge that investors would not be paid established actual intent to defraud. The scheme was admitted by the debtor’s partner, and was ongoing during the transfer period, thereby providing evidence of the debtor’s ongoing intent to defraud creditors. The trustee’s expert opined that charitable contributions were part of the scheme to impress investors. Because each transfer was made within four years of the bankruptcy, all were avoidable under 11 U.S.C. § 544(b) and 12 Pa. Cons. Stat. Ann. §§ 5104(a)(1), 5107(a), 5109. Transfers made within one year before the bankruptcy were also avoidable under 11 U.S.C. § 548(a)(1)(A). The trustee’s burden of proof was by a preponderance of the evidence on all elements. Constructively fraudulent transfers did not require proof of insolvency. Operation of the scheme showed a subjective intent to incur debts beyond the debtor’s ability to pay as they became due. Leibersohn v. Campus Crusade for Christ, Inc. (In re C.F. Foods, LP), 2002 Bankr. LEXIS 921, 280 B.R. 103 (Bankr. E.D. Pa. July 3, 2002) (Carey, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:544.09 [back to top]

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Employees’ claim for severance pay was 'related to' bankruptcy of employer and should not have been remanded. W.D. Pa. PROCEDURAL POSTURE: Appellant, director of human resources for employer in bankruptcy, sought review of an order of the bankruptcy court, remanding to the court of common pleas of Allegheny County, Pennsylvania, an adversary proceeding in which she was the defendant concerning appellee, employee’s claim for severance pay under the Pennsylvania Wage Payment and Collection Law ('WPCL'), 43 Pa. Cons. Stat. § 260.1 et seq. OVERVIEW: The bankruptcy court determined that the employee’s adversary proceeding against the director did not fall within the scope of civil litigation generally referred to as 'related to' a bankruptcy case and concluded that the equities favored remanding the case back to state court, where the employee initially brought it. On appeal, the district court agreed with director that the bankruptcy court erred by failing to conclude that adversary proceeding 'related to' the employer’s bankruptcy case pending in the Eastern District of Missouri and therefore should have retained jurisdiction. Notably, the district court found that to the extent the bankruptcy court determined that the case should be remanded to the Court of Common Pleas based only on inconvenience to the employee if the case were transferred to Missouri and on deference to his choice of forum, the bankruptcy court erred by failing to consider and apply the more comprehensive equitable factors including, the effect on the efficient administration of the bankruptcy estate, the extent to which issues of state law predominate, the difficulty or unsettled nature of the applicable state law, and comity. Hohl v. Bastian, 2002 U.S. Dist. LEXIS 14260, 279 B.R. 165 (W.D. Pa. March 8, 2002) (Ambrose, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:3.01 [back to top]

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5th Cir

  District court erred in allowing assumption of executory contract despite debtor’s incurable default thereunder. 5th Cir. PROCEDURAL POSTURE: Appellant, a national hospital management company, appealed from several decisions of the district court, which, inter alia, overturned a judicial sale of the hospital, reinstated various contracts which defined the financing and lease of the hospital, and denied the holder of the hospital mortgage a claim for a deficiency judgment. OVERVIEW: This appeal involved three of four consolidated actions that arose from a failed relationship formed to build and manage a hospital and medical office building. In one action, the hospital management company argued that the district court erred by rescinding the judicial sale of the hospital. In a second action, the hospital management company argued that the district court erred in allowing debtor, the hospital pharmacy operator, to assume the pharmacy agreement on several grounds. In a third action, the hospital management company argued that the district court erred in its interpretation of several sections of the pharmacy agreement. The district court held that the district court’s findings that the hospital management company engaged in bad faith, collusion, and self-dealing to force the judicial sale of the hospital, chill the bidding at the sale, and purchase the hospital were clearly erroneous. The circuit court also held that the district court erred in allowing the pharmacy operator to assume the pharmacy agreement pursuant to 11 U.S.C. § 365. Finally, the district court held that the district court erred in interpreting several sections of the pharmacy agreement. Lifemark Hosps., Inc. v. Liljeberg Enters., Inc. (Liljeberg Enters., Inc.), 2002 U.S. App. LEXIS 17835, 304 F.3d 410 (5th Cir. August 28, 2002) (Higginbotham, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.01 [back to top]

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6th Cir.

Fee applications of examiner and its attorneys disgorged and disallowed where examiner misrepresented self to court as 'disinterested.' W.D. Ky. PROCEDURAL POSTURE: In this chapter 11 action, three matters where before the court: a creditor and the United States trustee (collectively, the government) filed a joint motion seeking disgorgement of all of the fees paid to the examiner; the debtor filed a motion seeking partial disgorgement of the examiner’s fees and the examiner’s counsel’s fees; and the examiner and his counsel separately filed final fee applications. OVERVIEW: The government sought disgorgement of all of the fees paid to the examiner in this case on the grounds that the examiner engaged in misconduct in soliciting payments from certain unsecured creditors for his compensation as examiner. The government also argued that the examiner was not a disinterested person as required under bankruptcy law. The examiner argued that the government lacked standing, that the there was nothing improper regarding his asking for a percentage-based fee, and that nothing was done in secret. The court held that the examiner affirmatively misled the government and others by filing certifications that he was a 'disinterested person.' The examiner’s lack of disinterestedness meant that he was not a properly appointed professional and was therefore not entitled to any compensation. The court also held that although the government had not requested disgorgement of the examiner’s counsel’s fees, and the debtor had only requested partial disgorgement, because the examiner’s counsel was essentially the alter ego of the examiner, and under the circumstances, the examiner’s counsel must also disgorge all fees. In re Big Rivers Elec. Corp., 2002 U.S. Dist. LEXIS 16174, 284 B.R. 580 (W.D. Ky. August 13, 2002) (Cohn, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:328.05[1] [back to top]

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7th Cir.

Automatic stay lifted to allow creditors to file state court complaints against debtor and third party and to allow for service of process. Bankr. C.D. Ill. PROCEDURAL POSTURE: Two creditors filed an emergency motion for annulment of the automatic stay for cause under 11 U.S.C. § 362(d) to validate the postpetition filing of their state court complaints against one of the debtors, and other co-defendants including a third creditor, a broker/dealer. The state court action alleged injuries arising from the sale of unregistered securities. The broker/dealer opposed the motion. OVERVIEW: Due to the debtors not timely filing the creditors matrix, the two creditors did not receive notice of the bankruptcy before filing the state court action. A general forewarning that bankruptcy was filed was not sufficient notice. The two creditors would be unfairly prejudiced if the stay was not annulled under section 362(d) to validate actions innocently taken in violation of the stay. The state court claims were subject to short statutes of limitations. There was no evidence that filing the state court action enabled the two creditors to improve their position over other creditors. The broker/dealer could gain a time-bar defense that it would not otherwise enjoy, an advantage that was not within the scope of the protection that the stay offered to creditors. Many creditors, including the two creditors, had filed complaints to determine dischargeability under 11 U.S.C. § 523. A determination of the facts and issues on dischargeability had to be made in the bankruptcy court, the state court, or the federal district court. Requiring the two creditors to begin anew if the bankruptcy court later determined that the cases should proceed in another forum served no useful purpose. In re Hiles, 2002 Bankr. LEXIS 915, — B.R. — (Bankr. C.D. Ill. June 27, 2002) (Perkins, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back to top]

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Debt to long term care facility where debtor’s father was admitted was dischargeable, despite alleged misappropriations, as debtor owed no fiduciary duty to the facility. Bankr. N.D. Ill. PROCEDURAL POSTURE: Defendant debtor filed a petition under chapter 7 of the Bankruptcy Code. Plaintiff creditor commenced an action against the debtor to determine whether a debt should be held nondischargeable under 11 U.S.C. § 523(a)(4). The creditor also sought attorneys’ fees and costs. OVERVIEW: The debtor admitted her father into the creditor’s long-term care facility. The creditor claimed that the debtor violated a power of attorney when she made a gift to herself instead of paying the creditor’s bill, and the gift allegedly caused the debtor’s father to default on the creditor’s admission agreement. The creditor asserted that the debtor breached a fiduciary duty. The debtor claimed that she disbursed the money to herself as reasonable compensation for work performed preparing a property for sale, which was permitted under the power of attorney. The court held that the admission agreement and the power of attorney failed to establish the requisite section 523(a)(4) fiduciary relationship between the debtor as a fiduciary and the creditor as a principal/beneficiary. The power of attorney created a fiduciary relationship between the debtor and her father. The creditor was not a party to the power of attorney, nor was it an intended beneficiary. The court found that the debtor did not misappropriate the funds from her father or the creditor. The creditor’s request for attorneys’ fees and costs incurred was not supported by any legal authority. Lexington Health Care Ctr. of Elmhurst, Inc. v. McDade (In re McDade), 2002 Bankr. LEXIS 920, 282 B.R. 650 (Bankr. N.D. Ill. August 28, 2002) (Squires, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.10 [back to top]

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Debtor’s obligations to ex-spouse that were clearly identified as 'maintenance' in separation agreement were nondischargeable. Bankr. C.D. Ill. PROCEDURAL POSTURE: The creditor, who was the ex-wife of the debtor, sought a determination pursuant to 11 U.S.C. § 523(a)(5) that the obligation of the debtor to make certain annual payments under the parties’ prior judgment of dissolution was nondischargeable. OVERVIEW: Although the debtor argued that the maintenance payments were really a division of property, the court found that the parties’ separation agreement was without ambiguity. It clearly showed that both the creditor and the debtor intended the debtor’s annual payments to the creditor to be maintenance. The obligation was in the midst of a provision captioned 'maintenance' and was distinctly separate from the provisions allocating property and assigning the marital debts. The debtor’s after-the-fact explanation that the payments were characterized as maintenance in order to provide tax benefits to him was contradicted by the creditor’s testimony and was entitled to little credence, given that he had reaped the benefits of that classification for many years. Moreover, the debtor’s contention that his purpose in classifying the annual payments as maintenance was to obtain tax deductibility gained him no ground. It was the debtor’s intent, not his rationale for it, that was the ultimate inquiry. The current circumstances of the parties also had no bearing upon the determination. Skinner v. Skinner (In re Skinner), 2002 Bankr. LEXIS 917, — B.R. — (Bankr. C.D. Ill. July 24, 2002) (Perkins, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.11 [back to top]

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Issue of whether debtor’s student loans were discharged depended on whether the loans first became due more than five years prior to petition. Bankr. C.D. Ill. PROCEDURAL POSTURE: Debtor reopened her case to file an adversary proceeding against defendant creditor and collection agent to cease attempts to collect on her student loans that were discharged. She also sought an award of costs, including attorney fees. Defendants denied that the debt was dischargeable. Debtor and defendants cross-moved for summary judgment. OVERVIEW: The court held that a genuine issue of material fact existed regarding the dischargeability of the student loans. Though debtor’s affidavit answered whether the loans were consolidated and whether the repayment period was ever suspended, it did not address when the loans first became due. Debtor did not need to file an adversary proceeding to determine dischargeability of the student loan if the date upon which the loan first became due was more than five years prior to the filing of the bankruptcy petition. The loan either had been discharged, or not discharged, upon entry of the discharge order, which was January 11, 1999. Whether debtor’s loans were discharged on that date depended upon whether they first became due prior to October 5, 1991. Rouse v. U.S. Dep’t of Educ. (In re Rouse), 2002 Bankr. LEXIS 922, — B.R. — (Bankr. C.D. Ill. July 18, 2002) (Perkins, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.14 [back to top]

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8th Cir.

Issue of extending debtor’s homestead exemption to an adjacent parcel remanded to bankruptcy court for findings regarding use and intent of debtor. 8th Cir. PROCEDURAL POSTURE: Appellant debtor appealed from the decision of the Bankruptcy Appellate Panel reversing the bankruptcy court’s conclusion that the debtor owned and occupied a 155 acre parcel where his mother resided as a life tenant for purposes of the homestead exemption under Minnesota law. OVERVIEW: Unknown to the debtor, his parents conveyed an undivided one-third remainder interests in the 155-acre parcel to the debtor and his sisters, with their mother retaining a life estate. The debtor farmed the 155-acre parcel. The debtor amended his bankruptcy schedules to claim an additional homestead exemption for 155 acres of that parcel, as well as the 5 acres he owned and occupied as his residence. The issue was whether the 155-acre parcel was also included in his homestead exemption under Minnesota law so that his one-third remainder interest in that parcel was exempt from his bankruptcy estate. The bankruptcy court looked at many of the relevant factors in finding that the debtor occupied the 155-acre parcel with the life tenant’s permission. But it did not make the crucial finding that his limited occupancy and his future ownership interest were enough to make the parcel part of the land upon which his house was situated. In addition, the bankruptcy court erroneously concluded that the debtor’s ignorance of his ownership interest in the 155-acre parcel was irrelevant. The debtor’s intent was relevant in determining whether he occupied two contiguous parcels as a single farm. Peoples’ State Bank v. Stenzel (In re Stenzel), 2002 U.S. App. LEXIS 17926, 301 F.3d 945 (8th Cir. August 30, 2002) (Loken, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:522.10[7] [back to top]

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Case dismissed where debtor continued to incur losses that would prevent successful completion of plan. Bankr. N.D. Iowa PROCEDURAL POSTURE: The United States trustee filed a motion to dismiss or convert the debtor’s chapter 11 case under 11 U.S.C. § 1112(b), asserting that the debtor continued to experience losses and had accumulated taxes since the filing of the petition which the debtor was and would be unable to pay. A creditor bank, holding a judgment of foreclosure on the debtor’s real estate, joined in the motion to dismiss or convert. OVERVIEW: Finding that the case should be dismissed, the court noted that the debtor’s property had depreciated in value and the foreclosure judgment continued to accumulate despite adequate protection payments to the bank. The debtor had realized a profit in only three of the previous nine months. Because the estate continued to incur losses, the first element of 11 U.S.C. § 1112(b)(1) was satisfied. The debtor’s monthly reports ignored and underestimated certain operating expenses. Depreciation was unaccounted for, and projected repairs and maintenance expenses were half of their historical level. The debtor had done poorly during the chapter 11, continuing to lose money and accruing tax obligations which could not be paid. The debtor had no unencumbered assets and identified no new source of capital. The success of the plan depended largely on an ability to cut expenses, obtain outside funding, and collect on a note that would mature within a year. There was a speculative chance of recovery on the promissory note. The debtor’s income and expense projections were fanciful, and it was speculative to assume that outside financing would be obtained or that the note would be collected. In re Fort Knox Mini Warehouse, Inc., 2002 Bankr. LEXIS 909, — B.R. — (Bankr. N.D. Iowa July 31, 2002) (Kilburg, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1112.01[2][a] [back to top]

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9th Cir.

State law prevented creditor’s security interest from attaching to proceeds of debtor’s successful tort claim. 9th Cir. PROCEDURAL POSTURE: A debtor was involved in a dispute with a third party that resulted in an award in its favor. A creditor sought to attach its security interest to the award. The district court affirmed the bankruptcy court’s rulings that the creditor could attach its security interest to the award, but also that it was subject to a surcharge under section 506(c) of the Bankruptcy Code. Both parties appealed. OVERVIEW: The debtor contended that former Cal. Com. Code § 9104 prohibited the creditor from attaching its security interest to the proceeds of a successful tort claim, while the creditor challenged the imposition of a surcharge. The appellate court was to decide whether under the California Commercial Code ('Code') as it existed prior to July 1, 2001, a creditor with a security interest in another’s personal property, including general intangibles, and all proceeds thereof, could attach its interest to the proceeds of a commercial tort claim, despite the Code’s prohibition against a transfer in whole or in part of any claim arising out of tort. Former Cal. Com. Code § 9104(k) (1997). Because the appellate court found that the California legislature intended to change the law, effective July 1, 2001, by significantly altering the statute so that from that date forward a party could attach its security interest to tort proceeds, it held that the law prior to the change prohibited such an attachment. Thus, the creditor could not attach its security interest to the proceeds of the debtor’s tort claim at the relevant time. Fifteenth RMA Partners, LP v. Pacific/West Communs. Group, Inc., 2002 U.S. App. LEXIS 17878, 301 F.3d 1150 (9th Cir. August 29, 2002) (Tallman, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:506.01 [back to top]

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Bankruptcy Appellate Panel erred in canceling judgment lien on debtor’s homestead where surplus equity accrued subsequent to attachment. 9th Cir. PROCEDURAL POSTURE: Appellant judgment creditor sought review of the decision of the Bankruptcy Appellate Panel affirming the cancellation of his judgment lien, under 11 U.S.C. § 522(f), on the declared homestead of appellee debtors in bankruptcy. OVERVIEW: At the time the creditor recorded the abstract of judgment, the sum of the debt on the first deed of trust and the homestead exemption exceeded the fair market value of the debtors’ home. Thus, there was no surplus equity at that time to satisfy the creditor’s judgment. When the debtors filed a chapter 7 bankruptcy petition, however, there was surplus equity. The bankruptcy court and bankruptcy appellate panel applied a prior decision of the court of appeals, Jones v. Heskett (In re Jones), 106 F.3d 923 (9th Cir. 1997). Jones interpreted Cal. Civ. Proc. Code § 704.950(c) (absent guidance from any state court cases) to prevent the creditor’s lien from ever attaching for lack of surplus equity in the residence when the creditor recorded the abstract of judgment. The court of appeals adopted the reasoning of two California state appellate court opinions, overruled its decision in Jones, and concluded that, under California law, the creditor’s lien attached to surplus equity accruing in the debtors’ declared homestead after the creditor’s abstract of judgment was recorded. Wolfson v. Watts (In re Watts), 2002 U.S. App. LEXIS 15657, 298 F.3d 1077 (9th Cir. August 6, 2002) (Peaz, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:522.11 [back to top]

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Settlement agreement which stated that parties 'remained liable' for partnership debt that had been discharged was not a reaffirmation. 9th Cir. PROCEDURAL POSTURE: In bankruptcy proceedings, appellant-cross appellee creditors sued appellee-cross appellant debtor for breach of contract. The Bankruptcy Appellate Panel granted debtor’s motion for summary judgment, and denied the creditors’ motion for summary judgment. The Ninth Circuit also denied debtor’s request for attorney fees. Both parties appealed. OVERVIEW: Debtor, an attorney, opened a law practice with a $150,000 loan from her law partner’s parents, the creditors. Eventually, debtor and her partner filed bankruptcy, and discharged the $150,000 debt. Debtor and her partner then dissolved their law practice by way of a settlement agreement, which stated that both debtor and her partner would have remained liable for the debt, although the debt was never paid. The creditors claimed that, as third-party beneficiaries of the settlement agreement, they could have sued to enforce payment of the debt. On appeal, the appellate court held that the language of the settlement agreement stated that debtor and her partner shall have remained liable for the debt. The use of 'remained' was inconsistent with the creation of a new, different obligation. Since there was no existing legal obligation to pay the debt, the agreement to 'remain liable' had not amounted to any change in the status quo. The settlement agreement reflected debtor’s intention to have continued voluntarily paying on a debt she was not obliged to repay. Finally, the settlement agreement was not a reaffirmation of the debt under 11 U.S.C. § 524 (c). Renwick v. Bennett (In re Bennett), 2002 U.S. App. LEXIS 15547, 298 F.3d 1059 (9th Cir. August 5, 2002) (Armstrong, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:524.04 [back to top]

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10th Cir.

Automatic stay no longer protected debtor after dismissal where there was no appeal and debtor had not timely moved for conversion. Bankr. D. Colo. PROCEDURAL POSTURE: The chapter 13 debtor moved to alter or amend an order dismissing his case for ineligibility under 11 U.S.C. § 109(e), and for reinstatement, or to convert to chapter 11, and to stay dismissal pending a ruling. Judgment creditors objected. The debtor moved for clarification as to whether dismissal was stayed by Fed. R. Bankr. P. 7062 and, if so, whether the 11 U.S.C. § 362 stay remained in effect, and again separately moved to convert. OVERVIEW: It appeared that the debtor wanted to treat the judgment claims as secured only for the eligibility analysis under 11 U.S.C. § 109(e), to later avoid the liens as preferences, and thus effectively rewrite the unsecured debt limitation. The debtor had no intention of confirming a plan that allowed them as secured claims. Alternatively, the court found the majority of the liens were unsecured because the unsecured portion of undersecured debt was counted as unsecured for section 109(e) eligibility purposes. Fed. R. Civ. P. 62 did not stay the order of dismissal, and upon dismissal, the automatic stay of 11 U.S.C. § 362 no longer protected the debtor or his assets from his creditors. A stay pending appeal could not be granted because the order had not been appealed. Even if the debtor was eligible for chapter 11, under 11 U.S.C. § 1307(d), creditors had to have been given notice and an opportunity to object to conversion. Post-dismissal, the debtor moped to convert, but the time to do so was while the eligibility determination was pending, as an alternative form of relief. The motion to convert was untimely and the case no longer existed. The debtor could file a new case. In re Hanson, 2002 Bankr. LEXIS 916, 282 B.R. 240 (Bankr. D. Colo. July 25, 2002) (Brown, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back to top]

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11th Cir.

Debtor’s deposit of IRA proceeds into a new IRA ten days prior to filing was a fraudulent transfer. Bankr. M.D. Ga. PROCEDURAL POSTURE: Plaintiff, chapter 7 trustee, filed a complaint to avoid a transfer to defendant financial company. Defendant debtor had given the financial company a check from a closed individual retirement account ('IRA') to open a new IRA. A hearing was held on the matter and the court issued its opinion. OVERVIEW: Before filing for chapter 7 bankruptcy relief, the debtor was president of a business that he started with his wife. The debtor and his wife were sole shareholders of the business, which began to experience financial difficulties. The debtor cashed in an IRA he had with the financial company and received a check. The debtor intended to use the check to pay money he owed his father-in-law. The father-in-law would not accept the check, and after the debtor consulted with a bankruptcy attorney, the debtor took the check back to the financial company and opened an IRA. Ten days later, the debtor filed for bankruptcy. The trustee sought to recover the funds in the IRA, contending that the transfer back into an IRA was a fraudulent transfer under 11 U.S.C. § 548(a)(1)(A). The court found from all of the circumstances that the debtor intended to shield what he thought was valuable property from the claims of his creditors and the court was persuaded that the transfer was made with actual intent to hinder, delay, or defraud creditors. Flatau v. Wachovia Secs., Inc. (In re Pulliam), 2002 Bankr. LEXIS 927, 279 B.R. 916 (Bankr. M.D. Ga. June 18, 2002) (Hershner, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:548.04 [back to top]

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Debtor allowed to reopen chapter 7 case to amend schedules to include claim against employer to the benefit of creditors. Bankr. N.D. Ga. PROCEDURAL POSTURE: Debtor moved to reopen her chapter 7 case to amend her statement of financial affairs to set forth a claim she had filed as plaintiff against defendant city, her employer, prior to filing her bankruptcy petition, but which was not scheduled as an asset of the bankruptcy estate. OVERVIEW: The debtor brought her civil suit against the city to the attention of the chapter 7 trustee at the 11 U.S.C. § 341(a) meeting of creditors, but never amended her petition. The bankruptcy court found the debtor had no intent to hide the asset, and in fact that scheduling it would have been to her advantage, as the trustee would likely have abandoned the claim under 11 U.S.C. § 554(c). The primary relief she sought was reinstatement. The city argued that her failure to list the claim in the bankruptcy precluded her assertion of the claim and the reopening of her case under the doctrine of judicial estoppel. The court disagreed, finding it should reopen the case so that the trustee could take charge of the claim as property of the estate for the benefit of her creditors. Her estate otherwise had had no assets. The court held that judicial estoppel should not apply to the case. In re Barger, 2002 Bankr. LEXIS 924, 279 B.R. 900 (Bankr. N.D. Ga. June 18, 2002) (Bonapfel, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:554.02[7] [back to top]

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