Collier Bankruptcy Case Update February-3-03
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
February 3, 2003
CASES IN THIS ISSUE
(scroll down to read the full summary)
§ 502(b)(6) Landlord creditor’s claim for
accelerated rent and liquidated damages was excessive as actual damages were
easily ascertainable.
Cummings Props., LLC v. Dwyer (In re Admetric Biochem, Inc.) (Bankr.
D. Mass.)
Rule 8002(b) Request for extension of time to appeal,
received by facsimile, after hours, on the tenth day after the court order and
docketed on the eleventh, was untimely.
Bradshaw v. United States (In re Bradshaw) (B.A.P. 1st Cir.)
2d Cir.
§ 523(a) Creditor’s claim was dischargeable
absent establishment of acquisition, conduct, reliance and financial condition
or fiduciary relationship.
Peregrine Falcons Jet Team v. Miller (In re Miller) (Bankr. D. Conn.)
§ 553 Creditor allowed to set off amount owed
by debtor against amount owed to debtor on secured claim.
Pereira v. Nelson (In re Trace Int’l Holdings, Inc.) (Bankr.
S.D.N.Y.)
§ 707(a) Filing of pro se petition by limited
liability company was not void ab initio.
Orsini v. Interiors of Yesterday, LLC (In re Interiors of Yesterday, LLC)
(Bankr. D. Conn.)
3rd Cir.
§ 328(c) Consultant that knowingly and intentionally
misrepresented status as "disinterested person" denied compensation
other than that already paid by debtor.
In re Authorized Factory Serv., Inc. (Bankr. W.D. Pa.)
§ 523(a)(8) Permanently disabled debtor with little
likelihood of future employment granted undue hardship discharge of student
loans.
Rivera v. New Jersey Educ. Student Assistance Auth. (In re Rivera)
(Bankr. D.N.J.)
4th Cir.§ 362 Bankruptcy court order lifting stay to allow completion of foreclosure vacated due to fact that debtor still held interest in the property under state law on date of filing.
In re Country Lake Enters., Inc. (Bankr. E.D.N.C.)
5th Cir.
28 U.S.C. § 157 Malpractice action by debtor
challenging payment of defendant law firm’s fees from estate was a core
proceeding.
Slater Law Firm v. S. Parish Oil Co., Inc. (E.D. La.)
6th Cir.
§ 362(h) Significant punitive damages assessed
for creditor’s flagrant, repeated and threatening attempts to collect
from debtors despite notice of stay.
In re Kortz (Bankr. N.D. Ohio)
7th Cir.
§ 523(a)(1) Debtor’s late mailing of tax
return without using certified or registered mail did not render debt to IRS
nondischargeable for failure to file.
Payne v. United States (In re Payne) (Bankr. N.D. Ill.)
§ 524 Bankruptcy Code remedy for violations of
discharge injunction is exclusive and precludes action under the Fair Debt Collection
Practices Act.
Wehrheim v. Secrest (S.D. Ind.)
§ 524(a) Prepetition judgment lien on debtor’s
earnings did not survive discharge of underlying judgment.
Johnson v. Chetto (In re Chetto) (Bankr. N.D. Ill.)
8th Cir.
§ 362(d)(1) Relief from stay appropriate for limited purpose of determining debtor’s liability from among several defendants in state court action.
Loudon v. Amogio Foods, Inc. (In re Loudon) (B.A.P. 8th Cir.)
9th Cir.
§ 523(a) IRS claim for gap interest on taxes owed (postpetition but preconfirmation) was nondischargeable.
Miller v. United States (In re Miller) (N.D. Cal.)
§ 707(b) Chapter 7 petition dismissed for substantial abuse where debtor would be able to fund a chapter 13 plan if nondebtor spouse paid fair share of household expenses.
In re Falke (Bankr. D. Or.)
10th Cir.
§ 362 Relief from stay denied where agreements between debtor and moving creditor were not true leases but security agreements.
In re Our Secret, Ltd. (Bankr. D.N.M.)
§ 503(b)(1)(A) Debtor not entitled to a salary for performing services required of every debtor filing a petition.
In re Franklin (Bankr. D.N.M.)
§ 523(a)(8) Student loan discharged on grounds of undue hardship given good faith payment effort, insufficient household income and circumstances unlikely to change.
Innes v. Kansas (In re Innes) (D. Kan.)
11th Cir.
§ 106 Debtor’s adversary proceeding against state health department dismissed as section 106 is an unconstitutional abrogation of the state’s sovereign immunity.
Levin v. New York Dep’t of Health (In re Levin) (Bankr. S.D. Fla.)
§ 523(a)(2) Debtor’s failure to answer improperly served request for admissions did not constitute an admission pursuant to which debt could be ruled nondischargeable.
Fleet Credit Card Servs., LP v. Harden (In re Harden) (Bankr. M.D. Ga.)
Collier Bankruptcy Case Summaries
1st Cir.
Landlord creditor’s claim for accelerated
rent and liquidated damages was excessive as actual damages were easily ascertainable.
Bankr. D. Mass. PROCEDURAL POSTURE: Plaintiff
creditor filed a summary process proceeding against defendant debtor regarding
a lease agreement. The debtor filed a voluntary chapter 7 petition under the
Bankruptcy Code and the trustee removed the proceeding to the bankruptcy court.
Both parties filed motions for summary judgment. OVERVIEW:
The creditor claimed that it should be allowed to pursue a breach of lease
claim to the extent permitted by 11 U.S.C. § 502(b)(6). The trustee disagreed
and claimed that the rent acceleration clause was unenforceable because the
damages under the clause were disproportionate to a reasonable estimate of
actual damages made at the time of the contract formation. The creditor argued
that state law applied in determining the actual amount of its claim subject
to the cap, and because its claim exceeded the cap, the claim should be allowed
in the full amount permitted by section 502(b)(6). The trustee asserted that:
(1) the accelerated rent and liquidated damages provision was unenforceable;
(2) the enforcement of the provision would be contrary to public policy; and
(3) the creditor was not entitled to recover any damages in a summary process
proceeding other than unpaid rent. The court found that the creditor failed
to submit sufficient evidence to rebut the trustee’s position that its
damages were not difficult to ascertain at the time the lease was executed,
and that the accelerated rent and liquidated damages clause constituted an
unreasonable estimate of its actual damages. Cummings Props.,
LLC v. Dwyer (In re Admetric Biochem, Inc.), 2002 Bankr.
LEXIS 1110, 284 B.R. 1 (Bankr. D. Mass. September 30, 2002) (Feeney, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.03[7][b] [back
to top]
ABI Members, click here to get the full opinion.
Request for extension of time to appeal,
received by facsimile, after hours, on the tenth day after the court order
and docketed on the eleventh, was untimely. B.A.P. 1st Cir.
PROCEDURAL POSTURE: Debtors filed a motion to avoid certain state
and federal tax liens. The bankruptcy court denied debtors’ avoidance
motion by order dated April 18, 2002. Debtors’ motion for an extension
of time was filed after business hours on April 29, 2002, and docketed on
April 30, 2002. The bankruptcy court granted the time extension and later
denied debtors’ motion to reconsider. Debtors appealed. OVERVIEW:
Debtors moved for an extension of time either to take an appeal from the order
or file a motion for reconsideration of the order. Debtors’ motion was
transmitted by electronic facsimile to the bankruptcy court after business
hours on April 29, 2002, the last day of the ten day appeal period under Fed.
R. Bankr. P. 8002(a). It was entered on the docket on April 30, 2002, eleven
days after the order denying the avoidance motion. The bankruptcy appellate
panel held that, because the original ten day appeal period had lapsed before
the bankruptcy court granted the motion to extend, the appellate court lacked
jurisdiction to review the order of April 18, 2002. The panel noted that the
timely filing of an appeal was mandatory and jurisdictional. Further, the
time for filing a motion under Rule 8002(b) could not be extended by a bankruptcy
court. The request for an extension was dated April 29, 2002, and transmitted
to the bankruptcy court after regular business hours on that day. It was entered
on the bankruptcy docket on April 30, 2002, eleven days after the entry of
the order denying the lien avoidance motion. That entry was proper.
Bradshaw v. United States (In re Bradshaw), 2002 Bankr.
LEXIS 1146, 283 B.R. 814 (B.A.P. 1st Cir. August 30, 2002) (Haines, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:8002.07 [back
to top]
2d Cir.
Creditor’s claim was dischargeable absent establishment of acquisition, conduct, reliance and financial condition or fiduciary relationship. Bankr. D. Conn. PROCEDURAL POSTURE: In an adversary proceeding, plaintiff creditor sought to have declared nondischargeable a debt allegedly owed to it by defendant debtor. The creditor moved for summary judgment. OVERVIEW: The creditor set forth two alternative grounds for nondischargeability of all or part of the relevant debt, 11 U.S.C. §§ 523(a)(2)(A) and (a)(4). The court found that the summary judgment record left genuine issues on at least four elements of a cause of action under section 523(a)(2) — acquisition, conduct, reliance, and financial condition. As to acquisition, the offending representational conduct occurred well after the debtor might have personally obtained the money at issue; thus, the record did not support a conduct-acquisition cause-and-effect as required by section 523(a)(2). As to conduct, the record did not establish, beyond genuine issue, inter alia, that the debtor’s full disclosure was undertaken with any specific design of perpetrating a known deception. As to reliance, the record did not establish that the creditor’s reliance on a Nevada court ruling was justifiable. As to financial condition, the only communications established by the record were non-written, while such communications were not within the contemplation of section 523(a)(2). Finally, as to section 523(a)(4), the record did not reference an express or technical trust or establish the existence of a fiduciary relationship. Peregrine Falcons Jet Team v. Miller (In re Miller), 2002 Bankr. LEXIS 970, 282 B.R. 569 (Bankr. D. Conn. September 6, 2002) (Dabrowski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.01 [back to top]
ABI Members, click here to get the full opinion.
Creditor allowed to set off amount
owed by debtor against amount owed to debtor on secured claim. Bankr.
S.D.N.Y. PROCEDURAL POSTURE: In plaintiff trustee’s
action against defendant creditor to recover $600,000, both parties moved for
summary judgment pursuant to Fed. R. Civ. P. 56(c). OVERVIEW:
The creditor, the debtor’s former chief financial officer, owed the debtor
$600,000, secured by a mortgage. The trustee sued the creditor to foreclose
on the mortgage to recover the amount owed. The creditor sought summary judgment
on his claim to setoff obligations the debtor owed him, and the trustee sought
summary judgment on his foreclosure claim. The court granted the creditor summary
judgment on his claim concerning the setoff of a stock agreement between himself
and the debtor. The fact that the creditor, along with other directors of the
debtor, voted in favor of the pledge of the creditor’s shares in exchange
for a loan, did not prevent him from setting off that amount he was owed from
the amount he owed the debtor. The trustee was granted summary judgment on his
claim that the amount the creditor was entitled to under the deferred compensation
plan was $58,000, the present value on the bankruptcy petition date, rather
than $500,000, the aggregate amount that would be paid to the creditor over
10 years after he reached the age of 65. Pereira v. Nelson (In re
Trace Int’l Holdings, Inc.), 2002 Bankr. LEXIS 1138, 284 B.R.
32 (Bankr. S.D.N.Y. October 11, 2002) (Bernstein, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:553.01 [back
to top]
ABI Members, click here to get the full opinion.
Filing of pro se petition by limited liability
company was not void ab initio. Bankr. D. Conn. PROCEDURAL
POSTURE: A creditor moved to lift the stay under 11 U.S.C. § 362,
arguing that the debtor limited liability company filed its petition pro se
instead of through an attorney under 28 U.S.C. § 1654, Fed. R. Bankr. P.
9010, and Local Bankruptcy Rule 9010-1, that the petition was void ab initio.The
court issued an order to show cause as to dismissal under 11 U.S.C. § 707(a).
The debtor, the chapter 7 trustee, and the United States trustee objected. OVERVIEW:
It was noted that neither 28 U.S.C. § 1654, Fed. R. Bankr. P. 9010, Local
Bankruptcy Rule 9010-1, nor any other federal statute or rule provided that
the filing of a pro se voluntary petition by an artificial entity was void ab
initio. 11 U.S.C. § 109 defined who could be a debtor and did not mandate
a "void ab initio" rule as to such a filing. The petition was not
void ab initio. Any such defect was cured by an appearance of counsel for the
debtor. The appearance was reasonably prompt, and no one had argued that the
administration of the case was substantially compromised by the passage of time
before the appearance was filed. The debtor had filed its schedules and the
meeting of creditors had taken place. Both trustees argued against dismissal.
The interests of the creditors militated against dismissal, because of allegations
of misconduct by the debtor’s management. The trustee had questioned the
validity of the creditor’s security interest. The debtor alleged that
there could be preferences against the creditor which would be time barred if
the case was dismissed. The pro se chapter 7 filing was not "cause"
to dismiss the case under 11 U.S.C. § 707(a) or to lift the stay. Orsini
v. Interiors of Yesterday, LLC (In re Interiors of Yesterday, LLC),
2002 Bankr. LEXIS 1145, 284 B.R. 19 (Bankr. D. Conn. October 11, 2002) (Murphy
Weil, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.03 [back
to top]
ABI Members, click here to get the full opinion.
3rd Cir.
Consultant
that knowingly and intentionally misrepresented status as "disinterested
person" denied compensation other than that already paid by debtor. Bankr.
W.D. Pa. PROCEDURAL POSTURE: The chapter 11 debtor’s
accountant and consultant applied for compensation and reimbursement of expenses
under 11 U.S.C. § 330(a)(1), which included the interim payments he had
previously received while he was employed. The debtor objected, arguing that
the amount was excessive and the consultant was not "disinterested"
when he was retained under 11 U.S.C. § 327(a), and thus under 11 U.S.C.
§ 328(c) compensation should be denied. OVERVIEW: The
application to employ the consultant made no mention that he was a prepetition
creditor. After the debtor’s principal died, the new principal fired the
consultant, at which point the consultant stated the debtor only owed him $1,500,
for which he was paid. Had the court known that the consultant was not a "disinterested
person" under 11 U.S.C. § 327(a), his employment would not have been
approved. The court had discretion under 11 U.S.C. § 328(c) to award compensation
even though his appointment was improper from the start. But the consultant
was no novice to the court, leading the court to conclude that the failure of
disclosure was knowing and intentional. And, employees with whom the consultant
claimed to have met credibly testified that such meetings never occurred. Some
of debtor’s most lucrative accounts left when the consultant fired a manager,
resulting in a substantial and permanent loss of revenue. The statement that
the consultant was only owed $1,500 when he was fired seriously undermined the
application’s request for $28,000. The consultant was only entitled to
the amounts he had previously been paid. In re Authorized Factory
Serv., Inc., 2002 Bankr. LEXIS 1116, 283 B.R. 684 (Bankr.
W.D. Pa. October 8, 2002) (Markovitz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:328.05 [back
to top]
ABI Members, click here to get the full opinion.
Permanently disabled debtor with little
likelihood of future employment granted undue hardship discharge of student
loans. Bankr. D.N.J. PROCEDURAL POSTURE:
The debtor filed an adversary complaint seeking a hardship discharge of his
student loans owed to a creditor pursuant to 11 U.S.C. § 523(a)(8)(B),
arguing that it would be an undue hardship for him to repay the loans. OVERVIEW:
The debtor received disability income and food stamps. His disabilities were
permanent and he was told not to work. He was not capable of taking care of
himself. His friends or family paid his bills, walked and cared for his dog,
and bought his car and paid all insurance, maintenance, and repairs. The debtor’s
net income was $21 per month. The monthly student loan payment was $66. He did
not have enough income to make the student loan payments and maintain a minimal
standard of living. He had no extra expenses to eliminate. The fact that he
was on public assistance and was unable to work due to his disabilities suggested
that even lower payments would cause undue hardship. He was unlikely to receive
a future benefit from his education. The disabilities were likely to continue
throughout the loan repayment term for reasons not within his control. The debtor
began making his payments on time and made timely payments for 11 months, showing
a good faith effort to repay the loan. He also had made good faith efforts to
find and to maintain a job, but due to his disabilities he was unable to keep
any job. The debtor met the "undue hardship" test under 11 U.S.C.
§ 523(a)(8). Rivera v. New Jersey Educ. Student Assistance
Auth. (In re Rivera), 2002 Bankr. LEXIS 1118, 284 B.R. 88 (Bankr. D.N.J.
October 8, 2002) (Gindin, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14 [back
to top]
ABI Members, click here to get the full opinion.
4th Cir
Bankruptcy
court order lifting stay to allow completion of foreclosure vacated due to fact
that debtor still held interest in the property under state law on date of filing.
Bankr. E.D.N.C. PROCEDURAL
POSTURE: On remand from the district court, the debtor moved
for reconsideration of an order granting the secured creditors relief from stay
as to a foreclosure of the debtor’s property, arguing that under N.C.
Gen. Stat. §§ 103-4(3a), 45-21.27 (2001), the upset bid period had
not expired when the bankruptcy was filed. The debtor also moved for relief
from an order denying a request for sanctions. OVERVIEW:
The court had previously found that the foreclosure sale was final before the
bankruptcy was filed after the state court’s close of business on March
25. The court had concluded that the debtor retained some interest in the property
until the deed was delivered, holding that a trustee’s deed was void because
it was delivered and recorded by a substitute trustee under the deed of trust
in violation of the stay, but denied sanctions because there was no basis for
holding the creditors responsible for the violation. The court had also lifted
the stay to allow the foreclosure to be completed, assuming the debtor had no
remaining interest in the property. The issue of a holiday was only raised on
appeal. Using its discretion to consider the new issue, the court found that
because March 25, Greek Independence Day, was a holiday under N.C. Gen. Stat.
§ 103-4(3a) (2001), under the plain language of N.C. Gen. Stat. §
45-21.27(a) (2001) the 10-day period expired on March 26, after the bankruptcy
was filed. The property was part of the estate. The new finding on the expiration
of the upset bid period provided no new grounds on which to find that the creditors
should be subject to sanctions. In re Country Lake Enters.,
Inc., 2002 Bankr. LEXIS 1161, 284 B.R. 223 (Bankr.
E.D.N.C. September 26, 2002) (Small, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back
to top]
ABI Members, click here to get the full opinion.
Malpractice action by debtor
challenging payment of defendant law firm’s fees from estate was a core
proceeding. E.D. La. PROCEDURAL POSTURE:
While appellee debtor’s confirmed bankruptcy plan was still under the
bankruptcy court’s administration, it and another appellee, a creditor,
filed a malpractice suit against appellant law firm in state court. The law
firm filed an adversary proceeding in bankruptcy court. The appellees’
motion to dismiss was granted, and the law firm appealed the dismissal by the
bankruptcy court. OVERVIEW: The law firm sought a declaratory
judgment that the actions taken and legal services performed during the administration
of the debtor’s estate were valid and proper, including the receipt of
the legal fees paid for those legal services rendered. The malpractice action
was a collateral attack on the administration of the plan of reorganization
during the pendency of the bankruptcy proceeding. The claims against the law
firm clearly challenged the bankruptcy court’s decisions relating to the
administration of the debtor’s confirmed plan, including its orders authorizing
payment of the law firm’s fees from the debtor’s escrowed funds.
The appellees sought to have the law firm disgorge the fees and pay other damages,
resulting in enrichment to the debtor’s estate and affecting the continuing
distribution of debtor’s assets. It clearly bore on the interpretation
and execution of the debtor’s confirmed plan. It was therefore a core
proceeding within the exclusive jurisdiction of the bankruptcy court. Slater
Law Firm v. S. Parish Oil Co., Inc., 2002 U.S. Dist. LEXIS
19245, — B.R. — (E.D. La. October 8, 2002) (Livaudais, Sr. D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.02 [back
to top]
ABI Members, click here to get the full opinion.
6th Cir.
Significant punitive damages assessed for
creditor’s flagrant, repeated and threatening attempts to collect from
debtors despite notice of stay. Bankr. N.D. Ohio PROCEDURAL
POSTURE: The chapter 7 debtors filed a motion for sanctions for repeated
violations of the automatic stay of 11 U.S.C. § 362(a)(6) against a creditor
who had held a second mortgage on the debtor’s former residence. No representative
from the creditor appeared for the hearing. The debtors alleged that the creditor
had contacted them on approximately 15 occasions postpetition to demand payment
despite the fact that the creditor knew of the bankruptcy. OVERVIEW:
The case was the most egregious stay violation case to come before the court.
The creditor willfully and flagrantly violated section 362(a)(6). The stress
to the debtor wife’s heart condition may have caused her to remain out
of the workforce longer than otherwise necessary. The tactics, threatening garnishments
and the debtor husband’s loss of job, were intolerable. The creditor’s
agents stated they did not care about the bankruptcy, did not contact the debtors’
counsel, called the debtors repeatedly at home and work, and did not attend
the hearing. After notices from the court and being told many times of the bankruptcy,
the creditor continued to harass and threaten the debtors. Even after being
served with the motion, the violations continued. Under 11 U.S.C. §§
105 and 362(h), significant punitive damages were warranted. Because the creditor
was attempting to prefer itself over other creditors by seeking payment that
would have violated 11 U.S.C. § 549(a), 50 percent of the punitive damages
were assessed to the trustee for distribution to unsecured creditors. Under
11 U.S.C. § 510(c), due to the gross misconduct, equitable subordination
of the creditor’s claim was appropriate. In re Kortz, 2002
Bankr. LEXIS 1105, 283 B.R. 706 (Bankr. N.D. Ohio September 27, 2002) (Shea-Stonum,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.11[3] [back
to top]
ABI Members, click here to get the full opinion.
7th Cir.
Debtor’s late mailing of tax return
without using certified or registered mail did not render debt to IRS nondischargeable
for failure to file. Bankr. N.D. Ill. PROCEDURAL POSTURE:
Plaintiff debtor filed a chapter 7 petition under the Bankruptcy Code and received
a discharge. The debtor was granted permission to reopen his case and he filed
an adversary action against defendant, federal government, to determine the
dischargeability of an alleged tax debt. The government filed a motion for summary
judgment. OVERVIEW: The government claimed that 11 U.S.C. §
523(a)(1)(B)(i) excepted from discharge any tax for which the required return
was not filed, and asserted this was the situation with the debtor’s case.
The court found that the Internal Revenue Service ("IRS") had never
filed a claim against the debtor’s estate, nor had it filed an adversary
proceeding to determine the dischargeability of any of the income taxes the
debtor owed. The IRS had no record that the return was received, although it
acknowledged receipt of other returns. Under 26 U.S.C. § 7502, a document
was deemed delivered on the date it was postmarked if the document was: (1)
properly placed in the U.S. mail prior to the filing deadline; and (2) delivered
to the IRS after the deadline. The taxpayer admitted he mailed the return after
the tax-filing deadline, and the court found that the safe harbor provision
of section 7502 was unavailable to avoid penalties. The court rejected the government’s
claim that the taxpayer never filed his return and could not get the tax debt
discharged because he did not send the return by certified or registered mail.
That position was not supported by the Bankruptcy Code or 26 U.S.C. § 7502(c).
Payne v. United States (In re Payne), 2002 Bankr. LEXIS
1107, 283 B.R. 719 (Bankr. N.D. Ill. October 3, 2002) (Schmetterer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.07 [back
to top]
ABI Members, click here to get the full opinion.
Bankruptcy Code remedy for violations
of discharge injunction is exclusive and precludes action under the Fair Debt
Collection Practices Act. S.D. Ind. PROCEDURAL POSTURE:
Plaintiff debtor sued defendant debt collector and alleged violations of the
Fair Debt Collection Practices Act ("FDCPA"), in particular 15 U.S.C.
§ 1692e(2)(A), (2)(B), (5), (10), and section 1692(f), and Ind. Code §
35-43-5-3. The debt collector moved for summary judgment. The debtor moved to
strike the affidavit of the debt collector submitted in support of the debtor’s
summary judgment motion. OVERVIEW: The debt collector was hired
by a mortgage company to foreclose a mortgage on real estate owned by debtor
which mortgage secured a note on which debtor had been indebted to the mortgage
company. However, debtor’s debt on the note had previously been discharged
in bankruptcy. While acting on behalf of the mortgage company, the debt collector
filed a complaint against debtor. At that time the debt collector was unaware
that the debt with the mortgage company was discharged in bankruptcy. As for
debtor’s claim based on the debt collector’s alleged overstatement
of the amount of the debt, the court found that the debtor did not produce sufficient
evidence to raise a genuine issue of material fact for trial. The mere fact
that the amount of the final judgment was different, that is, less than the
amount requested in the demand for judgment did not prove a violation of 15
U.S.C. §§ 1692e(2)(A) or (B). Furthermore the court found that the
reasoning and conclusions of decisions which held that the Bankruptcy Code precluded
FDCPA claims based on violations of the Bankruptcy Code were more persuasive
than those that held otherwise. Wehrheim v. Secrest, 2002
U.S. Dist. LEXIS 19020, — B.R. — (S.D. Ind. August 16, 2002) (Tinder,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:524.01 [back
to top]
ABI Members, click here to get the full opinion.
Prepetition judgment lien on
debtor’s earnings did not survive discharge of underlying judgment. Bankr.
N.D. Ill. PROCEDURAL POSTURE: Under a 735 Ill. Comp. Stat.
Ann. 5/2-1402 (West Supp. 1996) wage deduction order entered more than 90 days
before the debtor filed bankruptcy, the debtor’s employer was required
to withhold a portion of the debtor’s wages until the creditor’s
judgment was paid. After the debtor’s discharge entered under 11 U.S.C.
§ 727, the creditor filed an adversary complaint arguing that the citation
lien survived the chapter 7. The debtor moved to dismiss. OVERVIEW:
The court originally indicated orally that the motion to dismiss would be denied.
But, the court sua sponte reconsidered its oral ruling. Since no final judgment
had entered in the case, the court could reconsider its decision. The court
held that the overriding bankruptcy "fresh start" policy controlled
over state law on wage garnishments. The debtor could keep her postpetition
wages because the lien’s underlying debt was discharged. The lien did
not survive the chapter 7 discharge. Future earnings were not "property"
under the bankruptcy laws until those earnings were in existence, and a lien
on subsequent earnings was extinguished upon discharge. The citation lien under
735 Ill. Comp. Stat. Ann. 5/2-1402 (West Supp. 1996) secured payment of the
judgment and terminated when the judgment was satisfied. Once the judgment was
voided under 11 U.S.C. § 524(a), it no longer supported a lien that attached
to property acquired after the judgment was voided. The prepetition citation
lien did not attach to wages earned after the judgment was voided by discharge.
Any prepetition wages collected were not property of the estate. But, the lien
did not attach to any postpetition wages. Johnson v. Chetto (In
re Chetto), 2002 Bankr. LEXIS 1109, 282 B.R. 215 (Bankr. N.D. Ill.
August 2, 2002) (Doyle, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:524.02 [back
to top]
ABI Members, click here to get the full opinion.
8th Cir.
Relief from stay appropriate
for limited purpose of determining debtor’s liability from among several
defendants in state court action. B.A.P. 8th Cir. PROCEDURAL
POSTURE: Appellees sought relief from the automatic stay to continue
a state court action in which debtor and the appellees were co-defendants. Appellees
sought relief from the automatic stay in anticipation of filing counter-claims
against the debtor. The bankruptcy court granted appellees relief from the automatic
stay for the limited purpose of determining debtor’s liability. Debtor
appealed. OVERVIEW: The bankruptcy court determined that the
claims in state court were being made by several plaintiffs against several
defendants, that cross-claims and counter-claims were probable, and that some
of the various theories being pursued by the plaintiffs would include matters
better left to the jurisdiction and expertise of the state court. The bankruptcy
court also determined that judicial economy would best be served by allowing
the state court to determine issues of liability and damages as to the debtor,
but limited the grant of relief to only those issues. The appellate court found
that the bankruptcy court properly balanced the potential prejudice to the debtor
and the bankruptcy estate against the hardship to the appellees and the other
parties if they were not allowed to proceed in state court. By allowing the
state court to determine liability and damages, a determination that would otherwise
require a trial in the bankruptcy court, but limiting the ability of the appellees
to enforce the judgment, the bankruptcy court substantially reduced the potential
harm to the debtor. The bankruptcy court did not abuse its discretion in granting
the appellees relief. Loudon v. Amogio Foods, Inc. (In re Loudon),
2002 Bankr. LEXIS 1139, 284 B.R. 106 (B.A.P. 8th Cir. October
16, 2002) (Dreher, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07[3] [back
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IRS claim for gap interest on taxes
owed (postpetition but preconfirmation) was nondischargeable. N.D.
Cal. PROCEDURAL POSTURE: The bankruptcy court denied
debtor’s claim that defendant Internal Revenue Service ("IRS")
could not claim interest arising after debtor petitioned for bankruptcy
but before his reorganization plan was approved. Debtor appealed the decision.
OVERVIEW: Debtor petitioned for relief under chapter
11 of the Bankruptcy Code. He later submitted a reorganization plan, and
the bankruptcy court entered an order confirming the amended plan as modified.
The IRS had asserted a claim against debtor for unpaid trust fund taxes.
Following confirmation, debtor made payments to the IRS according to his
plan. Afterward, debtor wrote to the IRS seeking release from any liens
it had against him. The IRS responded that debtor still owed interest
for the period between his petition for bankruptcy and confirmation of
the reorganization plan, or gap interest. Plaintiff argued that confirmation
of the plan discharged any such claims. Because the reorganization plan
was ambiguous with respect to gap interest, the doctrine of res judicata
did not apply, and the IRS was free to assert its claim. Moreover, the
court concluded that the Eleventh Circuit offered a better reading of
the Bankruptcy Code, and that the claim of the IRS was nondischargeable
regardless of whether it was secured or unsecured. Miller
v. United States (In re Miller), 2002 U.S. Dist. LEXIS
18827, 284 B.R. 121 (N.D. Cal. October 1, 2002) (Conti, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.01 [back
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Chapter 7 petition dismissed for
substantial abuse where debtor would be able to fund a chapter 13 plan
if nondebtor spouse paid fair share of household expenses. Bankr.
D. Or. PROCEDURAL POSTURE: The debtor filed a chapter
7 petition under the Bankruptcy Code and the debtor’s spouse did
not join in the petition. The trustee filed a motion to dismiss for substantial
abuse. OVERVIEW: The trustee claimed that the debtor
had the ability to repay a substantial portion of his debt to creditors
in a chapter 13 case if his nondebtor spouse paid her proportionate share
of the couple’s joint household expenses. The debtor disagreed with
the trustee’s claim. The trustee asserted that the debtor paid most
of the household expenses, even though the debtor’s spouse was employed.
The trustee also asserted that some of the claimed expenses were not reasonably
necessary for the support of the debtor and his family, such as golf lessons
and music lessons. The court agreed with the trustee and found that the
debtor was paying all of the daily living expenses, while his wife contributed
nothing from her earnings toward their joint expenses. The court found
that the debtor had the ability to fund a chapter 13 plan. In
re Falke, 2002 Bankr. LEXIS 1132, 284 B.R. 133 (Bankr. D. Or.
October 7, 2002) (Brown, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.04 [back
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10th Cir.
Relief from stay denied where agreements between debtor and moving creditor were not true leases but security agreements. Bankr. D.N.M. PROCEDURAL POSTURE: The debtor filed a chapter 11 petition under the Bankruptcy Code. A creditor filed a motion for relief from the automatic stay. The debtor opposed the motion and claimed that the lease agreements in issue were really security agreements. OVERVIEW: The dispute involved agreements between the debtor and the creditor. The creditor asserted that the agreements in issue were lease agreements and sought relief to proceed on its rights as a lessor. The debtor disagreed and claimed that the agreements were disguised security agreements. The court applied N.M. Stat. Ann. § 55-1-201 (Cum. Supp. 2001) and found that the two agreements met the first prong of the economic realities test. The court also found that under either agreement, the cost to renew the lease was greater than if the debtor purchased the property. If the cost to renew the lease was greater than the cost to buy the equipment, then the latter sum was nominal consideration. Because the debtor could become the owner of the goods for nominal consideration at the end of the lease terms in both agreements, factor (d) of the second prong of the test was met as to both agreements. Both parts of the economic realities test were satisfied, and the two agreements were security agreements and not leases. In re Our Secret, Ltd., 2002 Bankr. LEXIS 1137, 282 B.R. 697 (Bankr. D.N.M. August 28, 2002) (McFeeley, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back to top]
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Debtor not entitled to a salary
for performing services required of every debtor filing a petition. Bankr.
D.N.M. PROCEDURAL POSTURE: The debtor filed a chapter
11 petition under the Bankruptcy Code. The debtor filed a motion for salary,
or alternatively, medical reimbursement pursuant to 11 U.S.C. § 503(b)(1)(A).
OVERVIEW: The debtor asserted that he was due a salary
for the services he provided to the estate in: (1) preparing bankruptcy
schedules; (2) ascertaining the validity of various creditor claims; and
(3) assisting in litigation. The court rejected the debtor’s claim
where the debtor did not establish that he performed any services under
11 U.S.C. § 503(b)(1)(A). The services that the debtor claimed he
provided were required of every debtor that filed a bankruptcy petition,
pursuant to 11 U.S.C. § 521. The court found that no Bankruptcy Code
provision authorized a salary for these services, and the debtor failed
to show any other statutory or case law authority that would allow a salary
for these type of fiduciary obligations. The court also noted that since
the petition was filed, there had been little business activity and the
debtor failed to show his involvement in that activity. The debtor’s
claim for a salary as an administrative expense failed, as did his claim
for a medical expense claim because the claim was not the result of a
transaction between a creditor and the debtor in possession or the trustee.
The claim also did not directly benefit the estate. In re
Franklin, 2002 Bankr. LEXIS 1136, 284 B.R. 739 (Bankr. D.N.M.
October 8, 2002) (McFeeley, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.06[2] [back
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Student loan discharged on grounds
of undue hardship given good faith payment effort, insufficient household
income and circumstances unlikely to change. D. Kan.
PROCEDURAL POSTURE: Appellee debtors filed a chapter
13 bankruptcy proceeding and then filed an adversary proceeding against
appellants, the United States Department of Education, and other federal
and state agencies and entities, seeking to obtain a hardship discharge
of their student loan under 11 U.S.C. § 523(a)(8)(B). The bankruptcy
court granted a hardship discharge which was appealed to the district
court. OVERVIEW: The debtors, a husband and wife, had
six children, with ages from 15 months to 17 years. The student loan went
towards the husband’s bachelors degree and some master’s work.
The husband, who had a prosthetic leg, was unemployed for a period, and
then worked as a locksmith and maintenance man, while the wife worked
at a retail store. Their combined income was under $60,000. The district
court applied the Brunner test and other factors identified by the Sixth
and Eighth Circuits to find that the husband was entitled to a hardship
discharge as: (1) he carried his burden of proving that he and his dependents
could not maintain a minimal standard of living if he had to repay his
student loans; (2) the bankruptcy court properly considered all of the
wife’s disposable income and applied the proportionate share of
her income to the family’s essential living expenses; (3) even if
the wife’s entire income was available for paying the student loans,
their combined net incomes did not exceed their projected reasonable expenses;
(4) the circumstances were not likely to change for a significant period;
and (5) the husband had made a good faith effort even though he had made
no payments. Innes v. Kansas (In re Innes), 2002
U.S. Dist. LEXIS 19715, 284 B.R. 496 (D. Kan. August 27, 2002) (Crow,
Sr. D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14 [back
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Debtor’s adversary proceeding
against state health department dismissed as section 106 is an unconstitutional
abrogation of the state’s sovereign immunity. Bankr.
S.D. Fla. PROCEDURAL POSTURE: Plaintiff debtor
filed a chapter 7 petition under the Bankruptcy Code and received a
discharge. Defendant state health department was a creditor that was
not listed on the debtor’s bankruptcy schedules. The department
commenced a state action against the debtor. The debtor filed a motion
to reopen his case to add the omitted creditor and an action against
the department. The department filed a motion to dismiss, which the
debtor opposed. OVERVIEW: The department’s motion
to dismiss asserted that: (1) it did not have notice of the debtor’s
bankruptcy; and (2) the debtor’s adversary action was barred by
the Eleventh Amendment’s sovereign immunity. The debtor claimed
the Eleventh Amendment did not bar the action. The debtor’s action
sought the court’s determination that a prepetition claim had
been discharged. The court noted the existence of several remedies available
to a debtor seeking to discharge a non-listed debt owed to a state.
The debtor was free to remove the pending state court litigation to
federal court pursuant to 28 U.S.C. § 1452(a), but waited too long.
The court found that the debt in question was excepted from discharge,
if at all, under 11 U.S.C. § 523(a)(3)(A), and the dischargeability
of the debt in question could be determined by either the bankruptcy
court or the appropriate state court. The court noted that a conflict
between the doctrine of sovereign immunity and Fed. R. Bankr. P. 7001
precluded the debtor from prosecuting his adversary proceeding and discharging
a debt which presumably would have been discharged if properly listed
on his bankruptcy schedule. Levin v. New York Dep’t
of Health (In re Levin), 2002 Bankr. LEXIS 1147, 284 B.R. 308
(Bankr. S.D. Fla. September 23, 2002) (Hyman, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:106.01 [back
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Debtor’s failure
to answer improperly served request for admissions did not constitute
an admission pursuant to which debt could be ruled nondischargeable.
Bankr. M.D. Ga. PROCEDURAL POSTURE: A creditor
filed an adversary proceeding alleging the debtor’s credit card
obligation was nondischargeable under 11 U.S.C. § 523(a)(2)(A).
The creditor moved for summary judgment arguing that its "unanswered"
request for admissions deemed it admitted that the debtor had not intended
to pay the debt. The debtor objected, arguing that the requests were
served before the conference required under Fed. R. Bankr. P. 7026 and
Fed. R. Civ. P. 26(f). OVERVIEW: It was noted that
the creditor’s request for admissions was served prior to the
conference required under Fed. R. Bankr. P. 7026 and Fed. R. Civ. P.
26(f) and that the creditor’s counsel had failed to appear at
the pretrial conference. Summary judgment was a drastic measure. A motion
for summary judgment based on an admission established by default should
receive special scrutiny from the court. When considering a motion for
summary judgment based on an admission, the court could consider such
factors as whether the request for admission was properly served. The
court was persuaded that the request for admissions was not served in
accordance with the requirements of Rule 26(d) and that the debtor could
not be deemed to have admitted any matters contained therein. Since
the request for admissions was filed in violation of Rule 26(d), the
request for admissions was stricken from the record. Furthermore, the
creditor had to start over with all of its discovery. Without the deemed
admissions, the court concluded that there are substantial material
facts to be decided. Fleet Credit Card Servs., LP v. Harden
(In re Harden), 2002 Bankr. LEXIS 1122, 282 B.R. 543 (Bankr.
M.D. Ga. August 26, 2002) (Hershner, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08 [back
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