Collier Bankruptcy Case Update July-30-01
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
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.
July 30, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
§ 362(h) Repeated postponement of foreclosure sale was deemed a violation of the stay.
Sherkanowski v. GMAC Mortgage Corp. (In re Sherkanowski) (Bankr. D.N.H.)§ 523(a)(5) Parties’ intent in divorce settlement was not subject to summary judgment.
Bilodeau v. Bilodeau (In re Bilodeau) (Bankr. D.N.H.)§ 524(c) Reaffirmation agreement was enforceable as filed even though it was filed after debtors received chapter 7 discharge.
In re Blais (Bankr. D.N.H.) 074018§ 1112(b) Chapter 11 case dismissed 'for cause' by bankruptcy court, sua sponte.
In re Camann (Bankr. D.N.H.)Rule 3003(c)(3) Creditor without notice of the chapter 11 case could file a late proof of claim.
In re CGE Shattuck, LLC (Bankr. D.N.H.)
2d Cir.
28 U.S.C. § 1412 Delaware bankruptcy court, as court that confirmed debtor’s plan, was proper forum for determining challenge to claim provided for by plan.
United States v. State St. Bank & Trust Co. (In re Scott Cable Communications, Inc.) (Bankr. D. Conn.)28 U.S.C. § 1930 District court reversed bankruptcy court and held that United States trustee’s quarterly fees were entitled to same priority as chapter 7 administrative expenses.
In re Jonick Deli Corp. (S.D.N.Y.)Rule 8005 District court denied debtor’s motion for stay of action against estate pending appeal of order that dismissed chapter 7 case.
Miller v. Cloud (In re Miller) (N.D.N.Y.)
3d Cir.
§ 362(d) Creditors seeking relief from stay to pursue claims on alter ego and agency theories failed to demonstrate cause.
In re Eagle Enterprises (E.D. Pa.)§ 502(d) Photographer’s administrative expense claim was not subject to section 502(d).
In re Lids Corp. (Bankr. D. Del.)§ 1322(c) New Jersey debtors’ right to cure residential mortgage default expired upon sheriff’s delivery of deed to successful bidder at auction.
Randall v. Equicredit Fin. Servs. Corp. (In re Randall) (D.N.J.)
4th Cir.
§ 502(a) Tax claim was allowed.
Moser v. United States (M.D.N.C.)
6th Cir.
§ 523(a)(15) Debtor’s deceased ex-husband’s estate lacked standing to bring proceeding under section 523(a)(15).
Estate of Bryant v. Bryant (In re Bryant) (Bankr. W.D. Ky.)§ 544(a)(1) Trustee could not avoid bank’s security interest in Ohio debtor’s equipment.
Hunter v. Key Bank Nat’l Ass’n (In re Wisniewski) (Bankr. N.D. Ohio)§ 547(b)(3) For purposes of summary judgment, trustee failed to establish that debtor was insolvent at time of two transfers made to former spouse.
Hunter v. Dupuis (In re Dupuis) (Bankr. N.D. Ohio)§ 547(c)(7) Trustee could not recover tax refund that was seized by government and ultimately paid to former spouse for delinquent child support.
French v. United States Dep’t of Treasury (In re Sanks) (Bankr. N.D. Ohio)
7th Cir.
§ 727(a)(2) Discharge denied debtor who removed own but not wife’s name from bank account but continued to deposit employment checks into account.
Ryan v. Kontrick (N.D. Ill.)
8th Cir.
§ 522(d)(10) IRA funds were not exempt.
In re Bowder (Bankr. D. Minn.)§ 541(a)(6) Real estate commissions received postpetition, but generated by prepetition services, were estate property.
Parsons v. Union Planters Bank (In re Parsons) (B.A.P. 8th Cir.)
9th Cir.
§ 362(a)(1) Objecting to the dischargeability of a debt in the bankruptcy court was not a stay violation.
Rein v. Providian Fin. Corp. (9th Cir.)§ 726(a)(5) Completion of plan required payment of interest.
In re Ogle (Bankr. D. Idaho)Rule 7004(a) Time was extendable for excusable neglect.
Oyama v. Sheehan (In re Sheehan) (9th Cir.)
10th Cir.
§ 304(b) Colorado law applied in fraudulent transfer action brought by Japanese trustee.
Kojima v. Grandote Int’l Ltd. Liab. Co. (In re Grandote Country Club Co., LTD) (10th Cir.)
11th Cir.
§ 303(h) District court held that status as sole creditor did not preclude filing of involuntary petition.
Fed. Fin. Co. v. Dekaron Corp. (S.D. Fla.)
Collier Bankruptcy Case Summaries
1st Cir.
Repeated postponement of foreclosure sale was deemed a violation of the stay. Bankr. D.N.H. The creditor, a mortgagee holding a secured claim on the debtor’s home, commenced foreclosure proceedings and a sale was scheduled for July 19, 1999. The debtor filed a chapter 13 petition on July 12, 1999. The creditor’s counsel notified the debtor that the sale was rescheduled for September 22, 1999. An auctioneer appeared at the debtor’s home and also informed him of the postponement. On September 22, 1999, the creditor’s counsel sent the debtor notice that the sale was again rescheduled for December 6, 1999. Again, the auctioneer appeared to convey the same information. On October 19, 1999 the creditor filed a motion for relief with the bankruptcy court alleging that the debtor was not maintaining postpetition mortgage payments. On October 21, 1999, the creditor withdrew the motion upon the debtor’s making the October payment. Again the sale was postponed to February 16, 2000 and again the auctioneer visited the home. The debtor’s spouse asserted that during the periods of postponement, notices were placed in local newspapers, causing embarrassment and emotional distress. Additionally, the creditor continued to send monthly statements to the debtor of the mortgage account status. The debtor then filed a motion seeking damages pursuant to section 362(h), alleging that the creditor’s counsel violated the stay by continuing to postpone the foreclosure sale and that the creditor violated the stay by sending monthly statements that attempted to collect prepetition arrearage. The court held that counsel had violated the stay. The court reasoned that counsel, by repeatedly postponing the sale when (1) the debtor was making regular postpetition payments, (2) the debtor filed a plan to cure the default and (3) the creditor was not actively pursuing the default, constituted harassment of the debtor. But the court did not find that the creditor violated the stay, because the statements distinguished the prepetition and postpetition debt, and the debtor was aware that the creditor was not seeking to collect any prepetition amounts.Sherkanowski v. GMAC Mortgage Corp. (In re Sherkanowski), 2000 Bankr. LEXIS 1794, – B.R. – (Bankr. D.N.H. August 15, 2000) (Deasy, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.11[3]
Parties’ intent in divorce settlement was not subject to summary judgment. Bankr. D.N.H. During their divorce proceeding, the parties entered into an agreement under which the debtor would pay his former spouse $500 per month until the marital home was sold. When the property was sold, the former spouse was to receive $60,000 from the proceeds, less the monthly payments. Upon the filing of the chapter 7 petition, the former spouse sought a determination that the obligation was nondischargeable support. Upon cross motions for summary judgment, the bankruptcy court held that whether the obligation was intended to be support was a question of fact which could not be disposed of by summary judgment.Bilodeau v. Bilodeau (In re Bilodeau), 2000 Bankr. LEXIS 1791, – B.R. – (Bankr. D.N.H. September 22, 2000) (Deasy, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.11
Reaffirmation agreement was enforceable as filed even though it was filed after debtors received chapter 7 discharge. Bankr. D.N.H. The chapter 7 debtors filed a motion requesting that the bankruptcy court reopen their chapter 7 case in order to vacate the discharge order and approve a reaffirmation agreement. The debtors and their creditor both indicated a desire to make the reaffirmation agreement binding between them, but were concerned by the fact that the reaffirmation agreement was filed after the entry of the discharge order. The bankruptcy court held that the reaffirmation agreement complied with the requirements of section 524(c) and was enforceable as filed; thus, there was no need to vacate the debtors’ discharge order. The court stated that although the Bankruptcy Code requires that a reaffirmation agreement be 'made' prior to the granting of a debtor’s discharge, section 524(c) contains no requirement that a reaffirmation agreement be filed with the court prior to a debtor receiving his discharge. In this case, the court found that the agreement was made and signed by both the debtors and their creditor prior to the debtors’ receiving their discharge. The court concluded that the agreement was enforceable as filed, even though it was filed after the entry of the discharge order.In re Blais, 2001 Bankr. LEXIS 583, – B.R. – (Bankr. D.N.H. April 26, 2001) (Deasy, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:524.04
Chapter 11 case dismissed 'for cause' by bankruptcy court, sua sponte. Bankr. D.N.H. After a hearing was held on motions brought to deny confirmation or dismiss competing plans filed by the chapter 11 debtor, the bankruptcy court decided, sua sponte, to dismiss the debtor’s case pursuant to section 1112(b), for cause. The court found that the only legal issues presented before it involved the impact of the debtor’s divorce decree–a five-year-old final state court order that provided for the distribution of property between the debtor and his former wife–and the existence and curing of any defaults under that decree. The court explained that the interpretation and enforcement of the divorce decree had nothing to do with the rehabilitative character of the Bankruptcy Code. The court found no reason why the division and distribution of marital assets under the provisions of the divorce decree could not and should not be accomplished under the jurisdiction of the state court that issued the decree The court held that there was no bankruptcy purpose being served in the debtor’s case; thus, dismissal for cause under section 1112(b) was warranted (citing Collier on Bankruptcy 15th Ed. Revised).In re Camann, 2001 Bankr. LEXIS 581, – B.R. – (Bankr. D.N.H. March 19, 2001) (Deasy, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1112.04
Creditor without notice of the chapter 11 case could file a late proof of claim. Bankr. D.N.H. Creditors sought to vote on the chapter 11 plan, one against and one in favor. Another creditor sought to bar the vote of the objecting creditor on the basis that its proof of claim was untimely. In response, the objecting creditor asserted that, since it did not have notice of the chapter 11 case, excusable neglect warranted the late filing. In addition, the debtor sought to file a proof of claim on behalf of the second creditor so that it could properly vote in favor of the plan. The bankruptcy court held that the doctrine of excusable neglect permitted allowance of the late-filed proof of claim and vote against confirmation. The creditor filed its proof of claim within 120 days after receiving notice of the chapter 11 case, which was the same amount of time that creditors with notice of the case were given. Moreover, there was no prejudice either to the debtor or the judicial proceeding; the claim was filed in good faith; and the delay was not within the control of the creditor since it did not have notice of the chapter 11 case until some months after it was filed. Similarly, the creditor was entitled to vote after the deadline for casting ballots since, due to an error by the debtor, it did not receive its ballot until after the deadline had passed.In re CGE Shattuck, LLC, 2000 Bankr. LEXIS 1790, – B.R. – (Bankr. D.N.H. December 1, 2000) (Deasy, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:3003.03[4][b]
2nd Cir.
Delaware bankruptcy court, as court that confirmed debtor’s plan, was proper forum for determining challenge to claim provided for by plan. Bankr. D. Conn. Almost two years after the chapter 11 debtor’s reorganization plan was confirmed by the United States Bankruptcy Court for the District of Delaware, the debtor filed a liquidating chapter 11 petition in the United States Bankruptcy Court for the District of Connecticut. The IRS filed an adversary proceeding in the Connecticut bankruptcy case challenging secured claims asserted by a third-party creditor. After various proceedings, a federal district court reversed the Connecticut bankruptcy court’s decision that the IRS had notice of and was a party in interest to the Delaware proceeding, and that res judicata precluded the IRS from relitigating issues regarding the third-party creditor’s claims. However, the matter was remanded to the Connecticut bankruptcy court for a determination of whether the classification of the secured creditor’s claims in the confirmed Delaware plan was binding on the IRS. On remand, the Connecticut bankruptcy court considered, sua sponte, whether it or the Delaware bankruptcy court was the appropriate forum to consider the reach of the secured status of the challenged claims. The Connecticut bankruptcy court held that the Delaware bankruptcy court was the appropriate forum to determine whether the IRS was the holder of a claim superior to that of the secured creditor’s challenged claim. The court noted that the pending matter arose only as a matter of interpretation of the effect of the Delaware plan. The matter arose in the Connecticut court only because the IRS did not object to the confirmation of the Delaware plan and because the reorganized debtor filed a second chapter 11 petition there.United States v. State St. Bank & Trust Co. (In re Scott Cable Communications, Inc.), 2001 Bankr. LEXIS 619, – B.R. – (Bankr. D. Conn. June 7, 2001) (Shiff, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:4.04
District court reversed bankruptcy court and held that United States trustee’s quarterly fees were entitled to same priority as chapter 7 administrative expenses. S.D.N.Y. The United States trustee appealed a bankruptcy court order that awarded final fees to the United States trustee. Specifically, the United States trustee appealed the bankruptcy court’s sua sponte decision to subordinate outstanding quarterly fees incurred while the debtor’s case was a chapter 11 case to chapter 7 administrative expenses. The district court reversed and held that quarterly United States trustee’s fees should be given the same priority as chapter 7 administrative expenses. The district court noted that the issue presented was one of first impression in the Second Circuit, although a number of other courts had addressed the issue and reached differing results. The court adopted the majority view, which holds that in a case converted from chapter 11 to Chapter 7, quarterly fees have the same priority over chapter 11 administrative expenses as chapter 7 administrative expenses and, thus, share pro rata in distribution of the chapter 7 expenses. The court concluded that the majority view was more consistent with the plain language of the Bankruptcy Code and with the intent of Congress.In re Jonick Deli Corp., 2001 U.S. Dist. LEXIS 7500, – B.R. – (S.D.N.Y. June 7, 2001) (Chin, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:6.29
District court denied debtor’s motion for stay of action against estate pending appeal of order that dismissed chapter 7 case. N.D.N.Y. A creditor obtained a state court default judgment against the chapter 7 debtor after his case was dismissed for bad faith pursuant to section 707(a). Thereafter, the debtor successfully moved for reconsideration of a bankruptcy court order that dismissed his appeal from the dismissal order because he failed to perfect the appeal. The debtor then brought an order to show cause before the bankruptcy court seeking a stay of all action against his estate pending resolution of the appeal. The bankruptcy court granted a 48-hour stay in order to provide the debtor with an opportunity to seek a further stay with the district court. The debtor promptly brought an order to show cause before the district court seeking a continuation of the stay pending resolution of his appeal. The district court denied the debtor’s motion for a stay pending appeal because the debtor failed to provide evidence indicating a substantial possibility of success in his appeal of the bankruptcy court’s bad faith determination. The court noted that a bankruptcy court’s findings of fact are reviewed under the clearly erroneous standard, and that in deciding whether a bankruptcy petition was filed in bad faith, bankruptcy courts have considerable experience in determining whether debtors have sufficient resources to pay off substantial portions of their debts. The court also noted that the bankruptcy court made no errors of law when it examined the debtor’s current financial condition as part of its analysis regarding the debtor’s misuse of the Bankruptcy Code.Miller v. Cloud (In re Miller), 2001 U.S. Dist. LEXIS 7941, – B.R. – (N.D.N.Y. June 8, 2001) (Kahn, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:8005.09
3rd Cir.
Creditors seeking relief from stay to pursue claims on alter ego and agency theories failed to demonstrate cause. E.D. Pa. The debtors were engaged in the waste management business and were closely held corporations of the same individuals. In 1997, the creditors entered a series of agreements with one of the debtors for the lease of equipment. The same year, the second debtor entered a transportation agreement with an entity that extended revolving credit in exchange for the debtor’s transportation of waste. The agreement granted the entity considerable oversight on the debtor’s operations, apparently to protect the entity’s loan. Allegedly, the entity then engaged in conduct designed to render the debtors insolvent and to monopolize the local waste barging industry. The entity also failed to meet its obligations under the transportation agreement, resulting in a $1.8 million default. After the debtors filed chapter 11 petitions, which were eventually converted to chapter 7 proceedings, the creditors filed an adversary proceeding to pursue claims against the entity in state (New York) court. Specifically the creditors sought to impose vicarious liability upon the entity for the debtors’ breach of the equipment leases under alter ego, joint venture and agency theories, and requested a declaration that these proposed claims were not subject to the automatic stay. The creditors argued that these claims were never property of the estate. The bankruptcy court rejected the creditors’ request for a modification of the stay for cause, and this appeal followed. The district court affirmed, holding that the bankruptcy court did not abuse its discretion with its ruling. The district court found that, for the purposes of section 362(d)(1), the creditorsfailed to show how they were burdened by the stay to any greater degree than other unsecured creditors, or why they should be permitted to circumvent the customary preference for payment provided by the Code. The court concluded that the creditors’ theories of alter ego, joint venture and agency liability were simply theories predicated on the same allegations and that the creditors offered nothing to show that the facts underlying those theories applied uniquely to their own claims rather than to the potential claims of all creditors. However, the district court remanded the issue of whether the creditors’ tortious interference claim was subject to the stay.In re Eagle Enterprises, 2001 U.S. Dist. LEXIS 6646, – B.R. – (E.D. Pa. May 21, 2001) (Waldman, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07[3]
Photographer’s administrative expense claim was not subject to section 502(d). Bankr. D. Del. The debtor, a hat retailer, entered into a prepetition service contract with a photographer. Pursuant to the contract, the photographer agreed to digitally photograph each of the debtor’s hats for placement on the debtor’s website, and the debtor agreed to remit a one-time payment to the photographer. The debtor downloaded the photographs to its website prepetition and continued to use the pictures on its website after the filing of its chapter 11 case. The bankruptcy court found that the photographer’s request for payment under the contract was entitled to administrative expense status because the debtor used the photographs postpetition and that use benefited the estate. The debtor claimed, however, that the photographer was liable to the estate for a preference, and that pursuant to section 502(d) it was not obligated to remit any payment until the alleged preference was repaid. The bankruptcy court held that administrative expense claims are accorded special treatment under the Bankruptcy Code and are not subject to section 502(d); thus, the photographer was entitled to immediate payment of its administrative expense claim. The court reasoned that Congress’ inclusion of five postpetition claims to which section 502(d) expressly applies (none of which were applicable in this case) demonstrated that section 502(d) did not apply to other postpetition claims. The court also stated that the extension of section 502(d) to administrative claims could have devastating effects on a debtor’s ability to reorganize. Finally, and as an additional reason for denying the debtor’s objection, the court noted that the debtor had not yet obtained a judicial determination on the preference complaint. The court held that section 502(d) could not apply where, as here, the debtor had not obtained a judgment holding the claimant liable for a preference(citing Collier on Bankruptcy 15th Ed. Revised).In re Lids Corp., 2001 Bankr. LEXIS 617, 260 B.R. 680 (Bankr. D. Del. April 6, 2001) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.05
New Jersey debtors’ right to cure residential mortgage default expired upon sheriff’s delivery of deed to successful bidder at auction. D.N.J. The chapter 13 debtors appealed a bankruptcy court order that denied their motion for an extension of the time period for redemption of residential real property. The bankruptcy court ruled that the debtors’ right to cure the default terminated at the conclusion of the state (New Jersey) foreclosure auction. The district court reversed. The court held that the New Jersey debtors’ right to cure the default on their mortgage expired when the sheriff delivered the deed to the successful bidder at the auction, and not at the end of the foreclosure sale. The court stated that section 1322(c)(1) allows a debtor the opportunity to cure until the foreclosure sale is complete. The court reasoned that since a sale is not complete until the delivery of the deed, debtors retain their right to cure defaults until then. In the matter at issue, the deed was not delivered before the debtors filed their chapter 13 petition proposing to cure their default and reinstate the mortgage loan contract. Thus, the court concluded that the debtors’ right to cure had not been extinguished.Randall v. Equicredit Fin. Servs. Corp. (In re Randall), 2001 U.S. Dist. LEXIS 7938, 263 B.R. 200 (D.N.J. June 12, 2001) (Cooper, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.15
4th Cir.
Tax claim was allowed. M.D.N.C. The chapter 11 debtors appealed the bankruptcy court order overruling their objection to the IRS’s proof of claim. The district court first noted that the IRS had the initial burden of proof to show that the debtors received income, which was satisfied by the fact that the deficiency determination was presumed correct. The burden then shifted to the debtors to prove the incorrectness of the deficiency determination. The district court affirmed, holding that the bankruptcy court did not err when concluding that the debtors failed to prove the incorrectness of the IRS’s deficiency determination. Because the debtors failed to meet their burden of proof, the burden did not shift back to the IRS to prove the existence and amount of the deficiency.Moser v. United States, 2000 U.S. Dist. LEXIS 20734, – B.R. – (M.D.N.C. December 6, 2000) (Tilley, Jr., D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.02
6th Cir.
Debtor’s deceased ex-husband’s estate lacked standing to bring proceeding under section 523(a)(15). Bankr. W.D. Ky. The estate of the debtor’s deceased ex-husband filed an adversary proceeding pursuant to section 523(a)(15) seeking a determination that a debt owed to the deceased spouse pursuant to a property settlement agreement was nondischargeable. The debtor moved to dismiss the adversary complaint on the grounds that the deceased ex-husband’s estate lacked standing to bring the proceeding. The bankruptcy court dismissed the complaint. The court followed the majority of cases that have considered the issue of standing in section 523(a)(15) cases and held that only a spouse, former spouse or child of the debtor may file a complaint under section 523(a)(15). The court noted that if the estate was representing minor children of the deceased ex-spouse, the equities and the law might dictate a different result. In this case, however, where it was not even clear whether the deceased ex-spouse had a will, or who his legal heirs might be, the court determined that granting standing to his estate would be inconsistent with both the plain meaning and legislative intent of section 523(a)(15).Estate of Bryant v. Bryant (In re Bryant), 2001 Bankr. LEXIS 616, 260 B.R. 839 (Bankr. W.D. Ky. January 29, 2001) (Roberts, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.21
Trustee could not avoid bank’s security interest in Ohio debtor’s equipment. Bankr. N.D. Ohio The chapter 7 trustee moved for summary judgment on its adversary complaint to avoid a bank’s lien against certain tanning beds, a computer and related items pursuant to section 544(a)(1). The bank and the debtor cross-moved for summary judgment. The bankruptcy court held that with respect to the tanning beds, computer and other items at issue, a financing statement executed by the bank sufficiently complied with the state (Ohio’s) requirements for a financing statement. Therefore, in exercising his strong-arm powers under section 544(a)(1), the trustee could not avoid the bank’s security interest. The court found that despite a reference to an improper trade name, the financing statement was not seriously misleading. The court also noted that the bank’s security agreement with the debtor specifically encompassed 'equipment' and concluded that given the breadth that Ohio secured transactions law afforded to the term 'equipment' the bank’s collateral was 'equipment' under Ohio law.Hunter v. Key Bank Nat’l Ass’n (In re Wisniewski), 2001 Bankr. LEXIS 639, – B.R. – (Bankr. N.D. Ohio May 29, 2001) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.05
For purposes of summary judgment, trustee failed to establish that debtor was insolvent at time of two transfers made to former spouse. Bankr. N.D. Ohio The chapter 7 trustee moved for summary judgment on his adversary complaint to recover three alleged preferential transfers made by the debtor to her former husband. The former husband conceded that since there was no contrary evidence, a presumption that the debtor was insolvent applied to one of the transfers, which was made within 90 days of the debtor’s bankruptcy filing. With respect to the other two transfers, however, the former husband disputed the issue of the debtor’s insolvency. As to those two transfers, the bankruptcy court held that the trustee’s statement in an affidavit to his summary judgment motion that he had a good faith basis to believe that the debtor was insolvent from and after June 1, 1999, was insufficient to satisfy his burden of establishing the debtor’s insolvency under 547(b)(3). The court found that the debtor’s financial condition on June 1, 1999, almost one full year prior to his bankruptcy filing, was too far removed for the trustee to have had an accurate picture of her financial condition on the date she made the two transfers at issue. The court also noted that a divorce, in many instances, precipitates the deterioration of a debtor’s financial condition and that in this case, the debtor’s divorce occurred well after June 1, 1999.Hunter v. Dupuis (In re Dupuis), 2001 Bankr. LEXIS 641, – B.R. – (Bankr. N.D. Ohio March 19, 2001) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.03[5]
Trustee could not recover tax refund that was seized by government and ultimately paid to former spouse for delinquent child support. Bankr. N.D. Ohio Within 90 days of the debtor’s chapter 7 filing, the United States Department of the Treasury intercepted the debtor’s 1999 tax refund and, in compliance with federal law, sent the refund check to a county child support enforcement agency. The agency, in turn, transferred the intercepted funds to the debtor’s former spouse for delinquent child support. After the debtor’s chapter 7 case was commenced, the trustee brought an adversary proceeding against the agency to recover the transferred funds as a preference. The agency did not dispute whether the elements of a preference under section 547(b) had been established. Rather, the agency argued that pursuant to section 547(c)(7), the trustee could not avoid the challenged transfer. The trustee moved for summary judgment. The bankruptcy court denied the trustee’s motion for summary judgment and held that the trustee could not avoid the tax refund seized from the debtor as a preferential transfer. The court rejected the trustee’s argument that the transfer was recoverable under section 547(c)(7)(A) because it was 'assigned' to the county child support enforcement agency. The court concluded that under state (Ohio) law, the agency was simply acting as a trustee with respect to the payments made by the debtor. Therefore, the agency’s receipt of the debtor’s seized income tax refund could not have constituted an 'assignment' of a debt within the meaning of section 547(c)(7)(A).French v. United States Dep’t of Treasury (In re Sanks), 2001 Bankr. LEXIS 640, – B.R. – (Bankr. N.D. Ohio May 29, 2001) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.04[7]
7th Cir.
Discharge denied debtor who removed own but not wife’s name from bank account but continued to deposit employment checks into account. N.D. Ill. The chapter 7 debtor appealed a bankruptcy court order that granted summary judgment to a creditor on one count of the creditor’s complaint that sought, among other things, denial of the debtor’s discharge. The bankruptcy court held that denial of the debtor’s discharge was warranted under section 727(a)(2) because the debtor removed his name from the family bank account but continued to deposit his employment checks into that account. The court concluded that by depositing his salary into an account on which his wife was the sole signatory, the debtor fraudulently transferred the money to his wife because she gave no consideration and that the transfer was made with the intent to defraud his creditors. The district court affirmed. The court held that considering the debtor’s whole pattern of conduct, the bankruptcy court properly found that he had the intent to hinder, delay or defraud his creditors. The court noted that the debtor provided no alternative explanation as to why he removed his name from the checking account and continued to deposit his salary into an account that he did not have access to. The court concluded that instead of paying his creditors, the debtor purposely put his money where his creditors could not reach it, a fact he testified to under oath (citing Collier on Bankruptcy 15th Ed. Revised).Ryan v. Kontrick, 2001 U.S. Dist. LEXIS 7473, – B.R. – (N.D. Ill. May 30, 2001) (Leinenweber, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.02
8th Cir.
IRA funds were not exempt. Bankr. D. Minn. The chapter 7 trustee objected to the debtor’s claimed exemption in funds of an individual retirement account. The debtor had previously rolled over state (Minnesota) pension plan funds into the IRA. He was allowed to withdraw the funds at any time, but any withdrawal before the age of 59 and one-half would result in a 10 percent federal tax penalty. The debtor had a nominal income, was 46 years old, had no dependents and did not plan to retire for 20 years. The bankruptcy court sustained the trustee’s objection, holding that because the IRA was not payable on account of the debtor’s illness, disability, death, age or length of service and was not reasonably necessary to sustain the debtor’s basic needs in retirement, it was not exempt. The court found that the debtor had ample time and ability to prepare for retirement, including entirely re-funding the relatively modest IRA.In re Bowder, 2001 Bankr. LEXIS 608, 262 B.R. 919 (Bankr. D. Minn. June 7, 2001) (O’Brien, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.09[10]
Real estate commissions received postpetition, but generated by prepetition services, were estate property. B.A.P. 8th Cir. The debtor was a real estate agent who entered into an independent contractor agreement with the creditor, a brokerage house. When the debtor filed a chapter 7 petition, she owed the creditor approximately $22,900 pursuant to the terms of the agreement, and the creditor owed the debtor approximately $61,800 for commissions earned but not yet paid. The creditor offset the difference and paid the debtor $38,892.37. The commissions paid arose from the sale of 15 properties, all but two of the sales closing postpetition. The bankruptcy court made a finding that the commissions were generated prepetition through the efforts not only of the debtor but also of her team of agents. In her schedules, the debtor claimed an exemption of 75 percent of the commissions received pursuant to a state (Missouri) wage exemption statute. The trustee and the bank objected, arguing that the debtor did not personally earn the commissions. The debtor argued that the entire amount of the commissions were earned postpetition because she and her team performed postpetition work to effectuate the closings and that, consequently, the commissions were not property of the estate. The court ruled that, under state law, the commissions were earned prepetition, when the debtor produced a ready, willing and able buyer; that only pospetition earnings from the debtor’s personal services were excludable from the estate; and that the debtor did not personally perform all services generating the commissions and was therefore not entitled to the full wage exemption. This appeal followed. The B.A.P. for the Eighth Circuit affirmed, holding that section 541(a)(6) not only required the debtor to perform postpetition services generating the earnings to exclude those earnings from the estate, but also required that the earnings arise from services performed by the individual debtor. The B.A.P. found that the debtor failed to provide evidence as to what portion of the earnings represented the debtor’s own postpetition efforts and thereby the requirements of section 541(a)(6) had not been met. The B.A.P. also affirmed the bankruptcy court’s determination that the debtor’s prepetition efforts were contingent interests that rendered the commissions property of the estate. Parsons v. Union Planters Bank (In re Parsons), 2001 Bankr. LEXIS 604, 262 B.R. 475 (B.A.P. 8th Cir. June 11, 2001) (Kressel, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.17
9th Cir.
Objecting to the dischargeability of a debt in the bankruptcy court was not a stay violation. 9th Cir. Four debtors in unrelated chapter 7 cases owed the creditor, a financial institution, various amounts in credit card debts. After the debtors filed for bankruptcy, the creditor asked each debtor to enter into a reaffirmation agreement, claiming that the debts were nondischargeable because they were incurred through fraud. One debtor entered into a reaffirmation agreement, but the other three refused to enter into such an agreement, and the creditor instituted a nondischargeability action against them. Ultimately the parties negotiated a settlement in which the debtors stipulated that the credit card debts were nondischargeable and agreed to pay some or all of these debts. After their chapter 7 cases were closed, the debtors filed a class action lawsuit against the creditor alleging that it violated the automatic stay and discharge injunction by requesting reaffirmation and instituting a nondischargeability adversary proceeding. The district court dismissed the class action lawsuit on the basis that the debtors were barred by res judicata, collateral estoppel and lack of standing. The Court of Appeals for the Ninth Circuit affirmed in part, holding that it is not a violation of the stay to file an adversary proceeding objecting to the dischargeability of a debt. Since only the bankruptcy court had the authority to determine the action under section 523(a)(2), filing the nondischargeability action in the bankruptcy court where the case was pending did not violate the stay.Rein v. Providian Fin. Corp., 2001 U.S. App. LEXIS 12092, 252 F.3d 1095 (9th Cir. June 11, 2001) (Kelleher, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03[3]
Completion of plan required payment of interest. Bankr. D. Idaho The creditors filed a motion to obtain postpetition interest on their unsecured claim. As the trustee liquidated several parcels of the chapter 12 debtors' property pursuant to provisions in their confirmed plan, it became apparent that the estate was solvent and all creditors' claims could be paid in full. The creditors pointed out that section 1225(a)(4) required the plan to pay unsecured creditors at least the amount they would receive if the case was under chapter 7. Since section 726(a)(5) required the payment of postpetition interest to creditors prior to any surplus being returned to the debtors, the creditors argued they were entitled to interest. The bankruptcy court granted the creditors' motion, holding that because the debtors were solvent, the unsecured creditors were entitled to postpetition interest. To promote equitable treatment of all unsecured claims, as well as predictability and practicality, the court concluded that the federal post-judgment interest rate should be used to calculate the amount payable to the creditors.In re Ogle, 2001 Bankr. LEXIS 625, 261 B.R. 22 (Bankr. D. Idaho February 20, 2001) (Pappas, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1225.02[4]; 6:726.02[5]
Time was extendable for excusable neglect. 9th Cir. The creditor filed an adversary proceeding to determine the nondischargeability of a debt. The creditor timely served a summons and complaint on the debtor’s attorney, but failed to serve the debtor individually until six days after the expiration of the 120-day period prescribed by Fed. R. Civ. P. 4(m). The bankruptcy court granted the debtor’s motion to dismiss for improper service, stating that the excusable neglect provision was not applicable in the context of a nondischargeability proceeding. The B.A.P. affirmed, agreeing that there was no good cause to extend the time period. The Court of Appeals for the Ninth Circuit reversed, holding that the bankruptcy court and the B.A.P. erred in refusing to apply the excusable neglect provision of Rule 9006(b) in determining whether to enlarge the 120- day service period prescribed by Fed. R. Civ. P. 4(m). The case was remanded for a determination of whether the creditor met the excusable neglect standard articulated in Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd. P’ship, 507 U.S. 380 (1993) (citing Collier on Bankruptcy, 15th Ed. Revised).Oyama v. Sheehan (In re Sheehan), 2001 U.S. App. LEXIS 13509, – F.3d – (9th Cir. June 19, 2001) (Tashima, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9006.06[3]; 7004.02[13]
10th Cir.
Colorado law applied in fraudulent transfer action brought by Japanese trustee. 10th Cir. A business entity, Grandote Colorado, failed to pay state (Colorado) real estate taxes, prompting the state to sell tax certificates on the property to a third party. Fully disclosing the tax delinquency, Grandote Colorado, sold the property to a Japanese citizen, who then conveyed the property to yet another entity, Grandote Japan. Some years later, Grandote Japan conveyed the property back to Grandote Colorado. The purchaser of the tax certificates, however, pursued its rights in the state court and, after extensive litigation with the Grandote entities, the third party was awarded tax deeds to the property, a judgment that the tax deeds were valid and the right to possession. Meanwhile, Grandote Japan filed a bankruptcy case in Japan, and, with the approval of the bankruptcy court, its trustee filed an ancillary proceeding in the district court to avoid the transfers from Grandote Japan to Grandote Colorado, as well as the transfer effected by the tax deed. The district court granted summary judgment in favor of the defendants, concluding that Colorado law applied, the tax deeds were valid, and that there was no evidence that the transfers were fraudulent. The Court of Appeals for the Tenth Circuit affirmed, holding that despite the interest in comity, Colorado law applied to the fraudulent transfer action regarding Colorado real estate. Since the only asset at issue was real property, it was appropriate to apply local law. Colorado had the greatest interest in the litigation, the tax sale was conducted for failure to pay Colorado taxes, most of the agreements relating to the property were executed in Colorado and there had already been extensive litigation in state court to determine the ownership of the property.Kojima v. Grandote Int’l Ltd. Liab. Co. (In re Grandote Country Club Co., LTD), 2001 U.S. App. LEXIS 13262, 252 F.3d 1146 (10th Cir. June 14, 2001) (Lucero, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:304.08[5]