Collier Bankruptcy Case Update June-17-02

Collier Bankruptcy Case Update June-17-02

 


Collier Bankruptcy Case Update

The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.

June 17, 2002

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

 

1st Cir.

§ 706(a) Chapter 7 debtor's motion for conversion to chapter 13 denied.
In re Porter (Bankr. D. Mass.)


2d Cir.

§ 365(d)(3) Bankruptcy court's denial of landlord's motion to compel debtor to perform obligation under lease was reversed.
Urban Retail Props. v. Loews Cineplex Entm't Corp. (S.D.N.Y.)

§ 544(b)(1) Defendant's motion to dismiss complaint for failure to state a claim was denied.
Official Comm. of Asbestos Claimants of G-I Holding, Inc. v. Heyman (S.D.N.Y.)


3d Cir.

§ 365(c) Prepetition entry of judgment for possession terminated lease, making it unassumable.
In re Great Feeling Spas, Inc. (Bankr. D.N.J.)

§ 501(a) Creditor who did not file proof of claim entitled to jury trial on trustee's preference claim.
Goldstein v. K-Swiss, Inc. (In re Just for Feet, Inc.) (Bankr. D. Del.)


4th Cir.

ß 362(d) Creditor's motion for relief from stay to pursue, perfect and enforce mechanic's lien denied.
Moffit Bros. Drywall, Inc. v. Slacum (In re Slacum) (Bankr. D. Md.)


5th Cir.

ß 362(a)(1) Dismissal of lawsuit did not violate the automatic stay.
Arnold v. Garlock, Inc. (5th Cir.)

28 U.S.C. ß 157(b) Commencement of a bankruptcy case did not require transfer of tort litigation.
Arnold v. Garlock, Inc. (5th Cir.)


6th Cir.

§ 362(d) Creditor failed to introduce sufficient evidence to prove entitlement to relief from stay.
In re Howery (Bankr. S.D. Ohio)

§ 523(a)(5) District court affirmed bankruptcy court's decision to except debtor's obligations to former spouse from discharge.
McNamara v. Ficarra (In re McNamara) (E.D. Mich.)


7th Cir.

§ 523(a)(8) Debtor was granted a hardship discharge of her student loan debt.
Lewis v. Ill. Student Assistance Comm'n (In re Lewis) (Bankr. C.D. Ill.)

§ 1327(c) Nonspecific language in debtors' chapter 13 plan did not void creditor's lien.
In re Zimmerman (Bankr. C.D. Ill.)


8th Cir.

§ 548(c) Creditor casino did not receive transfers in good faith when it knew or should have known of debtor's financial situation.
Meeks v. Red River Entm't (In re Armstrong) (8th Cir.)


9th Cir.

§ 106(b) Board's proof of claim waiver extended to adversary proceeding.
California v. Harleston (In re Harleston) (B.A.P. 9th Cir.)

§ 522(b)(2)(A) California debtor's prepetition filing of regular nonbankruptcy exemptions did not preclude subsequent exemption claim in bankruptcy.
Little v. Reaves (In re Reaves) (9th Cir.)


10th Cir.

§ 523(a)(2)(A) Bankruptcy court's summary judgment in favor of state was affirmed on appeal.
Nixon v. Audley (In re Audley) (B.A.P. 10th Cir.)

§ 1327(c) Debtor's student loan discharged upon confirmation of chapter 13 plan.
Poland v. Educ. Credit Mgmt. Corp. (In re Poland) (D. Kan.)


11th Cir.

§ 105 Chapter 7 debtor's adversary complaint dismissed for violating court order and on grounds of judicial estoppel.
Lawrence v. United States (In re Lawrence) (Bankr. N.D. Fla.)


D.C. Cir.

§ 1326(a)(2) Upon dismissal of chapter 13 case, trustee was obligated to disburse funds in accordance with terms of the confirmed plan.
In re Parrish
(Bankr. D.C.)


Collier Bankruptcy Case Summaries

1st Cir.

Chapter 7 debtor's motion for conversion to chapter 13 denied. Bankr. D. Mass. The chapter 7 trustee objected to the debtor's motion to convert his case to one under chapter 13. The trustee asserted that the debtor's conduct in concealing prepetition property transfers and the timing of his motion to convert, which was filed only after exposure of the transfers by the trustee, amounted to bad faith. In addition, the trustee claimed that the debtor was unable to propose a feasible plan without gratuitous contributions from family members that did not constitute 'regular income,' and that the debtor had sufficient equity in certain properties to pay creditors in full, with interest, within a considerably shorter time frame than the 60-month plan proposed by the debtor. The bankruptcy court granted the trustee's motion. The court held that the misrepresentations in the debtor's schedules and the tenuous nature of the plan with its significant family contributions, coupled with the debtor's filing of the motion to convert to escape the effects of the chapter 7 trustee's pending adversary proceedings, constituted circumstances sufficiently extreme to warrant denial of the debtor's motion for conversion. The court rejected the debtor's claim that he should be allowed to exercise his one-time right of conversion to chapter 13 and that his conduct did not rise to the level of egregiousness sufficient to abridge that right. In re Porter, 2002 Bankr. LEXIS 401, 276 B.R. 32 (Bankr. D. Mass. April 22, 2002) (Kenner, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
6:706.02

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2d Cir.

Bankruptcy court's denial of landlord's motion to compel debtor to perform obligation under lease was reversed. S.D.N.Y. The landlord appealed the bankruptcy court's denial of its motion to compel the chapter 11 debtor to perform its obligations under the parties' construction contract. Through a prepetition agreement between the debtor and the landlord, the landlord agreed to construct a new motion picture theater complex at its own expense. The agreement provided that a one-time capital expense of $1,000,000 was to be paid by the debtor upon the completion of construction and the opening of the debtor's operations. Three months after the debtor filed its petition, the complex was opened for business, and the landlord sought immediate payment of the obligation. The bankruptcy court denied the landlord's motion, based on its determination that section 365(d)(3) did not require the debtor to immediately pay the entire amount owed under the lease obligation, but rather that the amount owed should be prorated to cover only the period after the petition date. The district court reversed, holding that the bankruptcy court erred in its decision to deny the landlord's motion to compel immediate payment of the debtor's obligation. The debtor's obligation did not lend itself to proration because it was not an obligation that matured upon the execution of the lease, accruing thereafter on a daily basis. Rather, the debtor's obligation was specifically bargained for to be contingent upon future events (i.e., the completion of the complex and subsequent opening for business). Because the triggering events would not have been reached had the debtor ceased operations postpetition, the debtor's obligation was directly related to its postpetition operations. Urban Retail Props. v. Loews Cineplex Entm't Corp., 2002 U.S. Dist. LEXIS 6186, - B.R. - (S.D.N.Y. April 8, 2002) (Sweet, D.J.).

Collier on Bankruptcy, 15th Ed. Revised
3:365.04[3][f]

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Defendant's motion to dismiss complaint for failure to state a claim was denied. S.D.N.Y. The former chairman of the debtor's predecessor moved to dismiss the complaint of the committee of asbestos claimants for failure to state a cause of action. Four years prior to the petition date, the successor to the debtor distributed to the chairman, for no consideration, 96 percent of the capital stock of a wholly-owned subsidiary. Although the transfer severed the parent/subsidiary relationship between the debtor's predecessor and the subsidiary as a matter of corporate form, the subsidiary remained closely connected with its former affiliates in the debtor's group as a matter of substance. The committee, composed of persons who asserted claims against the debtor by reason of injuries or deaths caused by the debtor's asbestos-containing products, sued to set aside the transfer and return the subsidiary to the debtor's estate for the benefit of all creditors. The chairman moved to dismiss the complaint and argued that the committee failed to establish the existence of an unsecured creditor holding an allowable claim under the Code. The district court held that the committee had set forth facts that could entitle it to relief and this was all that was necessary to survive dismissal. Therefore, the court denied the motion to dismiss, holding that it did not appear beyond doubt that the committee could prove no set of facts to establish that a creditor would be able to file a proof of claim. Furthermore, the court stated that it was too early in the litigation for the committee to prove that a creditor existed who could avoid the transactions under state law. No bar date for filing proofs of claim had been set in the debtor's bankruptcy case. Additionally, the complaint alleged sufficient facts to give the chairman adequate notice of the time, place and content of the alleged fraud (citing Collier on Bankruptcy, 15th Ed. Revised). Official Comm. of Asbestos Claimants of G-I Holding, Inc. v. Heyman, 2002 U.S. Dist. LEXIS 6187, 277 B.R. 20 (S.D.N.Y. April 8, 2002) (Sweet, D.J.).

Collier on Bankruptcy, 15th Ed. Revised
5:544.09

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3d Cir.

Prepetition entry of judgment for possession terminated lease, making it unassumable. Bankr. D.N.J. The creditor, the debtor's landlord, was the owner of nonresidential real estate located in New Jersey. In April 1995, the debtor and the creditor entered into a lease for a four-year term, with an option to renew for an additional term that would expire on July 1, 2005. In the summer of 2001, the debtor began withholding rent payments and the creditor filed a state court action seeking an order for possession. On November 16, 2001, the state court entered a judgment for possession, which was styled in the form of a consent order, providing that the judgment would be vacated if the debtor paid the creditor the back rent in the amounts and within the timeframe set by the order. The order further provided that, if the debtor failed to make the payments as called for, the creditor could obtain a warrant for removal. On November 21, 2001, approximately five days after the judgment for possession was entered, the debtor filed a petition for relief under chapter 11. The debtor made the rent payments as called for under the state court's order, but did not pay off the balance of the rent arrears in the aggregate amount of $48,991.88 prior to December 31, 2001, as was also required under the order. When the debtor filed a motion to extend the time in which to assume or reject the creditor's lease, the creditor objected to the motion on the grounds that the lease had been terminated prepetition by the debtor's failure to fully comply with the state court's November 16, 2001 order. In reply, the debtor argued that, since it filed for relief prior to the issuance of the warrant for removal, the lease was assumable. The bankruptcy court found that, under New Jersey law, the warrant of removal was merely the means by which the landlord could enforce the underlying judgment and that, by prohibiting the issuance of the warrant until three days after judgment, the legislature had simply intended to give the tenant an opportunity to remove his belongings and find other quarters. However, since the debtor had failed to comply with all the requirements necessary to vacate the state court's November 16 order, the debtor's tenancy had terminated as of November 16, 2001, and the debtor could not assume the lease pursuant to section 365(c)(3). In re Great Feeling Spas, Inc., 2002 Bankr. LEXIS 331, 275 B.R. 476 (Bankr. D.N.J. April 11, 2002) (Lyons, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
3:365.06[3]

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Creditor who did not file proof of claim entitled to jury trial on trustee's preference claim. Bankr. D. Del. After the debtor filed for chapter 7 relief, the trustee filed a complaint against the creditor to avoid allegedly preferential transfers and to recover property pursuant to section 547. In response, the creditor filed three pleadings, including an answer and jury trial demand, a motion for determination of core status and a motion to withdraw the reference to the bankruptcy court. In addressing the creditor's demand for a jury trial, the court found that a creditor's right to a jury trial on a trustee's preference claim depends upon whether or not the creditor has submitted a claim against the estate. If a creditor files a claim against the bankruptcy estate and is then met with a preference action, that action becomes part of the claims allowance process, which is triable only in equity. However, if the creditor has not filed a claim against the estate, the creditor is entitled to a jury trial on the issue of the preferential transfer. The bankruptcy court then ruled that, because the creditor had not filed a claim against the estate, it was entitled to a jury trial in the avoidance action. The court also granted the motion to withdraw the reference to the bankruptcy court because the creditor was entitled to a jury trial. Goldstein v. K-Swiss, Inc. (In re Just for Feet, Inc.), 2002 Bankr. LEXIS 330, - B.R. - (Bankr. D. Del. April 9, 2002) (Fitzgerald, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
4:501.01[2]-[3]

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4th Cir.

Creditor's motion for relief from stay to pursue, perfect and enforce mechanic's lien denied. Bankr. D. Md. A creditor provided prepetition work and materials for new construction on property owned by the debtor and his wife as tenants by the entirety. The debtor executed the construction contract in the name of his business entity. After the debtor, individually, and his business entity filed for chapter 13 relief, the creditor moved for relief from the automatic stay to pursue, perfect and enforce a mechanic's lien against the property. The bankruptcy court denied the motion because under applicable state (Maryland) law, real property held as tenants by the entirety is not open to the establishment of a mechanic's lien when only one of the property owners is obligated on the underlying debt. The court concluded that the creditor was not entitled to relief from the stay and that he was relegated to the position of an unsecured creditor without any priority over other unsecured creditors. Moffit Bros. Drywall, Inc. v. Slacum (In re Slacum), 2001 Bankr. LEXIS 1852, 272 B.R. 335 (Bankr. D. Md. June 11, 2001) (Derby, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
3:362.07

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5th Cir

Dismissal of lawsuit did not violate the automatic stay. 5th Cir. In order to continue with district court tort litigation, the plaintiff sought and obtained an order dismissing the debtor as a defendant from the litigation. A codefendant appealed, asserting that the dismissal violated the automatic stay. After the Court of Appeals for the Fifth Circuit held that there was no error, the codefendant filed a petition for rehearing en banc, which the court treated as a motion for panel rehearing. The court of appeals denied the petition, holding that the district had jurisdiction to determine the applicability of the automatic stay and that the dismissal of the debtor was consistent with section 362 in the effective administration of the district court's docket. The circuit court's affirmance was not in conflict with a prior decision because that prior decision was strictly limited to its facts, and different interests were at issue. Arnold v. Garlock, Inc., 2002 U.S. App. LEXIS 6564, 288 F.3d 234 (5th Cir. April 9, 2002) (per curiam).

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

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Commencement of a bankruptcy case did not require transfer of tort litigation. 5th Cir. Upon the plaintiff's motion, the district court dismissed a defendant who was a debtor in another forum, over the objection of a codefendant, who asserted a cross claim against the debtor, disputed the ability of the court to dismiss the debtor, sought transfer of the venue and asserted a claim for contribution. The codefendant appealed the dismissal, and the Court of Appeals for the Fifth Circuit affirmed on the basis that the matter was not related to the debtor's bankruptcy case. The codefendant filed a petition for rehearing en banc, asserting that the court of appeals improperly made a venue determination on the merits. Treating the motion as one for panel rehearing, the court of appeals denied the petition, holding that the codefendant did not have a valid claim by which he could invoke related-to jurisdiction or implicate section 157(b)(5) for a transfer of venue. The mere fact that another defendant filed a bankruptcy case did not automatically require transfer of the case. Arnold v. Garlock, Inc., 2002 U.S. App. LEXIS 6564, 288 F.3d 234 (5th Cir. April 9, 2002) (per curiam).

Collier on Bankruptcy, 15th Ed. Revised
1:3.06[4]

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6th Cir.

Creditor failed to introduce sufficient evidence to prove entitlement to relief from stay. Bankr. S.D. Ohio After the debtor filed for chapter 13 relief, the creditor, a bank, filed for relief from stay in order to commence foreclosure proceedings against the debtor based on a real estate mortgage. The debtor filed a memorandum in opposition to the motion for relief, and the creditor then filed a reply memorandum and also moved to strike the debtor's response. The debtor then opposed the creditor's motion to strike. The creditor's sole evidence in support of its motion for relief from stay was a photocopy of a certified copy of an open-end mortgage executed by the debtor. The debtor objected to the admission of the mortgage because it was not a certified copy. The creditor also sought admission of an account ledger from the office of the standing chapter 13 trustee evidencing the debtor's plan payments from the beginning of the case. However, because the creditor did not attach a copy of the account ledger to either its motion for relief or its reply memorandum and did not otherwise lay a proper foundation, the bankruptcy court did not receive the account ledger into evidence. The only other evidence presented at the hearing was testimony by the debtor, who testified that he had recently started a new job working 35 hours a week at $25 per hour. He also testified that plan payments would now be made via payroll deduction, that his hours would increase in the spring and that he likely would be working overtime. He also testified that he would be receiving a $1,100 tax refund, which he would turn over to the trustee. The debtor also testified that he could catch up on his chapter 13 payments within six months. The court then denied the creditor's motion for relief, ruling that the creditor had failed to present any evidence during its case-in-chief that (1) the debtor was not making the payments required under his confirmed chapter 13 plan; (2) the property was declining in value; or (3) the debtor lacked equity in the property. In re Howery, 2002 Bankr. LEXIS 322, 275 B.R. 852 (Bankr. S.D. Ohio March 27, 2002) (Sellers, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
3:362.07[3]-[4]

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District court affirmed bankruptcy court's decision to except debtor's obligations to former spouse from discharge. E.D. Mich. The chapter 7 debtor appealed from a bankruptcy court order that held that the debtor's obligation to pay certain funds to his former spouse pursuant to the parties' divorce judgment was excepted from the debtor's discharge. The debtor argued on appeal that because a part of the debt was assigned to the former spouse's attorney, it was a dischargeable assignment under section 523(a)(5)(A). The debtor also argued that a fixed award of alimony secured by assets constituted a dischargeable property settlement. The district court affirmed the bankruptcy court's decision that the debt at issue was excepted from the debtor's discharge under section 523(a)(5). With respect to the debtor's argument that the debt was a dischargeable assignment, the court found no evidence showing that there actually was an assignment through which the debtor was obligated to pay counsel fees directly to the former spouse's attorney. Moreover, the court observed that courts typically do not view counsel fees incident to a divorce decree as a dischargeable assignment. With respect to the debtor's argument that the award constituted a dischargeable property settlement, the court considered traditional state law indicia consistent with a support obligation; i.e., whether the award was labeled alimony, support, or maintenance; whether there was a direct payment to the former spouse (as opposed to the assumption of third-party debt); and whether the payments were contingent upon such events as death, remarriage, or eligibility for social security benefits. The court also found that the fact that the parties disputed the appropriate level of alimony for almost 10 years was an additional overriding factor that favored the former spouse. The court concluded that the fixed payment owed by the debtor was, very clearly, an attempt to resolve legitimate disputes about the level of alimony to which the former spouse was entitled and was not a property settlement camouflaged as alimony. McNamara v. Ficarra (In re McNamara), 2002 U.S. Dist. LEXIS 5495, 275 B.R. 832 (E.D. Mich. March 27, 2002) (Gadola, D.J.).

Collier on Bankruptcy, 15th Ed. Revised
4:523.11

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7th Cir.

Debtor was granted a hardship discharge of her student loan debt. Bankr. C.D. Ill. The chapter 13 debtor filed an adversary proceeding seeking a determination that her student loan obligation was discharged as an undue hardship. The debtor obtained the loan to attend junior college, but she dropped out before obtaining an associate's degree. Over the course of 17 years, the debtor made some payments on the loan and was granted both a deferral and a forbearance on the payments. The uncompleted education that the debtor received with the assistance of the loan had not increased her earning ability, and she was unable to seek different employment without losing health insurance benefits. Although the debtor lived frugally with her minor son in a house owned by her sister, the debtor's monthly expenses exceeded her monthly income. The bankruptcy court granted judgment for the debtor, holding that the student loan was dischargeable under the undue hardship provision of section 523(a)(8). Viewing the debtor's expenses as a whole, the court found that she would not be able to maintain a minimal standard of living for herself and her son if forced to repay her student loan. The debtor also established that her inability to pay would likely continue for a significant portion of the repayment period. The debtor's history of payments evinced a good faith effort to repay the obligation. Lewis v. Ill. Student Assistance Comm'n (In re Lewis), 2002 Bankr. LEXIS 452, 276 B.R. 912 (Bankr. C.D. Ill. March 27, 2002) (Perkins, B.J.).

Collier on Bankruptcy, 15th Ed.
Revised

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Nonspecific language in debtors' chapter 13 plan did not void creditor's lien. Bankr. C.D. Ill. Two months prior to filing their chapter 13 petition, the debtors purchased a Kirby vacuum for $1,100 with a loan from the creditor. The loan was secured by a purchase money security interest in the vacuum. When the debtors filed their proposed plan, they scheduled the creditor as an unsecured creditor with a claim of $1,363. Although the plan provided for the payment of other secured claims, it made no reference to the creditor or its claim. The plan also contained a provision stating, 'Any creditor who is not specifically treated as secured in the plan shall be deemed to be an unsecured creditor, and upon confirmation any alleged lien that it claims shall be void.' The creditor filed a secured claim on January 31, 2001, and the debtors objected to the claim on February 16, asserting that the claim was fully unsecured but without stating why. A confirmation hearing was held on February 22, 2001 and no objections were filed. The creditor answered the debtors' objection to its claim on March 8, arguing that it was entitled to receive the payments payable to each allowed secured claim provided for by the plan. The matter came on for a hearing and the debtors argued that, even if the creditor held a valid lien on the vacuum, confirmation of the debtors' chapter 13 plan effectively invalidated the lien based upon the provision that all liens of secured creditors not otherwise provided for were deemed void. Upon consideration, the bankruptcy court found that there was no basis for eliminating the lien for lack of collateral value, because the almost new vacuum purchased for $1,100 just two months prior to the bankruptcy filing had some value. The court also found that the plan language failed to put the affected creditor on notice that its lien would be lost if an objection to the plan was not made. Accordingly, the bankruptcy court ruled that, to the extent that the creditor had a valid, unavoidable security interest in the vacuum that was not provided for in the confirmed plan, the creditor's lien passed through bankruptcy, and it could seek relief from the automatic stay to enforce its lien outside of bankruptcy. The court emphasized that the creditor's lien was not preserved because it had filed a proof of claim, but because the debtors' plan did not satisfy the conditions necessary to avoid the creditor's lien through confirmation. If the necessary conditions had been satisfied, the creditor's lien would have been avoided notwithstanding its proof of claim. In re Zimmerman, 2001 Bankr. LEXIS 1905, 276 B.R. 598 (Bankr. C.D. Ill. June 28, 2001) (Perkins, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
8:1327.04

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8th Cir.

Creditor casino did not receive transfers in good faith when it knew or should have known of debtor's financial situation. 8th Cir. After an involuntary chapter 7 petition was brought against the debtor, the trustee filed an involuntary proceeding against the creditor, a casino, to recover money the debtor had transferred to the casino to pay gambling debts within the year preceding his bankruptcy. The bankruptcy court found that the casino had established that it acted in good faith in receiving the transfers, but the district court reversed the finding as clearly erroneous and remanded for entry of judgment for the trustee. The creditor appealed and the Court of Appeals for the Eighth Circuit noted that the debtor, who had been a lawyer in a small town, had operated a Ponzi scheme. When the Ponzi debts grew into the millions of dollars, the debtor resorted to other strategies to find the money to pay the debts, including kiting checks, embezzling funds from clients and gambling. Less than a year prior to the filing of the involuntary petition against the debtor, the creditor granted the debtor a credit line allowing him to sign markers in exchange for gambling chips. The line of credit began at $15,000 and increased to $100,000 in little over three months. In the year prior to the involuntary petition being filed, the debtor lost a net $211,400 at the creditor's casino and the amount of transfers made to the creditor in payment of markers was $377,000. Although Louisiana gaming regulations required the creditor to maintain an internal control system to ensure that credit was extended only in a commercially reasonable manner considering the assets, liabilities, prior payment history and income of the patron, the evidence showed that the creditor had not undertaken such an evaluation. The creditor had also learned of a federal tax lien against the debtor and the creditor's internal reporting indicated that the creditor felt that it appeared to have the debtor 'in over his head' with regard to the line of credit. From these facts, the Eighth Circuit affirmed the district court's ruling that the creditor had sufficient knowledge to put it on inquiry notice that the debtor might be insolvent, and that the creditor had not carried its burden of proving it had received the transfers in good faith. Meeks v. Red River Entm't (In re Armstrong), 2002 U.S. App. LEXIS 6845, 285 B.R. 1092 (8th Cir. April 15, 2002) (Gibson, C.J.).

Collier on Bankruptcy, 15th Ed. Revised
5:548.07[2]

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9th Cir.

Board's proof of claim waiver extended to adversary proceeding. B.A.P. 9th Cir. The California Board of Equalization appealed the bankruptcy court's denial of its motion for judgment on the pleadings based on sovereign immunity. After the debtors' filed a chapter 13 petition, the board filed a proof of claim for unpaid taxes, alleging a fully secured debt. The parties agreed that the claim was not a priority claim and scheduled a hearing to determine the extent of the claim's secured status. The hearing was struck for want of prosecution after the debtors converted to chapter 7 and received a discharge. The board commenced collection proceedings, and the debtors filed an adversary proceeding in their reopened case seeking a determination that their debt to the board had been discharged. The board asserted the Eleventh Amendment jurisdictionally barred the adversary proceeding and moved for judgment on the pleadings. The bankruptcy court denied the motion and the board appealed the interlocutory order. The district court affirmed, holding that the board was not entitled to judgment on the pleadings because the adversary proceeding was ancillary to the case in which the board waived it immunity by filing a proof of claim, and it arose out of the same operative facts as the claim. The court rejected the board's argument that its waiver of sovereign immunity by filing the proof of claim did not extend to the debtors' adversary proceeding. The determination of dischargeability was inseparably tied to the claims adjudication process, and the bankruptcy court retained jurisdiction over ancillary suits to enforce the discharge order. California v. Harleston (In re Harleston),2002 Bankr. LEXIS 302, 275 B.R. 546 (B.A.P. 9th Cir. March 25, 2002) (Brandt, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:106.06

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California debtor's prepetition filing of regular nonbankruptcy exemptions did not preclude subsequent exemption claim in bankruptcy. 9th Cir. A judgment creditor levied execution against the debtor's vehicle prepetition in order to enforce a judgment debt. The debtor filed regular nonbankruptcy claims of exemption in a local court pursuant to state (California) law. The debtor failed to attend the local court's hearing on her exemption claims, and the claims were denied. Thereafter, and on the date of the scheduled sheriff's sale of the vehicle, the debtor filed her chapter 7 petition. The debtor claimed an exemption for the vehicle, available to bankruptcy debtors under California law, and moved to avoid the creditor's lien. The creditor argued that the debtor could not assert her claim for exemptions in the bankruptcy case because she had already filed for the regular nonbankruptcy exemptions. The bankruptcy court rejected this argument, voided the creditor's lien and ordered the return of the vehicle to the debtor. The B.A.P. affirmed and the creditor appealed. The Court of Appeals for the Ninth Circuit affirmed. The court held that the applicable state statute (Cal. Civ. Proc. Code § 703.140(a)) requires an election of exemptions after bankruptcy proceedings have been initiated, but contains no proscription against the consecutive use of exemptions first in the event of levy prior to bankruptcy and again after a bankruptcy petition has been filed. Little v. Reaves (In re Reaves), 2002 U.S. App. LEXIS 6422, 285 F.3d 1152 (9th Cir. April 8, 2002) (Tashima, C.J.).

Collier on Bankruptcy, 15th Ed. Revised
4:522.10

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10th Cir.

Bankruptcy court's summary judgment in favor of state was affirmed on appeal. B.A.P. 10th Cir. The chapter 7 debtor appealed an order of the bankruptcy court that granted summary judgment to the state of Missouri, finding that a judgment debt was nondischargeable under section 523(a)(2)(A). After a trial, the state court held that the debtor was liable for numerous violations of consumer protection statutes, and ordered the debtor to pay $235,000 for restitution, civil penalties and costs. The state court found that the employees of the debtor's company had knowingly and intentionally deceived consumers and that those consumers had justifiably relied on the company's representations and had suffered a loss due to those misrepresentations. The bankruptcy court concluded that: (1) there were no controverted facts; (2) the factual findings of the judgment satisfied all the elements of fraud under section 523(a)(2)(A); (3) the debtor was collaterally estopped from relitigating those factual findings; and (4) the judgment was nondischargeable. The B.A.P. affirmed, holding that the bankruptcy court correctly determined that there was an identity of issues between the state court judgment and the adversary proceeding. The state court made its findings by clear and convincing evidence, a standard higher than the one required in the nondischargeability proceeding. The B.A.P. noted that it was precluded by the Rooker-Feldman doctrine from considering the debtor's argument that the state court's findings could not have preclusive effect because the state court proceeding violated his constitutional rights.Nixon v. Audley (In re Audley), 2002 Bankr. LEXIS 307, 275 B.R. 383 (B.A.P. 10th Cir. March 28, 2002) (McFeeley, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
4:523.08[1]

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Debtor's student loan discharged upon confirmation of chapter 13 plan. D. Kan. The debtor filed her chapter 13 petition in late 1993 and her plan in 1994. The plan included a clause stating that the U.S. Department of Education alleged that the debtor owed a student loan in the approximate amount of $9,877.70 and that the debtor disputed the validity of the debt. The plan further stated that if the creditor filed no proof of claim, the claim would be deemed discharged in its entirety upon completion of the plan. It also stated that the chapter 13 trustee would make no distribution to the creditor unless the court so ordered. The bankruptcy court did not receive any objections to the debtor's chapter 13 plan and the creditor did not file a proof of claim or object to the proposed plan. The plan was confirmed on April 20, 1994 and the creditor did not appeal the confirmation order. On May 5, 1994, which was one day after the claim bar date, the creditor filed a claim and on May 9, 1994, the creditor filed a notice of assignment of the claim. The debtor objected to the creditor's claim and the bankruptcy court entered an order sustaining the debtor's objection. The court also disallowed the creditor's claim in its entirety. The debtor successfully completed her chapter 13 plan and the court entered an order of discharge and final decree on January 6, 1999. No creditors objected to the debtors discharge or otherwise appealed. Following the debtor's discharge, the creditor's assignee attempted to collect on the loan and the debtor moved to have her bankruptcy case reopened, seeking a determination regarding the discharge of the student loan. Relying on the Tenth Circuit's decision in In re Anderson, 179 F.3d 1253 (10th Cir. 1999), the bankruptcy court ruled that the plan provisions and the discharge order were binding on the parties under the principles of finality and res judicata and that the debtor's student loan was discharged notwithstanding the lack of a determination of undue hardship within an adversary proceeding. Because the plan had provided notice to the creditor of the debtor's intent, the creditor could not later complain about certain provisions contained in the confirmed plan, even though such provisions were inconsistent with the Code. Poland v. Educ. Credit Mgmt. Corp. (In re Poland), 2001 U.S. Dist. LEXIS 23494, - B.R. - (D. Kan. December 18, 2001) (Brown, D.J.).

Collier on Bankruptcy, 15th Ed. Revised
8:1327.04

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11th Cir.

Chapter 7 debtor's adversary complaint dismissed for violating court order and on grounds of judicial estoppel. Bankr. N.D. Fla. Before the debtor filed his chapter 7 petition, the Court of Appeals for the Seventh Circuit entered an order that precluded him from filing for bankruptcy relief unless he certified that the claims he wished to present had not been raised and disposed of on the merits in any federal court and that the claims were not frivolous. Based upon the debtor's past conduct in connection with bankruptcy petitions, the Court of Appeals ordered this extraordinary measure to conserve judicial resources and ensure the efficient use of such resources. The debtor was permitted to file his chapter 7 petition after presenting an appropriate petition and representing to the bankruptcy court that he would not challenge his federal tax liabilities or the validity of his federal tax liens, and that he would not seek to relitigate matters or raise frivolous arguments. Nevertheless, the debtor filed a motion seeking to avoid federal tax liens and assessments in his chapter 7 case. The motion was denied. The debtor's motion for reconsideration was also denied, and the bankruptcy court entered an order prohibiting the debtor from filing further proceedings to challenge federal tax claims. The court's order also provided that any further pleadings challenging federal tax claims would stricken by the court 'sua sponte upon receipt.' In direct contravention of the bankruptcy court's order, the debtor filed an adversary complaint against the United States challenging the validity of asserted federal tax liens. The bankruptcy court struck the adversary complaint from the record as a violation of a court order and also held that the claims within the adversary complaint were subject to dismissal on the grounds of judicial estoppel. The court noted, among other things, that the debtor's position in the adversary proceeding was clearly contrary to his statements under oath when he represented to the court that he would not challenge his federal tax liabilities or the validity of his federal tax liens, and that he would not seek to relitigate matters or raise frivolous arguments. Lawrence v. United States (In re Lawrence), 2001 Bankr. LEXIS 1847, 277 B.R. 135 (Bankr. N.D. Fla. December 12, 2001) (Killian, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
2:105.01

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D.C. Cir.

Upon dismissal of chapter 13 case, trustee was obligated to disburse funds in accordance with terms of the confirmed plan. Bankr. D.C. After the bankruptcy court confirmed the chapter 13 debtor's amended plan, the court granted the debtor's motion to dismiss her case under section 1307(b). At the time of the dismissal, the trustee held in escrow certain funds from payments that had been made by the debtor under the confirmed plan. The bankruptcy court denied the debtor's motion. The court held that pursuant to section 1326(a)(2), the trustee was obligated to disburse the funds that she held at the moment of dismissal in accordance with the terms of the confirmed plan. The court concluded that no other provision of the Code explicitly rendered section 1326(a)(2) ineffective upon dismissal of a chapter 13 case. The court also concluded that dismissal of a chapter 13 case does not retroactively terminate the effectiveness of a confirmed plan as to the amounts already collected under the plan. In re Parrish, 2002 Bankr. LEXIS 292, 275 B.R. 424 (Bankr. D.C. March 4, 2002) (Teel, B.J.).

Collier on Bankruptcy, 15th Ed. Revised
8:1326.02[2]

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