Collier Bankruptcy Case Update November-4-02
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.
November 4, 2002
CASES IN THIS ISSUE
(scroll down to read the full summary)
§ 331 Applications for interim compensation approved
with admonishment that professionals avoid duplication of services to
In re Malden Indus. (Bankr. D. Mass.)
§ 727(a) Bankruptcy court erred by incompletely analyzing indicia of fraud in transfer of debtor’s dental practice.
Groman v. Watman (In re Watman) (1st Cir.)
§ 1328(a) Debt arising out of criminal restitution order not discharged in debtor’s chapter 13 bankruptcy.
Bova v. St. Vincent DePaul Corp. (In re Bova) (B.A.P. 1st Cir.)
Rule 8013 Bankruptcy court erred in allowing claim against
Ohio corporation to be filed against related but distinct New York
Bagel Bros. Maple, Inc. v. Ohio Farmers, Inc. (W.D.N.Y.)
§ 108(c) Three year right to rescind consumer credit
transaction was not tolled by bankruptcy of creditor’s predecessor
Williams v. Sparkman (In re Williams) (Bankr. E.D. Pa.)
§ 365(c) Executory contract for transfer of interests in a limited liability company may not be assumed by trustee.
Chase Manhattan Bank v. Iridium Afr. Corp. (In re Iridium Afr. Corp.) (D. Del.)
§ 365(n) Debtor entitled to royalties where license was excluded from asset purchase agreement.
Schlumberger Res. Mgmt. Servs. v. CellNet Data Sys. (In re CellNet Data Sys.) (D. Del.)
§ 502(b)(1) Creditor’s claim disallowed where
underlying loan was usurious.
Rae v. Estate of Van Buren (In re Rae) (4th Cir.)
§ 523(a)(8) State university’s assertion of sovereign immunity barred debtor’s complaint to determine student loan dischargeability.
Jordon v. Norfolk State Univ. (In re Jordon) (Bankr. W.D. Va.)
§ 323 Chapter 13 debtor retained standing to sue in
previously filed civil action and was not entitled to dismissal of or
severance from suit.
Beasley v. Pers. Fin. Corp. (S.D. Miss.)
§ 1329(b) Debtors allowed to modify plan to surrender collateral to secured creditor in lieu of payment.
In re Hernandez (Bankr. S.D. Tex.)
§ 105(a) Court refused to invoke equitable power to
partially discharge debt that arose from criminal restitution
Fulton County Dept. of Human Servs. v. Dodd (In re Dodd) (Bankr. N.D. Ohio)
§ 523(a) Debtor’s summary judgment motion denied as numerous amendments to petition did not resolve factual issues of fraud.
Crawford v. Monfort (In re Monfort) (Bankr. N.D. Ohio)
§ 523(a)(2)(A) Refinanced loan obligation held dischargeable where primary impetus for debtor’s bankruptcy were events that occurred subsequent to refinancing.
Clyde-Findlay Area Credit Union v. Burwell (In re Burwell) (Bankr. N.D. Ohio)
§ 523(a)(2)(A) Debtor’s credit card debt related to gambling expenses deemed discharged.
Chase Manhattan Bank v. Alnajjar (In re Alnajjar) (Bankr. N.D. Ohio)
Rule 9023 Debtor’s motion to alter or amend finding of
bad faith filing denied absent showing of error or new
In re Gleason (Bankr. N.D. Ill.)
Rule 8002(c)(2) Debtor’s appeal filed 23 days after nondischargeability order deemed untimely.
Beiwel v. Sallie Mae Servicing (In re Beiwel) (Bankr. N.D. Iowa)
§ 702(a) Creditor with disputed claim, adverse to other creditors, held ineligible to vote for chapter 11 trustee or call for trustee’s election.
In re Williams (Bankr. C.D. Cal.)
§ 547(c)(3) Motor vehicle lien perfected within 20 day safe harbor provision of section 547(c)(3) was not an avoidable preference.
Morris v. GMAC (In re Ball) (Bankr. D. Kan.)
§ 1301 Payment of car loan in full by debtor was necessary to protect nondebtor co-signor.
In re Monroe (Bankr. N.D. Ga.)
Collier Bankruptcy Case Summaries
Applications for interim compensation approved with admonishment that professionals avoid duplication of services to estate. Bankr. D. Mass. PROCEDURAL POSTURE: In this chapter 11 action, before the court were several fee applications for interim compensation pursuant to 11 U.S.C. § 331. OVERVIEW: Pursuant to the court’s order granting motion to establish interim compensation procedures and the modification to interim compensation order and order to file fee applications, the professionals had been receiving payment of all of their invoiced fees and expenses on a monthly basis. Based in part upon the court’s review of the monthly summaries of the fees and expenses, the court required the professionals to file the interim fee applications presently before the court. General bankruptcy counsel to the debtors, sought fees of $610.437.50 and expenses of $27,556.83. The general bankruptcy counsel was admonished not to perform tasks within the scope of special counsel’s services. Special counsel to the debtors sought fees of $762.260 and expenses of $17,871.34. Counsel to the creditors’ committee sought fees of $397,091.87 and expenses of $11,761.37. The only area that gave the court some pause was the cost of having the attorneys analyze financial data provided to the committee and the court questioned whether and to what extent this work was duplicative of the tasks performed by the committee’s financial advisors. In re Malden Indus., 2002 Bankr. LEXIS 853, 281 B.R. 493 (Bankr. D. Mass. August 8, 2002) (Rosenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:331.01
Bankruptcy court erred by incompletely analyzing
indicia of fraud in transfer of debtor’s dental practice.
1st Cir. PROCEDURAL POSTURE: Appellee debtor
filed a chapter 7 bankruptcy petition. Appellant creditor initiated an
adversary proceeding objecting to the debtor’s discharge under 11
U.S.C. § 727(a)(2) and (a)(7). The bankruptcy court entered
judgment in favor of the debtor and the United States Bankruptcy
Appellate Panel for the First Circuit affirmed the bankruptcy
court’s decision. The creditor appealed the judgment.
OVERVIEW: The appellate court concluded that the
bankruptcy court’s analysis of the indicia of fraud was incomplete
as it was largely limited to the absence of secrecy and the
debtor’s reliance on the advice of counsel. Left unexamined was
the significance of the alleged transfer without consideration of the
going concern value of the debtor’s dental practice to the
practice from which it was purchased. That omission left unexamined such
familiar indicia of fraudulent intent as (1) the retention of
possession, benefit, or use of the property in question; (2) the lack or
inadequacy of consideration for the transfer; (3) the financial
condition of the party sought to be charged both before and after the
transaction at issue; (4) the existence or cumulative effect of the
pattern or series of transactions or course of conduct after the
incurring of debt, onset of financial difficulties, or pendency or
threat of suits by creditors; and (5) the shifting of assets by the
debtor to a corporation wholly controlled by him. On remand, the
bankruptcy court was free to take more evidence if deemed necessary.
Groman v. Watman (In re Watman), 2002 U.S. App.
LEXIS 16700, 301 F.3d 3 (1st Cir. August 20, 2002) (Torruella,
Collier on Bankruptcy, 15th Ed. Revised 6:727.01
Debt arising out of criminal restitution order
not discharged in debtor’s chapter 13 bankruptcy.
B.A.P. 1st Cir. PROCEDURAL POSTURE: The debtor
appealed from an order of the bankruptcy court that held a restitution
debt was nondischargeable under 11 U.S.C. § 1328(a)(3), arguing
restitution was subject to a five-year statute of limitations under 730
Ill. Comp. Stat. 5/5-5-6(f) (2001), and since the creditor reduced its
claim to a civil judgment, it was judicially estopped from asserting it
was a criminal restitution order. OVERVIEW: The
restitution debt was seven years old. The appellate panel found that
5/5-5-6(f) (2001) was not a statute of limitations. It was a deadline
after which the court could not allow a defendant to pay. If a defendant
failed to pay, the statute did not prevent collection, it merely
prohibited a judge from giving a defendant more than five years after
release from incarceration to pay. The five-year period the debtor
referred to was the time within which the court could fix for defendants
to pay restitution; it was not a statute of limitations imposed on the
enforcement of restitution orders. The debtor was never incarcerated.
Thus, the issue of when the five-year period began was not relevant; the
five-years began at the debtor’s sentencing hearing. The act of
enforcing the criminal restitution order in civil court was merely a
continuation of the criminal action and was not a separate civil action.
In the state court proceedings, the creditor had argued that the
restitution order was a judgment lien, which could be enforced as any
other judgment lien. That was the same position it took in the
bankruptcy court. Thus, it was not barred by judicial estoppel.
Bova v. St. Vincent DePaul Corp. (In re Bova), 2002
Bankr. LEXIS 414, 276 B.R. 726 (B.A.P. 1st Cir. April 29, 2002)
Collier on Bankruptcy, 15th Ed. Revised 8:1328.02
Bankruptcy court erred in allowing claim against Ohio corporation to be filed against related but distinct New York corporate debtor. W.D.N.Y. PROCEDURAL POSTURE: Appellant corporation challenged the order of the bankruptcy court which allowed a claim in favor of appellee creditor. OVERVIEW: Two brothers operated several bagel stores in New York and Cleveland. Each bagel store originally operated as a separate corporation: the New York stores were later merged into a single corporation at issue in the instant action. The creditor supplied food products to the Ohio bagel stores. It was paid by the brothers by checks drawn on accounts maintained in the names of the individual Ohio corporations. After the single corporation filed for bankruptcy, the creditor filed a claim against it. The bankruptcy court allowed the claim, holding that the brothers acted as agents of all of the corporations and bound the instant corporation to the Ohio corporations debts. On appeal, the court reversed, holding that the bankruptcy court had disregarded the fundamental principles concerning whether the corporate form should be disregarded, and that even if it had, the brothers would be liable to the creditor, not the instant corporation that had no dealings with the creditor. The bankruptcy court also summarily rejected the corporation’s Statute of Frauds argument. Bagel Bros. Maple, Inc. v. Ohio Farmers, Inc., 2002 U.S. Dist. LEXIS 15161, — F. Supp.2d — (W.D.N.Y. March 1, 2002) (Curtin, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:8013.01
Three year right to rescind consumer credit transaction was
not tolled by bankruptcy of creditor’s predecessor in
interest. Bankr. E.D. Pa. PROCEDURAL
POSTURE: After defendant mortgage lender filed a proof of claim
in debtor’s bankruptcy, debtor filed an adversary complaint
seeking to rescind the underlying loan transaction, and the lender moved
to dismiss the complaint. Debtor amended her complaint, adding a second
count which was not implicated in the lender’s motion to dismiss.
OVERVIEW: Debtor alleged in her complaint that when she
entered into a loan agreement with the lender’s successor in
interest, she was unaware of the 'tremendous front-end charges' in
connection with the loan, and that she did not receive any
pre-settlement disclosures regarding the terms of the transaction as
required by 15 U.S.C. § 1639(b). The lender contended in its motion
to dismiss that the complaint should be dismissed because the relief
requested by the debtor was barred by 15 U.S.C. § 1635(f) in that
the debtor’s three year right to rescind certain consumer credit
transactions, as set forth in 15 U.S.C. § 1635(a), expired prior to
the debtor’s attempted rescission. The court agreed with the
lender, finding inter alia that the debtor did not have a federal right
to rescind, defensively or otherwise, after the three year period of
section 1635(f) had run; that Pennsylvania law had not extended, for
purposes of 15 U.S.C. § 1635(i)(3), the time period for rescission
to four years; and that the time period for rescission under section
1635(f) was not tolled pursuant to 11 U.S.C. § 108(c) by the
lender’s predecessor in interest’s bankruptcy, as section
1635(f) was not a statute of limitation. Williams v.
Sparkman (In re Williams), 2002 Bankr. LEXIS 417, 276 B.R. 394
(Bankr. E.D. Pa. April 8, 2002) (Carey, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:108.04
Executory contract for transfer of interests in
a limited liability company may not be assumed by trustee.
D. Del. PROCEDURAL POSTURE: Plaintiff Chase,
the collateral agent, brought this action, which arose from a loan
transaction, against various defendants alleged to be members of a
bankrupt lender liability company ('LLC'). The loan was secured by an
assignment of rights in the LLC. Cross motions for summary judgment were
filed. OVERVIEW: The LLC agreement contained a Reserve
Capital Call ('RCC') provision which required members to purchase
additional interests in the LLC if the LLC board of directors made a
proper demand. The right to the RCC obligations of the members was to be
assigned to Chase as collateral for financing upon unanimous approval of
the members, as required by the LLC agreement. Not all members were
present at meetings held to approve the assignment. Chase invoked its
claimed RCC rights and the LLC’s creditors subsequently filed an
involuntary chapter 11 petition. The defendants argued that the
assignment of RCC rights from the LLC to Chase was invalid as contrary
to the terms of the LLC agreement, that the LLC agreement was an
executory contract under section 365(c)(2), that interests in an LLC are
equivalent to 'securities' under section 365(c)(2) and that issuance of
interests in the LLC pursuant to the executory LLC agreement was
therefore prohibited by section 365(c)(2). The defendants further
claimed that Chase’s contract defenses, reformation agreements,
and tort claims failed as a matter of law. The court agreed that absent
the unanimous consent required by the LLC agreement, the assignment
would be invalid. This, however, along with Chase’s claims of
acquiescence, ratification and estoppel, was a question for a jury. The
court also agreed that issuance of interests in an LLC did qualify as
issuance of 'securities' under section 365(c)(2) in which case
assumption would be prohibited. The question of whether the present LLC
agreement was an executory contract or a contract that had been
materially breached, in which case section 365(c)(2) would not apply,
depended on the value of the interests and was yet another question for
the jury. Defendants’ motions for summary judgment on the tort and
reformation claims were granted. Chase Manhattan Bank v.
Iridium Afr. Corp. (In re Iridium Afr. Corp.), 2002 U.S. Dist.
LEXIS 7799, 197 F. Supp.2d 120 (D. Del. April 23, 2002) (Thynge,
Collier on Bankruptcy, 15th Ed. Revised 3:365.06
Debtor entitled to royalties where license was
excluded from asset purchase agreement. D. Del.
PROCEDURAL POSTURE: As part of an agreement approved by
the bankruptcy court, appellant purchaser acquired assets and
liabilities of appellee debtor. The bankruptcy court agreed with the
debtor, that although the purchaser had acquired intellectual property,
the purchaser had refused the right to receive royalties when it
affirmatively excluded the license agreements from the assets it chose
to purchase. The purchaser appealed. OVERVIEW: The
issues were: did the purchaser acquire the right to receive royalties
when it acquired the debtor’s intellectual property, but excluded
the debtor’s license agreements with its joint venturer, and, if
the purchaser excluded the royalties from its acquisition, which party
was entitled to those royalties when the licensee elected to enforce its
rights under the license pursuant to 11 U.S.C. § 365(n)? The court
found that the bankruptcy court’s reading of the documents was
well-supported. The purchaser had unambiguously excluded the license
agreements and attendant royalty payments. Nor was there any ambiguity
in the asset purchase agreement. The debtor was the owner of the
royalties paid by the licensee following the debtor’s sale of the
underlying intellectual property to the purchaser. Because the purchaser
excluded the license agreements under which the royalties were paid, the
right to receive those royalties remained with the debtor. Furthermore,
neither the debtor’s rejection of the agreements under 11 U.S.C.
§ 365(a), nor the licensee’s decision to enforce its license
under 11 U.S.C. § 365(n), acted to transfer that entitlement of
royalties to the purchaser. Schlumberger Res. Mgmt. Servs.
v. CellNet Data Sys. (In re CellNet Data Sys.), 2002 U.S. Dist.
LEXIS 7831, 277 B.R. 588 (D. Del. May 2, 2002) (McKelvie, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.14
Creditor’s claim disallowed where underlying loan was
usurious. 4th Cir. PROCEDURAL
POSTURE: Appellant estate filed a claim in appellee
debtor’s bankruptcy case. The bankruptcy court disallowed the
claim. The district court affirmed. The estate appealed.
OVERVIEW: The estate contended that in support of the
debtor’s contention that the loan from the deceased was usurious,
the debtor failed to offer clear and satisfactory evidence, as required
by Florida law. The court of appeals held that the debtor’s
account, once accepted by the trier of fact, was more than sufficient to
provide clear and satisfactory evidence that the agreement between the
debtor and the deceased was usurious. The estate also argued that the
debtor waived the right to make a usury argument in failing to formally
plead such as an affirmative defense. The court of appeals held that
because the estate failed to provide a case on point, or show surprise
or prejudice, the bankruptcy court’s ruling would not be reversed.
Finally, the estate contended the bankruptcy court violated Fed. R.
Bankr. P. 9023, 9024. The court of appeals found no violation, holding
that the bankruptcy court did not abuse its discretion in denying the
estate’s motion. Rae v. Estate of Van Buren (In re
Rae), 2002 U.S. App. LEXIS 8393, — F.3d — (4th Cir.
May 2, 2002) (Stapleton, Sr. C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.03
State university’s assertion of sovereign
immunity barred debtor’s complaint to determine student loan
dischargeability. Bankr. W.D. Va. PROCEDURAL
POSTURE: Plaintiff debtor filed an adversary complaint seeking
a determination that her student loan debts were dischargeable under 11
U.S.C. § 523(a)(8). Defendant state university moved to dismiss
under Fed. R. Civ. P. 12(b)(1) on the basis of sovereign immunity.
OVERVIEW: Approximately 12 years before filing for
bankruptcy, the debtor accepted financial aid to attend the university.
She, however, did not complete her education and subsequently defaulted
on her loan obligations. The university refused to release her
transcript due to nonpayment of her student loans. The debtor sought a
discharge of her student loan debt, or, in the alternative, a court
order directing the university to release her transcript so she could
transfer and complete her education. The university, which had not filed
a claim in the debtor’s bankruptcy, argued that sovereign immunity
barred the debtor’s adversary proceeding. The court agreed. The
university was a state agency. The instant adversary proceeding
triggered the sovereign immunity. Congress’s attempt, through 11
U.S.C. § 106(a), to abrogate the sovereign immunity of the states
with respect to 11 U.S.C. § 523 was unconstitutional. Finally,
Virginia had not consented to jurisdiction, and the university had not
waived sovereign immunity. Jordon v. Norfolk State Univ. (In
re Jordon), 2002 Bankr. LEXIS 405, 275 B.R. 755 (Bankr. W.D.
Va. March 12, 2002) (Krumm, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
Chapter 13 debtor retained standing to sue in previously
filed civil action and was not entitled to dismissal of or severance
from suit. S.D. Miss. PROCEDURAL
POSTURE: Plaintiff borrowers sued defendants, a lender and
insurers, alleging fraud, negligence, breach of fiduciary duty, and
negligent misrepresentation claims. Defendants removed the case to
federal court based upon one borrower’s bankruptcy proceedings.
The borrowers moved for voluntary dismissal of the bankrupt borrower or
for severance of the bankrupt borrower’s claims. The borrowers
also moved to remand. OVERVIEW: The bankrupt borrower
filed his petition for chapter 13 bankruptcy more than seven months
after filing suit against defendants. Regarding the motion for voluntary
dismissal, the court determined that the bankrupt borrower had standing
to pursue the cause of action since he retained possession of the estate
property. Also, dismissal was inappropriate, because of the bankrupt
borrower’s abuse. Regarding the motion to remand, the court
determined that all of the defendants were not required to join in the
notice of removal. Also, defendants timely removed the action because
defendants’ internet search, in which they discovered the
bankruptcy proceedings, was 'other paper' under 28 U.S.C. §
1446(b). In addition, the bankrupt borrower’s state court action
was related to his bankruptcy estate. Therefore, the court had subject
matter jurisdiction over the case. However, the court decided to abstain
from exercising its jurisdiction because the factors of discretionary
abstention favored remand. State law issues predominated over bankruptcy
issues and the questions of state law were neither difficult nor
unsettled. Beasley v. Pers. Fin. Corp., 2002 U.S.
Dist. LEXIS 15297, 279 B.R. 523 (S.D. Miss. May 17, 2002) (Barbour,
Collier on Bankruptcy, 15th Ed. Revised 3:323.01
Debtors allowed to modify plan to surrender
collateral to secured creditor in lieu of payment. Bankr.
S.D. Tex. PROCEDURAL POSTURE: The chapter 13
bankruptcy debtors proposed to modify their previously confirmed plan by
eliminating payment to the secured creditor and instead surrendering the
vehicle securing the claim in satisfaction of the claim. The creditor
objected to the proposed modification. OVERVIEW: After
the debtors experienced difficulty in making payments to their mortgage
lender in accordance with the terms of their confirmed plan, the debtors
sought to reduce their expenses by surrendering the vehicle which
secured its debt to the creditor and ceasing payments to the secured
creditor. The creditor contended that the debtors could not surrender
the collateral in satisfaction of the secured debt after the confirmed
plan provided for payment to the creditor. The bankruptcy court held
that there was no per se prohibition of a plan modification to surrender
collateral to a secured lender in payment of the secured claim, and the
debtors’ modification was otherwise proper and made in good faith
to allow the debtors to keep their home. The proposed modification
conformed to all of the requirements generally applicable to plan
confirmation, and res judicata did not bar the modification because the
creditor did not contest the amount and secured status of its claim.
Further, the debtors were statutorily entitled to provide for alternate
payment of the secured debt by modification, and surrender of the
collateral was clearly payment for the debt. In re
Hernandez, 2002 Bankr. LEXIS 861, 282 B.R. 200 (Bankr. S.D.
Tex. August 9, 2002) (Steen, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1329.05
Court refused to invoke equitable power to partially
discharge debt that arose from criminal restitution award.
Bankr. N.D. Ohio PROCEDURAL POSTURE: The
defendant debtor and her husband filed a voluntary petition for relief
under chapter 7 of the United States Bankruptcy Code. Plaintiff, a
county human service department, commenced an adversary proceeding
praying that the monies the debtor was ordered to pay as restitution be
determined to be a nondischargeable debt pursuant to 11 U.S.C. §
523(a)(2). OVERVIEW: The debtor, while her husband was
receiving workers’ compensation benefits, denied the receipt of
such compensation to the department, and did not disclose certain
changes in her husband’s income. As a result, the debtor pled
guilty to a charge of grand theft, and was ordered to pay restitution
for certain sums, including monies paid by the department to medical
providers in connection with the husband’s treatment. No medical
provider involved ever billed the bureau of state worker’s
compensation. The debtor acknowledged a portion of her debt to the
department was nondischargeable, but sought to discharge that portion of
the debt which represented the payments made to the medical providers,
which she contended was unfairly allocated against her. The court did
not contest the debtor’s view that, had the bureau been billed, it
would have paid in full the contested amounts. However, the court
declined to invoke its equitable powers under 11 U.S.C. § 105(a) so
as to partially discharge debtor of her obligation to the department,
finding that the loss the department incurred in paying the medical
providers was directly caused by the debtor’s own prior
transgressions. Fulton County Dept. of Human Servs. v. Dodd
(In re Dodd), 2001 Bankr. LEXIS 1887, 276 B.R. 817 (Bankr. N.D.
Ohio November 5, 2001) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:105.01
Debtor’s summary judgment motion denied as
numerous amendments to petition did not resolve factual issues of
fraud. Bankr. N.D. Ohio PROCEDURAL
POSTURE: The creditors filed a complaint to determine
dischargeability under 11 U.S.C. § 523(a)(2)(A), alleging fraud by
the debtor husband in connection with a contract regarding construction
for the creditors’ project, and to deny the debtors’
discharge under 11 U.S.C. § 727(a)(4)(A), (5). The debtors filed a
motion for summary judgment. OVERVIEW: The court found
that the timing of the bankruptcy was problematic, being filed shortly
after it appeared that the husband would not be able to modify the terms
of his contract with the creditor by $80,000, when the total contract
price was originally $70,000. The court questioned why the difficulty in
the construction work the debtor was hired to perform was not discovered
shortly after the construction work began. Although it could be expected
that subcontractors would be hired, the court found it unusual that
despite the creditors’ understanding to the contrary, the husband
did not intend to personally perform the contract. The debtors had
amended their bankruptcy petition on five separate occasions. Amending a
bankruptcy petition did not thereby expunge the falsity of the petition.
For essentially the same reason, the court found that summary judgment
was inappropriate as to denial of discharge for failing to
satisfactorily explain the loss or deficiency of assets to meet
liabilities. Crawford v. Monfort (In re Monfort),
2001 Bankr. LEXIS 1880, 276 B.R. 793 (Bankr. N.D. Ohio September 19,
2001) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.01
Refinanced loan obligation held dischargeable
where primary impetus for debtor’s bankruptcy were events that
occurred subsequent to refinancing. Bankr. N.D. Ohio
PROCEDURAL POSTURE: Plaintiff creditor sought a
determination that the debts incurred by defendant debtor when she
refinanced her loans with the creditor were nondischargeable pursuant to
either of the fraud exceptions to discharge set forth in 11 U.S.C.
§ 523(a)(2). OVERVIEW: The court found that what
was most telling regarding the lack of fraudulent intent on the part of
the debtor was that the debtor never obtained any monetary benefits by
refinancing her loans with the creditor. In fact, the only party to
benefit monetarily by the debtor’s refinancing was the
debtor’s ex-husband who had his legal liability on the loans
removed. That lack of any monetary gain on the part of the debtor tipped
the balance against a finding of fraudulent intent. First, no evidence
of collusion between the debtor and her ex-husband was put forth.
Second, at the time the debtor refinanced her loans, the creditor was
made fully aware of the debtor’s pending divorce. Thus, although
certain inferences of fraud did exist, the court concluded that the
primary impetus for the debtor’s bankruptcy was the occurrence of
events that took place after the debtor refinanced her loans with the
creditor. Debtor was laid off her job, and she incurred an additional
expense in the form of higher rent. As such, for purposes of both 11
U.S.C. § 523(a)(2)(A) and 11 U.S.C. § 523(a)(2)(B), the court
could not find that the debtor acted with the intent to defraud the
creditor. Clyde-Findlay Area Credit Union v. Burwell (In re
Burwell), 2002 Bankr. LEXIS 418, 276 B.R. 851 (Bankr. N.D. Ohio
January 16, 2002) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08
Debtor’s credit card debt related to
gambling expenses deemed discharged. Bankr. N.D. Ohio
PROCEDURAL POSTURE: Debtor filed a petition for
bankruptcy. Creditor filed a complaint to determine the dischargeability
of debtor’s credit card obligations pursuant to 11 U.S.C. §
523(a)(2)(A). OVERVIEW: The court used an analysis to
determine if debtor’s obligations were incurred by fraudulent
means. The court focused on whether there was evidence to show that
debtor acted with the requisite intent to defraud creditor. The court
applied the 'common law' test developed by the court of appeals. Some
facts led the bankruptcy court to believe that debtor had no intention
of repaying the debt. However, the court looked at other relevant facts
and concluded that debtor’s termination of his credit card use
shortly after he lost his job, along with only one charge after the
termination were indicative of debtor’s responsibility. These
facts led credibility to debtor’s assertion that he did not act in
a fraudulent manner toward creditor. The court found it credible that
the actual catalyst in the filing of debtor’s bankruptcy petition
was not his gambling debts, but was instead the loss of his job. The
court believed it was more probable than not that debtor intended to
repay his credit card debts to creditor at the time these debts were
incurred. The creditor failed to meet its burden under section
523(a)(2)(A). Chase Manhattan Bank v. Alnajjar (In re
Alnajjar), 2002 Bankr. LEXIS 425, 276 B.R. 844 (Bankr. N.D.
Ohio January 16, 2002) (Speer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08
Debtor’s motion to alter or amend finding
of bad faith filing denied absent showing of error or new
evidence. Bankr. N.D. Ill. PROCEDURAL
POSTURE: The bankruptcy court dismissed the debtor’s
chapter 11 case as having been filed in bad faith. She filed a motion
for relief from judgment, to amend findings, and for other relief,
pursuant to Fed. R. Bankr. P. 9024, 7052. OVERVIEW: In
her motion, the debtor argued that the court did not follow applicable
case law. She also stated that she wanted to file her plan, and
submitted a plan of reorganization. The court treated her motion as one
to alter or amend findings under Fed. R. Bankr. P. 9023. The debtor
failed to show her entitlement to relief. First, she failed to present
any newly discovered evidence, but presented evidence that only
bolstered the testimony she offered at the hearing. Second, she did not
show that the court committed a manifest error of law or fact. The court
noted that she had the burden of proving that she filed her chapter 11
petition in good faith; that is, to show that her chances of
reorganizing were at least reasonably likely. The court held that she
did not do so at the hearing, and could not attempt to do something that
she should have done at trial, by now filing a plan. In re
Gleason, 2001 Bankr. LEXIS 1878, — B.R. — (Bankr.
N.D. Ill. December 20, 2001) (Ginsberg, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9023.01
Debtor’s appeal filed 23 days after
nondischargeability order deemed untimely. Bankr. N.D.
Iowa PROCEDURAL POSTURE: The court sua sponte set
a hearing regarding the timeliness of plaintiff debtor’s appeal
and defendant creditors filed a motion under to dismiss the
debtor’s appeal as untimely in the debtor’s action to
discharge the creditor’s claim under 11 U.S.C. § 523(a)(8).
The debtor claimed the court should have considered his notice of appeal
as a motion to extend the time for appeal under Fed. R. Bankr. P. 8002.
OVERVIEW: The debtor filed a complaint to discharge the
creditors’ claim. The court found that the claim was
nondischargeable. Approximately 23 days after the court entered its
order the debtor filed a pro se notice of appeal. The court sua sponte
set a hearing regarding the timeliness of the appeal and the creditors
filed a motion under to dismiss the appeal as untimely. The court held
that under Fed. R. Bankr. P. 8002(a) the notice of appeal had to be
filed within 10 days after the entry of the order and that the time
limit for filing a notice of appeal was mandatory and jurisdictional.
The court ruled that generally a late notice of appeal was not treated
as a motion for an extension of time to appeal under Rule 8002(c)(2).
The court declined to treat the notice of appeal as a motion to extend
the time and found that even if it had the debtor had failed to provide
a sufficient justification to the failure to file the notice of appeal
on time. The court held that inadvertence, ignorance of the rules, or
mistakes in construing the rules did not constitute excusable neglect.
The court granted the creditor’s motion and dismissed the appeal.
Beiwel v. Sallie Mae Servicing (In re Beiwel), 2001
Bankr. LEXIS 1879, — B.R. — (Bankr. N.D. Iowa June 12, 2002)
Collier on Bankruptcy, 15th Ed. Revised 10:8002.09
Creditor with disputed claim, adverse to other creditors,
held ineligible to vote for chapter 11 trustee or call for
trustee’s election. Bankr. C.D. Cal.
PROCEDURAL POSTURE: Debtor filed a petition for
bankruptcy under chapter 13. The court determined that debtor was
ineligible for chapter 13 and converted the case to chapter 7. An
interim trustee was appointed and at the first meeting of creditors,
creditor called for a contested election and voted for another
individual to become the permanent trustee. Creditor filed a motion to
certify the election of that individual as the permanent trustee.
OVERVIEW: The court found that creditor was asserting
herself to be both a secured and an unsecured creditor at the same time,
for the same claims, depending on the issue. For purposes of voting for
trustee, she asserted the unsecured status, however, in terms of
treatment in any distribution she argued that she was secured by
debtor’s real property. The court relied on the secured proofs of
claim creditor filed and her recorded abstracts of judgment, which made
her ineligible to vote. To the extent that creditor asserted that her
secured claims were subject to divestment as preferences and could be
deemed unsecured, they were not allowed. The court found it suspicious
that 3 of creditor’s 4 abstracts of judgment were recorded within
the 90-day pre-filing preference period. By virtue of this probable
preferential transfer, creditor held an interest which was materially
adverse to other creditors who did not receive preferences and did not
qualify under 11 U.S.C. § 702(a)(2). The outcome of the issues on
appeal were uncertain. For purposes of an election, creditor’s
claims were disputed.In re Williams, 2002 Bankr.
LEXIS 433, 277 B.R. 114 (Bankr. C.D. Cal. April 29, 2002) .
Collier on Bankruptcy, 15th Ed. Revised 6:702.03
Motor vehicle lien perfected within 20 day safe harbor provision of section 547(c)(3) was not an avoidable preference. Bankr. D. Kan. PROCEDURAL POSTURE: Defendant debtors filed a petition for relief under chapter 7 of the Bankruptcy Code. Plaintiff trustee filed an adversary complaint against the debtors and defendant creditor, seeking to avoid the creditor’s lien in the debtors’ vehicle as an alleged preference under 11 U.S.C. § 547(b). OVERVIEW: The debtors had purchased the vehicle in Oklahoma, but immediately brought the vehicle to Kansas where they lived. The trustee claimed that Kansas law governed the issue of perfection because only Kansas had issued a certificate of title for the vehicle. The trustee asserted that the creditor had perfected its lien within 90 days of the debtors’ bankruptcy filing. The creditor claimed that under Oklahoma law, it had perfected its lien within the 20-day safe harbor provision of 11 U.S.C. § 547(c)(3), and as a result, the trustee could not avoid the creditor’s lien in the vehicle. The court concluded that this multistate transaction fell within Kan. Stat. Ann. section 84-9-103(2)(c) (1996) and that the creditor was perfected under Oklahoma law when it delivered the required documents and fee to the motor license agent and received a lien receipt. The creditor then continuously reperfected under Kansas law when Kansas issued a certificate of title noting the creditor’s lien. The court agreed with the creditor that its perfected lien was within the 20-day safe harbor provision of section 547(c)(3). Morris v. GMAC (In re Ball), 2002 Bankr. LEXIS 851, 281 B.R. 706 (Bankr. D. Kan. August 7, 2002) (Nugent, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.04
Payment of car loan in full by debtor was necessary to protect nondebtor cosignor. Bankr. N.D. Ga. PROCEDURAL POSTURE: In a chapter 13 bankruptcy proceeding, the debtor proposed a plan for confirmation. Prior to the confirmation hearing, an undersecured creditor objected to its treatment under the plan. At the confirmation hearing, the chapter 13 trustee objected to the creditor’s proposed payment of the unsecured portion of its claim and the interest concurrently with the secured claims. The court considered conformation of the plan. OVERVIEW: The creditor had a security interest in the debtor’s vehicle. A nondebtor individual was also obligated on the debt. Though it had not appeared in the debtor’s plan, the debtor intended to pay the unsecured portion of the creditor’s claim in full and pay the contract rate of interest on the unsecured portion. This would avoid the creditor’s seeking payment from the nondebtor. The court found that the language of 11 U.S.C. § 1322(b)(1) created an exception to the unfair discrimination test in cases involving a co-signed debt. Thus, the debtor did not have to satisfy that test. Under 11 U.S.C. § 1301, to protect her co-signor from relief from the automatic stay, the debtor needed to pay her debt to the creditor in full, including postpetition interest on the unsecured portion of the debt. The court allowed the debtor to propose paying such interest in an amended plan. The court also found that, under 11 U.S.C. § 1322(b)(4), the creditor’s claim could be paid pro-rata along with the other secured claims. The debtor had the right to pay such an unsecured, co-signed debt, with interest, if she thought it in her best interest to do so. In re Monroe, 2002 Bankr. LEXIS 847, 281 B.R. 398 (Bankr. N.D. Ga. July 3, 2002) (Drake, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1301.01