Collier Bankruptcy Case Update September-29-03

Collier Bankruptcy Case Update September-29-03

 


Collier Bankruptcy Case Update

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

September 29, 2003

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

 

2nd Cir.

28 U.S.C. § 1334 Bankruptcy court erred in ruling that it lacked subject matter jurisdiction over debtor’s core dispute with creditors who had filed proofs of claim.
Hetra Computer & Commun Indus., Inc. v. Milligan (S.D.N.Y.)

3rd Cir.

§ 506(a) Debtor’s objection to creditor’s secured claim in automobile sustained on grounds that creditor had overvalued vehicle.
In re King (Bankr. E.D. Pa.)

§ 524(a)(2) Debtor’s spouse prohibited by discharge injunction from pursuing prepetition claim for equitable distribution due to failure to object.
Schorr v. Schorr (In re Schorr) (Bankr. W.D. Pa.)

Rule 9021 IRS was not entitled to entry of judgment where court’s earlier order determining secured status of claim had been a final order.
Basher v. United States (In re Basher) (Bankr. E.D. Pa.)


4th Cir.

§ 1112 Bankruptcy dismissed on grounds that debtor filed solely to disrupt foreclosure of property in which it no longer held any interest.
In re Joseph (Bankr. D. Md.)


5th Cir.

§ 1102 United States trustee acted arbitrarily and capriciously in refusing to remove member of unsecured creditors’ committee charged by debtor with breach of fiduciary duty.
In re Venturelink Holdings, Inc. (Bankr. N.D. Tex.)


6th Cir.

§ 502(b) Bankruptcy court erred in overruling debtor’s objections to proofs of claim filed by former spouse without allowing debtor to present evidence.
Morton v. Morton (In re Morton) (B.A.P. 6th Cir.)

§ 707(b) Filing by debtor with no dependents and substantial income was not substantial abuse due to recent job loss, lack of seniority at current job, large unsecured debt and reasonable expenses.
In re Keating (Bankr. E.D. Mich.)


7th Cir.

§ 707(b) Dismissal denied where debtors could have funded a chapter 13 plan but had filed in good faith and most other circumstances were heavily favored allowing chapter 7 petition.
In re Daubman (Bankr. C.D. Ill.)

Rule 8006 District court properly dismissed debtor’s appeal of nondischargeability determination due to failure to properly designate and compile record.
In re Dorner (7th Cir.)


8th Cir.

§ 362(h) Creditor’s postpetition electronic withdrawals from debtors’ bank account were willful violations of stay for which damages were appropriate.
In re Alcock (Bankr. N.D. Iowa)

§ 362(h) Postpetition collection phone calls that were threatening in nature violated discharge and were grounds for sanctions.
In re Goodfellow (Bankr. N.D. Iowa)

§ 522 Debtors were not entitled to amend exemptions due to bad faith in undervaluing home in schedules.
Bauer v. Iannacone (In re Bauer) (B.A.P. 8th Cir.)

§ 523(a)(8) Student loan debt discharged due to debtor’s lack of financial resources, inability to utilize law degree and serious mental disabilities.
Strand v. Sallie Mae Serv. Corp. (In re Strand) (Bankr. D. Minn.)


9th Cir.

§ 505(a) Bankruptcy court erred in ruling that it did not have subject matter jurisdiction to determine state tax liability when debtors’ state proceeding was pending at time of filing.
Mantz v. California State Bd. of Equalization (In re Mantz) (9th Cir.)

§ 541(c)(2) Debtor’s interest in pension plan was not property of the estate due to anti-alienation clause.
IRS v. Snyder (9th Cir.)


10th Cir.

§ 524 Collection of workers’ compensation overpayment violated discharge but overpayment could be recouped from future benefits.
City of Ft. Collins v. Gonzales (In re Gonzales) (Bankr. D. Colo.)


11th Cir.

§ 105 Bankruptcy court had authority to order IRS to receive and consider debtor’s offer in compromise.
Holmes v. United States (In re Holmes) (Bankr. M.D. Ga.)


 

Collier Bankruptcy Case Summaries

2nd Cir.

Bankruptcy court erred in ruling that it lacked subject matter jurisdiction over debtor’s core dispute with creditors who had filed proofs of claim. S.D.N.Y. PROCEDURAL POSTURE: A bankruptcy court denied appellant debtor’s motion to compel appellee creditors to comply with an earlier order of the court, finding that it did not have subject matter jurisdiction to enforce the previous order. The debtor appealed. The creditors cross-appealed challenging the bankruptcy court’s jurisdiction to issue the previous order. OVERVIEW: The bankruptcy court’s conclusion that it did not have subject matter jurisdiction over the underlying dispute was incorrect. Its conclusion was based on the mistaken belief that the creditors had not filed a claim against the estate regarding the underlying dispute. The creditors had filed proofs of claim in the debtor’s bankruptcy that raised issues identical to those raised against the debtor in the adversary proceeding. Thus, the bankruptcy court had “core” jurisdiction over the underlying dispute between the parties because the claims asserted by the creditors in their proofs of claim and the adversary proceeding requested the “allowance or disallowance of claims” against the debtor. By the incorporation of the settlement terms, the bankruptcy court retained jurisdiction over the underlying dispute. Thus, it had jurisdiction to hear both the creditors’ motion for contempt and the debtor’s motion to compel. The issues in the cross-appeal were rejected previously and could not be raised again. Hetra Computer & Commun Indus., Inc. v. Milligan, 2003 U.S. Dist. LEXIS 15882, — B.R. — (S.D.N.Y. September 12, 2003) (Cote, D.J.).

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

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3rd Cir.

Debtor’s objection to creditor’s secured claim in automobile sustained on grounds that creditor had overvalued vehicle. Bankr. E.D. Pa. PROCEDURAL POSTURE: Bankruptcy creditor filed a proof of claim asserting a lien against debtor’s automobile, and debtor object to the claim on the ground that creditor overvalued the vehicle and thus the secured claim should be reduced. OVERVIEW: Debtor sought a determination of the value of the vehicle, and thus creditor’s secured claim, for purposes of confirmation of debtor’s chapter 13 plan, and there was no dispute that creditor’s claim was only secured up to the value of the vehicle. Creditor contended that the vehicle should be valued as of the date debtor filed her bankruptcy petition, but debtor argued that the date of plan confirmation was the proper valuation date. The bankruptcy court held that, although the vehicle depreciated between the date of the petition and the date of plan confirmation, the valuation determination is made at or near the date of plan confirmation. The availability of adequate protection upon request of creditor was the statutory response to creditor’s claim of inequity in a plan confirmation valuation date, and fixing the value at confirmation would promote parity without regard to whether collateral appreciates or depreciates. In re King, 2003 Bankr. LEXIS 1133, — B.R. — (Bankr. E.D. Pa. September 2, 2003) (Sigmund, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:506.03 [back to top]

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Debtor’s spouse prohibited by discharge injunction from pursuing prepetition claim for equitable distribution due to failure to object. Bankr. W.D. Pa. PROCEDURAL POSTURE: Plaintiff debtor sought a determination that a request for equitable distribution of marital property which was made in their divorce proceeding by defendant, his estranged spouse, prior to the filing of the debtor’s bankruptcy petition constituted a “claim” for bankruptcy purposes. OVERVIEW: The debtor argued that the resultant “debt” was discharged when he received a bankruptcy discharge. The spouse denied that her request for equitable distribution qualified as a “claim” for bankruptcy purposes and insisted that no prepetition “debt” resulted which was affected by the discharge the debtor received. The court held that the spouse had “a right to payment” and therefore a “claim” when she requested equitable distribution of marital property prior to the filing of debtor’s bankruptcy petition. The court concluded that the spouse had an unliquidated, disputed and unsecured “claim” — i.e., “a right to payment” — for equitable distribution prior to the commencement of debtor’s chapter 7 bankruptcy case. The resultant prepetition “debt” owed by debtor was discharged in accordance with 11 U.S.C. § 727(a) when the spouse did not in accordance with 11 U.S.C. § 523(a)(15) object to its discharge prior to the bar date for doing so. As a consequence, defendant was prohibited by 11 U.S.C. § 524(a)(2) from continuing her pursuit of equitable distribution in the parties’ on-going divorce action in state court. Schorr v. Schorr (In re Schorr), 2003 Bankr. LEXIS 1087, — B.R. — (Bankr. W.D. Pa. September 5, 2003) (Markovitz, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:524.02[2] [back to top]

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IRS was not entitled to entry of judgment where court’s earlier order determining secured status of claim had been a final order. Bankr. E.D. Pa. PROCEDURAL POSTURE: Plaintiff debtor brought an adversary action to determine the secured status of the claim of defendant Internal Revenue Service. The court entered an order determining the secured status of the IRS claim. Having determined the means by which the debtor’s interest in a residence should have been valued, no further action was contemplated. The IRS moved for entry of judgment pursuant to Fed. R. Bankr. P. 9021 so that it could have appealed. OVERVIEW: The debtor took the position that the court’s order was the final order in the adversary action and that the time for appeal had therefore long passed. The IRS argued that the order was not final because it failed to liquidate the debtor’s interest in the residence to a final number. However, pursuant to the Forgay-Conrad doctrine or the practical finality rule, an order was final even if it did not reduce the damages to a sum certain if the order sufficiently disposed of the factual and legal issues and if any unresolved issues were sufficiently ministerial that there was no likelihood of further appeal. The court found that the methodology of determining the debtor’s interest in the residence, by reference to applicable actuarial tables, was so mechanical and uncontroversial so as to be a ministerial task. It was clear that the court simply did not consider it necessary to determine a final number. More importantly, nothing in the order indicated that the court would revisit the valuation of the residence in the adversary action. In short, upon entry of the order, there was simply nothing left for the court to do in the adversary action. As such, it was a final order. Basher v. United States (In re Basher), 2003 Bankr. LEXIS 1130, — B.R. — (Bankr. E.D. Pa. September 3, 2003) (Sigmund, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:9021.01 [back to top]

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4th Cir.

Bankruptcy dismissed on grounds that debtor filed solely to disrupt foreclosure of property in which it no longer held any interest. Bankr. D. Md. PROCEDURAL POSTURE: The United States trustee filed a motion to dismiss debtor’s chapter 11 case, arguing that the case was improperly filed for the sole purpose of disrupting foreclosure proceedings pending with respect to the debtor’s residence. The trustee claimed that the debtor no longer had any interest in the property that would have been subject to reorganization. OVERVIEW: The debtor’s residence had been sold at foreclosure, however, the debtor was the initial bid purchaser. The debtor defaulted as the bid purchaser, and the property was resold to a third-party. The bankruptcy court held that under Maryland law, the debtor retained no interest in the property as a result of the re-sale. The debtor asserted that on his default as the initial bid purchaser, there were rights either restored to the debtor as mortgagor or otherwise. This was incorrect. The debtor’s failure as the initial bid purchaser to pay the contract purchase price and thereby acquire legal title did not restore any rights to the debtor as mortgagor. The debtor also noted that he filed exceptions to ratification of the re-sale. However, the grant or denial of ratification of the re-sale would not have restored to the debtor any in rem interest in the property. Such a determination would solely have impacted the potential liability of the debtor for damages for failure to perform the first auction contract. In re Joseph, 2003 Bankr. LEXIS 1140, — B.R. — (Bankr. D. Md. August 20, 2003) (Keir, B.J.).

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

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5th Cir.

United States trustee acted arbitrarily and capriciously in refusing to remove member of unsecured creditors’ committee charged by debtor with breach of fiduciary duty. Bankr. N.D. Tex. PROCEDURAL POSTURE: Debtor and other entities (collectively, debtors) filed chapter 11 petitions. United States trustee appointed official unsecured creditors’ committee pursuant to 11 U.S.C. § 1102. Debtors requested that trustee remove one committee member, and others, based upon an alleged conflict of interest. Trustee declined and debtors filed a motion to remove committee member, and committee member opposed removal. OVERVIEW: Debtors asserted that committee member held a disqualifying conflict of interest. Committee member conceded that he received millions of dollars from debtors within two years of debtors’ demise, but denied that he committed a breach of fiduciary duty as asserted. The court found that with committee member’s exercise of his fiduciary duty at issue, he could not act as a fiduciary to the very creditors who would be ultimately, albeit derivatively, harmed if debtors were correct. Committee member could not discharge his functions with the unresolved taint of that type of litigation. The dispute implicated committee member’s fiduciary duty and his ability to honor his fiduciary duty to all unsecured creditors or the appearance of his ability to honor his fiduciary duty to all unsecured creditors. The court reviewed, pursuant to 11 U.S.C. § 105, trustee’s refusal to remove committee member that was appointed under 11 U.S.C. § 1102 and found that debtors established that United States trustee acted arbitrarily and capriciously in the refusal to remove committee member from the chapter 11 unsecured creditors’ committee. In re Venturelink Holdings, Inc., 2003 Bankr. LEXIS 1142, — B.R. — (Bankr. N.D. Tex. August 28, 2003) (Felsenthal, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1102.01 back to top]

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6th Cir.

Bankruptcy court erred in overruling debtor’s objections to proofs of claim filed by former spouse without allowing debtor to present evidence. B.A.P. 6th Cir. PROCEDURAL POSTURE: The Bankruptcy Court for the Northern District of Ohio overruled appellant chapter 13 debtor’s objection to several proofs of claim, based on a response filed by appellee, her estranged husband, whose bankruptcy had been dismissed. The debtor appealed, arguing that her husband did not have standing to file a response and that the bankruptcy court did not allow her to present evidence before it ruled on the objections. OVERVIEW: As the debtor forged her husband’s name to the petition and he was unaware it had been filed, the cases were severed; the husband’s case was dismissed on his motion. Debtor objected to nine claims on grounds that her husband, not she, was contractually obliged to pay these debts. The appellate panel held that the husband had standing to respond to the debtor’s objections, since as an ex-spouse with contingent liability on marital debts, he was clearly a “creditor” within the meaning of 11 U.S.C. § 101(10). The bankruptcy court erred by ruling that the debtor failed to meet her initial burden of establishing a colorable challenge to the proofs of claim. The debtor was not given a meaningful opportunity to challenge the claims, since after ruling that the husband had standing, the bankruptcy court ruled on the objections without giving the parties the opportunity to present evidence. The bankruptcy court erred in overruling the debtor’s objection to another claim on the basis that the objection, filed postconfirmation, was untimely; neither the Bankruptcy Code nor Bankruptcy Rules contained a bar date or deadline for filing objections to claims in a chapter 13 case. Morton v. Morton (In re Morton), 2003 Bankr. LEXIS 1136, — B.R. — (B.A.P. 6th Cir. September 12, 2003) (Aug, B.A.P.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:502.03 [back to top]

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Filing by debtor with no dependents and substantial income was not substantial abuse due to recent job loss, lack of seniority at current job, large unsecured debt and reasonable expenses. Bankr. E.D. Mich. PROCEDURAL POSTURE: The United States trustee moved to dismiss the debtor’s case pursuant to 11 U.S.C. § 707(b), alleging the case constituted a substantial abuse of the provisions of chapter 7, alleging the debtor had substantial income and had inflated his debts. The debtor argued his expenses were reasonable. OVERVIEW: The trustee asserted that the debtor earned $63,000 per year and had no dependants, and that he could have sufficient income over and above his reasonable expenses so that, had he filed a chapter 13 petition, the unsecured creditors would receive a meaningful dividend. The court considered the expenses, but found most of them reasonable. The court did disallow repayment of funds borrowed from the debtor’s 401(k) retirement plan and debtor’s ongoing contributions to the plan as expenses that could be deducted from income, and found that the debtor could set aside $7,848 to pay creditors over the three year period of a chapter 13 plan. However, the debtor had been laid off from one job, had no seniority at his current job, and had a total unsecured debt of $83,602. His filing of a chapter 7 case did not constitute substantial abuse. The Court did not find that the debtor acted dishonestly and was, in fact, needy.In re Keating, 2003 Bankr. LEXIS 1077, — B.R. — (Bankr. E.D. Mich. September 5, 2003) (McIvor, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:707.04
[back to top]

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7th Cir.

Dismissal denied where debtors could have funded a chapter 13 plan but had filed in good faith and most other circumstances were heavily favored allowing chapter 7 petition. Bankr. C.D. Ill. PROCEDURAL POSTURE: The United States trustee moved to dismiss the chapter 7 case filed by the debtors, a husband and wife, pursuant to 11 U.S.C. § 707(b). OVERVIEW: The debtors amended their schedules after the birth of their son. The trustee acknowledged that the amendment to the schedules was appropriate given the debtors’ failure to include expenses related to their baby. The expenses for food and clothing were higher than allowable, but the wife’s testimony was sincere that the claimed amounts were actually expended. There was no evidence that the debtors incurred cash advances, made luxury purchases, or made consumer purchases far in excess of their ability to repay. This was not a case where the debtors attempted to make their financial situation appear better or worse than it actually was. Both debtors enjoyed a stable source of future income. There was neither an allegation nor any evidence that the petition was not filed in good faith. The debtors were able to pay 69 percent of their unsecured debts in a three-year chapter 13 plan. However, that factor alone was not dispositive, and all but two of the other nine factors considered weighed in favor of the debtors. Given the presumption in favor of allowing the debtors to obtain relief under the chapter they chose, the court determined that the trustee’s motion should be denied. In re Daubman, 2003 Bankr. LEXIS 1132, — B.R. — (Bankr. C.D. Ill. September 2, 2003) (Perkins, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:707.04 [back to top]

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District court properly dismissed debtor’s appeal of nondischargeability determination due to failure to properly designate and compile record. 7th Cir. PROCEDURAL POSTURE: Appellant debtor sought review of a judgment from the District Court for the Eastern District of Wisconsin, which upheld the bankruptcy judge’s determination that certain indebtedness owed to the debtor’s former spouse was nondischargeable. OVERVIEW: The debtor, on appeal to the district court, filed a designation of items to be included in the record pursuant to Fed. R. Bankr. P. 8006. The court clerk transmitted only the notice of appeal, the bankruptcy judge’s opinion, and the docket sheet, in accordance with a local standing order. The debtor’s counsel was unaware that the designated evidentiary materials had not been transmitted. The district court dismissed the appeal and denied the debtor’s request to include the omitted materials in the debtor’s record on appeal from the dismissal order. The court observed that the district court’s standing order constituted improper rulemaking. The debtor, however, failed to file a motion in the appellate court to supplement the record under Fed. R. App. P. 10(e) and did not request that the district court’s decision be vacated and the appeal redetermined in the district court on the proper record. The debtor’s brief included only the bankruptcy judge’s opinion and judgment, in violation of 7th Cir. R. 30(a), which required every appellant to include with the brief a copy of the opinion and judgment in the district court. Consequently, the debtor could not obtain relief. In re Dorner, 2003 U.S. App. LEXIS 18854, — F.3d — (7th Cir. September 11, 2003) (Easterbrook, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:8006.01 [back to top]

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8th Cir.

District court properly dismissed debtor’s appeal of nondischargeability determination due to failure to properly designate and compile record. 7th Cir. PROCEDURAL POSTURE: Appellant debtor sought review of a judgment from the District Court for the Eastern District of Wisconsin, which upheld the bankruptcy judge’s determination that certain indebtedness owed to the debtor’s former spouse was nondischargeable. OVERVIEW: The debtor, on appeal to the district court, filed a designation of items to be included in the record pursuant to Fed. R. Bankr. P. 8006. The court clerk transmitted only the notice of appeal, the bankruptcy judge’s opinion, and the docket sheet, in accordance with a local standing order. The debtor’s counsel was unaware that the designated evidentiary materials had not been transmitted. The district court dismissed the appeal and denied the debtor’s request to include the omitted materials in the debtor’s record on appeal from the dismissal order. The court observed that the district court’s standing order constituted improper rulemaking. The debtor, however, failed to file a motion in the appellate court to supplement the record under Fed. R. App. P. 10(e) and did not request that the district court’s decision be vacated and the appeal redetermined in the district court on the proper record. The debtor’s brief included only the bankruptcy judge’s opinion and judgment, in violation of 7th Cir. R. 30(a), which required every appellant to include with the brief a copy of the opinion and judgment in the district court. Consequently, the debtor could not obtain relief. In re Dorner, 2003 U.S. App. LEXIS 18854, — F.3d — (7th Cir. September 11, 2003) (Easterbrook, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:8006.01 [back to top]

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Creditor’s postpetition electronic withdrawals from debtors’ bank account were willful violations of stay for which damages were appropriate. Bankr. N.D. Iowa PROCEDURAL POSTURE: Married debtors filed a chapter 7 petition. Debtors moved for the assessment of damages, pursuant to 11 U.S.C. § 362(h), against creditor for alleged violations of the automatic stay of 11 U.S.C. § 362(a). OVERVIEW: Debtors filed for bankruptcy and notified creditor about the bankruptcy filing and that creditor should no longer withdraw funds from their account. The court found that although creditor was aware of the bankruptcy proceeding, the automatic withdrawals from debtors’ bank account were executed twice. These withdrawals caused debtors’ bank account to become overdrawn, which led to insufficient fund checks and overdraft fees. The court found that creditor’s postpetition receipt of funds automatically withdrawn from debtors’ checking account was a violation of the automatic stay under 11 U.S.C. § 362(a). Creditor violated the automatic stay when it continued to electronically withdraw funds from debtor’s bank account when debtors had expressed no desire to reaffirm the debt. Debtors were injured by creditor’s willful violation of the stay and were entitled to damages, pursuant to 11 U.S.C. § 362(h), which included: (1) attorneys’ fees; (2) lost wages; (3) a reopening fee; and (4) overdraft charges. The court found that punitive damages were also appropriate given the facts of the case. In re Alcock, 2003 Bankr. LEXIS 1123, — B.R. — (Bankr. N.D. Iowa September 11, 2003) (Kilburg, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.11[3] [back to top]

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Debtors were not entitled to amend exemptions due to bad faith in undervaluing home in schedules. B.A.P. 8th Cir. PROCEDURAL POSTURE: Debtors appealed from the Bankruptcy Court for the District of Minnesota’s order granting the trustee’s objection to the debtor’s amendment of exemptions. OVERVIEW: The issues on appeal were whether the bankruptcy court erred in finding bad faith on the part of the debtors and whether it abused its discretion in disallowing the debtors’ attempt to amend their exemptions because of such bad faith. The trustee, as the objector, had the burden of establishing bad faith by a preponderance of the evidence. The bankruptcy court considered the evidence and determined that the debtors had acted in bad faith in listing the value of their home at $80,000 in February of 2002. In January of 2002, the Debtors had increased their homeowner’s insurance coverage on the residential structure to $276,000. Their residence was assessed at $203,000 for real property taxes for tax year 2002. Less than two months after filing their bankruptcy petition the debtors summarily rejected an offer to purchase their house “as is” for $150,000. The bankruptcy judge was in the ideal position to evaluate the veracity of the debtors as they testified at trial. The bankruptcy court’s conclusion was not clearly erroneous. The debtors were not truthful in their disclosures with respect to their home. Bauer v. Iannacone (In re Bauer), 2003 Bankr. LEXIS 1146, — B.R. — (B.A.P. 8th Cir. September 16, 2003) (Schermer, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:522.01 [back to top]

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Student loan debt discharged due to debtor’s lack of financial resources, inability to utilize law degree and serious mental disabilities. Bankr. D. Minn. PROCEDURAL POSTURE: Plaintiff debtor filed for bankruptcy and sought a determination that his student loan debt was dischargeable pursuant to 11 U.S.C. § 523(a)(8) and that the debt was therefore not excepted from the discharge granted in the main bankruptcy case under 11 U.S.C. § 727. OVERVIEW: Defendant creditor argued that the debtor never made a good faith attempt at repayment, that his claimed difficulties were inconsistent with his accomplishments, that excepting the debt from discharge would not constitute an undue hardship upon the debtor, and that in any event the federal income contingent repayment plan would eliminate any hardship. The court disagreed, finding that it would be an undue hardship to except the husband’s student loan debt from discharge: he never maintained reliable financial resources, he had no present financial resources, and the outlook on his future financial resources was bleak as he was never able to apply his legal education. Further, he had mental disabilities ranging from learning challenges to serious psychological problems. The court concluded that the husband’s prospects of ever earning enough to afford any meaningful payment on his student loan debt was hopeless. Contrary to the creditor’s argument, the court found that an income contingent repayment plan that allowed for a flexible payment and was dependent on the husband’s circumstances would still be an undue hardship pursuant to 11 U.S.C. § 523(a)(8). Strand v. Sallie Mae Serv. Corp. (In re Strand), 2003 Bankr. LEXIS 1121, — B.R. — (Bankr. D. Minn. September 11, 2003) (O’Brien, B.J.).

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

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9th Cir.

Bankruptcy court erred in ruling that it did not have subject matter jurisdiction to determine state tax liability when debtors’ state proceeding was pending at time of filing. 9th Cir. PROCEDURAL POSTURE: Appellants, debtors, filed for chapter 11 bankruptcy. Appellee, the California State Board of Equalization, filed a proof of claim, to which the debtors objected. The bankruptcy court found that it lacked subject matter jurisdiction under 11 U.S.C. § 505(a)(2)(A) to consider the objection because the amount of state tax liability had been adjudicated. The District Court for the District of Nevada affirmed. The debtors appealed. OVERVIEW: The Board issued a deficiency determination and asserted the debtors owed sales tax, interest, and penalties totaling over $1 million. The Board served the debtors with two notices of redetermination regarding the Final Action. The debtors protested the final result. Before the Board denied the motion for rehearing and before the decisions had become final under California law, the debtors filed for chapter 11 bankruptcy. The district court found that because the adjudication of state tax liability was rendered before the bankruptcy filing, the bankruptcy court lacked subject matter jurisdiction under 11 U.S.C. § 505. The appellate court found that 11 U.S.C. § 505(a)(2)(A) did not deprive the bankruptcy court of subject matter jurisdiction to determine the debtors’ state tax liability because the debtors’ state tax dispute was still pending before the Board when the debtors filed for bankruptcy. Because 11 U.S.C. § 505(a)(1) plainly authorized the bankruptcy court to determine the debtor’s tax liability whether or not previously adjudicated, the bankruptcy court was not required by 28 U.S.C. § 1738 to give preclusive effect to the Board’s state tax liability determination. Mantz v. California State Bd. of Equalization (In re Mantz), 2003 U.S. App. LEXIS 19072, — F.3d. — (9th Cir. September 16, 2003) (Fletcher, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:505.01 [back to top]

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Debtor’s interest in pension plan was not property of the estate due to anti-alienation clause. 9th Cir. PROCEDURAL POSTURE: In debtor’s bankruptcy proceeding under Bankruptcy Code chapter 13, creditor, the Internal Revenue Service, claims secured status by virtue of its tax liens on debtor’s interest in a pension plan. The bankruptcy court overruled debtor’s objection to the secured portion of the claim, and the United States District Court for the Northern District of California affirmed. Debtor appealed. OVERVIEW: In debtor’s bankruptcy proceedings, creditor claimed a secured interest in debtor’s pension plan qualified under Employee Retirement Income Security Act of 1974 (“ERISA”), 26 U.S.C. § 401 et seq., 29 U.S.C. § 1001 et seq. The court held that the claim was not secured within the meaning of 11 U.S.C. § 506(a) because debtor’s interest in the plan was excluded from the bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2). The court rejected creditor’s argument that despite the plan’s anti-alienation clause the debtor’s interest should be treated as property of the bankruptcy estate for the limited purpose of securing creditor’s claim. Under section 541 the identity of a creditor did not determine whether an asset was treated as property of the bankruptcy estate. Rather the issue was whether the anti-alienation clause prevented the transfer of debtor’s interest in the pension to the bankruptcy estate. The clause was enforceable under nonbankruptcy law against everyone except creditor. The court held that such was enough to prevent the transfer of debtor’s interest in the plan to the bankruptcy estate; hence, it could not be used to secure creditor’s claim under 11 U.S.C. § 506(a). IRS v. Snyder, 2003 U.S. App. LEXIS 18998, — F.3d — (9th Cir. September 15, 2003) (Fletcher, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:541.07 [back to top]

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10th Cir.

Collection of workers’ compensation overpayment violated discharge but overpayment could be recouped from future benefits. Bankr. D. Colo. PROCEDURAL POSTURE: Movant creditor originally moved for relief from stay, which became moot once respondent debtor was granted a discharge. However, the bankruptcy court allowed the matter to proceed as one to determine whether the creditor’s proposed action would have constituted a violation of the discharge injunction, 11 U.S.C. § 524. The creditor sought to recoup its overpayments of workers’ compensation benefits from future benefit payments to the debtor. OVERVIEW: Under Colorado law, the creditor (the debtor’s former employer) was entitled to adjust the amount of workers’ compensation benefits it paid once the debtor received Social Security disability income benefits. The bankruptcy court first noted that the creditor did not seek a determination from that any portion of the prepetition overpayment should have been excepted from discharge pursuant to 11 U.S.C. § 523. Thus, any personal liability which the debtor may have had for a prepetition overpayment was discharged and the creditor was foreclosed from seeking an order of repayment under Colo. Rev. Stat. § 8-42-113.5(1)(c). Regarding recoupment from future benefits, the debtor’s workers’ compensation claim was a single integrated transaction that generated both the creditor’s obligation to pay benefits and the alleged overpayment. Accordingly, the creditor had a right to pursue an administrative action to determine whether an overpayment occurred and to recoup that overpayment from the debtor’s future benefits. Finally, the bankruptcy court rejected the debtor’s argument that the creditor was attempting to collect on behalf of its long term disability insurer. City of Ft. Collins v. Gonzales (In re Gonzales), 2003 Bankr. LEXIS 1091, — B.R. — (Bankr. D. Colo. August 29, 2003) (Tallman, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:524.01[back to top]

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11th Cir.

Bankruptcy court had authority to order IRS to receive and consider debtor’s offer in compromise. Bankr. M.D. Ga. PROCEDURAL POSTURE: In a chapter 11 bankruptcy proceeding, the debtor filed an amendment to a motion to determine tax liability and objection to a federal tax claim. OVERVIEW: The debtor owned a large amount of stock in a company that developed financial problems. When the stock decreased in value, most of the debtor’s stock was sold as a result of margin calls. The sales of the debtor’s stock resulted in substantial federal income tax obligations, which he was unable to pay. The debtor filed bankruptcy and proposed selling his primary asset, which was land, through a chapter 11 plan of liquidation. The federal government refused to consider the debtor’s offer in compromise, made pursuant to I.R.C. § 7122, while bankruptcy proceedings were pending. The debtor contended that such refusal violated 11 U.S.C. § 525(a), which protected debtors from discrimination based on their bankruptcy status. The court held that consideration of an offer in compromise was not among the categories of governmental activities contemplated by section 525(a); hence, no violation occurred. The court concluded, however, that it had authority under 11 U.S.C. § 105 and case law to order the government to receive and consider a bankrupt taxpayer’s offer in compromise where such an order was necessary and appropriate to carry out Congress’ intent. Holmes v. United States (In re Holmes), 2003 Bankr. LEXIS 1135, — B.R. — (Bankr. M.D. Ga. September 12, 2003) (Hershner, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:105.01 [back to top]

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