Collier Bankruptcy Case Update January-21-01
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West's Bankruptcy Newsletter
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Updates
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.
January 21, 2001
CASES IN THIS ISSUE
(scroll down to read the full summary)1st Cir.
ß 362(d) Order denying motion for relief from stay was a final, appealable order.
Banc of America Commercial Fin. Corp. v. CGE Shattuck (In re Shattuck) (B.A.P. 1st Cir.)ß 503(b) Chapter 7 trustee ordered to pay real estate taxes out of estate funds as administrative expense.
Mailman Steam Carpet Cleaning, Inc. v. Salem (In re Mailman Steam Carpet Cleaning, Inc.) (Bankr. D. Mass.)ß 507(a)(3) Creditor had independent duty to pay wage claimants.
In re Aurora Graphics, Inc. (Bankr. D.N.H.)ß 523(a)(8) Debtor failed to establish undue hardship.
Dolan v. American Student Assistance (In re Dolan) (Bankr. D. Mass.)
2d Cir.
ß 362(d) Court did not err in lifting stay to prevent detriment to investor creditor body.
Marine Midland Bank v. Breeden (In re Bennett Funding Group) (N.D.N.Y.)ß 362(d) Bad faith filing warranted relief from stay.
In re Eclair Bakery Ltd. (Bankr. S.D.N.Y.)ß 505(a)(1) Court declined to review city assessment’s review board’s postpetition real property tax assessment.
In re Railroad Street P’ship (Bankr. N.D.N.Y.)ß 548(a)(1)(B) Court denied motion to dismiss complaint to avoid property transfer made pursuant to Connecticut judgment of strict foreclosure.
Chorches v. Fleet Mortgage Corp. (In re Fitzgerald) (Bankr. D. Conn.) 013041ß 707(a) Motion to dismiss was denied.
In re Rodriguez (Bankr. S.D.N.Y.) 013045
3d Cir.
ß 523(a)(4) Administrator of deceased’s estate established debtor’s fiduciary fraud or defalcation based on state (Pennsylvania) court decision.
Corestates Asset Mgmt. v. Kohler (In re Kohler) (Bankr. E.D. Pa.)
5th Cir.
ß 727(a)(2) Debtor’s discharge denied due to fraudulent transfer, removal, destruction, mutilation, and concealment of estate property.
Cottonport Bank v. Reason (In re Reason) (Bankr. W.D. La.)ß 727(a)(3) Discharge denied for debtors’ failure to maintain financial records.
McDonough v. Sigust (In re Sigust) (Bankr. W.D. La.)
6th Cir.
ß 105(a) Protective order issued to limit trustee’s release of debtor’s business records to third parties.
In re Lufkin (Bankr. E.D. Tenn.)ß 365(b) Lessor could not recover attorney’s fees in connection with debtor’s attempt to assume lease.
In re Mid American Oil, Inc. (Bankr. M.D. Tenn.)ß 522(b)(2)(A) Husband and wife debtors could claim exemption for cash value of life insurance policies as owners/insureds but not as beneficiaries.
In re Olien (Bankr. E.D. Tenn.)ß 522(b)(2)(A) Debtor denied claimed exemption in payments from ex-husband’s retirement plan.
In re Thurman (Bankr. M.D. Tenn.)
7th Cir.
ß 362(d) Debtor’s lack of equity in property and failure to propose a feasible plan was basis to modify stay in favor of mortgagee.
In re Robinson (Bankr. N.D. Ill.)ß 502(b)(9) Amended proof of claim was allowed.
In re McNichols (Bankr. N.D. Ill.)ß 523(a)(2)(A) Creditor’s motion for summary judgment was granted.
Herbstein v. Bruetman (In re Bruetman) (Bankr. N.D. Ill.)ß 523(a)(5) Cost of educating children was in the nature of support.
Gatliff v. Gatliff (In re Gatliff) (Bankr. N.D. Ill.)ß 547(b)(4) Transfer deemed to occur outside the preference period of section 547(b).
Solow v. Kachavos (In re Geo Contrs., Inc.) (Bankr. N.D. Ill.)ß 1322(b)(1) Separate classification of co-debtor claim was not allowed.
In re McNichols (Bankr. N.D. Ill.)
8th Cir.
ß 727(a)(2) Debtor’s failure to disclose transfers of assets led to finding of fraudulent intent.
Johnson v. Baldridge (In re Baldridge) (Bankr. E.D. Ark.) 013047ß 1112(b) Finding of bad faith alone was sufficient cause for dismissal.
Cedar Shore Resort, Inc. v. Mueller (In re Mueller) (8th Cir.)
9th Cir.
ß 101(5) Bondholders were not creditors.
In re Ritter Ranch Dev. (B.A.P. 9th Cir.)ß 523(a)(2)(A) Court held that homeowners’ association was required to prove all elements of common law fraud.
Turtle Rock Meadows Homeowners Ass’n v. Slyman (In re Slyman) (9th Cir.)ß 523(a)(8) Student loan was discharged.
Turretto v. United States (In re Turretto) (Bankr. N.D. Cal.)ß 523(a)(8) Debtors failed to prove undue hardship resulting from student loan repayment.
Weil v. U.S. Bank, N.A. (In re Weil) (Bankr. D. Idaho)ß 1141(a) Confirmed plan precluded claimed homestead exemption.
In re Wolfberg (B.A.P. 9th Cir.)Rule 1019(2) Property remained exempt after conversion.
In re Smith (C.D. Cal.)
Collier Bankruptcy Case Summaries
1st Cir.
Order denying motion for relief from stay was a final, appealable order. B.A.P. 1st Cir. A bank appealed a bankruptcy court order that denied its motion for relief from the automatic stay, ordered the debtor to continue making adequate protection payments, and authorized the bank to seek relief from the automatic stay without a hearing if the debtor failed to make adequate protection payments or obtain approval of a disclosure statement by a stated date. The debtor moved to dismiss the appeal on the ground that the order appealed from was not a final order. The First Circuit B.A.P. denied the debtor’s motion to dismiss the appeal and held that the order appealed from was a final order for purposes of appellate review. The B.A.P. agreed with the bank that a substantial body of federal case law supported the conclusion that the grant or denial of a motion for relief from the automatic stay was a final order. The B.A.P. analogized the grant or denial of relief from the automatic stay to the granting or lifting of a preliminary injunction and noted that Congress has specifically directed that orders granting or denying preliminary injunctions be deemed final for purposes of appellate review of district court orders.Banc of America Commercial Fin. Corp. v. CGE Shattuck (In re Shattuck), 2000 Bankr. LEXIS 1500, – B.R. – (B.A.P. 1st Cir. December 1, 2000) (Boroff, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07
Chapter 7 trustee ordered to pay real estate taxes out of estate funds as administrative expense. Bankr. D. Mass. The chapter 7 debtor filed a complaint against the trustee seeking an order requiring the trustee to pay real estate taxes on certain property. The debtor argued that the taxes were payable from the date of conversion of the debtor’s case from chapter 11 to chapter 7 through the date that the property was abandoned by the trustee and that the payment should be made out of estate funds as an administrative expense. The debtor claimed that payment of the taxes from estate funds as an administrative expense payment was warranted because the property was under the exclusive dominion of the trustee from the time the debtor’s case was converted to chapter 7, and the trustee’s role eliminated the debtor’s ability to use, rent or convey the property. The trustee argued that because the property was of no value or benefit to the estate, the taxes should not be paid from estate funds. The bankruptcy court entered judgment in favor of the debtor and ordered the trustee to pay the real estate taxes at issue from estate funds. The court found that during the time that the tax bill accrued, the trustee had ample time to review the value of the property and, if appropriate, abandon it. The court stated that the trustee’s failure to put forth at trial any reasonable explanation for his delay in disposing of the property was essential to its determination, as it refused to burden the debtor with a postpetition tax debt resulting from the trustee’s actions (citing Collier on Bankruptcy 15th Ed. Revised).Mailman Steam Carpet Cleaning, Inc. v. Salem (In re Mailman Steam Carpet Cleaning, Inc.), 2000 Bankr. LEXIS 1505, – B.R. – (Bankr. D. Mass. December 13, 2000) (Rosenthal, B.J).
Collier on Bankruptcy, 15th Ed. Revised 4:503.07[2][b]
Creditor had independent duty to pay wage claimants. Bankr. D.N.H. Prior to the debtor’s chapter 7 filing, the debtor entered into a professional employer services agreement with a creditor. Under the agreement, the creditor paid certain employees’ wage and/or benefit claims and obtained an assignment for each of the claims. The creditor paid some of the claims and obtained assignments for those claims according to the agreement postpetition. Based on those assignments, the creditor asserted a priority claim in the debtor’s chapter 7 case under section 507(a)(3). The chapter 7 trustee objected to the claim. The trustee argued that pursuant to the parties’ agreement, the creditor was, in fact, an employer of the wage claimants with an independent duty to pay them and, thus, there was no consideration for the assignment. The bankruptcy court sustained the trustee’s objection. The court agreed with the trustee that under the terms of the agreement, the creditor had an obligation to pay the employees’ wages and could not stand in the employees’ shoes as a section 507(a)(3) priority creditor. The court concluded that a reasonable interpretation of the entire agreement led to a finding that the creditor was at least a co-employer of the employees and was obligated to pay wages.In re Aurora Graphics, Inc., 2000 Bankr. LEXIS 1497, – B.R. – (Bankr. D.N.H. November 22, 2000) (Vaughn, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.05
Debtor failed to establish undue hardship. Bankr. D. Mass. The chapter 7 debtor sought a determination as to the dischargeability of various student loan obligations. The bankruptcy court held that with the exception of his claims against two defendants against whom judgments were entered by default, the debtor failed to meet his burden of proving that repaying his student loans would cause him and his dependents undue hardship as required by section 523(a)(8). The court expressly adopted the totality of the circumstances approach to deciding section 523(a)(8) cases and stated that in order to establish undue hardship, a debtor must prove by a preponderance of the evidence that his past, present, and reasonably reliable future financial resources, his and his dependents’ reasonably necessary living expenses, and other relevant facts or circumstances particular to the debtor’s case are such that excepting the student loans from discharge will prevent the debtor from maintaining a minimal standard of living, even with the advantage of a discharge of his other pre-petition debts. The court applied the well settled principle that the income of a non-debtor spouse must be considered when deciding whether, in the court’s discretion, excepting a debtor’s student loans from discharge will impose an undue hardship on the debtor. However, the court refused to consider interests that the debtor might have had under a trust or will in deciding the undue hardship issue. Finally, despite its holding that the debtor’s student loans were nondischargeable, the court urged the parties work together in good faith to arrive at repayment plans that would not burden the debtor for the remainder of his existence.Dolan v. American Student Assistance (In re Dolan), 2000 Bankr. LEXIS 1502, – B.R. – (Bankr. D. Mass. December 12, 2000) (Rosenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
2d Cir.
Court did not err in lifting stay to prevent detriment to investor creditor body. N.D.N.Y. The chapter 11 debtors were a series of financial and investment institutions whose primary business was the multilateral leasing of office equipment. In a typical transaction, the debtors would purchase office equipment from a vendor, who would deliver the equipment to an end-user who in turn would promise to make periodic lease payments to the debtors. The debtor would then pledge or assign its lease in the underlying equipment or lease proceeds to other investors in exchange for cash. The debtor obtained its profit because of the interest rate spread between the rates an end-user paid on the lease and the effective interest rate paid to the investors. As the debtors struggled to maintain liquidity, it allegedly began pledging and repledging multiple and fictitious leases to various investors. Finally, the debtors filed a chapter 11 petition. Approximately 245 banks claimed to have perfected security interests in the equipment and leases that constituted a large portion of the debtor’s estate. The banks attempted to lift the automatic stay resulted in the bankruptcy court’s ruling that financing statements were sufficient to perfect the banks’ security interest in the underlying leases and lease payments. Twenty-two banks entered a stipulation with the chapter 11 trustee for a consolidated hearing on their motions for relief from the stay, resulting in a decision which largely restated the court’s previous holding that the banks had perfected security interests in both the underlying chattel paper and identifiable postpetition payments flowing from it. Both the banks and the trustee appealed various aspects of these decisions. The trustee argued that the court abused its discretion in deciding to lift the stay. The district court held that the bankruptcy court had not erred in lifting the stay. The district court reasoned that the debtors did not have any intent to reorganize utilizing the lease payments and because the banks were in danger of having their secured claims increase to the detriment of the investor creditor body.Marine Midland Bank v. Breeden (In re Bennett Funding Group), 2000 U.S. Dist. LEXIS 17783, – B.R. – (N.D.N.Y. November 29, 2000) (Kahn, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07[4]
Bad faith filing warranted relief from stay. Bankr. S.D.N.Y. The chapter 11 debtor’s landlord moved for an order granting relief from the automatic stay to remove the debtor from possession of the leased premises. The landlord had secured a state (New York) court eviction order against another entity owned by the debtor’s principal, which had been barred from filing bankruptcy in another district on bad faith grounds. The other entity assigned all of its assets and liabilities to the debtor on the date that the eviction warrant expired and the debtor filed for bankruptcy the following day. The bankruptcy court granted the motion for relief, holding that the calculated effort by the debtor to circumvent the earlier bankruptcy court order and the bad faith filing of the petition provided cause to grant relief from the automatic stay. The court noted that characteristics of the 'new debtor syndrome' were apparent in that the new entity was formed only for the purpose of filing a petition and the only creditor affected was threatening foreclosure.In re Eclair Bakery Ltd., 2000 Bankr. LEXIS 1495, – B.R. – (Bankr. S.D.N.Y. November 9, 2000) (Gerber, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07[6][a]
Court declined to review city assessment’s review board’s postpetition real property tax assessment. Bankr. N.D.N.Y. The debtor moved before the bankruptcy court for a determination of its tax liability for the 2000/2001 year on two parcels of realty located within a city. The city objected to the motion on the grounds that in accordance with the state’s (New York’s) real property tax law, the city’s assessment review board had already determined the debtor’s tax liability. The court noted that since the hearing before the city’s assessment review board occurred postpetition, the court had discretion to redetermine the amount of the debtor’s tax liability pursuant to section 505(a)(1). The court further noted the following factors for consideration in determining whether to make such a redetermination: the complexity of the tax issue; the need to administer the case in an expeditious fashion; the burden on the bankruptcy court’s docket; the length of time necessary to conduct the hearing and to render a decision thereafter; the asset and liability structure of the debtor; and the potential prejudice to the debtor, the taxing authority, and creditors. Under the circumstances presented, the court held that uniformity of assessment was of significant importance, and a determination of the debtor’s tax liability by it pursuant to section 505(a)(1) would be unwarranted and inappropriate.In re Railroad Street P’ship, 2000 Bankr. LEXIS 1506, – B.R. – (Bankr. N.D.N.Y. November 27, 2000) (Gerling, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:505.01
Court denied motion to dismiss complaint to avoid property transfer made pursuant to Connecticut judgment of strict foreclosure. Bankr. D. Conn. Mortgagees moved to dismiss a complaint filed against them by the chapter 7 trustee. The complaint sought to avoid the transfer to the mortgagees of the debtor’s interest in certain real property that was made pursuant to a strict foreclosure under state (Connecticut) law. The trustee’s complaint asserted that because the value of the property exceeded the mortgage debt, the vesting of absolute title to the property in the mortgagees was a transfer of the debtor’s interest for less than reasonably equivalent value within the meaning of section 548(a)(1)(B). The mortgagees argued that the trustee’s complaint failed to state a claim upon which relief could be granted. The courtrejected the mortgagees’ argument that the state court’s judgment of strict foreclosure necessarily determined that the debtor did not have substantial equity in the property and that this determination was sufficiently similar to the reasonably equivalent value inquiry mandated by section 548(a)(1)(B) so as to be determinative of that issue under principles of res judicata and collateral estoppel. Chorches v. Fleet Mortgage Corp. (In re Fitzgerald), 2000 Bankr. LEXIS 1514, – B.R. – (Bankr. D. Conn. December 13, 2000) (Weil, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:548.05
Motion to dismiss was denied. Bankr. S.D.N.Y. The chapter 7 trustee moved for an order dismissing the case due to the debtor’s failure to appear for his section 341 examination. The meeting was adjourned, at the request of the debtor’s counsel on two separate occasions and the debtor failed to appear at the subsequent hearings. The debtor never attended a meeting of creditors and received his discharge. The bankruptcy court denied the motion to dismiss, holding that it was inappropriate to dismiss the case based on the debtor’s lack of cooperation after the debtor had received a discharge. Because a dismissal would not revoke the discharge order, such a result would only benefit the debtor. The court instead directed the trustee to seek an order authorizing an examination of the debtor pursuant to Rule 2004.In re Rodriguez, 2000 Bankr. LEXIS 1494, – B.R. – (Bankr. S.D.N.Y. October 25, 2000) (Gerber, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.03
3d Cir.
Administrator of deceased’s estate established debtor’s fiduciary fraud or defalcation based on state (Pennsylvania) court decision. Bankr. E.D. Pa. The administrator of a deceased individual’s estate filed a complaint seeking a determination that the debtor’s obligation to the individual was nondischargeable under section 523(a)(4). The bankruptcy court entered judgment in favor of the administrator, and held that the administrator met its burden of establishing that the debt arose from the debtor’s fraud or defalcation while acting in a fiduciary capacity. The court agreed with the administrator that the confidential relationship a state (Pennsylvania) court found to exist between the debtor and the deceased satisfied the requirements for determining whether the debtor acted in a fiduciary capacity for purposes of section 523(a)(4). The court noted the state court’s clear findings that a continuing relationship of trust existed between the debtor and the deceased, that this relationship of trust existed prior to and irrespective of wrongdoing committed by the debtor, that a trust res or property existed with respect to which the debtor was accountable to others, and that fiduciary duties existed which were over and above those that normally exist in an arm’s length commercial relationship (citing Collier on Bankruptcy 15th Ed. Revised).Corestates Asset Mgmt. v. Kohler (In re Kohler), 2000 Bankr. LEXIS 1498, – B.R. – (Bankr. E.D. Pa. December 8, 2000) (Twardowski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.10
5th Cir.
Debtor’s discharge denied due to fraudulent transfer, removal, destruction, mutilation, and concealment of estate property. Bankr. W.D. La. A secured creditor commenced an adversary proceeding against the chapter 7 debtor seeking an order denying the debtor’s discharge. The bankruptcy court held that the bank was entitled to judgment denying the debtor’s discharge under section 727(a)(2)(A). The court noted that every single explanation given by the debtor for the loss of his assets was contradicted by other witnesses and found that the debtor failed to satisfactorily explain the loss of his assets or contradict evidence of his actual intent to hinder, delay, and defraud the bank by transferring, removing, destroying, mutilating, and concealing property of the estate. The court found that the debtor’s actions, concealing collateral by disposing of inventory at a garage sale, 'stripping' a motorcycle, removing fixtures from his residence, and removing a building from his yard despite express warning, were an attempt to extract retribution from the bank for what the debtor apparently perceived as injuries inflicted by the bank and that the debtor’s explanations for these actions were simply not credible (citing Collier on Bankruptcy 15th Ed. Revised).Cottonport Bank v. Reason (In re Reason), 2000 Bankr. LEXIS 1496, – B.R. – (Bankr. W.D. La. September 29, 2000) (Hunter, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.02
Discharge denied for debtors’ failure to maintain financial records. Bankr. W.D. La. A creditor objected to the chapter 7 debtor’s discharge under section 727(a)(3). The bankruptcy court noted the purpose of section 727(a)(3), which is to ensure complete and accurate information concerning the status of debtors’ affairs and financial history and to test the completeness of the disclosure requirements. The court then explained that the creditor had the initial burden of establishing the inadequacy of the debtors’ records; thereafter, the burden shifted to the debtors to prove that their failure to keep records was justified under the circumstances. The court found no justification for the debtors’ failure to maintain financial records and sustained the creditor’s objection to the debtors’ discharge. The court noted that despite having an MBA degree and working in national security and highly technical fields, the debtor husband failed to keep even the most rudimentary records, other than copies of tax returns. The court explained that without such records, the trustee and creditors were at a loss to review transactions including the refinancing of the debtors’ residence, to determine the disposition of pension funds that the debtors received, or to explain any routine financial transactions. The court also found that amended schedules filed post-trial by the debtors served only to further demonstrate their reckless indifference to the truth and their intent to deceive (citing Collier on Bankruptcy 15th Ed. Revised).McDonough v. Sigust (In re Sigust), 2000 Bankr. LEXIS 1501, – B.R. – (Bankr. W.D. La. September 19, 2000) (Hunter, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.03
6th Cir.
Protective order issued to limit trustee’s release of debtor’s business records to third parties. Bankr. E.D. Tenn. Debtor unsuccessfully moved to quash the trustee’s subpoena, arguing that the subpoena was a subterfuge to grant government officers warrantless access to his business records. The debtor, an attorney, then filed a motion seeking a protective order to limit the trustee’s release of documents subpoenaed from a state (Tennessee) court receiver. The bankruptcy court said that it had denied the debtor’s initial request for a protective order because the trustee’s interest in obtaining the records outweighed the debtor’s Fourth Amendment concerns. The bankruptcy court noted that the analysis in its prior order did not extend to any other parties and held that the trustee was not authorized to allow any third parties to have access to the debtor’s business records without prior order of the court or in response to a search warrant or subpoena issued by another court. In re Lufkin, 2000 Bankr. LEXIS 1394, – B.R. – (Bankr. E.D. Tenn. November 2, 2000) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105.03
Lessor could not recover attorney’s fees in connection with debtor’s attempt to assume lease. Bankr. M.D. Tenn. A lessor sought attorney’s fees in connection with the debtor’s attempt to assume a lease at one of its retail convenient store locations. The lessor argued that the terms of the parties’ lease required the debtor to pay attorney’s fees incurred to enforce the lease’s provisions. The debtor argued that no defaults existed under the lease and that no attorney’s fees were due. The bankruptcy court held that although the lease allowed recovery of attorney’s fees in certain instances, the contract’s attorney’s fee provision did not permit the lessor to recover attorney’s fees from the debtor under the circumstances presented. The court acknowledged that under section 365(b)(1)(B), attorney’s fees incurred in attempting to collect sums due from a debtor following a default may be recovered as pecuniary loss if such sums are expended as the result of a default under the contract or lease between the parties and are recoverable under the contract and applicable state law. However, the court held that section 365(b)(1)(B) does not provide an independent basis for recovery of attorney’s fees.In re Mid American Oil, Inc., 2000 Bankr. LEXIS 1510, – B.R. – (Bankr. M.D. Tenn. June 13, 2000) (Paine, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.05
Husband and wife debtors could claim exemption for cash value of life insurance policies as owners/insureds but not as beneficiaries. Bankr. E.D. Tenn. The chapter 7 trustee objected to the joint husband and wife debtors’ claim of exemption, under state (Tennessee) law, for the cash value of three life insurance policies. Two of the policies were owned by the wife, named the wife as the insured, and named the husband as the primary beneficiary. The third policy was owned by the husband, named the husband as the insured, and named the wife as the primary beneficiary. The trustee acknowledged that the cash value of each policy was exempt from creditors of the insured debtor/policy owner but argued that the exemption did not apply to the creditors of the beneficiary/debtor spouse. The bankruptcy court held that the debtors, as policy owners, were entitled to exempt the cash values of the policies, but the debtors, as beneficiaries, could not claim any exemption in the policies under state law. However, the debtors, as beneficiaries, had no legal or equitable interest in the cash value of any of the policies, and the policies were not a part of either beneficiary’s estate.In re Olien, 2000 Bankr. LEXIS 1504, – B.R. – (Bankr. E.D. Tenn. December 5, 2000) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10
Debtor denied claimed exemption in payments from ex-husband’s retirement plan. Bankr. M.D. Tenn. The chapter 7 trustee objected to a state (Tennessee) law exemption claimed by the debtor for payments to be received from her ex-husband’s 401K/retirement plan. The debtor argued that she was entitled to exempt the proceeds as payments for which an exemption could be claimed under the state (Tennessee) exemption statute. The debtor also claimed that she was entitled to the claimed exemption because the parties intended that the payments would constitute retirement funds for them both. Finally, the debtor argued that the payments were alimony or support and therefore completely exempt. The trustee argued that the payments were proceeds from a divorce settlement and did not qualify for the state law exemption. The bankruptcy court agreed, and sustained the trustee’s objection. The court held that the debtor’s exemption for its right to receive the payments under the state exemption statute did not include the right to receive the payments from a divorce settlement, litigation settlement or other contract right. In addition, the court was unpersuaded by the debtor’s contention that the parties intended the payments to constitute their joint retirement funds and stated that even if this was what the parties intended, the statutory exemption scheme was clear and the funds could only be claimed exempt in a limited amount under another exemption statute. Finally, because no proof was offered on the debtor’s claim that the payments were alimony or support, the court could not allow an exemption in the funds on that basis.In re Thurman, 2000 Bankr. LEXIS 1509, – B.R. – (Bankr. M.D. Tenn. November 28, 2000) (Paine, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10
7th Cir.
Debtor’s lack of equity in property and failure to propose a feasible plan was basis to modify stay in favor of mortgagee. Bankr. N.D. Ill. The debtor entered into mortgage agreements with an entity that thereafter transferred its rights to the creditor. The debtor filed a chapter 11 petition in January 2000. The creditor filed proofs of claim for amounts under the two mortgages. No objections to these claims were filed, although the parties disagreed as to whether the amount of the indebtedness exceeded the value of the properties. The creditor filed a motion seeking relief from the automatic stay under section 362(d)(2), which provided for relief from the stay if the debtor did not have equity in property and such property was not necessary to an effective reorganization. The bankruptcy court modified the stay, finding that the indebtedness exceeded the established value of the property, and there was serious doubt that the chapter 11 plan had a realistic chance of being confirmed, since the debtor failed to provide sufficient evidence to show that funding is available to render the plan feasible. The court concluded that the elements of section 362(d)(2) were thereby satisfied.In re Robinson, 2000 Bankr. LEXIS 1433, – B.R. – (Bankr. N.D. Ill. December 7, 2000) (Sonderby, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07[4]
Amended proof of claim was allowed. Bankr. N.D. Ill. The chapter 13 debtor filed a motion to alter or amend the bankruptcy court’s memorandum opinion, which denied confirmation of the debtor’s third amended plan of reorganization, dismissed the chapter 13 case with prejudice and barred the debtor from filing another bankruptcy case for one year. The debtor had filed a secured proof of claim on behalf of a creditor. The creditor then filed an amended proof of claim which asserted a secured and an unsecured component. The debtor argued that the unsecured portion of the creditor’s claim was filed late and should have been deemed disallowed. The bankruptcy court rejected the debtor’s argument, holding that the creditor’s amended proof of claim related back to the secured proof of claim filed timely on its behalf by the debtor. The court noted that even if it were to find the amended proof of claim was filed late, it would exercise its broad equitable powers to permit the claim.In re McNichols, 2000 Bankr. LEXIS 1478, – B.R. – (Bankr. N.D. Ill. December 14, 2000) (Squires, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.03[10][d]
Creditor’s motion for summary judgment was granted. Bankr. N.D. Ill. The creditor moved for summary judgment on an adversary proceeding against the chapter 7 debtor, alleging the debt was nondischargeable under section 523(a)(2)(A). The creditor argued that due to the entry of a default judgment by the district (New York) court, the doctrine of collateral estoppel applied and precluded the debtor from contesting the nondischargeability of the debt. The district court action established that the debtor induced the creditor to invest money by asserting that the money would be used as part of a business, that the debtor never credited the creditor with all of his capital contributions and never intended to, that the debtor obtained the investment from the creditor for the purpose of misappropriating the money for his own purposes and that the creditor justifiably relied on the debtor’s false representations. The bankruptcy court granted summary judgment for the creditor, holding that the allegations which were deemed established by the district court judgment were sufficient to meet the elements required under section 523(a)(2)(A). Herbstein v. Bruetman (In re Bruetman), 2000 Bankr. LEXIS 1476, – B.R. – (Bankr. N.D. Ill. December 12, 2000) (Schmetterer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08[1]
Cost of educating children was in the nature of support. Bankr. N.D. Ill. The former spouse of the debtor filed a complaint to determine the dischargeability of debts owed to her pursuant to the parties’ divorce decree. The divorce decree provided for the debtor to reimburse his ex-wife for their children’s private school tuition because she had made all the payments for the children’s high school education. The debtor argued that the debt was a property settlement and must be considered under section 523(a)(15). The bankruptcy court granted judgment for the former spouse, holding that the debt for tuition reimbursement was in the nature of support within the purview of section 523(a)(5) and was nondischargeable.Gatliff v. Gatliff (In re Gatliff), 2000 Bankr. LEXIS 1477, – B.R. – (Bankr. N.D. Ill. December 13, 2000) (Schmetterer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.11
Transfer deemed to occur outside the preference period of section 547(b). Bankr. N.D. Ill. The chapter 7 trustee filed an adversary proceeding against the father of the debtor corporation’s sole owners and officers, alleging that a payment on an antecedent debt was a voidable preference. The owners argued that, because the transfer occurred on December 5, 1997 and the petition was filed on December 11, 1998, dates whose accuracy was unrebutted, the transfer was not within the one year preference period set forth in section 547(b). The bankruptcy court held that the transfer was outside the statutory period and that the trustee failed to prove all requisite elements of section 547(b).Solow v. Kachavos (In re Geo Contrs., Inc.), 2000 Bankr. LEXIS 1432, (Bankr. N.D. Ill. December 5, 2000) (Squires, B.J.) (for electronic publication only).
Collier on Bankruptcy, 15th Ed. Revised 5:547.03[6]
Separate classification of co-debtor claim was not allowed. Bankr. N.D. Ill. The chapter 13 debtor filed a motion to alter or amend the bankruptcy court’s memorandum opinion, which denied confirmation of the debtor’s third amended plan of reorganization, dismissed the chapter 13 case with prejudice and barred the debtor from filing another bankruptcy case for one year. The debtor argued that the court erred in holding that section 1322(b)(1), which provided that a plan could not discriminate unfairly against a class of unsecured claims, barred any special treatment of her co-debtor claim. The court had previously held that because the debtor’s non-filing spouse could afford to pay any remaining amount of the joint unsecured debt, no disparate treatment was appropriate. The bankruptcy court denied the debtor’s motion to amend its opinion, holding that it was not error to apply the unfair discrimination standard to the separate classification of the co-signed consumer debt. The court noted a split of authority on the issue and concluded that simply because the Code allowed the debtor to treat co-debtor claims differently from other unsecured claims did not mean such treatment could discriminate unfairly against the other unsecured creditors.In re McNichols, 2000 Bankr. LEXIS 1478, – B.R. – (Bankr. N.D. Ill. December 14, 2000) (Squires, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.05[1]
8th Cir.
Debtor’s failure to disclose transfers of assets led to finding of fraudulent intent. Bankr. E.D. Ark. The chapter 7 debtor acquired real property and immediately deeded the property to his spouse. When the debtor filed his petition, the real property was not listed on the schedules, although the debtor listed a monthly mortgage payment as a household debt. The debtor also claimed to own no real property, but listed real estate tax expenses on his schedules. The debtor also listed income of $50 per week from employment by his spouse’s business, although he was entitled to between $400 and $600 for the work he performed. The debtor transferred a vehicle to which he held title to the spouse’s corporation, which then purchased a new truck for his use. Neither the sale of the debtor’s vehicle nor any ownership interest in any vehicle was listed on his schedules. The bankruptcy court denied the debtor’s discharge pursuant to section 727(a)(2). The court found that the debtor’s failure to come forward with credible explanations for transactions, the lack of candor with the court, the transfers to his spouse, combined with the fact that the debtor continued to live off the income secreted or derived from the transferred property, led to the conclusion that the transfers were fraudulently intended to shield assets from creditors. Johnson v. Baldridge (In re Baldridge), 2000 Bankr. LEXIS 1431, – B.R. – (Bankr. E.D. Ark. November 30, 2000) (Scott, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.02
Finding of bad faith alone was sufficient cause for dismissal. 8th Cir. The debtor operated a resort facility. After several misfortunes, including fire, flooding and an explosion, the debtor encountered financial difficulties and restructured a loan agreement with one of its creditors. Thereafter, two shareholders brought an action in state (Maryland) court against the debtor, alleging minority shareholder oppression, waste, mismanagement, breach of fiduciary duty and tortious interference. The debtor’s board of directors held a meeting to discuss its response to the lawsuit and finally decided to file a chapter 11 petition. Its attorney decided that the shareholders’ claims were derivative. The debtor entered into a settlement agreement with its officers, director and management company under which the debtor was to release its claims against the other parties in exchange for their promise not to seek indemnification from it. The shareholders opposed the settlement agreement and moved to dismiss the petition as being filed in bad faith. The bankruptcy court found that the debtor’s primary motivation in filing chapter 11 was to protect itself from the shareholder action and dismissed the petition for bad faith under section 1112(b). The court reasoned that, despite the financial setbacks, the debtor seemed headed for profit in 2000 and that creditors were apparently satisfied with payment arrangements. The debtor appealed, and the district court affirmed, finding that the bankruptcy court did not err in determining that the debtor had filed the petition to settle the shareholder lawsuit. The debtor again appealed, arguing that the bankruptcy court had erred in finding bad faith, and in dismissing the petition even though the resort was capable of proposing a confirmable reorganization plan. The Court of Appeals for the Eighth Circuit affirmed, holding that the evidence supported the finding that the debtor did not file the petition to effectuate a valid reorganization, but rather to prevent the shareholders from pursuing their state court claims. The Court of Appeals also ruled that a chapter 11 petition could be dismissed for bad faith alone, regardless of the possibility of successful reorganization (citing Collier on Bankruptcy 15th Ed. Revised). Cedar Shore Resort, Inc. v. Mueller (In re Mueller), 2000 U.S. App. LEXIS 31565, – F.3d. – (8th Cir. December 13, 2000) (Murphy, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1112.04[5]
9th Cir.
Bondholders were not creditors. B.A.P. 9th Cir. The chapter 11 debtor sought a declaratory judgment that holders of community development bonds were creditors in the case. The city had issued the bonds to finance development and construction of public facilities on the debtor’s property. The bondholders had no rights against the city’s funds other than the special tax revenues and accounts and could not accelerate the indebtedness, bring an action against the debtor or foreclose on the property. The bankruptcy court entered judgment dismissing the claim for declaratory relief and the debtor appealed. The B.A.P. affirmed, holding that neither the Code nor public policy justified treating the bondholders as creditors of the debtor. The B.A.P. recognized that section 101(5) broadly defined a claim, however, the public policy of encouraging development through bond financing outweighed the debtor’s need for relief.In re Ritter Ranch Dev., 2000 Bankr. LEXIS 1482, – B.R. – (B.A.P. 9th Cir. November 29, 2000) (Montali, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:101.05
Court held that homeowners’ association was required to prove all elements of common law fraud. 9th Cir. The chapter 7 debtor became delinquent in paying homeowners’ dues on a residence managed by the creditor, who thereafter obtained a state (California) court default judgment for the amount owing. The debtor then filed a chapter 7 petition. After the debtor failed to appear for an adjourned creditors’ meeting, the bankruptcy court dismissed the petition. The creditor then obtained a writ of execution and scheduled a foreclosure sale on the residence. But the debtor prevented the sale by paying the marshal $5,383.67. The debtor then filed a motion requesting the bankruptcy court to vacate its order of dismissal, which was granted, and the creditor filed an adversary proceeding alleging nondischargeability on several grounds, principally that the debtor had obtained the creditor’s services under false pretenses, pursuant to section 523(a)(2)(A). The creditor predicated its false pretenses claim on the debtor’s 1990 transfer of the residence to his sister and his sister’s 1992 transfer to another individual, alleging that it was forced to conduct multiple lawsuits against multiple titleholders when in fact the debtor was the actual party in interest. The bankruptcy court granted summary judgment in the debtor’s favor on the section 523(a)(2)(A) claim, reasoning that the creditor failed to show that it had provided the services in justifiable reliance on the debtor’s representations or conduct, or that the creditor suffered actual detriment as a result of its reliance. The creditor appealed to the B.A.P., arguing that it had adequately demonstrated nondischargeability and that the court improperly allocated a portion of the debtor’s payment to the marshal to forestall foreclosure to satisfy the debtor’s postpetition debt. The B.A.P. affirmed, and this second appeal followed. The creditor argued that it was not required to satisfy all elements of a section 523(a)(2)(A) claim because transactions between homeowners and homeowners’ associations were like those between credit card holders and credit card companies, thereby invoking a totality of circumstances test. The Court of Appeals for the Ninth Circuit affirmed, holding that a homeowners’ association must meet all elements of common law fraud and that the creditor failed to demonstrate that it provided services in reliance upon the debtor’s deceptive conduct. Turtle Rock Meadows Homeowners Ass’n v. Slyman (In re Slyman), 2000 U.S. App. LEXIS 31374, – F.3d. – (9th Cir. December 12, 2000) (Tallman, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08[1]
Student loan was discharged. Bankr. N.D. Cal. The chapter 7 debtor filed an adversary proceeding seeking discharge of a government-insured student loan under section 523(a)(8). The debtor never graduated from the eighth grade and the loan was incurred for a basic computer skills course. The debtor’s work history was unstable, she shared the support of her three children with her ex-husband and lived in a house owned by her father for below-market rent. The bankruptcy court found the debt dischargeable, holding that a failure to discharge the student loan debt would have placed an undue hardship on the debtor by placing her in a situation where she would be unable to maintain a minimum standard of living. The creditor conceded that the debtor had an inability to maintain a minimal standard of living while repaying the loan and had made a good faith effort to repay the loan. The court further found that additional circumstances existed indicating that the debtor’s state of affairs would persist over the life of the loan repayment period.Turretto v. United States (In re Turretto), 2000 Bankr. LEXIS 1484, – B.R. – (Bankr. N.D. Cal. October 12, 2000) (Weissbrodt, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14[2]
Debtors failed to prove undue hardship resulting from student loan repayment. Bankr. D. Idaho The chapter 7 debtors filed an adversary proceeding seeking to discharge several student loans. One co-debtor earned a net monthly salary of $1,696. The other co-debtor was only employed as a substitute teacher, earning approximately $65 per month and claimed that he was otherwise unable to find suitable employment. Their monthly expenses were scheduled as $2,004 per month. The debtors were both about 50 years old and their student loans, if repaid in full, would be satisfied when the debtors reached 75 years of age. The bankruptcy court ruled that the debtors had failed to meet the three elements, established by precedent, of undue hardship. The court ruled that the debtors met the first element, namely that they were unable to maintain a minimal standard of living if required to repay the loans, but went on to hold that the second codebtor’s failure to ameliorate his employment situation did not establish the remaining two elements, namely that the debtors’ circumstances were not likely to change, and the debtors acted in good faith.Weil v. U.S. Bank, N.A. (In re Weil), 2000 Bankr. LEXIS 1462, – B.R. – (Bankr. D. Idaho June 29, 2000) (Pappas, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14[2]
Confirmed plan precluded claimed homestead exemption. B.A.P. 9th Cir. The chapter 11 trustee appealed the bankruptcy court’s order overruling the trustee’s objection to the debtors’ claim of a homestead exemption. The debtors did not claim an exemption in their home prior to the confirmation of their plan and the plan provided that creditors would be paid with the proceeds of the sale of the home. After the trustee sold the home, the debtors sought to amend their schedules to claim an exemption in a portion of the proceeds. The bankruptcy court ruled that the confirmed plan did not preclude the debtors from claiming the homestead exemption. The B.A.P. reversed, holding that the debtors were barred under the doctrine of res judicata from claiming a homestead exemption in light of the confirmed plan. The court noted that if the debtors had intended to claim an exemption in the primary asset being used to fund the plan, they should have done so before the plan was confirmed. Once the plan was confirmed, that plan was binding on them just as it was binding on their creditors, and they could not later attempt to exempt assets represented in the plan and disclosure statement to be non-exempt.In re Wolfberg, 2000 Bankr. LEXIS 1480, – B.R. – (B.A.P. 9th Cir. November 30, 2000) (Perris, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1141.02
Property remained exempt after conversion. C.D. Cal. The chapter 7 debtor appealed the district court’s order affirming the bankruptcy court’s decision which denied his effort to exempt from his estate property that he characterized as a private retirement plan. Although a meeting of creditors was convened and adjourned without further notice during the pendency of the debtor’s chapter 11 case, no subsequent meeting took place. Eight months later, the creditors objected to the debtor’s exemption and the bankruptcy court sustained the objection. The case was subsequently converted to chapter 7, another meeting of creditors was convened and the creditors and trustee objected to the exemption within 30 days of the continued meeting of creditors. The bankruptcy court entered an order sustaining the objections, which was affirmed by the district court. The Court of Appeals for the Ninth Circuit reversed, holding that the conversion to chapter 7 did not begin a new 30-day period for objections under Rule 4003(b). The court noted that because the chapter 11 trustee missed the 30-day deadline for rescheduling the creditors’ meeting, the meeting was concluded, and the subsequent objection to the exemption was untimely. The property was exempted and vested in the debtor upon the creditors’ failure to timely object (citing Collier on Bankruptcy, 15th Ed. Revised).In re Smith, 2000 U.S. App. LEXIS 33134, – F.3d – (C.D. Cal. December 19, 2000) (Reinhardt, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 9:1019.04