Collier Bankruptcy Case Update April-9-01
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
April 9, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
§ 523(a)(8) Debtor’s circumstances warranted discharge of student loan obligation.
Gotay v. Educational Credit Management Corp. (In re Gotay) (Bankr. D. Mass.) 042029
2d Cir.
§ 327(a) Prepetition creditor did not qualify for employment as debtor’s accountant.
United States Trustee v. Andover Togs, Inc. (In re Andover Togs, Inc.) (S.D.N.Y.) 042004§ 523(a)(8) Student Loan obligation was not dischargeable.
Thoms v. Educational Credit Management Corp. (In re Thoms) (Bankr. S.D.N.Y.) 042030§ 523(a)(15) Debtor who made payments toward pension plan, student loans, and personal loan failed to demonstrate inability to pay divorce obligation.
Foto v. Foto (In re Foto) (Bankr. S.D.N.Y.) 042034§ 525(a) District court reversed bankruptcy court order that lifted stay and allowed landlord to evict debtor from publicly subsidized apartment.
Stoltz v. Brattleboro Housing Auth. (D. Vt.) 042035§ 1101(2) Substantial consummation occurred, precluding appeal of plan confirmation order.
In re Home Holdings, Inc. (S.D.N.Y.) 042042§ 1325(b) Pension contributions made by payroll deduction were not part of disposable income if determined to be reasonably necessary.
The New York City Employees’ Retirement System v. Sapir (In re De Ann Taylor) (2d Cir.) 04204528 U.S.C. § 158 Noncreditor did not have standing to appeal chapter 11 plan confirmation.
In re Home Holdings, Inc. (S.D.N.Y.) 042049
3d Cir.
§ 523(a)(6) Creditor denied summary judgment on motion seeking determination that sanctions imposed against debtors by state court were nondischargeable.
Mortgage Capital Advisors, Inc. v. Hawkins (In re Hawkins) (Bankr. D. Del.) 042028§ 553 Related entities who entered into prepetition dealer agreements with chapter 11 debtors had rights of recoupment and setoff.
In re Telephone Warehouse, Inc. (Bankr. D. Del.) 042039§ 553(a) IRS was allowed to set off refund.
In re Haizlett (Bankr. W.D. Pa.) 042040
4th Cir.
§ 365(d)(10) Lessor of vehicles to debtor in possession was entitled to an rent payments for the period beginning 60 days postpetition until surrender.
In re D.M. Kaye & Sons Transp. (Bankr. D.S.C.) 042011
5th Cir.
§ 363(a) Bankruptcy court order that granted debtor’s motion for permission to use rents affirmed.
In re Dimitri (E.D. La.) 042009§ 506(c) Court of Appeals held that bankruptcy court erred in not hearing creditor’s objection to imposition of surcharge.
TNB Financial, Inc. v. James F. Parker Interests (In re Grimland, Inc.) (5th Cir.) 042014§ 507(a)(8) Income tax assessment not discharged where assessment was not made before, but was assessable after, commencement of the debtor’s case.
Waugh v. IRS (In re Waugh) (N.D. Tex.) 042015§ 522(f) Mississippi creditor’s construction lien was statutory lien that could not be avoided by chapter 7 debtors.
In re Mitchell (Bankr. N.D. Miss.) 042018
6th Cir.
§ 329(a) Failure to disclose compensation was basis for denial of fee allowance.
In re Campbell (Bankr. N.D. Ohio) 042005§ 523(a)(2)(A) Debt for bounced checks was nondischargeable.
Mellon Bank, N.A. v. Vitanovich (In re Vitanovich) (B.A.P. 6th Cir.) 042023§ 523(a)(8) Debtor asserted defense, but failed to present evidence, of undue hardship.
United States of America v. Totzkay (In re Totzkay) (W.D. Mich.) 042031
7th Cir.
§ 523(a)(2)(A) Purchaser of building who possessed inspection report could not claim misrepresentation regarding the number of units available for condominium use.
Bletnitsky v. Jairath (In re Jairath) (Bankr. N.D. Ill.) 042024§ 523(a)(2)(A) Default judgment based on RICO charges had collateral estoppel effect on dischargeability action.
Herbstein v. Bruetman (In re Bruetman) (Bankr. N.D. Ill.) 042025
8th Cir.
§ 522(b)(2)(B) Joint tenant was entitled to full homestead exemption.
Abernathy v. LaBarge (In re Abernathy) (B.A.P. 8th Cir.) 042017§ 523(a)(8) Debtor’s lack of good faith was not relevant to student loan dischargeability determination.
Crowley v. United States Department of Education (In re Crowley) (Bankr. W.D. Mo.) 04203228 U.S.C. § 157 Rooker-Feldman doctrine did not bar bankruptcy court from determining fraudulent transferee’s ownership interest in proceeds from sale of painting.
Blackwell v. Lurie (In re Popkin & Stern) (B.A.P. 8th Cir.) 04204628 U.S.C. § 158(d) Order approving reorganization plan affirmed over debtors’ objections to valuation.
Northwest Village Ltd. Partnership v. Franke (In re Westpointe) (8th Cir.) 042050
9th Cir.
§ 522(b)(2)(A) Debtor properly claimed retirement account exempt.
In re Atwood (B.A.P. E.D. CAL.) 042016§ 522(l) Trustee’s objection to exemptions was untimely despite the failure to conclude the section 341(a).
In re Blethen (B.A.P. C.D. CAL.) 042020
10th Cir.
§ 330(a)(1) After remand, chapter 7 trustee was still entitled to three million dollars in fees.
Connolly v. Harris Trust Co. (In re Miniscribe Corp.) (Bankr. D. Colo.) 042006
11th Cir.
§ 105(a) Bankruptcy court was authorized to extend time sua sponte for objections to debtor’s exemptions.
In re Booth (Bankr. M.D. Fla.) 042002§ 350(b) Motion to reopen was denied.
In re Graves (Bankr. N.D. Ala.) 042008§ 523(a)(5) Remand required for determination of intent.
Cummings v. Cummings ( MISSING S.D. FLA.) 042027
Collier Bankruptcy Case Summaries
1st Cir.
Debtor’s circumstances warranted discharge of student loan obligation. Bankr. D. Mass. The fifty year old chapter 7 debtor, raising her emotionally disturbed grandson, earned gross income of less than $20,000 per year and had to relinquish her second job in order to care for her grandson. Her student loan obligations were incurred not for her own education but for her sons’ education. When the debtor sought a determination that the student loan debts were dischargeable, the bankruptcy court held that the debtor’s straightened circumstances were unlikely to improve so that an undue hardship existed. Applying the totality of the circumstances test, there was no likelihood that her ability to repay the loans would increase, she was barely surviving on the income she received, and all of her funds were necessary to support herself and her grandson.Gotay v. Educational Credit Management Corp. (In re Gotay), 2001 Bankr. LEXIS 188, – B.R. – (Bankr. D. Mass. February 27, 2001) (Rosenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
2nd Cir.
Prepetition creditor did not qualify for employment as debtor’s accountant. S.D.N.Y. Prior to filing a chapter 11 petition, the debtor retained an accounting firm to complete an audit in connection with a required 10K filing with the SEC. As a result of the auditing work, the debtor incurred a prepetition unsecured debt in the amount of $126,331. After the chapter 11 filing, the debtor filed an application seeking to employ the same firm as accountants to finish the auditing work it had already substantially completed. The firm advised the debtor that the cost of completing the audit would be approximately $15,000. The other creditors did not object but the United States Trustee filed an objection, arguing that pursuant to section 327(a) the firm, as a prepetition creditor, could not be retained by the debtor. The debtor argued that the cost of hiring another accounting firm would have been approximately $100,000 since a new firm would not have been able to utilize the work already performed. The bankruptcy court approved the retention of the firm, providing a limited exception to section 327(a), and permitted the firm to serve as accountants for the purpose of completing the audit. The court reasoned that although the firm was not disinterested, it did not hold any interest adverse to the estate. The United States Trustee appealed the retention order.The district court reversed, holding that the bankruptcy court had erred in authorizing the retention. The district court found that, in light of section 327(a)’s clear prohibition against retention of disinterested professionals, it could not extend to the accounting firm the express exception given to attorneys under section 327(e) (citing Collier on Bankruptcy, 15th Ed.).United States Trustee v. Andover Togs, Inc. (In re Andover Togs, Inc.), 2001 U.S. Dist. LEXIS 2690, – B.R. – (S.D.N.Y. March 13, 2001) (Batts, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:327.04
Student Loan obligation was not dischargeable. Bankr. S.D.N.Y. The chapter 7 debtor obtained 14 loans to fund her masters degree, but, over a 9 year period of time, paid less than $700 on the obligation. After filing her chapter 7 petition, she sought a determination that the debt was dischargeable based upon an undue hardship. Applying the Brunner test, Brunner v. N.Y. Higher Educ. Serv., 46 B.R. 752 (S.D.N.Y. 195), aff’d, 831 F.3d 395 (2d Cir. 1987), the bankruptcy court held that payment of the student loan obligation did not impose an undue hardship upon the debtor or a dependent of the debtor. The debtor had a current ability to pay and yet maintain a minimal standard of living since, under the most liberal analysis, she had $550 per month available to pay toward the obligation. Her future ability to pay would substantially increase after she ceased supporting her adult siblings. Finally, there was a lack of good faith effort to repay since she failed to explore alternatives with the lender, had made no effort to seek child support, and made no attempt to pay the obligation after earning her master’s degree.Thoms v. Educational Credit Management Corp. (In re Thoms), 2001 Bankr. LEXIS 199, – B.R. – (Bankr. S.D.N.Y. January 5, 2001) (Gonzalez, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
Debtor who made payments toward pension plan, student loans, and personal loan failed to demonstrate inability to pay divorce obligation. Bankr. S.D.N.Y. The creditor obtained a judgment of divorce against the debtor and received an award for child support, maintenance, and a distributive award payable over 20 years at the rate of approximately $17,700 per year. The debtor, a medical doctor, never made a voluntary payment toward any of those obligations. The debtor came to cohabit with an individual whose yearly income was approximately $100,000 and began a private medical practice in addition to his hospital employment. After the debtor filed a chapter 7 petition, the creditor commenced an adversary proceeding to determine the dischargeability of the obligations under the divorce judgment. The creditor contended that: (1) the income of the individual with whom the debtor cohabited should be factored into the computation of disposable income, and that (2) certain items of the debtor’s scheduled expenditure were questionable, such as pension plan payments, student loan payments, unexplained credit card charges and repayment of a personal loan to the debtor’s sister. The debtor argued that he did not have the ability to pay his obligations to the creditor, pursuant to section 523(a)(15). The bankruptcy court followed the majority opinion that the income of the individual with whom the debtor resided should be factored into the determination of the debtor’s ability to pay. The court went on to hold that the debtor did not sustain his burden of proving an inability to pay within the meaning of section 523(a)(15). The court found that the debtor had used substantial amounts of funds for other purposes which he could have chosen to allocate to the obligations to the creditor, such as the payments to his sister, to student loan obligations, and to contributions toward the pension plan.Foto v. Foto (In re Foto), 2000 Bankr. LEXIS 1696, – B.R. – (Bankr. S.D.N.Y. June 20, 2000) (Hardin, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.21
District court reversed bankruptcy court order that lifted stay and allowed landlord to evict debtor from publicly subsidized apartment. D. Vt. In a case that was converted from chapter 13 to chapter 7, the debtor appealed from a bankruptcy court order that lifted the automatic stay and allowed her landlord to evict her from her publicly subsidized apartment. The debtor challenged the bankruptcy court’s order on grounds that the bankruptcy judge erroneously construed the effect of the section 525 antidiscrimination provision to the facts of her case. The district court vacated the bankruptcy court’s order and reinstated the automatic stay. The court held that the bankruptcy court erred in finding that section 525(a) worked only to protect public housing debtor/tenants’ rights to access subsidized housing in the future. The district court based its decision on precedent and legislative, and its conclusion that the real consequences of the bankruptcy court’s limited reading of section 525 were too detrimental to the debtor’s ability to survive, let alone to begin afresh, to permit the bankruptcy court’s order to stand.Stoltz v. Brattleboro Housing Auth., 2001 U.S. Dist. LEXIS 2560, – B.R. – (D. Vt. February 14, 2001) (Murtha, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:525.02[5]
Substantial consummation occurred, precluding appeal of plan confirmation order. S.D.N.Y. The chapter 11 debtor holding company owned an insurance company and a land development company, and filed the chapter 11 petition in order to resolve the financial difficulties of its insurance company. The bankruptcy court, with some reservation, permitted a policy holder to intervene to contest the impact of the chapter 11 plan upon the insurance company. The chapter 11 plan provisions providing for releases of liability and exchange of assets and tax benefits were confirmed as essential to the formulation and implementation of the plan. The district court affirmed and dismissed the appeal, holding that substantial consummation occurred on the effective date of the plan because on that date, securities were issued, a $15.2 million settlement was executed, a $21 million cash distribution was made, and ownership of the insurance company was transferred (citing Collier on Bankruptcy, 15th Ed. Revised).In re Home Holdings, Inc., 2001 U.S. Dist. LEXIS 2797, – B.R. – (S.D.N.Y. March 13, 2001) (Batts, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1101.02
Pension contributions made by payroll deduction were not part of disposable income if determined to be reasonably necessary. 2d Cir. The chapter 13 debtor, a city (New York) employee, was a member of a retirement plan in the public sector. According to the debtor’s schedules, a monthly amount was deducted from her salary and placed into the retirement plan. The chapter 13 trustee objected, arguing that the debtor’s pension contributions were not reasonably necessary expenses and needed to be included in her disposable income. Pursuant to the trustee’s objection, the debtor filed a motion in bankruptcy court requesting a termination of the payroll deduction for the duration of the chapter 13 plan. The retirement system objected to the debtor’s motion on the grounds that state (New York) statutes required certain public employees to participate in the retirement plan and contribute to the fund. Because of this mandate, the retirement system argued that the pension contributions were reasonably necessary expenses that could not be included as disposable income in the chapter 13 plan. The court held that pension withholdings from a chapter 13 debtor’s salary were disposable income and thus must be included in the plan. The retirement system appealed to the district court, which affirmed. The court relied on the fact that the debtor would not be terminated from employment if she failed to make the contributions. This second appeal followed. The Court of Appeals for the Second Circuit reversed and remanded. The court held that the issue hinged on whether or not pension contributions were reasonably necessary for the debtor, the determination of which must be made by examining a range of factors, including: the age of the debtor and the amount of time until retirement; the amount of the monthly contributions and the total amount of contributions the debtor would have to buy back if payments were discontinued; the likelihood that the buy-back payments would jeopardize the debtor’s fresh start; and, the number and nature of dependents. The Court of Appeals remanded for the determination of the reasonably necessary inquiry.The New York City Employees’ Retirement System v. Sapir (In re De Ann Taylor), 2001 U.S. App. LEXIS 4125, – F.3d. – (2d Cir. March 20, 2001) (Patterson, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.08[4]
Noncreditor did not have standing to appeal chapter 11 plan confirmation. S.D.N.Y. The chapter 11 debtor holding company owned an insurance company and a land development company, and filed the chapter 11 petition in order to resolve the financial difficulties of its insurance company. The bankruptcy court, with some reservation, permitted a policy holder to intervene to contest the impact of the chapter 11 plan upon the insurance company. The chapter 11 plan provisions providing for releases of liability and exchange of assets and tax benefits were confirmed as essential to the formulation and implementation of the plan. The bankruptcy court denied a stay pending appeal of the confirmation order, as did the district court. Reaching the merits of the appeal, the district court affirmed and dismissed the appeal, holding that the policy holder was not pecuniarily affected and, thus, had no standing to appeal the confirmation order. Each of the policy holder’s arguments that he was pecuniarily affected were analyzed and dismissed. Moreover, the fact that the state (New Hampshire) department of insurance approved the plan undermined the policy holder’s arguments. Finally, inasmuch as the plan had been substantially consummated and unraveling the transactions completed would undermine the reorganization, the appeal was moot. The court rejected the argument that if a bankruptcy court lacks jurisdiction over the subject matter, the appellate court may not cannot dismiss the appeal as moot (citing Collier on Bankruptcy, 15th Ed. Revised).In re Home Holdings, Inc., 2001 U.S. Dist. LEXIS 2797, – B.R. – (S.D.N.Y. March 13, 2001) (Batts, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:5.06; 10:8005.02
3rd Cir.
Creditor denied summary judgment on motion seeking determination that sanctions imposed against debtors by state court were nondischargeable. Bankr. D. Del. A judgment creditor moved for summary judgment on its complaint seeking a determination that an award of monetary sanctions imposed against the chapter 7 debtors by a state (Delaware) court (plus interest, attorneys’ fees and costs) was nondischargeable under section 523(a)(6). The creditor argued that the state court’s finding of contempt collaterally estopped the debtors from contesting the nature of their conduct. Alternatively, the creditor argued that the uncontested facts compelled the conclusion that the debtors’ conduct was willful and malicious. The bankruptcy court denied the creditor’s summary judgment motion. The court held that because the state court’s bases for imposing sanctions did not require a finding that the debtors willfully acted to cause harm to the creditor, the court could not conclude that the state court necessarily addressed the issue and collateral estoppel did not apply. The court also held that contrary to the creditor’s assertion, there was a genuine issue of material fact that precluded summary judgment regarding whether the debtors willfully and maliciously disobeyed the orders of the state court.Mortgage Capital Advisors, Inc. v. Hawkins (In re Hawkins), 2001 Bankr. LEXIS 221, – B.R. – (Bankr. D. Del. March 1, 2001) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12
Related entities who entered into prepetition dealer agreements with chapter 11 debtors had rights of recoupment and setoff. Bankr. D. Del. Related entities entered into prepetition dealer agreements with the debtors, who were among the largest independent specialty retailers of cellular and wireless products, services, and accessories in the United States. After the debtors filed their chapter 11 cases, the entities moved for determination that they had rights of recoupment or setoff against obligations owed to chapter 11 the debtors under the agreements. The debtors moved to compel payment from the related entities. The bankruptcy court held that all the sums due between the parties were part of a single integrated business transaction and subject to the rights of recoupment and that, even if the related entities were not entitled to recoup the amounts due them against the amounts they owed, they had the right to setoff those amounts. With respect to the setoff, the court found that there was mutuality of debt, and that the obligations arose prepetition. The court noted that for purposes of setoff, the timing of payment does not affect when the obligation arose.(citing Collier on Bankruptcy 15th Ed. Revised).In re Telephone Warehouse, Inc., 2001 Bankr. LEXIS 222, – B.R. – (Bankr. D. Del. February 28, 2001) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:553.01
IRS was allowed to set off refund. Bankr. W.D. Pa. The chapter 7 debtors filed a motion to enforce the discharge order. At the time the debtors filed their petition, they were both obligated to the IRS for dischargeable income taxes and entitled to an income tax refund. Subsequent to the entry of the discharge order, the IRS set off the debtors’ refund and applied it to the debtors’ income tax obligations. The debtors asserted that their income tax refund constituted a postpetition asset because they did not file their return until after their petition was filed. The debtors thus claimed that there was no prepetition debt owed by the IRS which could be set off against prepetition tax liabilities. The bankruptcy court rejected the debtors’ argument, holding that the IRS could offset the balance due for the debtors’ prepetition tax liability from the refund. For purposes of section 553, the tax refund arose at the end of the taxable year to which it related, which was prepetition.In re Haizlett, 2000 Bankr. LEXIS 1704, – B.R. – (Bankr. W.D. Pa. December 28, 2000) (Bentz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:553.03, .06[3]
4th Cir.
Lessor of vehicles to debtor in possession was entitled to an rent payments for the period beginning 60 days postpetition until surrender. Bankr. D.S.C. The debtor was a flatbed and dry van carrier that operated a fleet of tractors and trailers. The creditor was a corporation engaged in the equipment leasing business. From March 1999 through October 1999, the debtor entered into 10 vehicle lease agreements with the creditor as lessor. In June 2000 the debtor filed its chapter 11 petition. Shortly thereafter the creditor filed a motion for relief from the automatic stay or, alternatively, for adequate protection, claiming that the debtor continued use and possession of the vehicles. The matter was settled by stipulation, under which the debtor would tender possession of the vehicles but retained the right to use the vehicles until tender. The stipulation did not provide for lease payments. The creditor then filed a motion seeking administrative expense status pursuant to section 503(b)(1)(A) for rent payments due under the leases for the first 59 days postpetition and to timely rent payments pursuant to section 365(d)(10) for the period starting on the sixtieth day following the petition filing and continuing until rejection of the leases. The bankruptcy court held that the debtor was obligated to the creditor for payment for the period between 60 days after the petition filing and the various dates the vehicles were returned to the creditor, which represented the dates the leases were rejected. The court reasoned that the purpose of section 365(d)(10) was to mandate the performance of the debtor’s duties and obligations under an unexpired lease beginning 60 days after filing, regardless of whether the claim is granted administrative expense status.In re D.M. Kaye & Sons Transp., 2001 Bankr. LEXIS 218, – B.R. – (Bankr. D.S.C. February 1, 2001) (Waites, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365[6],[7]
5th Cir.
Bankruptcy court order that granted debtor’s motion for permission to use rents affirmed. E.D. La. A mortgagee failed a petition to foreclose on several real estate parcels that were owned by the debtor and her late husband and were subject to three mortgages given to secure the debtors’ indebtedness to the mortgagee. Each of the mortgages contained an assignment of rents clause. As a result of the foreclosure petition, a state district judge signed an order directing the clerk to issue writs of seizure and sale against the property and ordered seizure of all rents and revenues. After the debtor filed her chapter 11 case, the mortgagee moved to prohibit her use of rents as cash collateral and the debtor moved for permission to use those same rents. The bankruptcy court denied the mortgagee’s motion and granted the debtor’s motion. The mortgagee appealed. The district court affirmed. The court rejected the mortgagee’s argument that the rent assignments at issue became absolute upon the debtor’s default, and that the bankruptcy court had no authority to allow the debtor to use the rents as cash collateral. The court held that based on the appellate record, the district court could not conclude that the debtor was in default or, even if she were, that the mortgagee took the steps necessary to perfect its interests in the rents. Thus, the mortgagee presented no evidence or compelling reason to believe that the bankruptcy court erred in granting the debtor permission to use the rents. The court also noted that there appeared to be adequate protection for purposes of section 363.In re Dimitri, 2001 U.S. Dist. LEXIS 2773, – B.R. – (E.D. La. March 6, 2001) (Clement, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.03[4]
Court of Appeals held that bankruptcy court erred in not hearing creditor’s objection to imposition of surcharge. 5th Cir. The debtor operated an automotive transmission and engine rebuilding business, storing waste oil on premises leased from the lessor. After the debtor filed a chapter 7 petition, the trustee moved to abandon all of the debtor’s personal property, including the waste oil. The lessor objected to the abandonment, but it was eventually stipulated that it be granted an administrative expense claim of $45,000 to cover the costs of removing the waste oil and as a reasonable rental for storing the estate’s personal property on its premises pending liquidation. The trustee auctioned off all of the debtor’s personal property. The creditor who held a perfected purchase money security interest in the debtor’s personal property, securing a debt of approximately $20,000, did not object to the sale based on assurances from the trustee that its position would be protected. The sale generated proceeds of approximately $70,000, which left the estate with funds of approximately $75,000 for distribution. The actual costs to dispose of the waste oil were over $65,000 and the rental for storage nearly $24,000. The total costs of the waste oil remediation and the rental were thereby almost twice the amount that the lessor had been allowed as an administrative expense. The lessor then moved to have the collateral securing the creditor’s lien surcharged for remediation and rental costs, pursuant to section 506(c). The creditor did not file opposition to the motion until more than 20 days beyond its original filing. By that time, the lessor had filed a supplementary motion seeking surcharge, and the court treated the creditor’s untimely filed objection as a response to the second motion. The bankruptcy court, noting that the creditor failed to file objections to the first motion, granted the two surcharge motions, which effectively stripped the creditor of its entire lien. After the court refused to reconsider its surcharge order, the creditor appealed to the district court, which affirmed. This appeal followed. The Court of Appeals for the Fifth Circuit reversed and remanded, holding that the bankruptcy court had erred in not ruling on the merits of the creditor’s objection. The Court of Appeals reasoned that the issue of benefit to a creditor was dispositive in determining entitlement to a surcharge under section 506(c), and that the bankruptcy court abused its discretion by not hearing the creditor’s claim on the merits and by refusing to reconsider its denial, despite the late filing of objections to the first motion. TNB Financial, Inc. v. James F. Parker Interests (In re Grimland, Inc.), 2001 U.S. App. LEXIS 3714, – F.3d. – (5th Cir. March 12, 2001) (Restani, J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.05
Income tax assessment not discharged where assessment was not made before, but was assessable after, commencement of the debtor’s case. N.D. Tex. The chapter 7 debtor appealed a bankruptcy court order that granted summary judgment in favor of the IRS and ruled that an income tax assessment against the debtor for the 1986 tax year was not discharged by the court’s December 23, 1997 discharge order. On appeal, the debtor argued that that summary judgment was not proper because his 1986 tax return was filed more than two years before his bankruptcy petition, and the associated tax liabilities were therefore dischargeable. The debtor also argued that the bankruptcy court erred by not entering specific findings of fact and conclusions of law supporting its grant of summary judgment. The district court affirmed. The court held that the debtor failed to establish a genuine issue of material fact regarding whether the debt in question was dischargeable as a result of a return having been filed in 1987, and that, as a matter of law, an unsigned copy of the 1986 tax return was not filed when it was mailed to the IRS by the debtor’s wife in 1989. The court also held that since the assessment in question was not assessed before, but was assessable after, the commencement of the debtor’s case, even if the return were filed in 1987 or 1989 and therefore not exempt from discharge under section 523(a)(1)(B)(i), it would still be exempt from discharge under sections 523(a)(1)(A) and 507(a)(8)(A)(iii). Finally, the court found that remand to the bankruptcy court to enter specific findings of fact and conclusions of law was unnecessary since it reviewed the bankruptcy court’s grant of summary judgment de novo.Waugh v. IRS (In re Waugh), 2001 U.S. Dist. LEXIS 2246, – B.R. – (N.D. Tex. February 28, 2001) (Lindsay, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.10
Mississippi creditor’s construction lien was statutory lien that could not be avoided by chapter 7 debtors. Bankr. N.D. Miss. A judgment creditor moved for relief from the stay to assert its construction lien and proceed with the execution sale of the debtors’ homestead property. The debtors objected, claiming that the creditor was attempting to enforce a judicial lien against their homestead property, and that section 522(f)(1) was therefore triggered to allow them to avoid the lien. The creditor argued that 522(f)(1) did not apply because the lien in question, which arose because the creditor furnished labor in the construction of the debtors’ home, was a statutory lien rather than a judicial lien. Based on its analysis of the state (Mississippi) statutes applicable to the creation, perfection, and enforcement of construction liens, the bankruptcy court held that the lien at issue was a statutory lien that could not be avoided by the debtors pursuant to section 522(f)(1). Since the creditor held an unavoidable claim against the debtors for constructing their residence, and because state law provided that the debtors could not claim an exemption in their homestead property against such a claim, the court found that sufficient cause existed to lift the automatic stay for the limited purpose of allowing the creditor to proceed with enforcement of its statutory construction lien and resulting judgment.In re Mitchell, 2001 Bankr. LEXIS 223, – B.R. – (Bankr. N.D. Miss. March 1, 2001) (Houston, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11
6th Cir.
Failure to disclose compensation was basis for denial of fee allowance. Bankr. N.D. Ohio At the time the debtor filed his chapter 13 petition, he was obligated under a note to a creditor secured by a mortgage on the debtor’s residence. After the plan was confirmed, the debtor entered into an agreement with an attorney for representation in effectuating a refinancing for the purpose of assisting the completion of the chapter 13 plan. The agreement provided for a flat fee. The attorney did not file a fee application or a fee disclosure with the bankruptcy court. The United States Trustee filed a motion to review fees paid to the attorney postconfirmation, to cancel the fee agreement, and to order a refund of the fees. The attorney argued that her services to the debtor only involved an examination of his total indebtedness, and the preparation of necessary documents for the refinancing. The court held that the attorney’s failure to comply with section 329(a) was the basis for denial of compensation and an order to return the sums already paid. The court reasoned that the attorney’s services were rendered toward the goal of obtaining the chapter 13 discharge, which fell within the ambit of the disclosure requirements of section 329(a). In re Campbell, 2001 Bankr. LEXIS 229, (Bankr. N.D. Ohio February 22, 2001) (Morgenstern-Clarren, B.J.) (for electronic publication only).
Collier on Bankruptcy, 15th Ed. Revised 3:329.03
Debt for bounced checks was nondischargeable. B.A.P. 6th Cir. The debtor appealed the bankruptcy court’s finding that he had engaged in a check kiting scheme and that the debt owed to the bank was nondischargeable under section 523(a)(2)(A). Within a short period of time, the debtor drew checks on an account in one bank and deposited them in an account in a second bank when neither account had sufficient funds to cover the amounts drawn. Just before the checks were returned for payment, the debtor deposited checks drawn on the account in the second bank. Eventually, checks were returned from the creditor bank for insufficient funds. The B.A.P. affirmed, holding that the check kiting scheme engaged in by the debtor constituted actual fraud and the debt was nondischargeable under section 523(a)(2)(A). The panel adopted a broad definition of actual fraud which included the debtor’s intentional scheme to deprive the creditor of propertyMellon Bank, N.A. v. Vitano
Collier Bankruptcy Case Update October-20-03
- West's
Bankruptcy Newsletter
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.
October 20, 2003
CASES IN
THIS ISSUE
(scroll down to read the full
summary)
§ 362 Threat made by creditor during settlement discussions to initiate action to deny debtor’s discharge violated stay.
Diamond v. Premier Capital, Inc. (In re Diamond) (1st Cir.)
§ 1102(a)(1) Conversion to chapter 7 dissolved chapter 11 committee and chapter 7 trustee could not substitute self for committee in appeal of sale order.
Official Comm. of Unsecured Creditors v. Belgravia Paper Co., Inc. (In re Great N. Paper, Inc.) (D. Me.)
2nd Cir.
§ 541 Debtor’s interest in
rent-stabilized lease of apartment occupied with nondebtor significant
other was property of the estate.
Toledano v. Kittay (In re Toledano) (Bankr. S.D.N.Y.)
3th Cir.
§ 362(b) Police power exception to automatic stay applied to state action to enforce consumer protection laws.
Consumer Prot. Div. v. Nanticoke Homes, Inc. (In re Nanticoke Homes, Inc.) (D. Del.)
§ 506(b) Bankruptcy Code requirement that postpetition attorneys’ fees and costs be approved by the bankruptcy court did not give rise to a cause of action for its violation.
Henthorn v. GMAC Mortg. Corp. (In re Henthorn) (E.D. Pa.)
4th Cir.
§ 523(d) Dismissal of chapter 7 bankruptcy with prejudice and denial of debtor’s attorneys’ fees and costs upheld.
Walker v. Star USA Fed. Credit Union (In re Walker) (S.D. W. Va.)
§ 544(b) Bankruptcy court properly set aside deeds of trust affecting property held by debtor and spouse as tenants by the entirety.
Coleman v. Community Trust Bank (In re Coleman) (W.D. Va.)
5th Cir.
§ 547(b)(4)(B) Preference action against employee of debtor’s parent company dismissed due to failure to show that employee was an insider.
Brown v. Sontheimer (In re Promedco of New England, Inc.) (Bankr. N.D. Tex.)
6th Cir.
§ 327(a) Bankruptcy court properly denied fees to trustee who was not disinterested.
Schilling v. Smith (In re Schilling) (W.D. Ky.)
§ 328(c) Chapter 7 trustee’s legal representation of creditor in another bankruptcy represented a sanctionable conflict of interest.
In re Grieb Printing Co. (Bankr. W.D. Ky.)
§ 329(b) Bankruptcy court properly ordered disgorgement of attorney’s fee on grounds of inaccurate filings, excessive amount, lack of benefit to debtor and harm to creditors.
Cotner v. United States Trustee (In re Wilson) (W.D. Mich.)
8th Cir.
28 U.S.C. § 1930(a)(6) Quarterly fees due United States trustee are not costs and were proper basis for monetary judgment upon chapter 11 dismissal.
Adams v. Rendlen (In re Adams) (B.A.P. 8th Cir.)
9th Cir.
§ 330 Chapter 13 bankruptcy of debtors who ran day care business was not sufficiently complex to justify increased attorneys’ fees.
In re Dorsett (Bankr. E.D. Cal.)
10th Cir.
§ 365 Bankruptcy court judgment that lease settlement agreement was not an executory contract was entitled to full credit in district court.
T&W Funding Co. XII, LLC v. Pennant Rent-A-Car Midwest, Inc. (D. Kan.)
11th Cir.
§ 109(g)(2) Bankruptcy court had no discretion but to dismiss chapter 7 case filed after debtor sought voluntary dismissal of chapter 13 case while motion for relief from stay was pending.
In re Stuart (Bankr. S.D. Ga.)
§ 522(f) Judgment lien could not be avoided as impairing homestead exemption in a state where the exemption was unlimited.
In re Epstein (Bankr. S.D. Fla.)
§ 523(a)(2) Debtor who signed standard credit card agreement and made minimum monthly payments even while unemployed did not act fraudulently.
Compass Bank v. Meyer (In re Meyer) (Bankr. N.D. Ala.)
Collier Bankruptcy Case Summaries
1st Cir.
Threat made by creditor during
settlement discussions to initiate action to deny debtor’s
discharge violated stay. 1st Cir. PROCEDURAL
POSTURE: Plaintiff debtor filed a complaint, in bankruptcy
court, against defendants, a creditor and an attorney, alleging an
improper attempt to collect, assess, or recover a debt by using coercive
negotiation tactics in violation of the Bankruptcy Code’s
automatic stay. The bankruptcy court granted defendants’ motion to
dismiss. The district court affirmed the bankruptcy court. The debtor
appealed. OVERVIEW: The debtor was a 17-year veteran of
the real estate industry. The creditor filed an adversary proceeding to
deny the debtor a discharge pursuant to 11 U.S.C. § 727. During
negotiation settlement the creditor’s attorney told the
debtor’s attorney that if the dischargeability issue was not
resolved in the creditor’s favor, he would take action at the New
Hampshire Real Estate Commission to revoke the debtor’s real
estate broker’s license. The debtor agreed to the creditor’s
proposed settlement, but the bankruptcy court rejected the settlement
and denied the creditor’s complaint on all grounds. The court of
appeals found that although negotiations regarding discharge were not
per se violations of the automatic stay, the statement by defendants
could “reasonably be deemed tantamount to a threat” of
immediate action against the debtor. Where an unsecured creditor’s
statement functionally forced the debtor to treat a professional license
as collateral, a dismissal on the pleadings was unacceptable because the
statement could be found to be coercive by a trier of fact. Because the
debtor’s damages were unclear, the district court needed to
examine the issue closely on remand. Diamond v. Premier
Capital, Inc. (In re Diamond), 2003 U.S. App. LEXIS
20615, — F.3d — (1st Cir. October 9, 2003) (Torruella,
C.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back to top]
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Conversion to chapter 7
dissolved chapter 11 committee and chapter 7 trustee could not
substitute self for committee in appeal of sale order. D.
Me. PROCEDURAL POSTURE: Appellant committee of
unsecured creditors appealed a bankruptcy court’s order approving
the sale of a corporation. While that appeal was pending, the
corporation filed a motion to dismiss and/or convert its action under
chapter 11, and the bankruptcy court converted the case to an action
under chapter 7, and appointed a trustee. The trustee filed a motion to
substitute himself as a party to the committee’s appeal.
OVERVIEW: A corporation filed a petition under chapter
11, and a committee of unsecured creditors was appointed to protect
creditors’ interests. The bankruptcy court entered an order which
established a timeline for accepting a stalking horse bid and the
acceptance of competing bids, and a company submitted a stalking horse
bid but demanded reimbursement of expenses related to its stalking horse
functions and a break-up fee of $5 million in the event of a successful
counter-bid that displaced it. The corporation accepted the
company’s bid and the bankruptcy court found that the decision was
proper. The committee of unsecured creditor’s appealed the
bankruptcy court’s judgment and, while that appeal was pending,
the bankruptcy court converted the corporation’s action into an
action under chapter 7. The federal district court held that the trustee
who was appointed when the action was converted to a chapter 7 action
would not be allowed to pursue the committee’s appeal because it
was bound by decisions the corporation made as a debtor-in-possession,
including the decision to accept the stalking horse bid.
Official Comm. of Unsecured Creditors v. Belgravia Paper
Co., Inc. (In re Great N. Paper, Inc.), 2003 U.S. Dist. LEXIS
16852, — B.R. — (D. Me. September 19, 2003) (Hornby,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1102.02, .03 [back to top]
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Debtor’s interest in
rent-stabilized lease of apartment occupied with nondebtor significant
other was property of the estate. Bankr. S.D.N.Y.
PROCEDURAL POSTURE: Plaintiffs, a debtor and her
significant other who lived with the debtor in her rent-stabilized
apartment, objected to defendant chapter 7 trustee seeking an order to
assume and assign the lease for the apartment. The debtor also moved for
abandonment of certain legal claims. The trustee, along with the other
defendant, the landlord, moved for summary judgment.
OVERVIEW: The bankruptcy court held that the
debtor’s legal interests in her rent-stabilized lease were
property of the estate. Thus, the trustee could assume the lease and
evict the debtor and her significant other without violating New York
City’s rent stabilization regulations because the debtor’s
rights under her rent-stabilized lease were grounded solely in the lease
and were not unique statutory rights. The bankruptcy court also rejected
the argument that the trustee could not transfer the occupancy interest
in the premises pursuant to 11 U.S.C. § 363(f), and 11 U.S.C.
§ 363(1) did not even apply to the debtor’s significant other
because he had no independent possessory interest in the premises.
Further, because only the chapter 7 trustee was authorized to assume the
lease, the debtor was not entitled to notice and hearing on a
stipulation between the landlord and the trustee regarding the lease.
Regarding the abandonment of the legal claims, the debtor argued that
the trustee’s delay in pursuing the claims implied that the
trustee had decided to abandon them. However, any delay was due to the
debtor’s lack of cooperation, and the trustee did begin to pursue
the claims. Toledano v. Kittay (In re Toledano),
2003 Bankr. LEXIS 1173, — B.R. — (Bankr. S.D.N.Y. August 7,
2003) (Lifland, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.01 [back to top]
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Police power exception to automatic
stay applied to state action to enforce consumer protection
laws. D. Del. PROCEDURAL POSTURE:
Appellant Consumer Protection Division of the Office of the Attorney
General for the State of Maryland challenged a decision from the
bankruptcy court, which granted appellee debtor’s motion to
enforce the automatic stay of 11 U.S.C. § 362(a) and held the
Division could not pursue restitution in its action against the debtor
to enforce Maryland’s Consumer Protection Act and Custom Home
Protection Act. OVERVIEW: The Division alleged that the
debtor violated Maryland law in the sale of new homes to Maryland
consumers and sought an order against the debtor that provided
injunctive relief, restitution, civil penalties, and costs. After
receiving notice of the enforcement action, the debtor filed a motion,
seeking a determination that the action was subject to the automatic
stay under 11 U.S.C. § 362(a). The bankruptcy court determined that
the Division could pursue the action except that it could not pursue any
restitution. On appeal, the court held that enforcement of actions to
protect the public health and safety merited a higher priority than the
debtor’s rights to an automatic stay. The court concluded that the
Division’s enforcement action was not intended to protect the
government’s interest in the debtor’s property but related
to matters of public safety and welfare and was intended to effectuate
public policy. Therefore, the police and regulatory power exception set
forth in sections 362(b)(4), (5) applied to the enforcement of automatic
stay in the Division’s enforcement action. Consumer
Prot. Div. v. Nanticoke Homes, Inc. (In re Nanticoke Homes,
Inc.), 2003 U.S. Dist. LEXIS 17704, — B.R.
— (D. Del. September 30, 2003) (Robinson, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.05 [back to top]
ABI Members, click here to get the full opinion.
Bankruptcy Code
requirement that postpetition attorneys’ fees and costs be
approved by the bankruptcy court did not give rise to a cause of action
for its violation. E.D. Pa. PROCEDURAL
POSTURE: Plaintiff debtors brought a class action against
defendant bank, as mortgagee or debt servicer, claiming that the
attorneys’ fees and costs allegedly incurred during bankruptcy
proceedings which were not approved by the bankruptcy court were illegal
under federal and state law and the bankruptcy code. The matter was
transferred to the bankruptcy court as an adversary action. The suit was
dismissed. The debtors appealed. OVERVIEW: The debtors
conceded that their claims for violations of federal and state lending
laws, breach of contract, and for injunctive relief were properly
dismissed. Accordingly, the only issue before the court was whether or
not the debtors stated a viable cause of action for violations of 11
U.S.C. §§ 105 and 506(b). In essence, the debtors interpreted
section 506(b) to mean that any bankruptcy-related attorneys’ fees
and costs assessed by the bank after the bankruptcy petition was filed
were not allowed without application to and approval by the bankruptcy
court. They further interpreted 11 U.S.C. § 105(a) as conferring
upon them the right to bring a private cause of action for a violation
of 11 U.S.C. § 506(b). The court concluded that Congress did not
authorize or intend to authorize a private right of action for a
violation of 11 U.S.C. § 506(b) under either 11 U.S.C. §
105(a) or 11 U.S.C. § 506(b) itself.Henthorn v. GMAC
Mortg. Corp. (In re Henthorn), 2003 U.S. Dist. LEXIS 16893,
— B.R. — (E.D. Pa. September 23, 2003) (Joyner,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.04 [back to top]
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4th Cir.
Dismissal of chapter 7 bankruptcy with
prejudice and denial of debtor’s attorneys’ fees and costs
upheld. S.D. W. Va. PROCEDURAL
POSTURE: Appellant debtor filed for chapter 7 protection in the
bankruptcy court. The bankruptcy court granted appellee creditor’s
motion to dismiss an adversary proceeding with prejudice and granted the
debtor’s motion requesting an evidentiary hearing. The debtor
appealed the order dismissing the case. OVERVIEW: The
debtor argued that the bankruptcy court erred in refusing to give him an
evidentiary hearing on his 11 U.S.C. § 523(d) request for
attorneys’ fees and its decision that the creditor’s
complaint was substantially justified. Since the bankruptcy court fully
entertained the parties’ respective position on the issue of
attorneys’ fees, the district court rejected the debtor’s
contention that it failed to conduct a hearing under section 523(d).
Moreover, the creditor was substantially justified in filing the
complaint in the adversary proceeding because at the time the complaint
was filed, the creditor relied on the discrepancy between the
debtor’s financial information as provided in two loan
applications and the bankruptcy filings. Once it obtained the
debtor’s financial information for the year in question and
understood the debtor’s intent to include his wife’s income
with his as part of the stated monthly income, the creditor moved to
dismiss the adversary proceeding. Thus, the debtor was not entitled to
an award of attorneys’ fees and costs. Walker v. Star
USA Fed. Credit Union (In re Walker), 2003 U.S. Dist.
LEXIS 16787, — B.R. — (S.D. W. Va. September 24, 2003)
(Hallanan, Sr. D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.27 [back to top]
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Bankruptcy court properly
set aside deeds of trust affecting property held by debtor and spouse as
tenants by the entirety. W.D. Va. PROCEDURAL
POSTURE: On appeal, appellant/cross appellee debtor contended
that the bankruptcy court erred in finding that two deeds of trust could
be avoided but only to the extent necessary to pay the creditors and
otherwise to remain in effect. Cross appellant bank contended that the
bankruptcy court erred in denying the bank’s motion to dismiss the
chapter 11 case for lack of good faith and improper purpose.
OVERVIEW: The bank also argued that it was error for
the bankruptcy court to fail to address or sustain its contention that
the debtor was estopped to assert or recover upon the causes of action
set forth in the adversary proceeding, that the determination that the
debtor met her burden of proof under Va. Code § 55-80 and Tenn.
Code § 66-3-101 was clearly erroneous, and that it was error to set
aside the deeds of trust with respect to the interest of the
debtor’s husband, a nondebtor, non-plaintiff. The court rejected
the parties’ arguments. The property held by the debtor and her
husband as tenants by the entirety was to be included in the bankruptcy
estate, therefore, the bankruptcy court had jurisdiction over the
property and properly set aside the deeds of trust affecting the
properties to the extent necessary to benefit the creditors but
otherwise to remain in effect. Even though it appeared that the
debtor’s purpose in filing for chapter 11 protection was to
preserve her home for her own use and benefit, that motivation did not
necessarily preclude her from utilizing the bankruptcy process. The fact
that her petition was not objectively futile defeated a bad faith filing
claim. Coleman v. Community Trust Bank (In re
Coleman), 2003 U.S. Dist. LEXIS 17628, — B.R.
— (W.D. Va. September 30, 2003) (Williams, Sr.
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.09 [back to top]
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5th Cir.
Preference action against
employee of debtor’s parent company dismissed due to failure to
show that employee was an insider. Bankr. N.D. Tex.
PROCEDURAL POSTURE: Defendant, a former employee of the
chapter 7 debtors’ parent company, moved for partial summary
judgment on the bankruptcy trustee’s preference claim.
OVERVIEW: The parties agreed that the transfers at
issue were made more than 90 days prior to the bankruptcy filings, and
that under 11 U.S.C. § 547(b)(4)(B), the trustee had to show that
the employee was an insider of the debtors at the time of the transfers
in order to prevail. The trustee had no standing to assert claims on
behalf of the parent company. The trustee could only bring the
debtors’ claims. As a result, even if the employee exercised
control over the parent company at the time of the debtors’
transfers to him, the technical requirements of 11 U.S.C. § 547
would not be met. The trustee failed to show the requisite control of
the debtors that was required by section 547(b)(4)(B). While the trustee
raised a genuine issue of material fact regarding the employee’s
status as an insider of the parent company, the trustee failed to do so
regarding the debtors. On the basis of summary judgment record before
the court, the court found that the employee had no relationship,
contractual or otherwise, with the debtors at the time of the payments
in question, and the employee was not a creditor of the debtors when
they paid him $630,500 on behalf of their parent company.
Brown v. Sontheimer (In re Promedco of New England,
Inc.), 2003 Bankr. LEXIS 1266, — B.R. —
(Bankr. N.D. Tex. October 6, 2003) (Houser, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.04 [back to top]
ABI Members, click here to get the full opinion.
Bankruptcy court properly denied fees
to trustee who was not disinterested. W.D. Ky.
PROCEDURAL POSTURE: Appellant bankruptcy trustee
appealed the decision of the bankruptcy court that determined the
trustee held an adverse position to appellee debtor and denied all fees
and expenses claimed by the trustee. OVERVIEW: The
trustee hired himself as counsel for the purpose of filing adversary
proceedings against the debtor. The trustee objected to the
debtor’s discharge and sought to set aside a fraudulent
conveyance. The trustee sought interim attorney fees and the bankruptcy
court awarded a reduced amount of the requested fees. The trustee and
the debtor entered into a settlement agreement which contained a
condition that the debtor would support the trustee’s request to
reconsider the previously disallowed fees. A year after the bar date for
creditor claims, the trustee filed seven claims on behalf of unsecured
creditors. The bankruptcy court concluded that the trustee had acted in
his own self-interest and denied the trustee’s fees altogether and
ordered that all previously awarded fees and expenses be disgorged. The
district court found that the bankruptcy court’s denial was not an
abuse of discretion as 11 U.S.C. § 327(a) specifically allowed a
court to deny allowance of compensation if the professional seeking
compensation was not disinterested. Having determined that the trustee
was not disinterested, the bankruptcy court did not err in failing to
approve his fee application. Schilling v. Smith (In re
Schilling), 2003 U.S. Dist. LEXIS 16865, — B.R.
— (W.D. Ky. August 5, 2003) (Simpson, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:327.02 [back to top]
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Chapter 7
trustee’s legal representation of creditor in another bankruptcy
represented a sanctionable conflict of interest. Bankr.
W.D. Ky. PROCEDURAL POSTURE: Debtor filed a
chapter 7 petition and chapter 7 trustee was appointed. Trustee moved
for the court to resolve an alleged conflict of interest where trustee
represented creditor in another matter as an attorney. United States
trustee moved for a determination on this conflict of interest issue and
to require disgorgement of certain fees if the court found conflict
existed. OVERVIEW: Based on the record of this case,
the bankruptcy court found that trustee’s representation of
creditor in another bankruptcy case while he also acted as attorney for
trustee in this case constituted a conflict of interest that justified
at least partial denial of compensation to him in his capacity as both
trustee and trustee’s attorney, pursuant to 11 U.S.C. §
326(d) and 328(c). Where he represented an interest adverse to the
interest of the estate with respect to the matter on which he was
employed, then he was subject to sanction under 11 U.S.C. § 328(c).
The court held that: (1) the compensation owed as trustee’s
attorney was reduced by the amount of fees paid to him by creditor for
his representation in another case; (2) the compensation owed as trustee
in this case was calculated without reference to the amounts by which
compensation as trustee’s attorney was reduced; and (3) the
disqualification as creditor’s attorney in the other bankruptcy
case and disqualification as trustee’s attorney were warranted.
In re Grieb Printing Co., 2003 Bankr. LEXIS 1186,
297 B.R. 82 (Bankr. W.D. Ky. July 14, 2003) (Fulton, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:328.05
[back to
top]
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Bankruptcy court
properly ordered disgorgement of attorney’s fee on grounds of
inaccurate filings, excessive amount, lack of benefit to debtor and harm
to creditors. W.D. Mich. PROCEDURAL
POSTURE: Appellant attorney appealed the bankruptcy
court’s order denying the attorney’s motion for
reconsideration of an order granting appellee United States
Trustee’s motion requesting review and disgorgement of attorney
compensation under 11 U.S.C. § 329(b) and Fed. R. Bankr. P. 2017.
OVERVIEW: Although the debtors were responsible for
providing the correct addresses for their creditors, the attorney was
obligated both ethically and as an officer of the court not to file
schedules and other disclosure documents that the counsel knew were
inaccurate. The attorney did no more than ask his clients for the
addresses, even though he knew at the time he filed the schedules that
they contained inaccurate creditor addresses. The bankruptcy court did
not err in concluding that the attorney should be held responsible for
filing inaccurate schedules where the attorney knew that they contained
inaccurate information. Moreover, the bankruptcy court did not abuse its
discretion in determining that the attorney’s fee exceeded the
reasonable value of the services provided. While the attorney did
actually perform services, those services did not benefit debtors in any
way and could have adversely affected several creditors. Thus, the
debtors did not receive a windfall as a result of the disgorgement.
Cotner v. United States Trustee (In re Wilson),
2003 U.S. Dist. LEXIS 17840, — B.R. — (W.D. Mich. September
30, 2003) (Quist, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:329.04
[back to
top]
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8th Cir.
Quarterly fees due United States trustee are not costs and were proper basis for monetary judgment upon chapter 11 dismissal. B.A.P. 8th Cir. PROCEDURAL POSTURE: Appellant debtor filed a chapter 11 petition. Appellee United States trustee moved to dismiss the case and for fees, which the court granted. The debtor challenged the court’s orders that: (1) dismissed the chapter 11 petition; and (2) directed the debtor to pay the United States trustee statutorily mandated quarterly fees. The debtor appealed from the Bankruptcy Court for the Eastern District of Arkansas. OVERVIEW: The bankruptcy appellate panel found that the debtor’s filed notice of appeal failed to effectively appeal from the bankruptcy court’s dismissal order of the chapter 11 case. Nowhere did the notice of appeal ever indicate that the debtor appealed from the court’s order of dismissal. The bankruptcy appellate panel also determined that if, somehow, the notice of appeal could be construed to act as a notice of an appeal from the dismissal order, it was clearly late, pursuant to Fed. R. Bankr. P. 8002(a). The panel also rejected the debtor’s attempt to avoid the problem with the timing of the notice of appeal by the assertion of the doctrine of unique circumstances where the debtor’s argument was both factually and legally insufficient. The court found that the monetary judgment requested by the United States trustee was not for costs, but was for fees provided by statute to which the United States trustee was entitled in every chapter 11 case pursuant to 28 U.S.C. § 1930(a)(6). They were not costs of the action. Adams v. Rendlen (In re Adams), 2003 Bankr. LEXIS 1256, — B.R. — (B.A.P. 8th Cir. October 7, 2003) (Kressel, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:9.06 [back to top]
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9th Cir.
Chapter 13 bankruptcy of debtors who ran day care business was not sufficiently complex to justify increased attorneys’ fees. Bankr. E.D. Cal. PROCEDURAL POSTURE: Before the court was an ex parte application by the chapter 13 debtors’ counsel requesting a modification (increase) of the court’s prior award of attorneys’ fees. OVERVIEW: Counsel was entitled to request a “Guideline Fee.” The issue before the court was whether counsel was entitled to the Guideline Fee for a “business case.” Among other things, the court stated that its chapter 13 Fee Guidelines did not require it to accept debtors’ (or counsel’s) characterization of the case. The court had an independent duty to review the fees and costs requested. Debtors operated a daycare facility which was their sole source of income. However, the fact that debtors were self-employed in a for-profit enterprise did not necessarily mean that their case had the unique issues and the level of complexity sufficient to warrant a higher level of compensation for their attorney. Based on the court’s review of the schedules, statement of financial affairs, claims filed, and the docket, the case did not appear to have the potential level of complexity to warrant the increased Guideline Fee for legal services. Accordingly, the court concluded that the “business” Guideline Fee was not necessary or reasonable in the case. Even if the case were a “business case,” the facts did not appear to justify the higher fee. In re Dorsett, 2003 Bankr. LEXIS 1194, 297 B.R. 620 (Bankr. E.D. Cal. August 18, 2003) (Lee, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.01 [back to top]
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Bankruptcy court judgment that lease settlement agreement was
not an executory contract was entitled to full credit in district
court. D. Kan. PROCEDURAL POSTURE: In
a case concerning a settlement agreement arising out of leases, which
case was also affected by a bankruptcy, defendants, who were also
counterclaim plaintiffs, filed a renewed motion to dismiss or for
summary judgment, based on the argument that the settlement agreement
was an executory contract rejected by the bankruptcy plan. Plaintiffs
filed a cross-motion for partial summary judgment.
OVERVIEW: It was undisputed that the bankruptcy
liquidation plan specifically retained jurisdiction to determine any
executory contract issues. Thus, the bankruptcy court had jurisdiction
to determine whether the settlement agreement was an executory contract
under 11 U.S.C. § 365. The bankruptcy court determined that the
agreement was not executory. The district court found that the
principles of collateral estoppel were applicable to the motion to
dismiss. Defendants’ only argument against giving full credit to
the bankruptcy court’s decision was that it was interlocutory and
in error. The bankruptcy court denied defendants’ motion for
reconsideration and the order was appealed. A judgment or order was
final for purposes of collateral estoppel until reversed on appeal,
modified, or set aside in the court of rendition. Defendants were
represented by counsel at a two-day evidentiary hearing on the identical
issue of whether the settlement agreement was an executory contract.
Therefore, the district court gave full credit to the bankruptcy
court’s order, and held that the order had collateral estoppel
effect and precluded defendants from pursing the same argument in the
district court. T&W Funding Co. XII, LLC v. Pennant
Rent-A-Car Midwest, Inc., 2003 U.S. Dist. LEXIS 16859,
— B.R. — (D. Kan. September 24, 2003) (Robinson,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.01 [back to top]
Bankruptcy court had no discretion
but to dismiss chapter 7 case filed after debtor sought voluntary
dismissal of chapter 13 case while motion for relief from stay was
pending. Bankr. S.D. Ga. PROCEDURAL
POSTURE: Debtor requested voluntary dismissal of a previous
chapter 13 bankruptcy case. At the time the debtor requested dismissal,
a bank had filed a motion for relief from stay and that motion was
pending at the time that case was dismissed. Shortly thereafter, the
debtor filed a case under chapter 7. Creditor moved to dismiss the
chapter 7 case pursuant to 11 U.S.C. § 109(g)(2).
OVERVIEW: The bankruptcy court rejected the
debtor’s argument that it had discretionary authority in its
application of 11 U.S.C. § 109(g)(2). The bankruptcy court
concluded from the language of 11 U.S.C. § 109(g)(2) that Congress
intended to make debtors who dismissed and refiled in the face of a
motion for relief ineligible, regardless of their subjective state of
mind or intent, and did not intend for the bankruptcy court to condition
the application of 11 U.S.C. § 109(g)(2) on a determination of the
debtor’s intent. Further, applying the statute as it was written
would not have lead to an absurd or unconstitutional result. While the
consequences were unfortunate for the debtor, the debtor was aware that
the motion for relief had been filed and that it was still pending when
he voluntarily requested dismissal of the prior case. Finally, the
bankruptcy court determined that 11 U.S.C. § 109(g)(2) was a
provision governing only the debtor’s eligibility for relief and
not the power of the bankruptcy court to afford such relief; any relief
received prior to the creditor’s challenge under 11 U.S.C. §
109(g)(2) could not be challenged for lack of jurisdiction.
In re Stuart, 2003 Bankr. LEXIS 1203, 297
B.R. 665 (Bankr. S.D. Ga. July 25, 2003) (Davis, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:109.08 [back to top]
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Judgment lien could not
be avoided as impairing homestead exemption in a state where the
exemption was unlimited. Bankr. S.D. Fla.
PROCEDURAL POSTURE: Movant debtor filed a motion under
11 U.S.C. § 522(f) to avoid a judicial lien with regard to the
alleged lien of respondent judgment creditor. OVERVIEW:
The creditor obtained a foreign judgment against the debtor prior to the
time the debtor filed her chapter 7 bankruptcy. Prior to the bankruptcy
filing, the judgment was domesticated in Florida by the filing of a
certified copy of the judgment. The debtor asserted that by filing the
certified copy of the judgment, the creditor obtained a lien on the
debtor’s homestead property, which impaired the debtor’s
homestead exemption and constituted a cloud upon the debtor’s
title. The court denied the motion. In Florida, the debtor could claim
an unlimited exemption value for her homestead property. 11 U.S.C.
§ 522(f) could only be used to avoid a lien where the real property
exemption amount was limited by either the federal exemptions or state
exemptions. Section 522(f) did not apply to the debtor’s
situation. Also, while Fla. Stat. ch. 55.10 provided that the recording
of a certified copy of a judgment created a lien against real property,
Fla. Const. art. 10, section 4(a)(1) provided that homestead property
was exempt from forced sales and that no judgment could represent a lien
on the property. Thus, the judgment did not impair the debtor’s
homestead exemption. In re Epstein, 2003
Bankr. LEXIS 1179, — B.R. — (Bankr. S.D. Fla. July 29, 2003)
(Friedman, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11 [back to top]
ABI Members, click here to get the full opinion
Debtor who signed
standard credit card agreement and made minimum monthly payments even
while unemployed did not act fraudulently. Bankr. N.D.
Ala. PROCEDURAL POSTURE: Defendant debtor filed a
chapter 7 petition. Plaintiff creditor filed an adversary action against
the debtor and sought a determination that certain credit card debt was
nondischargeable pursuant to 11 U.S.C. § 523(a)(2). The creditor
also requested attorneys’ fees and costs.
OVERVIEW: The court disagreed that the debtor acted in
a fraudulent manner when she used the creditor issued credit card. The
only representation she made when she used the card was that she would
abide by the credit card agreement and would make her minimum monthly
payments. The court did not find that these representations were false,
as her testimony established that she did intend to make the monthly
payments at the time she made the charges. The court could not conclude
that the debtor acted with reckless disregard for her financial
situation, where she somehow managed to make her minimum monthly
payments even during her period of unemployment. The creditor extended
more and more credit to the debtor throughout the years, yet apparently
never checked her credit history after the account was initially opened.
The creditor failed on the 11 U.S.C. § 523(a)(2)(A) fraud assertion
and it was also not entitled to the presumption of nondischargeability
in 11 U.S.C. § 523(a)(2)(C) where it failed to show that the debtor
incurred more than $1,150 of consumer debt for luxury items within the
60-day period preceding the bankruptcy filing. Compass Bank
v. Meyer (In re Meyer), 2003 Bankr. LEXIS 1195, 296 B.R. 849
(Bankr. N.D. Ala. February 25, 2003) (Mitchell, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08
[back to
top]
Collier Bankruptcy Case Update October-13-03
- West's
Bankruptcy Newsletter
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.
October 13, 2003
CASES IN
THIS ISSUE
(scroll down to read the full
summary)
§ 503 Settlement of administrative expense claim by liquidating supervisor was properly approved as reasonable.
Bos v. Jalbert (In re ServiSense.com, Inc.) (D. Mass.)
2nd Cir.
§ 1205 Bankruptcy court properly
refused to order adequate protection payments for security interest in
cows absent sufficient evidence of likelihood of decline in
value.
Zinik v. Vanmiddlesworth (N.D.N.Y.)
§ 1322(d) Allowing debtor to reopen case
to make final three delinquent payments did not violate
anti-modification provisions where objecting creditor held unsecured
mortgage.
Audain v. LaSalle Nat’l Bank (In re Aubain) (Bankr.
E.D.N.Y.)
3th Cir.
§ 365 Debtor airline’s assumption of contracts with creditors barred preference actions against creditors.
Kimmelman, Trustee v. Port Authority of N.Y. and N.J. (In re Kiwi Int’l Airlines, Inc.) (3d Cir.)
4th Cir.
§ 363 Breach of contract claim by debtor against leasing company limited to liquidated damage as stated in agreement.
Axtell v. Equipment Leasing Co. (In re Equipment LeasingCo., Inc.) (Bankr. E.D. Pa.)
§ 727(d)(1) Discharge properly revoked by bankruptcy court due to debtor’s fraud and reckless indifference.
Dean v. McDow (E.D. Va.)
5th Cir.
§ 707(b) Bankruptcy dismissed due to healthy, employed debtors’ excessive expenses, heavy consumer spending, ability to fund chapter 13 plan, and filing of misleading schedules
In re Fergason (Bankr. S.D. Tex.)
6th Cir.
§ 101(5)(A) Debtor entitled to finding of dischargeability of tax debt despite agreement with IRS that there were no outstanding taxes for the years in question.
Landrie v. IRS (In re Landrie) (Bankr. N.D. Ohio)
7th Cir.
§ 546(a) Limitation period for commencement of preference action was tolled by agreement of the parties.
Moglia v. Inland Plywood Co. (In re Outboard Marine Corp.) (Bankr. N.D. Ill.)
§ 1110(a)(2)(A) Debtor airline’s election to honor obligations under agreements with creditor vacated as prejudicial to debtor and other creditors.
In re UAL Corp. (Bankr. N.D. Ill.)
8th Cir.
§ 364 Factors used in approving original debtor in possession financing agreement also applied to approval of amendment to the agreement.
In re Farmland Indus., Inc. (Bankr. W.D. Mo.)
§ 1110 Bankruptcy court reviewed and reversed ruling that it did not have the power to recharacterize secured status of creditor with lien in aircraft parts and equipment.
Vanguard Airlines, Inc. v. Int’l Aero Components, Inc. (Bankr. W.D. Mo.)
9th Cir.
§ 502(b)(7) Bankruptcy court improperly denied claims of debtor’s employees for severance pay by adjusting compensation cap based on payments received.
Young v. Condor Sys. (In re Condor Sys.) (B.A.P. 9th Cir.)
§ 524(c) Postdischarge agreement allowing debtors to retain jewelry in return for monthly payments to creditor was an invalid reaffirmation agreement.
Bankruptcy Receivables Management v. Lopez (9th Cir.)
§ 547 Preference action upheld despite being filed after confirmation of chapter 11 plan where plan, disclosure and confirmation order provided sufficient notice.
Ringel Valuation Servs. v. Shamrock Foods Co. (In re Arizona Fast Foods, LLC) (Bankr. D. Ariz.)
10th Cir.
§ 105 Debtors’ attempt to obtain reimposition of stay against mortgagee could not be brought as a contested matter but required an adversary proceeding.
In re Bryant (Bankr. D. Colo.)
11th Cir.
§ 105(a) Debtor and associates sanctioned for interference with trustee’s administration of probate asset to detriment of creditors.
Henkel v. Lickman (In re Lickman) (Bankr. M.D. Fla.)
§ 523(a)(7) Restitution order that was not payable to and for the benefit of a governmental unit was dischargeable.
Verola v. Colton (In re Verola) (Bankr. S.D. Fla.)
Collier Bankruptcy Case Summaries
1st Cir.
Settlement of administrative expense
claim by liquidating supervisor was properly approved as
reasonable. D. Mass. PROCEDURAL
POSTURE: Appellants creditors of appellee Chapter 11 debtor
appealed from an order of the United States Bankruptcy Court for the
District of Massachusetts approving a settlement between appellee
liquidating supervisor of the debtor and the former president of the
debtor. The creditors appealed. OVERVIEW: The
bankruptcy court approved the debtor’s settlement motion with the
former president. Subsequently, the former president filed a request for
payment of his administrative claim. The creditors filed an objection to
the former president’s claim, arguing, inter alia, that he was not
entitled to severance because he had been terminated for cause. The
liquidating supervisor filed a motion for approval of a stipulation of
settlement with the former president regarding his administrative
expense claim stating that the liquidating supervisor had settled the
claim and agreed to pay him $ 35,000 as an administrative expense. The
remaining amount would be classified a non-priority claim. The former
president had a plausible argument of implied acceptance, relied on by
the bankruptcy judge. Thus, it was not unreasonable to have settled the
former president’s claim for short money. Also, no party objected
to the appointment of the liquidating supervisor or his counsel.
Finally, the bankruptcy court found that the creditors’ interests
would be best served by approving the settlement, given that the costs
inherent in fighting for the creditors’ views would likely exceed
the cost of settlement. Bos v. Jalbert (In re
ServiSense.com, Inc.), 2003 U.S. Dist. LEXIS 17057,
— B.R. — (D. Mass. September 26, 2003) (Saris,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Bankruptcy court properly refused to
order adequate protection payments for security interest in cows absent
sufficient evidence of likelihood of decline in value.
N.D.N.Y. PROCEDURAL POSTURE: In respondent
debtors’ Chapter 12 proceedings, the United States Bankruptcy
Court (New York) denied appellant creditors’ motions for adequate
protection and for lifting of the automatic stay. The creditors
appealed. OVERVIEW: The creditors claimed that the
bankruptcy court erred in failing to order the debtors to make adequate
protection payments because they had a valid priority security interest
in the cows they sold to the debtors pursuant to a promissory note and
security agreement and the value of the cows was declining. The court
initially held that the bankruptcy court did not err in determining
that, pursuant to N.Y. U.C.C. § 9-324(d), the creditors did not
achieve livestock purchase-money security interest priority over another
creditor because the creditors never notified the other creditor of
their interest. The court then held that the bankruptcy court did not
err in determining that the creditors failed to satisfy their burden
under 11 U.S.C. §§ 363 and 1205 to show that adequate
protection was necessary because the creditors failed to offer
sufficient evidence that there was a likelihood of a decline in the
value of the cows they sold to the debtors, and that the creditors
failed to offer sufficient evidence in support of lifting the stay on
the ground of lack of adequate protection under 11 U.S.C. §§
362(d)(2). Zinik v. Vanmiddlesworth, 2003 U.S.
Dist. LEXIS 17302, — B.R. — (N.D.N.Y. September 30, 2003)
(Mordue, D.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Allowing debtor to reopen case to make final three delinquent payments did not violate anti-modification provisions where objecting creditor held unsecured mortgage. Bankr. E.D.N.Y. PROCEDURAL POSTURE: Plaintiff debtor filed a Chapter 13 petition under the Bankruptcy Code. The debtor filed an action against defendant creditor. The case was later dismissed, but not closed. The debtor moved to reopen the case and vacate a dismissal, pursuant to Fed. R. Civ. P. 60, but the creditor objected. The debtor moved for summary judgment to avoid the creditor’s second mortgage. OVERVIEW: The creditor held a second mortgage lien on the debtor’s primary residence and opposed the debtor’s motion as a prohibited effort to extend the final payment under her modified plan beyond the maximum statutory limit of 60 months. The debtor replied that by paying the balance of the modified plan, she only cured a default under that Chapter 13 plan. The court found that the creditor failed or refused to provide the court with proof of an assignment or with proof that it notified the debtor of the assignment. The court was not satisfied that the creditor held the mortgage. The court found that the debtor fully satisfied the requirements of Fed. R. Civ. P. 60(b)(6), as incorporated in Fed. R. Bankr. P. 9024. The appropriate date to be used for valuation of the property was the date of the debtor’s Chapter 13 petition. Since the parties stipulated that the second mortgage was unsecured as of the petition date, the anti-modification provision did not apply and the second mortgage lien could be avoided under 11 U.S.C. § 506(d). The debtor was entitled to summary judgment. Audain v. LaSalle Nat’l Bank (In re Aubain), 2003 Bankr. LEXIS 1208, — B.R. — (Bankr. E.D.N.Y. August 1, 2003) (Bernstein, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Debtor airline’s assumption of
contracts with creditors barred preference actions against
creditors. 3d Cir. PROCEDURAL
POSTURE: Appellant bankruptcy trustee sought review of an order
from the United States District Court for the District of New Jersey,
which affirmed the bankruptcy court’s dismissal of three
preference actions that the trustee brought against appellee creditors
under 11 U.S.C. § 547 to recover payments that the debtor airline
company made to the creditors before it filed a petition for bankruptcy
under Chapter 11 of the Bankruptcy Code. OVERVIEW: In
all three cases, the debtor made payments to the creditors pursuant to
written agreements that were essential to its efforts to stay in
business. After the debtor filed its bankruptcy petition, it assumed the
contracts under 11 U.S.C. § 365. One contract allowed the airline
to continue aircraft operations at an airport, and another contract
allowed the airline to use a computerized reservation system. The
debtor’s assumption of leases allowed the airline to continue
using a lessor’s aircraft equipment. The court affirmed the
judgment, agreeing with the lower courts that the assumption of the
contracts under section 365 barred the preference claims by the trustee.
The court found that the trustee’s characterization of the
creditors as being similarly situated to general unsecured creditors for
purposes of 11 U.S.C. § 547(b)(5) disregarded the unique set of
rights provided to the creditors by 11 U.S.C. § 365 and, in the
case of the lessor, by 11 U.S.C. § 1110. The court also found that
the bankruptcy court did not abuse its discretion in denying the trustee
discovery concerning the circumstances surrounding the assumptions.
Kimmelman, Trustee v. Port Authority of N.Y. and N.J. (In re
Kiwi Int’l Airlines, Inc.), 2003 U.S. App. LEXIS
19780, — F.3d — (3d Cir. September 25, 2003) (Fuentes,
C.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
4th Cir.
Breach of contract claim by debtor
against leasing company limited to liquidated damage as stated in
agreement. Bankr. E.D. Pa. PROCEDURAL
POSTURE: Defendant leasing company filed a renewed motion for
partial summary judgment limiting the debtors’ claim for damages
under an asset purchase agreement. OVERVIEW: Plaintiff
trustee was authorized under the debtors’ confirmed plan to
liquidate the assets of the debtors’ estates for the benefit of
the debtors’ former creditors. One such asset was the
debtors’ claim against the leasing company for terminating the
agreement. In that capacity, the trustee commenced suit against the
leasing company and was seeking damages of nearly $ 1 million. The
leasing company requested that the court interpret the asset purchase
agreement pursuant to which the leasing company was to purchase the
portfolio of equipment leases from the debtors pursuant to 11 U.S.C.
§ 363. The trustee contended that his damages were not limited by
the amount of a deposit because the deposit was never paid.
Characterizing the deposit as liquidated damages, the trustee argued
that the leasing company was not entitled to the benefit of liquidated
damages when it had not performed the quid pro quo. In his answer to the
renewed motion, the trustee claimed liquidated damages of $ 500,000. The
court found that the trustee advanced a new position, and asking the
court to enter an order granting the trustee liquidated damages was in
effect a request for summary judgment. Axtell v. Equipment
Leasing Co. (In re Equipment LeasingCo., Inc.), 2003 Bankr.
LEXIS 1223, — B.R. — (Bankr. E.D. Pa. September 12, 2003)
(Sigmund, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Discharge properly
revoked by bankruptcy court due to debtor’s fraud and reckless
indifference. E.D. Va. PROCEDURAL
POSTURE: Appellant debtor appealed from an order of the United
States Bankruptcy Court for the Eastern District of Virginia, which
revoked her discharge of indebtedness pursuant to 11 U.S.C. §
727(d)(1). OVERVIEW: It was unnecessary to address
whether the trustee’s complaint was timely filed because the
debtor had failed to raise the issue before the bankruptcy court.
Similarly, the debtor had not raised the issue of the trustee’s
knowledge of fraud in her answer or at trial. Thus, the debtor had
waived her right to have those issue considered on appeal. The
bankruptcy court did not commit clear error in determining that the
debtor knowingly and fraudulently made false oaths, and that the oaths
concerned material facts. Also, the court could find no error in the
bankruptcy court’s conclusion that the debtor’s failure to
read her bankruptcy papers constituted a reckless indifference to the
truth and the functional equivalent of fraud, and there was no de
minimus exception to the disclosure requirements. Even if there were
such an exception, debtor’s valuable jewelry pieces did not fit
within such a framework. Finally, the debtor objected for the first time
on appeal to the admission of eight exhibits at trial. The admission of
the exhibits, if error at all, did not even approach the standard of
error so serious and flagrant that it goes to the very integrity of the
trial. Dean v. McDow, 2003 U.S. Dist. LEXIS 17188,
— B.R. — (E.D. Va. September 25, 2003) (Smith,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
5th Cir.
Bankruptcy dismissed due
to healthy, employed debtors’ excessive expenses, heavy consumer
spending, ability to fund chapter 13 plan, and filing of misleading
schedules Bankr. S.D. Tex. PROCEDURAL
POSTURE: The United States trustee filed a motion to dismiss
the debtors’ chapter 7 bankruptcy under 11 U.S.C. § 707,
alleging that allowing the debtors to obtain a chapter 7 discharge would
be an abuse of the Bankruptcy Code within the meaning of section 707(b).
OVERVIEW: The debtors filed bankruptcy after the IRS
began serious collection efforts. The court found that five of the six
factors discussed in the jurisprudence suggested that granting the
debtors a discharge would be a substantial abuse of the Bankruptcy Code:
(1) their expenses were excessive; (2) their disposable income of over $
1,300 per month would have allowed them to pay 40 percent of unsecured
claims under a 36-month chapter 13 plan; (3) they filed 'padded' and
misleading bankruptcy schedules; (4) the petition was not filed due to
illness, unemployment, or some other calamity; (5) they obtained
consumer goods on credit exceeding their ability to repay the debt. As
to the sixth factor, they did not appear to have engaged in
eve-of-bankruptcy purchases. In re Fergason,
2003 Bankr. LEXIS 867, 295 B.R. 96 (Bankr. S.D. Tex. June 2, 2003)
(Steen, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Debtor entitled to finding of
dischargeability of tax debt despite agreement with IRS that there were
no outstanding taxes for the years in question. Bankr. N.D.
Ohio PROCEDURAL POSTURE: An adversary proceeding
was commenced to determine the dischargeability of federal income tax
liabilities assessed against plaintiff taxpayer for certain tax years.
In his complaint, the taxpayer sought a specific finding of
dischargeability, but defendant Internal Revenue Service (IRS) refused
to accede to such a finding. The IRS filed a motion to dismiss the
taxpayer’s complaint. OVERVIEW: The debtor filed
a petition for Chapter 7 relief and was granted a discharge. Because it
was undisputed that there were no outstanding tax liabilities for the
tax years at issue, the IRS argued that the instant adversary proceeding
involving the dischargeability of tax obligations during those years did
not meet the “case or controversy” requirement of U.S.
Const. art. III, § 2. In denying the IRS’s motion to dismiss,
the court held that in a dischargeability proceeding, the “case or
controversy” requirement was met as long as there existed a
“debt” to discharge. Based on the broad nature of a
“debt” in bankruptcy, the issue was whether the debtor could
still conceivably be assessed a tax liability obligation for the years
in question. The court concluded that the IRS could make such an
assessment pursuant to 26 U.S.C. § 6501(c)(1) if it decided to
investigate the debtor for tax fraud. Consequently, the IRS held a
contingent claim against the debtor’s bankruptcy estate, and a
“case or controversy” existed that entitled the debtor to
maintain an action to determine the dischargeability of any potential
federal tax obligations for the years at issue. Landrie v.
IRS (In re Landrie), 2003 Bankr. LEXIS 868, —
B.R. — (Bankr. N.D. Ohio April 22, 2003) (Speer,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
7th Cir.
Limitation period for
commencement of preference action was tolled by agreement of the
parties. Bankr. N.D. Ill. PROCEDURAL
POSTURE: The trustee sought to recover payments made by the
debtor to a creditor as preference payments under 11 U.S.C. § 547.
Cross-motions were filed as to the creditor’s affirmative defense
under 11 U.S.C. § 546(a). The creditor argued that section 546(a)
was jurisdictional, and thus, the parties’ tolling agreement, and
later extensions, did not toll the limitations period of section 546(a).
OVERVIEW: The court joined the majority of cases,
finding that section 546(a) was a true statute of limitations that could
be waived. The court had subject matter jurisdiction under 28 U.S.C.
§§ 157(b)(2)(F), 1334(b), which were wholly separate from 11
U.S.C. § 546(a). Legislative intent evidenced that Congress enacted
section 546(a) as a limitations period which, like a typical statute of
limitations, could be waived. The tolling agreement’s provision
prohibiting the use of the tolling agreement as evidence did not
preclude using the tolling agreement to prove that the parties entered
into an agreement to toll section 546(a). The agreement as a whole
reflected the intent to toll the statute of limitations in an effort to
settle the dispute. It stated that all applicable statutes of
limitations and other time-based defenses were tolled under the
agreement. The prohibition as to using the agreement indicated that it
could not be used as evidence in connection with any admission of
wrongdoing, liability, or culpability, not that it could not be used to
establish a tolling of section 546(a). The statute of limitations was
tolled pursuant to the agreement and the adversary proceeding was not
time barred. Moglia v. Inland Plywood Co. (In re Outboard
Marine Corp.), 2003 Bankr. LEXIS 1227, — B.R.
— (Bankr. N.D. Ill. September 11, 2003) (Squires, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Debtor airline’s
election to honor obligations under agreements with creditor vacated as
prejudicial to debtor and other creditors. Bankr. N.D.
Ill. PROCEDURAL POSTURE: In a Chapter 11
bankruptcy case, a creditor filed motions requesting enforcement of the
debtors’ election to perform under 11 U.S.C. § 1110(a)(2)(A)
with respect to three aircraft in the debtors’ possession. The
debtors requested that the court vacate its order approving that
election. OVERVIEW: As to the three aircraft in
dispute, the amounts owed under the leases and financing agreement
exceeded the market value. The debtors intended to keep the aircraft in
their fleet only if the leases and financing agreement could be
renegotiated. With the understanding that there were no prepetition
defaults as to the aircraft, the debtors made the section 1110(a)(2)(A)
election to perform their obligations under the leases, so as to retain
the protection of the automatic stay while renegotiation took place. The
debtors were mistaken as to the existence of prepetition defaults,
however, and the creditor requested immediate payment of defaulted
amounts as an administrative expense. The court granted relief to the
debtors under Fed. R. Civ. P. 60(b)(1), concluding that the
debtors’ mistaken exercise of the election, although negligent,
was excusable neglect for which relief was available. The court observed
that the election, which provided no benefit to the debtors, was
manifestly prejudicial to the debtors and to other creditors. Vacating
the election would cause no comparable prejudice to the creditor. The
debtors had not engaged in any culpable behavior or acted in bad faith.
In re UAL Corp., 2003 Bankr. LEXIS 1207, —
B.R. — (Bankr. N.D. Ill. September 25, 2003) (Wedoff,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
8th Cir.
Factors used in approving original debtor in possession financing agreement also applied to approval of amendment to the agreement. Bankr. W.D. Mo. PROCEDURAL POSTURE: Debtors, including reportedly the largest farmer-owned cooperative in the United States, moved for approval of a “first amendment” to their debtor in possession (“DIP”) credit agreement with a consortium of lenders. The motion was supported by the agent for the lenders, and opposed by the official committees of unsecured creditors and bondholders. OVERVIEW: The parties raised three basic issues: (1) whether debtors exercised sound and reasonable business judgment in entering into the first amendment, (2) whether the First Amendment was in the best interests of the estate and its creditors, and (3) whether the DIP lenders unreasonably withheld their approval of debtors’ proposed plan of reorganization. A key legal question for the court was whether all of the factors that would apply to an original DIP financing agreement under 11 U.S.C. § 364(c), (d), should be applied in determining whether to approve an amendment to an earlier court-approved financing arrangement. The court concluded that courts needed to determine on a case-by-case basis how high to raise the bar when considering amendments to post-petition financing. It believed that the applicable factors could be synthesized into five factors, which included: (1) that the proposed financing was an exercise of sound and reasonable business judgment, and (2) that the financing was in the best interests of the estate and its creditors. Applying all five factors, the court was firmly convinced that, all things considered, the first amendment should be approved. In re Farmland Indus., Inc., 2003 Bankr. LEXIS 864, 294 B.R. 855 (Bankr. W.D. Mo. April 17, 2003) (Venters, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Bankruptcy court
reviewed and reversed ruling that it did not have the power to
recharacterize secured status of creditor with lien in aircraft parts
and equipment. Bankr. W.D. Mo. PROCEDURAL
POSTURE: Debtor filed a motion for relief under Fed. R. Bankr.
P. 9023 and 9024 from the court’s order that 11 U.S.C. § 1110
prevented debtor from avoiding the unperfected liens of a creditor on
aircraft parts and equipment. OVERVIEW: The court ruled
that debtor was precluded from recharacterizing the interests of the
creditor as something other than a secured party, lessor, or conditional
vendor. Debtor asserted that the preclusion was ruled in error, and
requested that the court amend its order to allow debtor to pursue at
trial its challenge to the creditor’s standing under 11 U.S.C.
§ 1110. In response, the creditor contended that debtor judicially
admitted that the creditor had standing to assert 11 U.S.C. § 1110
to repossess aircraft parts and equipment and that 11 U.S.C. § 1110
prevented the court from recharacterizing its interest. The court found
that the examples given by the creditor regarding its assertion that
debtor judicially admitted that the creditor had standing were
sufficient to create a judicial admission. The court did find that the
creditor had met its initial burden of establishing a prima facie case
that it had a valid claim as a condition vendor or a secured party under
section 1110. The court held that it had the power to recharacterize the
creditor’s status within the context of section 1110, and held
that debtor had presented a colorable argument for recharacterization.
Vanguard Airlines, Inc. v. Int’l Aero Components,
Inc., 2003 Bankr. LEXIS 1214, — B.R. —
(Bankr. W.D. Mo. September 17, 17) (Venters, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
9th Cir.
Bankruptcy court improperly denied claims of debtor’s employees for severance pay by adjusting compensation cap based on payments received. B.A.P. 9th Cir. PROCEDURAL POSTURE: The United States Bankruptcy Court for the Northern District of California sustained the chapter 11 debtor’s objections to two former employees’ termination damages, ruling that prepetition severance payments and draws received under letters of credit reduced the 11 U.S.C. § 502(b)(7) one-year total compensation caps for the employees to zero. The employees appealed. OVERVIEW: The debtor owed employee severance debts to the employees when it filed bankruptcy. The employees’ severance packages were funded by letters of credit issued by a bank. When the debtor objected to one employee’s claims, he attempted to withdraw a portion of it. The bankruptcy court did not rule on this attempt, but sustained the objection to the claims. The appellate court held that under Fed. R. Bankr. P. 3006, once the debtor objected to claim, the employee could no longer withdraw it; thus, the trial court’s ruling applied to the original claim, and the employee’s appeal of the court’s denial of the claim was not moot. Denial of the claims was error. The 11 U.S.C. § 502(b)(7) cap on payments to terminated employees was calculated mechanically as of the date of the filing of the petition; prepetition severance payments and pre- and postpetition draws on letters of credit could affect the amount of the claim but not the section 502(b)(7) cap. The fact that one employee received three years of base salary in the interval between his termination and the bankruptcy did not disqualify him from an allowable section 502(b)(7) claim for actual damages remaining “as of” the date of filing. Young v. Condor Sys. (In re Condor Sys.), 2003 Bankr. LEXIS 861, 296 B.R. 5 (B.A.P. 9th Cir. July 18, 2003) (Klein, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Postdischarge agreement
allowing debtors to retain jewelry in return for monthly payments to
creditor was an invalid reaffirmation agreement. 9th
Cir. PROCEDURAL POSTURE: Appellant creditor sought
review of a ruling from the Ninth Circuit Bankruptcy Appellate Panel,
which affirmed a bankruptcy court holding that an agreement between the
creditor and appellee debtors was an invalid reaffirmation agreement for
its failure to comply with 11 U.S.C. § 524(c). The bankruptcy
court’s decision also declared that the debtors were entitled to
rescind the agreement. OVERVIEW: The postbankruptcy
discharge agreement allowed the debtors to retain certain jewelry and
required the debtors to make monthly payments. After making one payment,
the debtors attempted to return the jewelry but the creditor would not
accept it. When the creditor threatened to sue the debtors, they
reopened their bankruptcy case and filed the instant action. The court
affirmed the judgment. The court found that the bankruptcy court
permissibly construed the debtors’ complaint to include a cause of
action for declaratory relief. The court also determined that the
agreement did not comply with 11 U.S.C. § 524’s procedural
requirements for reaffirmation agreements. Although the creditor
asserted that it offered the debtors new consideration in the form of
waiving its right of replevin, the court found that the consideration
was based in part on the debtors’ discharged debt. Because the
agreement was based in part on a discharged debt, it triggered scrutiny
pursuant to section 524(c). The court concluded that the
creditor’s attempt to reaffirm the debt did not comport with
section 524(c) because the agreement was entered after the discharge and
was not filed with the bankruptcy court. Bankruptcy
Receivables Management v. Lopez, 2003 U.S. App. LEXIS 19803,
— F.3d. — (9th Cir. September 26, 2003) (Hug,
C.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Preference action
upheld despite being filed after confirmation of chapter 11 plan where
plan, disclosure and confirmation order provided sufficient
notice. Bankr. D. Ariz. PROCEDURAL
POSTURE: Debtor filed a Chapter 11 petition under the
Bankruptcy Code and filed a Chapter 11 plan. Plaintiff liquidating
trustee filed an adversary action against defendant transferee and
alleged it received a voidable preference pursuant to 11 U.S.C. §
547. The transferee moved for summary judgment under Fed. R. Bankr. P.
7056. The liquidating trustee responded to the motion and cross-moved
for summary judgment. OVERVIEW: The transferee argued
that the complaint should be dismissed because the Chapter 11 plan
proponents failed to preserve any of the avoidance claims prior to plan
confirmation. The court rejected this position where it was clear that
the Chapter 11 plan, the disclosure statement under 11 U.S.C. §
1125, and the confirmation order provided more than adequate information
about the possibility that the transferee, and other creditors, were
susceptible to avoidance actions postconfirmation under 11 U.S.C. §
547. None of the language in any of the documents provided a specific
release or waiver of potential preference claims against the transferee.
The language in the pleadings was sufficient to put creditors on notice
that preference claims might have existed. In many of the large Chapter
11 cases, the plan of reorganization was often confirmed before the
debtor and/or a trustee had undertaken a detailed investigation of the
potential preference actions. The court concluded that the plan
proponents adequately disclosed and preserved potential avoidance
actions. The transferee was not entitled to summary judgment.
Ringel Valuation Servs. v. Shamrock Foods Co. (In re Arizona
Fast Foods, LLC), 2003 Bankr. LEXIS 1212, — B.R. —
(Bankr. D. Ariz. March 28, 2003) (Curley, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Debtors’ attempt to obtain reimposition of stay against
mortgagee could not be brought as a contested matter but required an
adversary proceeding. Bankr. D. Colo.
PROCEDURAL POSTURE: Debtor mortgagors converted their
Chapter 13 bankruptcy petition to Chapter 7 and creditor mortgagee
obtained unopposed relief from the automatic stay. Upon realizing that a
prior discharge precluded a Chapter 7 discharge, the mortgagors
reconverted their petition to Chapter 13 and moved under 11 U.S.C.
§ 105 to reimpose the automatic stay against the mortgagee.
OVERVIEW: The mortgagee contended that the automatic
stay could not be reimposed by way of a contested matter under §
105, rather than by way of an adversary proceeding. The bankruptcy court
held that reimposition of the automatic stay against the mortgagee could
only be sought by and through an adversary proceeding, and that §
105 provided no basis for reimposing the stay. The mortgagors’
reconversion of their petition did not automatically reinstate the stay,
and no extraordinary circumstances existed to reinstate the stay at the
behest of the mortgagors. Further, consideration of the
mortgagors’ request for essentially injunctive relief expressly
required an adversary proceeding under Fed. R. Bankr. P. 7001(7) rather
than a contested matter under section 105. In any event, the
mortgagors’ only real basis for seeking reimposition of the stay
was to allow the mortgagors more time to forestall the mortgagee which
provided no proper ground for injunctive relief. In re
Bryant, 2003 Bankr. LEXIS 887, 296 B.R. 516 (Bankr. D. Colo.
July 15, 2003) (Brooks, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
Debtor and associates sanctioned for
interference with trustee’s administration of probate asset to
detriment of creditors. Bankr. M.D. Fla.
PROCEDURAL POSTURE: Plaintiff bankruptcy trustee filed
an adversary proceeding against defendant debtor and others, in
connection with their efforts to thwart the trustee’s
administration of the debtor’s bankruptcy estate.
OVERVIEW: Litigation in this bankruptcy case involved a
dispute as to who should have ownership and control over a 15 percent
interest in a probate estate and putative claims against the executrix
of the probate estate. The instant court first concluded the debtor and
others violated the automatic stay. The automatic stay applied to acts
taken by them outside the bankruptcy court, prior to the time the
trustee sold the probate asset, to assert or usurp control over the
asset. The stay also applied to acts outside the bankruptcy case, after
the sale of the asset, as those acts were designed to attack the
estate’s right to possession of proceeds of the sale of the asset.
Each defendant acted willfully and intentionally in taking the
unjustifiable actions. The court limited its consideration to sanctions
for such acts under 11 U.S.C. § 105(a), excluding reliance on 11
U.S.C. § 362(h). Attorneys fees and costs the trustee sought were
eminently reasonable under the Johnson factors. Further, the debtor and
others had a unit of purpose — to return the asset to the debtor.
Joint and several liability was appropriate. Inter alia, the court found
the debtor and other violated a sanctions order. Henkel v.
Lickman (In re Lickman), 2003 Bankr. LEXIS 871, 297 B.R. 162
(Bankr. M.D. Fla. July 25, 2003) (Corcoran, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Restitution order that
was not payable to and for the benefit of a governmental unit was
dischargeable. Bankr. S.D. Fla. PROCEDURAL
POSTURE: Plaintiff debtor filed a voluntary Chapter 7 petition
under the Bankruptcy Code and received a discharge. The debtor filed an
adversary action against defendant creditor and sought a determination
of the dischargeability of debt pursuant to 11 U.S.C. § 523(a)(7).
Both parties moved for summary judgment under Fed. R. Bankr. P. 7056.
The parties responded to the summary judgment motions.
OVERVIEW: The debtor asserted that the debt in the
restitution order was dischargeable in bankruptcy where this debt did
not constitute a fine, penalty, or forfeiture payable to and for the
benefit of a governmental unit. Instead it was compensation for actual
pecuniary loss. The creditor disagreed and asserted that the debt was
nondischargeable pursuant to 11 U.S.C. § 523(a)(7). The restitution
order in issue required the debtor to repay his victims in accordance
with Florida law, but the victims did not constitute a governmental
unit. The bankruptcy court found that the debtor’s restitution
order was a fine and was not for the compensation of his victims’
actual pecuniary loss, which satisfied the first and third requirements
under section 523(a)(7). However, the second requirement, that the
amount be payable to and for the benefit of a governmental unit, was not
satisfied in this case. The debtor’s restitution obligation was
dischargeable, and the debtor was entitled to summary judgment under
Fed. R. Civ. P. 56, which was applicable in bankruptcy proceedings by
Fed. R. Bankr. P. 7056. Verola v. Colton (In re
Verola), 2003 Bankr. LEXIS 869, 296 B.R. 266 (Bankr. S.D. Fla.
July 8, 2003) (Friedman, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
Collier Bankruptcy Case Update March-10-03
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.
March 10, 2003
CASES IN THIS ISSUE
(scroll down to read the full summary)
§ 1307(c) Debtor’s bad faith concealment
of personal injury claim prevented conversion from chapter 7 to chapter 13 upon
objection of trustee.
Cabral v. Shamban (In re Cabral) (B.A.P. 1st Cir.)
Rule 9006(b)(1)(2) One-month delay in filing designation
of items to be included in record on appeal was not excusable neglect.
EnvisioNet Computer Servs. v. ECS Funding LLC (D. Me.)
2d Cir.
§ 523(a)(1) Federal tax debt was nondischargeable
where debtor was tax attorney who the evidence showed intended to evade taxes.
Colish v. United States (In re Colish) (Bankr. E.D.N.Y.)
28 U.S.C. § 157(d) Debtor’s bad faith and
breach of contract action against insurer was non-core and withdrawal of reference
to bankruptcy court was appropriate.
Lawrence Group, Inc. v. Hartford Cas. Ins. Co. (In re Lawrence Group, Inc.)
(N.D.N.Y.)
28 U.S.C. § 157(d) Matter filed ancillary to foreign
proceeding was a core proceeding and not subject to mandatory withdrawal.
In re Agency for Deposit Ins. (S.D.N.Y.)
28 U.S.C. § 1452 Remand of claims against joint
venture and partnership debtors on equitable grounds would be contrary to the
interests of justice.
ML Media Partners, LP v. Century/ML Cable Venture (In re Adelphia Communications
Corp.) (Bankr. S.D.N.Y.)
3rd Cir.
§ 502(b)(2) Where debtor’s illness impeded
completion of original plan, IRS could not claim interest and penalties accumulated
prior to second good faith petition.
Kepner v. United States (In re Kepner) (Bankr. M.D. Pa.)
§ 506 Oversecured creditor’s claim for attorneys’
fees allowed with reduction for unnecessary litigation given low risk of loss.
In re Precision Tool & Die Mfg. Co. (Bankr. W.D. Pa.)
§ 523(a)(2)(A) Loan servicer allowed to maintain
nondischargeability claim against debtor based on alleged misrepresentations
in an environmental indemnity agreement.
Criimi Mae Servs. Ltd. P’ship v. Hurley (In re Hurley) (Bankr.
D.N.J.)
4th Cir.§ 522(b)(2)(B) Joint debtors allowed homestead exemptions in property owned as tenants by entirety.
Bunker v. Peyton (In re Bunker) (4th Cir.)
6th Cir.
§ 503(b)(1) Postpetition rents and late fees
due on washing machines were priority administrative expenses.
In re Palace Quality Servs. Indus., Inc. (Bankr. E.D. Mich.)
§ 522(b) Excess fees returned by petition preparer
to trustee could be exempted by debtor.
In re Haney (Bankr. N.D. Ohio)
§ 553 Debtor’s breach of contract claim
against insurer completely setoff by insurer’s claim for indemnification.
Roberds, Inc. v. Lumbermen’s Mutual Cas. Co. (In re Roberds, Inc.)
(Bankr. S.D. Ohio)
7th Cir.
§ 362 Automatic stay did not extend to debtor’s
joint venurer that was also debtor’s co-defendant in state lawsuit.
El Puerto de Liverpool v. Servi Mundo Llantero U.S.A., Inc. (In re Kmart
Corp.) (Bankr. N.D. Ill.)
8th Cir.
§ 1322(c) Debtor could redeem foreclosed mortgage through chapter 13 plan where foreclosure sale was not completed until the day after the petition was filed.
In re Brown (Bankr. W.D. Ark.)
9th Cir.
§ 1325(c) IRS required to pay refunds directly to trustee where debtors specifically committed refunds to their respective plans.
In re McMillan (Bankr. W.D. Wash.)
10th Cir.
§ 343 Employer’s work restrictions were not grounds for debtor to be excused from appearing at creditors’ meeting.
In re Agan (Bankr. W.D. Okla.)
11th Cir.
§ 506 Security interest in mobile home was valid against debtor even without perfection and was a secured claim.
Shropshire v. Oakwood Acceptance Corp. (In re Shropshire) (Bankr. N.D. Ala.)
§ 507(a)(8)(A) Tax liability not dischargeable in chapter 7 proceeding because three-year look-back period was tolled during debtor’s prior bankruptcy and had not expired upon filing.
Williamson v. United States (In re Williamson) (Bankr. M.D. Fla.)
§ 522(d)(11) Debtor’s restitution for pecuniary loss from wrongful conversion was not subject to exemption.
In re Seymour (Bankr. N.D. Ga.)
§ 706(d) Existence of unvacated chapter 7 discharge did not bar conversion to chapter 13 provided plan was proposed in good faith.
In re Carter (Bankr. N.D. Ga.)
Collier Bankruptcy Case Summaries
1st Cir.
Debtor’s bad faith concealment of personal
injury claim prevented conversion from chapter 7 to chapter 13 upon objection
of trustee. B.A.P. 1st Cir. PROCEDURAL POSTURE:
Appellant bankruptcy debtor converted her chapter 7 petition to a chapter
13 petition, but the trustee opposed the conversion based on the debtor’s
monthly income deficit and her bad faith. The debtor appealed the order of
the Bankruptcy Court for the District of Massachusetts which allowed the trustee’s
opposition, granted the trustee’s motion for reconsideration of the
conversion, and reconverted the petition to chapter 7. OVERVIEW:
The trustee contended that conversion was inappropriate based on the debtor’s
bad faith in attempting to conceal the value of a personal injury claim from
her creditors to their detriment, especially in view of the disparity between
the debtor’s original schedule of assets and liabilities and her amended
schedule. The debtor argued that the trustee’s factual representations,
without an evidentiary hearing, did not support reconversion. The bankruptcy
appellate panel held that the evidence of the debtor’s bad faith in
converting her petition and submitting her chapter 13 plan warranted the reconversion.
The debtor provided misleading testimony at the meeting of creditors, submitted
substantially disparate schedules of her assets and liabilities, and omitted
any reference to the likelihood of a substantial settlement for her personal
injury claim in her proposed chapter 13 plan. Further, no evidentiary hearing
was required since the debtor did not dispute any facts asserted by the trustee
nor did she request such a hearing. Also, the relief sought by the trustee
required a showing of bad faith, and thus the debtor had sufficient notice
that her good faith was in issue. Cabral v. Shamban (In re Cabral),
2002 Bankr. LEXIS 1310, 285 B.R. 563 (B.A.P. 1st Cir. November
21, 2002) (Lamoutte, B.A.P.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1307.04 [back
to top]
ABI Members, click here to get the full opinion.
One-month delay in filing designation
of items to be included in record on appeal was not excusable neglect.
D. Me. PROCEDURAL POSTURE: Appellant debtor moved,
pursuant to Fed. R. Bankr. P. 9006(b)(1), (2) for an extension of time to
file the designation of the record on appeal. Appellee creditors objected
to the motion. OVERVIEW: The debtor filed a complaint to
surcharge the creditors pursuant to 11 U.S.C. § 506(c). The bankruptcy
court dismissed the complaint, and while the debtor timely appealed, he failed
to file the required designation of items to be included in the record on
appeal and statement of the issues within 10 days as required by Fed. R. Bankr.
P. 8006. The court denied the debtor’s motion for an extension of time
within which to file the designation under Fed. R. Bankr. P. 9006(b)(1), (2)
holding that there was no excusable neglect. Given Fed. R. Bankr. P. 8006’s
clear statement of the filing requirements, the failure of the debtor’s
counsel to calendar the deadline did not amount to a unique or extraordinary
circumstance. The one-month delay in filing the designation and the additional
time expended to resolve the instant motion prejudiced the creditors. The
debtor’s additional one-week delay in filing the designation after learning
that it had not been timely filed demonstrated a lack of good faith. EnvisioNet
Computer Servs. v. ECS Funding LLC, 2002 U.S. Dist. LEXIS
22502, — B.R. — (D. Me. November 21, 2002) (Carter, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9006.06 [back
to top]
2d Cir.
Federal tax debt was nondischargeable where debtor was tax attorney who the evidence showed intended to evade taxes. Bankr. E.D.N.Y. PROCEDURAL POSTURE: Plaintiff debtor filed a complaint against defendant federal government to have his federal tax debt declared dischargeable under 11 U.S.C. § 523(a)(1). The federal government filed a complaint seeking a determination that the debtor’s previous chapter 7 discharge should be revoked pursuant to 11 U.S.C. § 727(d)(2). OVERVIEW: The debtor claimed that he had been attempting to reach a settlement with the federal government on prior taxes, that he did not have enough money on hand to pay his taxes, and that he led a frugal modest lifestyle and was faced with financial support to his family. The court initially held that the debtor’s federal tax debt was nondischargeable under 11 U.S.C. § 523(a)(1)(C) because the evidence demonstrated that the debtor intended to evade or defeat taxes. The court found that the debtor was a tax attorney who knew that he was required to pay his tax liabilities, that the debtor attempted to thwart or delay the collection of his tax liabilities, and that the debtor failed to disclose a trust interest to the bankruptcy court. The court further held that the debtor’s previous discharge was revoked under 11 U.S.C. § 727(d)(2) because the federal government carried its burden of showing that the debtor knowingly and fraudulently failed to report or surrender his remainder interest in his trust, and the federal tax lien could be satisfied against any income distributions of the trust because the liens attached to the debtor’s property prior to his bankruptcy filing. Colish v. United States (In re Colish), 2002 Bankr. LEXIS 1304, — B.R. — (Bankr. E.D.N.Y. October 23, 2002) (Craig, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.07 [back to top]
ABI Members, click here to get the full opinion.
Debtor’s bad faith and breach
of contract action against insurer was non-core and withdrawal of reference
to bankruptcy court was appropriate. N.D.N.Y. PROCEDURAL
POSTURE: Plaintiff debtor commenced an adversary proceeding in bankruptcy
court against defendant insurance company alleging causes of action for breach
of contract and breach of the covenant of good faith and fair dealing arising
out of an insurance policy. The insurance company moved pursuant to 28 U.S.C.
§ 157(d) and Fed. R. Bankr. P. 5011(a) for an order withdrawing the reference
of this matter to the bankruptcy court. OVERVIEW: The insurance
company insured the debtor against loss occasioned by employee dishonesty. An
employee of the debtor misdirected and diverted certain funds and employee contributions
and as a result the debtor failed to make certain payments. The debtor filed
a claim to recover the loss, which was denied. The insurance company insisted
that any recovery under the insurance policy would merely augment the general
bankruptcy estate, and therefore, did not have a sufficient nexus to the administration
of the bankruptcy estate to render the matter “core.” The bankruptcy
court agreed. The instant matter involved ordinary state-law claims on a first-party
insurance contract and did not otherwise implicate the debtor’s rights
under the bankruptcy code. The only relationship this action had to the bankruptcy
proceedings was that determination of the action would affect the ultimate size
of the estate. Accordingly, this was a non-core matter. Taking into consideration
the insurance company’s potential rights to a jury trial, judicial economy,
delay, uniformity of bankruptcy administration, and the prevention of forum
shopping, the reference should be withdrawn. Lawrence Group, Inc.
v. Hartford Cas. Ins. Co. (In re Lawrence Group, Inc.), 2002 U.S. Dist.
LEXIS 22782, 285 B.R. 784 (N.D.N.Y. November 15, 2002) (Hurd, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.04 [back
to top]
ABI Members, click here to get the full opinion.
Matter filed ancillary to foreign
proceeding was a core proceeding and not subject to mandatory withdrawal. S.D.N.Y.
PROCEDURAL POSTURE: The movants, the United States, with the concurrence
of the Superintendent of Banks for the State of New York, filed a motion under
28 U.S.C. § 157(d) for mandatory withdrawal of the reference of the action
to the bankruptcy court. The motion was opposed by a banking rehabilitation
agency on behalf of the debtors in foreign proceedings. The court granted a
stay pending its decision on the merits of the United States’ motion.
OVERVIEW: The claim sought to be withdrawn from the reference
to the bankruptcy court was filed by a foreign representative pursuant to 11
U.S.C. § 304. Upon consideration of the United States’ motion, the
court denied the motion to withdraw the reference, lifted the stay, and directed
that the matter may proceed in the bankruptcy court. The court held that the
case did not qualify for mandatory withdrawal under 28 U.S.C. § 157(d)
because it raised no conflict between Title 11 and other federal laws. The court
further held that permissive withdrawal under section 157(d) was inappropriate.
The court stated that the claim brought by the foreign representative under
11 U.S.C. § 304 would appear to be a core proceeding under the bankruptcy
laws. Moreover, neither judicial efficiency nor uniformity of bankruptcy administration
would be materially advanced by a withdrawal of the reference in the instant
case because there were no related cases pending before the court. The court
stated that counsel for the banking agency made a convincing showing that forum
shopping was not involved in the case. The court further stated that it found
no other compelling reason to withdraw the reference. In re Agency for
Deposit Ins., 2002 U.S. Dist. LEXIS 24838, — B.R. — (S.D.N.Y. December
30, 2002) (Rakoff, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.04 [back
to top]
ABI Members, click here to get the full opinion.
Remand of claims against joint
venture and partnership debtors on equitable grounds would be contrary to the
interests of justice. Bankr. S.D.N.Y. PROCEDURAL POSTURE:
Plaintiff creditor moved to remand to state court two of its seven causes of
action — claims it asserted against the two of the four defendants which,
at the time of filing of the motion, were not chapter 11 debtors: a joint venture
and a partnership. OVERVIEW: The creditor argued in favor of
remand that: (1) the court lacked subject matter jurisdiction under the relevant
jurisdictional statute, 28 U.S.C. § 1334(b); (2) the court should abstain
from hearing those claims, based on the jurisdictional statute’s permissive
and mandatory abstention provisions, 28 U.S.C. §§ 1334(c)(1) and (c)(2);
and (3) the court should remand on equitable grounds, under 28 U.S.C. §
1452(b). The court concluded that it had subject matter jurisdiction over the
claims against the joint venture where the property sought was property of the
joint venture, its claims would have had more than a “conceivable effect”
on two debtors, and its claims were “related to” two chapter 11
cases. The court also found jurisdiction over the partnership where the requisite
conceivable effect existed. Second, the court concluded that it should hold
that mandatory abstention was inapplicable in cases where a state court action
was removed to the bankruptcy court, and there was no other similar state court
action currently pending. Third, reviewing “Drexel factors,” it
found that remand on equitable grounds was unwarranted, and would be contrary
to the interests of justice. ML Media Partners, LP v. Century/ML
Cable Venture (In re Adelphia Communications Corp.), 2002 Bankr. LEXIS
1326, 285 B.R. 127 (Bankr. S.D.N.Y. November 8, 2002) (Gerber, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.07 [back
to top]
ABI Members, click here to get the full opinion.
3rd Cir.
Where
debtor’s illness impeded completion of original plan, IRS could not claim
interest and penalties accumulated prior to second good faith petition. Bankr.
M.D. Pa. PROCEDURAL POSTURE: Respondent United States,
for the Internal Revenue Service (“IRS”) filed a proof of claim
in the second chapter 13 petition filed by objectant debtor, which included
interest and penalties that has accrued after the debtor stopped making payments
pursuant to his first bankruptcy plan. The debtor objected to the imposition
of the interest and penalties in the proof of claim. OVERVIEW:
The debtor filed his first bankruptcy petition and the IRS filed a proof of
claim for $17,216. Petitioner was able to make payments through the approved
plan of some $7,000, but then became sick and was not able to make the plan
payments. Petitioner filed a second chapter 13 petition for bankruptcy on August
3, 1999 and voluntarily dismissed the first petition on October 14, 1999. The
IRS filed a proof of claim in the second petition that included the remaining
balance plus interest and penalties that had accrued up to August 3, 1999. The
debtor objected, contending that 11 U.S.C. § 502(b)(2) precluded the inclusion
of interest and penalties that had not matured because of the stay imposed by
the first bankruptcy filing. The court held that the debtor’s second petition
was not made in bad faith, and the brief existence of two chapter 13 petitions
for a short period of overlap did not result in an abuse of the Bankruptcy Code.
The court noted that the issue of two petitions was contemplated by Fed. R.
Bankr. P. 1015(a). The court held that the filing of the second petition did
not have a nullifying effect on the first petition. Kepner v. United
States (In re Kepner), 2002 Bankr. LEXIS 1303, — B.R.
— (Bankr. M.D. Pa. October 16, 2002) (Thomas, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.03[3] [back
to top]
ABI Members, click here to get the full opinion.
Oversecured creditor’s claim
for attorneys’ fees allowed with reduction for unnecessary litigation
given low risk of loss. Bankr. W.D. Pa. PROCEDURAL
POSTURE: The debtor filed a voluntary chapter 11 petition under the
Bankruptcy Code. A bank filed an application for final payment of professional
fees and expenses. OVERVIEW: The bank was at all times an oversecured
creditor. The value of its collateral was many times the amount of its claim.
The court found that there was never any question as to the validity of the
bank’s secured claim. The bank had little, if any, risk of loss where
the debtor operated profitably during the case. The bank’s claim was steadily
reduced as the debtor made regular monthly payments. The court found that it
was not reasonable for the bank to expend an amount in legal fees to oppose
the distribution to the shareholder to pay income taxes incurred as a result
of the debtor’s profitability. The debtor was scheduled to pay the bank
in full in only a few months with regular monthly payments, which the debtor
had timely paid to date. The bank’s election to spend legal fees to oppose
the distribution was an unwarranted expenditure the court would not approve.
In re Precision Tool & Die Mfg. Co., 2002 Bankr. LEXIS
1293, 285 B.R. 621 (Bankr. W.D. Pa. November 19, 2002) (Bentz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.01 [back
to top]
ABI Members, click here to get the full opinion.
Loan servicer allowed to maintain nondischargeability
claim against debtor based on alleged misrepresentations in an environmental
indemnity agreement. Bankr. D.N.J. PROCEDURAL POSTURE:
Plaintiff, the special servicer of a trust fund, initiated an adversary proceeding
seeking a finding of nondischargeability pursuant to 11 U.S.C. § 523(a)(2)(A).
Defendant debtor moved for summary judgment. OVERVIEW: The
original lender made a loan to the debtor, and the debtor executed a mortgage
and security agreement on real property. The loan documents included an environmental
indemnity agreement (“EIA”). The loan was purchased and then sold
to a trustee. The special servicer sought denial of the debtor’s discharge
based on alleged misrepresentations made by the debtor in the EIA. The special
servicer alleged that the debtor knew the property was environmentally contaminated
and misrepresented the extent of the contamination in obtaining the loan. The
court determined that the debtor was not entitled to summary judgment. The special
servicer provided evidence that, if proven true, would dispute the debtor’s
contention that he did not misrepresent the extent of any contamination on the
property. Also, additional discovery was necessary to determine whether each
successor in interest to the original lender justifiably relied on the alleged
misrepresentations. Finally, the entire controversy doctrine did not collaterally
estop the special servicer from bringing the action, because the special servicer’s
action was under the exclusive jurisdiction of the bankruptcy court. Criimi
Mae Servs. Ltd. P’ship v. Hurley (In re Hurley), 2002 Bankr.
LEXIS 1309, 285 B.R. 871 (Bankr. D.N.J. November 22, 2002) (Gindin, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08[1] [back
to top]
ABI Members, click here to get the full opinion.
4th Cir
Joint
debtors allowed homestead exemptions in property owned as tenants by entirety.
4th Cir. PROCEDURAL POSTURE: In two separate
cases, appellee debtors sought to exempt their homes, which they held as tenants
by the entirety. The bankruptcy court sustained appellant bankruptcy trustee’s
objections. The debtors appealed, and the District Court for the Eastern District
of Virginia, at Alexandria reversed, concluding that the debtors should have
been allowed to claim their homes as exempt under 11 U.S.C. § 522(b)(2)(B).
The trustee appealed. OVERVIEW: The trustee
could not unite the entireties interests of spouses in a joint case and dispose
of the property if the spouses asserted valid claims of exemption under 11 U.S.C.
§ 522(b)(2)(B). In the case of the first pair of debtors, none of the unsecured
creditors was a joint creditor of the husband and wife; each of those creditors
was an individual creditor with a claim against either the husband or the wife.
The governing exemption provision, 11 U.S.C. § 522(b)(2)(B), pointed the
court to Virginia law, which shielded entireties property from the claims of
the individual creditors of either spouse. Thus, those debtors could exempt
their home under 11 U.S.C. § 522(b)(2)(B) to the extent of their equity.
As to the other pair of debtors, their innocent practice of commingling their
finances did not convert their individual creditors into joint creditors under
Virginia entireties law. An individual creditor of one of those debtors could
not reach their entireties property under Virginia law. The property was exempt
from process under applicable nonbankruptcy law, and those debtors could also
claim the entireties exemption with respect to their home to the extent of the
equity. Bunker v. Peyton (In re Bunker), 2002
U.S. App. LEXIS 23908, 312 F.3d 145 (4th Cir. November 21, 2002) (Michael, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.08[4] [back
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Postpetition rents and
late fees due on washing machines were priority administrative expenses. Bankr.
E.D. Mich. PROCEDURAL POSTURE: Debtor filed for relief
under chapter 11, operated under chapter 11 for some time, and remained in the
chapter 11 proceeding as a non-operating entity for approximately five months.
Then debtor converted to chapter 7. The trustee did not assume or reject creditor
lessor’s lease, so it was deemed rejected as a matter of law. The lessor
moved for allowance and payment of administrative expense claims. OVERVIEW:
Debtor had leased two washing machines from the lessor for use in its
commercial laundry business. Neither the lessor nor the chapter 7 trustee made
any effort to remove the washers from debtor’s former business premises
after the lease was rejected. The issue before the court was whether the lessor
could recover the actual postpetition rents and late fees due under the lease
agreement which arose prior to its rejection. Inter alia, the court concluded
that the lessor could file an administrative costs claim, since the unpaid rents
and late fees were expenses entitled to administrative priority under 11 U.S.C.
§ 503(b)(1). When debtor entered into the lease, it acquired the right
to possess and use the washers for the term of that lease notwithstanding the
lessor’s ownership interest. This right became property of the estate.
The “cost” of preserving this right was the continued payment of
the rent which debtor had agreed to pay for the leasehold interest. The estate’s
obligation to pay the rent ceased only when the lease was deemed rejected. The
court refused, however, to order that the chapter 7 trustee pay the lessor’s
administrative claims immediately. In re Palace Quality Servs. Indus.,
Inc., 2002 Bankr. LEXIS 1288, 283 B.R. 868 (Bankr. E.D. Mich.
October 9, 2002) (Hughes, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.04 [back
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Excess fees returned by petition
preparer to trustee could be exempted by debtor. Bankr. N.D. Ohio
PROCEDURAL POSTURE: The United States trustee filed a motion
under 11 U.S.C. § 110 to fine the debtor’s bankruptcy petition preparer
and for an order requiring the refund of excessive fees collected by the preparer.
In his response, the preparer requested that the court enjoin the trustee from
continuing to attempt to prevent debtors from using the services of a petition
preparer. OVERVIEW: The debtor gave $300 to the preparer, of
which $200 was a money order payable to the court clerk for the filing fee.
A postpetition balance $258 was being collected by a collection agency. The
practice of law, as defined by the Ohio Supreme Court under Ohio Const. art.
IV, § 5, was expansive. The court did not find that the preparer’s
oversight of the physical filing of the petition was a separate, sanctionable
violation of 11 U.S.C. § 110(g)(1). But accepting and handling checks payable
to the court clerk violated section 110(g)(1). By controlling the filing fee,
even though it was not deposited in his account, he received the benefit of
having a captive client without practical recourse to do anything differently.
A $20 fine was assessed under 11 U.S.C. § 110(g)(2). That the preparer’s
fees may have been approved by other judges was not binding. The debtor’s
case was routine. A fee of $200 was the maximum value of the permitted services
provided by the preparer to the debtor. Any amount collected by the preparer
greater than $200, other than the filing fee, had to be paid to the trustee.
The debtor could exempt that amount under 11 U.S.C. § 522(b). In
re Haney, 2002 Bankr. LEXIS 1252, 284 B.R. 841 (Bankr. N.D. Ohio September
23, 2002) (Whipple, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.02 [back
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Debtor’s breach of contract
claim against insurer completely setoff by insurer’s claim for indemnification.
Bankr. S.D. Ohio PROCEDURAL POSTURE: The
debtor filed a breach of contract adversary proceeding against creditor insurer
under a commercial crime policy. The insurer claimed amounts due from the debtor
under bonds the insurer issued in favor of the debtor, and claimed that the
debtor’s breach of contract claim was prepetition and would be completely
setoff by the insurer’s prepetition indemnification claim under 11 U.S.C.
§ 553. The insurer filed a motion for summary judgment. OVERVIEW:
It was agreed that any indemnification owed by the debtor was a prepetition
claim. Under the conduct test, almost all of the conduct relating to the crime
policy claim, the signing and issuance of the insurance contract, the debtor’s
knowledge of the theft rings, and the debtor’s formal claim, were prepetition.
Under the relationship test, the relationship between the debtor and the insurer
was formed prepetition. The bonds and the insurance policy were issued prepetition.
The thefts occurred prepetition. Under the foreseeability test, it was to be
expected that a prepetition theft ring would lead to potential liability under
insurance coverage. The debtor’s postpetition filing of a proof of loss
did not change the prepetition nature of the debtor’s claim. Ohio law
provided that the cause of action (the claim) accrued at the time of the loss.
The time of the loss occurred prepetition. Both the bond indemnification claim
and the debtor’s breach of contract claim were prepetition claims. Mutuality
was not disputed and the action involved the same parties and insurance contract
that existed prepetition. The bond payments were made as required by the indemnity
agreements. Roberds, Inc. v. Lumbermen’s Mutual Cas. Co. (In
re Roberds, Inc.), 2002 Bankr. LEXIS 1323, 285 B.R. 651 (Bankr. S.D.
Ohio October 10, 2002) (Waldron, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:553.01 [back
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7th Cir.
Automatic stay did not extend to debtor’s
joint venurer that was also debtor’s co-defendant in state lawsuit. Bankr.
N.D. Ill. PROCEDURAL POSTURE: Plaintiff, a joint venturer
with bankruptcy debtor, brought an adversary action pursuant to 11 U.S.C. §§
362 and 105, seeking to stay a civil lawsuit filed in Texas against both the
venturer and the debtor. OVERVIEW: The joint venturer argued
that its interests were so intertwined with the debtor’s that allowing
the suit against it to continue constituted a suit against the debtor, and that
the court should enjoin the Texas proceeding against it because the outcome
could threaten property of the estate and debtor’s successful reorganization.
The court noted that the automatic stay already protected the debtor, and there
was no need or justification for extending the stay to the venturer. The fact
that the venturer would have to defend the suit by itself was not a factor the
court would consider regarding the stay. It and the debtor did not share sufficient
identity of interest to do so, and there was no indemnification agreement under
the joint venture contract between them. Indemnification against debtor’s
assets must be a necessary consequence, and not merely a possible claim. The
Texas case plaintiff agreed to stipulate that it would not any findings derived
from the Texas trial against the debtor. El Puerto de Liverpool
v. Servi Mundo Llantero U.S.A., Inc. (In re Kmart Corp.), 2002
Bankr. LEXIS 1308, 285 B.R. 679 (Bankr. N.D. Ill. November 15, 2002) (Schmetterer,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back
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8th Cir.
Debtor could redeem foreclosed mortgage through
chapter 13 plan where foreclosure sale was not completed until the day after
the petition was filed. Bankr. W.D. Ark. PROCEDURAL
POSTURE: A creditor, the debtor’s mortgagor, filed an objection
to confirmation of the debtor’s chapter 13 plan and a motion for relief
from the automatic stay on the grounds that the debtor’s home had been
sold at a foreclosure sale concluded before the date the petition for bankruptcy
had been filed. The creditor argued that 11 U.S.C. § 1322(c) precluded
the debtor from curing the default through his plan. OVERVIEW:
The debtor had filed bankruptcy on March 19. The foreclosure decree provided
in part that upon the sale of the property all the right, title, claim, equity,
interest, and estate of the debtor would be forever barred and foreclosed, including
all legal or equitable rights of redemption. The sale was conducted on March
12. The state court appointed commissioner filed his report of sale and commissioner’s
deed with the county clerk on March 20. Also on March 20 the state court issued
an order of confirmation confirming the sale. The bankruptcy court noted that
under Arkansas law, a judicial foreclosure sale was complete upon confirmation
of the sale by the court. In the debtor’s case, which involved a judicial
foreclosure, the bankruptcy petition was filed the day before the order confirming
the sale was entered. Therefore, the debtor was not precluded by 11 U.S.C. §
1322(c)(1) from curing the default since the judicial foreclosure sale was not
complete until after the petition was filed. The entry of the order confirming
the sale occurred after the bankruptcy case was filed and thus resulted in a
technical violation of the automatic stay. That order was thus void and of no
effect. In re Brown, 2002 Bankr. LEXIS 1185, 282
B.R. 880 (Bankr. W.D. Ark. August 23, 2002) (Mixon, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.01 [back
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9th Cir.
IRS required to pay refunds
directly to trustee where debtors specifically committed refunds to their respective
plans. Bankr. W.D. Wash. PROCEDURAL POSTURE:
In separate cases, a debtor filed a chapter 7 petition which was later converted
to chapter 13, and a second debtor filed a chapter 13 petition. The chapter
13 trustee filed motions for orders requiring the Internal Revenue Service (“IRS”)
to send the debtors’ tax refunds to the trustee and the IRS objected.
Because the issues presented in the matters were similar, the court resolved
both matters in a single decision. OVERVIEW: The IRS was served
with a notice and motion for an order requiring the IRS to send the debtors’
tax refunds to the chapter 13 trustee. The bankruptcy court found that the debtors
in both cases voluntarily agreed to commit all or a portion of their tax refunds
to their respective chapter 13 plans. In its objection, the IRS claimed that:
(1) the trustee failed to show that tax refunds were projected disposable net
income; (2) the Assignment of Claims Act, 31 U.S.C. § 3727, prohibited
the IRS from remitting the refunds to the trustee; and (3) a requirement that
the IRS was to remit the refunds to the trustee imposed an unfair administrative
burden on the IRS. The court identified the controlling case where a party objects
to plan confirmation on the basis that the debtor refused to commit actual,
as opposed to projected, future income to the plan, which the IRS asserted.
However, in these matters the debtors had already volunteered their refunds.
The court noted that the principals its decision only applied to chapter 13
cases where a debtor’s plan specifically committed tax refunds to the
plan. In re McMillan, 2002 Bankr. LEXIS 1290,
285 B.R. 480 (Bankr. W.D. Wash. October 22, 2002) (Snyder, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.09 [back
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Employer’s work restrictions were
not grounds for debtor to be excused from appearing at creditors’
meeting. Bankr. W.D. Okla. PROCEDURAL POSTURE:
Husband and wife debtors filed a chapter 7 petition. The wife filed a
motion to seek a court order to excuse her from an appearance at the creditors’
meeting due to her employer’s alleged work restrictions. The motion
was unopposed. OVERVIEW: The court found that the plain
language of 11 U.S.C. § 343 mandated that the wife appear for the
creditors’ meeting, but the court recognized that in other instances
the Bankruptcy Code permitted the bankruptcy courts to exercise discretion
and reach results based upon cause or a similar finding. Section 343 was
silent on the issue of judicial discretion and did not provide for an
exercise of any judicial discretion. The court believed that the failure
of Congress to include such discretion in the statutory language regarding
attendance at a mandatory creditors’ meeting was intentional. The
court found that with limited exceptions for: (1) illness; (2) incarceration;
and (3) military service, debtors who were unable to attend a required
creditors’ meeting were ineligible for bankruptcy relief.
In re Agan, 2002 Bankr. LEXIS 1312, 285 B.R. 324
(Bankr. W.D. Okla. November 1, 2002) (Bohanon, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:343.01 [back
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11th Cir.
Security interest in mobile home was valid against debtor even without perfection and was a secured claim. Bankr. N.D. Ala. PROCEDURAL POSTURE: Plaintiff debtor brought an adversary proceeding against defendant creditors, i.e., a servicer and a bank, seeking a determination as to the validity, priority, or extent of the liens held by the creditors. The court held a hearing and was ready to issue its findings of fact and conclusions of law. OVERVIEW: The servicer filed two proofs of claim for a secured claim in the amount of $30,991. A third claim changed the identity of the creditor to a bank. The debtor had bought a mobile home under an installment contract which gave the seller a security interest. The contract was assigned to a financing company, and the servicer was to service the contract. The certificate of title identified the financing company as the lienholder. The bank became the holder of the contract. The court held that: (1) the bank was the current holder of the claim; (2) the original agreement created a security interest, and the assignment of that security interest did not affect the validity of the security interest; and (3) under 11 U.S.C. § 506(a), an allowed claim secured by a lien on property was a secured claim. The court further held that perfection merely served to put creditors on notice of a prior security interest; the security interest was valid against the debtor even without perfection. Last, the court held that the debtor failed to meet its burden with regard to challenging the secured portion of the claim so the amount of the secured claim was the amount claimed. Shropshire v. Oakwood Acceptance Corp. (In re Shropshire), 2002 Bankr. LEXIS 1316, 284 B.R. 145 (Bankr. N.D. Ala. August 6, 2002) (Sledge, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.01 [back to top]
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Tax liability not dischargeable
in chapter 7 proceeding because three-year look-back period was tolled
during debtor’s prior bankruptcy and had not expired upon filing.
Bankr. M.D. Fla. PROCEDURAL POSTURE:
The chapter 7 debtor filed an adversary action seeking a determination
that his assessed, unpaid 1998 tax liability was dischargeable. The creditor
United States moved to dismiss, arguing that the three-year look-back
period of 11 U.S.C. § 507(a)(8)(A)(i) was tolled during the 167 days
of the debtor’s previous chapter 13. The court treated the motion
as a motion for summary judgment under Fed. R. Civ. P. 12(b) and Fed.
R. Bankr. P. 7012(b). OVERVIEW: The assessed unpaid federal
income tax liabilities for 1998, the return for which was due to be filed
on April 15, 1999, would have been dischargeable if the debtor had filed
his bankruptcy petition after April 15, 2002, under 11 U.S.C. §§
523(a)(1)(A) and 507(a)(8)(A)(i). However, the tax liabilities were not
dischargeable because the three-year look-back period of section 507(a)(8)(A)(i)
was tolled during the 167 days of the debtor’s previous chapter
13 bankruptcy. The debtor had filed his chapter 7 petition on May 21,
2002. When the 167 days which have been tolled were added to the three
years set forth in section 507(a)(8)(A)(i), the relevant look-back period
became three years and 167 days. The chapter 7 petition was filed only
three years and 36 days after his 1998 federal income tax return was due.
The tax liability was therefore not discharged by the entry of the debtor’s
discharge entered under 11 U.S.C. § 727. Williamson v.
United States (In re Williamson), 2002 Bankr. LEXIS
1300, — B.R. — (Bankr. M.D. Fla. October 21, 2002) (Williamson,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.10[2] [back
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Debtor’s restitution for
pecuniary loss from wrongful conversion was not subject to exemption.
Bankr. N.D. Ga. PROCEDURAL POSTURE:
The bankruptcy trustee filed a motion to disallow an exemption claimed
by the debtors in their proceedings under chapter 7. The debtors claimed
an exemption, pursuant to O.C.G.A. § 44-13-100(a)(11)(A), for $20,000
in restitution payments that the debtors received. OVERVIEW:
The debtors were ordered to receive $200 a month, for a total payment
of $20,000, as restitution payments from a defendant who had been convicted
of criminal conversion, in part because defendant never performed improvements
on the debtors’ property and the debtors had already paid defendant
for the improvements. The debtors claimed in their chapter 7 proceeding
that the payments were exempt from consideration as part of the bankruptcy
estate under section 44-14-100(a)(11)(A). The court noted that there was
not any caselaw interpreting section 44-14-100(a)(11)(A), but that the
language was identical to the exemption provisions of 11 U.S.C. §
522(d)(11). The court held that the exemptions found in 11 U.S.C. §
522(d)(11) and in O.C.G.A. § 44-13-100(a)(11) were intended to protect
the debtors’ right to payments that would either replace a loss
of the debtors’ future source of support or would serve to compensate
the debtors for an injury to the person. The court found that the debtors’
court-ordered restitution, which was meant to address a pecuniary loss
for wrongful conversion, was not the type of restitution that was subject
to exemption. In re Seymour, 2002 Bankr. LEXIS 1301,
285 B.R. 57 (Bankr. N.D. Ga. November 6, 2002) (Drake, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.09[11]
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Existence of unvacated chapter
7 discharge did not bar conversion to chapter 13 provided plan was proposed
in good faith. Bankr. N.D. Ga. PROCEDURAL POSTURE:
In an apparent response to the trustee’s efforts to sell her real
property for the benefit of creditors, movant debtor moved to convert
her bankruptcy case from chapter 7 to chapter 13. The motion was opposed
by the trustee, acting in his capacity as trustee of the debtor’s
chapter 7 bankruptcy estate. OVERVIEW: In the event an
objection is filed to a debtor’s motion to convert from chapter
7 to chapter 13, a bankruptcy court must have the discretion to deny the
motion due to “extreme circumstances” or the ineligibility
of a debtor for relief under chapter 13. However, the court found that
the existence of an unvacated chapter 7 discharge did not constitute a
bar to conversion to a chapter 13 plan, provided the plan was proposed
in good faith. Also, because creditor claims were not extinguished by
the granting of a chapter 7 discharge, there was no specific bar within
the Bankruptcy Code to prohibit creditors’ claims from being paid
through a chapter 13 plan, notwithstanding the fact that the debtor’s
personal liability for those claims had been extinguished. Finally, the
court was not persuaded that the Bankruptcy Code contained a per se prohibition
against the receipt of two discharges in the same case. If the debtor
failed to confirm a plan or to complete the plan payments, the second
discharge would never be granted, and, presumably, the case would be reconverted
to chapter 7 to allow for the liquidation of the debtor’s assets.
In re Carter, 2002 Bankr. LEXIS 1305, 285
B.R. 61 (Bankr. N.D. Ga. November 7, 2002) (Drake, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:706.05 [back
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