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Collier Bankruptcy Case Update

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

June 10, 2002

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

 

Collier Bankruptcy Case Summaries

1st Cir.

Debtor not entitled to stack nondebtor spouse's Massachusetts homestead exemptions with his own homestead exemption. Bankr. D. Mass. The debtor and his wife purchased a single-family residence in 1980. The debtor and his wife later executed two promissory notes to the creditor in the total amount of $55,000.00. The couple later defaulted on both notes and the creditor filed a state court collection action against the debtor. On August 9, 2000, the debtor recorded a declaration of homestead with respect to the property pursuant to Section 1A of the Massachusetts Homestead Act, attaching the requisite statement from his physician indicating that the debtor was disabled and qualified for disabled person protection under the statute. The creditor proceeded with its action against the debtor and the state court granted the creditor's request for a writ of attachment. The writ was recorded on August 29, 2000. After obtaining a judgment against the debtor on December 11, 2000, the creditor obtained an execution in the amount of $59,697.50 and the execution was recorded on December 20, 2000. Two months later, the debtor's spouse recorded a declaration of homestead on the property under Section 1 of the Massachusetts Homestead Act. On April 2, 2001, the debtor filed for chapter 7 relief, listing an interest in the homestead property that he valued at $560,000.00. On his exemptions, the debtor claimed the protection of both his Section 1A exemption and his wife's Section 1 exemption. The sum of both exemptions was $600,000.00. The debtor listed two secured mortgages on the property totaling $194,857.91. The debtor then filed a section 522(f) motion to avoid the creditor's judicial lien, alleging that the lien impaired the debtor's Massachusetts' property exemptions. The creditor objected to the debtor's motion and to his claimed exemptions, arguing that the debtor was not entitled to assert the homestead exemption of his nondebtor spouse. After reviewing additional sections of the Massachusetts Homestead Act, the bankruptcy court concluded that the nondebtor spouse's subsequent declaration of homestead under Section 1 defeated the debtor's homestead declaration under Section 1A. However, although the debtor was not entitled to stack both his and his spouse's homestead declarations, the debtor was entitled to claim the benefit of his spouse's subsequent declaration, which was in the amount of $300,000.00. The bankruptcy court then determined that the sum of the creditor's judicial lien, along with the two mortgages and the debtor's exemption, totaled $557,597.70. Since the value of the liens and the debtor's homestead exemption did not exceed the value of the property, the bankruptcy court ruled that there was no impairment of the creditor's judicial lien. The court then sustained the creditor's objection and denied the debtor's lien avoidance motion. In re Garran, 2002 Bankr. LEXIS 281, 274 B.R. 570 (Bankr. D. Mass. March 15, 2002) (Feeney, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:522.11[2]

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Bankruptcy court's vacation of automatic stay was affirmed on appeal. S.D.N.Y. The chapter 13 debtor appealed the bankruptcy court's order granting his landlord's motion for relief from the automatic stay. The debtor was merely the roommate of the former legal tenant of the apartment in which he resided, and not the legal tenant. After the debtor failed to pay postpetition rent to the landlord, the landlord moved to vacate the stay so that it could enforce a warrant of eviction previously issued by the state (New York) court. The bankruptcy court granted the motion to vacate the automatic stay and ordered the debtor to comply with the state court's eviction order. The district court affirmed, holding that the bankruptcy court correctly granted the landlord's motion to vacate the automatic stay. The debtor was never in privity with the landlord and consequently had no property interest in the apartment capable of being protected by the automatic stay. Griggs v. 25 Realty Assocs., L.L.C., 2002 U.S. Dist. LEXIS 5977, - B.R. - (S.D.N.Y. April 4, 2002) (Buchwald, D.J.).

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

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SEC was allowed to prosecute action against debtor. S.D.N.Y. The Securities and Exchange Commission commenced a civil fraud action in district court, seeking a money judgment and an injunction against the chapter 11 debtor enjoining him from violating securities laws in the future. The debtor contended that the action was automatically stayed by his bankruptcy filing and that the police and regulatory exception was inapplicable because it only permitted governmental units to pursue actions to protect public health and safety. The district court rejected the debtor's argument, holding that the Securities and Exchange Commission's action against the debtor was exempted by section 362(b)(4) from the automatic stay. The complaint sought to enjoin the debtor from future violations and to fix damages in furtherance of the SEC's police powers of deterrence and protection of the public from fraud. The SEC was allowed to prosecute the action through and including the entry of judgment on the merits. SEC v. Thrasher, 2002 U.S. Dist. LEXIS 5979, - F. Supp.2d - (S.D.N.Y. April 5, 2002) (Keenan, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.05[5]

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3d Cir.

Rents generated by real property owned by debtor did not constitute cash collateral. Bankr. W.D. Pa. The chapter 11 debtor moved for an order authorizing its postpetition use of rents generated by real property that it owned. The debtor had granted to the creditor a mortgage on its realty, which contained an assignment of rents clause that was triggered upon the debtor's default under the mortgage. The creditor enforced the assignment of rents clause and the debtor executed an additional assignment of rent document prepetition. The debtor maintained that the rents constituted cash collateral of the creditor under section 363(a), and that it could use such rents as a means to fund a reorganization plan pursuant to section 363(c)(2)(B). The creditor objected to the motion, claiming that because the debtor did not possess an ownership interest in the rents as of the commencement of its case, the rents constituted neither property of the estate nor cash collateral within the meaning of section 363(a). The bankruptcy court denied the debtor's motion, holding that because the rents did not constitute either property of the estate or cash collateral within the meaning of section 363(a), they could not be used by the debtor postpetition pursuant to section 363(c)(2)(B) or otherwise unless the creditor consented to such use. Under state (Pennsylvania) law, the creditor obtained ownership of the rents prepetition. The court rejected the debtor's position because the property could not be deemed 'cash collateral' unless the estate had an interest in such property. Robin Assocs. v. Metro. Bank & Trust Co. (In re Robin Assocs.), 2001 Bankr. LEXIS 1853, 275 B.R. 218 (Bankr. W.D. Pa. November 1, 2001) (McCullough, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:363.03[3]

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Debtor's failure to assume or reject lease by court-ordered deadline resulted in automatic rejection as of deadline. Bankr. W.D. Pa. After the debtor filed for chapter 11 relief, the bankruptcy court entered an order on October 9, 2001, extending time within which the debtor could assume or reject the landlord's lease. The order provided that the debtor could assume or reject the lease up to and including December 31, 2001, or up to a date subsequent to December 31, 2001, provided that the debtor sought a further extension prior to December 20, 2001. The debtor did not assume or reject the landlord's lease prior to December 31, 2001, but instead, on January 23, 2002, filed a motion for an order deeming the landlord's lease rejected as of December 31, 2001. The landlord objected to the debtor's motion and sought to have the effective date of rejection deemed January 23, 2002. The landlord also sought to have the debtor deemed responsible for rent for the entire month of January 2002, rather than just the administrative rent expense for the 2-day period of January 1-2, 2002, during which the debtor continued to occupy the premises. The bankruptcy court found that the landlord's lease was deemed rejected as of December 31, 2001, and that any further court order, to the extent that it approved the rejection of the lease subsequent to the lease being deemed rejected, would be without force and was unnecessary. The court then awarded the landlord an administrative rent claim for the 2-day period during which the debtor continued to occupy the premises.Nat'l Record Mart, Inc. v. Watercress Assocs. (In re Nat'l Record Mart), 2001 Bankr. LEXIS 1842, 272 B.R. 131 (Bankr. W.D. Pa. June 19, 2001) (McCullough, B.J.).

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

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Lender's motion to dismiss was denied because debtor had standing to pursue claims in district court. E.D. Pa. The mortgage company filed a motion to dismiss the chapter 7 debtor's complaint filed against it in district court for lack of standing. The debtor alleged that before he filed his petition, the lender had applied his mortgage payments on his rental property to an inappropriately expensive insurance policy and charged unwarranted fees to his account. He asserted that subsequent to his chapter 7 filing, the lender represented to him that his account would be corrected. After receiving his discharge, the debtor received an allegedly incorrect payoff amount from the lender. The debtor's complaint asserted that the lender failed to credit certain payments to his account, and improperly charged him with other fees and penalties, resulting in his paying an improper payoff amount when he sold the property. The lender argued that the debtor lacked standing because his claims were 'traceable directly' to prepetition conduct, thereby making his claims against the lender property of the estate. The district court denied the lender's motion to dismiss, holding that because the causes of action against the lender accrued to the debtor after the commencement of his chapter 7, they were not property of the estate. There was no reason for the court to believe that the dispute affected the value of the estate available to the creditors. Before closing on the sale of the property, the debtor merely alleged he was entitled to proper credit for mortgage payments already tendered to the lender, as opposed to an award that could have been used to satisfy other creditors of his estate. Moy v. M&T Mortg. Corp., 2002 U.S. Dist. LEXIS 5923, - B.R. - (E.D. Pa. April 5, 2002) (Buckwater, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:541.18

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Debtors denied nunc pro tunc substantive consolidation. Bankr. D. Del. The chapter 11 debtor owned several debtor subsidiaries, which in turn owned and operated one or more movie theaters. Prior to the petition date, there were a total of 31 jointly-administered debtors operating 133 theaters with 1,070 screens in 24 states. The debtor's corporate office performed all executive functions for the subsidiary debtors, including all financing, computing and management information systems services, accounting, film and concessions purchasing, payroll and related functions, insurance and risk management, and legal and executive functions. After the debtor filed its first amended joint plan of reorganization, the United States Trustee objected to the plan, arguing that the court should deny confirmation because the plan provided for substantive consolidation of the debtors nunc pro tunc to the date of filing. The United States Trustee also objected to the plan because it did not adequately provide for the payment of the United States Trustee's quarterly fees. The bankruptcy court sustained the trustee's objection to the substantive consolidation, finding that, in weighing the equities, the trustee would suffer significant detriment in the form of a loss of substantial quarterly fees if the cases were consolidated and that nunc pro tunc relief would further compound the detriment. The court also found that the debtors had not shown that the estate would suffer any 'harm' other than the obvious decrease in assets available for distribution as a result of the quarterly fee obligation. Additionally, the court noted that there were no new economic realities that needed to be considered and that the debtors continued to do business as usual. Further, there was no evidence that the debtors failed to request substantive relief earlier through oversight or inadvertence. In re GC Cos., 2002 Bankr. LEXIS 279, 274 B.R. 663 (Bankr. D. Del. March 18, 2002) (Katz, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1129.03[12]

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4th Cir.

Bank did not violate discharge injunction by selling discharged debt to collection agency.E.D. Va. The chapter 7 debtor appealed the bankruptcy court's order granting the bank's motion to dismiss a complaint brought by the debtor. The debtor listed an unsecured credit card debt owed to the bank's predecessor on his schedules and received a discharge. The bank sold the discharged account to a collection agency, which attempted to collect the debt from the debtor. The debtor filed a complaint against the bank, alleging that it violated the discharge injunction. The bankruptcy court held that the complaint failed to state a claim upon which relief could be granted and granted the bank's motion to dismiss. The debtor argued on appeal that the bank's sale of the discharged account to a collection agency amounted to an improper attempt to collect the discharged debt. The district court affirmed, holding that the bankruptcy court did not err as a matter of law by holding that the debtor's complaint failed to state a claim upon which relief could be granted. The discharge injunction applied only to actions taken by a creditor to collect from the debtor. There was no prohibition on the creditor selling the discharged debt, presumably at a greatly discounted rate, to a third party. Absent an agency relationship between the bank and the purchaser of the debt, the bank was not liable for the purchaser's subsequent attempt to collect on that debt. Finnie v. First Union Nat'l Bank, 2002 U.S. Dist. LEXIS 5912, 275 B.R. 743 (E.D. Va. April 3, 2002) (Smith, D.J.).

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

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5th Cir

Real estate broker's claim for nondischargeable judgment was denied. Bankr. N.D. Tex. The chapter 7 debtor's real estate broker filed an adversary proceeding seeking to have a judgment debt deemed nondischargeable. The broker and the debtor had entered into a one-year exclusive listing agreement for the broker to sell property belonging to the debtor. The contract provided the owner would pay the realtor a commission in the event the property was sold during the term of the agreement. At the end of the agreement's term, the debtor authorized the broker to continue to represent him for four more months. During the extension period, the debtor executed a contract of sale and leaseback provision with the purchaser and closed on the sale one day after the extension terminated. The broker obtained a judgment in state (Texas) court for the commission due pursuant to the contract. The debtor testified he thought the leaseback provision in the sale contract was, in effect, a form of seller financing that released his obligation under the listing agreement. The bankruptcy court granted judgment in favor of the debtor, holding that the debtor's breach of the listing contract did not constitute a nondischargeable obligation under section 523(a)(6). The debtor's breach was not committed with an objective substantial certainty of harm to the broker or with the subjective motive to cause the broker harm. Thus, the debtor had not intentionally caused injury, and the broker's complaint was denied. Cotten v. Deasy (In re Deasy), 2002 Bankr. LEXIS 308, 275 B.R. 490 (Bankr. N.D. Tex. January 30, 2002) (McGuire, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.12

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6th Cir.

Marital distribution award to debtor's former husband was nondischargeable. Bankr. N.D. Ohio The debtor's former husband filed an adversary proceeding seeking a determination that a marital debt owed to him by the debtor was nondischargeable. Pursuant to the parties' divorce decree, the debtor was required to pay her former spouse $10,000, as a distributive award, to equalize the difference in values they each maintained in their respective pension accounts. The debtor maintained custody of the parties' child and received monthly support payments from her former husband. Both the debtor and her former spouse were able to afford all the basic necessities of life, but neither maintained an extravagant lifestyle. After considering the debtor's reasonable monthly expenses, she had approximately $500 per month in disposable income. The bankruptcy court entered judgment in favor of the former spouse, holding that the debtor failed to establish her requisite burden under either section 523(a)(15)(A) or section 523(a)(15)(B). The debtor had the ability to pay the obligation in full within two years. Because the benefits and detriment that would befall the parties if the court were to discharge the obligation were equal, the debtor failed to establish that the benefit to her outweighed the detrimental to her former spouse. Smith v. Shurelds (In re Shurelds), 2001 Bankr. LEXIS 1893, 276 B.R. 803 (Bankr. N.D. Ohio November 2, 2001) (Speer, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.21

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Transfer was not preferential due to debtor's lack of control over transferred funds. Bankr. S.D. Ohio The chapter 7 trustee filed an adversary proceeding seeking to avoid an allegedly preferential transfer to the creditor. One month prior to the petition date, the debtor's son remitted funds to the creditor in order to pay off the debtor's line of credit. The son made payment by a check drawn on his solely-owned e-trade account, and the debtor did not give his son any property in exchange for making the payment to the creditor. The bankruptcy court entered judgment in favor of the creditor, holding that the trustee failed to establish that the funds paid to the creditor by the debtor's son represented a transfer of any interest of the debtor. Although the debtor determined that the creditor was the entity to be paid, the debtor did not exercise dispositive control over the transaction. The debtor's son had sole control over his own e-trade account and directly paid the amount owed to the creditor. The earmarking doctrine was also applicable because there was no evidence that the debtor's son would have lent his father the funds without assurances that the creditor would be paid in full (citing Collier on Bankruptcy, 15th Ed. Revised). Daneman v. Bank One, N.A. (In re Kalmar), 2002 Bankr. LEXIS 329, 276 B.R. 214 (Bankr. S.D. Ohio March 7, 2002) (Sellers, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:547.03

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7th Cir.

Retainer agreement providing for monthly installments to pay chapter 7 attorneys' fees did not violate automatic stay or discharge injunction. Bankr. N.D. Ill. The debtors filed several adversary proceedings on behalf of themselves and all similarly-situated chapter 7 debtors, alleging that their chapter 7 attorneys had violated the automatic stay and the discharge injunction by collecting attorneys' fees related to the chapter 7 cases after the cases were filed. In each of the cases, the debtors retained a law firm to prepare and file a chapter 7 petition. Before the petition was filed, each of the debtors signed a standard form retainer agreement requiring them to pay the law firm's initial fees in monthly installments. In accordance with the terms of the retainer agreements, the law firms being sued deducted monthly payments from the debtors' bank accounts for the legal services they performed preceding the orders for relief. The deductions were made while the chapter 7 cases were pending and after the debtors received their discharge. The debtors did not allege that the fees were unreasonable or that the law firms did not earn the money. Rejecting the majority view, the bankruptcy court ruled that the law firms had not violated the automatic stay or the discharge injunction, and that they had not committed professional malpractice. After reviewing the rules of statutory construction, the bankruptcy court found that to follow the plain meaning of sections 362(a), 523(a)(2) and 727(a) would result in section 329 and Rule 2017(b) being nugatory. Further, the court found that a literal application of the automatic stay and the discharge injunction would contravene the intent of the framers of the Code because it would conflict with important federal interests, including the interest in equal access to the courts and the efficient operation of the bankruptcy system. Finally, the court noted that debt incurred to the debtor's bankruptcy counsel would not add to the debtor's financial distress; rather, it was a means by which the debtor may obtain relief from that distress. Accordingly, the court granted the law firm's motion to dismiss all counts of the debtors' complaint for failure to state claims upon which relief could be granted. Bethea v. Robert J. Adams & Assocs. (In re Bethea), 2002 Bankr. LEXIS 285, 275 B.R. 284 (Bankr. N.D. Ill. March 29, 2002) (Barliant, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:329.04

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Plan that paid less than 10 percent dividend on debt incurred by fraud was properly confirmed. 7th Cir. The creditor appealed the decision of the district court affirming the bankruptcy court's confirmation of the debtor's chapter 13 plan. The creditor had obtained a state (Kentucky) judgment against the debtor, which was deemed nondischargeable in the debtor's chapter 7 case. The debtor subsequently filed a chapter 13 petition, listing the objecting creditor as his only remaining creditor and proposing to pay her less than 10 percent of what was owed on the obligation. The creditor contended that the plan was not proposed in good faith, citing the debtor's prepetition conduct and the low amount of the payout relative to the overall debt. The creditor also alleged that the debtor was padding his expenses and understating his income. The bankruptcy court modified the plan to increase the payments to the creditor and concluded that the plan was proposed in good faith, and the district court affirmed. The Court of Appeals for the Seventh Circuit affirmed, holding that the bankruptcy court's conclusion that the debtor's plan was proposed in good faith was not clearly erroneous. The bankruptcy court properly considered the debtor's prepetition conduct, the nature of the underlying debt, and whether the debtor had committed all of his disposable income to the plan. The court noted that the Code required that the plan be proposed in good faith, not that the debt be incurred in good faith (citing Collier on Bankruptcy, 15th Ed. Revised). In re Smith, 2002 U.S. App. LEXIS 6683, 286 F.3d 461 (7th Cir. April 11, 2002) (Ripple, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1325.04

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8th Cir.

Dismissal of debtor's case for failure to appear at examination was upheld on appeal. B.A.P. 8th Cir. The chapter 7 debtor appealed the bankruptcy court's dismissal of his case for failure to appear at the meeting of creditors. A notice of the time and place of the meeting of creditors was mailed to the debtor at the address listed on his petition. After the debtor failed to appear, the bankruptcy court issued an order to show cause why his case should not be dismissed. The debtor's sister wrote a letter to the court and requested a continuance of the show cause hearing, alleging that the debtor was in prison and would be released two weeks after the hearing date. After the court continued the show cause hearing to a later date, the debtor mailed a request for an additional 90-day continuance because he was allegedly still incarcerated. The bankruptcy court denied the debtor's request and, when the debtor failed to appear at the show cause hearing, dismissed his case. The B.A.P. affirmed, holding that the bankruptcy court's dismissal of the debtor's case for failure to appear at the meeting of creditors was not an abuse of discretion. The debtor filed his petition knowing he was in no position to appear personally at such a meeting and did nothing in advance of the meeting of creditors to make arrangements for his appearance or for a continuance of the examination. Davis v. Case (In re Davis), 2002 Bankr. LEXIS 335, 275 B.R. 864 (B.A.P. 8th Cir. April 15, 2002) (Kressel, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:343

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9th Cir.

Panel reversed bankruptcy court's finding that debtor's unsecured liquidated debts exceeded limit of section 109(e). B.A.P. 9th Cir. The debtor filed for chapter 13 relief and listed unsecured debt in the amount of $175,580.50. The creditor objected to confirmation of the debtor's chapter 13 plan and moved for dismissal of her case, alleging that she was ineligible to be a chapter 13 debtor because her unsecured debts exceeded the dollar limits applicable under section 109(e). At the time, these limits were $269,250.00 for unsecured debt and $807,750.00 for secured debt. The creditor based its argument on the premise that the debtor was potentially liable in two state court lawsuits, the value of which was greater than $93,669.50 (which was the difference between the statutory limit and the amount of unsecured debt already declared by the debtor). After reviewing the pleadings from the two state court cases, the bankruptcy court fixed the liquidated debt in the first case at $50,000.00, based on the demand for damages, which was 'in excess of $50,000.' The court then fixed the liquidated debt in the second case at $640,792.50, based upon the open book account at issue in the case. Applying these numbers, the bankruptcy court determined that the debtor's unsecured debts exceeded the statutory limit for a chapter 13 debtor. The court further found that she had acted in bad faith by filing her petition shortly before a state court established trial dates in the two state court cases. After the bankruptcy court dismissed the debtor's chapter 13 case and barred her from filing another case for 180 days, the debtor appealed. The B.A.P. for the Ninth Circuit reversed the bankruptcy court's decision, ruling that the bankruptcy court had erroneously concluded that the debtor owed any liquidated debt in the second lawsuit. The panel found that the second lawsuit's complaint contained no allegations against the debtor personally. The panel also noted that the debtor was not a named defendant in the second lawsuit. Further, because the open book account dispute made the claim difficult to ascertain and prevented the ready determination of the amount, if any, owed by the debtor to the creditor, the panel determined that the second lawsuit debt was unliquidated and did not count toward the debtor's section 109(e) limits. Ho v. Dowell (In re Ho), 2002 Bankr. LEXIS 277, 274 B.R. 867 (B.A.P. 9th Cir. March 13, 2002) (Perris, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:109.06[2]

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Debtors' closely-held corporation did not need court approval for advance of additional money. 9th Cir. The chapter 7 trustee appealed the B.A.P.'s reversal of the bankruptcy court's order avoiding the factor's lien. The factor provided financing to the individual debtors' closely-held corporation and, because the debtors had personally guaranteed the corporation's obligation, obtained a mortgage on the debtors' residence. While the debtors' chapter 11 case was pending, the factor continued to advance funds to the corporation on the preexisting lien on the debtors' house. After the case converted to chapter 7, the trustee sold the property and the factor sought to attach the proceeds of the sale, based on the lien created by its deed of trust. The trustee filed an action seeking to avoid the factor's lien. The bankruptcy court granted the trustee's motion for summary judgment, on the theory that the debtors had encumbered estate assets without court authority when their corporation took on more debt after they filed their petition. The B.A.P. reversed and held that the debtors encumbered their house prepetition, and further postpetition financing of the corporation did not amount to creation of a new lien. The Court of Appeals for the Ninth Circuit affirmed the B.A.P., holding that section 364(c) was inapplicable because the debtors' house was encumbered before they filed their petition. The B.A.P. correctly ruled that the lien could not be avoided because it was created when the debtors mortgaged their house, not when the advances were made, and the corporation did not need court approval to advance additional money after the debtors filed their petition, because the advances were to the corporation, which did not file for bankruptcy. Nevertheless, when the advances to the corporation were made, the factor's lien on the house, to the extent of the postpetition advances, was junior to the priority of the intervening claims of the trustee. Beeler v. Jewell (In re Stanton), 2002 U.S. App. LEXIS 6495, 285 F.3d 888 (9th Cir. April 9, 2002) (Kleinfeld, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:364.04

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Excise tax based upon worker's compensation liability was dischargeable. 9th Cir. Debtors who operated an auto repair service failed to carry workers' compensation insurance. When one of their employees was injured, the state assessed a tax to reimburse its workers' compensation fund. Over the next several years, the state sent notices to the debtors advising of additional accruals to the obligations owed. When the debtors filed their chapter 7 petition, the state filed a proof of claim for the tax and the debtors objected, asserting that the obligations were discharged because they were based upon transactions that occurred more than three years before the filing of the petition. The bankruptcy court concluded that each award of compensation to the employee was a transaction, so that those awards made within the three years prior to the filing of the chapter 7 petition were nondischargeable. The district court affirmed, and the Court of Appeals for the Ninth Circuit reversed, holding that the relevant date of transaction was the date on which the worker was injured. The fundamental characteristic of the excise tax required a single act; in this instance, it was the act of having a worker in their employ without carrying the required insurance when that worker was injured. Since the employee was injured more than three years prior to the filing of the chapter 7 petition, the entire obligation was discharged. Deroche v. Ariz. Indus. Comm'n (In re Deroche), 2002 U.S. App. LEXIS 6232, 287 F.3d 751 (9th Cir. April 5, 2002) (Fletcher, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:507.10[6][a][i]

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B.A.P.'s determination that reaffirmation agreement was unenforceable was reversed. 9th Cir. The creditor appealed the B.A.P.'s reversal of the bankruptcy court's order granting its motion for judgment on the pleadings. Before receiving a discharge, the chapter 7 debtor signed a reaffirmation agreement with the creditor, which held a security interest in her furniture. After the debtor defaulted on her postdischarge payments, the creditor sent a series of letters to the debtor, asking to be paid. The debtor reopened her bankruptcy case and commenced an action against the creditor asserting, among other things, that the reaffirmation agreement she signed was unenforceable and that the creditor's collection letters were therefore illegal. The bankruptcy court determined that the agreement was enforceable and granted the creditor's motion for judgment on the pleadings. The B.A.P. reversed and concluded that the reaffirmation agreement was not enforceable, making the creditor's attempted collection of the debt a violation of the discharge injunction. The B.A.P. held that the right-to-rescind statement was not 'clear and conspicuous' because it was written in lower case letters; it was near a sentence that was in capital letters; and the agreement included unnecessary language in the same paragraph. The Court of Appeals for the Ninth Circuit reversed the B.A.P., holding that because the right-to-rescind statement in the reaffirmation agreement was clear and conspicuous as required by section 524(c)(2)(A), the agreement was enforceable. The court noted that formatting of the statement did matter; however, conspicuousness ultimately turned on the likelihood that a reasonable person would actually see a term in the agreement. The creditor's right-to-rescind statement was the first sentence in the agreement, which took up less than one side of a page, and was clear and conspicuous. Am. Gen. Fin., Inc. v. Bassett (In re Bassett), 2002 U.S. App. LEXIS 6497, 285 F.3d 882 (9th Cir. April 9, 2002) (Kozinski, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:524.04[1]

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Trustee's amended complaint was barred by the statute of limitations. Bankr. D. Ariz. The defendants moved to dismiss the chapter 7 trustee's amended adversary complaint. Except for reciting the statutory elements for preference and fraudulent transfer claims, the original adversary complaint did not identify or describe any specific transfers or types of transfers to the insider defendants. The bankruptcy court granted the defendants' motion for a more definite statement, and the trustee filed an amended complaint alleging the same elements for avoidable transfers and also included allegations concerning the specific transactions related to each of the defendants. The defendants moved to dismiss the amended complaint, arguing that the statute of limitations had expired by the date that the amended complaint was filed. The trustee contended that the amended complaint related back to the timely-filed complaint because it did not add any new claims or parties to the litigation, but merely clarified the original complaint. The bankruptcy court granted the motion to dismiss, holding that the amended complaint did not relate back to the date of the original complaint because the original complaint did not put the defendants on notice of the particular transaction or set of facts upon which the trustee based his claims. The relation back doctrine was only applicable if the initially-filed paper was adequate to constitute a complaint under Fed. R. Civ. P. 8. Because there were no adequately identified transactions in the trustee's original complaint, relation back under Fed. R. Civ. P. 15(c) was denied. Birdsell v. U.S. W. Newvector Group, Inc. (In re Cellular Express of Ariz., Inc.), 2002 Bankr. LEXIS 300, 275 B.R. 357 (Bankr. D. Ariz. March 28, 2002) (Haines, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:7015.06

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10th Cir.

Debtor's debts exceeded statutory limits on unsecured, noncontingent, liquidated debts. Bankr. D. Colo. After the debtor filed for chapter 13 relief, the creditor, who was the debtor's sister, filed an objection to confirmation of the debtor's plan, arguing that the debtor exceeded the statutory limits on noncontingent, liquidated, unsecured debt set forth in section 109(e). The creditor based her argument on her proof of claim, which was valued by the creditor at $270,527.43 and which, by itself, exceeded the statute's limits. The debtor disputed the claim, which she had listed as having a $0.00 value, arguing that it was 'contingent' and 'unliquidated.' After reviewing the facts, the bankruptcy court determined that the creditor's proof of claim was filed as the representative of a probate estate and was based upon allegations that the debtor, while acting as a conservator for the testator, misappropriated funds that she was to manage for the testator. The bankruptcy court further found that a probate court Special Master had investigated the expenditures and found them to be inappropriate. The bankruptcy court further found that the probate court had issued an order requiring that the debtor show that the funds and expenditures at issue were properly authorized and accounted for in the debtor's capacity as fiduciary. However, before the scheduled probate court hearing could take place, the debtor filed her chapter 13 petition. Because the amount of the creditor's claim could readily be determined based on the extensive findings by the probate court Special Master, the court ordered the debtor's chapter 13 case dismissed because the debtor exceeded the statutory limits on debt. In re Reader, 2002 Bankr. LEXIS 266, 274 B.R. 893 (Bankr. D. Colo. March 26, 2002) (Brown, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:109.06[2]

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11th Cir.

Trustee established claim for fraudulent conveyance against corporate defendants involved in Ponzi scheme. Bankr. M.D. Fla. The debtor was formed as a Florida corporation in 1994, promoting itself as an entertainment investment company. In 1996, the debtor began selling nine-month promissory notes with annualized interest varying between 10.9 and 11.9 percent. Investors could collect their interest monthly or at the end of the nine-month term in a lump sum together with their principal investment. Although the notes were unsecured, investors received a certificate of insurance promising full repayment if the debtor defaulted. Between June 1996 and September 1999, the debtor sold notes totaling approximately $62 million in 22 states to approximately 1,200 investors. Investors were typically elderly people living on a fixed income and generally lacking financial sophistication. Frequently, they invested their retirement savings into the note program relying on the advice of their broker. The debtor did not directly sell most of the notes, but instead recruited brokers, who primarily were insurance agents, to sell the notes in exchange for a generous commission that ranged from 12 to 15 percent. Ultimately, the debtor's nine-month note program collapsed and the debtor filed for chapter 11 relief with approximately $52 million of the notes remaining unpaid and outstanding. After an investigation into the debtor's affairs, the chapter 11 trustee filed an adversary proceeding against three individuals and four corporate defendants owned by the individuals, asserting that they had received fraudulent transfers of brokers' fees totaling $559,515 paid in connection with the debtor's Ponzi scheme. The bankruptcy court found that the debtor had made the commission payments to the corporate defendants with actual fraudulent intent. Further, although the defendants established that they gave reasonably equivalent value in exchange for the commission payments (thus negating the trustee's claim of constructive fraud), the corporate defendants failed to establish that they received the payments in good faith, because the corporate defendants had failed to perform the minimum due diligence required of a broker selling short-term promissory notes. Accordingly, the court entered judgment in favor of the trustee and against the corporate defendants on the actual fraud counts. The bankruptcy court also found that the trustee had established that he was entitled to pierce the corporate veil against one of the individual defendants because he absolutely controlled and dominated each of the four corporate defendants and used them for the fraudulent sale of the debtor's notes. Cuthill v. Greenmark, LLC (In re World Vision Entm't, Inc.), 2002 Bankr. LEXIS 288, 275 B.R. 641 (Bankr. M.D. Fla. March 22, 2002) (Jennemann, B.J.).

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

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Bankruptcy court's dismissal of debtor's case was upheld on appeal. M.D. Fla. The debtor appealed the bankruptcy court's dismissal of his case pursuant to section 707(a). After being convicted of securities fraud and having a substantial judgment rendered against him, the debtor transferred his assets into a complex ownership structure of off-shore trusts and family-owned companies and partnerships. The debtor made no attempt to pay the judgment over the course of several years and the district (D.C.) court appointed a receiver to marshal his assets. Two weeks later the debtor filed a chapter 7 petition. The bankruptcy court granted the Securities and Exchange Commission's motion to dismiss the case for cause. The bankruptcy court considered the debtor's motive in filing the case, as well as the facts that most of his debts were nondischargeable, that he had no intention of handing any assets over to the trustee, and that a receiver had already been appointed. The district court affirmed, holding that the debtor's case was properly dismissed for cause. The court rejected the debtor's assertion that a 'for cause' dismissal could be based only on the three reasons enumerated in section 707(a) or, in the alternative, only for postpetition conduct. The reasons listed in section 707(a) were nonexclusive, and the rationale given by the bankruptcy court supported a 'for cause' dismissal. Bilzerian v. SEC (In re Bilzerian), 2002 U.S. Dist. LEXIS 5883, 276 B.R. 285 (M.D. Fla. April 1, 2002) (Moody, Jr., D.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:707.03

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D.C. Cir.

Executory contract deemed to have been rejected by the debtor. Bankr. D.C. The sole shareholders of a corporation that merged with the chapter 11 debtor filed a motion to compel rejection of the merger agreement. Pursuant to the agreement, the debtor was required to issue shares of its stock to the shareholders as part of the consideration for the merger. The debtor issued to the shareholders the first initial shares, worth $2,500,000, as scheduled, but failed to issue the additional $1,000,000 worth of shares. The shareholders asserted that the debtor's breach of its obligation under the agreement relieved them of any further obligation to perform the agreement's covenants of noncompetition. The bankruptcy court granted the shareholders' motion in part, holding that section 365(c)(2) barred the debtor from assuming the merger agreement because it was a contract 'to issue a security of the debtor.' The court rejected the debtor's contention that the agreement was not a contract 'to issue a security of the debtor' because stock was only a part of the consideration that the shareholders were to receive pursuant to the agreement. Stock made up a significant portion of the consideration, and section 365(c)(2) made no distinction between executory contracts which contemplated that securities were the sole consideration and executory contracts which contemplated that securities were only one element of the consideration exchanged by the debtor. Although the executory contract was deemed to have been rejected, it was not treated as terminated, and both parties were entitled to present defenses relieving them of further obligations under the agreement. In re Ardent, Inc., 2001 Bankr. LEXIS 1854, 275 B.R. 122 (Bankr. D.C. November 16, 2001) (Teel, Jr., B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.06[2]

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West's Bankruptcy Newsletter
A Weekly Update of Bankruptcy and Debtor/Creditor Matters

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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.

July 2, 2001

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

• 1st Cir.

    522(b)(2)(A) Amendment of homestead exemption statute could not be applied retroactively.

  In re Tardugno (Bankr. D. Mass.) 071013

    547(b) Trustee met his burden of proving required elements under section 547(b) and was entitled to summary judgment as to $50,000 of $350,000 at issue.
  Gray v. Oppenheimer & Co., Inc. (In re Molten Metal Technology, Inc.) (Bankr. D. Mass.) 071027

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  2d Cir.

    506(a) Unsecured lien was avoided.
  Pond v. Farm Specialist Realty (In re Pond) (2d Cir.) 071010

    546(c) Reclamation claim limited by 10-day provision of section 546(c).
  In re Bradlees Stores, Inc. (Bankr. S.D.N.Y.) 071026

    550(a) Trustee was not entitled to windfall.
  McCord v. Agard (In re Bean) (2d Cir.) 071033

    1141(a) Debtor, alleging that tax benefit transfer agreements were void, was not barred by res judicata by virtue of its chapter 11 plan’s confirmation.
  Eastern Air Lines, Inc. v. Brown & Williamson Tobacco Corp. (In re Ionosphere Clubs, Inc.) (Bankr. S.D.N.Y.) 071037

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  3d Cir.

    350(b) Court reopened chapter 7 to modify discharge order.
  Fonner v. Overdorf (In re Fonner) (Bankr. W.D. Pa.) 071002

    362(g) Relief was denied preliminarily.
  In re Krebs (Bankr. E.D. Pa.) 071005

  Rule 1014(a)(1) Proceeding was transferred to the Court of Claims.
  United Pac. Ins. Co. v. United States (In re Smith Technology Corp.) (Bankr. D. Del.) 071045

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  4th Cir.

    365 Rent-to-own contract was a security agreement and not an executory contract.
  In re Smith (Bankr. E.D. Va.) 071006

    506(a) Inchoate lien was entitled to secured status.
  In re Terry (Bankr. E.D. Va.) 071011

    523(a)(4) Conversion of collateral resulted in nondischargeable debt.
  Johnson v. Davis (In re Davis) (Bankr. E.D. Va.) 071020

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  5th Cir.

    507(a)(8) IRS, as priority claimant, was entitled to amend proof of claim one year after confirmation of plan.
  In re Goodman (Bankr. N.D. Tex.) 071012

    523(a)(5) Economic disparity and sacrifice evidenced that marital debt was nondischargeable support obligation.
  Kessel v. Kessel (In re Kessel) (Bankr. E.D. Tex.) 071021

  28 U.S.C.   157(a) Removed claims were referred.
  Jones v. JCC Holding Co. (E.D. La.) 071041

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  6th Cir.

    544(a)(3) Court of Appeals for Sixth Circuit affirmed decision allowing trustee to set aside mortgage because it was not properly executed under state law.
  Simon v. Chase Manhattan Bank (In re Zaptocky) (6th Cir.) 071025

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  7th Cir.

    522(c) Right to setoff trumped right to exemption.
  In re Kadrmas (Bankr. W.D. Wis.) 071015

  28 U.S.C.   151 Bankruptcy court imposed sanctions.
  Andros v. Soddy (In re Andros) (Bankr. W.D. Wis.) 071040

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  8th Cir.

    523(a)(1) Debts were not discharged.
  Walsh v. United States (In re Walsh) (Bankr. D. Minn.) 071018

    706(a) The bankruptcy court had authority to deny conversion to chapter 13.
  In re Johnson (Bankr. E.D. Ark.) 071036

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  9th Cir.

    304 Bankrutpcy court granted motion to dismiss ancillary petition.
  In re Master Home Furniture Co., Ltd. (Bankr. C.D. Cal.) 071001

    502(a) Objection to IRS’s claim sustained because assessment of partnership was insufficient for collection of taxes from individual members of the partnership.
  United States v. Galletti (In re Galletti) (C.D. Cal.) 071009

    547(c)(3) Enabling loan exception did not apply when the debtor had leased the vehicle prior to the purchase transaction.
  Roost v. Toyota Motor Credit Corp. (In re Moon) (Bankr. D. OR.) 071031

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  10th Cir.

    362(a)(1) Creditor willfully violated stay.
  In re Pulliam (Bankr. D. Kan.) 071003

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  11th Cir.

    365(a) Stock options were assets of the estate and not exempt wages.
  In re Lawson (Bankr. M.D. Fla.) 071007

    544(a)(1) Trustee could not avoid lien that was inadvertently released when debt had not been satisfied.
  Smith v. Am. Honda Fin. Corp. (In re Marshall) (Bankr. M.D. Ga.) 071024

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Collier Bankruptcy Case Summaries

1st Cir.

Amendment of homestead exemption statute could not be applied retroactively. Bankr. D. Mass. After the debtors filed their chapter 7 petition, a state (Massachusetts) amendment raising the its homestead exemption went into effect. Accordingly, the debtors amended their claim of exemption to increase the claim of homestead exemption from $100,000 to $300,000. When they sought to avoid a judicial lien as impairing this exemption, the lienholder objected to the amended exemption as well as the lien avoidance. The debtors asserted that, even though the effective date of the amendment was after the date the chapter 7 petition was filed, since the amendment was approved before the filing, and they were retroactively entitled to the increased exemption. The bankruptcy court held that debtors were not entitled to claim a homestead exemption that was not in effect at the time of the filing of their chapter 7 case. The amendment that raised the homestead exemption amount was not an emergency measure that took effect upon approval nor entitled to retroactive application. Accordingly, since section 522(b)(2)(A) only allows exemptions 'applicable on the date of the filing of the petition' the debtors were restricted to the homestead exemption in effect on the date of their filing, even though a higher exemption had been approved at that time.In re Tardugno, 2001 Bankr. LEXIS 482, – B.R. – (Bankr. D. Mass. May 9, 2001) (Rosenthal, B.J.).

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

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Trustee met his burden of proving required elements under section 547(b) and was entitled to summary judgment as to $50,000 of $350,000 at issue. Bankr. D. Mass. The chapter 11 trustee filed an adversary proceeding to recover an alleged preference from the debtor’s financial advisor. The financial advisor asserted affirmative defenses under sections 547(c)(1) and (2), and the parties cross-moved for summary judgment. The bankruptcy court held that the financial advisor was entitled to summary judgment on its 'new value' defense with respect to $300,000 of the $350,000 at issue. As to the same $50,000 of value, however, the court held that the trustee met his burden of establishing the required elements under section 547(b), (a transfer of an interest of the debtor in property; made on or within 90 days before the date of the filing of the petition; while the debtor was insolvent; to or for the benefit of a creditor; for or on account of an antecedent debt owed by the debtor before such transfer was made; which enabled the creditor to receive more than the creditor would have received in a hypothetical chapter 7 liquidation), and was entitled to summary judgment as to this amount. The court also held, as to the remaining $50,000, that the financial advisor failed to meet its burden of proof on its asserted ordinary-course-of-business defense.Gray v. Oppenheimer & Co., Inc. (In re Molten Metal Technology, Inc.), 2001 Bankr. LEXIS 505, – B.R. – (Bankr. D. Mass. May 11, 2001) (Kenner, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:547.03

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2nd Cir.

Unsecured lien was avoided. 2d Cir. The creditors appealed the district court’s holding that the chapter 13 debtors could void their lien on the debtors’ residence. Due to senior liens encumbering the debtors’ property, there was insufficient equity to cover any portion of the creditors’ lien. The bankruptcy court held that the creditors’ lien could not be modified because the underlying security interest was the debtors’ principal residential property. The district court reversed. The Court of Appeals for the Second Circuit affirmed the district court, holding that the debtors could void the creditors’ lien because the lien was wholly unsecured under section 506 and, therefore, was not 'secured' by a residential property within the meaning of section 1322(b)(2). The court analyzed Nobelman v. American Savs. Bank, 508 U.S. 324 (1993) and concluded that the antimodification exception applied only in cases in which the creditor’s claim was at least partially secured under section 506(a).Pond v. Farm Specialist Realty (In re Pond), 2001 U.S. App. LEXIS 11287, – F.3d – (2d Cir. May 31, 2001) (Cabranes, C.J.).

Collier on Bankruptcy, 15th Ed. Revised

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Reclamation claim limited by 10-day provision of section 546(c). Bankr. S.D.N.Y. The creditor sought an allowance of an administrative claim for prepetition merchandise received by the chapter 11 debtor, a retailer. The creditor argued that it shipped the merchandise upon the representations made by the debtor’s personnel that payment would be forthcoming. On December 18, 2000, the creditor made a written demand for reclamation of all goods shipped on credit for the previous 20 days. The debtor filed its chapter 11 petition on December 20, 2000. The creditor argued that it was entitled to reclamation notwithstanding its failure to deliver a reclamation demand to the debtor within the statutory 10-day period set forth in section 546(c). The bankruptcy court held that the 10-day notice period of section 546(c) could not be extended based upon the alleged misrepresentation of solvency. The court reasoned that the Code did not create a right of reclamation, only recognizing such a right if it existed under nonbankruptcy law, and that section 546(c) imposed additional procedural requirements before such rights would be recognized. As such, the court found that the 10-day rule governed and limited the reclamation claim to goods delivered within the 10-day period.In re Bradlees Stores, Inc.2001 Bankr. LEXIS 528, – B.R. – (Bankr. S.D.N.Y. May 1, 2001) (Lifland, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:546.04[2]

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Trustee was not entitled to windfall. 2d Cir. The chapter 7 trustee appealed a decision of the district court reversing the order of the bankruptcy court and dismissing his complaint to avoid a transfer. Although the debtor contracted to sell his home prepetition, the purchasers closed title on the property postpetition. With the proceeds of the sale, the debtor satisfied his mortgages, paid various costs and turned over the remaining proceeds to the trustee. The trustee commenced an adversary proceeding against the purchasers and the title company to recover the fair market value of the property at the time of the unauthorized transfer. The Court of Appeals for the Second Circuit affirmed the district court, holding that because the trustee had already recovered the equity value of the property from the debtor, he could not recover the fair market value of the property from the purchasers. The trustee was only entitled to recover the equity the debtor held in the property the day he filed bankruptcy.McCord v. Agard (In re Bean), 2001 U.S. App. LEXIS 11075, – F.3d – (2d Cir. May 30, 2001) (McLaughlin, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:550.02

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Debtor, alleging that tax benefit transfer agreements were void, was not barred by res judicata by virtue of its chapter 11 plan’s confirmation. Bankr. S.D.N.Y. The debtor, an air line carrier, entered into a series if tax benefit transfer ('TBT') agreements under which the debtor transferred ownership interest in aircraft to the creditors, including the right to take deductions for depreciation and applicable investment tax credits. The debtor was deemed to have leased the aircraft for income tax purposes only, and retained all other attributes of ownership. In March 1989, the debtor filed its chapter 11 petition. The debtor negotiated the release of certain aircraft, in order to sell them, and the creditors were given replacement letters of credit. The bankruptcy court authorized the sale and confirmed the reorganization plan. Thereafter, the creditors, contending that the tax attributes of the TBT agreements were lost, drew on the letters of credit to satisfy indemnity claims that arose postconfirmation. As a result, the debtor filed several adversary proceedings, alleging that the sales of the aircraft were not disqualifying events and that the creditors had no right to draw on the letters of credit. Among many arguments made in response, the creditors asserted that the debtor could have litigated the issues in its chapter 11 proceeding and that its claims were now barred by res judicata. The court held that, for the purposes of section 1141(a), the debtor was not barred by res judicata. The court reasoned that the debtor sufficiently identified and reserved its contingent claims against the creditors in the stipulation, its disclosure statement, the plan and the confirmation order. Moreover, the claim was never previously addressed by any court, and the confirmation order expressly identified and preserved the debtor’s right to adjudicate this claim and all other 'reserved matters' beyond entry of the final decree.Eastern Air Lines, Inc. v. Brown & Williamson Tobacco Corp. (In re Ionosphere Clubs, Inc.), 2001 Bankr. LEXIS 532, – B.R. – (Bankr. S.D.N.Y. May 10, 2001) (Lifland, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1141.02

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3rd Cir.

Court reopened chapter 7 to modify discharge order. Bankr. W.D. Pa. An individual was killed when she was struck by an automobile driven by the debtor. The vehicle had been rented by the joint debtor, the debtor’s husband. The debtors had personal automobile liability insurance, but the insurance company denied that the debtor was covered because only her husband signed the rental agreement. Another carrier, whose policy had a liability limit of $50,000, offered the deceased’s administrator a settlement in that amount in exchange for a complete release of the debtor. That offer was rejected, and the administrator commenced a wrongful death action against both debtors and the car rental company. During the pendency of that action, the debtors filed a chapter 7 petition. Eventually, a modified discharge order was entered, providing that the debtor’s discharge would not operate to enjoin the continuation of any action to determine the debtor’s liability for the fatal accident. Following trial, a jury arrived at a verdict in excess of $862,000. Combined with delay damages and interest, the total amount of the judgment was $1,239,640.59. When the debtor subsequently refused to sign her rights against the various insurance companies over to the administrator, the administrator commenced a proceeding against one carrier to recover the proceeds of the $1 million excess liability policy. Then the debtors filed a motion to reopen their chapter 7 case and for a preliminary injunction prohibiting the deceased’s estate from executing on or otherwise seizing the personal assets of the debtor. The administrator responded by filing a motion to again modify the previously modified discharge order, since the debtor’s refusal to assign her rights against the insurance carriers violated the modified discharge order. The bankruptcy court held that cause existed to reopen the case pursuant to section 350(b). The court found that it was necessary to reopen the case to allow for further modification of the discharge order, since the debtor became obligated in the first modification to do whatever was required to enable the administrator to collect the judgment from the liability insurance. The court concluded that a modification would enable the administrator to collect from the insurance carriers, and would not affect the status of the debtor’s liability. Fonner v. Overdorf (In re Fonner), 2001 Bankr. LEXIS 539, – B.R. – (Bankr. W.D. Pa. May 22, 2001) (Markovitz, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:350.03[5]

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Relief was denied preliminarily. Bankr. E.D. Pa. The secured creditor filed a motion for relief from the stay in order to foreclose on the chapter 13 debtor’s real property. The debtor resided with a person who had previously filed three unsuccessful chapter 13 petitions that disclosed the same residence. The creditor claimed that the debtor filed the petition in an improper attempt to stall foreclosure after his roommate failed to reorganize. The bankruptcy court denied the motion for relief preliminarily, holding that the creditor failed to meet its initial burden of production on the issue of bad faith. The creditor offered no evidence concerning ownership of the realty or that the mortgage was a joint obligation between the debtor and his roommate. The creditor was provided the opportunity to present further evidence at another evidentiary hearing (citing Collier on Bankruptcy, 15th Ed. Revised).In re Krebs, 2001 Bankr. LEXIS 552, – B.R. – (Bankr. E.D. Pa. April 27, 2001) (Fox, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.10

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Proceeding was transferred to the Court of Claims. Bankr. D. Del. Debtor contractor was due to receive funds upon completion of a construction project, and the debtor’s surety and the IRS each asserted superior rights in the funds. An adversary proceeding was filed to determine whether the surety, a bank, the debtor, or the IRS had superior rights in the funds. The debtor agreed that its interest in the funds should be paid to the IRS. Upon the IRS motion to dismiss, the bankruptcy court held that the case would be transferred to the Court of Claims. Since the debtor claimed no interest in the funds, and the matter was essentially a dispute between creditors, jurisdiction was appropriate in the U.S. Court of Claims, rather than the bankruptcy court. United Pac. Ins. Co. v. United States (In re Smith Technology Corp.), 2001 Bankr. LEXIS 494, – B.R. – (Bankr. D. Del. April 11, 2001) (Fitzgerald, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 9:1014.02[2]

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4th Cir.

Rent-to-own contract was a security agreement and not an executory contract. Bankr. E.D. Va. After the debtor filed a chapter 13 petition, the creditor objected to the debtor’s proposed plan based upon the debtor’s default on two rental contracts and because the debtor continued to retain the property without making payments. The debtor argued that her plan was confirmable because it provided for payments of $20 per month for 60 months and because she was exercising her 40 percent early purchase option, as set forth in the rental agreement. The creditor filed a motion to compel assumption or rejection of the leases, classifying them as executory contracts. In examining the issue of whether the rental contracts should be deemed true leases or security agreements, the bankruptcy court recognized that considerable disagreement exists among bankruptcy court decisions on this issue. The court followed state (Virginia) statutory law and the case law interpreting this law to hold that a rent-to-own contract is a security agreement and not a lease. The court also adopted the reasoning that such contracts are disguised consumer credit sales since they are promoted by sellers and entered into by consumers who expect to become the owner of the property. The court concluded that rent-to-own contracts should be treated as secured debts rather than executory contracts. Because section 365 did not apply, the court overruled the creditor’s objection (citing Collier on Bankruptcy 15th Ed. Revised). In re Smith, 2000 Bankr. LEXIS 1772, – B.R. – (Bankr. E.D. Va. October 31, 2000) (Tice, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.02[1][b]

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Inchoate lien was entitled to secured status. Bankr. E.D. Va. The debtors, after a fire at their residence, contracted with the creditor to repair the damage. Thereafter the creditor filed a memorandum for a mechanic’s lien based on the services and materials provided to the debtors pursuant to the contract. Subsequentl,y the debtors filed a chapter 13 petition and proposed plan. The creditor objected to confirmation of the plan and filed a proof of claim as a secured creditor holding a mechanic’s lien against the debtor’s residence in the amount of $10,658.78. The debtors then filed a second amended plan, treating the creditor as secured in the amount of $10,306.44. Again the creditor objected, and the debtors then filed an objection to the creditor’s proof of claim, requesting that the claim be treated as a general unsecured claim in the amount of $5,711.51. The debtors introduced evidence that the creditor failed to complete all repair work and that the work performed was significantly unacceptable, requiring at least a $3,000 expenditure to correct, and concluded that the reasonable value of the performance under the contract was $6,500. The bankruptcy court first determined that, under state (Virginia) law, the creditor had properly perfected the lien prior to the petition filing. The court then considered the argument that the creditor’s lien was inchoate, pursuant to federal case law holding that a state mechanic’s lien that had not been reduced to judgment was an inchoate lien. The court determined that an inchoate lien was entitled to secured status under section 506(a). Accordingly, the court found that the creditor was entitled to a secured claim to the extent of the value of the repair work, determined to be in the amount of $6,500 (citing Collier on Bankruptcy 15th Ed. Revised). In re Terry, 2001 Bankr. LEXIS 537, – B.R. – (Bankr. E.D. Va. January 24, 2001) (Tice, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:506.03[1][a][i]

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Conversion of collateral resulted in nondischargeable debt. Bankr. E.D. Va. The chapter 7 debtor’s former business associate filed a complaint seeking a determination that damages he suffered were the direct result of the debtor’s wrongful conduct and excepted from the discharge. The associate sold his interest in a retail used automobile business to the debtor but continued to purchase vehicles for resale for his own account. Because the associate was not a licensed dealer, the vehicles were titled in the name of the business and the associate received the proceeds of sales. The debtor, without the associate’s knowledge or permission, caused the business to borrow additional operating funds using the associate’s vehicles as collateral. After the bank threatened to liquidate the collateral, the associate paid the bank in exchange for return of the vehicles. The bankruptcy court entered judgment for the associate, holding that the debtor committed embezzlement and larceny under section 523(a)(4) by pledging the vehicles as collateral. The court noted that the debtor’s actions were intentional and done while the debtor had full knowledge of the associate’s interests.Johnson v. Davis (In re Davis), 2001 Bankr. LEXIS 553, – B.R. – (Bankr. E.D. Va. March 8, 2001) (Tice, Jr., C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.10

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5th Cir.

IRS, as priority claimant, was entitled to amend proof of claim one year after confirmation of plan. Bankr. N.D. Tex. In 1997 the debtor filed a late 1995 income tax return, reporting tax due of $8,901 but did not make the required payment. The IRS assessed a tax of $8,901 plus additional penalties and interest. After the debtor filed a chapter 13 plan, the IRS filed a proof of claim, which included an estimated income tax of $3,812 for the 1995 tax year. The chapter 13 plan was confirmed on September 17, 1999. On November 9, 2000, the IRS filed a first amended proof of claim that increased the 1995 tax liability to $8,499.41, reflecting the amount due at the date of the amendment and not at the petition date. Thereafter, the IRS filed a second amended proof of claim, increasing the amount to approximately $11,000. The debtor objected to the amended claim because the IRS filed it more than 18 months after the petition was filed and more than one year after confirmation of the plan. The debtor argued that it was inequitable to allow the IRS to amend the proof of claim because it knew that $8,901 was the amount owing when it filed its original proof of claim. The bankruptcy court overruled the objection and allowed the IRS’s amended claim. The court found that allowance of the claim would cause no prejudice to the debtor, since he was paying 100 percent to unsecured creditors pursuant to the plan and knew, prior to the petition filing, the amount of his tax liability. The court further reasoned that, because the IRS claim was entitled to priority under section 507(a)(8), allowing the correct amount of the claim would not unfairly treat unsecured creditors.In re Goodman, 2001 Bankr. LEXIS 540, 261 B.R. 415 (Bankr. N.D. Tex. April 6, 2001) (Felsenthal, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:507.10

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Economic disparity and sacrifice evidenced that marital debt was nondischargeable support obligation. Bankr. E.D. Tex. The former spouse of the chapter 13 debtor filed an adversary proceeding requesting that the court determine that the debtor’s obligation to her was nondischargeable support. The bankruptcy court held that the debtor’s obligation to his former spouse was a nondischargeable support obligation. Although not determinative of the issue, the parties’ divorce decree indicated that the former spouse was to receive the amounts as alimony and that the debtor could claim a deduction on his federal income tax return for the payments. The debtor was a veterinarian with a thriving practice, while his former spouse had terminated her college education in order to aid his educational efforts. She had worked their entire marriage in his clinic without pay and was unemployed after the divorce. Although she was raising two teenage children, the child support she was to receive would not even make the mortgage payment on the house. Accordingly, the payments were clearly designed to offset the difference in the relative economic positions of the parties and rectify the inequality created by the former spouse’s sacrifice. Since the payments were intended to and would provide for the health, education and comfort of herself and her children, they were clearly support, not property division.Kessel v. Kessel (In re Kessel), 2001 Bankr. LEXIS 480, – B.R. – (Bankr. E.D. Tex. May 9, 2001) (Parker, B.J.).

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

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Removed claims were referred. E.D. La. A former employee of one of the related chapter 11 debtors filed a cause of action against the debtors, two nondebtor corporations and two individual supervisors, alleging that she was wrongfully fired from her employment. After the action was removed to the district court from state (Louisiana) court, the employee sought remand on the grounds that it did not arise under nor was it related to the bankruptcy case. The district court referred the claims against the debtors to the bankruptcy court, holding that resolution of the claims could conceivably impact the administration of the debtors’ estates. The district court abstained from adjudicating the claims against the nondebtor defendants and remanded those claims to state court.Jones v. JCC Holding Co., 2001 U.S. Dist. LEXIS 7043, – B.R. – (E.D. La. May 21, 2001) (Livaudais, Jr., D.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:3.02[1]

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6th Cir.

Court of Appeals for Sixth Circuit affirmed decision allowing trustee to set aside mortgage because it was not properly executed under state law. 6th Cir. A bank appealed the Sixth Circuit B.A.P. decision that affirmed a bankruptcy court order that granted the chapter 7 trustee’s motion to set aside the mortgage the debtors had granted to the bank because it was not properly executed under state (Ohio) law. Specifically, the bankruptcy court found that the mortgage documents did not comply with an Ohio statute that required the mortgage to be signed in the presence of two witnesses (see Ohio Rev. Code   5301.01). The United States Court of Appeals for the Sixth Circuit affirmed. The court held that the bankruptcy court did not err in concluding that the mortgage was not validly executed under Ohio law; thus, the trustee, standing in the shoes of a hypothetical bona fide purchaser, was entitled to avoid the mortgage. The court also found that the trustee had the rights of a bona fide purchaser without actual knowledge, that no constructive knowledge had been established, that the trustee was entitled to the rights of a subsequent bona fide purchaser without knowledge of the prior mortgage, and that the bank was not entitled to be subrogated to the rights of the first mortgagee.Simon v. Chase Manhattan Bank (In re Zaptocky), 2001 U.S. App. LEXIS 10511, 250 F.3d 1020 (6th Cir. May 22, 2001) (Jones, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:544.08

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7th Cir.

Right to setoff trumped right to exemption. Bankr. W.D. Wis. The IRS filed a motion for relief from stay, seeking to offset the debtors’ income tax refund against their income tax liability. The debtors argued that because they claimed the tax refund as exempt, the IRS’s right to a setoff under section 553(a) yielded to their right to exempt assets under section 522(c). The bankruptcy court granted the IRS’s motion, holding that the IRS could exercise its right to setoff against the debtors’ exempt property. The court adopted the minority view and noted that allowing the debtors to retain all of their refund would result in a windfall to them.In re Kadrmas, 2000 Bankr. LEXIS 1764, – B.R. – (Bankr. W.D. Wis. September 19, 2000) (Martin, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:522; 5:553.03

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Bankruptcy court imposed sanctions. Bankr. W.D. Wis. A lienholder sought attorney’s fees against the chapter 7 debtor’s counsel who waited until a week before the trial to dismiss a lien avoidance action, even though the grounds for dismissal were known five weeks earlier. The debtor’s counsel had dismissed the complaint claiming that, after being evicted by mobile home park authorities, the debtor lacked any significant equity in the mobile home. As a result of counsel’s delay in dismissing the adversary proceeding, the lienholder incurred attorney’s fees in preparing for trial. The bankruptcy court awarded judgment for the lienholder, holding that the court, as a unit of the district court, had authority to impose sanctions under 28 U.S.C. section 1927. The sanction bore a reasonable relationship to the burden imposed on the lienholder by counsel’s dilatory conduct.Andros v. Soddy (In re Andros), 2000 Bankr. LEXIS 1765, – B.R. – (Bankr. W.D. Wis. December 14, 2000) (Martin, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:2.02[3]

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8th Cir.

Debts were not discharged. Bankr. D. Minn. After his case was closed, the chapter 7 debtor filed an adversary proceeding seeking a determination that his liability to the IRS for personal income taxes was discharged. Because the debtor had not filed income tax returns, the IRS computed the debtor’s income tax from alternative information sources, prepared substitute returns, issued notices of deficiency and assessed the taxes owed. The debtor subsequently submitted tax returns for the years in question. The bankruptcy court denied the debtor’s request for summary judgment, holding that the debtor lost the right to subject his tax obligations to discharge when he allowed the IRS to complete its assessment process, notwithstanding the fact that the claims otherwise became stale and dischargeable under other provisions of section 523(a)(1). Walsh v. United States (In re Walsh), 2001 Bankr. LEXIS 522, 260 B.R. 142 (Bankr. D. Minn. March 29, 2001) (Kishel, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.07[3]

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The bankruptcy court had authority to deny conversion to chapter 13. Bankr. E.D. Ark. The chapter 7 trustee filed an adversary proceeding against the debtor’s daughter to recover fraudulent transfers of property made before the filing of the chapter 7 petition. To halt that proceeding, the debtor filed a motion to convert his case from chapter 7 to chapter 13. At the hearing on the trustee’s objection to the conversion, the trustee presented evidence of transfers of property as well as material omissions on the schedules. The debtor asserted that under section 706 he had an absolute right to convert his case to chapter 13. The bankruptcy court held that the court had the inherent power to protect the bankruptcy process and deny the chapter 7 debtor’s motion to convert to chapter 13. The trustee established by clear and convincing evidence that conversion would constitute an unfair manipulation of the Code and that the debtor’s motion was made in bad faith. The debtor failed to disclose assets, filed grossly inaccurate schedules, failed to file tax returns, misrepresented his interests in various types of property and gave false or misleading answers to questions in his statement of financial affairs, as well as in testimony before the court. Since the debtor’s motive in filing his motion to convert was to protect his assets from the reach of his creditors rather than to pay his creditors in good faith, the motion to convert was denied.In re Johnson, 2001 Bankr. LEXIS 487, – B.R. – (Bankr. E.D. Ark. April 18, 2001) (Mixon, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:706.04

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9th Cir.

Bankruptcy court granted motion to dismiss ancillary petition. Bankr. C.D. Cal. The foreign representative of the debtor in foreign proceedings (a Taiwanese corporation) filed an ancillary petition under section 304. In conjunction with the ancillary petition, the debtor sought a preliminary injunction against American Express Bank ('AMEX') seeking, among other things, to enjoin prosecution of a receivership action in California state court. AMEX contested the ancillary petition and filed a motion to dismiss or abstain. The bankruptcy court granted the dismissal motion under Fed. R. Civ. P. 12(b)(6) debtor’s pending application for reorganization in Taiwan did not qualify as a foreign proceeding under section 304, and because the 'foreign representative' was not a fiduciary, had not been duly selected as a representative of a foreign bankruptcy estate, and therefore was not an appropriate foreign representative. The court explained that comity did not require a bankruptcy court in the United States to grant more relief than a court in Taiwan would grant.In re Master Home Furniture Co., Ltd., 2001 Bankr. LEXIS 544, 261 B.R. 671 (Bankr. C.D. Cal. April 24, 2001) (Jury, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:304.01, .08[5]

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Objection to IRS’s claim sustained because assessment of partnership was insufficient for collection of taxes from individual members of the partnership. C.D. Cal. The chapter 13 debtors, who were general partners of a partnership, objected to a claim filed by the IRS for taxes and penalties against the partnership. The debtors argued that the claim should not be allowed because it was a claim assessed against the partnership and not a proven claim against the estate. Specifically, the debtors argued that while they were jointly and severally liable for the partnership’s debts, the claim had to be individually assessed before it could be collected against them. The bankruptcy court held that the tax assessments against the partnership were not effective to bind the debtors as partners and that the collection was barred by the statute of limitations. The IRS appealed. The district court affirmed. The court held that the assessment of the partnership was insufficient for collection of taxes from the individual debtors and that the bankruptcy court was correct in holding that collection was barred because the debtors were not assessed within the applicable three-year period. The court found no compelling reason to conclude that it was error for the bankruptcy court, in interpreting the relevant Internal Revenue Code provisions, to read 'individual' as including individuals who are general partners of partnerships. Thus, the bankruptcy court correctly found that the debtors had presented sufficient evidence to rebut the prima facie validity of the IRS’s claim.United States v. Galletti (In re Galletti), 2001 U.S. Dist. LEXIS 6480, – B.R. – (C.D. Cal. March 23, 2001) (Phillips, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:502.02[2]

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Enabling loan exception did not apply when the debtor had leased the vehicle prior to the purchase transaction. Bankr. D. OR. Debtor, who leased a vehicle from an automobile dealer, who in turn assigned the lease to a credit corporation, exercised his option to purchase the vehicle at the end of the lease. In a complicated series of transactions, which began on February 2, the lease was paid off and dealer assigned its rights in a newly executed installment contract to the credit corporation. On February 16, the dealer delivered the title and other documents to the motor vehicle department, which subsequently issued a new title noting the debtor as owner and the credit corporation as the security interest holder. On February 25, the debtor filed a chapter 7 petition and the trustee sought to set aside the security interest in the vehicle as a preference. The creditor asserted that the transaction was protected under section 547(c)(3) as an enabling loan as well as a contemporaneous exchange for new value under section 547(c)(1). The bankruptcy court held that the transaction was not an enabling loan because the debtor already had possession of the vehicle. Section 547(c)(3) requires that the new value be given to acquire the vehicle. Since the debtor had possession of the vehicle under the lease, the loan was not given to the debtor to acquire the vehicle and, thus, the enabling loan exception did not apply. The transaction was, however, an contemporaneous exchange for new value under 547(c)(1).Roost v. Toyota Motor Credit Corp. (In re Moon), 2001 Bankr. LEXIS 481, – B.R. – (Bankr. D. OR. May 4, 2001) (Radcliffe, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:547.04[3]

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10th Cir.

Creditor willfully violated stay. Bankr. D. Kan. The chapter 7 debtors filed a motion to hold a creditor in contempt for violation of the automatic stay. The creditor had continued to garnish the debtor husband’s wages pursuant to a prepetition garnishment order even after receiving notice of the pending case from the court and a request for release from the debtors’ attorney. The creditor argued that its only delay was in awaiting the employer’s answer before releasing the garnishment. The bankruptcy court held the creditor in contempt for violation of the stay, holding that the creditor had an affirmative duty to release the garnishment of the debtor’s wages as soon as it learned of the bankruptcy. The court noted that awaiting the employer’s answer was not the sort of administrative delay that would excuse the stay violation.In re Pulliam, 2001 Bankr. LEXIS 524, – B.R. – (Bankr. D. Kan. May 15, 2001) (Nugent, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.03[3], .03[8]

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11th Cir.

Stock options were assets of the estate and not exempt wages. Bankr. M.D. FLA. The debtor was granted employee stock options on December 4, 1997. The options were to vest on dates between December 1999 and December 2002, provided the debtor continued in his employment. The debtor filed a chapter 7 petition on October 1, 1999. The trustee asserted that all the debtor’s rights under the stock option plans were property of the estate. The debtor argued that his interest in the stock option plans was not subject to assumption or assignment to the trustee and was exempt from the claims of creditors. Specifically, the debtor contended that the stock options were exempt wages and that they were executory contracts for personal services that the trustee could not assume or assign under section 365(a). The bankruptcy court held that the stock options were assets of the estate and were not exempt wages. The court reasoned that, for the purposes of section 365(a), the debtor’s argument that the options were executory personal service contracts failed because the debtor had the absolute right to exercise a number of options conditioned only upon his continued employment for a certain period. The court found that such a right was no different from the right to share in a trust upon reaching a certain age. The court finally ordered turnover of a portion of the options prorated by calculating the number of days between December 4, 1997 and the petition date, dividing that figure by the number of days between December 4, 1997 and the applicable vesting date, and applying that percentage to the number of options granted for that year. The court concluded that the prorated options were attributable to the debtor’s work completed prior to the petition date (citing Collier on Bankruptcy 15th Ed. Revised). In re Lawson, 2001 Bankr. LEXIS 536, 261 B.R.774 (Bankr. M.D. FLA. April 5, 2001) (Jennemann, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.03

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Trustee could not avoid lien that was inadvertently released when debt had not been satisfied. Bankr. M.D. Ga. The debtor entered into a retail installment contract and security agreement with the creditor to purchase an automobile. The creditor perfected its security interest. Thereafter, the creditor executed a lien release on the certificate of title and mailed it to the debtor, apparently in error because at the time the debt had not yet been satisfied. The debtor did not forward the release to the state’s revenue department and so no new certificate of title reflecting the lien release had ever been issued. After realizing its error, the creditor applied for a replacement title, which was issued in October 1999. In November 1999 the debtor filed a chapter 13 petition and listed the creditor as unsecured, holding a $21,000 claim. The creditor’s proof of claim asserted secured status. Thereafter, the bankruptcy court confirmed the debtor’s plan proposing a dividend payment to general unsecured creditors. In July 2000, the trustee filed an adversary proceeding, asserting that the creditor released its lien on the automobile when it mailed the certificate of title to the debtor, at which time the lien became unperfected and that, accordingly, the application and receipt of the replacement title was an attempt at perfection. Because that took place within the 90 days prepetition, the trustee argued that a preferential transfer took place, one that was subject to avoidance. The creditor argued that, pursuant to state (Alabama) law, its lien was never released; the replacement title did not re-perfect the lien and its lien was at all times perfected because public records never reflected otherwise. The bankruptcy court held that, pursuant to state law, the creditor did not effectively release its security interest because the lien had not been satisfied and the final step of delivery to the revenue department had not been completed. The court concluded that the trustee was therefore unable to use her 'strong arm powers' under section 544(a)(1) because the lien was perfected on the day of the petition filing. The court also found that, because the lien had never been released, the trustee could not avoid the transfer since no transfer had taken place.Smith v. Am. Honda Fin. Corp. (In re Marshall), 2001 Bankr. LEXIS 534, – B.R. – (Bankr. M.D. Ga. May 21, 2001) (Laney, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:544

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