The District Court for the Middle District of Florida declined to follow the First Circuit’s direction on the treatment of tax debts based on late-filed returns and instead applied the pre-BAPCPA Beard test to find that the debtor’s Massachusetts state tax debt was discharged in bankruptcy. Mass. Dept. of Rev. v. Shek, No. 18-341 (M.D. Fla. Nov. 13, 2018). [Read more…] about Court Applies Beard Test to Late-Filed Return
Arbitration Issue Goes to Fifth Circuit
The bankruptcy court denied the creditor’s motion to compel arbitration where the debtor’s adversary complaint, based on the creditor’s violation of the discharge injunction, was based on a purely bankruptcy issue. Henry v. Educ. Fin. Serv., No. 13-30519, Adv. Proc. No. 18-3154 (Bankr. S.D. Tex. Oct. 17, 2018). [Read more…] about Arbitration Issue Goes to Fifth Circuit
Serial Filings and the Automatic Stay
Under section 362(c)(3), the automatic stay terminates in its entirety after 30 days, when the debtor has had a previous case dismissed within one year of filing the second case. Smith v. State of Maine Bureau of Rev. Servs., 910 F.3d 576 (1st Cir. 2018). [Read more…] about Serial Filings and the Automatic Stay
9th Circuit Clarifies Appellate Attorney’s Fees in Sanctions Case
The Ninth Circuit recently ruled that Section 362(k) of the Bankruptcy Code allows an award of attorney’s fees when the debtor successfully defends or challenges a judgment for violation of the automatic stay. In Easley v. Collection Serv. of Nev., No. 17-16506, 2018 U.S. App. LEXIS 35857, at *3 (9th Cir. Dec. 20, 2018), the Ninth Circuit Court of Appeals reversed the judgment of the District Court.
[Read more…] about 9th Circuit Clarifies Appellate Attorney’s Fees in Sanctions Case
Fifth Circuit Bludgeons Debtors with Judicial Estoppel Ruling
The district court did not abuse its discretion in dismissing the plaintiff’s case under the False Claims Act where he had failed to disclose the cause of action in his pending chapter 13 case. Bias v. Tangipahoa Parish School Board, No. 17-30982 (5th Cir. March 22, 2019) (withdrawing prior opinion) (unpublished, per curiam opinion).
After his chapter 13 case was confirmed in bankruptcy court, debtor, Ronald Bias, learned that his retirement from the Marine Corps had mistakenly been permitted two years earlier than it should have been. The Marine Corps offered him the option of continuing his teaching position in the Junior Reserve Officer’s Training Corp (JROTC), Tangipahoa Parish School District, as a way of fulfilling his pre-retirement obligations. While teaching, Mr. Bias learned of a fellow marine and teacher at the school whom he believed was submitting false reimbursement requests to the Marine Corps. After he reported his suspicions, Mr. Bias was offered the opportunity to retire or be transferred to a new school district.
Believing this action by the school board to be in retaliation for his whistle-blowing, Mr. Bias filed an action in district court under the False Claims Act, 42 U.S.C. section 1983, and state law, against the school board, the school principal and the marine who sought the reimbursements. The court dismissed all the claims that were not separately settled, and Mr. Bias appealed. The Fifth Circuit reversed and remanded the dismissal of Mr. Bias’s FCA retaliation claim against the Board. On remand, the Board argued that Mr. Bias’s claim should be dismissed on judicial estoppel grounds because Mr. Bias failed to disclose the action to the bankruptcy court where his chapter 13 case was pending. The district court agreed and granted the Board’s motion to dismiss.
On appeal, the Fifth Circuit found that the district court did not abuse its discretion in applying judicial estoppel to Mr. Bias’s case.
Applying the three elements necessary for application of judicial estoppel, the circuit court found first that Mr. Bias had an ongoing duty to report post-petition causes of action to the bankruptcy court and that, by failing to do so, he impliedly misrepresented to the court that no such litigation existed. Mr. Bias, and NACBA/NCBRC as amici, argued that Mr. Bias had no duty to disclose the litigation, as section 541(a), and Rule 1007(h) delineate the debtor’s duty of disclosure and neither the Code nor the Rule impose that duty. Mr. Bias and amici distinguished Flugence v. Axis Surplus Insurance Co. (In re Flugence), 738 F.3d 126 (5th Cir. 2013), which involved a chapter 13 plan specifying that property would not re-vest in the debtor until discharge. In contrast, Mr. Bias’s plan provided that upon confirmation, property would re-vest in him. Mr. Bias and amici argued, therefore, that because a post-petition cause of action would not enter the bankruptcy estate, he had no obligation to disclose it.
Citing its own precedents, the court found that Fifth Circuit law has established that a debtor’s duty to disclose is not dependent upon the whether the asset acquired post-confirmation entered the bankruptcy estate or was otherwise subject to disclosure requirements as set forth in the Code. Rather, under judicially-created law, debtors in the Fifth Circuit have an obligation of disclosure beyond what is required by Congress. The court summarily rejected the argument that its disclosure obligation is unduly burdensome.
The court next found that the bankruptcy court’s reliance on Mr. Bias’s misrepresentation was evidenced by its grant of discharge. It rejected Mr. Bias’s argument that the bankruptcy court could not have relied on a representation of which it was not aware, as not having been raised below.
Finally, the court found the third element of intentionality and motive to conceal, was satisfied. In so holding, the court held that, under its precedents, Mr. Bias’s lack of awareness of the law requiring disclosure is irrelevant. Inadvertence can be shown only by a lack of awareness of the facts giving rise to the duty to disclose, i.e. the existence of the cause of action. With respect to motive, the court applied an objective analysis under which the mere fact that Mr. Bias would have had to disclose any settlement or award arising out of the litigation to the bankruptcy court thereby possibly exposing himself to increased plan payments or shorter plan period, was sufficient to infer motive to delay the FCA litigation and keep the bankruptcy court in the dark.
In the face of amici’s argument that the “Fifth Circuit has begun using the doctrine [of judicial estoppel] as a per se rule as a perfunctory bludgeon with which to punish dishonest and honest debtors alike,” the court fell back on its position as a reviewing court. It held that the district court based its holding on a correct statement of the facts and reasonable interpretation of circuit law and, therefore, did not abuse its discretion.
Mr. Bias has filed a petition for rehearing en banc.
Eleventh Circuit Interprets Section 1328(a)’s “Provided for”
A mortgage paid outside the plan is not “provided for by the plan” for purposes of discharge of the debtor’s liability under section 1328(a). Dukes v. Suncoast Credit Union, No. 16-16513 (11th Cir. Dec. 6, 2018).
When she filed her bankruptcy petition, Chapter 13 debtor, Mildred Dukes, was current on two mortgages held by Suncoast Credit Union. Though she listed both mortgages in her schedules, the credit union filed a proof of claim only for the second mortgage. Her confirmed plan stated that the mortgages would be paid outside the plan. Ms. Dukes completed her plan payments and was granted discharge of all debts provided for by the plan. During the plan, however, Ms. Dukes defaulted on both mortgages. The credit union foreclosed on the property under the second mortgage and sought deficiency judgment against Ms. Dukes under the first mortgage. It moved to reopen her bankruptcy to obtain an order that her liability on the first mortgage was not discharged. The bankruptcy court found in favor of the credit union, and the district court affirmed. [Read more…] about Eleventh Circuit Interprets Section 1328(a)’s “Provided for”
Interest in Joint Tenancy Drops from Estate upon Death of Debtor
By operation of state property law, a debtor’s interest in a joint tenancy drops out of the Chapter 7 estate upon the death of the debtor, and this does not conflict with the trustee’s powers under federal law. Cohen v. Chernushin (In re Chernushin), No. 18-1068 (10th Cir. Dec. 21, 2018).
Gregory and Andrea Chernushin owned real property as joint tenants. Mr. Chernushin filed for bankruptcy but committed suicide during the pendency of his case. The Chapter 7 trustee sought to retain and sell the joint tenancy. The bankruptcy court found that upon Mr. Chernushin’s death, the entire interest in the property went to Ms. Chernushin and was therefore no longer part of the bankruptcy estate amenable to sale by the trustee. On appeal, the district court agreed. Cohen v. Chernushin (In re Chernushin), 584 B.R. 567 (D. Colo. 2018). [Read more…] about Interest in Joint Tenancy Drops from Estate upon Death of Debtor
Court Exceeded Power with Plan Provision Re: After-Acquired Property
A bankruptcy court lacks the power to require a chapter 13 debtor to include a plan provision pledging to pay into the plan the cash equivalent of any non-cash property obtained post-confirmation. Roseberry v. U.S. Trustee, No. 18-1039 (S.D. Ill. Dec. 18, 2018). [Read more…] about Court Exceeded Power with Plan Provision Re: After-Acquired Property
Traffic Fines Not Given Priority in Chapter 13
Claims based on post-petition traffic fines are not administrative expenses entitled to priority in chapter 13 bankruptcy. City of Chicago v. Marshall, No. 17-2308 (lead case) (N.D. Ill. Nov. 27, 2017).
Bankruptcy debtors in seven separate cases and two courts incurred post-petition traffic fines in the City of Chicago. The City moved the courts to prioritize its claims as “administrative expenses” under sections 503 and 507(a). The courts denied the City’s motions. [Read more…] about Traffic Fines Not Given Priority in Chapter 13
Fourth Circuit Side-Steps Retirement Contribution Issue
Finding that the trustee did not raise the statutory issue of whether and when a chapter 13 debtor may make voluntary contributions to his retirement account, the Fourth Circuit found no clear error in the bankruptcy court’s factual finding of good faith. Gorman v. Cantu (In re Cantu), No. 17-1034 (4th Cir. Dec. 18, 2017) (unpublished).
Ricardo Cantu’s chapter 13 plan proposed to pay $51,240 toward his $148,346 unsecured debt over five years. The plan payments were based on a disposable income calculation which contemplated $338 in monthly repayments to two retirement accounts which Mr. Cantu had taken out against his government-backed Thrift Savings Plan. The trustee argued that one of the loans from the TSP would be paid off shortly after commencement of the plan, and applying the forward-looking approach, the anticipated reduction in retirement contributions should be considered in calculating Mr. Cantu’s disposable income. The trustee also objected to Mr. Cantu’s inclusion of domestic support payments in the amount of $1,625 per month, when his divorce decree ordered monthly payments of $1,500. Mr. Cantu countered that once he paid off the loan from the TSP he intended to resume making contributions in the same amount to that Plan. He also maintained that the discrepancy between the divorce decree and his actual payments was a result of a scrivener’s error in the divorce decree.
With respect to Mr. Cantu’s voluntary contributions to his retirement account, the bankruptcy court adopted the majority view that such payments may be deducted from the disposable income calculation under section 1325(b), so long as they are made in good faith. The court rejected the two contrary approaches under which 1) voluntary retirement contributions may be made only if they were being made prior to bankruptcy and in the same amount, and 2) voluntary contributions are prohibited in all circumstances. The court then addressed the factual issues of whether the contributions were proposed in good faith and whether the domestic support payments were accurate. The court resolved both issues in Mr. Cantu’s favor. In re Cantu, 553 B.R. 565 (Bankr. E.D. Va. 2016). The district court affirmed.
On appeal, the Fourth Circuit side-stepped the statutory issue of which approach to voluntary retirement plan contributions to adopt, concluding that the trustee did not appeal the bankruptcy court’s application of the majority view, but instead, limited his argument to whether the bankruptcy court correctly resolved the factual issue of good faith. The circuit court found that the bankruptcy court did not commit clear error. Mr. Cantu had been making regular contributions to his TSP until he was forced to stop when he took out hardship loans against the account. In addition, the amount of his contributions was far less than the allowable contribution amount.
The court also found that the bankruptcy court did not commit clear error in accepting Mr. Cantu’s testimony, supported by a pre-divorce Separation Agreement, that the divorce decree did not accurately reflect the agreement between the ex-spouses.
Finding that the bankruptcy court’s factual conclusions were supported by the evidence, the circuit court affirmed.
Judge Thacker concurred in part and dissented in part. She maintained that the trustee in fact raised the issue on appeal of whether and when a debtor may make voluntary contributions to a retirement account, and the court should have taken the opportunity to take a position on the issue. With respect to the domestic support payments, Judge Thacker opined that the bankruptcy court was bound to apply the only court-ordered payments, to wit: those specified in the divorce decree, and that it overstepped by applying, instead, an amount not reflected in that document.