Welcome to the National Consumer Bankruptcy Rights Center (NCBRC), your pivotal resource for the latest developments in consumer bankruptcy law. This page is to keep you informed on the most recent court opinions and legal updates that impact consumer debtors and bankruptcy attorneys across the nation. We have also included, when available, the briefs submitted in these cases. We hope this will assist you in drafting your appellate arguments and briefs.
| Opinion/Briefs (Click) | Jurisdiction | Date | Summary | Code/Rule |
|---|---|---|---|---|
| In re Foster | Bankr. S.D. Ala. | 11/1/24 | Holding: The bankruptcy court held that the IRS’s perfected pre-petition tax lien on the debtor’s property entitled it to unclaimed funds held by the court, superseding the debtor’s right to those funds under 11 U.S.C. §1326(a)(2). Facts: Stacey Lavell Foster filed a Chapter 13 bankruptcy case but failed to confirm a plan, leading to the dismissal of her case. The Chapter 13 trustee transferred unclaimed funds to the court’s registry after Foster failed to negotiate refund checks. Both Foster and the IRS claimed entitlement to the funds, with the IRS citing its pre-petition tax lien. The court ruled in favor of the IRS, granting its application for the funds. Analysis: The court analyzed the interplay between 11 U.S.C. §1326(a)(2), which governs the disposition of Chapter 13 funds upon dismissal, and 26 U.S.C. §6321, which grants the IRS a lien on all non-exempt property of the debtor. Ms. Foster relied on In re Acosta, 2018 WL 3245174, 2018 Bankr. LEXIS 2008 (Bankr. D.P.R. July 3, 2018), where a court held that debtors retain a superior right to unclaimed funds, emphasizing statutory construction and public policy favoring the debtor’s fresh start. The Acosta court reasoned that §1326(a)(2)’s plain language overrides the IRS lien, asserting that funds returned to the debtor merely restore the pre-bankruptcy status quo. The court in Foster, however, found the reasoning in Acosta unpersuasive. It aligned with decisions like In re Pruitt, 2008 Bankr. LEXIS 1571, 2008 WL 2079145 (Bankr. M.D. Ala. May 15, 2008); In re Brown, 280 B.R. 231 (Bankr. E.D. Wis. 2002); and In re Beam, 192 F.3d 941 (9th Cir. 1999), which emphasized that federal tax liens attach to all non-exempt property unless explicitly exempt under 26 U.S.C. §6334. These cases concluded that §1326(a)(2) does not shield funds from IRS liens. The court noted that while the issue is unsettled among jurisdictions, the IRS’s broad lien powers and compliance with due process supported its claim. Public policy considerations did not outweigh clear statutory priorities. Tips: Monitor Jurisdictional Trends: Be aware that courts are split on this issue, with some jurisdictions favoring the debtor's right to unclaimed funds (Acosta) and others upholding the IRS's lien (Pruitt, Brown, Beam). Research relevant case law in your jurisdiction before advising clients. Prioritize Federal Tax Liens: Always verify the existence and scope of federal tax liens, as they may supersede debtor claims under §1326(a)(2), even in pre-confirmation dismissal cases. | 11 U.S.C. § 1326(a)(2) 26 U.S.C. § 6321 |
| In re Carlsson | Bankr. W.D. Tex. | 11/1/24 | Holding: The court dismissed the Debtor's Chapter 13 case, ruling that she could not maintain simultaneous Chapter 7 and Chapter 13 cases that addressed the same debts and assets. The court further held that the automatic stay in the Chapter 7 case remained in effect despite the Debtor’s waiver of discharge in that case. Facts: After filing a Chapter 7 bankruptcy, the Debtor waived her discharge, believing that this would terminate the automatic stay, allowing her to file a Chapter 13 case to protect some non-exempt assets from creditors. However, the Debtor's Chapter 13 case contained the same debts and assets as her ongoing Chapter 7 case, prompting the Chapter 13 Trustee and the U.S. Trustee to oppose her attempt to maintain both cases simultaneously. Analysis: The court examined the issue of simultaneous bankruptcy filings, noting that while the Bankruptcy Code does not explicitly forbid multiple cases, most courts prohibit simultaneous filings involving the same debts and assets under the "single estate rule." This rule, based on the Supreme Court's *Freshman v. Atkins* precedent, prevents debtors from managing the same debts in multiple, concurrent bankruptcy estates. Citing *Freshman* and other cases, the court found that allowing both the Chapter 7 and Chapter 13 cases to proceed would contravene this principle, as the Debtor's Chapter 13 case attempted to address the same debts included in her pending Chapter 7. Regarding the automatic stay, the court distinguished between a denial of discharge and a waiver of discharge. Under § 362(c)(2), the automatic stay terminates when a court grants or denies a discharge, but not when a discharge is waived voluntarily by the debtor. The court concluded that the waiver did not automatically terminate the stay in the Chapter 7 case; instead, the stay remains effective until the Chapter 7 case is closed or dismissed, which protects the estate’s assets and preserves the equitable treatment of creditors. Tips: Avoid Simultaneous Filings with Overlapping Debts: Filing two bankruptcy cases that address the same debts or assets is generally impermissible and likely to result in dismissal of the second case. Understanding Automatic Stay Protections after a Waiver of Discharge: Waiving a discharge does not terminate the automatic stay; it remains in place until the case closes or a court orders otherwise. | 11 U.S.C. § 362(c)(2) |
| In re Carrington | 7th Cir. | 10/31/24 | Holding: The court held that under Indiana law, a creditor’s lien on a Chapter 7 debtor’s interest in entirety property was avoidable, as entirety property is exempt unless both spouses are jointly liable for the debt. The lien on Carrington’s interest in the marital home was unenforceable and thus avoidable under Indiana Code § 34-55-10-2(c)(5). Facts: The creditor, Davis, obtained a judgment in California against Carrington, who owned a marital home in Indiana with his spouse as tenants by the entirety. Davis recorded the judgment in Indiana, asserting it as a secured claim in Carrington’s subsequent Chapter 7 bankruptcy case. Carrington contested, arguing that the lien was unsecured since his wife was not jointly liable and that, under Indiana exemption law, his interest was exempt from the bankruptcy estate. Analysis: The court focused on Indiana law’s treatment of entirety property, which exempts such property from creditors unless both spouses are liable for the debt. Since Carrington’s wife was not jointly liable, Indiana Code § 34-55-10-2(c)(5) prevented the creditor from enforcing a lien on his interest. The court also determined that Carrington’s contingent future interest in the property did not qualify as “liable to execution” under Indiana law, which meant the lien could not attach. Citing Matter of Paeplow, 972 F.2d 730 (7th Cir. 1992), the court reinforced that Indiana’s exemption statute provides broad protection for entirety property in bankruptcy, supporting full avoidance of the lien under § 522(f). Tips for Practicing Consumer Bankruptcy Attorneys: Confirm whether both spouses are jointly liable before assuming a creditor’s lien on entirety property is enforceable. Leverage state-specific exemptions on entirety property to protect clients’ primary residences from individual creditors. Argue that contingent future interests in entirety property may not meet “liable to execution” requirements, which can strengthen lien avoidance under § 522(f). | 11 U.S.C. § 522(f) |
| In re Lang | Bankr. E.D. Wis. | 10/30/24 | Holding: The court held that a debtor must demonstrate excusable neglect to amend bankruptcy schedules after a case is closed, and in this case, the debtor showed excusable neglect, allowing the amendment to exempt his personal injury claim against 3M. Facts: Debtor Joshua Lang filed for Chapter 7 bankruptcy but failed to disclose or exempt a personal injury claim against 3M. After the bankruptcy case was closed, Lang settled the claim and sought to amend his schedules to include and exempt the settlement. The U.S. Trustee objected to the amendment. Analysis: The court analyzed whether the debtor could amend his schedules after the case was closed. Federal Rule of Bankruptcy Procedure 1009 allows amendments before case closure, but the court considered whether a reopened case would permit post-closure amendments. The court recognized conflicting opinions on this matter but sided with the view that amendments are possible if the case is reopened and excusable neglect is shown. The court evaluated the factors of excusable neglect, including the debtor’s personal circumstances (divorce, PTSD, and losses), the delay (236 days after case closure), and the debtor’s knowledge of the claim (notified multiple times by his attorney). While the debtor's delay was significant, the court found that the creditor’s potential prejudice was minimal because the debtor could have exempted the claim from the start, and the trustee’s involvement would not have increased the settlement amount. Tips: Excusable Neglect is a High Bar: While courts may allow amendments to schedules if excusable neglect is shown, be aware that such requests are scrutinized. Encourage clients to amend their schedules promptly if they discover any omissions or errors post-filing, particularly if those omissions could result in the loss of exemptions or harm to creditors. | Fed. R. Bankr. P. 1009(a), 9006(b)(1) |
| In re Klemkowski | Bankr. D. Md. | 10/30/24 | Holding: The court ruled that the mortgage servicer violated the automatic stay by denying the debtor access to the electronic payment portal, but it did not award monetary damages under 11 U.S.C. § 362(k) as the debtor did not provide sufficient support for such relief. Facts: The debtor, in a Chapter 13 bankruptcy, used an electronic payment portal provided by her mortgage servicer to make payments on her mortgage. After filing for bankruptcy, the servicer stopped allowing her to use the portal, making it more difficult for her to make payments. The debtor defaulted on her mortgage as a result, and the servicer filed a motion for relief from the automatic stay. The court found that the servicer's actions violated the automatic stay but did not grant monetary damages. Analysis: The court first considered whether the servicer’s actions violated the automatic stay under 11 U.S.C. § 362(a)(3), which protects the debtor from actions that interfere with their property or contractual rights. The debtor had a prepetition right to use the electronic payment portal, and the court held that this right was part of the bankruptcy estate. The servicer's decision to deny access to the portal effectively terminated the debtor's right to make payments in a manner consistent with prepetition agreements, thus violating the stay. The court emphasized that actions in violation of the stay are void ab initio (from the beginning), but the debtor did not provide sufficient evidence for damages under 11 U.S.C. § 362(k). The court further noted that such violations must not be left without remedy, so it allowed the parties to address an appropriate remedy in a subsequent hearing. Tips: Monitor Creditors' Compliance with Bankruptcy Protections: Keep an eye on creditors’ actions during the bankruptcy process, especially if they attempt to change terms or deny services like online payment portals. Take immediate action to address violations, even if no damages are involved. Understand Remedies Beyond Damages: Be prepared to seek remedies other than monetary damages, such as compelling creditors to reinstate payment options or taking other corrective actions, to ensure that debtors' rights under the automatic stay are respected. | 11 U.S.C. §§ 362(k), 541(a) |
| In re Schneider | Bankr. S.D. Ind. | 10/25/24 | Holding: The bankruptcy court held that the payment obligation owed to the debtor by her ex-spouse under the divorce decree was "in the nature of support" and therefore excluded from the bankruptcy estate under 11 U.S.C. §541. Facts: The debtor filed Chapter 7 bankruptcy, and the Trustee sought to include payments owed by the debtor’s ex-spouse in the estate. These payments originated as an “asset equalization payment” under a divorce decree but were structured as regular monthly payments and intended to secure housing for the debtor and the parties’ child. The debtor objected, arguing that the payments were in the nature of child support and not property of the estate. Analysis: The court applied the "totality of circumstances" test to determine whether the payment obligation was a property settlement or in the nature of support. Federal law governs this characterization, and while labels in the decree matter, the intent of the parties at the time of divorce is dispositive. The court reviewed several factors, including: •Parties' intent: Both the debtor and her ex-spouse credibly testified that the payments were intended to ensure suitable housing for their child, aligning with support rather than property division. •Structure and function: The obligation consisted of regular, ongoing payments rather than a lump sum, mirroring traditional support obligations. Additionally, the ex-spouse ceased paying express child support after the amendment, suggesting the payments served that purpose. •Context in decree: While labeled as “asset equalization payments,” the debtor lacked legal counsel during the divorce, and both parties misunderstood the significance of this terminology. Although the inclusion of a separate child support provision and life insurance requirement slightly supported the Trustee’s position, the court found that the payments primarily functioned as support. The testimony and circumstances outweighed the terminology used in the decree. Tips: Focus on Function Over Labels: Payment obligations labeled as property settlements can be excluded from the estate if their function aligns with support; advocate based on the totality of circumstances. Prepare Credible Testimony: Ensure clients can testify clearly about the intent and purpose behind divorce agreements to bolster their case. Review Divorce Decrees Critically: Be prepared to argue against misleading or misunderstood labels, especially where a client lacked legal counsel during divorce proceedings. | 11 U.S.C. §541 |
| In re Gilbert Appellant Brief Appellee Brief Reply Brief | 3rd Cir. | 10/24/24 | Holding: The Third Circuit affirmed that Eric Gilbert’s retirement accounts, despite alleged ERISA and IRC violations, were excluded from his bankruptcy estate under 11 U.S.C. § 541(c)(2) because ERISA’s anti-alienation provisions protected them from creditor claims. Facts: Eric Gilbert filed for Chapter 7 bankruptcy, listing approximately $1.7 million in retirement accounts governed by ERISA. The Chapter 7 trustee, John McDonnell, argued that Gilbert’s creditors could access these accounts due to non-compliance with ERISA and IRC regulations, including misuse of the retirement funds. The Bankruptcy and District Courts ruled that these accounts were protected from creditor claims. Analysis: The Third Circuit evaluated whether Gilbert’s retirement accounts, despite alleged ERISA and IRC violations, qualified for exclusion from the bankruptcy estate under § 541(c)(2). The court emphasized that the plain language of § 541(c)(2) protects a debtor’s interest in a trust with anti-alienation provisions that are enforceable under “applicable nonbankruptcy law.” Following *Patterson v. Shumate*, the court concluded that ERISA’s anti-alienation provisions fall under this category, thus shielding the accounts from creditors. The trustee argued that since the retirement plans allegedly violated ERISA and IRC provisions, they should be included in the bankruptcy estate. However, the court found no statutory basis for disqualifying ERISA-governed accounts based on compliance issues, noting that such violations do not void ERISA’s anti-alienation protections. The court also rejected the trustee’s appeal to equity, citing the Bankruptcy Code’s and ERISA’s explicit limitations on creditor access to certain retirement funds. Tips: Emphasize Anti-Alienation Protections: ERISA’s anti-alienation provision can protect retirement funds from creditors even if compliance issues arise. Confirm if accounts qualify under ERISA for potential exclusion. Statutory Language Prevails: Courts will likely uphold the plain meaning of § 541(c)(2) and similar provisions. Avoid relying on equitable arguments that seek to bypass statutory protections. | 11 U.S.C. § 541(c)(2) |
| In re Wylie | 6th Cir. | 10/23/24 | Holding: The Sixth Circuit reversed the bankruptcy court’s denial of discharge, ruling that Jason and Leah Wylie’s choice to apply tax overpayments to future liabilities did not demonstrate the intent to hinder the trustee required by 11 U.S.C. § 727(a)(2). Facts: In 2018, the Wylies faced financial struggles after Mr. Wylie’s health issues forced him to stop working. While preparing for bankruptcy, they elected to apply 2018 tax overpayments toward their 2019 tax liabilities and later repeated this approach for their 2019 returns. After filing a Chapter 7 bankruptcy in 2020, the trustee sought to deny their discharge, claiming this application of overpayments amounted to a transfer with intent to hinder the bankruptcy estate. Analysis: In reversing the denial of discharge, the Sixth Circuit clarified that § 727(a)(2) requires specific, culpable intent to hinder creditors—far more than simply preferring certain creditors, such as taxing authorities. Here, the Wylies had a rational and legitimate purpose: ensuring future tax obligations were covered, not obstructing the trustee’s ability to access funds. The bankruptcy court’s conflicting findings between the 2018 and 2019 tax elections revealed inconsistent applications of the intent standard. For the 2018 tax overpayment, the court found no intent to hinder, attributing the Wylies’ actions to creditor preference, which is not grounds for denial under § 727. However, on nearly identical facts regarding their 2019 taxes, the bankruptcy court inferred intent to hinder the trustee—a position the Sixth Circuit found erroneous. Since creditor preference does not equate to intent to hinder under the Bankruptcy Code, the Sixth Circuit reinforced that denying discharge demands substantial evidence of actual intent to obstruct the trustee, not mere creditor preference. Additionally, the court observed that although the trustee was technically delayed, the Wylies ultimately remitted the tax refunds, undercutting any claim of tangible hindrance. Their lack of familiarity with the trustee’s duties further undermined any inference of specific intent to interfere with the trustee’s administration of the estate. Tips: Clarify the Line Between Creditor Preference and Intent to Hinder: When assisting clients with tax elections or similar financial decisions, make sure the rationale is well-documented and clearly unrelated to obstructing creditors or the trustee. Intentional creditor preference is not prohibited, while intent to hinder is. Prepare for Trustee Challenges on Tax Overpayments: Trustees may scrutinize applications of tax overpayments, so ensure clients are prepared with legitimate reasons for any election to carry over refunds, particularly if they could be construed as preferring tax creditors. | 11 U.S.C. § 727(a)(2) |
| In re Lamb | Bankr. E.D.N.C. | 10/22/24 | Holding: The court denied confirmation of the Lambs' Chapter 13 plan without prejudice, finding that they failed to meet the burden of proving the value of the mobile home securing Shellpoint's claim. Facts: Larry Lamb and Mary Graham Lamb filed a Chapter 13 petition on April 30, 2024, listing a triple-wide mobile home valued at $6,000, with Shellpoint Mortgage Servicing holding a lien of approximately $33,400. Their plan proposed bifurcating Shellpoint's claim, treating the home’s value as secured and the remaining balance as unsecured. Shellpoint objected, disputing both the valuation and the lack of provisions for taxes and insurance. Analysis: The court first considered the standard for valuing secured claims in Chapter 13 plans, particularly under Section 1325(a)(5)(B) which allows debtors to retain property by paying its present value, commonly referred to as the "cram down" method. The court determined that the debtor must establish the collateral's value to determine the secured portion of the claim, which is essential for the plan’s confirmation. Under Section 506(a)(2), the value of personal property should be determined based on replacement value at the petition date, excluding costs of sale or marketing. The court considered the J.D. Power report submitted by Shellpoint but allowed it as an incomplete source due to objections regarding its admissibility. Mr. Lamb testified to the poor condition of the mobile home, including roof leaks and structural damage, and estimated its value at $6,000. However, the court found that this was insufficient to establish the value of the property conclusively, especially given the lack of expert testimony or independent appraisal. The court concluded that, as the debtor, the Lambs bore the burden of proving the value of the mobile home to support their plan. The court found the evidence, including photographs and Lamb's testimony, inadequate to shift the burden to Shellpoint or justify the proposed $6,000 value. The burden of proof remains on the debtor in such situations, especially when modifying creditor rights under a Chapter 13 plan. Since the Lambs failed to present persuasive evidence to support their valuation, the plan could not be confirmed. Tips: Debtors' Burden of Proof: In Chapter 13 cases, the debtor carries the burden of proving the value of collateral when seeking to bifurcate a secured claim. Support with Evidence: Ensure that any valuation presented in the plan is backed by objective, credible evidence, such as expert appraisals or supported valuation reports, especially when a dispute arises. | 11 U.S.C. §§ 506(a)(2), 1325(a)(5)(B) |
| In re Russell-Cassalery | Bankr. D. Or. | 10/21/24 | Holding: The court held that it could not approve a modified Chapter 13 plan retaining an 84-month term after the expiration of the CARES Act provision (§ 1329(d)) allowing extended plan terms. Modified plans must comply with § 1329(c), which limits plan terms to 60 months. Facts: Debtors William Cassalery and Barbara Russell-Cassalery filed a Chapter 13 petition in 2019 to save their home from foreclosure. Under the CARES Act, they extended their plan term to 84 months in 2020. Following multiple post-confirmation modifications, the debtors proposed a fourth amended plan in 2024, retaining the 84-month term and extending a home sale deadline. The court independently determined that the proposed plan violated 11 U.S.C. § 1329(c), as the CARES Act's extension provisions had expired. Analysis: The court began its analysis with the plain language of § 1329(c), which clearly states that the duration of modified Chapter 13 plans cannot exceed 60 months unless § 1329(d) applies. Since § 1329(d), introduced under the CARES Act, had expired in March 2022 and did not include a savings clause allowing continued application of extended terms, the debtors’ fourth amended plan did not comply with the statute. The court emphasized that where the language of the Bankruptcy Code is unambiguous, it must enforce the statute as written, regardless of equitable considerations. In reviewing precedent, the court acknowledged the limited case law on this issue, particularly the contrasting cases In re Mercer, 640 B.R. 577 (Bankr. D. Colo. 2022) and In re Nelson, 646 B.R. 810 (Bankr. E.D. Wis. 2022). The court aligned with Nelson, which declined to approve modified plans exceeding 60 months post-expiration of § 1329(d), and found its reasoning consistent with the statutory text. By contrast, Mercer permitted retention of an 84-month term in specific cases but did so without thoroughly analyzing the interaction between §§ 1329(c) and 1329(d). The court found Mercer unpersuasive and lacking sufficient justification to depart from the plain meaning of the statute. The debtors’ argument that equity should allow for retention of the extended term was rejected. While the court sympathized with the debtors’ position that the extended term supported the purposes of the plan, it underscored that bankruptcy courts cannot ignore unambiguous statutory provisions to achieve equitable outcomes. The Supreme Court’s decision in Law v. Siegel, 571 U.S. 415, 421, 134 S. Ct. 1188, 188 L. Ed. 2d 146 (2014), reinforced the principle that courts cannot use equitable powers to contravene specific statutory language. Tips: Monitor Expiring Provisions Closely: Temporary statutory amendments, like the CARES Act’s § 1329(d), often have expiration dates. Track such provisions carefully and closely to avoid erroneous reliance. Prepare for Independent Court Review: Even if no party objects to a plan modification, be prepared for the court to independently scrutinize its compliance with the Bankruptcy Code. Courts have a duty to ensure all plan terms align with applicable provisions, including § 1329(c). | 11 U.S.C. § 1329(c) |
| In re De Jesus Rivera | Bankr. D.P.R. | 10/15/24 | Holding: The court held that the Supreme Court's decision in Harris v. Viegelahn, 575 U.S. 510, 135 S. Ct. 1829, 191 L. Ed. 2d 783 (2015), does not apply to pre-confirmation Chapter 13 cases converted to Chapter 7. The Chapter 13 Trustee is permitted to deduct allowed administrative expenses under 11 U.S.C. § 1326(a)(2) before returning remaining funds to the debtor. Facts: Debtor Luduvina de Jesus Rivera filed for bankruptcy under Chapter 13, which was later converted to Chapter 7. Before conversion, no Chapter 13 plan was confirmed. The Chapter 13 Trustee moved to vacate the court’s earlier order authorizing the payment of administrative expenses to a homeowner's association, arguing that Harris v. Viegelahn required all funds to be returned to the debtor without deductions. Analysis: The court distinguished Harris v. Viegelahn, where the Supreme Court addressed the treatment of funds in a post-confirmation Chapter 13 case converted to Chapter 7. In Harris, the Court ruled that post-petition wages held by the trustee must be returned to the debtor because Chapter 13 provisions cease to apply upon conversion, and the Chapter 13 Trustee's services terminate under § 348(e). However, the Harris ruling did not address pre-confirmation cases or administrative expenses under § 1326(a)(2). The court noted a statutory distinction: § 1326(a)(2) explicitly governs the treatment of funds in pre-confirmation cases. If a plan is not confirmed and the case is converted or dismissed, § 1326(a)(2) mandates the return of debtor payments after deducting allowed administrative expenses. The court emphasized that Congress’s choice of language in § 1326(a)(2) ("not confirmed") encompassed both dismissal and conversion scenarios, providing clear statutory guidance absent in Harris. Consequently, the Trustee was ordered to deduct and pay administrative expenses before returning remaining funds to the debtor. Tips: Challenge Unjustified Administrative Fees: Scrutinize administrative expense claims submitted under § 503(b) before conversion. If the fees appear excessive or unsupported, object promptly to protect the debtor’s refund. Monitor Trustee Actions Post-Conversion: Ensure the Chapter 13 Trustee complies with § 1326(a)(2) by deducting only legitimate administrative expenses and promptly returning the remaining funds to the debtor. Address delays or non-compliance with the court to minimize financial strain on your client. | 11 U.S.C. § 1326(a)(2) |
| In re Atiyat | Bankr. E.D. Va. | 10/11/24 | Holding: The court held that the debtor had standing to object to the sale of the real property, as his $25,000 homestead exemption under Virginia law provided him a valid interest. The trustee could not circumvent the debtor’s valid exemption through a "carve-out" agreement that directed sale proceeds to unsecured creditors without first satisfying the homestead exemption. Facts: The debtor filed for Chapter 13 bankruptcy, which was later converted to Chapter 7. The Chapter 7 trustee proposed selling a property jointly owned by the debtor, with proceeds from a carve-out arrangement intended for unsecured creditors. The debtor opposed this sale, asserting that his homestead exemption should take precedence over the carve-out for unsecured creditors. Analysis: The court’s analysis focused on whether the debtor had a pecuniary interest in the estate’s proceeds, a prerequisite for standing to object. The trustee argued that, since the estate was insolvent, the debtor held no such interest. However, the court determined that the debtor’s claimed homestead exemption created a valid interest under Virginia law, which necessitated honoring the exemption before distributing any sale proceeds to unsecured creditors. The court further examined the implications of carve-out agreements in bankruptcy, noting that such arrangements cannot override statutory exemptions. It referenced relevant case law supporting that exemptions should not be circumvented by procedural mechanisms intended to redirect funds for creditors at the expense of the debtor's rights. Therefore, the debtor’s exemption claim had to be honored, and any remaining sale proceeds could only be distributed to creditors afterward. The court also noted that the trustee’s approach conflicted with the principle established in Law v. Siegel, 571 U.S. 415, 134 S. Ct. 1188, 188 L. Ed. 2d 146 (2014), emphasizing that exemptions are strictly protected under bankruptcy law. Tips: Protect Debtors' Exemptions: Take care that the debtor's homestead exemption is asserted and honored, as it cannot be bypassed by carve-out agreements or similar strategies meant to favor creditors. Assert Standing to Object: Even in insolvent estates, debtors may still have standing to object to property sales if they hold a valid exemption interest. Establish and protect this interest. | Va. Code Ann. § 34-4 (State Equivalent of 11 U.S.C. § 522(d)(1)) |
| In re Powell | 9th Cir. | 10/1/24 | Holding: The court held that a debtor has an absolute right to voluntarily dismiss their Chapter 13 bankruptcy case under 11 U.S.C. § 1307(b), regardless of bad faith allegations or ineligibility for Chapter 13 relief at the time of filing. Facts: Powell, the debtor, filed for Chapter 13 bankruptcy. TICO Construction Company, a creditor, challenged Powell’s eligibility for Chapter 13 relief, asserting that he should proceed under a different chapter of the Bankruptcy Code. Powell sought to voluntarily dismiss his case under § 1307(b), and the bankruptcy court granted his request. The key issue in the case was whether Powell could dismiss his Chapter 13 case despite his alleged ineligibility. The case was decided based on a disputed interpretation of the law, particularly whether Powell’s eligibility for Chapter 13 impacted his right to voluntary dismissal under § 1307(b). Analysis: The court focused on the plain language of 11 U.S.C. § 1307(b), which gives a debtor the right to dismiss their Chapter 13 case as long as they meet four requirements: they request dismissal, they are a debtor, the case is under Chapter 13, and the case has not been converted to another chapter under Title 11. The court held that Powell met these requirements, and thus had an absolute right to dismiss his case, regardless of his eligibility for Chapter 13 relief or whether he had filed the petition in bad faith. The court relied on the precedent set in Nichols v. Marana Stockyard & Livestock Market, Inc. (In re Nichols), which similarly recognized the debtor’s right to dismissal under § 1307(b). The majority emphasized that a debtor's certification of eligibility when filing under Chapter 13 is presumptively valid and that any challenge to eligibility does not negate the debtor’s right to voluntary dismissal. In contrast, Judge Collins dissented, arguing that eligibility for Chapter 13 relief is a precondition for the rights and procedures afforded under that chapter, including the right to voluntary dismissal. According to Collins, Powell’s ineligibility for Chapter 13 should have led the court to deny his request for dismissal and instead convert the case to a different chapter. However, the majority rejected this view, prioritizing the plain language of § 1307(b) over any concerns about eligibility or bad faith at the time of filing. Tips: Leverage the Right to Dismiss: Under § 1307(b), clients can dismiss their Chapter 13 case at any time, so use this right strategically, especially if issues arise. Prepare for Eligibility Challenges: Document eligibility thoroughly, as creditors may raise objections that, while not affecting dismissal rights, can complicate the case. | 11 U.S.C. § 1307(b) |
| In re Erickson Appellant Brief Appellee Brief Reply Brief | 9th Cir. | 9/24/24 | Holding: The court affirmed the Bankruptcy Appellate Panel’s decision upholding the bankruptcy court’s dismissal of John Earl Erickson’s bankruptcy petition, the imposition of a two-year bar to refiling for bankruptcy relief, and the denial of his motion for reconsideration due to bad faith filing and non-compliance with the Bankruptcy Code. Facts: John Earl Erickson filed six bankruptcy petitions between 2018 and 2022 in an attempt to halt state and federal court litigation and foreclosure on his primary residence. None of his six bankruptcy filings resulted in plan confirmation. The bankruptcy court found evidence of bad faith in his repeated filings and dismissed his latest bankruptcy case, imposing a two-year bar to refiling. Erickson appealed, arguing the BAP misunderstood the appeal issue and that the bankruptcy court erred in its dismissal and denial of his reconsideration motion. Analysis: The Ninth Circuit evaluated the bankruptcy court’s determination of bad faith under the "totality of the circumstances" test, considering factors such as the debtor’s manipulation of the Bankruptcy Code, his history of filings and dismissals, the intent to defeat state court litigation, and any egregious behavior. The court found sufficient evidence of bad faith, as Erickson filed six bankruptcy petitions, none of which were confirmed, clearly to delay foreclosure proceedings. The court also noted that Erickson’s plan did not propose a legitimate cure for default on his mortgage but instead disputed the creditor's claim to the property, which violated the anti-modification provisions of 11 U.S.C. § 1322(b)(2). Additionally, the court rejected Erickson's due process argument, finding that he had been given ample opportunity to respond to the Trustee's motion to dismiss and to participate in the hearing with the necessary disability accommodations. The bankruptcy court's decision to deny reconsideration was also upheld because Erickson's purported "newly discovered evidence" did not affect the previous finding of bad faith and had already been litigated in state and federal courts. The court concluded that there was no abuse of discretion in the bankruptcy court’s rulings. Tips: Utilize Reconsideration Wisely: Motions for reconsideration should be based on truly new, relevant evidence that impacts the grounds for dismissal, as arguments already resolved in state or federal courts will likely fail. Verify that Bankruptcy Plans Comply with Anti-Modification Provisions: Under 11 U.S.C. § 1322(b)(2), bankruptcy plans cannot impermissibly modify claims secured by a debtor’s primary residence. Review the plan to ensure that it proposes valid cures for defaults rather than contesting the creditor’s secured claims, which can violate the anti-modification provisions and lead to dismissal. | 11 U.S.C. § 1307(c) 11 U.S.C. § 1322(b)(2) |
| In re Jones | Bankr. C.D. Ill. | 9/23/24 | Holding: The court held that the Chapter 13 Debtor is entitled to use funds freed up from repaying a retirement loan to increase contributions to his ERISA-qualified retirement plan, rather than using them to pay unsecured creditors. The plan may be confirmed once the Debtor resolves concerns about his income on Schedule I and adds a provision requiring the increased retirement contributions in month 29 of the plan. Facts: The Debtor filed for Chapter 13 bankruptcy and proposed a plan committing $536 per month to creditors for 40 months, which would pay approximately 56% of general unsecured claims. He was also repaying a $305 monthly retirement loan that would be fully repaid in July 2026. The Debtor proposed using the freed-up funds to increase his retirement plan contributions, but the Chapter 13 Trustee objected, arguing that the funds should go to unsecured creditors. Analysis: The court focused on the interpretation of 11 U.S.C. §541(b)(7), which excludes qualified retirement contributions from a debtor’s disposable income. The court rejected the Trustee’s argument that this provision only applies to prepetition contributions and concluded that post-petition retirement contributions also fall under this exclusion. In reaching its decision, the court sided with the majority view that retirement contributions, even if increased during the Chapter 13 plan, are not considered disposable income for the purposes of paying unsecured creditors. The court emphasized that the statute is clear and unambiguous in its directive that qualified retirement contributions do not count as disposable income, regardless of when they are made. Furthermore, the court found no bad faith in the Debtor’s proposal to increase retirement contributions once the retirement loan is repaid. It highlighted that allowing such contributions aligns with the Bankruptcy Code’s policy of providing debtors with a fresh start and encouraging savings for retirement. The court noted that maximizing retirement contributions, rather than distributing additional funds to unsecured creditors, is consistent with congressional intent, particularly given the statutory provisions designed to protect retirement savings. Tips: Maximize Qualified Retirement Contributions: Debtors can usually propose increased retirement contributions during the plan, as long as they are directed to ERISA-qualified plans, which will not count as disposable income under §1325(b). Plan for Post-Loan Contributions: When your client has a loan repayment that will end during the plan, prepare a strategy for reallocating those funds, making sure the plan clearly states where the funds will go to best fulfill your client's needs. | 11 U.S.C. § 541(b)(7) |
| In re Johnson | Bankr. S.D. Ohio | 9/13/24 | Holding: The bankruptcy court denied the bank’s motion for summary judgment, finding that the state court judgment based on default admissions lacked issue-preclusive effect, and that the bank had not established that the debt was nondischargeable under 11 U.S.C. § 523(a)(2)(A). Facts: Leroy Johnson, Jr. obtained a loan from First Merchants Bank. After defaulting on the loan, the bank filed a lawsuit in state court, alleging that Johnson had made fraudulent misrepresentations to secure the loan. Johnson did not actively defend against the claims, and the state court entered a default judgment based on Johnson’s failure to respond. The judgment was also supported by deemed admissions—where certain facts were accepted as true because Johnson did not formally dispute them during the litigation. Johnson filed a Chapter 7 bankruptcy petition. The bank then pursued an adversary proceeding in the Chapter 7 case, seeking to have the debt declared nondischargeable under 11 U.S.C. § 523(a)(2)(A), which prevents discharge of debts obtained through false pretenses, false representation, or actual fraud. The bank argued that the state court judgment established that Johnson had committed fraud, and that the judgment should be given issue-preclusive effect in the bankruptcy case. However, because the state court judgment was based on default and deemed admissions rather than fully litigated findings, the bankruptcy court was tasked with determining whether the state judgment could be used to establish nondischargeability of the debt under federal bankruptcy law. Analysis: The court analyzed whether the state court judgment had issue-preclusive effect, concluding it did not because it was based on default and deemed admissions, not fully litigated facts. Under bankruptcy law, for a debt to be nondischargeable under § 523(a)(2)(A), the creditor must prove that the debtor obtained money or credit by false pretenses, false representation, or actual fraud. The court further examined the bank’s evidence, focusing on whether it justifiably relied on the debtor’s misrepresentations. It found that while the bank’s reliance was a proximate cause of its loss, the evidence failed to demonstrate that such reliance was justifiable. Since the bank could not establish justifiable reliance—a key requirement under § 523(a)(2)(A)—the court denied the summary judgment motion, allowing the case to proceed to trial. Tips: Challenge State Court Judgments: Argue that default judgments lack issue-preclusive effect in bankruptcy. Emphasize that they do not reflect fully litigated facts, which are necessary to establish fraud under § 523(a)(2)(A). Focus on Creditor's Burden of Proof: Creditors have the burden of proof to prove nondischargeability by preponderance of the evidence. Prepare to challenge their evidence, especially on the requirement of justifiable reliance, to weaken their claims. | 11 U.S.C. § 523(a)(2)(A) |
| In re Jaramillo | Bankr. D.N.M. | 9/13/24 | Holding: The court dismissed the debtor's Chapter 13 bankruptcy case under § 109(g)(1) because the debtor willfully failed to appear at two critical hearings in a previous bankruptcy case within the preceding 180 days. Facts: Richard Jaramillo, the debtor, failed to attend two hearings in a prior Chapter 13 case: a dismissal hearing for non-cooperation and a hearing to reconsider the dismissal. Despite knowing about both hearings, Jaramillo chose not to appear, believing he would lose. Sixty-three days after the dismissal of the prior case, he filed a new Chapter 13 case. Analysis: The court analyzed the applicability of § 109(g)(1), which prohibits individuals from filing a bankruptcy case within 180 days if a previous case was dismissed due to the debtor’s "willful failure" to appear in court or follow court orders. The court defined "willful" as deliberate or intentional conduct, excluding actions that are accidental or beyond the debtor’s control. In Jaramillo’s case, his failure to appear at both the dismissal and reconsideration hearings in the previous case was not accidental. He admitted he knew about the hearings but chose not to attend because he anticipated an unfavorable outcome. The court determined that his non-appearance was a strategic decision to buy more time, rather than a justifiable absence, constituting a willful failure to appear under § 109(g)(1). Although the debtor cited personal trauma and family issues as excuses in his reconsideration motion, the court found that his deliberate decision to miss both hearings rendered his conduct willful under the statute. The court also addressed whether Jaramillo's belief that the presiding judge should have recused himself was relevant. It concluded that even if the debtor thought the judge was biased, his remedy was to file a motion for recusal, not to miss scheduled hearings. Since the court ruled that the debtor willfully failed to appear during the prosecution of the prior case under § 109(g)(1), the Trustee's motion to dismiss was granted. Tips: Make Absolutely Sure Your Clients Attend all Hearings: Advise clients that failing to appear at bankruptcy hearings without a valid, justifiable reason can lead to case dismissal under § 109(g)(1) and ineligibility to file another bankruptcy case for 180 days. Strategic Non-appearance is not a Valid Defense: Clients cannot avoid hearings simply because they believe the outcome will be unfavorable. Any strategy to delay proceedings without proper court approval can be viewed as a willful failure to prosecute the case. | 11 U.S.C. § 109(g)(1) |
| In re Crosdale | Bankr. S.D. Ohio | 9/11/24 | Holding: The court conditionally denied the creditor's motion for relief from the automatic stay, requiring the debtor to provide adequate protection by tendering missed lease payments through the Chapter 13 Trustee in order to avoid further relief from the stay. Facts: Olentangy Commons Owner, LLC. sought relief from the automatic stay to proceed with an eviction due to the debtor’s alleged breach of lease payments of a residential property. The debtor testified that he attempted to pay the overdue rent but was refused, and he planned to cure the defaults through his Chapter 13 plan. Analysis: The court analyzed whether to lift the automatic stay under 11 U.S.C. § 362(d)(1), which allows for such relief for "cause," including lack of adequate protection for the creditor's interests. It emphasized that "cause" is a flexible concept requiring a case-by-case assessment. The debtor's testimony indicated an intent to assume the lease and cure defaults by making the necessary rental payments through his Chapter 13 plan, thus demonstrating a good faith effort to maintain his obligations. The court also highlighted the debtor's right under 11 U.S.C. § 1322(b)(7) to assume an executory contract and cure any defaults. It acknowledged that while the lack of adequate protection could constitute cause for relief from the stay, the debtor's proposed plan to pay the arrearages by a specified date provided adequate protection to the creditor. As a result, the court ruled in favor of the debtor while also allowing the creditor to file a notice of default if the debtor failed to comply with the order. Tips: Work with Creditors: Proactively communicate with creditors about your client's payment challenges. Negotiating temporary payment arrangements or alternative solutions can help alleviate immediate pressures and provide a stronger position in court if defaults arise. Communicate Payment Challenges Early: Encourage clients to inform you immediately if they anticipate difficulty making required payments under their Chapter 13 plan. Early communication allows for timely interventions, such as seeking a plan modification before a default occurs. | 11 U.S.C. § 362(d)(1) 11 U.S.C. § 1322(b) |
| In re Wagner Appellant Brief Appellee Brief Reply Brief | 11th Cir. | 9/11/24 | Holding: The appellate court reversed the district court's order, reinstating the bankruptcy court's decision to discharge George Wagner III’s debts. It held that the district court failed to properly defer to the bankruptcy court's factual findings regarding Wagner’s intent in omitting a show horse from his bankruptcy filings. Facts: George Wagner III purchased a show horse for his daughter using marital funds, later registering it under her name and handling the horse’s maintenance expenses. Wagner did not list the horse in his bankruptcy filings, believing it belonged to his daughter. The bankruptcy court granted discharge, but the district court reversed, concluding Wagner knowingly and fraudulently omitted the horse from his filings. Analysis: The appellate court emphasized the deference owed to the bankruptcy court’s factual and credibility findings, concluding that the bankruptcy court had ample evidence to conclude that Wagner did not act with fraudulent intent. The bankruptcy court credited Wagner’s belief that his daughter owned the horse, as supported by testimony from his family and documents, including the United States Equestrian Federation registration. The court also found Wagner's failure to list the horse was not fraudulent because he had consistently treated it as his daughter's property, from registering it in her name to transferring insurance policy ownership once she became an adult. Moreover, the appellate court criticized the district court for re-evaluating the evidence rather than deferring to the bankruptcy court’s factual determinations. The bankruptcy court’s ruling, based on witness credibility, was plausible given the evidence, and thus, the district court’s failure to defer constituted a misapplication of the clearly erroneous standard. The appellate court concluded that the bankruptcy court’s decision to grant discharge was correct, particularly since Section 727(a)(4)(A) requires a finding of fraudulent intent, which the bankruptcy court determined was absent. Tips: Proactively Solicit Thorough Client Disclosures: Emphasize the importance of clients disclosing all assets and financial interests. Even if the debtor believes an asset belongs to someone else (e.g., a family member), it’s safer to err on the side of disclosure to avoid future challenges to discharge. Document Ownership Transfers Clearly: If your client transfers assets to a family member, ensure the transfer is documented well and all related formalities are completed prior to filing for bankruptcy to avoid disputes over ownership during bankruptcy proceedings. | 11 U.S.C. § 727(a)(4)(A) |
| In re Goff | Bankr. E.D. Wis. | 9/10/24 | Holding: The court ruled that the debtor's interest in a self-settled Charitable Remainder Unitrust is property of the bankruptcy estate, requiring the debtor to satisfy the best-interests-of-creditors test by ensuring that unsecured creditors receive at least as much as they would in a hypothetical Chapter 7 liquidation. Facts: Debtor Randall Goff established a Charitable Remainder Unitrust funded with shares valued at approximately $220,000, which pays him quarterly distributions during his lifetime. After converting his Chapter 7 case to Chapter 13, the Chapter 13 Trustee objected to the confirmation of the plan, arguing that Goff's interest in the Trust must be included in calculating what unsecured creditors are owed. Analysis: The court analyzed whether Goff's interest in the Trust constitutes property of the bankruptcy estate under 11 U.S.C. § 541. It found that Goff has a beneficial interest in the Trust, which restricts the transfer of his interest. However, the transfer restriction was deemed unenforceable under Michigan law, as Goff is both the settlor and a beneficiary, making it a self-settled trust. Consequently, the court concluded that his interest is property of the estate. Next, the court evaluated the best-interests-of-creditors test under § 1325(a)(4). It determined that the unsecured creditors must receive no less than they would in a Chapter 7 liquidation, specifically 5% of the net fair market value of the Trust's assets during Goff's lifetime. The court ordered a status conference to further explore how to ascertain the value of Goff's interest and to establish what payments the debtors must propose to satisfy their obligations. Tips: Assess Trust Interests Early: Evaluate any trusts the debtor may be involved with to determine if they are considered property of the bankruptcy estate before filing a bankruptcy petition, especially if the debtor is both settlor and beneficiary. Understand State Law Implications: Familiarize yourself with state law regarding spendthrift provisions and their enforceability to effectively argue for or against the inclusion of certain trust interests in the bankruptcy estate. | 11 U.S.C. § 541 11 U.S.C. § 1325(a)(4) |
| In re Marr | Bankr. D. Me. | 9/10/24 | Holding: The court held that a Chapter 13 debtor could not claim an exemption for shares of stock in his employer's corporation under Me. Rev. Stat. Ann. tit. 14, § 4422(13)(E) because the Associate Stock Purchase Plan (ASPP) did not qualify as a "profit-sharing" plan as defined by the statute. Facts: James GB Marr, a Chapter 13 debtor employed by Walmart, claimed an exemption for shares of Walmart stock valued at approximately $1,100, asserting that they were purchased under an Associate Stock Purchase Plan (ASPP). The trustee objected to this claimed exemption, leading to a court determination of its validity. Analysis: The court began by examining the statutory framework of Me. Rev. Stat. Ann. tit. 14, § 4422(13)(E), Maine's state counterpart to § 522(d)(10)(E) of the Bankruptcy Code. The court detailed that to qualify as a "profit-sharing" plan, it must provide income substitutive for wages, a condition not met by the ASPP. The debtor's participation in the ASPP was characterized as an investment account rather than a plan intended to substitute income. The court noted that the ASPP allowed Walmart employees to purchase stock through payroll deductions and included a 15% employer match, but there was no indication that stock acquisition was tied to the company's profitability. This further supported the conclusion that the ASPP did not serve as a profit-sharing mechanism. Moreover, the court highlighted the requirement that participation in any claimed exemption must relate to illness, disability, death, age, or length of service; the debtor conceded that his participation did not meet these criteria. Ultimately, the court ruled that both the nature of the ASPP and the absence of the relevant statutory qualifications resulted in the denial of the exemption. The lack of a serial comma in the statute was deemed intentional, reinforcing the interpretation that the modifier applied to all plans listed. Tips: Review Exemption Statutes: Familiarize yourself with both federal and state exemption statutes, particularly the specific language and requirements. This is crucial for advising clients on which assets may be exempt and ensuring claims align with statutory definitions. Clarify Plan Types: When dealing with employee benefit plans, carefully assess whether they meet the criteria for "profit-sharing" or similar exemptions. Understanding the nature of the plan can help avoid claims that may be rejected due to misclassification. Document Participation Conditions: Ensure that clients can demonstrate that their participation in plans or benefits is tied to statutory requirements (e.g., illness, disability, etc.). This documentation can strengthen exemption claims and rebut objections from trustees. | 11 U.S.C. § 522(d)(10)(E) |
| In re Durr | Bankr. M.D. Fla. | 9/9/24 | Holding: The court overruled the Trustee's objection, holding that the debtor's Chapter 13 plan does not unfairly discriminate against any class of creditors under 11 U.S.C. § 1322(b)(1), despite the debtor’s spouse continuing to pay the IRS outside the plan. Facts: The debtor filed a Chapter 13 plan, which included monthly payments to the IRS as part of a settlement agreement between the IRS and her non-filing spouse (NFS). The Trustee objected, arguing that the IRS would receive unfair treatment by receiving payments both inside and outside the plan, while other unsecured creditors received only pro-rata distributions. Analysis: The court examined whether the debtor’s plan created an unfair classification of claims under 11 U.S.C. § 1322(b)(1). Although the IRS would receive payments outside the plan from the debtor’s spouse, the court found that these payments did not create unfair discrimination because the debtor was contributing all of her projected disposable income (PDI) to the plan, and the unsecured creditors would receive exactly what they were entitled to under the Bankruptcy Code. The court relied heavily on the analysis from In re Abaunza, which held that payments made outside the plan with discretionary income, even if to unsecured creditors like the IRS, do not constitute unfair discrimination when all of the debtor’s PDI is contributed to the plan. The court contrasted this with In re Copeland, where a plan that allocated all PDI to tax debt at the expense of other unsecured creditors was found to be unfairly discriminatory. Here, the debtor’s unsecured creditors received their entitled pro-rata share, and the additional payments to the IRS were made by the NFS, not the debtor’s disposable income. Tips: Advise Non-filing Spouses Carefully: When a non-filing spouse is making payments on joint debts like IRS tax obligations, ensure that these payments are not included in the debtor’s disposable income. This distinction helps avoid objections from trustees claiming unfair discrimination under § 1322(b)(1). Focus on Full Compliance with PDI Requirements: Emphasize that as long as the debtor is contributing all of their projected disposable income (PDI) to the Chapter 13 plan, discretionary payments made outside the plan by a non-filing spouse should not result in unfair discrimination against other unsecured creditors. | 11 U.S.C. § 1322(b)(1) 11 U.S.C. § 1325(a)(4) |
| In re Farnham | Bankr. M.D. Ga. | 9/6/24 | Holding: The court held that a debtor has an absolute right to dismiss a Chapter 13 case under 11 U.S.C. § 1307(b), provided the case has not been previously converted. Facts: The debtor filed a Chapter 13 case on December 4, 2023. Before a scheduled hearing on a motion by the Moore Creditors to convert the case to Chapter 7, the debtor filed a voluntary dismissal on May 16, 2024, asserting that the case had not been previously converted. The Moore Creditors later filed a motion to vacate the dismissal, arguing the debtor was ineligible for Chapter 13 relief and had acted in bad faith. Analysis: The court analyzed the absolute right of a debtor to dismiss a Chapter 13 case under § 1307(b). It emphasized that the statutory language is clear: upon the debtor's request, the court "shall" dismiss the case if it has not been converted. The court rejected the Moore Creditors’ claims that bad faith or a pending conversion motion could limit this right, aligning with the majority view that the right to dismiss is not discretionary and is only conditioned on the case not being previously converted. Citing precedent from other circuits, the court reinforced that equitable powers of the court cannot override explicit statutory provisions, especially following the Supreme Court's decision in Law v. Siegel. The court found the Moore Creditors’ allegations insufficient to deny the debtor's dismissal right, highlighting that technical procedural issues raised by the creditors did not merit vacating the dismissal order. Tips: The Right to Dismiss: Always keep in mind that the debtor has an absolute right to dismiss a Chapter 13 case under § 1307(b), provided the case has not been converted. Follow Procedural Guidelines: While the courts may overlook minor procedural missteps, it's best practice to file a motion for voluntary dismissal clearly citing § 1307(b) to avoid unnecessary complications. | 11 U.S.C. § 1307(b) |
| In re Shelby | Bankr. E.D. Mo. | 9/4/24 | Holding: The court granted Debtor Jacqueline Shelby's Motion to Convert from Chapter 7 to Chapter 13, while setting aside her Chapter 7 discharge and allowing the Trustee to seek payment of incurred administrative expenses. Facts: Debtor Jacqueline Shelby filed for Chapter 7 bankruptcy in January and received a discharge in April. Her modest home, valued at $43,000, became part of the bankruptcy estate, and the Trustee began efforts to sell it. After receiving the discharge, Shelby sought to convert her case to Chapter 13 to retain her home, prompting the Trustee to oppose her motion on several grounds, including the argument that a discharge prevents conversion. Analysis: The court analyzed the Trustee's arguments against the conversion, focusing first on the claim that a Chapter 7 debtor cannot convert after receiving a discharge. The court found that while some courts support this view, the text of Section 706(a) of the Bankruptcy Code allows for conversion "at any time," suggesting that there is no explicit prohibition against post-discharge conversion. The court also highlighted the importance of equitable considerations, recognizing that setting aside the discharge under Federal Rule of Civil Procedure 60(b)(5) could address potential abuses by reinstating the automatic stay upon conversion. Next, the court addressed the Trustee's futility argument, noting that although Shelby initially reported a negative monthly income, her amended Schedule J showed a positive net income of $187.16, indicating that her case was not futile. The court emphasized that the ability to propose a feasible plan is sufficient to warrant conversion, even if confirmation is not guaranteed. The Trustee's concern regarding the best-interests-of-creditors test was acknowledged, but the court noted that Shelby could potentially amend her plan to better satisfy creditor interests. Lastly, the court examined the claim of abuse of the bankruptcy process, ultimately concluding that Shelby's actions did not amount to bad faith. She had made diligent efforts to amend her schedules and reduce expenses to retain her home, which the court viewed as legitimate efforts rather than manipulative tactics. The court deferred the issue of the Trustee’s fees, allowing for an administrative claim for services rendered during the Chapter 7 phase of the case. Tips: Considering Post-Discharge Conversion: Depending on the jurisdiction, a Chapter 7 debtor may convert to Chapter 13 even after receiving a discharge, but be prepared to address potential issues related to setting aside the discharge under Rule 60(b). Be Prepared for Administrative Claims: Inform clients that converting from Chapter 7 to Chapter 13 may lead to administrative claims for the Trustee's professional fees incurred before conversion. | 11 U.S.C. §§ 706(a), 1307, and 1325 Fed. R. Civ. P. 60(b)(5) |
| U.S. v. Mackenzie Appellant Brief Appellee Brief Reply Brief | 9th Cir. | 9/3/24 | Holding: The court held that the tax-first allocation method is required under the Bankruptcy Code, and the pro rata method used by the bankruptcy court and affirmed by the district court was erroneous. The proceeds from the sale of the debtor's property needed to satisfy the tax portion of the IRS’s lien before any avoided penalty portion is paid to the bankruptcy estate. Facts: The IRS recorded a tax lien on the debtors' property for unpaid taxes. After the debtors filed for Chapter 7 bankruptcy, the property was sold, but the sale proceeds were insufficient to cover both the tax and penalty portions of the lien. The bankruptcy trustee avoided the penalty portion of the lien under 11 U.S.C. § 724(a) and proposed a pro rata distribution of the sale proceeds between the tax portion and the avoided penalty portion, which would benefit the bankruptcy estate. The IRS argued that the sale proceeds should first pay the tax portion in full before the estate receives anything for the avoided penalties. Analysis: The court began its analysis by examining the statutory framework under the Bankruptcy Code, specifically §§ 724(a), 726(a), and 551. Section 724(a) allows a bankruptcy trustee to avoid penalties associated with tax liens, which are not compensatory in nature. Once a penalty is avoided, § 551 preserves the penalty for the benefit of the estate, but this preservation does not affect the unavoidable tax portion of the lien. The court rejected the bankruptcy court’s application of the pro rata method, stating that it improperly reduced the IRS’s secured claim for taxes to provide for the penalty portion preserved for the estate. The court stated that the Bankruptcy Code prioritizes tax claims over penalties and that the pro rata method disrupted the statutory hierarchy by diminishing the secured tax portion in favor of the avoided penalty. The correct approach, according to the court, is to apply a tax-first method, where the sale proceeds are first applied to the tax portion of the lien, consistent with the priority structure established in the Code. Additionally, the court highlighted that the use of § 105(a), which provides general equitable powers to bankruptcy courts, cannot override explicit mandates in the Code, such as the prioritization of taxes over penalties. The pro rata method was deemed inconsistent with the Code's clear intent to subordinate penalties to taxes, particularly when assets are insufficient to fully satisfy both portions of a lien. Tips: Limit equitable powers: Be cautious of relying on § 105(a) to craft remedies that may conflict with the clear statutory priorities set by the Bankruptcy Code. | 11 U.S.C. §§ 105(a), 724(a), 726(a), and 551 |
| In re Canape | Bankr. N.D.N.Y. | 8/30/24 | Holding: The court held that the plaintiffs' objection to the debtor's discharge was untimely, as they had knowledge of the alleged fraud prior to the discharge deadline, and the court dismissed the fifth cause of action under § 727(a)(7) as it does not provide grounds for revocation of discharge under § 727(d). Facts: Michael J. Canape, the debtor, filed for Chapter 7 bankruptcy on February 25, 2020. The plaintiffs, Daniel Samp and two related insurance agencies, filed a claim for over $1.7 million and later sought to object to Canape’s discharge based on newly discovered evidence of fraud. The alleged fraud involved Canape's failure to disclose his employment, income, ownership interests in several businesses, support from his family, and his wife’s bankruptcy. The plaintiffs alleged that Canape fraudulently omitted these key financial facts, misstated his income, and improperly transferred assets, all of which were revealed during a Rule 2004 examination. Analysis: The court analyzed whether the plaintiffs' adversary proceeding could proceed under 11 U.S.C. § 727(d), which allows a discharge to be revoked if it was obtained through fraud that the plaintiffs did not discover until after the discharge. The court found that the plaintiffs had knowledge of Canape’s alleged fraudulent actions before the discharge deadline. The court pointed to the fact that the plaintiffs had attended the May 5, 2020, creditors' meeting where Canape disclosed corrections to his schedules, such as his income and family support. Additionally, the plaintiffs were aware of the debtor’s ownership in certain businesses and his wife’s bankruptcy filing prior to the objection deadline. The court also dismissed the fifth cause of action under § 727(a)(7), explaining that while this section can be grounds for denying a discharge, it is not grounds for revoking a discharge under § 727(d). The remaining four causes of action, related to fraudulent transfers, destruction of records, and misstatements, fell within the scope of § 727(d)(1) and thus were allowed to proceed. However, the court emphasized that plaintiffs must act diligently when aware of potential fraud, and failure to object before the discharge can be fatal to their claims. Tips: Educate Debtors on the Consequences of Omissions: Stress to your client the importance of full honesty in bankruptcy filings. Explain that failure to disclose assets or income—even if they seem insignificant—can result in fraud allegations, which can jeopardize their discharge. Regularly review their financials to ensure nothing is overlooked. Be Transparent During § 341 Meetings: Prepare your client carefully for the § 341 meeting. Ensure they are ready to respond to creditors' inquiries truthfully and transparently. If there are any necessary amendments or corrections, make sure they are disclosed during the meeting to minimize the risk of creditors filing late objections based on the new information. Prepare for Potential Allegations from Creditors: If a creditor, like in this case, files an objection based on fraud, be ready to demonstrate that the debtor corrected any oversights in a timely manner and that the creditor had access to this information before the discharge deadline. | 11 U.S.C. § 727(a) Fed. R. Bankr. P. 2004, 4004(a), and 4005 |
| In re Autry | Bankr. M.D.N.C. | 8/15/24 | Holding: The court denied the Debtors' Motion to Convert their Chapter 7 case to Chapter 13, finding that they acted in bad faith by concealing assets and making numerous false statements and omissions in their bankruptcy filings. Facts: The Debtors sold their residential property in Tennessee in March 2023 for $211,800.54. They used most of the proceeds to purchase a new residential property in Ocean Isle Beach, North Carolina, for $194,755.60, which they furnished using the additional $15,000 from the sale of the Tennessee property. Despite moving into the North Carolina property full-time in March 2024, they listed a different address on their bankruptcy petition when they filed for Chapter 7 relief later that month. The Debtors did not disclose their ownership of the Ocean Isle property in their initial bankruptcy schedules, instead falsely stating they resided in a travel trailer on their son’s property and listing the value of their real estate as $0. They also failed to report the sale of the Tennessee property on their Statement of Financial Affairs and omitted expenses related to the North Carolina property, such as homeowners’ insurance and real estate taxes, from their Schedule J. Analysis: The court analyzed the Debtors' right to convert under § 706(a) of the Bankruptcy Code, which generally allows conversion from Chapter 7 to Chapter 13. However, it noted that under *Marrama v. Citizens Bank of Mass.*, a debtor forfeits this right if they engage in bad faith conduct. The Bankruptcy Administrator objected to the conversion, citing the Debtors’ numerous misrepresentations and omissions, including failing to disclose ownership of a valuable property and inaccurately listing their living arrangements and expenses. The court found these omissions to be significant and not just honest mistakes, as they were pervasive and affected several areas of the bankruptcy filings. The Debtors’ explanations for not disclosing the property—such as its location in a different county—were deemed implausible. Their failure to report homeowners' insurance and real estate taxes further demonstrated their intent to mislead. Consequently, the court held that the Debtors acted in bad faith, thereby disqualifying them from converting their case to Chapter 13. Tips: Think Critically About Client Information: Take the time to question and probe deeper into your clients' answers, especially if anything seems unclear or contradictory. Look out for red flags such as changes in living arrangements, recent property transactions, or statements that don't align with documented facts. Emphasize the serious consequences of providing incomplete or false information and emphasize that their candor is essential to the success of the case to your clients. | 11 U.S.C. § 706(a) |
| Trantham v. Tate Appellant Brief NACBA & NCBRC Amicus Brief in Support of Appellant Appellee Brief Reply Brief | 4th Cir. | 8/13/24 | Holding: The appellate court reversed the district court's ruling and held that the bankruptcy court cannot require a debtor to use a mandatory vesting provision in a Chapter 13 plan that contradicts the debtor's proposal, particularly when the proposed provision complies with the Bankruptcy Code. Facts: Sheila Ann Trantham filed for Chapter 13 bankruptcy and proposed a plan that included a nonstandard provision for property of the estate to vest in her at confirmation, contrary to the local form plan's default provision requiring vesting at the final decree. The bankruptcy trustee objected, and both the bankruptcy and district courts upheld the objection, ruling that the local form’s vesting provision was mandatory. Analysis: The Fourth Circuit Court maintained that the Bankruptcy Code grants debtors the right to propose plans with provisions that are elective rather than mandatory, including when property of the estate should vest. The court ruled that while local forms can promote efficiency, they cannot impose substantive requirements that override a debtor's statutory rights. The court found that Trantham's proposed vesting provision, which allowed her property to vest at confirmation, was consistent with the Code and should not have been rejected simply because it deviated from the local form. The court concluded that the bankruptcy court overstepped by mandating adherence to the local form’s vesting provision and that the district court erred in affirming this decision. Tips: Customizing Plan Vesting Provisions: The debtor has the option to customize the vesting provisions in their Chapter 13 plan. The default rule under § 1327(b) is that property vests in the debtor upon plan confirmation, but the debtor can propose an alternative timeline for when property will vest. This flexibility can be strategically important, depending on the debtor's needs and circumstances. Nonstandard Provisions in General: Don't hesitate to propose nonstandard plan provisions when they benefit the debtor and comply with the Bankruptcy Code. | 11 U.S.C. § 1327(b) |
| Kane v. Hjelmeset Appellant Brief Appellee Brief Reply Brief | N.D. Cal. | 8/9/24 | Holding: The court affirmed the bankruptcy court's order requiring Evander Frank Kane to turn over the proceeds from his homestead exemption to the bankruptcy trustee, as Kane failed to reinvest the proceeds within the six-month period required by California law. Facts: Evander Kane filed for Chapter 7 bankruptcy and claimed a $600,000 homestead exemption for his residence in San Jose. The bankruptcy court limited this exemption to $170,350 under federal law, and Kane received this amount from the sale of his home. However, Kane did not reinvest the proceeds into a new homestead within six months, as required by California law, leading the trustee to seek a turnover of the funds. The bankruptcy court granted this motion, and Kane appealed. Analysis: The court considered whether the bankruptcy court erred in applying California's six-month reinvestment requirement to the homestead proceeds, despite having limited the exemption under federal law. Kane argued that the application of a federal statutory cap should preempt the California reinvestment requirement. The court disagreed, finding that federal law does not preempt state law in this context. Kane argued that his use of the proceeds for rental payments and attorney fees constituted reinvestment. The court, however, found no clear error in the bankruptcy court's determination that these expenditures did not meet the reinvestment requirement. The court noted that Kane did not provide sufficient evidence to demonstrate that the rental properties had the same kind of protective interest as his former home under the homestead exemption. The court emphasized that under the ""snapshot"" rule, bankruptcy exemptions are determined at the time of filing, and that California's reinvestment requirement is a valid condition for maintaining the exempt status of homestead proceeds. The court also rejected Kane's arguments for equitable tolling of the reinvestment period, noting that the Bankruptcy Code allows states to impose conditions on exemptions, and there was no conflict between federal and state law in this case. The court cited precedents from the Ninth Circuit, which upheld similar reinvestment requirements and concluded that the trustee was right to enforce the turnover of proceeds when Kane failed to meet these requirements. Tips: Understand Interaction Between Federal and State Laws: Federal exemptions like § 522(p) may limit the amount of exemption but do not preempt state requirements. Ensure Compliance with Reinvestment Requirements: Always verify that your client reinvests homestead proceeds within the required timeframe as per state law. Failure to do so can lead to the loss of the exemption, as demonstrated in this case. | 11 U.S.C. § 522(p) |
| In re Quevedo | Bankr. M.D.N.C. | 8/9/24 | Holding: The court sustained the Trustee's objection, ruling that the earned income tax credits (EITC) and additional child tax credits (ACTC) claimed by the Chapter 7 Debtors could not be exempted under N.C. Gen. Stat. § 1C-1601(a)(12) as "support" payments. Additionally, the court determined that the proper method to allocate the 2023 tax refunds between the Debtors was the "separate filings" rule. Facts: The Debtors, Andrew Quevedo and Faith Bellido, filed for Chapter 7 bankruptcy and sought to exempt their 2023 federal and state tax refunds totaling $11,525. The Trustee objected to the exemptions on two grounds: first, that EITC and ACTC are not exempt as "support" under N.C. Gen. Stat. § 1C-1601(a)(12), and second, that Bellido could not claim an exemption in the refunds due to her lack of taxable income for 2023. The Debtors contended that both spouses should equally share the refunds and that tax credits like EITC and ACTC should be considered exempt as "support." Analysis: The court addressed the issue of whether the earned income tax credits (EITC) and additional child tax credits (ACTC) claimed by the Debtors could be exempted under N.C. Gen. Stat. § 1C-1601(a)(12) as "support" payments. This statute allows for the exemption of payments necessary for the support of the debtor or their dependents, including alimony, support, separate maintenance, and child support. The court interpreted the term "support" in this context by employing the principle of *noscitur a sociis*, which limits the scope of the term based on its association with related terms. Given that EITC and ACTC are government benefits rather than funds received from a domestic legal obligation, the court determined that these credits do not qualify as exempt under the statute. The court reasoned that a broader interpretation would make the other specified terms redundant, contrary to established statutory construction principles. In addressing the division of joint tax refunds, the court evaluated four proposed methods: the Withholding Rule, the Income Rule, the 50/50 Rule, and the Separate Filings Rule. The Withholding Rule, which divides the refund based on each spouse's tax withholdings, was deemed insufficient as it does not account for tax credits and may not accurately reflect each spouse’s contribution. The Income Rule, which allocates the refund based on each spouse’s income, was also rejected for its failure to fully represent tax liability contributions. The 50/50 Rule, which splits the refund equally, was seen as equitable but not as precise in reflecting each spouse's actual tax liability. Ultimately, the court adopted the Separate Filings Rule, which allocates the refund based on what each spouse’s tax liability would have been if they had filed separately. This approach was favored for its accuracy in reflecting each spouse's contribution to the refund and alignment with both state and federal tax principles. Tips: Advise on the Timing of Tax Filings: Counsel clients on the timing of their tax filings in relation to their bankruptcy case. Early filing may prevent unexpected issues, such as the loss of tax refunds, which could be used to satisfy debts. Exemption Status of Tax Credits: Research how your jurisdiction treats tax credits like earned income tax credits (EITC) and additional child tax credits (ACTC) in bankruptcy cases. While some jurisdictions may exempt these credits as part of public assistance or support payments, this is not universally applied. Be aware of the specific exemptions and how they may impact your bankruptcy case based on local laws and case precedent. | 11 U.S.C. § 522 N.C. Gen. Stat. § 1C-1601(a)(12) |
| In re Grant | Bankr. W.D. Wash. | 8/2/24 | Holding: The court held that the Debt Obligation owed by Mr. Grant to Ms. McAllister, which was labeled as spousal support in the divorce decree, does not qualify as a nondischargeable domestic support obligation (DSO) under bankruptcy law, but rather as a property settlement subject to discharge pursuant to 11 U.S.C. § 1328 following Grant's completion of his Chapter 13 Plan. Facts: Donald Gene Grant and Rebeca McAllister were married in July 2020 and separated in February 2021. During their relationship, McAllister provided financial support to Grant. After their divorce in April 2023, a court order required Grant to pay McAllister $1,000 per month for 107 months, which was labeled as spousal support but was intended to settle debts and achieve an equitable property division. Analysis: The court analyzed whether the Debt Obligation constituted a DSO or a property settlement under bankruptcy law. It reviewed the labeling of the debt as "spousal support" in the divorce decree, which was argued by McAllister to prevent its discharge. The court emphasized that while labels are considered, they are not determinative. Instead, it evaluated the substance and intent behind the obligation. The court further noted that the obligation did not terminate upon remarriage but was to be paid directly to McAllister over a long period, which aligns with support characteristics but does not alone dictate its nature. The obligation was determined to be part of an equitable division of property rather than support, as it was intended to settle financial discrepancies between the parties rather than provide ongoing neccesary support to McAllister. Tips: Evaluate the Label vs. Substance: Scrutinize the language of divorce decrees that label debts as "spousal support" or similar terms. Focus on the substance of the obligation and the context of its creation to argue whether it constitutes a property settlement rather than a nondischargeable domestic support obligation. Gather Evidence of Intent: Collect and present evidence showing the parties' intent at the time of divorce. Look for communications, settlement agreements, and other documents indicating whether the debt was intended as support or as part of the equitable division of property. This evidence is crucial for arguing that the obligation is dischargeable. Communicate with Divorce Counsel: Maintain open communication with your client's divorce attorney (if applicable) to ensure that all relevant information about support obligations is accurately reported and that the implications for the bankruptcy case are fully understood. | 11 U.S.C. §§ 523(a)(5) & (15) |
| In re Taylor | Bankr. D. Kan. | 7/29/24 | Holding: The court granted in part and denied in part the Chapter 7 trustee's amended motion for default judgment. It awarded the trustee $3,268.33 for the debtor's 2022 tax refund but denied the request to revoke the debtor's discharge due to procedural issues. Facts: The debtor filed a Chapter 7 bankruptcy petition and received a discharge on January 3, 2023. After multiple requests for the turnover of the debtor’s 2022 tax refund and undisclosed bank balances, the Chapter 7 trustee initiated an adversary proceeding due to the debtor’s non-compliance. Despite being properly served, the debtor did not respond to the complaint or subsequent motions. The trustee filed a motion for default judgment seeking both turnover of funds and denial of discharge, but the court denied this motion without prejudice because the debtor had already been granted a discharge. The court allowed the trustee to amend the motion to specifically request the revocation of the discharge under 11 U.S.C. § 727(d)(2). The trustee filed the amended motion for "Default and to Revoke Discharge pursuant to § 727(d)(2)." However, the amended motion continued to refer to the original complaint as a "Complaint to Deny Debtor's Discharge . . . pursuant to 11 U.S.C. § 727(d)(2)" and, in the last paragraph, sought denial of Debtor's discharge pursuant to 11 U.S.C. § 727(d)(2). Analysis: The court found that the trustee’s complaint did not clearly indicate the intent to seek revocation of the discharge, as it primarily referenced denial of discharge under § 727(a) rather than revocation under § 727(d)(2). The complaint failed to give clear notice to the debtor regarding the revocation of discharge, which is crucial given the debtor's pro se status. Under Fed. R. Civ. P. 54(c), a default judgment can only grant relief that is properly pleaded in the complaint, and clear notice is essential for proceedings seeking significant relief such as discharge revocation. The court emphasized the importance of clear pleading in cases involving revocation of discharge to ensure that debtors have proper notice and an opportunity to defend against such serious claims. Therefore, the court granted the default judgment for the turnover claim but denied the motion to revoke the discharge, allowing the trustee to amend the complaint if they wish to pursue revocation. Tips: Scrutinize Adversary's Pleadings for Errors: Review your adversary's pleadings for errors or ambiguities, particularly in cases involving discharge or default judgments. Identifying and highlighting these errors can be crucial in defending your client, as procedural missteps by the opposing party may provide grounds for dismissing or challenging their claims. | 11 U.S.C. §§ 727(a) & (d)(2) Fed. R. Bankr. P. 54(c) |
| In re Masingale Appellant State of Washington Brief Appellant Munding Brief Appellee Masingale Brief State of Washington Reply Brief Munding Reply Brief | 9th Cir. | 7/26/24 | Holding: The court held that a Chapter 7 debtor could not exempt from the bankruptcy estate a homestead interest in her residence in an amount above the statutory limit, even if no party in interest objected within the 30-day period specified by the Bankruptcy Rules. Facts: Rosana and Monte Masingale filed for Chapter 11 bankruptcy in 2015, claiming a homestead exemption of “100% of FMV” (Fair Market Value) for their residence. No party objected to this within the 30-day period after the creditors' meeting. The case was later converted to Chapter 7 after Mr. Masingale's death, and the Chapter 7 trustee sought to limit the exemption to the statutory cap, asserting that the remaining value of the home should belong to the bankruptcy estate. Analysis: The court's analysis revolved around the interpretation of the claimed exemption and the impact of the initial lack of objections. The debtors listed their homestead exemption as “100% of FMV” on their Schedule C, but they also made specific and conflicting representations about their exemptions and their fiduciary duties to creditors in their Chapter 11 filings. The court distinguished this case from Taylor v. Freeland & Kronz and Schwab v. Reilly, where the exemptions claimed were not challenged within the 30-day window. Here, the court found that because the case began as a Chapter 11 bankruptcy, and given the fiduciary duties owed by the debtors to their creditors and the specific representations made, the debtors did not properly claim an above-limit exemption. Consequently, no early objection to the homestead exemption was required. Therefore, the court concluded that the homestead exemption was limited to the statutory cap, and the remaining proceeds from the sale of the home were part of the bankruptcy estate. Tips: Ensure Clarity in Exemption Claims: When filing schedules, specify exemptions accurately and avoid ambiguous terms like “100% of FMV.” Clear and precise claims help prevent objections and complications during conversions. Understand the Implications of No Objections: The absence of timely objections to their exemption claims does not necessarily guarantee acceptance, especially in cases involving conflicting representations or fiduciary breaches. | 11 U.S.C. § 522 Fed. R. Bankr. P. 4003 |
| David v. King Appellant Brief Appellee Brief Reply Brief | 4th Cir. | 7/26/24 | Holding: The court held that § 327(a) of the Bankruptcy Code does not permit a former trustee to file a post-hoc application to retroactively employ professionals corresponding with the time he previously held fiduciary office, reversing the district court’s decision. Facts: Byron F. David, the debtor, had his bankruptcy case transition through Chapter 7, Chapter 11, and finally to Chapter 13. Donald F. King, initially appointed as the Chapter 7 trustee and later as the Chapter 11 trustee, failed to obtain court approval for retaining legal services from during the Chapter 11 phase. Following the case's conversion to Chapter 13, King requested compensation for the legal services rendered by the law firm during his tenure as the Chapter 11 trustee, which was denied due to lack of court approval. Analysis: The court analyzed the applicability and requirements of § 327(a) of the Bankruptcy Code, which allows trustees to employ professionals with court approval. The court emphasized that the statute requires the trustee to obtain prior approval from the court for employing professionals, which King failed to do during the Chapter 11 phase. Additionally, the court referenced Federal Rule of Bankruptcy Procedure 2014(a), which mandates that such approval must be sought through an application by the trustee, reinforcing that post-hoc applications are not permissible. The court also examined the effect of converting the bankruptcy case from one chapter to another, particularly the provision under § 348(e) that terminates the service of any trustee upon conversion. This termination precludes any retroactive applications for employment of professionals by a former trustee, as seen in King’s case after the conversion from Chapter 11 to Chapter 13. The court found that allowing such retroactive applications would undermine the procedural integrity and statutory requirements of the Bankruptcy Code. Tips: Complying with Procedural Rules:Regularly review and comply with Federal Rule of Bankruptcy Procedure 2014(a) to avoid any lapses that could negatively impact the debtor’s case or the trustee’s administration. | 11 U.S.C. § 327(a) 11 U.S.C. § 348(e) |
| In re Duncanson | Bankr. N.D. Iowa | 7/19/24 | Holding: The court held that the student loan owed to the Department of Education was not dischargeable, but the loan owed to the bank was dischargeable under 11 U.S.C. § 523(a)(8). Facts: Rachel Duncanson, a 50-year-old debtor, filed for Chapter 7 bankruptcy and sought to discharge her student loans, citing undue hardship. She had two consolidated student loans: one with the U.S. Department of Education (DOE), from her time at Iowa State University, and one with the Bank of North Dakota, from South Dakota State University. Despite her employment and income of $78,000 annually, Duncanson argued that repaying these loans would cause emotional and financial hardship. Analysis: The court applied the "totality of the circumstances" test to determine undue hardship, examining Duncanson's past, present, and reasonably reliable future financial resources, her necessary living expenses, and other relevant facts and circumstances. The court found that Duncanson's current and potential future earnings were limited, given her age, health issues, and the physically demanding nature of her job. Her reasonable living expenses, including rent, medical costs, and personal care, were deemed modest and necessary. The court also considered Duncanson's need to save for retirement, given her age and minimal savings, finding that requiring her to forego such savings would itself impose an undue hardship. Despite the availability of an income-based repayment plan (IBRP) for the DOE loan, the court found that the mental and emotional strain, potential tax consequences, and overall financial situation justified discharging the bank loan while maintaining the DOE loan's nondischargeable status. Tips: Thoroughly Document Hardship: Document and present in detail your client’s financial resources, living expenses, and other relevant hardships. This includes providing evidence of income, employment history, mental and physical health issues, and necessary living expenses to strengthen the case for undue hardship. Evaluate and Challenge IBR Plans: While Income-Based Repayment (IBR) plans are an important consideration, highlight any additional hardships they may impose on your client, such as growing debt, credit impact, and potential tax consequences. Argue these points effectively to demonstrate that even with an IBR plan, the repayment would still cause undue hardship. | 11 U.S.C. § 523(a)(8) |
| In re Walker | Bankr. E.D. Mich. | 7/17/24 | Holding: The court found Credit Acceptance Corp. (CAC) and its counsel, Lloyd & McDaniel (L&M), in contempt for violating the discharge injunction and awarded the debtor compensatory and punitive damages, along with attorneys' fees and costs. Facts: In March 2019, the debtor financed a car through CAC but fell behind on payments. CAC obtained a default judgment against the debtor for $9,000 in October 2022. The debtor filed for Chapter 7 bankruptcy, including CAC in his bankruptcy schedules. After reopening his case in November 2023 to file required paperwork, the debtor received a discharge. The debtor called L&M to inform them of his discharge. The L&M representative, however, dismissed the debtor's claims, indicating they would only acknowledge the discharge if a copy was presented by the debtor's counsel. Consequently, the debtor hired an attorney, who contacted L&M, resulting in a release of the garnishment. Analysis: The court determined that CAC and L&M were in contempt for violating the discharge injunction, as they continued to pursue debt collection after being notified of the debtor’s bankruptcy discharge. The court applied the standards from Taggart v. Lorenzen, requiring that the creditor violated a specific court order with knowledge and without a fair ground of doubt that their actions were lawful. CAC and L&M were aware of the discharge order as of November 7, 2023, and continued to pursue garnishment actions in January 2024, demonstrating a clear violation. The court found that oral notice of the discharge was sufficient to put L&M on notice. Despite this, L&M required the debtor to provide a copy of the discharge order through an attorney, causing the debtor additional distress and expense. The court noted that L&M's prompt release of the garnishment after receiving the discharge order from the debtor’s new counsel did not negate the contempt finding but was considered in determining the damages. The court awarded compensatory damages for emotional distress, citing the Sixth Circuit’s allowance of such damages in similar cases. The debtor provided credible testimony about the stress and worry caused by the garnishment, justifying the award. Additionally, the court awarded attorneys' fees and costs, instructing the debtor's counsel to submit an itemized statement for review. Tips: Document All Communications: Encourage your clients to document all interactions with creditors, including dates, times, and content of conversations, especially when informing them about bankruptcy filings or discharges. Timely Follow-Up: Advise your clients to contact you immediately if creditors continue collection efforts post-discharge. Promptly intervene with formal notices to the creditors to cease collection activities. Proactive Client Education: Educate your clients on their rights post-discharge and the importance of informing creditors about their discharge. Provide them with scripts or guidelines on how to effectively communicate this information. | 11 U.S.C. § 524(a)2 |
| Green v. Leibowitz Appellant Brief Appellee Brief Reply Brief | 7th Cir. | 7/16/24 | Holding: The court held that the debtor's Canadian Registered Retirement Savings Plan (RRSP) does not qualify for an exemption from the bankruptcy estate under Illinois law because it is not a tax-qualified retirement plan under applicable provisions of the Internal Revenue Code. Facts: Debtor-Appellant Gordon Green filed for Chapter 7 bankruptcy and listed his Canadian RRSP, the "Sun Life: Life Income Fund," as an asset, seeking to exempt it under Illinois statute 735 ILCS 5/12-1006. The Trustee objected, arguing that because the fund was organized under Canadian law, it did not qualify for the exemption. Both the bankruptcy court and the district court denied the exemption, and Green appealed. Analysis: The court examined the statutory interpretation of Illinois statute 735 ILCS 5/12-1006, which exempts retirement plans "intended in good faith to qualify as a retirement plan under applicable provisions of the Internal Revenue Code." The court emphasized that the Internal Revenue Code does not explicitly define "retirement plan" for this purpose but noted that the provisions listed in § 522(b)(3) of the Bankruptcy Code could guide the interpretation. These provisions include detailed criteria for retirement plans, which Green's Canadian fund did not meet. The court found that Green's reliance on I.R.C. § 404A, which allows employers to deduct contributions to qualified foreign plans, did not suffice to make the Sun Life Fund a tax-qualified retirement plan under the Internal Revenue Code. The court concluded that § 404A defines "qualified foreign plans" rather than "retirement plans" and lacks the detailed structural criteria present in other relevant provisions. Therefore, the Sun Life Fund did not meet the requirements for the Illinois exemption. Tips: Check Plan's Tax-Qualification Under U.S. Code: Before claiming an exemption for a retirement plan, verify that the plan meets the specific criteria for tax-qualified retirement plans under the Internal Revenue Code (e.g., sections 401, 403, 408). Non-U.S. plans must comply with U.S. tax laws to be exempt. State-Specific Exemption Rules: Since states can opt out of the federal exemption statute, always verify the specific state laws governing bankruptcy exemptions in your jurisdiction. For instance, in Illinois, exemptions rely solely on state law rather than federal exemptions, which means you must understand and apply statutes like 735 ILCS 5/12-1006. | 11 U.S.C. § 541(a) 11 U.S.C. § 522(b)(3) |
| In re Aguirre | Bankr. S.D. Cal. | 7/15/24 | Holding: The court denied Debtor's motion to convert his Chapter 7 case to Chapter 13, finding that conversion would be futile given the Debtor's financial situation and inability to propose a feasible plan. Facts: Debtor filed a Chapter 7 petition with significant inconsistencies and omissions, including inaccurate homestead exemptions and failure to disclose a child support judgment. His schedules initially showed a negative net monthly income but later indicated an increased income from W-2 employment and a business permit, with a proposed Chapter 13 plan that fell short of meeting the confirmation requirements. Analysis: The court evaluated the Debtor's eligibility under § 109(e) and found that although his debt and income levels technically met the threshold, the proposed Chapter 13 plan failed to satisfy the requirements of § 1325. Specifically, the plan did not ensure that unsecured creditors would receive at least what they would in a Chapter 7 liquidation, nor could it provide payments sufficient to meet the "best interests of creditors" test. The court highlighted that even with the increased income, the plan's feasibility was compromised because it required payments that far exceeded what Debtor could afford. Consequently, the court determined that conversion would not improve the Debtor's situation but rather serve to delay the inevitable liquidation of assets. Tips: Evaluate Plan Feasibility Early: Before advising a debtor to convert to Chapter 13, rigorously assess the feasibility of the proposed plan to ensure it meets the requirements of § 1325, particularly the best interests of creditors and payment capability. Preemptive Strategy: Prepare for potential objections from creditors or the Trustee, particularly if they are trying to avoid asset liquidation. Ensure the Debtor's financial situation justifies the conversion and can withstand scrutiny for good faith and feasibility. | 11 U.S.C. § 105(a) 11 U.S.C. § 1307(c) 11 U.S.C. § 1325(a)(6) |
| In re Keith | Bankr. W.D. Texas | 7/10/24 | Holding: The court held that the debt owed by Donald Vincent Keith to Kapitus Servicing, Inc., as Servicing Agent for Kapitus, LLC, is nondischargeable under 11 U.S.C. § 523(a)(2)(B). Facts: Keith, through his company Coyote Design and Build LLC, entered into a forward purchase agreement with Kapitus, facilitated by Lendio Partners, LLC. Keith guaranteed Coyote's financial obligations and received $77,600 from Kapitus, which he used to pay off existing debts. Coyote ceased operations shortly after the agreement, and both Coyote and Keith filed for bankruptcy within months, leading Kapitus to seek a determination of nondischargeability for the debt. Analysis: The court analyzed the elements required under 11 U.S.C. § 523(a)(2)(B) for determining nondischargeability of a debt. It first established that Keith made a statement in writing by signing the Representations and Acknowledgements (R&As) as part of the agreement. The court found Keith’s representation that he was not "in arrears" at the time of signing the R&As to be materially false, as evidence showed he had overdue debts to Foxworth-Galbraith Lumber Company dating back to May 2021. The court then addressed the statement's materiality, finding that the false statement about arrearages affected Kapitus’s decision to grant credit. The court also determined that the statement concerned Keith's and Coyote’s financial condition, as required by the statute. The court found that Kapitus reasonably relied on Keith’s statements, considering Kapitus’s comprehensive review process that included evaluating bank statements, credit reports, and conducting background checks. Despite Keith's arguments that Kapitus failed to request additional financial documents, the court found Kapitus's reliance reasonable based on the extensive information already reviewed. Finally, the court assessed Keith's intent to deceive. The court concluded that Keith’s false statement about arrearages was made with the intent to deceive and the timing of events, such as the immediate issues with Foxworth and the eventual bankruptcy filings, indicated deceptive intent. Therefore, the court found the debt nondischargeable under § 523(a)(2)(B). Tips: Thorough Document Review and Verification: When representing debtors in bankruptcy, it's vital to meticulously review all financial documents and client disclosures for accuracy and completeness. This ensures that statements made to creditors or in court filings are truthful and consistent, reducing the risk of challenges to dischargeability under 11 U.S.C. § 523(a)(2)(B). By verifying all financial representations, attorneys can help protect debtors from claims of nondischargeability based on inaccurate information. Evidence of Intent to Deceive: When defending against claims of nondischargeability, attorneys should gather evidence that shows any misstatements were not made with intent to deceive creditors. This could involve explaining any discrepancies in financial records or demonstrating mitigating circumstances that explain the inaccuracies. By presenting a clear narrative that highlights the debtor's good faith efforts and contextualizes financial challenges, attorneys can strengthen their defense against claims under § 523(a)(2)(B). | 11 U.S.C. § 523(a)(2)(B) |
| Beijing Dayou Dingxin Inv. Mgmt. P'ship, L.P. v. Chan Qian Wang | N.D. Ohio | 7/9/24 | Holding: The court held that the case against Respondent Wang is stayed pursuant to the automatic stay provision under 11 U.S.C. § 362(a), but the proceedings against Respondent Zhou will continue as there are no unusual circumstances to extend the automatic stay to him, and Zhou's arguments for lack of personal jurisdiction and for a stay based on a pending appeal of the arbitration award were unpersuasive. Facts: Beijing Dayou Dingxin Investment Management Partnership, L.P. and Suzhou Youtou Cornerstone Enterprise Management Center, L.P. filed a petition to recognize and enforce a foreign arbitration award against Chan Qian Wang and Hao Zhou, who are U.S. citizens residing in Ohio. Wang filed for Chapter 7 bankruptcy, triggering an automatic stay. Zhou contested the enforcement, claiming lack of personal jurisdiction and a pending appeal of the arbitration award in China. Analysis: The court first addressed the automatic stay triggered by Wang’s Chapter 7 bankruptcy filing. Petitioners conceded that the automatic stay applied to Wang but argued it did not extend to Zhou. The court cited 11 U.S.C. § 362(c)(3)(C) and case law from the Sixth Circuit, which limits the extension of automatic stays to non-debtor co-defendants to rare and unusual circumstances, which were not present in this case. The court noted that Petitioners’ assertion that Zhou was jointly and severally liable for the arbitration award, a contention not opposed by Respondents, further negated the extension of the stay to Zhou. No evidence of unusual circumstances was provided, and any extension would require a bankruptcy court order under 11 U.S.C. § 105, which was not obtained. Thus, the automatic stay applied solely to Wang. Respondent Zhou argued against personal jurisdiction, citing his move from Ohio to California. However, Petitioners demonstrated that Zhou had transacted business in Ohio, breached the Repurchase Agreement in Ohio, and was an executive of an Ohio-based corporation, ZUGA Medical, Inc., during the relevant times. The court found that Petitioners established a prima facie case for personal jurisdiction, which Zhou failed to counter with evidence. Consequently, the court denied Zhou’s request to dismiss for lack of personal jurisdiction. Zhou also claimed that the petition to enforce the arbitration award was premature due to a pending appeal in China. Petitioners countered that no such appeal was timely filed or pending. The court examined the evidence, including text conversations provided by Zhou, and found no official documentation of an appeal. The purported appeal was untimely and unverified, leading the court to deny Zhou’s request to stay the proceedings without prejudice to refile if proper documentation could be provided. Tips Differentiate Co-Defendants: Clearly distinguish between the roles and liabilities of co-defendants to determine the applicability of the automatic stay in bankruptcy cases. Establish Jurisdiction Early: Ensure all elements of personal jurisdiction are thoroughly documented and argued, especially when defendants relocate. | 11 U.S.C. § 362(c)(3) |
| In re Wikes Appellant Brief Appellee Brief Reply Brief | 9th Cir. BAP | 7/3/24 | Holding: The Ninth Circuit Bankruptcy Appellate Panel held that the disciplinary costs assessed against Wike by the Supreme Court of Nevada were dischargeable under 11 U.S.C. § 523(a)(7), reversing the lower bankruptcy court's ruling that these costs were excepted from discharge and that the State Bar's actions did not violate 11 U.S.C. § 525(a). Facts: After the Supreme Court of Nevada suspended Wike from practicing law and assessed the actual costs from the disciplinary proceeding and a fine, Wike filed a Chapter 7 petition. The bankruptcy court initially held that these disciplinary costs were excepted from discharge under § 523(a)(7) and that the actions of the Supreme Court of Nevada did not violate § 525(a). Analysis: The appellate court's analysis focused on two main issues: the dischargeability of disciplinary costs under § 523(a)(7) and the application of the Rooker-Feldman doctrine in this context. The court noted that § 523(a)(7) excepts from discharge any debt "to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss." The court determined that the disciplinary costs assessed against Wike did not qualify under this exception because they were compensation for actual pecuniary loss incurred by the State Bar, rather than a fine or penalty for punitive purposes. Therefore, these costs were dischargeable. The court addressed whether the Rooker-Feldman doctrine, which prevents lower federal courts from reviewing state court decisions, barred the bankruptcy court from considering Wike's claim. The appellate court concluded that the doctrine did not apply because the interpretation of § 525(a) was incorrect. The court emphasized that federal bankruptcy courts have the authority to determine the dischargeability of debts and the applicability of bankruptcy protections, such as those under § 525(a). The appellate court reversed the lower court's decision and remanded the case with instructions to discharge the disciplinary costs and to hold that the Supreme Court of Nevada's actions violated § 525(a) by discriminating against Wike based on his bankruptcy status. Tips: Understand Discharge Exceptions: Ensure that any disciplinary costs or sanctions assessed against your client are evaluated under § 523(a)(7) to determine if they truly qualify as nondischargeable fines or penalties, rather than compensatory costs. Federal vs. State Court Jurisdiction: Be prepared to argue against the application of the Rooker-Feldman doctrine in bankruptcy cases where state court actions may infringe upon federal bankruptcy protections, such as the discharge injunction or anti-discrimination provisions under § 525(a). | 11 U.S.C. § 523(a)(7) 11 U.S.C. § 525(a) |
| Hathiramani v. Northwestern Mut. Life Ins. Co. | D.N.J. | 7/2/24 | Holding: The court granted Kumar Hathiramani's motion to reopen the case and cancel the record of judgment, and denied Northwestern Mutual Life Insurance Company's motion to renew and revive the judgment and lien. Facts: In January 2001, Kumar Hathiramani initiated federal proceedings against Northwestern Mutual for benefits, which Northwestern counterclaimed for fraudulent benefits repayment. In May 2003, Hathiramani pleaded guilty to Theft by Deception and Falsifying Records in state criminal proceedings, admitting to fraudulently obtaining over $75,000 in disability benefits from the Social Security Administration and Northwestern. As part of the plea agreement, Hathiramani agreed to a $15,000 civil fine and a consent judgment of approximately $1.6 million, payable in installments. A state court's May 2004 order confirmed this restitution, specifying $131,476.70 payable to the Social Security Administration and $1,462,232.40 payable to Northwestern. In 2015, Hathiramani filed for Chapter 7 bankruptcy, listing Northwestern as a creditor, though the amount of their claim was scheduled as "0.00" dollars. The bankruptcy court granted Hathiramani a discharge of his debts in 2016. In 2024, Hathiramani moved to cancel the 2004 judgment, while Northwestern sought to renew it. Analysis: The court analyzed Northwestern’s arguments against Hathiramani’s motion to reopen under three main points. First, Northwestern claimed that the judgment was non-dischargeable under 11 U.S.C. § 523(a)(7) as a criminal restitution order. However, the court found that the federal judgment was not part of the state criminal restitution order, and thus, not subject to the same non-dischargeability rules. Second, Northwestern argued that Hathiramani had agreed to the non-dischargeability of the judgment. The court noted that pre-petition agreements on non-dischargeability are generally unenforceable as they contravene public policy favoring a debtor's fresh start. Therefore, the non-dischargeability stipulation in the 2004 judgment was void. Lastly, Northwestern contended it did not have adequate notice of the bankruptcy proceedings due to errors in the creditor listing, invoking 11 U.S.C. § 523(a)(3)(A). This section provides that debts not listed or scheduled in time for the creditor to file a timely proof of claim are not discharged if the creditor did not have notice or actual knowledge of the case in time to participate. The court determined that Northwestern had actual notice of the proceedings, as evidenced by its correspondence with Hathiramani’s counsel. Since Northwestern had sufficient notice, the judgment was properly scheduled, and thus, dischargeable. Tips: Non-Dischargeability Agreements: Be aware that pre-petition agreements on non-dischargeability of debts are generally unenforceable, and such clauses should not be relied upon. Clarify Sentencing Details: In cases involving criminal sentences, differentiate between the actual sentence and factors considered by the court. Only the specific terms of the sentence impact bankruptcy proceedings, not the factors the court relied on. Document these distinctions to counter creditor arguments effectively. | 11 U.S.C. § 523(a)(7) 11 U.S.C. § 523(a)(3)(A) |
| In re Benton | Bankr. S.D.N.Y. | 7/2/24 | Holding: The court overruled the Landlord's objection and denied the request for relief, finding that 11 U.S.C. § 362(b)(22) did not apply. Facts: Cazell Benton, a pro se debtor, filed for Chapter 7 bankruptcy while residing in a condominium leased by his wife, Myriam Chalek. The Landlord had obtained a judgment of possession against Benton in state court. Benton filed a certification under section 362(l) four days after the petition date to stay the eviction, which the Landlord objected to, seeking immediate relief from the automatic stay. Analysis: The court analyzed sections 362(b)(22) and 362(l) of the Bankruptcy Code, noting that the automatic stay does not apply to eviction proceedings if a lessor obtained a judgment of possession before the bankruptcy petition was filed. Section 362(l) offers temporary relief if the debtor files a certification and deposits rent immediately after filing a bankruptcy petition. However, Benton was not a tenant under the lease, and the judgment of possession was not due to his monetary default. The court found Benton's 362(I) certification ineffective as it was not filed immediately after the petition and he could not cure a non-existent monetary default. However, the court also ruled that section 362(b)(22) did not apply because Benton did not have a formal landlord-tenant relationship with the Landlord. Consequently, the Landlord's objection was overruled. Tips: Clarify Tenant Status Early: Ensure your client's legal standing as a tenant under a lease or rental agreement is clearly defined and documented to accurately assess applicability under Section 362(b)(22). Timely Compliance with Section 362(l): Advise clients to promptly file accurate certifications under Section 362(l)(1) with the bankruptcy court, accompanied by necessary deposits, to preserve the automatic stay and protect against eviction actions. | 11 U.S.C. § 362(b)(22) 11 U.S.C. § 362(I) |
| In re Robinson | Bankr. C.D. Ill. | 6/27/24 | Holding: The court overruled LaMont Brown's objection to the confirmation of the Debtors' Chapter 13 plan, allowing the Debtors to cure the default on their real estate installment contract. Facts: Charles Robinson and Candy Hazzard entered a "Lease to Buy Contract" with LaMont Brown for a residence in Danville, Illinois. After defaulting on payments, Brown sought possession of the home, claiming the Debtors owed over $13,000. The Debtors filed for bankruptcy to halt the eviction and proposed a plan to cure the arrearage. Analysis: The court first determined whether the "Lease to Buy Contract" was an executory contract or a security agreement. By interpreting Illinois law, the court concluded the contract was a real estate installment contract, granting the Debtors equitable title while Brown retained legal title in trust. As such, the contract was a security agreement rather than an executory contract. Under Chapter 13, the Debtors have the right to cure defaults on their principal residence, which means restoring matters to the status quo ante. Despite Brown's arguments, the court found that the Debtors were not modifying the contract but rather curing the default, which is permissible under 11 U.S.C. §1322(b)(3) and (c)(1). The amount needed to cure the default would include principal, taxes, insurance, and late fees, but not attorney’s fees or double rent payments, as these were not provided for in the contract or applicable under Illinois law. Tipss: Clarify Contract Classification: Ensure that contracts such as "Lease to Buy" agreements are correctly classified under state law to determine if they are security agreements rather than executory contracts. This affects how they are treated in bankruptcy. Maximize Curing Rights: Emphasize the debtor's right to cure defaults on their principal residence under Chapter 13, even if the contract has technically expired, by restoring matters to the status quo ante. Dispute Additional Fees: Challenge unsupported claims for attorney’s fees and additional penalties unless they are specifically provided for in the contract. Ensure that the plan includes only those amounts necessary to cure the default as defined by the contract and applicable state law. | 11 U.S.C. §§ 1322(b)(2) & (3) 11 U.S.C. § 1322(c)(1) |
| In re Calloway | Bankr. N.D. Cal. | 6/26/24 | Holding: The court held that administering ownership interests in LLCs involved in the marijuana business does not necessarily equate to administering marijuana assets. The trustee's personal determination that he cannot lawfully administer the assets is insufficient cause to dismiss the debtor's case. Facts: Debtor Christopher Michael Callaway filed for Chapter 7 on February 12, 2024. He owns 100% of Caliverde, LLC, a retail cannabis dispensary, and 40% of Grassy Castro, LLC, another cannabis store. His assets include ownership interests in other LLCs, some cannabis-related, and no tangible assets directly tied to marijuana. A creditor and a United States Trustee each filed motions to dismiss, arguing that a Chapter 7 Trustee could not lawfully administer assets deriving from cannibis businesses, as doing so would violate the Controlled Substances Act. Analysis: The court considered the Controlled Substances Act (CSA), which regulates marijuana but does not explicitly prohibit owning or disposing of interests in marijuana-related businesses. The Department of Justice has adopted a hands-off approach to state-regulated marijuana businesses since 2013, with only the UST Program actively seeking to dismiss bankruptcies involving marijuana assets. The court emphasized the principle that an "honest but unfortunate debtor" is entitled to a fresh start, and found no cause for dismissal solely based on the trustee’s concerns about administering cannabis-related assets. The court distinguished this case from other bankruptcy cases involving marijuana, noting that Callaway did not derive direct rental income from marijuana businesses or engage in personal cultivation. Instead, the court found that monetizing ownership interests in LLCs is not equivalent to profiting from marijuana. Furthermore, the trustee has options, such as selling intangible assets or enforcing LLCs' contractual rights, that do not necessarily implicate the CSA. Tips for Consumer Bankruptcy Attorneys: Assess Ownership Interests vs. Tangible Assets: When representing debtors with interests in marijuana-related businesses, emphasize that ownership interests in LLCs are distinct from tangible marijuana assets and may not violate the CSA when administered by the trustee. Highlight Trustee Options: Advise trustees of alternative options to dismissal, such as selling intangible assets like ownership interests or domain names, which can be administered without violating federal law. | 11 U.S.C. § 707 11 U.S.C. § 541 Controlled Substances Act |
| Hughs v. Canadian Nat'l Ry. Co. Appellant Brief Appellee Racine Ry. Products Brief Appellee Wisconsin Central Ltd. Brief Reply Brief | 8th Cir. | 6/25/24 | Holding: The court ruled that Mr. Hughes had standing to pursue his claims, but judicial estoppel applied to the claims arising from the first incident. Judicial estoppel did not apply to the second incident, which occurred after he completed his five-year payment plan, allowing him to pursue this claim. Facts: Ricky Hughes, a railroad employee, filed a Chapter 13 bankruptcy petition in 2012. During the pendency of his bankruptcy, he was injured at work in two separate incidents in 2016 and 2017. Hughes did not disclose these potential personal injury claims in his bankruptcy filings and filed a personal injury lawsuit in 2019, 19 months after his bankruptcy closed. The district court granted summary judgment against Hughes based on standing and judicial estoppel, leading to this appeal. Analysis: The court first addressed the issue of standing. Standing is determined by who has the legal right to assert a claim, which in bankruptcy cases often involves determining whether the claim belongs to the bankruptcy estate or the debtor. In Chapter 13 bankruptcies, unlike Chapter 7, the estate includes post-petition wages and assets. Upon confirmation of a Chapter 13 plan, the estate typically vests in the debtor, allowing them to retain control over their assets. The court concluded that since Mr. Hughes' claims vested in him after the confirmation of his Chapter 13 plan, he had standing to pursue his lawsuit. Next, the court analyzed the application of judicial estoppel, an equitable doctrine preventing a party from taking a position in a legal proceeding that is contrary to a position it has successfully asserted in an earlier proceeding. For the first injury, which occurred during the bankruptcy payment plan period, the court found that Mr. Hughes’ failure to disclose the potential claim was inconsistent with his previous representations to the bankruptcy court. This nondisclosure was deemed knowing rather than inadvertent, as evidenced by his application for sickness benefits where he indicated the possibility of a lawsuit. The court held that judicial estoppel was appropriate for the first injury to protect the integrity of the judicial process and prevent an unfair advantage. Regarding the second injury, which occurred after Mr. Hughes had made all his required payments and more than five years after the first payment, the court found a different outcome was warranted. By that time, there was no statutory basis to modify the bankruptcy plan to provide additional payments to creditors. The court concluded that since plan modification was no longer possible and Mr. Hughes had already fulfilled his payment obligations, judicial estoppel should not apply to the claims arising from the second injury. Therefore, the court affirmed the district court’s decision in part and reversed it in part. Tips: Regularly Review Client's Circumstances: Periodically check in with clients throughout the bankruptcy process to ensure that any changes in their circumstances, such as new injuries or potential claims, are reported and disclosed to the court. Understand the Impact of Timing on Disclosure: Be aware of the critical timing of events. Claims arising after the debtor completes all required payments under a Chapter 13 plan may not affect the bankruptcy case if no statutory basis exists for modifying the plan beyond the five-year period. | Judicial Estoppel 11 U.S.C. § 1329(a) |
| In re Doyen | Bankr. S.D. Texas | 6/25/24 | Holding: The court denied the IRS's motion to dismiss Lora Loretta Doyen's Chapter 13 bankruptcy case with prejudice. The denial was based on the IRS's failure to demonstrate cause under § 1307(c) for dismissal due to bad faith or absence of a reasonable likelihood of rehabilitation. Facts: Lora Loretta Doyen filed for Chapter 13 bankruptcy on December 31, 2023. Her non-filing spouse, Scott, The IRS subsequently filed a motion seeking dismissal of the case with prejudice, alleging 1) bad faith and 2) a lack of likelihood of rehabilitation. During the hearings for this motion, it was revealed that Ms. Doyen's non-filing spouse, Scott Doyen, had a significant history of tax delinquency, including willful avoidance of tax obligations and an extension to file their 2023 taxes. This history was a focal point in the IRS's argument for dismissal based on bad faith. Analysis: The court preliminarily disposed of the IRS's second argument, reasoning that "whether the defendant has a likelihood of reorganizing is an issue to be considered at confirmation pursuant to § 1325(a)(6)," not in a motion to dismiss. The court analyzed the IRS's first argument under § 1307(c) regarding dismissal for bad faith. It noted that while bad faith conduct can justify dismissal, it must be proven by the movant, here the IRS, by a preponderance of the evidence. The court clarified that mere prepetition financial mismanagement or failure to pay taxes does not automatically constitute bad faith warranting dismissal. Instead, the court emphasized that each case must be evaluated based on the totality of circumstances, including the debtor's intentions and efforts towards rehabilitation. The court found that while there were concerns about the debtor's tax obligations and financial decisions, the IRS did not sufficiently prove that the debtor acted in bad faith or lacked intent to propose a confirmable plan under Chapter 13. Therefore, the motion to dismiss was denied without prejudice, contingent on the debtor meeting specified conditions related to tax obligations and case management. Tips: Document Intent and Efforts: Ensure that debtor clients document their intent and efforts towards financial rehabilitation throughout the bankruptcy process to counter claims of bad faith. Address Spousal Financial Issues Early: Early identification and proactive management of financial issues related to a non-filing spouse, such as tax delinquency or other liabilities, are crucial. Advise clients to address these issues promptly and transparently to mitigate potential grounds for challenges from creditors during bankruptcy proceedings. | 11 U.S.C. § 1307(c) |
| In re M.V.J. Auto World | Banrk. S.D. Fla. | 6/21/24 | Holding: The court held that a subchapter V plan cannot be consensually confirmed under 11 U.S.C. §1191(a) if an impaired class of creditors fails to vote. In such cases, the plan must be confirmed, if at all, under the non-consensual provisions of 11 U.S.C. §1191(b). Facts: M.V.J. Auto World, Inc. (the Debtor) filed a voluntary petition for relief under subchapter V of chapter 11 on August 21, 2023, and subsequently filed a First Amended Plan of Reorganization on February 20, 2024. The Plan included two impaired classes: class 2 (Ocean Bank's secured claim), which accepted the Plan, and class 3 (U.S. Small Business Administration's secured claim), which did not vote. The Debtor sought confirmation of the Plan under section 1191(a). Analysis: The court's analysis centered on whether a subchapter V plan can be confirmed consensually under section 1191(a) when an impaired class of creditors fails to vote. Section 1191(a) requires compliance with all provisions of section 1129(a) except for paragraph (15), including section 1129(a)(8), which mandates that each impaired class of creditors must accept the plan. Acceptance is defined under section 1126(c) as a class accepting the plan by creditors holding at least two-thirds in amount and more than one-half in number of the allowed claims that have voted. The Debtor argued that non-voting impaired classes should not be counted for the purposes of section 1129(a)(8), citing cases from the Southern District of Texas, which posited that a non-voting class could be ignored to satisfy section 1129(a)(8). However, the court disagreed, noting that section 1126(a) allows creditors to choose whether to vote and that section 1126(c) accounts for the possibility of non-voting creditors. The court emphasized that the Bankruptcy Code's language is clear and unambiguous; therefore, judicial interpretation should adhere strictly to the statute's terms. Rejecting the reasoning of the cases cited by the Debtor, the court maintained that when an impaired class fails to vote, section 1129(a)(8) is not met. The court concluded that the Plan could not be consensually confirmed under section 1191(a) because class 3 did not accept it. However, since the Plan met the other requirements of section 1129(a), the court confirmed it as a non-consensual plan under section 1191(b). Tips: Encourage Voting: Actively encourage all impaired creditors to vote on the plan. Emphasize the importance of voting to ensure compliance with section 1191(a), and follow up with non-responding creditors to secure their participation. Plan for Non-Consensual Confirmation: Prepare to argue for non-consensual confirmation under section 1191(b) if an impaired class does not vote or reject the plan. Ensure the plan meets all other applicable requirements of section 1129(a) to facilitate this option. Detailed Communication: Clearly communicate the implications of non-voting to impaired creditors. Explain that their failure to vote may lead to a non-consensual confirmation process, which could have different outcomes for their claims. | 11 U.S.C. § 1191 11 U.S.C. § 1129(a)(8) |
| In re Mudd | Bankr. W.D. Okla. | 6/21/24 | Holding: The court held that attorneys representing chapter 7 debtors in the Western District of Oklahoma cannot unbundle essential bankruptcy legal services, must refrain from using bifurcated fee contracts, must provide accurate disclosures to the court, and must ensure clear and concise disclosures to clients regarding fees and services. Facts: Chris Mudd, an attorney, faced scrutiny by the United States Trustee and the court due to questionable practices in his attorney-client relationships with chapter 7 debtors. This included unbundling legal services, using bifurcated fee contracts, inadequate disclosures, and improper handling of filing fees. Analysis: The court's decision addressed several key issues: Unbundled Legal Services: The court emphasized that chapter 7 debtors are entitled to comprehensive legal representation throughout the bankruptcy process, not fragmented services that fail to provide adequate protection and guidance. Bifurcated Fee Contracts: Initially permitted under certain conditions, the court now prohibited these contracts due to concerns over fairness and transparency, especially in financially vulnerable situations. Attorney Disclosures: Attorneys were mandated to provide accurate and complete disclosures to both the court and clients regarding compensation arrangements, including any sharing of fees with third parties. Client Disclosures: Clients must receive clear and understandable contracts outlining the scope of services, fees, and payment terms before initiating bankruptcy proceedings. Payment of Filing Fees: The court underscored that installment payment of filing fees is permissible only when debtors demonstrate inability to pay upfront, not as a matter of convenience. Tips: Provide Comprehensive Legal Representation: Ensure that chapter 7 debtors receive comprehensive legal representation throughout the bankruptcy process. Avoid unbundling essential legal services, as courts may scrutinize practices that do not offer adequate protection and guidance to clients. Instead, offer a holistic approach to legal representation that addresses all aspects of the debtor's financial situation. Ensure Transparent Fee Structures: Avoid using bifurcated fee contracts that may lead to misunderstandings or disputes over fees. Provide clear and transparent disclosures to clients regarding compensation arrangements, including any fee-sharing agreements with third parties. This transparency helps build trust and ensures clients fully understand their financial obligations upfront. Accurate and Clear Disclosures: Maintain rigorous standards for disclosures to both the court and clients regarding fees, services, and payment terms. Ensure that clients receive clear and understandable contracts outlining the scope of legal services provided, associated fees, and the process for payment of filing fees. This clarity helps prevent misunderstandings and potential legal challenges related to fee disclosures during bankruptcy proceedings. | Fed. R. Bankr. P. 2016(b) 11 U.S.C. § 329 |
| In re Wall | Bankr. E.D. Mich. | 6/21/24 | Holding: The court held that the transfer of property made by the Debtor in 2020 was avoidable as a fraudulent transfer under Michigan law because the Debtor was insolvent at the time of the transfer, and the Defendants failed to rebut the presumption of insolvency. Facts: In 2017, Terry L. Wall Jr. received a one-third interest in a property from his parents for the consideration of $1. In 2020, the Debtor transferred his interest in the property to his parents. At the time of this transfer, the Debtor had significant outstanding debts and no significant assets aside from the property interest transferred. Following the transfer, the Debtor's parents sold the property for $51,000 and retained all of the sale proceeds. After the debtor filed for Chapter 7 Bankruptcy, the Trustee filed an avoidance action for a fraudulent transfer to recover one-third of the sale proceeds for the bankruptcy estate. Analysis: The court's analysis focused on the application of Michigan's fraudulent transfer statutes. The Trustee argued that the 2020 transfer was fraudulent under Mich. Comp. Laws § 566.35(1) because it was made while the Debtor was insolvent and without receiving reasonably equivalent value in return. The court found that the Debtor was presumed insolvent at the time of the transfer because he was not paying his debts as they became due, and the Defendants failed to provide evidence to rebut this presumption. The court noted that the Debtor’s assets, excluding the transferred property, were insufficient to cover his debts, establishing his insolvency. Additionally, the transfer for minimal consideration ($1) further indicated a lack of reasonably equivalent value. Consequently, the court concluded that the Trustee had established all necessary elements to avoid the transfer under Michigan law. Tips: Document Intent and Value: When assisting clients in property transfers, meticulously document the intent and the value exchanged. If a transfer is made, ensure that the consideration received is reasonably equivalent to the property's value to withstand potential challenges. Pre-Bankruptcy Planning: Engage in thorough pre-bankruptcy planning with clients to identify and address any potentially problematic transfers before filing. This includes advising clients on how to manage their assets and liabilities to avoid actions that could be deemed fraudulent. | 11 U.S.C. § 548 |
| In re Lyle | Bankr. E.D.N.C. | 6/21/24 | Holding: The court held that Corey Heating, Air Conditioning, & Plumbing Inc. willfully violated the automatic stay provisions of 11 U.S.C. § 362 by continuing to send invoices to Mr. Lyle, a debtor in a Chapter 13 bankruptcy case, but limited the requested damages to nominal damages plus attorney fees. Facts: George Lyle and Sabrina Lyle jointly filed for Chapter 13 bankruptcy protection in 2022. Despite being informed of the bankruptcy proceedings through official notices such as the Meeting of Creditors Notice and subsequent warnings from the Debtors' legal representatives, Corey Inc., listed as an unsecured creditor, persisted in sending monthly invoices addressed to Mr. Lyle. The Debtors subsequently filed a lawsuit against Corey Inc., alleging willful violation of the automatic stay. They sought damages for emotional distress, reasonable attorney fees, and punitive damages. During the proceedings, Mrs. Lyle testified that these invoices caused her significant anxiety, while Mr. Lyle expressed no distress over the matter. Analysis: The court found Corey Inc.'s actions willfully violated the automatic stay. The court found that Corey Inc. had constructive if not actual knowledge of the bankruptcy filing and the applicability of the automatic stay, thus deeming the violation willful. Regarding damages, the court distinguishes between damages applicable to Mr. Lyle as a debtor versus Mrs. Lyle. Since Mrs. Lyle was not listed on the invoices and did not assert any direct personal damages, the court limited its award to nominal damages of $325 plus reasonable attorney fees. It declined to award damages for emotional distress or medical expenses to Mrs. Lyle due to insufficient evidence linking these damages directly to the violation of the automatic stay. Punitive damages were also not awarded, as there was no evidence of malicious behavior by Corey Inc. Additionally, while attorney fees were awarded to the debtors, the court reduced the amount requested based on the specific circumstances of the violation. The source of the majority of the billed hours were in relation to the claim for personal injury and medical costs recovery, which the court denied recovery on. Since the court denied these claims, the case no longer presented novel legal questions or egregious conduct. The court limited the attorney fees to $1,250 from the Debtors' request of $4,315. Tips: Client Counseling on Emotional Distress Claims: If emotional distress damages are sought, counsel clients on the need to provide clear evidence linking the distress to the creditor's actions. Help clients understand what evidence may be persuasive to the court in support of these claims. Negotiate Reasonable Attorney Fees: When requesting attorney fees for violations of the automatic stay, be prepared to justify the amount based on the complexity of the case and the severity of the violation. Courts may reduce fee requests that are deemed excessive relative to the circumstances of the violation. | 11 U.S.C. §§ 362(a) &(k) |
| In re Virella | Bankr. D.N.J. | 6/18/24 | Holding: The court held that the debtor, Luis Michael Virella, is entitled to relief under the Takings Clauses of the United States and New Jersey constitutions due to a substantial change in law, specifically the decisions in Tyler v. Hennepin County, Minnesota and 257-261 20th Avenue Realty, LLC v. Roberto. This change affects the retention of excess value in tax sale foreclosed properties. Facts: Luis Michael Virella ("the Debtor") filed for Chapter 13 bankruptcy after TLOA of NJ, LLC ("TLOA") initiated a tax foreclosure proceeding against his property. Despite attempts by the Debtor to contest the foreclosure and set aside the Final Judgment, he was unsuccessful in state court. The Debtor argued that recent legal developments, notably the Supreme Court's Tyler decision and New Jersey's Roberto decision, rendered TLOA's retention of surplus equity from the tax sale unconstitutional under the Takings Clauses. These decisions prompted the Debtor to seek reinstatement of the automatic stay and reconsideration of earlier court rulings within his bankruptcy proceedings. Analysis: The court analyzed the implications of the recent Supreme Court decision in Tyler v. Hennepin County, Minnesota, which held that retaining surplus equity from a tax sale violates the Takings Clause of the Fifth Amendment. Additionally, the New Jersey Appellate Division's decision in 257-261 20th Avenue Realty, LLC v. Roberto extended this principle to New Jersey law, holding that both municipalities and third-party purchasers cannot retain surplus equity from tax sales without violating constitutional protections. In Tyler, the Supreme Court established that retaining more than what is owed in taxes constitutes an unlawful taking without just compensation. The New Jersey decision in Roberto reaffirmed this principle under state law, indicating that such practices are unconstitutional. The court noted that Virella's case fell within the scope of these rulings as it was "in the pipeline" when the substantial changes in law occurred. Therefore, the court determined that Virella was entitled to relief, as his situation involved the unconstitutional retention of surplus equity from his foreclosed property. The court also considered whether it should abstain from ruling on this matter, but concluded that permissive abstention was not warranted due to the significant change in law and the direct applicability of the new legal principles to the debtor's case. Tips: Leverage Recent Case Law in Bankruptcy Filings: Utilize recent Supreme Court and state court decisions, such as Tyler v. Hennepin County and 257-261 20th Avenue Realty, LLC v. Roberto, to argue against the retention of surplus equity by tax sale purchasers in bankruptcy cases. These rulings provide strong grounds to claim such retention as an unconstitutional taking. Revisit Closed Cases with Surplus Equity Issues: For clients whose properties were foreclosed and surplus equity retained, consider revisiting these cases. The "pipeline" retroactivity principle may allow you to seek relief based on the new legal standards even if the foreclosure occurred prior to these rulings. Focus on Constitutional Arguments in Bankruptcy Proceedings: Incorporate constitutional arguments regarding the Takings Clause into your bankruptcy strategy. . | 11 U.S.C. § 362 Fed. R. Bankr. P. 9023 |
| In re Mannlein | Bankr. D. Idaho | 6/17/2024 | Holding: The court held that the debtor, Philip Mannlein, failed to establish that the judgments against him did not represent domestic support obligations, thus the liens underlying the judgments are not subject to avoidance under § 522(f)(1)(A). Facts: Philip Mannlein and Pamela Obenauer divorced in 2003, with Obenauer gaining primary custody of their two children and Mannlein required to pay child support. Post-divorce, Mannlein filed multiple motions against Obenauer, including a motion for civil and criminal contempt alleging violations of custody orders and a motion to compel discovery responses. The state court awarded attorney's fees to Obenauer for prevailing in these disputes, resulting in two judgments against Mannlein in 2014. Mannlein filed for Chapter 7 bankruptcy in 2015, did not list these judgments, and later sought to reopen the case in 2023 to avoid these liens. Analysis: The court reviewed whether the liens could be avoided under § 522(f)(1)(A), which allows for the avoidance of judicial liens that impair an exemption, provided the lien does not secure a domestic support obligation under § 523(a)(5). The court agreed that the judgments impaired Mannlein's homestead exemption based on the property value and lien amounts at the time of the bankruptcy filing. The statutory formula demonstrated that the total of all liens and the exemption amount exceeded the property's value, thus meeting the impairment requirement. The court then analyzed whether the judgments were domestic support obligations. Under federal law, attorney's fees awarded in custody disputes are generally considered support obligations because they relate to the child's welfare. The court found that the issues underlying Mannlein's contempt motion (from which the judgments arose) involved the children's welfare, such as visitation and supervision concerns. The court concluded that the judgments were indeed for domestic support obligations, which are not avoidable under § 522(f)(1)(A). Tips: Identify and Argue Non-DSO Characteristics: When contesting the nature of a judgment, focus on demonstrating that the debt does not pertain to support, alimony, or maintenance. Present comprehensive evidence that addresses all statutory elements required for lien avoidance, focusing on both impairment and the nature of the underlying debt. | 11 U.S.C. § 522(f) 11 U.S.C. § 523(a)(5) |
| In re Goddard | Bankr. E.D.N.C. | 6/14/2024 | Holding: The court denied confirmation of Bobby Eugene Goddard, Jr.'s Chapter 13 Plan on the grounds that it was not proposed in good faith as required by 11 U.S.C. § 1325(a)(3). Facts: Bobby Eugene Goddard, Jr., a retired Army veteran with a substantial monthly income, filed for Chapter 13 bankruptcy on September 1, 2023. Goddard's plan proposed retaining three vehicles with significant monthly payments to secured creditors, despite having minimal disposable income and a substantial amount of unsecured debt. Analysis: The court had to decide whether the Debtor’s Chapter 13 Plan, which complied with the disposable income test under 11 U.S.C. § 1325(b), could still be found lacking in good faith under 11 U.S.C. § 1325(a)(3). The court reviewed precedents from various jurisdictions and noted a split in authority regarding whether the good faith requirement could override compliance with the disposable income test. The Ninth Circuit, in In re Welsh, held that courts should not consider payments to secured creditors on luxury items when determining good faith. Conversely, other courts, such as those in In re Broder and In re Williams, maintained that good faith is a separate requirement that allows courts to evaluate the totality of the debtor’s circumstances, including retention of luxury items. The court ultimately found persuasive the reasoning that the good faith requirement under § 1325(a)(3) remains a separate and distinct inquiry from the mechanical compliance with the disposable income test under § 1325(b). Evaluating the Debtor's situation, the court noted that Goddard's retention of three vehicles appeared excessive and suggested an attempt to maintain a lifestyle at the expense of his unsecured creditors. The Debtor's testimony did not establish a necessity for retaining all three vehicles, and his financial decisions prior to filing for bankruptcy indicated a lack of genuine effort to pay his debts. Tips: Good Faith Inquiry: Always prepare to demonstrate good faith beyond mechanical compliance with the disposable income test, especially if retaining luxury items. Carefully evaluate and justify the retention of multiple or high-value assets to ensure they are necessary and not merely luxuries. Highlight Circuit Splits: Be aware of and highlight relevant circuit splits when addressing issues of good faith and disposable income calculations. Understand the stance of your jurisdiction and be prepared to argue why your plan should be considered in good faith under the prevailing legal standards. | 11 U.S.C. § 1325(a)(3) 11 U.S.C. § 1325(b) |
| In re Wells | Bankr. E.D. Wash. | 6/13/2024 | Holding The court held that it has the discretion to continue administering the Chapter 13 bankruptcy case of Richard Wells after his death, and that further administration is possible and in the best interest of the parties. Facts Richard Wells filed for Chapter 13 bankruptcy on August 23, 2023, proposing to pay creditors in full through monthly payments and the sale of real estate. Wells passed away on February 12, 2024, before his plan was confirmed. His counsel sought to continue the case with the probate estate's personal representative, facing opposition from creditor Ridpath Penthouse LLC. Analysis The court analyzed whether it could continue administering Wells' Chapter 13 case after his death under Bankruptcy Rule 1016. The rule allows for the continuation of a Chapter 13 case if further administration is possible and in the best interest of the parties. The court noted that there is no binding precedent in the Ninth Circuit on this issue and that bankruptcy courts have interpreted Rule 1016 in various ways. The court began with the plain language of Rule 1016, which grants discretion to either dismiss or continue a Chapter 13 case posthumously. The court found persuasive the reasoning of other courts that have held that a debtor's death does not automatically warrant dismissal. The court rejected Ridpath’s argument that there is a default presumption of dismissal upon the debtor’s death, citing cases like In re Perkins and In re Sanford, which support the continuation of the case if the plan can still be funded. Further, the court evaluated whether "further administration" was feasible. It concluded that significant tasks, such as selling real estate and handling adversary proceedings, remained and could be managed by the appointed personal representative. The court disagreed with the narrow interpretation of "further administration" proposed by Ridpath and supported by In re Ward. Instead, it aligned with a broader interpretation, allowing the personal representative to act on the debtor’s behalf. Tips: Leverage Rule 1016 Discretion: Utilize Bankruptcy Rule 1016 to argue for the continuation of a Chapter 13 case by demonstrating that further administration is both possible and in the best interests of the creditors and the estate. Emphasize any progress made towards plan confirmation and the benefits of resolving issues within the bankruptcy context. Appoint an Experienced Personal Representative: Ensure that the probate estate's personal representative is well-versed in bankruptcy matters or can collaborate with qualified bankruptcy counsel. This can facilitate the efficient continuation and administration of the bankruptcy case, potentially reducing overall costs and expediting the resolution of outstanding issues. | Fed. R. Bankr. P. 1016 |
| In re Ansin Appellant Brief Appellee Brief Reply Brief | 1st Cir. BAP | 6/12/2024 | Holding The court held that the debtor's motion to convert her Chapter 7 bankruptcy case to Chapter 13 was properly denied due to her failure to demonstrate eligibility for Chapter 13 and lack of good faith in seeking the conversion. Facts The debtor, Christine Marie Ansin, and her former spouse, Robert Ansin, were involved in a divorce where the state court entered a final decree awarding certain properties to Robert. Following this, the state court found Christine in contempt for removing and disposing of these properties, resulting in a contempt order requiring her to pay $195,955.49 to Robert. Christine later filed for Chapter 7 bankruptcy and listed Robert's claim from the contempt order as a disputed debt. Subsequently, she sought to convert her bankruptcy case to Chapter 13. Robert objected to the conversion, arguing that Christine did not have sufficient regular income to qualify for Chapter 13 as required by § 109(e) and that she was acting in bad faith. Analysis The court began its analysis by establishing the debtor’s burden to demonstrate eligibility under Chapter 13, which includes having regular income and proposing a feasible repayment plan. The debtor failed to show sufficient and stable income to fund a Chapter 13 plan. Despite reporting potential real estate commissions, these earnings were not substantiated or consistent, failing to meet the income requirement under § 109(e). The court further examined the debtor's motivations and conduct. It was noted that the debtor aimed to utilize the broader discharge provisions of Chapter 13 to avoid paying a debt otherwise non-dischargeable in Chapter 7. The court highlighted that the debtor’s actions reflected bad faith, particularly her failure to provide necessary financial information and her inconsistent reporting of income. This behavior suggested an attempt to manipulate the bankruptcy system to the creditor’s detriment. The court also cast doubt on whether the debtor would be able to discharge the debt if converted to a Chapter 13 plan regardless, as Robert's complaint raised a nondischargability claim under § 523(a)(4) for a debt for larceny or embezzlement which would not be dischargable in a Chapter 13 plan. Additionally, the court referenced Marrama v. Citizens Bank of Mass., where it was established that bad faith conduct is grounds for denying conversion. The debtor did not request an evidentiary hearing nor contest the creditor's factual allegations, further weakening her position. Given the substantial evidence of bad faith and the impracticality of her repayment plan, the court concluded that denying the conversion was justified. Tips: Evaluate the Feasibility of Repayment Plans: Develop realistic Chapter 13 repayment plans that are based on documented income and reasonable expense projections. Avoid proposing plans that rely on speculative or non-guaranteed income sources. Prepare for Potential Creditor Challenges: Anticipate and proactively gather evidence to refute any creditor allegations of bad faith. For irregular income, collect historical data and third-party verification to demonstrate consistency and reliability. Cross-check client-provided information for consistency and completeness to prevent any appearance of bad faith. | 11 U.S.C. § 109(e) 11 U.S.C. § 523(a)(4) |
| In re Hall | Bankr. D. Kan. | 6/12/2024 | Holding: The court held that the debtor’s former spouse willfully violated the automatic stay by filing, with notice of Debtor’s chapter 13 bankruptcy and without obtaining stay relief, state court motions to modify or set aside a property equalization judgment entered in the parties’ divorce case, and awarded the debtor $13,076.12 in attorney's fees, $350 in lost income, and $500 in punitive damages. Facts: The debtor filed for Chapter 13 bankruptcy, listing her former spouse as a creditor due to a $47,481 property equalization payment. Despite being notified of the bankruptcy, the former spouse filed state court motions to modify the judgment to prevent its discharge, without seeking stay relief. The debtor sought sanctions for these actions. Analysis: The court determined that the former spouse’s actions were willful violations of the automatic stay under 11 U.S.C. § 362(k)(1). It found that the former spouse acted in reckless disregard of the debtor's bankruptcy rights by filing motions in state court to modify the property equalization judgment, despite being informed that these actions violated the automatic stay. The court held a separate hearing on damages where it awarded actual damages for attorney's fees and lost income, and punitive damages due to the egregious nature of the violations. In evaluating actual damages, the court applied the lodestar method and found the requested attorney's fees reasonable, except for $210 related to non-stay violation matters. The court denied most of the claimed lost income and expenses due to insufficient evidence but awarded $350 for the debtor’s attendance at relevant hearings. Regarding punitive damages, the court found that the former spouse’s conduct, including filing motions with baseless allegations of fraud and misrepresenting actions to the state court, justified punitive damages. However, due to a lack of evidence on the former spouse's ability to pay, the court awarded $500 in punitive damages instead of the $10,000 requested. Tips: Evaluate Damages Carefully: Prepare to substantiate claims for actual damages with clear evidence and itemized records, and be ready to justify requests for punitive damages with detailed arguments on the violator's conduct and motivations. Thorough Documentation: Direct clients to maintain detailed records of financial activities and communications to substantiate claims for damages in stay violation cases. | 11 U.S.C. 362(k)(1) |
| In re Landin | Bankr. D. Minn. | 6/11/2024 | Holding The court held that the prepetition transfer of $8,000 from the Debtor to the Defendant was avoidable as a constructively fraudulent transfer under Section 548 of the Bankruptcy Code, and the Defendant, as the initial transferee, was liable for the full amount of the transfer under Section 550 of the Bankruptcy Code. Facts Debtor filed for Chapter 7 bankruptcy on July 5, 2023. Prior to filing, on June 20, 2023, the Debtor transferred $8,000 from his 401(k) account to his brother, the Defendant, by endorsing a check payable to him. The Defendant deposited this check into his personal checking account and disbursed part of the funds to pay Debtor’s legal fees. Analysis The court applied the legal standard for summary judgment, concluding there was no genuine dispute of material fact. The Defendant admitted to all relevant facts but contested the legal interpretation. The court found the transfer avoidable under Section 548(a)(1)(B), which allows avoidance if the debtor received less than reasonably equivalent value in exchange and was insolvent at the time of the transfer. Here, the Debtor received less than $8,000 in benefit from the transfer, and the Debtor’s insolvency at the time of the transfer was evident, as his debts exceeded his assets by more than $25,000 shortly thereafter. The court also determined that the Defendant was the "initial transferee" under Section 550(a)(1), having dominion and control over the transferred funds. The Defendant's argument that he was merely a conduit failed because he had the authority to use the funds as he saw fit, distinguishing him from financial intermediaries typically considered mere conduits. Tips: Advise Clients on Prepetition Transactions: Counsel clients to avoid making significant financial transfers or payments to relatives or friends shortly before filing for bankruptcy, as these may be scrutinized and potentially reversed as fraudulent transfers. Document Legitimate Reasons for Transfers: Ensure clients maintain thorough documentation for any prepetition transfers, showing legitimate, non-fraudulent reasons and reasonable value received in exchange, to help defend against avoidance actions. | 11 U.S.C. § 548(a)(1)(B) 11 U.S.C. § 550(a) |
| In re Narine | Bankr. E.D.N.Y. | 6/11/2024 | Holding: The court granted the IRS's motion for summary judgment, holding that the tax debt owed by Anjanie Narine to the United States was nondischargeable under 11 U.S.C. § 523(a)(1)(C) because she willfully attempted to evade or defeat taxes by failing to report substantial capital gains on her 2017 tax return. Facts: Anjanie Narine incurred a tax liability of over $40,000 due to unreported capital gains of over $90,000 from stock sales in her 2017 tax return. She self-prepared her taxes using an online program and failed to include the gains, despite receiving accurate tax statements from Vanguard. Narine later attempted to amend her returns with the help of an accountant but failed to follow through properly. Throughout the tax assessment period, Narine exhibited irregular spending habits, frequently making discretionary purchases despite being aware of the outstanding tax obligations. These spending patterns raised concerns about Narine's financial management practices and intent to address tax liabilities in a timely manner. Narine later filed for Chapter 7 and filed a complaint seeking to discharge her tax liability. The IRS objected to this discharge and filed a motion for summary judgment. Analysis: The court analyzed whether Narine's actions met the criteria for nondischargeability under 11 U.S.C. § 523(a)(1)(C). The statute provides that a debt for federal income taxes is nondischargeable if the debtor willfully attempted to evade or defeat the tax. The court considered various factors including Narine's failure to report substantial capital gains despite receiving clear tax documents, her subsequent attempts to rectify the issue only after IRS notices, and her discretionary spending patterns which suggested a lack of effort to pay the tax debt owed. The court found that Narine's conduct, which included extensive discretionary spending instead of addressing her tax liabilities promptly, constituted a willful attempt to evade or defeat the taxes owed. Tips Due Diligence in Tax Reporting: Advise clients on the importance of accurate and timely reporting of all income sources, including capital gains and investment earnings. Stress the significance of disclosing all financial transactions to avoid potential claims of willful tax evasion under 11 U.S.C. § 523(a)(1)(C). Encourage proactive measures such as seeking professional tax advice to ensure compliance with tax laws. | 11 U.S.C. § 523(a)(1)(C) |
| Sterling v. Southlake | N.D. Ind. | 6/10/2024 | Holding: The court held that Judge Ahler did not abuse his discretion in awarding damages and attorney fees of $110,000 against Southlake Nautilus for contemptuously pursuing a debt after it had been discharged in bankruptcy. Facts: Jacqueline Sterling owed Southlake Nautilus approximately $500 in unpaid membership dues, which led to a series of legal actions spanning over two decades, including a bankruptcy filing. Despite being notified of the bankruptcy discharge, Southlake did not inform their attorneys of the discharge, who continued to pursue a collection action in a Lake County, Indiana that culminated in Sterling's wrongful arrest and detention for failure to appear in court. Sterling sued Southlake for lost wages, false arrest, loss of reputation, and attorney fees. Sterling recovered, but the bankruptcy court judge assigned 50% liability to each party because Sterling failed to notify the Lake County Court of the discharge, reducing the damages and attorney fee recovery by half. Sterling appealed the Bankruptcy Court Order, claiming that Bankruptcy Judge Ahler abused his discretion in limiting recovery. Analysis: This court assessed the reasonableness of damages and attorney fees awarded against Sterling. It acknowledged Sterling's failure to adhere to notice requirements, which exacerbated the litigation leading to her arrest. Despite objections, the court found a 50% reduction in damages and fees appropriate. The court affirmed these decisions based on factual findings and relevant legal principles, underscoring the bankruptcy court's discretion in enforcing discharge injunctions. Tips: Strict Adherence to Notice Requirements: Emphasize to clients the critical importance of complying with notice requirements in bankruptcy proceedings. Failure to do so can lead to adverse consequences, such as potential personal liability for post-petition debts or litigation costs, as seen in this case. | 11 U.S.C. § 524(a) |
| In re Kipps | 3rd Cir. | 6/7/2024 | Holding: The Third Circuit Court of Appeals held that the state court's actions in a divorce proceeding did not violate the automatic stay provisions of § 362(a)(1) because they fell within the exception for civil actions related to the dissolution of a marriage under § 362(b)(2)(A)(iv). Facts: In 2012, Kipps and Stinavage-Kipps initiated divorce proceedings in Pennsylvania state court, which issued a final equitable distribution order in 2017 under which Kipps was to pay $419,871.09 to Stinavage-Kipps. Kipps later filed for bankruptcy and argued that the state court's subsequent actions, including ordering the Prothonotary to execute deeds and directing Kipps to appear for a contempt hearing, violated the automatic stay imposed by his bankruptcy filing. Analysis: The Third Circuit analyzed whether the state court's actions fell within the automatic stay's exceptions. The court determined that the state court's order to the Prothonotary to execute deeds was part of a civil action for the dissolution of a marriage, which is specifically exempted from the stay under § 362(b)(2)(A)(iv). This exception applies as long as the actions do not seek to determine the division of property that is part of the bankruptcy estate. In this case, the state court's order did not seek to alter the already determined equitable distribution of marital property, but merely executed the existing order. The court also addressed Kipps's argument that the contempt proceedings initiated by the state court violated the stay. The court clarified that to establish a violation of the stay under § 362(k)(1), Kipps needed to show that Stinavage-Kipps willfully violated the stay. The court found that the state court's actions were not attributable to Stinavage-Kipps, and therefore, she did not willfully violate the stay. Tips: Understand the Exceptions to Automatic Stay: Actions related to the dissolution of marriage, which do not involve the division of bankruptcy estate property, are generally exempt from the automatic stay under § 362(b)(2)(A)(iv). Focus on Willfulness in Stay Violations: In cases involving alleged stay violations, it is crucial to demonstrate willfulness on the part of the opposing party. | 11 U.S.C. § 362(b)(2) 11 U.S.C. § 362(k) |
| Kasolas v. Aurora Capital | 9th Cir. | 6/4/2024 | Holding: The court affirmed the Bankruptcy Appellate Panel’s order, upholding the bankruptcy court’s dismissal of the Trustee's complaint seeking to avoid and recover post-petition transfers of property, as the Trustee failed to establish that the property in question constituted estate property and the claims were time-barred. Facts: Robert Brower, Sr., a Chapter 11 debtor-in-possession, caused his wholly-owned corporation, Coastal Cypress, to sell its primary asset, the Wine Estate Property. The proceeds from this sale were transferred to third parties without court approval. The Trustee sought to avoid these transfers, claiming they were part of the bankruptcy estate. Analysis: The court reviewed the bankruptcy court's dismissal de novo and found that the Trustee's second amended complaint did not plausibly allege that the net proceeds from the sale constituted estate property. Under California law, a shareholder has only an expectancy interest in corporate assets, not an ownership interest. Brower, as a shareholder, did not have a property right in the net proceeds because Coastal Cypress neither liquidated nor declared a dividend. The Trustee's argument that the sale of the Wine Estate Property was a "Liquidation Event" under Coastal’s Articles of Incorporation conflated the liquidation of assets with the liquidation of the corporation itself. The court held that until Coastal was liquidated, Brower's interest remained an expectancy interest. Furthermore, the alter ego doctrine could not be used to treat Coastal's corporate assets as Brower’s personal assets, as California law does not permit third-party creditors to pierce the corporate veil to satisfy a shareholder’s personal liabilities. Additionally, the Trustee's claim for conversion failed because it could not establish ownership or a right to possess the net proceeds. The court also found that both the Section 549 and conversion claims were time-barred. The Trustee's argument for tolling the statutes of limitations based on the Chapter 11 plan and the adverse domination doctrine was rejected. The plan did not explicitly toll the statutes of limitations, and the Trustee had been aware of the transfers several years prior to filing the action. Tips: Understand Corporate Structure Implications: When dealing with debtor-owned corporations, clarify the distinction between corporate assets and personal assets of the debtor. This understanding is crucial to avoid unnecessary litigation over whether certain assets belong to the bankruptcy estate. Understand State Law: Familiarize yourself with state laws regarding shareholders' interests in corporate assets to avoid expectancy interest pitfalls. | 11 U.S.C. § 549 |
| In re Komprood | Bankr. W.D. Wis. | 6/4/2024 | Holding The court held that the obligation to pay the home equity line of credit (HELOC) as per the marital settlement agreement (MSA) is a nondischargeable domestic support obligation (DSO) under 11 U.S.C. § 523(a)(5). Facts Richard Komprood (Debtor) and Michelle Staley were divorced in 2008, during which they had an MSA that assigned various debts, including a HELOC, to the Debtor. When the Debtor filed for Chapter 13 bankruptcy in 2023, Staley filed a priority claim for reimbursement of HELOC payments she made to prevent foreclosure on their jointly owned property, asserting the debt as a nondischargeable DSO. Analysis The court examined the MSA and its provisions, particularly Section VIII, which stated that the allocation of debts, including the HELOC, was considered part of the support obligations of each party in lieu of maintenance payments. The court found this language unambiguous, indicating that the parties intended the HELOC to be a support obligation and therefore a DSO. This conclusion was supported by the context of the parties' financial circumstances at the time of the divorce, with Staley being unemployed and responsible for a child, suggesting a need for financial support. The court also considered the Debtor's arguments that the HELOC was a shared marital debt and should be dischargeable as a property settlement. However, it rejected this view, emphasizing the clear language of the MSA and the intent of the parties to treat the HELOC as a support obligation. The court cited prior rulings and legal principles favoring the broad interpretation of support obligations in bankruptcy contexts to protect the legitimate needs of dependents. Tips: Understand the Interplay Between State and Federal Law: The characterization of debts as support obligations or property settlements is a federal question, but state court findings and the intent expressed in divorce agreements are highly influential. | 11 U.S.C. § 523(a)(5) |
| In re Rachel | Bankr. S.D. Ohio | 6/3/2024 | Holding: The court held that the $34,000 equity interest in the marital real property awarded to Shannon Browner did not become part of Robert Louis Rachel, Jr.'s bankruptcy estate and is not a dischargeable debt. Consequently, the court granted summary judgment to Ms. Browner and denied summary judgment to Mr. Rachel. Facts: Robert Louis Rachel, Jr. and Shannon Browner dissolved their marriage, and the divorce decree included a separation agreement. The agreement awarded Ms. Browner $34,000 as her share of the marital equity in their residence. Mr. Rachel later filed for Chapter 13 bankruptcy, listing this amount as a non-priority unsecured debt which he sought to discharge. Analysis: The court analyzed whether the $34,000 awarded to Ms. Browner constituted a debt that could be discharged in bankruptcy or a separate property interest protected by a constructive trust. The court applied the Sixth Circuit's precedent from McCafferty v. McCafferty, which outlined the conditions under which a divorce decree can create a constructive trust over marital property awarded to a non-debtor spouse if certain conditions are met: (a) the divorce decree must grant a separate property interest to the non-debtor spouse under state law; (b) the trust must be impressed upon the property prior to bankruptcy filing, and (c) recognizing the trust does must not conflict with bankruptcy policy of ratable distribution among creditors. The court noted that the real property was deemed marital property under Ohio law, making it subject to equitable division. Ms. Browner's entitlement to 50% of the marital equity was fixed by the divorce decree, thereby granting her a separate property interest. The court also determined that the divorce decree impressed a constructive trust upon Ms. Browner's share of the equity, even though the decree did not explicitly use the term "constructive trust." This trust arose from the state court's judgment, predating Mr. Rachel's bankruptcy filing. Lastly, the court concluded that recognizing this constructive trust did not conflict with bankruptcy policy, as the real property was exempt and not subject to distribution to Mr. Rachel's creditors. This maintained the equitable principle without diminishing the pro rata share of other creditors. Since the divorce decree satisfied all three conditions, Ms. Browner's property interest was not dischargable debt Tips: Review and Analyze Separation Agreements Thoroughly: Conduct a meticulous review of any separation agreements or divorce decrees your client is party to. Look for language that could potentially create constructive trusts or equitable interests in property, as these may impact the client's bankruptcy proceedings by excluding certain assets or obligations from the bankruptcy estate. Consider State Law: Understand state-specific laws regarding property division and the implications for bankruptcy proceedings. | 11 U.S.C. § 523(a)(15) |
| In re Sharp | Bankr. N.D. Ohio | 6/3/2024 | Holding: The court held that the debtor's debt arising from a default judgment in a state court proceeding was not automatically excepted from discharge in bankruptcy, and the plaintiff failed to establish the debtor's liability under §§ 523(a)(2)(A), (a)(4), and (a)(6) of the Bankruptcy Code. Facts: Plaintiff, Kuns Northcoast Security Center LLC, filed a civil complaint against Kenneth Sharp and his wife, Patty Sharp, alleging criminal activities and theft of funds by Patty Sharp while employed by the plaintiff. A default judgment was obtained against the Sharps jointly and severally. Kenneth Sharp later filed for Chapter 7 bankruptcy, prompting the plaintiff to file an adversary proceeding to determine the dischargeability of the debt arising from the state court judgment. Analysis: The court analyzed the claims under §§ 523(a)(2)(A), (a)(4), and (a)(6) separately. It discussed the burden of proof, the elements required to establish non-dischargeability under each provision, and the application of issue preclusion principles. The court also considered the Bartenwerfer precedent, which addresses vicarious liability of a debtor for the actions of another. Ultimately, the court found that the plaintiff failed to prove the debtor's liability under any of the asserted provisions, and the debtor was entitled to partial summary judgment regarding vicarious liability under § 523(a)(6). Tips: Vicarious Liability: When defending against non-dischargeability claims, scrutinize the nature of the relationship between the debtor and the individual who committed the fraud. Highlight differences from cases like Bartenwerfer to argue against vicarious liability. Burden of Proof: Emphasize the creditor's burden to prove the debtor's direct involvement in fraud or wrongful intent under §§ 523(a)(2)(A), (a)(4), and (a)(6). Point out any lack of concrete evidence linking your client to the fraudulent acts to strengthen your case for dischargeability. | 11 U.S.C. § 523(a) |
| In re Budgick | D.N.J. | 5/31/2024 | Holding: The court affirmed the bankruptcy court's default judgment in favor of the debtor. Since the named adversary in the proceeding failed to respond to the debtor's complaint and the guarantor of the loan did not file a motion to intervene, default judgment was proper. The student loan debts owed by the debtor as of the date of the petition were properly discharged. Facts: John William Budgick II, the debtor, filed a Chapter 7 bankruptcy petition listing three student loans among his non-priority unsecured claims. One of these loans was made under the Federal Family Education Loan Program (FFELP). Budgick initiated an adversary proceeding seeking an undue hardship discharge of his student loans. Despite being properly noticed, Ascendium, the named adversary, never appeared in the adversary proceeding or responded to the debtor's complaint. Instead, ECMC, another guarantor that claimed to be the current holder of the loans, answered the complaint as an interested party. Budgick filed a motion asking the court to deny ECMC the ability to intervene as a party defendant in the case. ECMC responded, asking the court to deny the debtor's motion, but did not file a motion of their own to intervene or substitute Ascendium in the case. The bankruptcy court granted default judgment in favor of the debtor, to which ECMC appealed. Analysis: The court evaluated the propriety of the default judgment by examining the validity of plaintiff's underlying cause of action and by using the factors set forth in Emcasco Ins. Co. v. Sambrick (3rd Cir. 1987), which weigh 1) the prejudice to the plaintiff if the default were to be denied; 2) whether the defendant appears to have a meritorious defense; and 3) whether the defendant's delay is due to culpable conduct. The District Court agreed with the Bankrupcy Court that the plaintiff set forth a prima facie case prerequisite to a default judgment that the debts owed to Ascendium were dischargable. Further, the Court found none of the Emcasco factors to favor a reversal of the default judgment. Therefore, the default judgment was affirmed and the FFELP loans were discharged under Chapter 7. Tips: Monitor Responses and Seek Default Judgments Promptly: If a named defendant fails to respond to the complaint, promptly move for a default judgment. This can expedite the resolution of the case and potentially prevent third parties from intervening late in the process. Challenge Untimely Interventions Aggressively: If a third party like ECMC attempts to intervene after failing to follow proper procedures, vigorously oppose their intervention. Highlight their procedural missteps and emphasize any prejudice to the debtor to strengthen the case for upholding default judgments. | 11 U.S.C. § 523(8) |
| Bercy v. City of Phoenix | 9th Cir. | 5/30/2024 | Holding: The court held that Rhita Bercy, who filed a Chapter 7 bankruptcy petition, lacked standing to pursue her hostile work environment claim against her employer, the City of Phoenix. The court affirmed the district court's grant of summary judgment to the City because Bercy's claim belonged to the bankruptcy estate, and only the bankruptcy trustee had standing to sue on the claim. Facts: Rhita Bercy, while employed at the City of Phoenix, faced offensive and discriminatory remarks from a coworker. She filed a Chapter 7 bankruptcy petition within the period of harassment. Despite being aware of her coworker's discriminatory conduct, she answered "no" to claims against third parties in her bankruptcy petition. Bercy later sued the City for violations of Title VII and Section 1981 of the Civil Rights Act, alleging a hostile work environment that continued before and after her bankruptcy filing. Analysis: The court analyzed the Bankruptcy Code, which states that all legal or equitable interests of the debtor in property belong to the bankruptcy estate at the time of the bankruptcy filing. Bercy's hostile work environment claim, which accrued both before and after her bankruptcy petition, was considered property of the estate. While Bercy argued for damages related to post-petition conduct, the court found that such claims were sufficiently rooted in prebankruptcy incidents and thus belonged to the estate. The court distinguished this case from O'Loghlin v. County of Orange (9th Cir. 2000), emphasizing that allowing Bercy to personally recover damages for post-petition conduct would doubly advantage her, contrary to the purpose of the Bankruptcy Code. Tips: Early Identification of Potential Claims: Conduct a thorough assessment of all potential claims, especially those related to ongoing issues like employment disputes or discrimination, before filing for bankruptcy. Advise clients to disclose these claims in the bankruptcy petition to avoid loss of standing post-petition. Strategic Timing of Bankruptcy Filing: Educate clients on the timing of their bankruptcy filing in relation to potential claims. Consider delaying the filing if there are pending claims or incidents that may arise, ensuring maximum protection and control over those claims. Collaboration with Bankruptcy Trustees: Work closely with bankruptcy trustees to coordinate the handling of active claims. Provide trustees with comprehensive information regarding potential claims to facilitate informed decision-making and optimize recovery for the debtor. | 11 U.S.C. § 541(a) |
| In re Decosta | Bankr. D.N.H. | 5/30/2024 | Holding: The court held that the Debtors did not have a valid homestead exemption for their property due to non-compliance with New Hampshire RSA 480:9. Therefore, the Bankruptcy Trustee's objection to the Debtors' claim of a homestead exemption was sustained. Facts: The Debtors transferred their residence to a trust before filing for Chapter 7 bankruptcy. The Trust did not explicitly state its revocability in the deed for the residence or any other recorded documents. After the bankruptcy filing, the Debtors attempted to retroactively declare the Trust as revocable through a post-petition affidavit recorded in the county registry. The Bankruptcy Trustee objected to the Debtors' claim of a homestead exemption in the Property. Analysis: New Hampshire law permits a homestead exemption of up to $120,000, aiming to protect debtors' shelter. However, the exemption is subject to limitations and requires compliance with specific statutory provisions. The court analyzed RSA 480:9, which stipulates that a revocable trust should contain explicit notice of its revocability in recorded documents to preserve homestead rights. The court concluded that the post-petition recording did not satisfy this requirement, rendering the Debtors' claimed exemption void or voidable. Tips: Review Trust Documentation Thoroughly: Carefully examine trust documents before filing for bankruptcy to ensure they comply with state laws regarding exemptions, especially regarding revocability. Timely Disclosure: Promptly disclose all relevant documents and information related to property transfers and exemptions to the bankruptcy trustee to avoid challenges to claimed exemptions. Educate Clients on Documentation Importance: Emphasize to clients the critical nature of accurate and timely documentation in supporting claimed exemptions, highlighting the potential consequences of incomplete or misleading filings. | 11 U.S.C. § 544(a) |
| In re Sanderfer | 6th Cir. B.A.P. | 5/24/2024 | Holding: The court held that the bankruptcy court's summary judgment order was insufficiently explained, vacating and remanding the decision granting the debtor-appellee's motion for summary judgment. The court affirmed the denial of the creditor-appellant's summary judgment due to genuine issues of material fact. Facts: DesDemona Sanderfer, the debtor, filed for Chapter 7 bankruptcy. Trinity High School, the creditor, sought to declare the debtor's tuition debt non-dischargeable under section 523(a)(8) of the Bankruptcy Code. The dispute centered on whether a written agreement existed for the repayment of the tuition, which the bankruptcy court deemed necessary for non-dischargeability. Analysis: The court began by examining the bankruptcy court’s application of the standard for summary judgment under Rule 7056. The bankruptcy court had granted summary judgment to the debtor on the basis that no written agreement for the repayment of the tuition existed. The Bankruptcy Appellate Panel noted that, according to Sixth Circuit precedent in *In re Merchant*, an extension of credit for purposes of section 523(a)(8) does not necessarily require a written agreement. The Sixth Circuit's test for a loan under section 523(a)(8) includes whether the debtor was aware of the credit, acknowledged the debt, and if the credit was defined as a sum of money due. The appellate panel found that the bankruptcy court had erred in requiring a written agreement as a matter of law without sufficiently analyzing whether an agreement, in any form, evidenced the parties' intent to create a loan. The appellate panel also reviewed the denial of Trinity's summary judgment motion. Trinity provided affidavits and billing statements suggesting the debtor had agreed to a payment plan. However, the debtor's affidavit contradicted this, stating she did not agree to specific repayment terms and was unaware of the exact debt amount due to state contributions. The panel concluded that these conflicting testimonies presented genuine issues of material fact, making summary judgment inappropriate for Trinity as well. Tips: Documentation is Key: Emphasize to your clients the importance of maintaining written records of any agreements related to extensions of credit or financial transactions, as courts may scrutinize documentation when determining dischargeability of debts under section 523(a)(8) of the Bankruptcy Code. Challenge Incomplete Legal Reasoning: Be prepared to challenge summary judgment orders that lack sufficient explanation of the legal reasoning behind the decision. If the court fails to adequately articulate its rationale, consider filing a motion for further clarification or, if necessary, appealing the decision. Present Competing Evidence: When faced with summary judgment motions from creditors, ensure that your client presents clear and admissible evidence that raises genuine issues of material fact, even if it may be considered self-serving or uncorroborated. Competing evidence can help rebut creditor claims and support your client's position during bankruptcy proceedings. | 11 U.S.C. 523(a)(8) F. R. Bankr. P 7056 |
| In re Guzman | Bankr. D. Colo. | 5/24/2024 | Holding: The court granted the motion to avoid lien with immediate effect, ruling that the avoidance of the lien under 11 U.S.C. § 522(f) was not to be delayed until the completion of the chapter 13 plan and entry of discharge. Facts: Leo Guzman and Alicia Vanessa Flores, who operated a food truck and fell behind on their mortgage and tax payments, filed a Chapter 13 bankruptcy petition. They sought to avoid a judicial lien on their residence held by Wakefield and Associates, which was later assigned to Alt Assets, LLC. Analysis: The court analyzed the debtors' motion to avoid the lien under 11 U.S.C. § 522(f), which allows a debtor to avoid a judicial lien if it impairs an exemption to which the debtor would have been entitled. The debtors claimed a homestead exemption of $250,000 in their residence, which was valued at $952,000 with a $700,000 consensual mortgage lien and several nonconsensual liens, including the one held by Wakefield. The court confirmed that the Wakefield lien impaired the debtors' homestead exemption because it reduced the amount of equity the debtors could claim as exempt. Additionally, the court considered the objection by Alt Assets, who argued against the immediate effect of avoiding the lien. The court found that the lien avoidance should take immediate effect to provide the debtors with the intended relief and support their reorganization efforts under Chapter 13. The court noted that delaying the effect of the lien avoidance would contradict the purpose of the exemption and the bankruptcy code's fresh start policy. Tips: Ensure that motions to avoid judicial liens under 11 U.S.C. § 522(f) are filed promptly to protect your client's exemptions and facilitate their reorganization plan. Clearly establish and document the value of the property and the applicable homestead exemption to demonstrate how judicial liens impair the exemption. Advocate for immediate effect of lien avoidance where delaying relief would undermine the debtor's ability to reorganize and achieve a fresh start. | 11 U.S.C. § 522(f) |
| In re Carraman | Bankr. W.D. Tex. | 5/24/2024 | Holding: The court held that the Chapter 13 trustee had standing to bring an avoidance action against lender TitleMax's security interest and was not barred by res judicata or the plan confirmation from pursuing this action. Facts: The debtor, Carraman, had a loan with TitleMax secured by a vehicle. TitleMax issued a second loan, allegedly refinancing the first loan. However, the security interest for the second loan was not perfected. The Chapter 13 trustee objected to TitleMax’s secured claim and sought to avoid the unperfected security interest. Analysis: The court analyzed whether TitleMax's second loan was a new loan requiring perfection of its security interest. TitleMax argued that the second loan was a mere extension or renewal of the first loan, which did not need re-perfection. The court rejected this argument, stating that the second loan satisfied the first loan, creating a new obligation that required a new perfection to maintain secured status. The court also addressed TitleMax’s argument on standing, holding that the trustee had standing because the action to avoid the security interest benefitted the estate. Additionally, the court determined that res judicata did not apply because the trustee had raised the issue of the security interest's validity before the confirmation of the plan, and the confirmation process did not preclude the trustee from pursuing the avoidance action post-confirmation. Tips: Clarify Loan Transactions: Clearly document whether a loan is a renewal or a new loan to avoid disputes over the need for re-perfection. Address Issues Pre-Confirmation: Raise and address any issues regarding the validity of security interests before the confirmation of the Chapter 13 plan to avoid complications later. | 11 U.S.C. § 544 |
| In re Green | Bankr. E.D.N.C | 5/24/2024 | Holding: The court denied BSI Financial Services' motion to amend the order deeming the mortgage current, determining that BSI's errors did not justify altering the established mortgage balance. Facts: William and Rebecca Greene filed for Chapter 13 bankruptcy, and their confirmed plan provided for their mortgage with BSI to be paid through trustee disbursements. The trustee filed a Notice of Final Cure Mortgage Payment stating the mortgage was current with a balance of $105,505.65, which BSI initially agreed to but later disputed, asserting a higher balance. The bankruptcy court denied BSI Financial Services' motion to amend an order that deemed the mortgage current. The original order, issued on November 16, 2023, stated that the mortgage was current with a balance of $105,505.65, based on the amount provided by BSI itself. BSI later claimed this amount was incorrect and sought to amend it to $134,296.39. Analysis: The court's analysis focused on BSI's failure to comply accurately with Federal Rule of Bankruptcy Procedure 3002.1(g). Initially, BSI responded to the Notice of Final Cure Payment by affirming the mortgage was current and the balance was $105,505.65. Later, BSI attempted to amend this response, claiming the balance was actually $134,296.39, citing errors in their initial filing. However, BSI did not respond to the trustee’s motion to deem the mortgage current and did not provide sufficient evidence to support its amended balance. The court emphasized the importance of accuracy and timeliness in these filings, noting that BSI’s mistakes and the conflicting figures undermined their position. The court also referenced the case In re Devita, where similar procedural lapses by a creditor did not justify amending an established order. The decision underscored the necessity of compliance with procedural rules and the finality of orders to maintain judicial integrity and prevent undue prejudice to the debtors who had complied with their obligations. Note: - The amendments to Bankruptcy Rule 3002.1 become effective in December 2024, requiring that the outstanding principal balance on a residential mortgage be determined. | Fed. R. Bankr. P. 3002.1(g) |
| In re Butler | N.D. Ill. | 5/24/2024 | Holding: The court held that Butler's claims under Section 362 of the Bankruptcy Code could be pursued through an adversary proceeding rather than requiring a contested motion, reversing the Bankruptcy Court's dismissal of these claims. Facts: The City of Chicago impounded Butler's vehicle for unpaid parking tickets despite her Chqpter 13 bankruptcy filing, which should have triggered an automatic stay under Section 362. Butler sought damages and injunctive relief for this violation through an adversary proceeding, which the Bankruptcy Court dismissed, arguing the claims should have been filed by contested motion. Analysis: The District Court analyzed whether Butler's claims under Section 362, regarding the automatic stay, could be properly brought as an adversary proceeding. Section 362 provides an automatic stay upon the filing of a bankruptcy petition, barring certain actions against the debtor. Butler alleged that the City's actions violated this stay, and she sought to recover damages and equitable relief through an adversary proceeding. The court referenced Rule 7001 of the Federal Rules of Bankruptcy Procedure, which permits adversary proceedings for "a proceeding to recover money or property" or "to obtain an injunction or other equitable relief." The court noted that the relief Butler sought fit these categories, thus it was permissible to bring her claims as an adversary proceeding. The court further explained that while the Bankruptcy Court emphasized procedural mechanisms, the key focus should be on ensuring due process. Since Butler's complaint was seeking recovery of money and equitable relief, her method of proceeding was appropriate under Rule 7001. The District Court found that dismissing her claims solely based on the form of the proceeding was incorrect and reversed the Bankruptcy Court's ruling on this basis. Tips: 1. Ensure that claims for damages and injunctive relief under Section 362 can be properly brought through adversary proceedings, as allowed by Rule 7001. 2. Focus on the substance and due process of the claims rather than the procedural form, ensuring that the chosen procedure aligns with the relief sought. 3. Be prepared to argue the appropriateness of an adversary proceeding for automatic stay violations to avoid dismissal based on procedural grounds. | 11 U.S.C. § 362(k) |
| Swenson v ATCO | M.D. Tenn. | 5/23/2024 | Holding: The court granted ATCO's Motion for Judgment on the Pleadings, or, in the Alternative, Motion for Summary Judgment in part, while denying ATCO's Motion to Strike Plaintiff's Declaration and For Sanctions without prejudice. Facts: Dana Swenson sued ATCO Industries for violating the Americans with Disabilities Act and for retaliation. She had filed a Charge of Discrimination with the EEOC and subsequently filed two Chapter 13 bankruptcies, failing to disclose her EEOC charge or claims against ATCO in both bankruptcy petitions. Her bankruptcy attorney was unaware of the EEOC charge during both bankruptcy filings. Analysis: The court examined the doctrine of judicial estoppel, which bars claims not disclosed in prior bankruptcy proceedings if three conditions are met: the debtor assumes a contrary position to one asserted under oath in bankruptcy, the bankruptcy court adopted the contrary position, and the omission did not result from mistake or inadvertence. The court found that Swenson took contrary positions by failing to disclose her EEOC charge and claims in both bankruptcies. The bankruptcy courts adopted these positions by continuing the bankruptcy stay and finding her filings in good faith. Swenson argued her omissions were inadvertent, claiming she relied on advice from her bankruptcy attorney’s paralegal, who allegedly advised her that disclosure was unnecessary. The court, however, found that reliance on a paralegal's advice does not demonstrate good faith. Swenson did not take corrective actions to amend her bankruptcy petitions once she realized the omissions. The court found this lack of action indicative of bad faith. Moreover, Swenson had a motive to conceal her claims to ensure any recovery would go directly to her rather than to creditors, undermining her argument of inadvertence. Tips: Ensure clients fully understand the necessity of disclosing all potential claims and lawsuits in their bankruptcy filings to avoid judicial estoppel. Advise clients personally and not through paralegals on critical issues like disclosure requirements to ensure accurate legal guidance and good faith reliance. Encourage clients to promptly amend bankruptcy filings to correct any omissions to demonstrate good faith and avoid potential dismissal of claims. | Judicial estoppel |
| Lee v US Bank | 11th Cir. | 5/23/2024 | Holding: The court held that the anti-modification provision in Chapter 11 of the Bankruptcy Code applies if: 1) the security interest is in real property, 2) the real property is the only security for the debt, and 3) the real property is the debtor's principal residence. The court affirmed that these requirements were met in Patricia Lee's case, thus the anti-modification provision applied to U.S. Bank's secured claim. Facts: Patricia Lee mortgaged her 43-acre property in Georgia, which included her principal residence, and eventually defaulted on the mortgage. She filed for Chapter 11 bankruptcy to restructure her debts, proposing a repayment plan for U.S. Bank, which held the mortgage. U.S. Bank moved for relief from the automatic stay to foreclose on the property, arguing that the anti-modification provision prevented the bankruptcy court from approving Lee's plan. Analysis: The court began by analyzing the text of the anti-modification provision in 11 U.S.C. § 1123(b)(5), which states that a Chapter 11 plan cannot modify the rights of a holder of a claim secured only by a security interest in real property that is the debtor's principal residence. The court identified three requirements: the security interest must be in real property, the real property must be the only security for the debt, and the real property must be the debtor's principal residence. In Lee's case, all three conditions were met. U.S. Bank's claim was secured by Lee's real property, the property was the only security for the debt, and it was undisputed that the property was Lee's principal residence. The court rejected Lee's argument that the property should not be subject to the anti-modification provision because it was also used for farming. The court emphasized that the plain language of the statute did not require exclusive residential use and that incidental uses of the property, such as farming, did not disqualify it from being considered the debtor's principal residence. The court also reviewed other approaches taken by courts, including the Scarborough approach, which required exclusive residential use of the property. However, the court found these approaches unpersuasive, arguing that the statutory language did not support an exclusivity requirement. The court noted that the inclusion of incidental property in the definition of "debtor's principal residence" reinforced its interpretation. The court concluded that the anti-modification provision applied because the property was primarily used as Lee's principal residence, regardless of its incidental uses. Tips: 1. Ensure that the debtor's property meets the specific requirements of the anti-modification provision: it must be real property, the only security for the debt, and the debtor's principal residence. 2. Be aware that incidental uses of the property, such as farming or rental income, do not disqualify it from being considered the debtor's principal residence under the anti-modification provision. 3. Understand that the anti-modification provision does not require exclusive residential use, and arguments to the contrary are likely to be rejected based on the plain language of the statute and relevant case law interpretations. | 11 U.S.C. §§ 1123(b)(2) and 1123(b)(5) |
| In re Smith | 3rd Cir. | 5/22/2024 | Holding: The Third Circuit affirmed the Bankruptcy Court's confirmation of Smith's Third Modified Plan, ruling that res judicata precluded Freedom's objections regarding the use of rental income, property valuation, and payment schedule, and that the plan was feasible. Facts: Ms. Smith proposed a Third Modified Plan under Chapter 13, which involved using rental income from a property to pay a secured claim held by Freedom Mortgage Corporation. Freedom objected to this plan, disputing the use of rental income, the valuation of the property, and the plan's feasibility. The Bankruptcy Court overruled these objections, and the District Court affirmed this decision. Analysis: The court's analysis began by addressing Freedom's objections and the application of res judicata. The court noted that res judicata precludes parties from re-litigating issues that have already been resolved. The Bankruptcy Court had previously confirmed Smith's use of rental income to pay the secured claim, the property's valuation at $95,000, and the stepped-up payment schedule in earlier plans. Since these issues were settled in prior confirmations, res judicata applied, preventing Freedom from raising them again. Regarding feasibility, the court reviewed the Bankruptcy Court’s determination under a clear error standard. Despite Freedom's contention that the Bankruptcy Court failed to conduct a serious analysis, the court found that the Bankruptcy Court had adequately assessed Smith's ability to make payments under the plan. The court examined Smith's monthly income and expenses, concluding that she had sufficient excess income to meet the plan's payment requirements. The Bankruptcy Court also confirmed with the bankruptcy trustee that Smith was current on her obligations, supporting the finding of feasibility. The Third Circuit thus held that the Bankruptcy Court did not clearly err in its feasibility determination. Tips: Establish Precedent for Future Plans: Strategically utilize previous confirmations and resolutions in bankruptcy proceedings to establish precedent for future plans. By securing favorable rulings on key issues such as the use of rental income, property valuation, and payment schedules in earlier plans, you can leverage res judicata to preempt objections from creditors and streamline the confirmation process for subsequent modifications or plans. Conduct Comprehensive Feasibility Assessments: Prioritize thorough feasibility assessments when proposing bankruptcy plans to ensure compliance with court requirements and increase the likelihood of confirmation. Collaborate closely with your client to gather detailed financial information, including income, expenses, and obligations, and present a comprehensive picture of their financial capacity to meet plan requirements. Anticipate potential objections from creditors regarding feasibility and proactively address them through evidence-based arguments and documentation, demonstrating the debtor's ability to adhere to the proposed payment schedule and fulfill obligations under the plan. | 11 U.S.C. § 1327(a) 11 U.S.C. § 1329 |
| Nelson v St Catherine University | D. Minn. | 5/21/2024 | Holding: The court held that Ms. Nelson's FDCPA claims against QLF Financial could proceed despite the overlapping jurisdiction with the Bankruptcy Code, as the FDCPA provides distinct remedies that are not precluded by bankruptcy provisions. Facts: Ms. Nelson filed for bankruptcy and subsequently alleged that QLF Financial violated the automatic stay provision of the Bankruptcy Code by continuing a state court collection action. She brought FDCPA claims against QLF Financial for this conduct, asserting it involved harassment, false representations, and unfair practices. Analysis: The court first considered whether Ms. Nelson's FDCPA claims, which were based on violations of the automatic stay under the Bankruptcy Code, could stand. QLF Financial argued that the Bankruptcy Code provided the exclusive remedy for such violations, referring to the Supreme Court's decision in Midland Funding, LLC v. Johnson. The court noted that Midland Funding addressed the issue of filing a stale claim in bankruptcy proceedings, whereas Ms. Nelson's case involved state court actions during an automatic stay, a different context. The court highlighted the separate purposes and protections offered by the Bankruptcy Code and the FDCPA. The FDCPA addresses abusive debt collection practices, while the Bankruptcy Code focuses on the fair and orderly resolution of debts. The court emphasized that remedies under the FDCPA do not undermine the Bankruptcy Code's framework but offer additional protection to debtors against abusive practices by creditors. The court found no express or implied intent from Congress to repeal the FDCPA within the context of bankruptcy, allowing Ms. Nelson’s FDCPA claims to proceed. Tip: Stay informed about legal precedents in your jurisdiction concerning the interaction between the Bankruptcy Code and the FDCPA to effectively advise clients about the proper forum. | 15 U.S.C. § 1692 |
| In re Alfahel | 9th Cir. | 5/20/2024 | Holding: The Ninth Circuit Court of Appeals affirmed the Bankruptcy Appellate Panel's decision that allowed Debtors Emad Masoud Alfahel and Lina Nadim Fahel to file a third motion to avoid the judicial lien of Airport Business Center (ABC), concluding that Federal Rule of Civil Procedure 41(a)(1)(B) did not bar this motion. Facts: Debtors Emad Masoud Alfahel and Lina Nadim Fahel sought to avoid a judicial lien imposed by ABC on their residence. ABC objected, arguing that under Rule 41(a)(1)(B), the Debtors' third motion to avoid the lien should be barred, as they had previously dismissed the same claim twice voluntarily. The Bankruptcy Appellate Panel (BAP) ruled in favor of the Debtors, and ABC appealed. Analysis: The court analyzed whether Rule 41(a)(1)(B), which prevents a party from refiling a claim after two voluntary dismissals, applied to the Debtors' case. In contested bankruptcy proceedings, no formal "answer" is required. However, the BAP and the Ninth Circuit determined that an objection to a motion for relief serves the same purpose as an answer in this context. Since ABC had filed an objection to the Debtors' first motion, the withdrawal of this motion did not count as a voluntary dismissal under Rule 41(a)(1)(A), thus not triggering the two-dismissal rule. The court also addressed ABC's secondary argument regarding the inclusion of usurious interest on a separate promissory note. ABC lacked standing to assert a usury defense, as it was not a borrower on the promissory note. The court reaffirmed that only the borrower or the borrower's representative could claim such a defense, thereby dismissing ABC's argument. Tips: In contested bankruptcy matters, consider objections to motions as equivalent to answers for the purpose of applying procedural rules such as Rule 41(a). Be aware that voluntary dismissals in bankruptcy cases are subject to strict interpretation. Ensure proper procedural compliance when withdrawing motions to avoid unintended consequences. Verify standing before asserting defenses like usury; only parties directly involved in the loan agreement typically have standing to raise such defenses. | Fed. R. Civ. P. 41(a)(1)(B) |
| In re Brown | 9th Cir. | 5/13/2024 | Holding: The Ninth Circuit Court of Appeals affirmed the Bankruptcy Appellate Panel's decision that the debt Kirk Brown owes to Roxana Chamouille is nondischargeable under 11 U.S.C. § 523(a)(6) due to tortious conduct that willfully and maliciously causes injury, and upheld the bankruptcy court's calculation of the debt amount. Facts: Kirk Brown continued to occupy a property that his deceased wife left to Roxana Chammouille despite having no legal right to do so after October 28, 2019. Chamouille filed a claim that Brown's actions were willful and malicious, resulting in financial injury due to lost rental income and property-related expenses. Brown appealed the Bankruptcy Appellate Panel's affirmation of the bankruptcy court's summary judgment and debt calculation. Analysis: The court evaluated whether the debt owed by Brown to Chamouille was nondischargeable under 11 U.S.C. § 523(a)(6). The analysis involved determining if Brown's conduct was tortious and if the resulting injury was both willful and malicious. First, the conduct is tortious is defined by controlling state law. Second, the injury is willful if the debtor has the motive to inflict injury or when the debtor believes the injury is substantially certain to occur. Third, the injury is malicious if it involves 1) a wrongful act; 2) done intentionally; which necessarily causes injury; and 4) is done without just cause or excuse. First, the court found that Brown committed the crime of trespass under California law. Brown's trespass on Chamouille's property, his willful refusal to vacate despite lacking legal right, and the resulting harm to Chamouille met the criteria for nondischargeability. Additionally, the court upheld the bankruptcy court's calculation of damages, affirming Chamouille's right to recover unpaid rent and other expenses associated with Brown's occupancy of the property. Tips: Understand that the determination of tortious conduct in bankruptcy cases rely on state law definitions and interpretations. Advise clients to adhere to court orders and legal obligations promptly to avoid potential liabilities and complications in bankruptcy proceedings. Be prepared to challenge or defend claims of right to property promptly and accurately, as prolonged baseless occupation can lead to significant financial liabilities and nondischargeable debts. | 11 U.S.C. § 523(a)(6) |
| 21st Mortg Corp v The Hayes | N.D. Cal. | 5/9/2024 | Holding: The court affirmed the bankruptcy court's decision that 21st Mortgage's security interest in the debtors' mobile home was limited to the "box value" (replacement value of the physical mobile home) and did not include any additional value attributable to its location within a mobile home park. Facts: The Hayes borrowed money from 21st Mortgage to purchase a mobile home located in a mobile home park. 21st Mortgage had a security interest in the mobile home but not in the land or the lease. When the Hayes filed for Chapter 13 bankruptcy, a dispute arose over the valuation of the mobile home for the purposes of the bankruptcy plan. The Hayes valued the mobile home at its "box value," while 21st Mortgage argued it should include the higher "in-place value" considering its location in the park. Analysis: The court first determined the scope of 21st Mortgage's secured interest, which was based solely on the physical mobile home as described in the security agreement. Under California law, the security interest was limited to the collateral described in the agreement, which did not include the leasehold interest or any value derived from the home's location. The court emphasized that statutory rights provided to the legal owner of a mobile home did not expand the secured interest to include additional location-based value. The "replacement value" for personal property under § 506(a) was interpreted as the value of the mobile home itself, not the enhanced value due to its location within a rent-controlled mobile home park. Tips: Clarify the Scope of Security Interests: Ensure that the security agreements clearly describe the collateral to avoid disputes over the extent of secured interests in bankruptcy proceedings. Understand the Impact of State Law: Recognize how state laws governing security interests and mobile home residency may impact the valuation of collateral in bankruptcy cases. Accurately Assess Replacement Value: When dealing with secured claims in Chapter 13 cases, focus on the replacement value of the collateral as personal property, excluding any additional value attributed to the property's location or associated leasehold interests. | 11 U.S.C. § 506(a)(2) |
| In re Petroski | Bankr. N.D. TX | 5/8/2024 | Holding: The court held that the debt owed by Matthew Petroski to Kristin Ash, his former spouse, under a Note and Partition Agreement incorporated into their Divorce Decree, is nondischargeable under 11 U.S.C. § 523(a)(15). Facts: Matthew Petroski and Kristin Ash divorced, and the Divorce Decree incorporated a Note and Partition Agreement under which Petroski owed a debt to Ash. Petroski filed for Chapter 7 bankruptcy and sought to discharge this debt, while Ash argued that the debt was nondischargeable under § 523(a)(15) because it was incurred in connection with their divorce. Analysis: The court analyzed 11 U.S.C. § 523(a)(15), which excepts from discharge any debt owed to a spouse, former spouse, or child of the debtor that is incurred in the course of a divorce or separation, and is not classified as alimony or child support. The court found that the debt in question was clearly incurred in connection with the parties' divorce, as it was incorporated into their Divorce Decree. Petroski's argument that the debt was unenforceable due to alleged improper conduct by Ash was deemed irrelevant to the issue of dischargeability. The enforceability of the debt was determined by the state court, which had already ruled in favor of Ash. The bankruptcy court emphasized that dischargeability and enforceability are separate issues, and since the debt fell within the scope of § 523(a)(15), it was nondischargeable. Tips for Practicing Consumer Bankruptcy Attorneys: Focus on the Origin of the Debt: Ensure that debts related to divorce settlements are carefully examined for their origin, as those incurred in the course of divorce or separation are likely nondischargeable under § 523(a)(15). Separate Issues of Enforceability and Dischargeability: Understand that the enforceability of a debt is distinct from its dischargeability; arguments regarding the former should be addressed in state court, not bankruptcy court. Documentation and State Court Rulings: Maintain thorough documentation and be aware of relevant state court rulings that may impact the bankruptcy case, particularly regarding the enforceability of debts. | 11 U.S.C. § 523(a)(15) |
| In re Edwards | Bankr. NH | 5/7/2024 | Holding: The court denied the SSA's motion for judgment on the pleadings, finding that the SSA's reduction of the debtor's SSDI benefits to recoup an overpayment debt violated the discharge injunction. Facts: Wendy Edwards, the debtor, had her SSDI benefits reduced by the SSA post-discharge to recover a pre-discharge overpayment. Edwards argued this action violated the discharge injunction. The SSA contended that their actions were permissible recoupment. Analysis: The court distinguished between recoupment and setoff, emphasizing that recoupment allows a creditor to recover a prepetition debt from post-petition payments if the debts arise from the same transaction. The SSA argued that the continuous relationship between the SSA and Edwards constituted a single transaction. However, the court found that the overpayment debt from 2007-2010 and the new claim in 2021 did not arise from the same transaction. The court highlighted the significant gap in time and the fact that the overpayment debt and current benefits related to different sets of facts. Therefore, the SSA's actions were deemed a setoff, which violates the discharge injunction. Tips: Differentiate between Recoupment and Setoff: Ensure that actions taken post-discharge to recover debts are properly classified, as setoff actions can violate discharge injunctions. Assess Continuous Transactions Carefully: Consider the time gap and nature of transactions when arguing that debts do not arise from the same transaction for recoupment purposes. Document Changes in Claims: Maintain detailed records of different claims and benefits periods to support arguments against recoupment. | |
| In re Spencer | Bankr. W.D. MI | 5/6/2024 | Holding: The court denied the debtor’s motion for contempt, finding that the Friend of the Court and Referee Ellis did not willfully violate the automatic stay in the debtor's bankruptcy case by conducting a hearing on unpaid child support post-petition. Facts: William Sim Spencer, the debtor, filed for Chapter 7 bankruptcy with a primary liability of over $73,000 in past-due child support. Despite the bankruptcy filing, the Oakland County Friend of the Court (FOC) and Referee Rebecca Ellis conducted a hearing regarding enforcement of the support order and sent the debtor an email with a billing coupon. Analysis: The court evaluated whether the FOC and Referee Ellis violated the automatic stay under 11 U.S.C. § 362. The automatic stay halts most creditor actions upon the filing of a bankruptcy petition. However, § 362(b)(2) provides exceptions for domestic support obligations. The court examined if these exceptions applied to the actions taken by the FOC and Referee Ellis. Show Cause Hearing: The court found that the October 3, 2022, show cause hearing was a judicial proceeding aimed at collecting prepetition child support. The automatic stay applied because the hearing was intended to collect a prepetition debt and no exception under § 362(b)(2) applied. Despite the stay's applicability, the court concluded that Referee Ellis did not willfully violate it. Although Referee Ellis was informed of the bankruptcy filing at the outset of the hearing, she adjourned the hearing without taking any further action to collect the debt. The court determined that adjourning the hearing maintained the status quo and did not constitute a stay violation. Email Notification: The court determined that the email notification sent on November 7, 2022, was not an attempt to collect a debt and was generated automatically by the State of Michigan, not by the FOC or Referee Ellis. The notification could have been stopped by the debtor, indicating its voluntary nature. Therefore, the email did not violate the automatic stay. Additionally, the court found that even if a stay violation had occurred, the debtor did not provide evidence of actual damages resulting from the alleged violations. The debtor’s claims of “constitutional injuries” were too speculative and unsubstantiated to warrant damages under § 362(k). Tips: Understand Automatic Stay Exceptions: Recognize the specific exceptions under § 362(b)(2) for domestic support obligations to effectively argue for or against stay applicability. Adjournment vs. Violation: Know that merely adjourning a hearing upon learning of a bankruptcy filing typically does not violate the automatic stay; it preserves the status quo. Provide Evidence of Damages: Ensure that any claims for damages due to stay violations are supported by concrete evidence and not based on speculative or unquantified claims | 11 U.S.C. § 362(b)(2) 11 U.S.C. § 362(k) |
| In re Inigoyen | 9th Cir. BAP | 5/3/2024 | Holding: The court vacated the bankruptcy court's ruling that the debt was not discharged until the debtor obtained a judgment of dischargeability. The case was remanded to determine whether the creditors violated the discharge injunction without a "fair ground of doubt." Facts: Reanna Leigh Irigoyen borrowed funds to settle her educational loan and later obtained a separate loan from 1600 West Investments, LLC to finance the settlement. After receiving her Chapter 7 discharge, creditors continued collection efforts, leading Irigoyen to file a complaint seeking a declaration that the debt was discharged and sanctions for the violation of the discharge injunction. Analysis: The legal issue revolves around the interpretation of 11 U.S.C. § 523(a)(8), which excepts certain educational loans from discharge unless a debtor obtains a hardship determination. The bankruptcy court ruled that because § 523(a)(8) is "self-executing," the debt remained nondischargeable until Irigoyen obtained a court ruling. However, the Ninth Circuit BAP disagreed, stating that the "self-executing" nature of § 523(a)(8) only means that neither party is required to seek a dischargeability determination for the debt to be considered nondischargeable. If a debt does not meet the statutory criteria, it is discharged along with other debts when the general discharge order is entered. The BAP emphasized the importance of the discharge injunction provided by § 524(a), which protects debtors from post-discharge collection efforts for debts that are not excepted from discharge. The court found that the bankruptcy court's interpretation undermined the statutory discharge scheme and Congress's intent to limit exceptions to discharge. The court noted that creditors attempting to collect on a debt they believe to be excepted from discharge under § 523(a)(8) must have a "fair ground of doubt" about the applicability of the discharge injunction to avoid contempt sanctions, as clarified by the Supreme Court in Taggart v. Lorenzen. Tips: File for Dischargeability Determinations: When dealing with debts potentially excepted under § 523(a)(8), encourage clients to seek a dischargeability determination to avoid ambiguity. Advise Clients on Collection Risks: Inform clients that creditors risk violating the discharge injunction if they attempt to collect on debts without a "fair ground of doubt" about the discharge status. Document Communications: Ensure that all communications with creditors regarding the discharge status are well-documented to support potential contempt proceedings for discharge injunction violations. | 11 U.S.C. § 523(a)(8) |
| In re Resnicow | Bankr. S.D. NY | 4/24/2024 | Holding: The court granted the debtor's motion to enforce the automatic stay, ruling that 71 Washington Place Owners, Inc.'s eviction efforts violated the stay and that the exception to the automatic stay under 11 U.S.C. § 362(b)(22) did not apply. Facts: Norman J. Resnicow, the debtor, filed for Chapter 11 bankruptcy on the same day that a state court issued a judgment terminating his proprietary lease due to alleged objectionable conduct. Despite being notified of the bankruptcy filing, 71 Washington continued eviction efforts. Analysis: The court's analysis focused on whether the automatic stay was violated under 11 U.S.C. § 362. The automatic stay prevents creditors from continuing any judicial or administrative proceedings against the debtor once a bankruptcy petition is filed. However, 11 U.S.C. § 362(b)(22) provides an exception allowing landlords to continue eviction if they had obtained a judgment for possession before the bankruptcy filing. The court examined the timing and nature of the judgment. The judgment terminating Resnicow's lease was signed and filed by the state court clerk on the same day Resnicow filed for bankruptcy. The court determined that the judgment was not "obtained" before the bankruptcy filing, as required by § 362(b)(22). Consequently, 71 Washington's continued eviction efforts violated the automatic stay. The court also addressed the remedy for the stay violation. Under 11 U.S.C. § 362(k), an individual injured by a willful violation of the automatic stay is entitled to actual damages, including costs and attorneys' fees. The court found that 71 Washington's actions, despite their belief that the stay did not apply, constituted a willful violation because they continued eviction efforts knowing the stay was in place. Thus, Resnicow was awarded reasonable costs and attorneys' fees for bringing the motion. Tip: Understand Automatic Stay Protections: Recognize that the automatic stay immediately halts most creditor actions, including evictions, upon the filing of a bankruptcy petition. However, check the status of any eviction proceedings and review whether any judgments obtained before the bankruptcy filing date fall under the § 362(b)(22) exception. | 11 U.S.C. § 362(b)(22) |
| In re Lauber | Bankr. W.D. MI | 4/24/2024 | Holding: The court found the debtor's employer in contempt for failing to remit withheld wages to the Chapter 13 trustee, awarding the debtor attorneys' fees and damages for the violation of the automatic stay. Facts: Derek James Lauber's employer, ACR Performance, withheld wages per a court order but did not remit them to the bankruptcy trustee, causing Lauber to default on his plan and risk foreclosure on his home. Lauber filed a motion for contempt against his employer. Analysis: The court emphasized the employer's clear notice and knowledge of its obligations under the payroll order. Despite withholding the wages, ACR's failure to remit them violated both the court's order and the automatic stay. The court found no "fair ground of doubt" about the unlawfulness of ACR's actions, referencing the Supreme Court's Taggart standard. The court ordered compensatory damages and attorneys' fees, underscoring the necessity of compliance with court orders to ensure the success of Chapter 13 plans. Tips: Ensure Compliance with Court Orders: Employers must remit withheld wages promptly to avoid contempt charges and additional penalties. Document Communications: Maintain clear records of all interactions and notices to support enforcement of court orders. Seek Immediate Relief for Violations: Promptly address any violations of payroll orders or automatic stays to prevent further financial harm to debtors. | 11 U.S.C. § 362(k) |
| In re Sczepanski | Bankr. MN | 4/22/2024 | Holding: The court dismissed the debtors' Chapter 7 case for abuse under 11 U.S.C. § 707(b)(1), determining that tax liens should not have been included in the means test calculation as they are not contractual obligations. When removed, the presumption of abuse applied. Facts: Todd and Marri Sczepanski filed for Chapter 7 bankruptcy. They included federal tax liens as monthly expenses in their means test, resulting in a calculation showing minimal disposable income. The UST disputed this inclusion, arguing it led to a presumption of abuse. Analysis: The court clarified that tax liens, being involuntary and non-contractual, should not be included in the means test as secured debt. The court cited legal precedents and statutory interpretation to support this, emphasizing that only actual monthly expenses should be considered. By excluding the tax liens, the court found that the debtors' disposable income was significantly higher, triggering a presumption of abuse. The debtors failed to demonstrate any special circumstances to rebut this presumption, leading to the dismissal of their case. Tips: Exclude Non-Contractual Obligations in Means Test: Ensure that only contractual and actual monthly expenses are included in means test calculations to avoid presumption of abuse. Understand Tax Liens: Recognize that tax liens are involuntary and do not qualify as secured debts for means test purposes. Prepare to Rebut Presumptions of Abuse: Be ready to present special circumstances if a presumption of abuse arises from means test calculations. | 11 U.S.C. § 707(b) |
| In re Darrell | D. M.D. FL | 4/15/2024 | The court held that a money judgment held by the wife against the husband, outside of any divorce proceedings, could be non-dischargeable under Sections 523(a)(5) & (a)(15) of the Bankruptcy Code. During the separation of husband and wife, the wife sued the husband for unpaid rent, one-half of wedding costs and for an unpaid personal loan. The state court entered judgment against the husband in the amount of $8,670.51. The husband then filed for chapter 7 bankruptcy protection. Subsequently, the parties divorce was finalized. The divorce decree stated "There are no issues relating to equitable distribution of assets and debts or support for this Court to address." The wife filed an adversary proceeding against the husband/debtor alleging that the judgment was non-dischargeable under Sections 523(a)(5) or (a)(15 of the Bankruptcy Code. The court granted the husband's summary judgment motion. The wife appealed. Does a Marital Debt Need To Be Included In An Order From A Divorce Court? Interpreting Section 101(14A) (the definition of a domestic support obligation) the court held "[t]he Debt did not arise from a court order dissolving the Parties' marriage, but the statute does not mandate that a debt be decreed by a divorce court to be a domestic support obligation. Indeed, a debt owed to a former spouse in the nature of support established by an order of a court of record would fall within § 101(14A)'s definition. Therefore, the bankruptcy court was required to determine whether the Debt, or any portion of it, was "in the nature of alimony, maintenance, or support." Section 523(a)(5) "Although the question of "[w]hether a given debt is in the nature of support is an issue of federal law[,]" federal courts seek guidance from state law in making the determination. Cummings v. Cummings, 244 F.3d 1263, 1265 (11th Cir. 2001). In this analysis, "the touchstone for dischargeability under § 523(a)(5) is the intent of the parties." Id. at 1266. Cummings also teaches that the intent of the relevant court must also be ascertained. Id. "The record is undisputed that a pro rata portion of the Debt was for rent and was awarded during the time of the separation. As to the intent of the state court, the state court acknowledged in its final judgment that the dispute was "between a married, but now separated, couple" and noted the Parties' plan to divorce. (Dkt. 2-17 at 1, 2) And, although the state court was not acting as a divorce court when it rendered its judgment in Pitt's favor, it would appear that the portion of the Debt that was for rent was incurred during the period of separation.3 The Court finds this fact is persuasive on the question of intent under the precedent set by Cummings and dictates a finding that a portion of the Debt was for a domestic support obligation. 244 F.3d at 1266 ("To the extent the [divorce] court intended a portion of the obligation to function as support, that debt is nondischargeable under § 523(a)(5)."). Therefore, the Court reverses the Bankruptcy Court's determination that the portion of the Debt that was for rent was nondischargeable under 11 U.S.C. § 523(a)(5)." Section 523(a)(15) "The exception to discharge in § 523(a)(15), however, may apply to the portion of the Debt related to the loan and the cost of the wedding. A debt is nondischargeable under § 523(a)(15) if it is (1) a debt to a spouse, a former spouse, or child of the debtor, (2) not a domestic support obligation, and (3) incurred during a divorce or separation or "in connection with a separation agreement, divorce decree, or other order of a court record." In re Monassebian, 643 B.R. 388, 393 (Bankr. E.D.N.Y. 2022); In re Reynolds, 546 B.R. 232, 236 (Bankr. M.D. Fla. 2016) ("Courts typically rely on § 523(a)(15) when former spouses divide property or have other disputes that do not involve domestic support obligations[.]"). "The primary purpose of bankruptcy law is to provide an honest debtor with a fresh start[.]" In re Brown, 541 B.R. 906, 910 (Bankr. M.D. Fla. 2015). Accordingly, courts construe exceptions to discharge liberally [*9] in favor of the debtor. Id. However, juxtaposed to this principle, "[b]oth the legislative history of the Bankruptcy Code amendments and case law . . . illustrate that § 523(a)(15) should be broadly and liberally construed to encourage payment of familial obligations rather than to give a debtor a fresh financial start." Id. at 910-11; Burstein v. Nonte, No. 22-cv-267, 2023 U.S. Dist. LEXIS 148791, 2023 WL 5435608, at *2 (E.D. Va. Aug. 23, 2023) (noting the BAPCPA eliminated two defenses to nondischargeability under § 523(a)(15) in 2005, making debts falling within its scope "nondischargeable without qualification"). ... "Here, the record reflects that portion of the Debt comprised of the loan and wedding cost could meet all the criteria of § 523(a)(15). The Debt was owed to a spouse, it is not a domestic support obligation (other than the rent discussed above), and it was incurred by way of a separate court decree during the marriage. Although the Debt facially meets all the requirements, the Court declines to hold that such a debt categorically falls within the ambit of § 523(a)(15). See Burstein, 2023 U.S. Dist. LEXIS 148791, 2023 WL 5435608, at *6 (discussing case law holding debt owed to former spouses is dischargeable where it arose from, for example, the parties' landlord-tenant relationship, or other dealings unrelated to the dissolution [*11] of the marriage). In this case, it is unclear whether the loan obligation derived from a marital obligation because the record reflects that it arose prior to the marriage. Also, the intent of neither the Parties nor the state court is clear from the existing record with respect to that loan. Likewise, it is unclear when the agreement about sharing wedding costs was made between the Parties and how the state court or the Parties viewed this debt with respect to the marital relationship and associated obligations. See Campbell v. Harnage (In re Harnage), No. 13—bk-01045, 2013 Bankr. LEXIS 4625, 2013 WL 5880411, at *2 (Bankr. M.D. Fla. Nov. 1, 2013) (reasoning that although the debts were originally incurred before the divorce, defendant's agreement to pay to the plaintiff a contribution to the payment of the debts arose in the course of the divorce, therefore, the obligation fell within the purview of § 523(a)(15)). Hence, resolution of the dischargeability question on summary judgment was inappropriate." | 11 U.S.C. § 101(14A) 11 U.S.C. § 523(a)(5) 11 U.S.C. § 523(a)(15) |
| Gallagher v Cohen | D. MD | 4/15/2024 | The court held that the bankruptcy has no discretion under Section 707(b) to dismiss a case once there has been an unrebutted presumption of abuse. The pro se debtor filed a chapter 7 bankruptcy. During his bankruptcy, he was offered a lucrative job and he converted his case to a chapter 13. The chapter 7 trustee filed an application for approval of fees and expenses incurred in the chapter 7 bankruptcy. The court granted the application in the amount of $1,615.00. After several unconfirmed plans were filed, the court reconverted the case to chapter 7. In his new chapter 7 bankruptcy, the debtor's higher income resulted in a finding of abuse under the means test. The debtor then filed a motion to dismiss his chapter 7 based on the presumption of abuse. "Both parties also accepted the bankruptcy court's framing of the sole question in dispute: "whether a case should be dismissed when the means test indicates that there is a presumption of abuse." Id. at 4:8-16. Ultimately, the bankruptcy court determined that even when the means test gives rise to a presumption of abuse, the bankruptcy court retains the discretion to deny a motion to dismiss based on that presumption of abuse. . Applying that interpretation of the law to the case at hand, the court denied Gallagher's motion to dismiss because Gallagher had enjoyed the benefits of the bankruptcy process for over a year, the Trustee had been administering the case, and Gallagher's creditors would be prejudiced by dismissal. Id. On November 7, the bankruptcy court entered a corresponding order denying Gallagher's motion to dismiss his Chapter 7 bankruptcy case.... "That leaves one question: whether under 11 U.S.C. § 707(b), an unrebutted presumption of abuse compels the bankruptcy court to grant a motion to dismiss a Chapter 7 case as abusive or merely authorizes the bankruptcy court to grant it. ... "The Fourth Circuit has never squarely decided whether an unrebutted presumption of abuse requires granting a motion to dismiss under § 707(b) or merely permits dismissal. However, in dicta, the Fourth Circuit has indicated that dismissal is mandatory. In McDow v. Dudley, 662 F.3d 284 (4th Cir. 2011), the court [*20] held that a bankruptcy court's denial of a motion to dismiss a Chapter 7 case as abusive is a final order appealable immediately. Id. at 285, 289-90. To justify that holding, the court examined "the precise nature and effect of the order at issue—an order denying a § 707(b) motion." Id. at 288. "Under the means test," the Fourth Circuit explained, "if the debtor's average monthly disposable income, as calculated under the statute, exceeds the statutory threshold, then the case is presumptively abusive and must be dismissed unless the debtor can show 'special circumstances.'" Id. (citing 11 U.S.C. § 707(b)(2)(A)-(B)) (emphasis added). On the Fourth Circuit's account, dismissal is mandatory, not discretionary. That makes sense. Once a bankruptcy court has determined that the debtor abused the bankruptcy process, it would be odd, at best, to permit that abuse to continue—and to be rewarded. "Confirming that conclusion, district courts within the Fourth Circuit have consistently concluded that dismissal under § 707(b) for abuse is mandatory. See, e.g., In re Alther, 537 B.R. 262, 271 (W.D. Va. 2015); In re Siler, 426 B.R. 167, 173 (W.D.N.C. 2010). In fact, the Trustee cites no case within this circuit holding that dismissal for abuse is discretionary. Instead, the Trustee rests entirely on cases concerning motions to dismiss under a different provision, § 707(a), that does not concern abuse at all. ... What About the Word "May" in Section 707(b)? "To be sure, there are good reasons to read the statute as the bankruptcy court did. After all, the statute says that if the bankruptcy court "finds that the granting of relief would be an abuse of the provisions of this chapter," "the court . . . may dismiss a case." 11 U.S.C. § 707(b)(1). But see United States v. Rodgers, 461 U.S. 677, 706, 103 S. Ct. 2132, 76 L. Ed. 2d 236 (1983) ("The word 'may,' when used [*23] in a statute, usually implies some degree of discretion. This common-sense principle of statutory construction is by no means invariable, however, and can be defeated by indications of legislative intent to the contrary or by obvious inferences from the structure and purpose of the statute."). But this Court should not ignore the contrary interpretation of the Fourth Circuit. And this Court should not ignore the contrary readings of the other district courts in the Fourth Circuit's jurisdiction. So this Court holds that when an unrebutted presumption of abuse arises in a Chapter 7 bankruptcy case and the debtor does not consent to conversion, the bankruptcy court must grant a motion to dismiss under § 707(b)." Caution: The court held that the trustee could have argued that the higher income in the debtor's amended means test should have been the lower income level existing pre-petition. If the trustee had raised this argument then this case may have been decided differently. | 11 U.S.C. § 707(b) |
| Instant One v Shank | 10th Cir. BAP | 4/8/2024 | Pre-petition, debtor and debtor's company was sued in federal court for breach of contract and trademark infringement. Prior to judgment, the debtor filed a chapter 13 bankruptcy. The creditor did not seek relief from the stay and proceeded to obtain a judgment against the company. The creditor then filed objections to confirmation of the debtor's chapter 13 plan alleging bad faith and contending inaccuracies and falsehoods in the schedules. "'It ain't necessarily so.' That is the lesson learned by the judgment creditor in the case before us. A debtor owned and operated a business selling vinyl peel-and-stick film applied to countertops and appliances to achieve faux finishes. A competitor sued the debtor and her company in federal court in Georgia asserting breach of contract and trademark infringement. Shortly before the case went to trial, the debtor filed bankruptcy under chapter 13, and the competitor decided to proceed solely against her company and obtained a judgment in the Georgia case. The competitor, however, failed to timely file a proof of claim in the debtor's bankruptcy case. Instead, it objected to her chapter 13 plan on, among other things, bad faith grounds citing a multitude of inaccuracies and falsehoods in her petition. It also urged the Bankruptcy Court to give collateral estoppel effect to documents in the Georgia case's docket. Following an evidentiary hearing, the Bankruptcy Court rejected the collateral estoppel argument, concluded the debtor filed her petition and plan in good faith, and confirmed her chapter 13 plan. The message to the creditor? Simply calling statements false does not mandate a finding of bad faith. Finding no error in the Bankruptcy Court's ruling, we affirm. ... "In analyzing whether a debtor filed a petition or proposed a plan in good faith, bankruptcy courts must consider the totality of the circumstances and determine "whether or not under the circumstances of the case there has been an abuse of the provisions, purpose, or spirit of [the Chapter]." To guide bankruptcy courts in doing so, the Tenth Circuit has adopted a non-exhaustive list of factors relevant to a determination of whether a chapter 13 plan has been filed in good faith. A "finding that a proposed chapter 13 plan is lacking in good faith should be reserved for cases in which debtors exhibit serious misconduct or abuse or unfair manipulation of the [Bankruptcy] Code." Similarly, the Tenth Circuit has adopted an additional non-exhaustive list of factors relevant to a bankruptcy court's determination as to whether a petition has been filed in good faith, and the lack of good faith is sufficient cause for dismissal under chapter 13. The weight given to individual factors will vary with the circumstances of each case. ... "The law is clear a good faith determination is to be made on a case-by-case basis considering the totality of the circumstances. Ultimately, the Bankruptcy Court must determine whether "after weighing all the facts and circumstances, the plan is determined to constitute an abuse of the provisions, purpose or spirit of Chapter 13." It is readily apparent here the Bankruptcy Court conducted the proper scope of inquiry to do so. While it did not expressly address each of the relevant factors (nor did it need to), the Bankruptcy Court clearly considered the totality of the circumstances in making its ruling that Shank filed her chapter 13 case and plan in good faith. We determine there is sufficient evidence in the record to support this finding and, having reviewed the record, we are not left with a definite and firm conviction that an error has occurred. ... "Whether a debtor has been forthcoming with the bankruptcy court and the creditors is properly considered in determining a lack of good faith. "[T]o the extent reasonably possible, a debtor seeking the protection of [a bankruptcy court] must file bankruptcy schedules which are both thorough and accurate." However, it is well-settled "in the absence of evidence showing that the omission of assets or other inaccuracies in a debtor's schedules was more than an honest error or good-faith mistake, such omissions or other inaccuracies do not demonstrate bad faith." "Here, the Bankruptcy Court found Shank provided the information in her schedules in good faith. The Bankruptcy Court reasoned any statements Appellant alleged as "false" [*14] either had a good-faith explanation for the inaccuracy, were accurate according to the information Shank and her counsel had at the time they were made, did not necessarily have a right answer, or were actually true. The Bankruptcy Court further determined Shank's failure to correct her petition and schedules did not demonstrate bad faith because the Plan paid 100% of allowed claims. Simply put, the Bankruptcy Court found Shank's testimony at trial to be credible, and any discrepancies in her petition, schedules, and SOFA did not unveil an intent to mislead or engage in fraudulent conduct." | 11 U.S.C § 1307(c) 11 U.S.C. § 1325(a) |
| In re Grant-Carmack | 11th Cir. | 4/3/2024 | The court refused to sanction a former spouse for collecting upon a pre-petition contempt judgment associated with a divorce decree because there was fair ground for doubt whether the debt was discharged under Sections 523(a)(5) or (a)(15). Prior to filing bankruptcy, the debtor had been held in contempt of the divorce decree concerning the shared custody arrangment and awarded the ex-husband $15,250.10 in attorneys fees incurred as a result of the contempt. The debtor then filed a chapter 7 bankruptcy. "Eva argued that Gary violated the discharge injunction in her bankruptcy case when he tried to collect the attorney's fees award. She acknowledged that under the Bankruptcy Code a debt "for a domestic support obligation" or to a "former spouse . . . in connection with . . . a divorce decree" generally was not discharged in bankruptcy. See 11 U.S.C. § 523(a)(5), (15). But she took the position that the debt for the attorney's fees did not fall within either of these exceptions and thus had been discharged. She asserted that Gary should be sanctioned for violating the discharge injunction. ... "The bankruptcy court did not abuse its discretion when it declined to sanction Gary because there was a fair ground of doubt as to whether the discharge injunction in Eva's bankruptcy case barred him from collecting the debt. HN4 Although a discharge releases a debtor from personal liability for many pre-petition debts, the Bankruptcy Code provides that certain types of debts are not dischargeable in bankruptcy. See 11 U.S.C. § 727(b). The types of debts that are not dischargeable include any debt for "a domestic support obligation" or a debt to a "former spouse . . . that is incurred by the debtor in the course of a divorce . . . or in connection with a . . . divorce decree." Id. § 523(a)(5), (15). "Here, Gary had an objectively reasonable basis to believe that he could collect the debt because it was non-dischargeable under § 523(a)(15). After all, Eva owed the debt to Gary, a former spouse. And the debt was arguably "in connection with . . . a divorce decree" because the state court awarded Gary attorney's fees he incurred as a result of Eva's violation of the terms of the divorce decree. See id. § 523(a)(15). Although this Court has not addressed whether such a debt falls within the exception for discharge set forth at § 523(a)(15), other courts have addressed the question and concluded that this type of debt is not dischargeable. See, e.g., In re Rackley, 502 B.R. 615, 625-26 (N.D. Ga. Bankr. 2013); In re Schenkein, No. 09-14658, 2010 Bankr. LEXIS 2700, 2010 WL 3219464, at *5 (S.D.N.Y. Bankr. Aug. 9, 2010). Given the plain language of § 523(a)(15) as well as the case law interpreting this provision, Gary had at least a fair ground of doubt as to whether Eva's discharge injunction barred him from attempting to collect the attorney's fee award. See Sellers, 941 F.3d at 1041 n.6." | 11 U.S.C. § 362 11 U.S.C. § 523(a)(5) 11 U.S.C. § 523(a)(15) 11 U.S.C. § 524(a)(2) |
| In re Weider | Bankr. M.D. FL | 4/2/2024 | In ruling on a motion for reconsideration the court admitted it had made a mistake in dismissing the debtor's objection to a claim because she hadn't served it to a credit union officer via certified mail, as required by Fed. R. Bankr. P. 7004(h). This ruling overlooked the amendment to Fed. R. Bankr. P. 3007(a)(2)(A)(ii) and the advisory committee's note, which clarified that credit unions weren't subject to the stricter service requirement of Rule 7004(h). "Federal Rule of Bankruptcy Procedure 3007(a)(2)(A) authorizes service of objections to claims on the claimant "by first-class mail to the person most recently designated on the . . . proof of claim as the person to receive notices, at the address so indicated." Until December 2021, Rule 3007(a)(2)(A)(ii) stated that "if [an] objection is to a claim of an insured depository institution," then the objection must be served "in the manner provided by Rule 7004(h)." "Rule 7004(h), with three exceptions not relevant here, requires service of process in a contested matter or adversary proceeding on an "insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act)" be made by certified mail to an officer of the institution. "Over the years, courts have differed on the issue of whether a credit union is an "insured depository institution" entitled to service by certified mail under Rule 7004(h).(Citations omitted). "Fortunately, this issue was resolved in December 2021, when Rule 3007(a)(2)(A)(ii) was amended to clarify that claims objections are required to be served under Rule 7004(h) only "if the objection is to a claim of an insured depository institution as defined in section 3 of the Federal Deposit Insurance Act." The Advisory Committee notes to the amendment explain that the phrase "as defined in section 3 of the Federal Deposit Insurance Act" was added to clarify that the heightened service requirement of Rule 3007(a)(2)(A)(ii) does not apply to credit unions: Subdivision (a)(2)(A)(ii) is amended to clarify that the special service method required by Rule 7004(h) must be used for service of objections to claims only on insured depository institutions as defined in section 3 of the Federal Deposit Insurance Act, 12 U.S.C. § 1813. Rule 7004(h) was enacted by Congress as part of the Bankruptcy Reform Act of 1994. It applies only to insured depository institutions that are insured by the Federal Deposit Insurance Corporation and does not include credit unions, which are instead insured by the National Credit Union Administration. HN5 A credit union, therefore, may be served with an objection to a claim according to Rule 3007(a)(2)(A)—by first-class mail sent to the person designated for receipt of notice on the credit union's proof of claim. "Given the amendment to Rule 3007(a)(2)(A)(ii), and the Advisory Committee's Note, it is now clear that credit unions are not entitled to the heightened service of Rule 7004(h), and an objection to a claim filed by a credit union may be served by first-class mail upon the person most recently designated on its proof of claim." | Fed. R. Bankr. P. 3007(a)(2)(A)& 7004(h) |
| In re Albert-Sheridan | 9th Cir. BAP | 4/2/2024 | The court held that a state bar's collection of discovery sanctions and disciplinary costs against the debtor violated the automatic stay. Prior to filing bankruptcy, the attorney debtor was suspended from the practice of law until she paid discovery sanctions and disciplinary costs. The court addressed whether the automatic stay prohibits collection of these debts. "Section 362(a) defines the scope of the automatic stay and specifically precludes any act to collect any prepetition claims, which the 2017 Discovery [*27] Sanctions and the Disciplinary Costs were. As noted above, § 362(a)(6) stays "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case . . . ." Section 362(b) lists the exceptions to the automatic stay. The State Bar acted under § 362(b)(4) to investigate and adjudicate the claims of professional misconduct against Albert, and then to enforce its judgments against her. Section 362(b)(4) provides: under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit's or organization's police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's or organization's police or regulatory power[.] "While § 362(b)(4) excepts actions and enforcement of judgments invoking a governmental unit's police and regulatory power, the statute specifically excludes enforcement of money judgments from its exception. Accordingly, "section 362(b)(4) by its own terms does not permit a [governmental creditor] to 'enforce . . . a money judgment' obtained in a police power proceeding. Thus, section 362(b)(4) defers [*28] to other provisions of the Code to determine whether the state may collect money." Hawaii v. Parsons (In re Parsons), 505 B.R. 540, 545 (Bankr. D. Haw. 2014); see also United States v. Perez (In re Perez), 61 B.R. 367, 368 (Bankr. E.D. Cal. 1986) (permitting governmental action to proceed to judgment under § 362(b)(4) but holding "that any attempts to collect any money judgment which might be rendered in that action shall not be pursued except through debtor's bankruptcy proceeding"). "Neither § 362(a) nor § 362(b) differentiates between dischargeable and nondischargeable debts in the application of the stay or its exceptions. Yet, binding authority in this circuit holds that creditors who obtain a nondischargeable judgment are not stayed from collecting nondischargeable debts so long as collection is sought from property that is not property of the bankruptcy estate. Palm v. Klapperman (In re Cady), 266 B.R. 172, 180 (9th Cir. BAP 2001) ("Section 362 [does] not preclude the execution of a judgment, which has been held by the bankruptcy court to be non-dischargeable, upon property of the debtor which is not property of the estate." (quoting Watson v. City Nat'l Bank (In re Watson), 78 B.R. 232, 235 (9th Cir. BAP 1987)), aff'd, 315 F.3d 1121 (9th Cir. 2003); see Cal. State Univ. v. Gustafson (In re Gustafson), 111 B.R. 282, 286 (9th Cir. BAP 1990) ("We therefore determine that the automatic stay applies to preclude a creditor's attempts to collect a claim that is presumed, but not yet determined by the bankruptcy court, to be nondischargeable under section 523(a)(8)."), rev'd on other grounds, 934 F.2d 216 (9th Cir. 1991); In re Watson, 78 B.R. at 233-34 (holding that a creditor who obtains a § 523 judgment of nondischargeability may proceed with execution on non-estate property without obtaining relief from the automatic stay). "These cases do not address whether creditors holding nondischargeable debts that are neither presumed nondischargeable, such as under § 523(a)(8), nor require a bankruptcy court judgment under § 523(c), are subject to the automatic stay. As relevant here, § 362(b)(4) provides that judgment debts arising from governmental police and regulatory powers are not excepted from the automatic stay. Because § 362(b)(4) is clear that the recovery of monetary judgments remains subject to the automatic stay, any actions to recover such a debt violates the automatic stay absent relief from stay under § 362(d). As a result, any action by the State Bar to collect either the 2017 Discovery Sanctions or the Disciplinary Costs during Albert's bankruptcy necessarily violated the automatic stay. ... "We reverse and remand the bankruptcy court's dismissal of Albert's claims that the State Bar's efforts to collect the 2017 Discovery Sanctions and Disciplinary Costs violated the automatic stay. The court erred in concluding that the automatic stay did not apply to the State Bar's collection efforts while Albert was in chapter 7. Albert's allegations that the State Bar sought to collect the 2017 Discovery Sanctions and Disciplinary Costs in violation of the automatic stay state viable claims for purposes of defeating the motion to dismiss." | 11 U.S.C. §§ 362(a) & (b) |
| In re Baur | Bankr. E.D. MO (en banc) | 3/29/2024 | In a case involving bifurcated chapter 7 attorney's fees, the court found the language in the attorney-client agreement not to be clear and conspicuous, as required by Section 528(a)(1), because it was not clear that the firm would continue to represent the debtors if no post-petition agreement was signed. As such it was voided. However, the court held that the contracts were not so unclear as to be misrepresentation of services in violation of Section 526(a)(3)(A). "In each of these cases, the Acting United States Trustee for Region 13 (the "U.S. Trustee") filed United States Trustee's Motion for Examination of the Fees of the Debtor's Attorneys and for Imposition of a Civil Penalty Pursuant to 11 U.S.C. §§ 329, 526, and 528, Federal Rule of Bankruptcy Procedure 2017 [sic] (collectively, the "Motions"). The Motions concern the engagement agreements between each of the Debtors and the A & L, Licker Law Firm, LLC (the "Firm"). As we describe in detail below, each Debtor entered into two agreements with the Firm: one executed pre-petition that did not require payment of any attorneys' fees (each a "Pre-Filing Agreement"; collectively the "Pre-Filing Agreements"), and another executed post-petition that required the Debtor to pay $1,462.00 in fees (each a "Post-Filing Agreement"; collectively the "Post-Filing Agreements"; and with the Pre-Filing Agreements, the "Agreements"). Courts and practitioners commonly refer to an arrangement of this type as a "bifurcated" engagement. ... "Bifurcation represents a potential solution to the problem of payment for a Chapter 7 debtor's attorney. In a bifurcated engagement, the lawyer and the prospective debtor enter into two agreements. The first, executed before the bankruptcy filing, covers the work required to prepare and to file a bankruptcy case. Attorneys using this system [*6] often charge a relatively low fee for this work, and in some cases, including the ones before us, charge no fee for these services. The parties enter into the second agreement after the filing, and it covers the remaining work to be done in the case.1 In theory, this second agreement creates a post-petition debt and financial obligation to the attorney that is not subject to the automatic stay or the discharge, so that the attorney may bill and collect fees from the debtor as the case proceeds. See David Cox, Why Chapter 7 Bifurcated Fee Agreements are Problematic, 40 Am. Bankr. Inst. J. 30, 30 (June 2021); Terrence L. Michael, There's A Storm A Brewin': The Ethics and Realities of Paying Debtors' Counsel in Consumer Chapter 7 Bankruptcy Cases and the Need for Reform, 94 AM. BANKR. L.J. 387, 395-400 (2020). "Bifurcated agreements have met with mixed results. Some courts find bifurcation acceptable if counsel complies with certain requirements. See, e.g., In re Cialella, 643 B.R. 789, 814 (Bankr. W.D. Pa. 2022); In re Brown, 631 B.R. 77, 95-103, 105 (Bankr. S.D. Fla. 2021). Others disagree, concluding that bifurcated agreements are illusory, duplicitous, or otherwise impermissible. See In re Suazo, 655 F. Supp. 3d 1094, 1110-11 (D. Colo. 2023) ("Suazo II"); In re Rosenschein, 651 B.R. 677, 691 (D.S.C. 2023); In re Siegle, 639 B.R. 755, 758-59 (Bankr. D. Minn. 2022). In still other cases, judges found it unnecessary to decide whether bifurcation is generally appropriate because attorneys have violated other federal or local rules. See, e.g., In re Kolle, 641 B.R. 621, 686-87 (Bankr. W.D. Mo. 2021). A decision of the Bankruptcy Appellate Panel in our Circuit falls within this last category. See In re Allen, 628 B.R. 641, 643, 645-46 (B.A.P. 8th Cir. 2021) (finding fees unreasonable under Federal Rule of Bankruptcy Procedure 2017(a) and (b) where attorney charged clients more under bifurcated arrangements than he charged clients who paid in advance). "Bifurcation represents a potential solution to the problem of payment for a Chapter 7 debtor's attorney. In a bifurcated engagement, the lawyer and the prospective debtor enter into two agreements. The first, executed before the bankruptcy filing, covers the work required to prepare and to file a bankruptcy case. Attorneys using this system [*6] often charge a relatively low fee for this work, and in some cases, including the ones before us, charge no fee for these services. The parties enter into the second agreement after the filing, and it covers the remaining work to be done in the case.1 In theory, this second agreement creates a post-petition debt and financial obligation to the attorney that is not subject to the automatic stay or the discharge, so that the attorney may bill and collect fees from the debtor as the case proceeds. See David Cox, Why Chapter 7 Bifurcated Fee Agreements are Problematic, 40 Am. Bankr. Inst. J. 30, 30 (June 2021); Terrence L. Michael, There's A Storm A Brewin': The Ethics and Realities of Paying Debtors' Counsel in Consumer Chapter 7 Bankruptcy Cases and the Need for Reform, 94 AM. BANKR. L.J. 387, 395-400 (2020). "Bifurcated agreements have met with mixed results. Some courts find bifurcation acceptable if counsel complies with certain requirements. See, e.g., In re Cialella, 643 B.R. 789, 814 (Bankr. W.D. Pa. 2022); In re Brown, 631 B.R. 77, 95-103, 105 (Bankr. S.D. Fla. 2021). Others disagree, concluding that bifurcated agreements are illusory, duplicitous, or otherwise impermissible. See In re Suazo, 655 F. Supp. 3d 1094, 1110-11 (D. Colo. 2023) ("Suazo II"); In re Rosenschein, 651 B.R. 677, 691 (D.S.C. 2023); In re Siegle, 639 B.R. 755, 758-59 (Bankr. D. Minn. 2022). In still other cases, judges found it unnecessary to decide whether bifurcation is generally appropriate because attorneys have violated other federal or local rules. See, e.g., [*7] In re Kolle, 641 B.R. 621, 686-87 (Bankr. W.D. Mo. 2021). A decision of the Bankruptcy Appellate Panel in our Circuit falls within this last category. See In re Allen, 628 B.R. 641, 643, 645-46 (B.A.P. 8th Cir. 2021) (finding fees unreasonable under Federal Rule of Bankruptcy Procedure 2017(a) and (b) where attorney charged clients more under bifurcated arrangements than he charged clients who paid in advance). ... "The Pre-Filing Agreement states [*27] both that a debtor must execute a Post-Filing Agreement to receive Post-Filing and Supplemental Post-Filing Services and that the debtor has the right to "all legal services necessary" without signing a Post-Filing Agreement.5 An individual lacking experience in consumer bankruptcy practice would not understand whether one set of services is more expansive than the other. See In re Reeves, 648 B.R. 289, 295 (Bankr. D.S.C. 2023) ("[A] layperson is not likely to understand what services are required for a bankruptcy case to be successfully completed."). "The Agreements Are Not Clear and Conspicuous, as Required by Section 528(a)(1) "Section 528(a)(1) of the Bankruptcy Code requires a debt relief agency, including a bankruptcy attorney, to execute a written contract with a debtor that clearly and conspicuously explains the services the agency will provide and the fees and charges for those services. 11 U.S.C. § 528(a)(1); see Milavetz, 559 U.S. at 237-38. Any contract that does not comply is "void and may not be enforced by any Federal or State court or by any other person," other than the debtor. 11 U.S.C. § 526(c)(1). One court summarized this principle as follows: "Agreements cannot be sufficiently 'clear' if they make inconsistent statements about what [the attorney] will or will not do for [a debtor] in [a] case." Siegle, 639 B.R. at 759. ... "To begin, it is unclear what services a debtor could expect to receive under the Pre-Filing Agreement. The File [*26] Now Pay Later option in the Pre-Filing Agreement provides a debtor with three explicit options after the bankruptcy case commences: (1) proceed pro se for the remainder of the case; (2) hire a different attorney; or (3) enter into a Post-Filing Agreement. Pre-Filing Agreement at 3-4. This might be sufficiently clear if the universe of possibilities constituted only these three options. But the Firm separately guarantees to "provide all legal services necessary for representation of [the client] in connection with the bankruptcy case until conclusion of the case regardless of [the client's] signing a post petition agreement or making post petition payments." Id. at 4. This fourth option's existence—where a debtor receives all legal services necessary for completion of the case without signing a second agreement or paying any fees—is implicit at best. See Siegle, 639 B.R. at 759 ("The Agreements as written obscure the reality that execution of the Post-Petition Agreement was not necessary to ensure the provision of legal services."). ... "The Firm's reservation of the right to withdraw from the representation for "important reasons" under the fourth option amplifies this uncertainty. Pre-Filing Agreement at 1. This qualification is unclear in at least two respects. First, because the Pre-Filing Agreement does not mention the possibility of withdrawal for ethical or other reasons even if the client signs the Post-Filing Agreement, the Pre-Filing Agreement implies that the client would receive less comprehensive representation from the Firm under the fourth option. In fact, any truly important reason that might justify the Firm's withdrawal under the fourth option, such as the client's perjury or an irreparable breakdown in communication, would apply equally to any engagement, regardless of whether a client signed a Post-Filing Agreement. And second, a client unfamiliar with legal ethics principles would not understand what a court could or would consider important enough to justify counsel's withdrawal. "One thing is perfectly clear: a client's refusal to sign a Post-Filing Agreement or to pay post-petition legal fees cannot be among the "important reasons" for withdrawal referred to in the Agreements, because the Pre-Filing Agreement states that the Firm will provide legal services "regardless of [the client's] signing a post petition agreement or making post petition payments." ... "The Post-Filing Agreement also lacks clarity. The five commitments in the Pre-Filing Agreement to provide "all legal services necessary" may help the Firm minimize the chances that it violates Local Rule 2093(C)(3), but they create considerable uncertainty about the services provided to a debtor under the Post-Filing Agreement. In particular, the Firm's undertaking in the Post-Filing Agreement to provide the Post-Filing and Supplemental Post-Filing Services—although those terms do not appear in the Post-Filing Agreement—is legally superfluous. Because the Firm previously contracted to provide a client all necessary services in the Pre-Filing Agreement, the Firm's obligations under the Post-Filing Agreement comprise an empty set.6 As a functional matter, then, the Post-Filing Agreement does not document an exchange of legal fees for legal services; instead, it obligates the client [*30] to pay for services that the Firm agreed to provide pre-petition. See Siegle, 639 B.R. at 759 ("In fact, the real purpose of the Post-Petition Agreement is to ensure the collectability of [the attorney's] unpaid legal fees."). "The Firm's disclosures on the Form B2030s compound these problems. All five Form B2030s state that "[t]he second, post-petition fee agreement was signed after the petition was filed." See, e.g., Doc. 1 at 9. However, this Court's docket shows that two of the five disclosure forms were attached to the clients' bankruptcy petitions. ... "For these reasons, we conclude that the Pre-and Post-Filing Agreements do not clearly describe the services to be provided by the Firm. Thus, they do not comply with Section 528(a)(1). " The Firm's Fees Are Unreasonable Under Section 329(b) "Section 329(b) of the Bankruptcy Code authorizes courts to cancel a fee agreement or to order a refund of fees to the extent that an attorney's compensation exceeds the reasonable value of their services. 11 U.S.C. § 329(b). Rule 2017 implements the statute, authorizing courts to determine whether fees are "excessive." Fed. R. Bankr. P. 2017(b). This analysis involves "the comparison of the amount of compensation received by the attorney with the reasonable value of the services performed." In re Redding, 247 B.R. 474, 478 (B.A.P. 8th Cir. 2000) (cleaned up). The Firm has the burden to demonstrate the reasonableness of its fees. In re Clark, 223 F.3d 859, 863 (8th Cir. 2000). "We agree with the U.S. Trustee that the Firm has not shown that all of its fees in these cases were reasonable. In a typical case involving Section 329(b), we would need to determine what would have been a reasonable fee for the Firm to charge and then direct the Firm to return the excess to the Debtors. See Redding, 247 B.R. at 478-79. However, this would not be a meaningful exercise in these cases because of our disposition of the Section 528(a)(1) claim above. "The U.S. Trustee Has Not Demonstrated That the Firm Misrepresented Its Services in Violation of Section 526(a)(3)(A) "Section 526(a)(3)(A) of the Bankruptcy Code provides that a debt relief agency may not "misrepresent . . . directly or indirectly, affirmatively or by material omission . . . the services that such agency will provide." 11 U.S.C. § 526(a)(3)(A). Section 526(a)(3)(A)'s prohibition on misrepresentation covers some of the same ground as Section 528(a)(1)'s clarity requirements, but there are distinctions. Congress used different language in the two statutes to describe the behavior that violates each statute. As a result, a document with a description of legal services that is not "clear," as required by [*33] Section 528(a)(1), does not necessarily "misrepresent" the attorney's willingness or obligation to provide those services or violate Section 526(a)(3)(A). Moreover, Section 526 violations may lead to civil penalties, but Section 528 violations do not, which suggests that the former involves more egregious conduct. See 11 U.S.C. § 526(c)(5). ... "For these reasons, we conclude that, although the Firm's explanation of the services it agreed to provide to the Debtors was unclear, as well as inaccurate in certain respects, the U.S. Trustee has not shown that the Firm misrepresented the services it would provide for purposes of Section 526(a)(3)(A). "Remedies "We now address the results of our findings in these matters. Because the Post-Filing Agreements violate Section 528(a)(1) of the Code, they are void under Section 526(c)(1), and no person or court can enforce them, other than the Debtors. Moreover, because the Firm's violation of Section 528 was at least negligent, it is liable to the Debtors for any fees and charges the Firm received from them. See 11 U.S.C. § 526(c)(2)(A). Although our analysis of the merits might justify ordering the same relief as to the Pre-Filing [*39] Agreements, those agreements are no longer executory, and the Firm received no fees under them. Thus, we cannot award any meaningful relief regarding the Pre-Filing Agreements. "Next, the Firm's obligation to refund all amounts received from the Debtors under Section 528(a)(1) means that we need not determine what portion of any fees qualifies as reasonable under Section 329(b). Finally, because we concluded that the Firm did not violate Section 526(a)(3), no basis exists to award a civil penalty under Section 526(c)(5)." | 11 U.S.C. § 526(c)(2)(A) 11 U.S.C. § 528(a) |
| In re Walker-Lightfoot | Bankr. MD | 3/27/2024 | The court sustained the trustee's objection to debtor's exemption of a legal malpractice claim (against her former bankruptcy attorney) under a personal injury exemption under Maryland state law. "On the record before it, however, the Court cannot find that the Debtor's claim would qualify as an exempt personal injury recovery under Maryland law. The Court notes that emotional distress may, in certain instances, rise to the level of physical injury and that Maryland law does not appear to preclude emotional distress damages in the context of a legal malpractice claim. Nevertheless, the Debtor did not offer any evidence to suggest a physical injury resulting from emotional distress. For example, the Debtor did not produce any evidence of doctor or therapist bills, time off from work, or the testimony of others who observed the physical manifestation of the distress. The Court acknowledges the Debtor's own testimony regarding how the situation and emotional distress affected her, but that testimony alone cannot suffice. Indeed, Maryland courts require "objective evidence" of emotional distress damages "to guard against feigned claims." Vance v. Vance, 408 A.2d 728, 733 (Md. 1979). "In addition, the Court observes that the settlement between the Debtor and her former counsel is silent regarding the exact nature of the claims being settled or the allocation of the monies being paid under the settlement. If the Debtor had offered adequate evidence of an emotional distress claim under Maryland law, the terms of the settlement might be less relevant. But on the current record, the Court has no evidence of a personal injury resulting from emotional distress and no indication of a settlement of that kind of claim. The Court rejects the Debtor's attempt to cast the broad language of the release as sufficient. Again, finding an allowable exemption based on the current record would subject the process to potential fraud and abuse and not adequately "guard against feigned claims." Vance, 408 A.2d at 733." | 11 U.S.C. § 522 Md. Code Ann., Cts & Jud. Proc. § 11-504(b)(2) |
| In re Gibson | Bankr. S.D. GA | 3/27/2024 | The court affirmed sanctions against debtor's attorney and Sheppard Legal Services. The court held that both parties violated § 329(a) and Bankruptcy Rule 2016(b) for failing to properly disclose their financial arrangement. Also, the parties violated § 707(b)(4)(C) and Bankruptcy Rule 9011(b)(3) for failing to conduct a reasonable inquiry before the case was filed. Further, the court held that the retainer agreement was void under §§ 528(a)(1) and 526(c) because all parties did not sign the retainer agreement. The court additionally found that Recovery Law Group engaged in the unauthorized practice of law. Finally, the court found that Recovery Law Group's business model inevitably leads to mischief. Debtor's attorney owned and runs her own law practice and also is a non-voting, non-equity member of Sheppard Legal Services LLC. The court described Sheppard Legal Services as follows: "Under that model, prospective clients communicate by telephone and email with Recovery Law Group staff, who are not attorneys licensed to practice in the State of Georgia. Recovery Law Group staff gather the clients' financial information, advise them on the appropriate Chapter under which to file, and prepare their bankruptcy petition, schedules, statement of financial affairs, and other papers. Then Recovery Law Group has a Georgia lawyer, who has no ownership interest or management authority in Recovery Law Group, file the bankruptcy case and attend the § 341 meeting." ... "In her Disclosure of Compensation of Attorney for Debtor(s) filed with the bankruptcy petition, Ms. Sheppard identified her law firm as Sheppard Legal Services, LLC, disclosed that she had been paid $1,500.00 by the Debtors for her services, and certified that she had not agreed to share such compensation with any other person outside her firm. What she did not disclose was that she worked for Recovery Law Group on a contract basis, that the Debtors paid $1,838.00 to Recovery Law Group, and that Ms. Sheppard received from Recovery Law Group for her services in this case only $300.00. "After the Debtors each received a Chapter 7 discharge in April 2022, Mary Ida Townson, United States Trustee for Region 21, moved for sanctions against Ms. Sheppard and Recovery Law Group. The U.S. Trustee sought disgorgement of the fees paid by the Debtors, arguing that (1) Ms. Sheppard and Recovery Law Group violated the disclosure requirements of § 329(a) and Bankruptcy Rule 2016(b); (2) Ms. Sheppard and Recovery Law Group made false statements in violation of § 707(b)(4)(C) and Bankruptcy Rule 9011(b)(3); (3) the retainer agreement between the Debtors and Recovery Law Group was void and unenforceable under §§ 528(a)(1) and 526(c); (4) Ms. Sheppard and Recovery Law Group engaged in unauthorized fee-sharing in violation of § 504(a); and (5) Recovery Law Group engaged in the unauthorized practice of law in violation of O.C.G.A. § 15-19-51(a) and Rule 5.5(a) of the Georgia Rules of Professional Conduct. ... "As explained below, the Court reaffirms its conclusions that Ms. Sheppard and Recovery Law Group violated § 329(a) and Bankruptcy Rule 2016(b), that they violated § 707(b)(4)(C) and Bankruptcy Rule 9011(b)(3), that they entered into a void and unenforceable retainer agreement under §§ 528(a)(1) and 526(c), and that Recovery Law Group engaged in the unauthorized practice of law. But upon further consideration, the Court now finds that it is not clear whether Ms. Sheppard and Recovery Law Group engaged in unauthorized fee-sharing in violation of § 504(a). Regardless, based on their violations of several other provisions of the Bankruptcy Code and Bankruptcy Rules, the Court will still impose a sanction on Ms. Sheppard and on Recovery Law Group. The Court [*26] agrees with them, however, that the sanction should be reduced from $1,838.00 to $1,500.00. "Ms. Sheppard and Recovery Law Group Violated § 329(a) and Bankruptcy Rule 2016(b) "In her Motion for Sanctions, the U.S. Trustee argued that Ms. Sheppard and Recovery Law Group made inadequate disclosures in the Disclosure of Compensation of Attorney for Debtor(s) (Official Form B2030) and thus violated § 329(a) of the Bankruptcy Code and Bankruptcy Rule 2016(b). (Dckt. 35, pp. 5-7, ¶¶ 23-26). In their Motion to Reconsider, Ms. Sheppard and Recovery Law Group argue that Ms. Sheppard was an employee—indeed, a "member or regular associate"—of Recovery Law Group when she filed the Debtors' case. They therefore contend that the disclosure form accurately reflected the Debtors' payment of $1,500.00 to Recovery Law Group and that Bankruptcy Rule 2016(b) did not require them to disclose the particulars of any fee-sharing agreement. (Dckt. 51, pp. 3-5, ¶¶). The Court disagrees. ... "Although nothing in the Bankruptcy Code defines the exact parameters of an employment relationship for purposes of § 329(a) and Rule 2016(b),19 the employment contract between Ms. Sheppard and Recovery Law Group belies their contention that she was an employee of that firm, much less a member or regular associate. Although the contract described [*29] her as a "partner/member" of Recovery Law Group, it also stated that she had no equity or voting rights in the firm and that she was employed in a "part-time contract" capacity. Clients signed retainer agreements with Recovery Law Group, not with Ms. Sheppard, and Recovery Law Group paid her on a case-by-case basis. "And, as evidenced by her disclosure form, Ms. Sheppard maintained a separate law practice, Sheppard Legal Services, LLC. It is "quite unusual for one lawyer to have two competing law practices[.]" In re Deighan Law LLC, 637 B.R. 888, 896 (Bankr. M.D. Ala. 2022). "This aspect of the relationship alone is more consistent with the notion" that Ms. Sheppard was "hired on a contract or 'piece work" basis rather than being [a] true partner[] or regular associate[]." Id. "Above all, nothing in Ms. Sheppard's disclosure form so much as hinted at her relationship with Recovery Law Group. She failed to disclose that she only received $300.00 from the $1,838.00 the Debtors paid Recovery Law Group. Instead, she falsely certified that she had not agreed to share the $1,500.00 with anyone other than "members and associates of [her] law firm," which she identified as Sheppard Legal Services, LLC. In nearly identical circumstances, another bankruptcy [*30] court found that Recovery Law Group's "disclosures [fell] short of providing accurate information." In re Burnett, No. 21-02018-dd, 2022 WL 802586, at *9 (Bankr. D.S.C. March 16, 2022). So too here. The Court finds that Ms. Sheppard was not a member or regular associate of Recovery Law Group and that their inadequate disclosures violated § 329(a) and Bankruptcy Rule 2016(b). "Ms. Sheppard and Recovery Law Group Violated § 707(b)(4)(C) and Bankruptcy Rule 9011(b)(3) ... "..."The 'reasonable investigation' required under Section 707(b)(4)(C) is coterminous with the 'reasonable inquiry' required under Rule 9011." Dignity Health v. Seare (In re Seare), 493 B.R. 158, 209 (Bankr. D. Nev. 2013). "A reasonable investigation by counsel" is "essential to the administration of the bankruptcy case because the court, the trustee, and creditors are dependent upon debtors and their counsel providing accurate and complete information in the petition and schedules[.]" In re Beinhauer, 570 B.R. 128, 136 (Bankr. E.D.N.Y. 2017) (quoting In re Hanson, No. 8-13-73855-las, 2015 WL 891669, at *6 (Bankr. E.D.N.Y. Feb. 27, 2015)). "Here, it was Recovery Law Group, not Ms. Sheppard, that gathered financial information from the Debtors. Mrs. Gibson testified that she and her husband sent their pay stubs and tax returns to Recovery Law Group. Patricia Mulcahy, a Recovery Law Group employee, recommended, based on the Debtors' financial circumstances, that they file under Chapter 7. Using the documentation the Debtors submitted, Recovery Law Group prepared the Debtors' petition, schedules, statement of financial affairs, and other papers. Based on the testimony in this case, it appears Ms. Sheppard's investigation into the Debtors' finances was limited to a 45-minute phone call three days before filing their bankruptcy petition. "The Court finds that Ms. Sheppard's investigation was objectively unreasonable. Debtor's counsel has "an affirmative duty . . . to take steps to ensure that the client is providing complete and accurate information. Seare, 493 B.R. at 210. "Merely relying on what the debtor provides is insufficient." Id. Instead, "[t]he attorney must engage with the client and not just take a passive role[.]" Id. "[A]ttorneys must exercise not only supervision, but, more importantly, professional judgment that derives only through personal involvement in the case and evaluation of the client's needs." Id. (emphasis in original). Under her contract with Recovery Law Group, Ms. Sheppard had to take her marching orders from managing attorneys who may not have been admitted to practice in Georgia. And although "there is nothing inherently wrong with consulting a client by telephone," attorneys "must meet their clients." In re Mitchell-Fields, No. 23-20721-GLT, 2023 WL 6396022, at *3 (Bankr. W.D. Pa. Sept. 29, 2023). Based on her limited investigation before filing this case, Ms. Sheppard violated § 707(b)(4)(C) and Bankruptcy Rule 9011(b)(3). "The Retainer Agreement is Void under §§ 528(a)(1) and 526(c) "In the Motion for Sanctions, the U.S. Trustee argues that the retainer agreement between the Debtors and Recovery Law Group does not materially comply with the Bankruptcy Code's debt relief agency provisions of §§ 526 and 528 for two reasons: first, that it was not signed by all the parties, and second, that it did not adequately account for "[w]here and to whom" the $1,838.00 flat fee would go. (Dckt. 35, pp. 8-9, ¶¶ 30-31). Ms. Sheppard and Recovery Law Group address only the U.S. Trustee's second argument, stating that the retainer agreement "specifically detail[s] the flat fee attorney fees and costs and whatever other possible fees could be charged." (Dckt. 51, p. 7, ¶ 21). At the August 10, 2023 hearing, the Court agreed with the U.S. Trustee's first argument that the lack of signatures renders the retainer agreement void and unenforceable. The court did not address the second argument regarding the adequacy of disclosures about the fee and thus need not do so here. ... "Here, Ms. Sheppard and Recovery Law Group do not dispute that they are debt relief agencies or that the Debtors are assisted persons as defined in the Bankruptcy Code. The retainer agreement, therefore, is subject to the requirements of §§ 526 and 528, and the Court finds that it fails to satisfy those requirements. On behalf of Recovery Law Group, the agreement was signed by someone identified only as Nicholas, whose surname does not appear in that document. Mrs. Gibson signed it, but Mr. Gibson did not. And the agreement made no mention of Ms. Sheppard or of Sheppard Legal Services, LLC. For all three reasons, the agreement was inadequate. "A fully executed and completed contract must be signed by all the parties." In re Negron, 616 B.R. 583, 592 (Bankr. D.P.R. 2020). See also [*36] In re Thomas, --- B.R. ---, 2024 WL 628591, at *8 (Bankr. C.D. Ill. Feb. 14, 2024) (holding local contract attorney "fail[ed] to execute a written attorney retention and fee agreement"); Seare, 493 B.R. at 215 (holding attorney "failed . . . to provide a 'fully executed and completed contract' because he did not sign the [r]etainer [a]greement"). Because the retainer agreement was not "fully executed and completed" under § 528(a), it is void and unenforceable under § 526(c)(1). ... "Recovery Law Group Engaged in the Unauthorized Practice of Law "The U.S. Trustee argues that Recovery Law Group engaged in the unauthorized practice of law because "staff at [Recovery Law Group] not licensed to practice in Georgia or admitted in the Southern District of Georgia provide[d] a substantial portion of the pre-petition services and counseling" in this case. (Dckt. 35, p. 10, ¶ 34). Ms. Sheppard and Recovery Law Group disagree, stating that Ms. Sheppard "is a duly licensed attorney in the state of Georgia" and that she "filed the bankruptcy case as attorney of record for the Debtors" after reviewing their papers prepared by Recovery Law Group. (Dckt. 51, p. 8, ¶¶ 26-27). Notably, they did not identify any other lawyer with Recovery Law Group licensed to practice in the State of Georgia. In any event, the Court rejects Ms. Sheppard and Recovery Law Group's contentions and finds that Recovery Law Group engaged in the unauthorized practice of law. ... " Recovery Law Group's Business Model Inevitably Leads to Mischief "Finally, a few words about Recovery Law Group's business model, which appears calculated to maximize revenue and to minimize professionalism. Under that model, prospective clients communicate by telephone and email with Recovery Law Group staff, who are not attorneys licensed to practice in the State of Georgia. Recovery Law Group staff gather the clients' financial information, advise them on the appropriate Chapter under which to file, and prepare their bankruptcy petition, schedules, statement of financial affairs, and other papers. Then Recovery Law Group has a Georgia lawyer, who has no ownership interest or management authority in Recovery Law Group, file the bankruptcy case and attend the § 341 meeting. Clients in need of time-sensitive bankruptcy relief may be out of luck: the Debtors in this case signed the retainer agreement with Recovery Law Group on June 30, 2021, but did not file for bankruptcy until November 14, 2021, over four months later, and more than two months after they had paid the requested fees of $1,838.00. "Courts have criticized similar business models for "foster[ing] an environment of confusion, incompetence, and apathy." Deighan Law, 637 B.R. at 921. Perhaps the biggest issue with [Recovery Law Group's] business model is that non-lawyer staff[,] . . . hundreds of miles away and with no effective supervision, are practicing law in bankruptcy cases" filed in the Southern District of Georgia. [*46] Id. at 922. It is no surprise, then, that several courts have sanctioned Recovery Law Group.24 Regardless, the Georgia Rules of Professional Conduct require a lawyer to "provide competent representation to a client," defining competence as "the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation." Georgia Rules of Professional Conduct 1.1. "If the business model under which [an attorney] is employed does not allow him the means to provide competent representation, then he is obligated [to] cut ties and seek another position elsewhere." Deighan Law, 637 B.R. at 921-22. To her credit, Ms. Sheppard has done just that. (Tr. at p. 63)." | 11 U.S.C. § 329(a) 11 U.S.C. § 526(c) 11 U.S.C. § 528(a)(1) 11 U.S.C. § 707(b)(4)(c) Fed. R. Bankr. P. 2016(b) |
| Sugar v Burnett | D. E.D. NC | 3/27/2024 | The court affirmed the dismissal of debtor's chapter 13 case after the debtor sold her residence without permission from the bankruptcy court (per local rule) despite language in the chapter 13 plan that vested that property in the debtor upon confirmation. "Appellant's case was dismissed for willful failure to comply with Local Bankruptcy Rule 4002-1(g)(4), which prohibits disposal of "non-exempt property" valued above $10,000 without "prior approval of the trustee and an order of the court." Local Bankruptcy Rule 4002-1(g)(4). According to appellant, the sale of her home did not violate the foregoing provision where her home was not part of the bankruptcy estate. Appellant argues in the alternative that the foregoing provision exceeds the bankruptcy court's rulemaking authority. Finally, appellant maintains that dismissal for failure to follow Local Bankruptcy Rule 4002-1(g)(4) was improper. ... Vesting Doesn't Remove Property From The Bankruptcy Estate "Appellant argues that no part of her residence was part of the bankruptcy estate because upon the confirmation of the plan all the property constituting such estate vested in her, was removed from the jurisdiction of the bankruptcy court, and became unburdened from the claims of her creditors. She relies on 11 U.S.C. § 1327(b)-(c), which provides in part that the “confirmation of a plan vests all property of the estate in the debtor,” and such vested property is “free and clear of any claim or interest of any creditor provided for by the plan.” (See also DE 16 at 18). As set forth below, this argument omits key language from the portion of the bankruptcy code that it cites, has been rejected by the United States Court of Appeals for the Fourth Circuit, and simply ignores other provisions of the bankruptcy code. "First, appellant quotes § 1327(c) selectively. The full section reads, “[e]xcept as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.” § 1327(c) (emphasis added). All appellant’s arguments thus are ineffective if the plan or the order confirming it stipulates that vested property continues to be governed by the bankruptcy court. (Citations omitted.) "The confirmed plan reads, “regardless of when property of the estate vests in the [d]ebtor[], property not surrendered or delivered to the Trustee . . . shall remain in the possession and control of the [d]ebtor[].” (Chapter 13 Plan (DE 5-1 at 62)) (emphasis added). “The use of property by the [d]ebtor[] remains subject to the requirements of 11 U.S.C. § 363, all other provisions of the Bankruptcy Code, Bankruptcy Rules, and Local Rules.” (Id.). § 363(b)(1), in turn, provides that the “trustee, after notice and a hearing, may . . . sell . . . property of the estate.” § 363 (emphasis added). See also § 1303 (providing that the debtor has the same rights as a trustee under §§ 363(b)). The statute on which debtor relies provides that its applicability is subject to exceptions provided for in the plan, and the plan in this case specifically stipulates that all estate property is governed by the Bankruptcy Code and local rules regardless of vesting. ... Validity of Local Rule Requiring Court Approval for Sale of Property Exceeding $10,000 "Appellant argues that Local Bankruptcy Rule 4002-1(g)(4) exceeds the bankruptcy court’s rulemaking authority. ... The court holds that Local Bankruptcy Rule 4002-1(g)(4) is valid as applied to appellant. ... "Appellant argues first that Local Bankruptcy Rule 4002-1(g)(4) is substantive, rather than procedural. A procedural rule governs “the manner and means by which the litigants’ rights are enforced” as opposed to a substantive “rule[] of decision by which the court will adjudicate those rights.” Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co., 559 U.S. 393, 407 (2010). “The test is not whether the rule affects a litigant’s substantive rights; most procedural rules do.” Id.; see In re Walat, 87 B.R. 408, 411 (Bankr. E.D. Va. 1988) (Local Bankruptcy Rules “are entitled to a presumption that they were promulgated with the proper authority and do not affect substantive right[s.]”). "Appellant has not identified any substantive right that was violated in this instance. Appellant does not identify, and the court has not found, any provision of the Bankruptcy Code that gives a Chapter 13 debtor an absolute right to sell property of the estate. To the contrary, § 363 curtails a debtor’s ability to sell property of the estate by requiring “notice and hearing” before any sale may take place. See §363(b); see also § 1303 (providing that the debtor has the same rights as a trustee under § 363(b)). Upon request of an entity with an interest in the property proposed to be sold, “the court, with or without a hearing,” is empowered to prohibit the sale of property in order to protect such interest. § 363(e). Board of Regents v. Roth, to which appellant refers for the principle that the right to contract is protected by the United States Constitution, is an employment case which references neither bankruptcy nor the buying and selling of property. 408 U.S. 564, 572 (1972). Nor does appellant explain how Local Bankruptcy Rule 4002-1(g)(4) implements a “rule of decision.” Shady Grove Orthopedic Associates, P.A., 559 U.S. at 407. Appellant thus fails to meet her burden. ..." | 11 U.S.C. § 363 11 U.S.C. § 1307 11 U.S.C. § 1327(b)-(c) |
| In re Rodriguez | Bankr. OR | 3/26/2024 | The court held that Concast's post-petition collection efforts were not a violation of the automatic stay because they were collecting upon post-petition obligations for service. Further, the court held that post-petition reporting of overdue or delinquent payments, without more, does not violate the automatic stay and that negative credit reporting, without more, does not violate the discharge injunction. "Rodriguez alleges that Comcast violated the automatic stay by "the mailing of at least one (1) collection letter" after receiving notice of Rodriguez's bankruptcy case. She also alleges that Comcast violated the discharge by "pulling Debtor's credit for collection purposes," "contacting Debtor via its debt collectors and agents, Valor and Sunrise, by mailing at least three (3) collection letters, all regarding a discharged debt . . .," and because "Sunrise, as agent for and on behalf of Comcast, is reporting the discharged debt as an outstanding collections account to the credit bureaus in an attempt to persuade payment." ... Post-Petition Collection "Rodriguez relies on 11 U.S.C. § 365(g)(1), under which rejection "constitutes a breach" of an unassumed executory contract, effective "immediately before" bankruptcy. That section works in conjunction with 11 U.S.C. § 502(g)(1), under which a rejection claim "shall be determined, and shall be allowed . . . as if such claim had arisen before" bankruptcy. "Rejection relieves the estate of the obligation to perform the contract after the petition. Deeming the breach from rejection to have occurred before bankruptcy relegates any claim for breach damages to the status of a prepetition, nonpriority, unsecured claim, rather than a postpetition, priority administrative expense. Just as not every contract breach damages the nonbreaching party, neither 365(g)(1) nor 502(g)(1) determines that every rejection breach damages the counterparty. That conclusion is enforced by 502(g)(1)'s mandate that a rejection claim "be determined" as if the claim had arisen before bankruptcy. The existence and amount of claims in bankruptcy turns on nonbankruptcy law. Nothing in 365(g)(1) or 502(g)(1) declares that damages from the debtor's postpetition acts or omissions are part of, or merge backward into, the counterparty's claim for rejection damages. Because rejection does not nullify or terminate the contract, rejection can be followed by further performance and future breaches. ... "Following the plain meaning of the statute leads to a more sensible understanding of how it works. The trustee's nonassumption of a contract means that the estate will have no liability for future breaches. But it leaves the debtor and counterparty free to continue their contractual relationship as they please. Because virtually all executory contracts in chapter 7 consumer cases—including for utility service, mobile-phone service, newspaper subscriptions, and online application or video-streaming subscriptions, as well as cable TV and internet subscriptions—are worthless to the estate but valuable to the individual debtor, this approach makes sense. "These practical considerations only emphasize what is already unambiguous in the statutory text: rejection by itself constitutes a prepetition breach, but subsequent actual breaches do not merge into it and are not treated as prepetition events. Credit Reporting "I agree with the conclusion of the 2020 decision of a Western District of Texas bankruptcy judge that "the singular act of pulling a credit report is neither the commencement of a legal proceeding under § 362(a)(1), an act to obtain possession of property of the estate under § 362(a)(3), nor an act to collect, assess, or recover claims against the debtor under § 362(a)(6)."39 And Keller v. New Penn Financial, LLC (In re Keller), a 2017 decision of the Ninth Circuit Bankruptcy Appellate Panel cited by Rodriguez, acknowledges that "postpetition credit reporting of overdue or delinquent payments, without more, does not violate the automatic stay as a matter of law" and that "negative credit reporting, without more, does not violate the discharge injunction." | 11 U.S.C. § 362 11 U.S.C. § 365(g)(1) 11 U.S.C. § 502(g)(1) |
| In re Ester | Bankr. N.D. OK | 3/26/2024 | In a discharge proceeding concerning a private student loan (reduced to judgment and collection), the court allowed the discharge of the debt. The beginning of the opinion states: "The burden of a debt which can never realistically be repaid constitutes an undue hardship. The debtor must be able, at least over the long haul, to slay the beast, not merely keep it at bay. (Citation omitted)." In applying the Brunner test for dischargeability the court made several findings helpful for other debtors. "A "determination of undue hardship is case- and fact-specific." Courts should not be "overly restrictive [in their] interpretation of the Brunner test" lest they undermine "the Bankruptcy Code's goal of providing a 'fresh start' for the honest but unfortunate debtor." Nor must a debtor's circumstances be so dire as to evince a "certainty of hopelessness." In analyzing a debtor's prospects for the future, courts should not rely on "unfounded optimism" that cannot be supported by "specific articulable facts." Bankruptcy courts have "discretion to weigh all the relevant considerations" and should apply the Brunner test "such that debtors who truly cannot afford to repay their loans may have their loans discharged." Present Inability to Pay "The first step under the Brunner test is to determine whether, if required to repay the Loan, Ester can maintain a minimal standard of living based on his current income and expenses. The "minimal standard of living" requirement does not compel a debtor to live in poverty. The standard allows a debtor to meet basic needs with some allowances for recreation. The amount of the debt and the ability of the debtor to make meaningful payments toward amortization of the debt are other factors to be considered. As previously noted, "[t]he burden of a debt which can never realistically be repaid constitutes an undue hardship. ... Footnote 49: "... No bankruptcy debtor, including Ester, is required to sacrifice his fresh start at the altar of student loan nondischargeability. ... "Ester eats just one meal a day, and rarely if ever dines at restaurants, which the Court finds to be immanently reasonable. As for other expenses NCSLT demands he eliminate, Ester intends to remove any remaining "luxuries" from his budget, such as his satellite television service, charitable contributions, and IRA contribution, in order to make payments to ECMC. There are no items left for Ester to cut. While Ester is currently able to maintain a minimal standard of living, he does not have the ability to pay the entire balance of the Loan. Allowing NCSLT to garnish an additional $900 each month from his already modest budget would impose a tremendous hardship on Ester. In fact, NCSLT admits as much. Ester has met the first element under Brunner." Future Ability to Pay "The second element of the Brunner test requires a determination of whether Ester's present "state of affairs is likely to persist for a significant portion of the repayment period," with the inquiry "limited to the foreseeable future, at most over the term of the loan." In particular, courts should be wary to impute future ability to repay a student loan for which the debtor did not receive the sought degree. The question in this case is whether Ester's inability to pay is likely to continue over the next decade, which is approximately the repayment period if NCSLT were allowed to garnish Ester's wages at the legal rate under Oklahoma law. "Ester's employment as an airplane detailer provides him with a moderate income. Despite devoting considerable time and effort to the Course at Spartan, he did not complete the necessary training as a flight instructor that would allow him to benefit economically from the program. Without additional credentials from the Course, Ester is unlikely to find more gainful employment. ... The Court is satisfied that Ester has undertaken all reasonable attempts to maximize his earnings given his education and work experience. At least for the foreseeable future, Ester has reached his earning potential, and it is unrealistic to expect him to substantially increase his earnings. "NCSLT asserts Ester could generate additional income by opening his home to a roommate. This argument ignores Ester's testimony that at least one "available" room in Ester's home is unlivable due to foundation issues. ... Application of the Brunner test "should not be used as a means for courts to impose their own values on a debtor's life choices." This sentiment should likewise prevent a court from imposing its will on the intimacy of a debtor's home. ... "Ester's current inability to squeeze an additional $900 from his budget without undue hardship will extend into the foreseeable future, and at least for the next decade. The second element of the Brunner test has been satisfied." Good Faith "Under the third prong of Brunner, courts must determine if a debtor has made a good faith effort to repay their student loans. This inquiry "should focus on questions surrounding the legitimacy of the basis for seeking a discharge[,]" in order to prevent a debtor who "willfully contrives a hardship" from receiving a discharge of loans under § 523(a)(8). A finding of good faith is not precluded by failure to make payments on a loan.Rather, the inquiry is whether the debtor has made "efforts to obtain employment, maximize income, and minimize expenses." For Ester, the answer is a resounding yes. ... "When analyzing whether a debtor has acted in good faith, courts will often consider a debtor's effort to cooperate with a lender or otherwise work out a payment plan.Because the Loan was a private student loan, NCSLT was not required to offer any option to Ester to rehabilitate the Loan under alternative, more affordable terms, such as forbearance or deferment, of bad faith and it chose not to do so. Ester's only option has been to pay the Loan on NCSLT's terms. As part of this adversary proceeding, he settled his debt with ECMC and is resuming payments. Ester sought to settle NCSLT's loan during both the state court litigation and this adversary, to no avail. The failure to reach a settlement does not impute a lack of cooperation on Ester's part. Based on Ester's actions and lifestyle, the Court is satisfied that he has acted in good faith to repay the Loan. Ester has met the final element of the Brunner test. Footnote 61: "Nothing in this Memorandum Opinion should be construed as requiring participation in such programs as a prerequisite to a finding of undue hardship. See In reAlderete, 412 F.3d at 1206 (10th Cir. 2005) (recognizing that participation in repayment plans is not required, but can be an indicator of good faith when such programs are available);..." | 11 U.S.C. § 523(a)(8) |
| North Dakota v Haugen | D. ND | 3/25/2024 | In affirming the dischargeability (of student loans cosigned for her mother) under 11 U.S.C. § 523(a)(8) under the totality of circumstances test, the court recognized that the cosignor status is relevant factually in its determination. "When evaluating other relevant factors and circumstances in this case, the Bankruptcy Court noted that this adversary proceeding is "unlike the typical section 523(a)(8) case" because the Debtor is not seeking to discharge a student loan she borrowed to attend college. See Doc. No. 1-1, p.28. Rather, she is seeking to discharge a cosigned loan disbursed to her mother for her mother's education. The Bankruptcy Court acknowledged that as a result, some of the factors typically considered in a 523(a)(8) analysis are not easily applicable in this case. For example, the Bankruptcy Court noted that the factors relating to student loan repayment and the Debtor's intent to discharge debt in part weigh in favor of discharge and in part weigh against discharge. Haugen did not make payments to North Dakota toward the cosigned loan for her mother and conceded that she petitioned for bankruptcy relief because she could not afford to pay the debt arising from the cosigned loan. However, Haugen is not seeking to discharge the student loans she borrowed for her own education. She makes a monthly income-based payment of $89 on her own student loans. The Bankruptcy Court also determined Haugen's failure to make payments or negotiate a deferment or forbearance with North Dakota and her decision to petition for bankruptcy relief to discharge the cosigned loan are mitigated by 1) her mother's representation that she was taking care of the debt and 2) her status as a cosigner1. Among other considerations, the Bankruptcy Court also determined Haugen's failure to make payments while the loan was in deferment or forbearance and when the loan was delinquent did not demonstrate bad faith. The Court finds no clear error in the Bankruptcy Court's consideration of other relevant factors and circumstances. ... Footnote 1: "In considering the Debtor's cosigner status as a mitigating factor, the Bankruptcy Court cited to In re Kinney, 593 B.R. 618, 624 (Bankr. N.D. Iowa 2018), where the Bankruptcy Court for the North District of Iowa held that although the debtor's status as a consigner has 'no legal bearing on this Court's undue hardship determination, it becomes relevant factually. Courts must generally consider the educational benefit obtained and the effect on the debtor's future earning capacity. In this case, Debtor as a cosigner received no educational benefit. This lack of educational benefit thus cuts against prohibiting discharge of the loan.'" | 11 U.S.C. § 523(a)(8) |
| In re Linton | Bankr. CT | 3/20/2024 | The court rejected the United States Trustee's (UST) motion to dismiss which argued that the debtors' income in a chapter 7 case (converted from chapter 13) must be their gross income as of the chapter 13 petition date. After the debtors filed their chapter 13 bankruptcy, one of the debtors retired from her second job. Once the case was converted, the debtors filed an amended schedule I which showed a $1,342.91 reduction in their original income. "On November 24, 2023, the U.S. Trustee then timely filed the Motion, arguing that, for the purposes of Section 707(b)(2), the Debtors must rely on their income disclosures as of the Petition Date (pre-retirement), rather than the post-retirement income disclosed as part of their Chapter 7 filings. (ECF No. 49). In response, Debtor's Counsel filed her Objection to Motion to Dismiss Case for Abuse (the "Objection") on December 27, 2023, arguing that Mrs. Linton's retirement constitutes a special circumstance such that the case should not be dismissed. (ECF No. 64). In response, Debtors' Counsel has filed further amended schedules that properly referenced the Debtors' income on the Petition Date. ... "...At the hearing, the U.S. Trustee acknowledged the "stressful and physical" nature of Mrs. Linton's work at Avery Heights Nursing Home, and that Mrs. Linton, at her age, "could not keep that level of work going anymore." (ECF No. 68 at 2:55-3:07). Unopposed, Debtors' Counsel represented that Mrs. Linton's retirement "wasn't voluntary; she just couldn't do both jobs anymore." (ECF No. 68 at 9:20-9:35). Importantly, the U.S. Trustee does not challenge that this "retirement" was proper in the context of Mrs. Linton's age and overall health. (ECF No. 68 at 2:20-3:10). .... The U.S. Trustee has acknowledged that, despite the fact that the U.S. Trustee does not challenge the bona fides of Mrs. Linton's retirement, he was required to raise this issue as part of his gatekeeper duties as U.S. Trustee. ... "The presumption of abuse established under the Means Test may only be rebutted by "demonstrating special circumstances, such as a serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative." Bankruptcy Code § 707(b)(2)(B)(i). "In order to establish special circumstances, the debtor [*8] shall be required to itemize each additional expense or adjustment of income and to provide[—] (I) documentation for such expense or adjustment to income; and (II) a detailed explanation of the special circumstances that make such expenses or adjustments to income necessary and reasonable." Bankruptcy Code § 707(b)(2)(B)(ii). ... "Various expenses or reductions in income have been considered by courts in the context of the "special circumstance" provision of Section 707(b)(2)(B). "What constitutes a 'special circumstance' is by no means well settled." In re Cotto, 425 B.R. 72, 77 (Bankr. E.D.N.Y. 2010). Courts have acknowledged, however, at minimum, "whether special circumstances exist must be decided on a case-by-case basis." In re Livingston, Case No. 21-10879 (LSS), 2022 Bankr. LEXIS 815, 2022 WL 951339, at *14 (Bankr. D. Del. Mar. 29, 2022); see also In re Delbecq, 368 B.R. 754, 758 (Bankr. S.D. Ind. 2007) (holding, in the context of a Chapter 13 case, that: "The Report[ of the Senate Judiciary Committee] strongly suggests to the [c]ourt that the term 'special circumstances' requires a fact-specific, case-by-case inquiry into whether the debtor has a 'meaningful ability' to pay his or her debts in light of an additional expense or adjustment to income not otherwise reflected in the means test calculation"); In re Howell, 477 B.R. 314 (Bankr. W.D.N.Y. 2012) (holding that nondischargeable student loans that resulted in only $40 of monthly disposable income constituted a special circumstance sufficient to rebut the presumption of abuse); In re Graham, 363 B.R. 844, 851-52 (Bankr. S.D. Ohio 2007) (holding that additional costs of maintaining a separate household in the face of a long commuting distance was a special circumstance); [*10] In re Scarafiotti, 375 B.R. 618 (Bankr. D. Colo. 2007) (holding that additional expenses to live near a school appropriate for their child with special needs was a special circumstance); but see In re Anderson, 444 B.R. 505, 507-08 (Bankr. W.D.N.Y. 2011) (holding that the mere desire to retire did not constitute a special circumstance but noting that the debtor in that case "cited no medical or other reason why he cannot continue to work"). "Here, Mrs. Linton provided a sworn affidavit that she has numerous health conditions and that her role as a Certified Nursing Assistant at Avery Heights Nursing Home was very physically demanding. Those assertions have been unopposed. The Court is struck not only by the demanding physical nature of her work, but also the extended duration of her workday. Furthermore, Mrs. Linton's Affidavit provided appropriate documentation of the adjustment to income, as well as a detailed and credible explanation sufficient to satisfy the requirements of Section 707(b)(2)(B)(ii). The Court notes the U.S. Trustee's recognition, on the record, of the stressful and physical nature of Mrs. Linton's work, as well as the fact that—due to the reasons mentioned—Mrs. Linton could no longer sustain the level of work required for both roles. The Court accordingly finds that the presumption of abuse has been rebutted as "special circumstances" of the Debtors' means have been sufficiently demonstrated." | 11 U.S.C. § 707(b)(2)(B)(ii) |
| In re Terry | Bankr. KS | 3/19/2024 | The court held that other pleadings filed in the case, prior to the deadline to object to the homestead exemption, constituted a timely objection to the debtor's exemption. Prior to filing the bankruptcy, it is alleged that the debtor used embezzled funds to purchase his residence. The debtor claimed a homestead exemption and the creditor filed an objection to the homestead exemption one day after the deadline as set out in bankruptcy rule 4003 . However prior to that deadline the creditor had filed a motion for relief from stay, and adversary objecting to discharge ability, and a motion to transfer venue which the creditor claims challenged the homestead exemption. The creditor argued that these pleadings were filed timely and therefore the objection to exemption should be allowed. "Under Rule 4003(b), to object to a debtor's claimed exemptions under 11 U.S.C. § 522(l), a party in interest must file an objection within 30 days after the § 341(a) meeting concludes or the debtor amends their schedules. Fed. R. Bankr. P. 4003(b)(1). The 30-day deadline is strictly enforced, and-if a party fails to timely object-the property is exempt regardless of whether the debtor had "colorable statutory basis for claiming [the exemption]." Taylor v. Freeland & Kronz, 503 U.S. 638, 643-44 (1992); see generally Brayshaw v. Clark (In re Brayshaw), 110 B.R. 935, 937 (D. Colo. 1990), aff'd, 912 F.2d 1255 (10th Cir. 1990) ("Courts strictly enforce the 30-day time limit for filing objections"). "Although Rule 4003(b) dictates the timing of the objection, it neither requires nor discusses a particular form for such objections. See Lee v. Field (In re Lee), 889 F.3d 639, 642 (9th Cir. 2018) (citing Spenler v. Siegel (In re Spenler), 212 B.R. 625, 629 (9th Cir. B.A.P. 1997)). Because of this, courts will allow other filings to constitute an objection to exemption so long as the filing is timely under Rule 4003(b) and puts the debtor on notice of the objection by clearly questioning the validity of the debtor's claimed exemption.Following this approach, courts have found adequate objections to exemptions in, for example, motions for relief from stay, lien avoidance actions, and adversary complaints. "Under this approach, Southampton claims that its three prior filings satisfy the stated requirements and should be considered objections to exemption, enabling it to contest Terry's homestead exemption. Indeed, all three were filed either before the § 341 meeting concluded or shortly after. However, although the other two filings, the motion to transfer and motion for relief, contain some allegations that could provide notice, the adversary complaint contains clear allegations that directly challenge Terry's ability, or lack thereof, to exempt the Property, which is sufficient to put her on notice of the objection. Such allegations include: Terry "knowingly and fraudulently misrepresented on her Schedules that the [Property] is her own property subject to a homestead exemption when the [Property] is actually fraudulently transferred property. . ." that belongs to Southampton; and the funds used to purchase the Property are "traceable to funds fraudulently transferred that belong to Southampton. . . ." Therefore, the complaint will be considered a timely objection to exemption that preserved Southampton's ability to contest Terry's homestead exemption." | 11 U.S.C. § 522(l) Fed. R. Bankr. P. 4003(b) |
| In re Pugh | Bankr. E.D. MI | 3/18/2024 | The court held that the trustee had not demonstrated good reason to include in the bankruptcy estate post-petition increases in equity for the debtor's residence. The debtor filed a chapter 13 and proposed to surrender or refinance his residence. The plan proposed that his property would vest in the debtor upon confirmation. The value of the residence was $33,189.46 below the amount of the first mortgage leaving no equity. The trustee objected to confirmation of the plan unless the confirmation changed the vesting provision. "This Court recently held that a chapter 13 debtor need not turn over sale proceeds arising from her property's post-confirmation appreciation to pay unsecured creditors.[In re Elassal, 654 B.R. 434 (Bankr. E.D. Mich. 2023).] However, in a footnote, the Court indicated that a plan or an order confirming a plan could include a provision excluding any property or appreciation from vesting in a debtor. The chapter 13 Trustee believes this footnote provides an Elassal workaround, because regardless of the real estate market's vagaries, such a blanket provision would always allow the chapter 13 estate—not the debtor—to reap any post-confirmation property appreciation. But a workaround without good reason to change course was not what the Court had in mind. ... "Trustee's Objection invites the Court to exercise its discretion and delay the otherwise automatic vesting in Debtor of the Property at confirmation pursuant to our model plan and 11 U.S.C. § 1327(b): "[e]xcept as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor." Debtor and the Trustee could have stipulated to a delay in the vesting provision. However, absent a stipulation, there must be a good reason for the Court to exercise its discretion and order delayed vesting. ... Here, because no good cause exists, the Court declines to exercise its discretion. "As an initial matter, the Trustee cannot unilaterally impose a change to the vesting provision. Under 11 U.S.C. § 1321, "[t]he Debtor shall file a plan." Further, 11 U.S.C. § 1323(a) provides "[t]he debtor may modify the plan at any time before confirmation. . . ." Thus, the Bankruptcy Code exclusively reserves to a debtor the right to both file a plan and modify it before confirmation. The Trustee may not do either. A trustee may raise objections and be heard as it relates to confirmation, and importantly here, on the value of property subject to a lien. 11 U.S.C. § 1302. But any trustee objection must be code based, such as those enumerated under 11 U.S.C. §§ 1322 and 1325. ... " No Cause Exists To Delay Vesting "The Court must be shown facts which indicate good cause to modify the statutory standard, because while section 1327(b) allows a court to exercise its discretion, "like the exercise of all judicial discretion—[it] requires good reason." Steenes, 918 F.3d at 557. The Court finds good reason to delay vesting may include a debtor's bad faith, or material undervaluation of his property. Neither circumstance is apparent here. ... " In re Elassal Footnote Three is not a Workaround "The Court acknowledges that the Trustee is attempting to follow the guidance offered in its recent opinion In re Elassal, 654 B.R. 434 (Bankr. E.D. Mich. 2023). In the Objection, the Trustee points to footnote three of the Elassal opinion. The Court's guidance is code based. 11 U.S.C. § 1327(b); 11 U.S.C. § 1322(b)(9) ("the plan may.. . provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any other entity"). However, the operative word in the footnote is "could." The Court's footnote did not state or imply that if the Trustee were to make a pre-confirmation objection to the fate of any, unanticipated, post-confirmation appreciation sale proceeds, and insist on a delayed vesting provision, that the Court would—without good cause—sustain such objection." | 11 U.S.C. § 1322(b)(9) 11 U.S.C. § 1327(b) |
| In re Moyer | Bankr. M.D. FL | 3/18/2024 | The court denied an incarcerated debtor's motion to appoint his father as his representative in bankruptcy and to attend his 341 meeting. "Debtor filed the instant Petition for the Appointment of Next Friend, seeking to have his father appointed as his Next Friend because Debtor is incarcerated and could remain incarcerated for the next four years. Federal Rule of Bankruptcy Procedure 1004.1 guides this Court's determination and provides the following: "If an infant or incompetent person has a representative, including a general guardian, committee, conservator, or similar fiduciary, the representative may file a voluntary petition on behalf of the infant or incompetent person. An infant or incompetent person who does not have a duly appointed representative may file a voluntary petition by next friend or guardian ad litem. The court shall appoint a guardian ad litem for an infant or incompetent person who is a debtor and is not otherwise represented or shall make any other order to protect the infant or incompetent debtor. "Debtor, however, is not alleged to be an infant or an incompetent person, and as such, there is no basis for the appointment of a Next Friend for a debtor that is incarcerated.1 Accordingly, the Court denies Debtor's Petition for the Appointment of Next Friend. "Likewise, the Court denies Debtor's Motion to Waive Appearance, Attendance and Testimony of Debtor and Request for Order Authorizing Next Friend to Attend 341 Meeting of Creditors. Because the Court has not appointed Debtor's father as his Next Friend, and because there is no authority for waiving his appearance at the §341 meeting due to incarceration,2 there is no basis for granting the relief requested in this motion." | Fed. R. Bankr. P 1004.1 |
| In re Licup | 9th Cir. | 3/18/2024 | The court ruled that that, outside of a non-asset chapter 7 bankruptcy, a debtor's failure to properly schedule a debt renders that debt nondischargeable in its entirety. When the debtors filed for bankruptcy, they listed a pre-petition judgment creditor but provided an incorrect mailing address for the creditor's attorney. Unfortunately, the creditor did not file a claim in this asset chapter 7 case. The creditor later returned to bankruptcy court for a determination that the debt of $31,780.29 was not discharged. The debtors countered arguing that the only amount of the debt not discharged was the amount the creditor would have received if it had timely filed a claim ($1,614.74). ""In order for a debt to be duly listed" under the bankruptcy rules, "the debtor must state the name and address of the creditor." In re Fauchier, 71 B.R. 212, 215 (B.A.P. 9th Cir. 1987) (citing Fed. R. Bankr. P. 1007). As the BAP held in Fauchier, this rule is grounded in basic principles of due process: In the absence of such notice, a creditor may well be deprived of her right to have her day in court. Id. To ensure that a creditor has the opportunity to vindicate her property rights, the Bankruptcy Code generally makes a debt nondischargeable if the debt is "neither listed nor scheduled under [11 U.S.C. § 521(a)(1)] . . . in time to permit . . . timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing." 11 U.S.C. § 523(a)(3)(A). "Castro and Licup do not contend that they correctly listed Jefferson's address. Nor do they argue that Jefferson had actual knowledge of their bankruptcy petition. The plain language of Section 523(a)(3)(A) therefore precludes the discharge of the unlawful detainer debt. "Castro and Licup nevertheless urge us to follow the reasoning of "non-asset" bankruptcy cases, such as In re Beezley and In re Nielsen. HN4 We explained in those cases that in a "no-assets, no-bar-date Chapter 7 bankruptcy,"1 the bankruptcy rules do not require creditors to file any claims, as there are no assets to distribute. In re Nielsen, 383 F.3d at 926-27; Fed. R. Bankr. P. 2002(e). Section 523(a)(3)(A)'s protections are plainly irrelevant in such cases—creditors need not be notified of proceedings in which filing a claim would be "meaningless and worthless." In re Nielsen, 383 F.3d at 927. But those protections are relevant here, where Castro and Licup had assets to distribute, and their creditors were therefore required to file claims during the Chapter 7 bankruptcy proceedings. See Fed. R. Bankr. P. 3002(a). "Nor does Castro and Licup's policy argument regarding a potential "windfall" to Jefferson prevail. That Jefferson may stand to recover a greater amount than it would have had it been properly notified—$31,780.29 versus $1,614.74, by Castro and Licup's calculation—is of no moment. HN6 The Bankruptcy Code states plainly, and without qualification, that a bankruptcy court's order of discharge "does not discharge an individual debtor from any debt" if the creditor was not appropriately listed. 11 U.S.C. § 523(a). We decline to read into Section 523(a)(3)(A) a limitation that the statute does not contain." The plain language of 11 U.S.C. § 523(a)(3)(A) makes the 2013 unlawful detainer judgment in favor of Jefferson nondischargeable in Castro and Licup's bankruptcy. The BAP's decision is therefore AFFIRMED. | 11 U.S.C.S. § 523(a)(3)(A) |
| In re Sorenson | Bankr. KS | 3/15/2024 | In a chapter 13 confirmation proceeding, the court held that while a separate classification in the plan to pay student loans was acceptable, the debtor could not use that separate classification to avoid paying all unsecured creditors the minimum requirements pursuant to 11 U.S.C. § 1325(a)(4). "The Trustee argues that the plan at issue fails the liquidation test because it proposes to pay the entire liquidation value of the debtors' non-exempt assets ($21,406) to their student loan creditor(s). The Sorensons respond that according to this Court's decision in In re Engen, 561 B.R. 523 (Bankr. D. Kan. 2016), their proposal is permissible. "The Trustee is correct. Engen held that separate classification of student loan debt in a Chapter 13 plan did not "discriminate unfairly" against other unsecured claims for purposes of § 1322(b)(1). It was not about § 1325(a)(4)'s liquidation test. Indeed, the plan at issue in Engen provided that the debtors' non-exempt assets had zero liquidation value6 (such that general unsecured creditors would receive nothing in Chapter 7). In other words, the Engens' plan passed the liquidation test. Nothing about Engen should be read to suggest that compliance with § 1325(a)(4), which applies the liquidation test to "each allowed unsecured claim," is optional when student loans are involved. "If the Sorensons' case were in Chapter 7, each of their unsecured creditors would receive a pro rata share of $21,406. Under the Sorensons' proposed Chapter 13 plan, some of those creditors (i.e., the ones with non-student-loan claims) would receive nothing. That does not comply with § 1325(a)(4). For that reason, the Trustee's objection to confirmation is hereby sustained." | 11 U.S.C. § 1322(b)(1) 11 U.S.C. § 1325(a)(4) |
| In re Dorand | 11th Cir. | 3/14/2024 | The court affirmed the bankruptcy court's findings that a pre-petition garnishment of a retirement account did not cause the debtor's estate to lose its interest in the account and that the debt was discharged. The court addressed issues of the court's jurisdiction, why the retirement account was still part of the bankruptcy estate, why there was no setoff rights and why neither full faith and credit nor collateral estoppel barred the judgment of the bankruptcy court. Pre-petition the creditor obtained a default judgment against the debtor in the amount of $1.6 million. In collecting on the debt, the creditors obtained an order to garnish the debtor's retirement account after the court held the debtor's exemption did not protect it. An order was issued to the holder of the account, Morgan Stanley, to turn over the funds. Prior to any turnover of the money, the debtor filed a chapter 7 bankruptcy. The creditor objected to the debtor's exemption on the retirement account based on the state court orders. "This appeal requires us to decide whether an individual retirement account is part of a debtor's bankruptcy estate. Creditors obtained a $1.6 million default judgment against Rodney Dorand. To satisfy the judgment, the creditors sought funds in Dorand's individual retirement account held by Morgan Stanley. Dorand argued that the funds were exempt from collection under state law, but an Alabama court rejected Dorand's argument and permitted Morgan Stanley to transfer the funds out of Dorand's account. Before Morgan Stanley transferred the funds, Dorand filed a bankruptcy petition under Chapter 7 and asserted that the retirement account was exempt property of his bankruptcy estate. The bankruptcy court agreed with Dorand. Because the Alabama judgment did not extinguish Dorand's interest in his account before he filed his bankruptcy petition, we affirm." The Bankruptcy Court Had Jurisdiction to Decide Dorand's Claim of Exemption. "The creditors argue that under the Rooker-Feldman doctrine, the bankruptcy court lacked jurisdiction to decide Dorand's claim of exemption. Dorand responds that the bankruptcy court's ruling did not violate Rooker-Feldman because he did not ask the bankruptcy court to overturn a state court judgment. We agree with Dorand. Rooker-Feldman is a "narrow jurisdictional doctrine" that prohibits a party who loses in state court from "appeal[ing] that loss in [**8] a federal district court." Behr v. Campbell, 8 F.4th 1206, 1208 (11th Cir. 2021).... "The Rooker-Feldman doctrine "almost never" requires dismissal. Id. at 1212. A claim should be dismissed under Rooker-Feldman only when "a losing state court litigant calls on a district court to modify or 'overturn an injurious state-court judgment.'" Id. at 1210 (quoting Exxon Mobil, 544 U.S. at 292). Federal courts "do not lose subject matter jurisdiction over a claim 'simply because a party attempts to litigate in federal court a matter previously litigated in state court.'" Id. (quoting Exxon Mobil, 544 U.S. at 293). "The bankruptcy court's ruling did not implicate Rooker-Feldman. Neither party asked the bankruptcy court to "modify" or "overturn" the Alabama judgment. Instead, the parties disputed the effect of the judgment. The creditors argued that the judgment extinguished Dorand's interest in the retirement account, and Dorand responded that the judgment did not terminate his interest. But those arguments about the effect of the Alabama judgment are not invitations to overrule it.... "The Individual Retirement Account is Part of Dorand's Bankruptcy Estate. "Whether the individual retirement account is part of Dorand's bankruptcy estate turns on whether the Alabama judgment terminated Dorand's interest in the account. The creditors argue that the Alabama judgment "fully and finally terminated" Dorand's rights to and interests in the retirement account. Dorand responds that he still had an interest in the account when he filed for bankruptcy. Because the Alabama judgment gave Morgan Stanley only a limited right to transfer Dorand's funds, and Morgan Stanley failed to exercise that right before Dorand filed for bankruptcy, we agree with Dorand. ... "The Alabama judgment did not extinguish Dorand's interest in the funds in his retirement account. Indeed, the judgment states that Dorand still "own[s]" the account. Consistent with that understanding, Morgan Stanley's corporate representative testified that Dorand owned the account when he filed for bankruptcy. "The judgment "authorized" Morgan Stanley to "remit[]" certain funds to the state court clerk. But that language created only a limited right for Morgan Stanley. And the judgment specified that it would not be "satisfied" until Morgan Stanley "remitt[ed]" the funds to the clerk. It is undisputed that Morgan Stanley did not remit the funds before Dorand filed for bankruptcy. As other courts have ruled, the debtor's funds in a retirement account are property of a bankruptcy estate if the funds remain in the account, notwithstanding a state court turnover order, when the debtor files for bankruptcy. (Citations omitted.) ... "The Alabama judgment might have altered Dorand's rights to the retirement account. HN9 But absent exceptions that do not apply here, a bankruptcy estate includes all property in which the debtor has a legal or equitable interest. See 11 U.S.C. § 541(a)(1). Morgan Stanley had a legal right to remit certain funds for a single purpose, but it failed to do so before Dorand filed for bankruptcy. And filing for bankruptcy "stops all collection efforts." In re McLean, 794 F.3d 1313, 1320 n.3 (11th Cir. 2015) (citation and internal quotation marks omitted). Dorand had an interest in the retirement account when he filed for bankruptcy, and the bankruptcy court correctly determined that the retirement account was part of Dorand's bankruptcy estate. "The Alabama Judgment Did Not Create a Right to Setoff. "The creditors argue that the Alabama judgment created a right to setoff in favor of Morgan Stanley. But because the right to setoff cannot arise unless two parties owe mutual debts, and Dorand did not owe a debt to Morgan Stanley, the bankruptcy court correctly held that the judgment did not create a right to setoff. "The right to setoff is the right of parties "to cancel out mutual debts against one another in full or in part." In re Patterson, 967 F.2d 505, 508 (11th Cir. 1992). "The purpose of setoff is to avoid 'the absurdity of making A pay B when B owes A'" an equal or greater sum. Id. at 508-09 (quoting Studley v. Boylston Nat'l Bank, 229 U.S. 523, 528, 33 S. Ct. 806, 57 L. Ed. 1313 (1913)). The Bankruptcy Code preserves the right to set off prepetition debts. See 11 U.S.C. § 553. But "[s]ubstantive law, usually state law, determines the validity of the right." Patterson, 967 F.2d at 509. "Three elements must be present for a right to setoff to arise under section 553. First, the parties must owe mutual debts. 11 U.S.C. § 553(a). Second, the debts must have arisen before the debtor filed for bankruptcy. Id. And third, the setoff cannot fall within the exceptions listed in subsections 553(a)(1), (2), or (3). Id. ... "The judgment did not create a debt that Dorand owed to Morgan Stanley. Instead, it gave Morgan Stanley a limited right to transfer some of Dorand's funds to the state court clerk. Morgan Stanley did not have—and could not have—any obligation to pay the judgment from its own funds because the judgment was not a "personal judgment" against Morgan Stanley. Wyers, 762 So. 2d at 355-56 (explaining that HN14 "when a creditor's bill is brought to reach a debtor's assets in the hands of a third person," a personal judgment ordinarily "cannot be rendered against that third person"). The judgment did not—and could not—require Morgan Stanley to pay the judgment first and have Dorand reimburse it later. Because the judgment did not create a debt that Dorand owed to Morgan Stanley, the right to setoff never arose. "Neither the Full Faith and Credit Statute Nor Collateral Estoppel Prohibits the Bankruptcy Court's Ruling. "The creditors argue that the full faith and credit statute and collateral estoppel barred the bankruptcy court from ruling on Dorand's claim of exemption. Dorand responds that neither doctrine barred the bankruptcy court's ruling. We agree with Dorand. "The full faith and credit statute provides that "state judicial proceedings 'shall have the same full faith and credit in every court within [**17] the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken.'" (Citations omitted). ... "This appeal does not implicate the full faith and credit statute because Dorand did not ask the bankruptcy court to ignore or set aside the Alabama judgment. Instead, he made arguments about the meaning of that judgment—specifically, whether it terminated all of his rights to his retirement account. His arguments concern what the Alabama judgment accomplished. He never asked the bankruptcy court or this Court to ignore the judgment or set it aside. "The creditors also argue that Dorand is collaterally estopped from "claiming any exemption that he was denied by the Alabama judgment." ... "Collateral estoppel does not apply because it is not clear that resolution of the issue in this appeal—whether Dorand's retirement account was exempt—was a "necessary" part of the Alabama judgment. See id. The Alabama court denied Dorand's claim of exemption on the ground that the creditors "filed a proper contest to the claim of exemption, making both procedural and substantive challenges." But the court never specified whether it was denying Dorand's claim of exemption on procedural grounds, substantive grounds, or both. HN18 When a "judgment fails to distinguish as to which of two or more independently adequate grounds is the one relied upon, it is impossible to determine with certainty what issues were in fact adjudicated, and the judgment has no preclusive effect." In re St. Laurent, 991 F.2d at 676. Accordingly, collateral estoppel does not apply." | 11 U.S.C. § 541(a) 11 U.S.C. § 553 |
| In re Goetz NCBRC-NACBA Amicus Brief - Goetz | 8th Cir. | 3/8/2024 | The rise in equity in the appellant's residence after filing for bankruptcy but before conversion became part of her bankruptcy estate after conversion, as outlined in 11 U.S.C.S § 348(f)(1)(A). This occurred because the residence was already part of the appellant's estate, and she maintained possession and control over it at the time of filing for bankruptcy. FACTS "On August 19, 2020, Machele Goetz filed a chapter 13 bankruptcy petition and plan. She owned a residence worth $130,000 and claimed a $15,000 homestead exemption under Missouri law. Freedom Mortgage held a $107,460.54 lien against the residence. It is undisputed that had the trustee liquidated the residence on the date of the petition, the estate would have received nothing net of the exemption, the lien, and the sale expenses. "Later, on April 5, 2022, the bankruptcy court granted Goetz's motion to convert her case from chapter 13 to chapter 7. Between the chapter 13 filing and the date of the conversion order, Goetz's residence had increased in value by $75,000, and she had paid down a further $960.54 on the mortgage. Had the trustee liquidated the residence on the date of conversion, more than $62,000 net of the exemption, the lien, and the sale expenses would have been produced. "After realizing that the trustee might sell the residence given the change in value, Goetz moved for the bankruptcy court to compel the trustee to abandon it. Goetz argued that the residence was of "inconsequential value and benefit to the estate" under 11 U.S.C. § 554(b), asserting that the post-petition, pre-conversion increase in equity must be excluded from the calculation of her residence's value to the estate. The trustee resisted Goetz's motion, arguing that, under 11 U.S.C. § 348(f), the bankruptcy estate in a converted case includes post-petition, pre-conversion increase in equity, meaning Goetz's residence was still of value to the estate." ANALYSIS Under 11 U.S.C. § 348(f)(1)(A)," the property of the estate in Goetz's converted chapter 7 case consists of the property of the estate as of the date she filed her chapter 13 bankruptcy petition (August 19, 2020) that remained in her possession as of the date of conversion from chapter 13 to chapter 7 (April 5, 2022). ... "Goetz's residence is property of the converted estate because she held "legal or equitable interest[]" in it as of August 19, 2020, id. § 541(a)(1), and because it remained in her possession when she converted her case to chapter 7 on April 5, 2022, id. § 348(f)(1)(A). The question is whether the post-petition, pre-conversion increase in equity in that residence is also part of the converted estate. ... We start with the first half of the definition of property of the converted estate: whether the property in question was "property of the estate, as of the date of filing of the petition." 11 U.S.C. § 348(f)(1)(A). ... Property of the Estate "Property of the estate at "[t]he commencement of a case" includes "[p]roceeds . . . of or from property of the estate." Id. § 541(a)(6). A voluntary case in bankruptcy commences when the petition is filed. Id. § 301(a); see also id. § 348(a) ("Conversion of a case from a case under one chapter of this title to a case under another chapter of this title . . . does not effect a change in the date of the filing of the petition [or] the commencement of the case . . . .")." Proceeds "But the Code does not define "proceeds" or "equity," so "we may look to dictionaries . . . to determine the meaning." Schwab v. Reilly, 560 U.S. 770, 783, 130 S. Ct. 2652, 177 L. Ed. 2d 234 (2010); see also Franklin Cal. Tax-Free Tr., 579 U.S. at 126 (looking to Black's Law Dictionary and the Oxford English Dictionary for the meaning of "define"). Proceeds are "[t]he value [*6] of land, goods, or investments when converted into money; the amount of money received from a sale." Proceeds, Black's Law Dictionary (11th ed. 2019). HN6 Equity is "[t]he amount by which the value of or an interest in property exceeds secured claims or liens; the difference between the value of the property and all encumbrances on it." Equity, Black's Law Dictionary (11th ed. 2019). An encumbrance is "[a] claim or liability that is attached to property or some other right . . . that may lessen its value, such as a lien or mortgage." Encumbrance, Black's Law Dictionary (11th ed. 2019). "The post-petition, pre-conversion increase in equity in Goetz's residence—i.e. the difference between its value and the homestead exemption and lien—is therefore proceeds "from property of the estate," 11 U.S.C. § 541(a) (emphasis added), because it is the amount of money that the estate would receive from a sale of the residence before sale expenses. Cf. In re Potter, 228 B.R. 422, 424 (B.A.P. 8th Cir. 1999) ("Nothing in Section 541 suggests that the estate's interest is anything less than the entire asset, including any changes in its value which might occur after the date of filing."). Accordingly, the post-petition, pre-conversion increase in equity in Goetz's residence was property [*7] of the estate at "[t]he commencement of [the] case." 11 U.S.C. § 541(a)." | 11 U.S.C. § 348(f)(1)(A) 11 U.S.C. § 541 11 U.S.C. § 554(b) |
| In re Hall | Bankr. KS | 3/6/2024 | The former spouse's attempts to overturn or amend the judgment regarding equalization payments, converting it into a non-dischargeable domestic support obligation, went against 11 U.S.C.S. § 362(a)(1), (a)(6). These actions amounted to efforts to reclaim or enforce a payment that would typically be absolved under 11 U.S.C.S. § 1328(a), if not paid according to the debtor's chapter 13 plan. Moreover, these breaches of § 362(a)(1), (a)(6) were intentional, as the spouse was aware of the debtor's bankruptcy filing prior to initiating the motions, did so to hinder the discharge of the debt, and persisted despite being cautioned by the debtor's counsel about the violation of the automatic stay in the initial motion. FACTS " In the divorce, prior to the [chapter 13] bankruptcy filing the state court awarded the marital home to debtor and ordered her to make an equalization payment to her former spouse to fairly divide the marital estate. ... "After receiving notice of debtor's chapter 13 bankruptcy filing, the former spouse filed motions in the divorce case under K.S.A. 60-260(b) to set aside or modify the equalization payment judgment and recharacterize it as a nondischargeable DSO. That action exposed another bankruptcy minefield — the automatic stay under § 362 — and prompted debtor to file a motion asking this Court to enforce the automatic stay, to find the former spouse's actions violated the stay, and to award debtor damages and fees under § 362(k)." ANALYSIS " Section 362(b) describes several exceptions, or exclusions, from the automatic stay. As applicable here, § 362(b)(2) does not stay "the commencement or continuation of a civil action or proceeding" to establish paternity, to establish or modify domestic support obligations, that concern child custody, domestic violence, or dissolution of the marriage. However, the parties in the divorce are stayed to the extent the proceeding "seeks to determine the division of property that is property of the estate." "Pray's motions seek to modify the equalization payment that was entered September 13, 2023, prior to the bankruptcy filing. The equalization payment was part of the state court's division of property. The equalization payment does just that—it equalizes the division of property between the parties to the divorce.As such it is part of the division of property made by the divorce court and is subject to the automatic stay. Pray has not sought stay relief to modify the Equalization Payment. Pray's counsel represented that Pray did not request spousal support during the divorce. "In addition, the Pray Motions are attempts to collect or recover the equalization payment that would otherwise be discharged under § 1328(a) to the extent the equalization payment is not paid under the terms of the debtor's chapter 13 plan. The mere re-labeling or recharacterizing of that debt as a support obligation does not necessarily transform the debt to a nondischargeable DSO. The bankruptcy court is not bound by what label is placed on the debt by the divorce court. Whether the equalization payment is excepted from discharge under 523(a)(5) is a matter of federal bankruptcy law made on a case-by-case basis. It requires "a dual inquiry into both parties' intent and the substance of the obligation . . . the crucial issue is whether the obligation imposed by the divorce court has the purpose and effect of providing support for the spouse." The Pray Motions violated subsections (a)(1) and (a)(6) of § 362. ... "Pray's stay violations were not some technical violation where he lacked notice of debtor's bankruptcy filing. Instead, Pray knew of debtor's bankruptcy filing before filing the motions to modify the equalization payment judgment, and did so in an attempt to prevent discharge of the debt in debtor's chapter 13 bankruptcy. No showing of bad motive or intent on the part of Pray is required to find a willful violation. All that is required to be shown is that Pray knew of the automatic stay and intended the actions that constituted the violation.Pray continued to pursue action related to the equalization payment in the divorce case after refusing to heed debtor's counsel's warning that Pray Motion I violated the stay; he responded by filing Pray Motion II. The Court concludes that Pray knew of debtor's bankruptcy filing and the automatic stay and intended his actions to modify the equalization payment and recharacterize it as a support obligation to prevent its discharge. Pray's stay violation was willful." | 11 U.S.C. § 362(a) 11 U.S.C. § 362(b) 11 U.S.C. § 523(a)(5) 11 U.S.C. § 523(a)(15) 11 U.S.C. § 1328(a) |
| In re Blumsack | 1st Cir. BAP | 3/5/2024 | The bankruptcy court made an error by establishing a legal principle that outright barred individuals working in the cannabis industry from seeking chapter 13 relief under 11 U.S.C.S. 1325(a)(7), as the assessment of good faith should consider the entirety of the circumstances. However, the court held that chapter 13 plans funding with proceeds from Controlled Substances Act (CSA) violations are categorically prohibited by Section 1325(a)(3). The opinion appeared to open the door to allow the plan if the plan was funded from other legal sources. The debtor earned his income as a "budtender" at a marijuana dispensary. Following his chapter 13 petition, the UST filed a motion objecting to confirmation of the Plan and seeking dismissal of the case and "alleged that the debtor, by virtue of his employment, was engaged in criminal activity proscribed by the Controlled Substances Act ("CSA") of 1970, 21 U.S.C. § 812. In the Trustee's view, the debtor's violations of the CSA precluded a determination that the Plan (or any plan) could satisfy the good faith requirements of § 1325(a)(3) and (a)(7).1 Because the debtor was incapable of confirming any plan, the Trustee asserted, the debtor was ineligible for chapter 13 relief. More generally, the Trustee argued that the bankruptcy court could not condone the debtor's "ongoing illegal activity by confirming a plan that [was] funded directly or indirectly through income derived from employment at a marijuana enterprise[.]" The Trustee also sought dismissal under § 1307(c), arguing there was "cause" to dismiss where the debtor could "confirm no plan, and continuance of the case would require the trustee to administer assets representing proceeds of an illegal business." The Trustee relied primarily on three cases: Arenas v. U.S. Trustee (In re Arenas), 535 B.R. 845 (B.A.P. 10th Cir. 2015), In re Johnson, 532 B.R. 53 (Bankr. W.D. Mich. 2015), and Burton v. Maney (In re Burton), 610 B.R. 633 (B.A.P. 9th Cir. 2020). ... "The debtor countered: "There has never been a reported case where a W-2 employee who is legally . . . employed within their state has been denied relief in bankruptcy for that reason." On the contrary, the debtor asserted, the trend among courts is to find "creative ways to allow the debtor to take advantage of . . . relief in bankruptcy while carving out some way that marijuana business revenues do not specifically fund reorganization plans." To the extent the court deemed his wages to be a "pariah" unfit to fund a plan, the debtor asked the court to credit his testimony about alternative sources of funding a modified plan. ... "The [bankruptcy] court agreed with the Trustee that "irrespective of any segregation of funds," a debtor's continued employment in the marijuana industry during the pendency of a bankruptcy case would "inevitably" require the court and the chapter 13 trustee to support the debtor's criminal enterprise. Id. at 596 (quoting In re Johnson, 532 B.R. at 57). Observing that neither party had requested conversion, the court ruled dismissal was appropriate. Id. at 595-96. ... "We examine the two components of cause under § 1307(c)(5) separately, first looking at whether the bankruptcy court properly denied confirmation of the Plan and then examining whether the court properly denied the debtor an opportunity to submit a modified plan. ... No Per Se Rule Barring Disqualification Based Solely On Income Derived From An Illegal Substance "We part ways with the bankruptcy court's analysis under § 1325(a)(7) for several reasons. First, the bankruptcy court's bright-line rule is in some tension with Puffer, which strongly discourages such bright-line rules when assaying good faith for purposes of § 1325. HN4 As a general matter, the U.S. Court of Appeals for the First Circuit has declared that the "totality of the circumstances" is the standard to be applied when adjudicating good faith under § 1325. See Puffer, 674 F.3d at 82 (citation omitted). In rejecting the holding that fee-only chapter 13 plans are, per se, filed in bad faith for purposes of § 1325(a)(3), the court declared that equitable concepts like good faith "are peculiarly insusceptible to per se rules." Id. (citations omitted). Other precedents in this circuit, in consonance with Puffer, suggest that good faith in filing the petition should be gauged based on the "totality of the circumstances." See, e.g., Gonzalez-Ruiz v. Doral Fin. Corp. (In re Gonzalez-Ruiz), 341 B.R. 371, 382-83 (B.A.P. 1st Cir. 2006). Here, although the bankruptcy court recited that the totality of the circumstances test governs the good faith inquiry, the court's ruling under § 1325(a)(7) was grounded in a single consideration—the debtor's ongoing violation of the CSA. If a fee-only plan is not per se proposed in bad faith, see Puffer, 674 F.3d at 82, then it is hard to see how the legal status of the debtor's employment, standing alone, is enough to doom the debtor on the petition date. "Second, to the extent that bright-line rules can be drawn regarding good faith under § 1325, those rules must be meaningfully connected to the debtor's conduct in connection with the bankruptcy case. Although the term good faith is not defined in the Bankruptcy Code, the concept is not unmoored either. The good faith provisions of § 1325 are not referenda on the debtor's conduct generally; they are tethered to the debtor's actions in filing a petition and proposing a plan. The bankruptcy court's conclusion that ongoing violation of the CSA renders an individual categorically unable to file a chapter 13 petition in good faith is, in our view, unmoored from the bankruptcy-specific context in which the good faith inquiry must occur. "Beyond that, in adopting a categorical rule that a debtor employed in the marijuana industry lacks good faith for purposes of § 1325(a)(7), the bankruptcy court established a bar to eligibility. That is a subject addressed not by § 1325, but rather in § 109. HN6 Broad categorical parameters regarding who is eligible to be a debtor are not the stuff of good faith, a fact-intensive inquiry specific to individual debtors and their particular financial circumstances. As far as eligibility goes, Congress has not articulated a "'zero-tolerance' policy that requires dismissal of any bankruptcy case involving violation of the CSA (or other activity that might be proven to be illegal)." In re Hacienda Co., 647 B.R. 748, 754 (Bankr. C.D. Cal. 2023) (citation omitted). That type of policy choice to close the doors to the bankruptcy court categorically, without regard to individual circumstances, is one more appropriately left to the legislature. ... "Finally, although the bankruptcy court did not explicitly invoke the doctrine of unclean hands, the dismissal for abuse of process also sounds in that equitable theory. The Trustee has consistently argued that the doors to the bankruptcy court should be closed to a debtor who is violating the CSA. In his post-hearing brief, he cited several unclean hands precedents in support of this argument: Northbay Wellness Group, Inc. v. Beyries, 789 F.3d 956 (9th Cir. 2015), Fourth Corner Credit Union v. Federal Reserve Bank of Kansas City, 861 F.3d 1052 (10th Cir. 2017), and In re Basrah Custom Design, Inc., 600 B.R. 368 (Bankr. E.D. Mich. 2019). These decisions are not persuasive on the point the Trustee advocates." It is Per Se Bad Faith Under Section 1325(a)(3) to Fund a Chapter 13 Plan With Income Derived From Violations of the CSA "The debtor proposed to fund the Plan with the income he derived from his employment at the dispensary; he did not offer his spouse's income or assets unrelated to marijuana activities until after the Trustee filed the Motion to Dismiss. When given the opportunity at the evidentiary hearing, the debtor did not establish that he segregated his marijuana income from his spouse's income or other assets unrelated to his employment. The Plan he proposed would have placed the chapter 13 trustee in the untenable position of knowingly administering assets derived from an activity illegal under federal criminal law. "The debtor can point to no case law supporting the notion that a chapter 13 plan is proposed in good faith and by lawful means, as required by § 1325(a)(3), when the income the debtor would use to fund that plan is derived from activities criminalized by federal law. Instead, the caselaw—although distinguishable in some respects—stands for the opposite proposition. HN8 Bankruptcy relief is generally unavailable where the trustee "will necessarily be required to possess and administer assets which are either illegal under the CSA or constitute proceeds of activity criminalized by the CSA." In re Way to Grow, Inc., 597 B.R. 111, 120 (Bankr. D. Colo. 2018), aff'd sub nom. Way to Grow, Inc. v. Inniss (In re Way to Grow, Inc.), 610 B.R. 338 (D. Colo. 2019); accord Burton, 610 B.R. at 640-41 (affirming dismissal of chapter 13 case where debtors "failed to demonstrate that their ties to [the company] would not result in proceeds of an illegal business becoming part of the bankruptcy estate, requiring the trustee and the court to administer assets that constitute proceeds of activity criminalized by the CSA"); In re Arenas, 535 B.R. at 852-53 (affirming conclusion that debtors who lacked ability to fund plan without using proceeds of a marijuana growing operation were incapable of proposing a confirmable plan under § 1325(a)(3)); In re McGinnis, 453 B.R. 770, 772 (Bankr. D. Or. 2011) (denying confirmation because the plan's reliance on income derived from the marijuana industry violated the good faith requirement of § 1325(a)(3)). ... "We reach this conclusion even though it establishes the sort of per se rule discouraged by Puffer. In that case, the First Circuit held that fee-only chapter 13 plans are not categorically prohibited by § 1325(a)(3). HN9 Here, we hold that plans funded with the proceeds of CSA violations are categorically prohibited by § 1325(a)(3). The distinction is that the Bankruptcy Code does not prohibit fee-only plans, but federal law does proscribe the sale of cannabis. Moreover, formulation of a plan is at the heart of the chapter 13 process. The chapter 13 trustee is, in most instances, the person who collects the debtor's payments and disburses money to creditors. HN10 While not entirely free from debate, we believe that bankruptcy courts have license to pass judgment on chapter 13 plans—including the source of funding for those plans—in a way that is materially different from passing judgment on whether a person gains access to the bankruptcy court in the first place. One can easily imagine a situation involving a debtor who needs the relief afforded by chapter 13 and can fund a plan with money that was not derived from pre-or post-petition cannabis-related employment, even while that debtor continues working in the cannabis industry. If the chapter 13 trustee is not required to receive and disburse money obtained from that employment, sound bankruptcy policy dictates that the debtor be given a chance to pursue a chapter 13 discharge. So, too, with a chapter 7 debtor whose post-petition wages are not part of the bankruptcy estate. This rationale becomes more compelling when, as the Bankruptcy Code requires, the interests of creditors are put into the calculus. Here, however, the Plan could not be confirmed because it would have been directly funded by the proceeds of illegal activity. Such a plan is, per se, proposed in bad faith." | 11 U.S.C. § 1307(c)(5) 11 U.S.C. § 1325(a)(3) 11 U.S.C. § 1325(a)(7) |
| In re Salvador | 9th Cir. | 3/1/2024 | The court denied the debtor's request to reconsider following the Beard test to determine whether a document qualifies as a tax return. "Section 523(a)(1)(B)(i) of the Bankruptcy Code provides that tax debts are only dischargeable if, among other things, the debtor has filed a return. The statute did not originally define what qualified as a "return." In the absence of a statutory definition, this court adopted the Tax Court's Beard test to determine whether a document filed by the debtor qualifies as a return. See In re Hatton, 220 F.3d 1057, 1060-61 (9th Cir. 2000) (quoting Beard v. Comm'r of Internal Revenue, 82 T.C. 766 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986) (per curiam)). The Beard Test has four elements: "First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury." Beard, 82 T.C. at 777. "Applying Beard, we held in In re Hatton that a document filed by a debtor after the IRS has already assessed his taxes does not generally qualify as a return because such a late filing is not an "honest and reasonable attempt" to comply with the tax law. 220 F.3d at 1061. 1 Then in In re Smith we held that the Beard test remains unchanged, even though Congress later defined "return" in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA). 828 F.3d 1094, 1097 (9th Cir. 2016); 2 seealso 11 U.S.C § 523(a)(*) (BACPA defining "return" in part as a "return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements)."). "Salvador concedes that he loses under this court's precedent. He filed his purported returns after the IRS had already assessed his tax liability. Under a straightforward application of Beard and Smith, his filing does not qualify as a return and his tax debts are nondischargeable. We thus affirm the BAP's decision upholding summary judgment for the government. "Salvador nevertheless brings this appeal to try to change the Ninth Circuit's case law. He filed a petition for initial hearing en banc, urging this court to adopt the Eighth Circuit's approach from In re Colsen, 446 F.3d 836 (8th Cir. 2006), a decision applying pre-BAPCA law. 3 On behalf of the court, we deny Salvador's petition for initial hearing en banc, Dkt. No. 32. There is no intra-circuit split and adopting Salvador's approach would only further entrench the existing inter-circuit split." | 11 U.S.C. § 523(a)(1)(B)(i) |
| In re Syed | Bankr. N.D. IL | 2/28/2024 | The court held that a prepetition eviction order for unpaid condominium assessments does not divest the unit owner of an ownership interest. Further an unexecuted prepetition eviction order does not preclude the treatment of a judgment for condominium assessments in a chapter 13 plan or furnish groups for stay relief. "The Debtors having defaulted on their condominium assessments, the Association obtained judgments of eviction (the "Eviction Orders") in May 2023. But as of the petition [June 2023], the Association had not secured possession of either unit. In their respective chapter 13 plans, the Debtors propose to repay the outstanding assessments and other amounts owing the Association in equal monthly payments over the term of their plan while remaining in possession of their units. The Association opposes confirmation in both cases by arguing that the entry of the Eviction Orders "terminated the Debtor's right to possession after that date unless and until the Debtor pays the judgment, with fees, costs, and interest, in full." Contending that the Bankruptcy Code does not extend the time for Debtors to regain their "right to possession" beyond the 60 days provided under section 108(b)(2), the Association argues that the court may not confirm a plan that proposes to repay its judgment for outstanding assessments over the course of years "during which the Movant is denied the right to possession." Therefore, it argues, the proposed plans impermissibly modify the Association's possessory rights and may not be confirmed under section 1322(b)(2). (Id. at 5.) For these reasons, too, the Association claims it lacks adequate protection of its rights in the property and requests modification of the automatic stay. ... "The unit owner's right to cure recognized by the Illinois statute additionally distinguishes the condominium eviction process from a foreclosure sale. As explained by the Seventh Circuit in a decision cited by the Association, Colon v. Option One Mortgage Corp., Bankruptcy Code section 1322(c)(1)'s "wording and its legislative history both indicate an intent to set the limit on the right to cure no earlier than the date of the judicial sale," but "requires deference to state mortgage law on the scope of any right to cure after the sale." 319 F.3d 912, 920 (7th Cir. 2003). Because Illinois foreclosure law does not provide the chapter 13 debtor with a right of redemption after a foreclosure sale, Colon held section 1322(c)(1) does not "create[] a more expansive right to cure than that which the Illinois Code provides." Id. at 920-21. However, as discussed above, unlike a mortgagee facing the foreclosure sale of its property, Illinois law does not restrict the time for the unit owner to regain the right to possession by paying the amount owed and seeking vacatur of the eviction order. Instead, section 5/9-911 recognizes the condominium owner's right to do so "at any time, either during or after the period of stay." 735 ILCS 5/9-111(a). "The Association also references section 362(b)(22) of the Bankruptcy Code in support of its argument. That section excepts from the automatic stay "the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor." 11 U.S.C. § 362(b)(22). While referring to eviction and unlawful detainer actions, that section expressly applies only to a "proceeding by a lessor" for property "in which the debtor resides as a tenant under a lease or rental agreement." But the relationship between a condominium association and a unit owner is not that of a landlord to a tenant: Illinois law determines the former relationship by statute, and not by a lease or rental agreement as it does the latter. Spanish Court, 2014 IL 115342, ¶¶ 23-24." | 11 U.S.C. § 362(b)(22) 11 U.S.C. § 541 11 U.S.C. § 542(a) 11 U.S.C. § 1322(c)(2) |
| In re Paul | Bankr. N.D. IA | 2/28/2024 | The court held that a nondischargeable debt for "personal injury" as contemplated by 11 U.S.C. § 523(a)(9) includes a monetary civil judgment against the debtor for past pain and suffering, future pain and suffering, past loss of function of body and mind, and/or future loss of function of body and mind. "Paul argues that the amounts awarded for past and future pain and suffering, as well as past medical expenses, should not be excepted from discharge because they are not debt for "personal injury" as contemplated by 11 U.S.C. § 523(a)(9). Here, Paul offers no facts to show that these damage awards are not for personal injury. "Furthermore, Paul's position is inconsistent with the language of the Bankruptcy Code. The Code defines "debt" to mean "liability on a claim." 11 U.S.C. § 101(12). "'[D]ebt for' is used throughout to mean 'debt as a result of,' 'debt with respect to,' 'debt by reason of,' and the like . . . connoting broadly any liability arising from the specified object." Cohen v. de la Cruz, 523 U.S. 213, 220 (1998) (citing American Heritage Dictionary 709 (3d ed. 1992); Black's Law Dictionary 644 (6th ed. 1990); and Pa. Dept. of Pub. Welfare v. Davenport, 495 U.S. 552, 562 (1990)). "A non-dischargeable debt includes the full amount of the liability associated with the conduct at issue, including 'debt arising from' or 'debt on account of' that personal injury." In re Deluty, 540 B.R. 41, 47 (Bankr. E.D.N.Y. 2015) (emphasis added). Damages for pain and suffering are a kind of loss [*9] or debt arising from personal injury. In re Buchholz, 144 B.R. 443, 445 (Bankr. N.D. Iowa 1992) (citing Dan B. Dobbs, Law of Remedies § 8.1 at 540 (3d ed. 1973)) ("Dobbs describes three basic kinds of losses arising in personal injury cases—(1) time losses (lost wages and lost earning capacity); (2) the expenses incurred by reason of the injury (medical expenses and 'kindred items'); and (3) 'pain and suffering in its various forms.'"). "Here, the full amount of the debt owed to the Plaintiff arose from the injuries she sustained as a result of Paul's intoxicated operation of a motor vehicle. Therefore, the Court finds that the award for past and future pain and suffering, as well as past medical expenses, is debt for personal injury as contemplated by the Bankruptcy Code." | 11 U.S.C. § 523(a)(6) 11 U.S.C. § 523(a)(9) |
| In re Mayen | 9th Cir. | 2/27/2024 | The court ruled that judicial estoppel applied to the debtor's FDCPA claim because he was aware of, but failed to disclose, the existence of his claims in his bankruptcy proceedings and any amendment to his schedules would be futile. "The district court did not err in dismissing Mayen's action on the basis of judicial estoppel because Mayen was aware of, but failed to disclose, the existence of his claims in his bankruptcy proceedings. See Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 783-84 (9th Cir. 2001) (explaining that "a party is judicially estopped from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the debtor's schedules or disclosure statements" and the bankruptcy court need not actually discharge the debts for judicial estoppel to apply). "The district court did not abuse its discretion by denying further leave to amend because amendment would have been futile. See Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1041 (9th Cir. 2011) (setting forth standard of review and explaining that leave to amend may be denied when amendment would be futile); Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1072 (9th Cir. 2008) (explaining that "the district court's discretion to deny leave to amend is particularly broad where plaintiff has previously amended the complaint" (citation and internal quotation marks omitted))." | Judicial estoppel |
| In re Worth | S.D. NY | 2/26/2024 | The court held that a one-time receipt of an inheritance by a non-filing spouse and a capitol gain from the sale of inheritance related assets was not a basis to require the debtor to amend the plan nor to dismiss the bankruptcy for failure to amend the plan. "Here, the Debtor argues that the Bankruptcy Court erred in determining that the case would be dismissed unless the Plan was modified, because "current monthly income does not include all the income of the non-debtor spouse, but rather only amounts expended on a regular basis for household expenses." (Appellant's Br. at 12.) Thus, she contends, the one-time capital gain from the property sale (or, presumably, one-time bonuses) should not have been considered a part of her current monthly income under the Bankruptcy Code. (Id. at 13.) She relies in part on In re Malewicz, 457 B.R. 1 (Bankr. E.D.N.Y. 2010), in which a non-filing spouse sought an order that he had no obligation to remit to the Chapter 13 Trustee, for distribution to creditors, his share of a post-confirmation joint tax refund. [*16] In determining that the non-debtor spouse's failure to turn over his share of the tax refunds did not constitute a default under the Chapter 13 plan, the Malewicz court relied on In re Quarterman, 342 B.R. 647 (Bankr. M.D. Fla. 2006), which held that "based upon the explicit language of section 101(10A), current monthly income does not include all the income of the non-debtor spouse, but rather only amounts expended on a regular basis for household expenses." Id. at 651 (emphasis in original). The Malewicz court "agree[d] with the statutory analysis in Quarterman and the conclusion that a non-debtor spouse's entire income is not included in the projected disposable income analysis." In re Malewicz, 457 B.R. at 7. It concluded that the non-debtor spouse's failure to disgorge his portion of the post-confirmation joint tax refund was not a default under the Plan, see id. at 9, because "although the calculation of 'projected disposable income' under the chapter 13 means test included a portion of the Non-Debtor Spouse's monthly income, that calculation is used only to arrive at the Debtor's monthly plan payment obligation" and "[i]n and of itself this does not afford the Trustee any right to compel the Non-Debtor Spouse to contribute his property to the Plan," id. at 2. "In arguing that there was a substantial increase [*17] in the Debtor's disposable income largely as a result of money that the Debtor's husband received from the sale of inherited property, (see A. 127-31), the Trustee relies in part on In re Solis, 172 B.R. 530 (Bankr. S.D.N.Y. 1994), where the court determined that the Debtor's receipt of $40,000 from the sale of his medical practice was a substantial change in circumstances in the form of "increased income or receipt of a large sum of money." Id. at 532. After "balanc[ing] the equities," the court concluded that allowing the debtor to receive a $40,000 windfall while his unsecured creditors only received 10% of their claims would be a "perversion" of 11 U.S.C. § 1325(a)'s good faith provision and of 11 U.S.C. § 1325(b). Id. at 533. The Trustee cites this case to support the proposition that a substantial change in the debtor's financial circumstances may warrant an increase in payment, (see Appellee's Br. at 7), but in Solis, the court was considering the debtor's receipt of a large sum of money. Here we are considering the non-filing spouse's receipt of a large sum of money. I agree with the courts that have determined that if a non-debtor spouse's income is not "'(1) expended regularly (2) on household expenses, then it is not included in the debtor's current monthly income'" because the Code [*18] defines "current monthly income" as monthly income received on a regular basis for household expenses. In re Malewicz, 457 B.R. at 7 (quoting In re Quarterman, 342 B.R. at 650-51); see 11 U.S.C. § 101(10A)(B). Thus, the one-time funds that the Debtor's husband received from the sale of inherited property cannot be considered monthly income. ... "But in light of the plain language of section 101(10A)(B), the non-filing spouse's receipt of an inheritance or other one-time windfall does not constitute an increase in the debtor's current monthly income. Even an increase in the spouse's salary would only do so if, over time, the spouse regularly contributed that increase to household expenses. To the extent fairness might require that a Chapter 13 plan funded solely by a non-filing spouse be amended upward whenever that spouse's income or assets increase, that change would have to come from an amendment to the Code." | 11 U.S.C. § 101(10A)(B) 11 U.S.C. § 1307 11 U.S.C. § 1325(b)(1)(B) 11 U.S.C. § 1329(a) |
| In re Beach | D. NM | 2/15/24 | The court ruled that a debt is contingent if the proof of claim does not provide enough facts to support the assertion that the Debtors' are responsible and not that the Debtors dispute the debt. The creditor challenged the Debtors' eligibility for chapter 13 bankruptcy based on their claim which would exceed the debt cap for chapter 13 under 11 U.S.C. § 109(e). The Debtors scheduled this debt as "contingent," "unliquidated," and "disputed." Pre-petition, the creditor had sued the Debtors in state court but their bankruptcy was filed prior to final judgment. "Eligibility for Chapter 13 bankruptcy is governed by 11 U.S.C. § 109(e)—as was in effect at the time the bankruptcy petition was filed. 11 U.S.C. § 109(e). The Beaches filed their petition on June 18, 2021. App'x at 1. On June 18, 2021, married debtors were only eligible for Chapter 13 bankruptcy if they owed "noncontingent, liquidated, unsecured debts that aggregate less than $419,275."3 11 U.S.C. § 109(e) (2010). "In the Chapter 13 eligibility context, a "debt" is "(1) the actual obligation to pay as it exists in the contemplation of applicable law, or (2) the obligation to pay as asserted by the debtor in the bankruptcy schedules or otherwise." In re Lambert, 43 B.R. 913, 919 (Bankr. D. Utah 1984). "The term 'claim' was avoided because the Congress did not wish the Section 109(e) eligibility determination for Chapter 13 debtors to be predicated upon the mere demands of creditors." Id. "Still, when determining eligibility, the Court primarily looks to the debtor's schedules and proofs of claims, "checking only to see if these documents were filed in good faith." Kanke v. Adams (In re Adams), 373 B.R. 116, 121 (B.A.P. 10th Cir. 2007) (citation omitted). "In so doing, however, the court should neither place total reliance upon a debtor's characterization of a debt nor rely unquestionably on a creditor's proof of claim, for to do so would place eligibility in control of either the debtor or the creditor." Id. The Court may look to "other evidence offered by a debtor or the creditor to decide only whether the good faith, facial amount of the debtor's liquidated and non-contingent debts exceed statutory limits." Id. ... Contingent v Noncontingent: "A debt is noncontingent "if all events giving rise to liability occurred prior to the filing of the bankruptcy petition." In re Barcal, 219 B.R. at 1013. A [*9] debt is contingent "if the debt is one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor and if such triggering event or occurrence was one reasonably contemplated by the debtor and creditor at the time the event giving rise to the claim occurred." In re Lambert, 43 B.R. at 922 (citation omitted). "A debt is not automatically rendered 'contingent' solely by virtue of its being disputed." Id. at 923. ... "A pending judicial determination of liability is not sufficient to render a debt contingent. In re Faulhaber, 269 B.R. 348, 354 (Bankr. W.D. Mich. 2001). In most cases, a debt is noncontingent even if a judge has not decided whether the debtor is liable for the debt. Id. ... "When money is not owed until a subsequent event occurs, the debt is contingent even if the debt is the subject of litigation. C.f. In re Lambert, 43 B.R. at 923. For example, in In re Baird, a creditor filed a lawsuit for, in relevant part, a breach of contract against the debtor and a third-party company for which the debtor was a controlling shareholder. In re Baird, 228 B.R. 324, 326-27 (Bankr. M.D. Fla. 1999). While breached contracts are generally noncontingent, in In re Baird, the breached contract was not. Id. at 331; see, e.g., In re Michaelson, 74 B.R. 245, 250 (Bankr. D. Nev. 1987) (breached contracts, even when disputed, are typically noncontingent). The In re Baird bankruptcy court reasoned that the debtor was not a party to the contract. In re Baird, 228 B.R. at 331. In other words, the debtor never agreed to pay the debt, and it had not "been deemed owed by operation of law." Id. The bankruptcy court therefore held that the alleged debt was contingent because it had not been established that the debtor actually "owed" the creditor. Id. ... "Here, the alleged loan debt is contingent. A facial review of Iron Horse's Proof of Claim #10 does not show that the Beaches are obligated to repay Iron Horse. See In re Lambert, 43 B.R. at 919 (defining a debt). Other than the self-serving statements contained in Proof of Claim #10, there is no evidence of a contract between the Beaches and Iron Horse.6 See In re Michaelson, 74 B.R. at 250 (breached contracts are typically noncontingent). There is no indication that the Beaches agreed, even orally, to repay Iron Horse. There is no indication that the Beaches agreed to an interest rate. There is no description of the terms of this alleged loan. There is no description of under what circumstances, if any, that the Beaches would be expected to repay such a large sum. See, e.g., In re Whittaker, 177 B.R. 360, 365 (Bankr. N.D. Fla. 1994) (oral agreement to repay a loan "when [financially] able" was contingent on debtor becoming able to pay). There is no statutory obligation for the Beaches to pay Iron Horse. See In re Mazzeo, 131 F.3d at 303 (statutory obligations to pay are generally noncontingent). Based on the information before the Court, the only basis debtors would be obligated to repay the alleged loan debt is if the state court decided, presumably under a rule of equity, that debtors were obliged to do so.7 As such, the alleged loan debt is contingent on the state court's determination that the Beaches are obligated to pay the debt. Id. ("[C]ontingency involves the nature or origin of liability. . . . [L]iability does not mean the same as judgment or remedy, but only a condition of being obligated to answer for a claim."). ... "To hold otherwise would inappropriately put debtors' eligibility solely in Iron Horse's control. Courts repeatedly caution against predicating eligibility "upon the mere demands of creditors," In re Lambert, 43 B.R. at 919, or relying "unquestionably on a creditor's proof of claim," In re Adams, 373 B.R. at 121. Iron Horse argues that to rule against it would instead put total control of eligibility into the Beaches' hands. Doc. 13 at 8. I disagree. The basis for excluding the alleged loan debt is not solely because the Beaches dispute the debt. Instead, Iron Horse itself did not provide enough facts to support the assertion that the Beaches are obligated to pay it, even when its claim is only facially reviewed. " | 11 U.S.C. § 109(e) |
| Davis v Carrington | N.D. IN | 2/14/2024 | The court allowed the Debtor to avoid a judicial lien under 11 U.S.C. § 522(f) on property held as tenants by the entirety. The court held that a judicial lien doesn't affix to real estate because the Debtor's sole ownership of the property is contingent and under Indiana law the lien doesn't affix until the property is transferred in Debtor's name alone. Pre-petition, the creditor filed a judgment lien. In 2017 the Debtor filed a chapter 13 bankruptcy and ultimately claimed an exemption in his real estate as being held as tenancy by the entireties. The creditor filed a secured claim and the Debtor objected to the claim arguing it was unsecured. On a different appeal, the district court held that the Debtor " had an individual future contingent interest in the Property, to which the Davis lien had attached. The Court remanded the matter back to the Bankruptcy Court for further findings on whether the Debtor's future contingent interest in the Property was exempt, or whether the Davis Judicial Lien could be avoided. " On remand, the Debtor converted the case to a chapter 7 and then filed a motion to avoid the lien. The district court reversed the previous opinion. "But there is an easy reason why this approach does not work. Indiana judgment lien law establishes "[a]ll final judgments for the recovery of money or costs in the circuit court and other courts of record of general original jurisdiction in Indiana, whether state or federal, constitute a lien upon real estate and chattels real liable to execution in the county where the judgment has been duly entered and indexed in the judgment [*10] docket as provided by law . . . ." I.C. 34-55-9-2 (emphasis added). This is the point - a future contingent interest in a property held as tenants by the entirety is not a lien "liable to execution" because there is really nothing to execute upon. "It is well established that the Entireties Exemption in Indiana prevents a judgment against one spouse from affixing as a lien to property held as tenants by entirety. In re Paeplow, 972 F.2d 730, 733 (7th Cir. 1992) (creditors "cannot execute on entirety property without first obtaining a judgment against both spouses"); Enloe v. Franklin Bank & Trust Co., 445 N.E.2d 1005, 1009 (Ind. Ct. App. 1983) (finding in Indiana "[a]n estate by the entireties is immune to seizure for the satisfaction of the individual debt of either spouse."). ... "This [*12] fundamental misunderstanding is further demonstrated by the recent case of Warsco v. Creditmax Collection Agency, Inc., 56 F.4th 1134 (7th Cir. 2023). While Warsco is not squarely on point, and I think I would have to hesitate as qualifying it as controlling authority issued after Judge Brady's opinion, it does give additional credence to my resounding feeling that Judge Brady's decision was incorrect. Warsco dealt with the admittedly different factual scenario of a garnishment order and whether in the bankruptcy context that state court garnishment order issued more than 90 days before the debtor filed his bankruptcy petition was an avoidable preference payment. Frankly, I find the terse Warsco opinion a little cryptic, but the Seventh Circuit seems to hold that under federal law, the date of "transfer" is the time when the money passes to the creditor's control and that only the date of payment matters when defining a transfer under section 547. Id. The Debtor in this case argues that similarly, the date of the affixing of a judicial lien is the date when the entireties tenancy is broken and the property is transferred into a debtor's individual name or to the debtor as a tenant in common. [DE 18 at 15.] The lien does not attach with the recording of the judgment, [*13] it is the transfer date, or when the entireties is severed, that matters. Id. I understand the Debtor's analogy, but because Warsco is so different factually, I do not put as much stock in that case as the Debtor does. Nevertheless, due to the reasons I expounded on before, I do find that Judge Brady erred when she held that the Debtor's future contingent interest in the Property was a secured claim." | 11 U.S.C. § 522(f) |
| Ovation v Perez | W.D. TX | 2/12/24 | The court agreed that a tax-lien creditor is not solely bound by 11 U.S.C. § 505 and must comply with 11 U.S.C. §506(b) and Fed. R. Bankr. P. 2016 to recover post-petition attorney fees and costs after bankruptcy-court approval. Further, the court held that the tax lien can ultimately be discharged upon completion of the chapter 13 plan. The court also found that the creditor failed to comply with all of the requirements in Bankruptcy Rule 8014 and had done so in other appeals. "Due to this improper presentation of appellate argument, it is difficult for this Court to determine what specific error Ovation contends the Bankruptcy Court committed. For this reason, this appeal could be dismissed for inadequate briefing. See id. Again, upon review, it appears Ovation omitted this critical briefing requirement in other appeals." "Perez filed an Amended Plan on September 15, 2022, in which she continued to treat the Note and tax lien owed to Ovation as a secured claim to be paid in full; however, she revised the amount of debt and interest rate to $34,667.38 and 14%, respectively, as reflected in Ovation's Proof of Claim. ECF No. 9-2, pp. 91-99. Following Trustee Viegelahn's responses, Ovation then filed an Amended Objection to confirmation of the Plan ("Amended Objection") presenting new arguments. BKC ECF No. 26; ECF No. 9-2, pp. 227-237. In this Amended Objection, Ovation argued the Second Amended Debtor's Plan should not be confirmed because: (1) Trustee Viegelahn was required to file a written objection to confirmation to be heard at the hearing; (2) related to this first argument, the Bankruptcy Court's Standing Order, which requires only creditors to file written objection, is invalid; (3) Perez failed to maintain insurance; (4) Trustee Viegelahn improperly insisted the Plan require Ovation to release its lien upon full payment and discharge of the original debt because an adversary proceeding is required to release its lien and because its post-petition attorney fees and costs should also be secured by its lien on the Property; (5) Ovation may accrue attorney fees post-petition pursuant to Bankruptcy Code §506(b), but does not have to file applications or motions for payment of these fees; (6) determination of post-petition fees is Perez's burden under §505; and (7) its statutory lien passes through bankruptcy unaffected even for undisclosed and unapproved post-petition attorney fees and costs. ECF No. 9-2, pp. 227-237. "In response, Trustee Viegelahn argued: (1) she was not required to file a written objection; (2) determination of reasonableness of post-petition fees is a matter of federal law; (3) Ovation improperly sought to invalidate the standard provision of the form plan required to be filed by all Chapter 13 debtors in the Western District of Texas; (4) §506(b) requires the filing of an application by an oversecured creditor for any post-petition fees, costs or charges; (5) the Plan (or Order Confirming Plan) should include a provision that requires Ovation to file periodic application(s) for post-petition attorney fees, costs, or charges during the term of the Plan for the Bankruptcy Court's determination of reasonability. Id. at pp. 227-245. ... "On January 25, 2023, the Bankruptcy Court issued an Order overruling Ovation's Amended Objections to Confirmation of the Amended Plan. In re Perez, 648 B.R. 833 (Bankr. W.D. Tex. 2023) (Order also found at ECF No. 9-2, pp. 371-379). In this Order, the bankruptcy court held: (1) Trustee Viegelahn was not required to file written objection to be heard at the hearing for confirmation of Perez's Plan; (2) Ovation's remedy to obtain payment of post-petition attorney fees and costs was to file a motion or application for attorney fees and costs pursuant to Bankruptcy Code §506(b), which governs determination of secured status; (3) Bankruptcy Code §505, governing determination of tax liability, did not govern Ovation's claim for post-petition attorney fees and costs, but applied only to Ovation's security interest in Perez's property; and (4) Bankruptcy Rule 2016, which required filing disclosure of compensation or fee application, applied to Ovation's claim for post-petition attorney fees and costs. [*6] In re Perez, 648 B.R. at 833 (synopsis). The Bankruptcy Court scheduled a hearing for plan confirmation for February 16, 2023, and stated, because it denied Ovation's objections and reset confirmation, "the Trustee may propose the manner in which Ovation must make periodic disclosures" of its post-petition attorney fees and costs. Id. at p. 838, n.8. The Bankruptcy Court further ordered "Ovation is precluded from raising these arguments again at plan confirmation." Id. at 847. Section 505 "Ovation argues that, as a statutory tax lien holder, the only provision of the Bankruptcy Code that applies to its collection of its post-petition attorney fees and costs is 11 U.S.C. §505. Because only §505 applies to statutory tax lien holders, the bankruptcy court erred by requiring Ovation to file an application under 11 U.S.C. §506(b) and Fed. R. Bankr. P. 2016 to recover post-petition attorney fees and costs after bankruptcy-court approval. "Ovation attempted to avoid bankruptcy-court oversight and determination of reasonability of its requested attorney fees in other appeals. (Citations omitted.) In those cases, however, Ovation argued that by requiring it to comply with procedures for prosecuting its post-confirmation claims, the Chapter 13 Plan violated its rights as a statutory tax lien holder. Id. Simply, Ovation argued it was not subject to the requirements of §506(b) and Fed. R. Bankr. P. 2016. The bankruptcy court and/or appellate district court rejected Ovation's basis and reasoning in these previous cases. "As a new path to obtain a favorable finding that it need not file applications for payment of attorney fees and costs and obtain a reasonable-determination from the Bankruptcy court, Ovation argues for the first time in this case that it is not subject to Bankruptcy Code §506, but, instead, its status as an oversecured statutory tax lien creditor falls under Bankruptcy Code §505 because its post-petition attorney fees and costs qualify as an "addition to tax" as used in that statute. In re Perez, 648 B.R. at 839-40. ... "To begin this analysis, the parties do not dispute Ovation holds a statutory tax lien on Perez's property, and it is an oversecured creditor, which entitles it to post-petition attorney fees and costs. ECF No. 9-2, p. 112; see 11 USC §506(b). As an oversecured creditor, Ovation seeks to pursue postpetition attorney fees and costs outside of bankruptcy-court scrutiny under §505(a)(1), which states: "... the court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction." 11 U.S.C. §505. In comparison, §506(b) of the Bankruptcy Code states the holder of an oversecured claim shall be allowed "interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose." 11 U.S.C. §506(b). In this respect, §506(b) operates in conjunction with Bankruptcy Rule 2016, which mandates the holder of a claim upon a bankruptcy petitioner's assets must file an application with the court itemizing all fees, expenses, and charges incurred after the petition is filed and prior to confirmation. (Citations omitted.) "The Fifth Circuit recognizes the applicability of §506(b) to attorney fees and costs incurred post-petition and pre-confirmation. In re 804 Cong., L.L.C., 756 F.3d 368, 373 (5th Cir. 2014). This requirement serves to allow bankruptcy-court scrutiny of oversecured creditors' requests for post-petition fees, expenses, and interest to maximize equality among creditors. Id. Courts require oversecured [*18] creditors to prove their claims meet §506(b)'s reasonableness requirements and the burden is on the creditor to show entitlement and reasonableness. In re 804 Cong., 756 F.3d at 373; In re Padilla, 379 B.R. at 654 (citing In re Tate, 253 B.R. 653, 666 n. 8 (Bankr. W.D. N.C. 2000)). If a party seeking such postpetition fees and costs did not file applications, it would be "'impossible to determine the charges' reasonableness under §506(b)' and violate the spirit of disclosure embodied in the Bankruptcy Code." In re Jack Kline Co., Inc., 440 B.R. at 733 (quoting Sanchez v. Ameriquest Mortg. Co. (In re Sanchez), 372 B.R. 289, 305 (Bankr. S.D. Tex. 2007)). "Following this longstanding precedence of the applicability of §506(b) and Bankruptcy Rule 2016 to these facts, upon de novo review, this Court finds the bankruptcy court correctly applied the law and required Ovation, as an oversecured creditor, to file application for payment of its postpetition attorney fees and costs. In re Perez, 648 B.R. at 844 (discussing In re 804 Congress, 756 F.3d 368). Further, Ovation provides no caselaw that supports its position that only §505 applies to it as an oversecured creditor or that its postpetition attorney fees and costs qualify as "additions to tax" under that provision, and this Court finds none. ... "Upon this de novo review this Court concludes the bankruptcy court's legal conclusions are correct as applied to the undisputed facts. Bankruptcy Code §505 does not apply to Ovation as it pertains to any recovery of postpetition attorney fees or costs. Rather, to obtain post-petition attorney fees and costs, Bankruptcy Code §506(b) applies, and Ovation must comply with the requirements of Fed. R. Bankr. P. 2016. The Court affirms the bankruptcy court's determination on this legal issue." Termination of Lien Upon Discharge "A lien on property securing a debt may be extinguished in two ways that are relevant to this case1 : (1) a debtor provides for, and pays in full, the underlying debt under a confirmed plan; and (2) by operation of § 506(d) of the Bankruptcy Code. See In re Kleibrink, 2007 U.S. Dist. LEXIS 63974, 2007 WL 2438359, at *5. Under the first method, when a debtor satisfies all payments due a creditor under a Chapter 13 confirmed plan, the bankruptcy court must discharge [*24] the debt, with certain exceptions specified in Bankruptcy Code 11 U.S.C. § 1328(a). Such a discharge operates as an injunction against the commencement or continuation of any action to collect, recover, or offset any discharged debt as a personal liability of the debtor. 11 U.S.C. § 524(a)(2). Because a lien exists only to secure the debt, which is then discharged, "it is not that the lien is extinguished, but rather, the underlying debt is paid such that the lien secures nothing and is therefore discharged. In re Kleibrink, 2007 U.S. Dist. LEXIS 63974, 2007 WL 2438359, at *5; In re Allen, 122 Fed. App'x. 96, 97 (5th Cir. 2004); see also In re Stovall, 256 B.R. at 493. Thus, liens do not survive bankruptcy where the debt is provided for in the plan and is paid in full. Id. However, if the debt is not paid in full under the Plan, the lien remains intact and passes through bankruptcy unaffected. Id. "Following this distinction, the bankruptcy court did not err, as Ovation contends, by overruling its objection to confirmation of the Plan and treating its claim as a "paid in full" claim which can be discharged should Perez provide full payment, which would, then, extinguish Ovation's tax lien. Ovation chose to participate in the bankruptcy proceeding and did file a Proof of Claim." | 11 U.S.C. § 505 11 U.S.C. § 506 Rule 2016 |
| In re Dugar | 9th Cir BAP | 2/9/24 | The court granted the Debtor's motion for summary judgment and dismissed an adversary proceeding to hold the debt non-dischargeable under 11 U.S.C. §§ 727(a)(2), (a)(3), (a)(4), and (a)(5). In the opinion the court discussed several issues that may be relevant to consumer bankruptcy debtors. These issues include: 1) whether the court erred when it granted the Debtor relief from his deemed admissions when he initially failed to properly respond to the Plaintiffs' request for admissions and 2) whether the court erred in finding that Plaintiffs had failed to state a claim for non-dischargeability. Relief from RFA: "Under Civil Rule 36(b), the court may grant relief from matters deemed admitted under Civil Rule 36(a)(3) when "(1) the presentation of the merits of the [*16] action will be subserved, and (2) the party who obtained the admission fails to satisfy the court that withdrawal or amendment will prejudice that party in maintaining the action or defense on the merits." Conlon v. United States, 474 F.3d 616, 621 (9th Cir. 2007) (cleaned up). The first part of this test is met when the admissions would effectively preclude trial on the merits. Id. at 622. Under part two, the party relying on the deemed admission must prove prejudice. Id. Prejudice in this context is more than the inconvenience of having to present evidence at trial and persuade the trier of fact as to the truth of the party's allegations. Id. Instead, prejudice for purposes of Civil Rule 36(b) focuses on any difficulties the adverse party might face in marshalling and presenting evidence to support its positions as a direct result of the sudden withdrawal of the deemed admissions. Id. The trial court also may take into account other factors, including the cause of any delay, the good faith of the party seeking relief, the relative strength of that parties' positions on the merits, and whether the failure of the party seeking relief to properly or timely respond to the request for admission was the result of inadvertence or a more culpable state of mind. Id. at 625; Arias v. Robinson, 2022 WL 36915, at *4 (D. Nev. Jan. 4, 2022). "The Bjornbaks have failed to demonstrate an abuse of discretion or reversible error in the decision to grant Dugar relief from the deemed admissions. The bankruptcy court explained in detail how the deemed admissions would prevent Dugar from presenting facts central to his defense. It also considered the respective conduct of the parties regarding the RFAs, noting that the Bjornbaks never advised Dugar of the effect of a failure to timely or properly respond to the RFAs and never requested that he simply sign them. When the issue was raised Dugar promptly submitted a new, signed version of his RFA responses. "Nor did the Bjornbaks demonstrate any prejudice. First and foremost, Dugar did respond to the requests although he emailed them to the Bjornbaks and did not sign them. Similarly, they complain that Dugar never served on them his opposition to their motion to deem facts admitted. On this record, these were technical violations, which did not prejudice or adversely affect the Bjornbaks. Dugar promptly provided signed responses after the Bjornbaks first raised the issue in their motion to deem facts admitted. Similarly, they were made aware of Dugar's opposition and substance of his arguments from [*18] the OSC entered by the court. The Bjornbaks do not dispute that they received the OSC and were able to fully present their arguments against granting relief from the deemed admissions. At most, these circumstances suggest harmless error. We must ignore harmless error. See Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344, 355 (9th Cir. BAP 2012). Moreover, no trial date had been set. The Bjornbaks were afforded ample time to take discovery and had done so. And to the extent that Dugar modified his RFA responses, the court was clear that it would provide the Bjornbaks with an opportunity to further depose Dugar if they desired to do so." Failure to Prove Non-Dischargeability "Section 727(a)(2): "Under § 727(a)(2), the bankruptcy court must deny the debtor a discharge when "the debtor, with intent to hinder, delay or defraud a creditor . . . has transferred, removed, destroyed, mutilated, or concealed . . . (A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition." "To prevail on their § 727(a)(2) claim, the Bjornbaks needed to prove: "(1) a disposition of property, such as transfer or concealment, and (2) a subjective intent on the debtor's part to hinder, delay or defraud a creditor through the act [of] disposing of the property." In re Retz, 606 F.3d at 1200 (quoting [*21] Hughes v. Lawson (In re Lawson), 122 F.3d 1237, 1240 (9th Cir. 1997)). In addition, the Bjornbaks needed to show that Dugar disposed of "property of the debtor" within a year before the bankruptcy was filed. § 727(a)(2)(A); In re Lawson, 122 F.3d at 1240. Alternatively, the Bjornbaks could have shown that Dugar disposed of "property of the estate, after the date of the filing of the petition." § 727(a)(2)(B); see also In re Retz, 606 F.3d at 1203 ("§ 727(a)(2)(B) specifically governs transfers of property belonging to the estate."). "The Bjornbaks apparently concede that many of the alleged property dispositions they originally complained of fall outside the temporal limits of § 727(a)(2). ... "Section 727(a)(3). "Under § 727(a)(3), the bankruptcy court must deny the debtor a discharge when "the debtor has concealed, destroyed, mutilated, falsified, [*23] or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case[.]" "The statute does not require absolute completeness in making or keeping records. Rather, the debtor 'must present sufficient written evidence which will enable his creditors reasonably to ascertain his present financial condition and to follow his business transactions for a reasonable period in the past.'" Caneva v. Sun Cmtys. Operating Ltd. P'ship (In re Caneva), 550 F.3d 755, 761 (9th Cir. 2008) (quoting Rhoades v. Wikle, 453 F.2d 51, 53 (9th Cir. 1971)). "A prima facie case under § 727(a)(3) requires the plaintiff to prove that: (1) the debtor failed to "maintain and preserve" sufficient records; and (2) the inadequacy of kept records prevented interested parties from learning about debtor's current financial condition or his material business affairs for a "reasonable period" before the bankruptcy filing. Id. If the plaintiff presents a prima facie case, then the burden shifts to the debtor to show that under all the surrounding circumstances, his or her failure to keep adequate records was justified. Id. at 761-63; Nevett v. U.S. Tr. (In re Nevett), 2021 WL 2769799, at *7 (9th Cir. BAP July 1, 2021). "The bankruptcy court held that the Bjornbaks failed to present sufficient evidence to satisfy either element of their prima facie case. ... "Section 727(a)(4). "In relevant part, § 727(a)(4)(A) requires the bankruptcy court to deny the debtor a discharge when the debtor "knowingly and fraudulently" makes a false oath "in or in connection with" the bankruptcy. [*26] To prevail on their § 727(a)(4) claim, the Bjornbaks needed to prove that: "(1) the debtor made a false oath in connection with the case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently." In re Retz, 606 F.3d at 1197 (quoting Roberts v. Erhard (In re Roberts), 331 B.R. 876, 882 (9th Cir. BAP 2005)). "A false statement or an omission in the debtor's bankruptcy schedules or statement of financial affairs can constitute a false oath." Id. at 1196 (quoting Khalil v. Devs. Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172 (9th Cir. BAP 2007), aff'd & adopted, 578 F.3d 1167, 1168 (9th Cir. 2009)). However, "[a] discharge cannot be denied when items are omitted from the schedules by honest mistake." In re Khalil, 379 B.R. at 175 (cleaned up). "Here, the bankruptcy court acknowledged that Dugar's schedules and statement of financial affairs contained several misstatements and omissions. ... In addition, the court acknowledged four omitted creditors. ... "The bankruptcy court specifically found credible Dugar's explanations for each of these omissions. The court also found that some of his omissions were inadvertent (like with the Mini Cooper and the Dorado lawsuit), and it found that others were based on his honest [*28] and subjective belief that there was nothing that required disclosure, like with the CSLB order and his involvement with CPB and IHD. Based on these findings, the court ultimately found that when Dugar signed his petition, schedules, and statement of financial affairs, he believed them to be true and correct. This, in turn led the court to hold that § 727(a)(4) did not support denying Dugar his discharge. ... "Section 727(a)(5). "Under § 727(a)(5), the bankruptcy court must deny the debtor a discharge when "the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities." As the Ninth Circuit has explained, a claim under § 727(a)(5) requires the plaintiff to prove: "(1) debtor at one time, not too remote from the bankruptcy petition date, owned identifiable assets; (2) on the date the bankruptcy petition was filed or order of relief granted, the [*30] debtor no longer owned the assets; and (3) the bankruptcy pleadings or statement of affairs do not reflect an adequate explanation for the disposition of the assets. "In re Retz, 606 F.3d at 1205 (quoting Olympic Coast Inv., Inc. v. Wright (In re Wright), 364 B.R. 51, 79 (Bankr. D. Mont. 2007)). If the plaintiff makes a prima facie case by establishing these elements, then the debtor must come forward with admissible evidence explaining the disposition of the "missing" assets. Id. "Whether a debtor has satisfactorily explained a loss of assets is a question of fact for the bankruptcy court, overturned only for clear error."11 Id. Here, the bankruptcy court focused almost exclusively on the assets Dugar derived from FHR. The court relied on the same facts that supported its § 727(a)(3) analysis, specifically the multiple heart attacks and heart surgeries in 2014 and 2015, the loss of his contractor's license, and the failure of his business by 2016. The court similarly credited Dugar's testimony that he thereafter did not work and earned no income in 2017, 2018, and 2019. The court ultimately found that these facts satisfactorily explained why Dugar had little or no assets at the time of his bankruptcy filing. The record supports the bankruptcy court's findings." | 11 U.S.C. §§ 727(a)(2), (a)(3), (a)(4), and (a)(5) |
| In re Lamonda | 8th Cir. BAP | 2/5/24 | The bankruptcy court made a mistake in upholding the trustee's objection and rejecting the debtor's ex-wife's demand for $80,000 in delinquent child support. This error occurred because the claim arose post-petition but pre-conversion under 11 U.S.C.S. § 1307. Hence, it had to be regarded as originating just before the petition date under 11 U.S.C.S. § 348. The Debtor was involved in a divorce when he originally filed a chapter 7 bankruptcy. During the chapter 7 case, the divorce court awarded the ex-spouse of the Debtor $2,000 of child support per month. This case was subsequently converted to a chapter 13 and then back to a chapter 7. The ex-spouse filed a claim for $80,000 for post-petition unpaid child support. The trustee's objection to the claim was granted and the ex-spouse appeals. "The Trustee objected to Natalia LaMonda's claim, arguing that claims for postpetition domestic support are disallowed under 11 U.S.C. § 502(b)(5), and any "purported lien is post-petition and, therefore, not enforceable." Doc. 236. In her response, Natalia LaMonda asserted that her claim, which arose after the order for relief but before conversion under section 1307, should be treated as a prepetition claim under section 348(d). The Trustee filed a reply arguing that section 348(d) does not apply to Natalia LaMonda's claim because the state court entered the judgment ordering child support during the initial Chapter 7 case before it was converted to a case under Chapter 13. ... "Allowed unsecured claims for domestic support obligations receive first priority status in the distribution of estate assets for the sum owed, as of the petition date, to a spouse, former spouse or child. 11 U.S.C. § 507(a)(1)(A). Reinforcing the importance of the petition date, section 502 provides that claims for domestic support obligations that are excepted from discharge under section 523(a)(5) are not allowed to the extent that the claim is unmatured on the petition date. 11 U.S.C. § 502(b)(5). Section 348(d) provides an exception, which allows certain claims that arise postpetition to receive the same treatment as prepetition claims under specific circumstances. ... Section 348(a) clarifies that, except for circumstances not applicable here, conversion "does [*4] not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief." 11 U.S.C. § 348(a). ... "Rejecting Natalia LaMonda's argument that her unpaid child support claim should be treated as a prepetition claim under section 348(d), the bankruptcy court found that "the claim for child support arose after the original order for relief under Chapter 7 and before the case was converted to Chapter 13 under section 706, not converted under sections 1112, 1208, or 1307 as [section 348(d)] provides." Transcript of Record at 4, In re LaMonda, No. 19-20781 (Bankr. W.D. Mo. Aug. 28, 2023) (Doc. 264). It was not persuaded by Natalia LaMonda's assertion that the conversion under section 1307 triggered the application of section 348(d) and rendered the first conversion irrelevant to the analysis. ... "On appeal, Natalia LaMonda asserts that her claim for unpaid child support falls within the scope of section 348(d)—it arose after the order for relief but before this case was converted under section 1307. Natalia LaMonda argues that entry of the judgment awarding child support during the initial Chapter 7 case does not change the relevant facts or affect the analysis because her claim meets the criteria of the statute. Consequently, she maintains her claim should be treated as if it arose immediately before the petition date and allowed as a priority unsecured claim under section 502(a)(1)(A). "She makes a compelling argument. Natalia LaMonda's claim for unmatured child support arose more than three months after the order for relief, which remains unchanged by the conversion. See 11 U.S.C. § 348(a). Her claim also arose several years before this case was converted under section 1307, and it is not a claim specified in section 503(b). Although the state court entered the judgment awarding her child support during the initial Chapter 7 case, section 348(d) does not limit the benefit of prepetition treatment to claims arising in a reorganization chapter. It also does not distinguish between one-conversion and two-conversion cases. Section 348 simply outlines the applicable time period: the claim against the estate or the debtor must arise after the order for relief but before conversion in a case that is converted under section 1112, 1208, or 1307 to be eligible to be treated as a prepetition claim. Natalia LaMonda's claim meets these criteria. ... "The plain language of section 348(d) governs the outcome of this appeal. Natalia LaMonda's claim for unpaid child support arose after the order for relief and before this case was converted under section 1307. Consequently, her claim must be treated as if it arose immediately before the petition date. The bankruptcy court erred as a matter of law in concluding otherwise, sustaining the Trustee's objection and disallowing Natalia LaMond's claim." | 11 U.S.C. §§ 348(a) & (d) 11 U.S.C. § 1307 |
| In re Valdellon | E.D. CA | 2/2/24 | The district court reversed the dismissal of Debtors' adversary complaint that the mortgage company failed to credit their mortgage and arrears payments during their chapter 13 plan. The chapter 13 debtors completed their chapter 13 plan which provided for the cure of mortgage arrears. Following the chapter 13 trustee's notice of payment of mortgage arrears at the end of the case, the creditor responded that all arrears had been cured. Post-petition, the mortgage company continued to collect on amount owing. The mortgage company refused payments and began foreclosure proceedings. The Debtors filed an adversary in the bankruptcy court against the mortgage creditor. "Specifically, on their first claim, Debtors alleged they cured the pre-petition arrearages and made all post-petition maintenance payments through September 1, 2019, but that Appellees misapplied their payments made directly after October 1, 2019 to discharged debts in violation of 11 U.S.C. § 524(i), which requires that creditors apply payments according to the bankruptcy plan. (Id. at 1657-61.) Further, Debtors alleged Appellees' post-plan monthly statements indicating a past-due balance and collection efforts violated the discharge order and discharge injunction under 11 U.S.C. § 524(a), which prohibits attempts to collect discharged debts. (Id.)" The creditor filed a motion to dismiss and "argued that Debtors' claim under 11 U.S.C. § 524 was procedurally improper as relief could be sought only by way of a contempt motion in the bankruptcy case, not an adversary proceeding. (Id. at 1717; P. & A. (ECF No. 7-165) at 1735.) Appellees further argued that Debtors failed to allege (1) a violation of the discharge injunction under 11 U.S.C. § 524(a) because the Loan was not discharged but passed through bankruptcy unaffected, and (2) a failure to credit payments in accordance with the Plan under 11 U.S.C. § 524(i) because the payments Debtors argue were misapplied were made after the Plan was completed. (Mot. Dismiss at 1717; P. & A. at 1736-40.) Finally, Appellees argued that Debtors' state law claims (Counts 2 through 4) were either preempted by bankruptcy law or the Bankruptcy Court was without jurisdiction to hear them." The bankruptcy court granted the motion to dismiss. "Turning to the substance of Debtors' Count 1, the Bankruptcy Court first reasoned that Appellees' collection of post-plan, pre-discharge payments (i.e., payments made after October 2019 and through May 2020) could not violate the discharge injunction under 11 U.S.C. § 524(a) because there was no discharge order or injunction to violate during that time. (Id. at 1785-86.) The Bankruptcy Court then found that Appellees' collection attempts after the discharge order was entered could not violate the discharge injunction under 11 U.S.C. § 524(a) because the Loan payments remained contractually due and were not discharged in the bankruptcy. (Id. at 1786.) Accordingly, Debtors' sole remaining claim for a violation of the discharge injunction was Appellees' alleged failure to credit payments received under the Plan as required by 11 U.S.C. § 524(i). (Id.) However, the Bankruptcy Court found that Debtors' allegations concerned payments made in October 2019 and later, not payments made under the Plan. (Id. at 1786-87.) Therefore, even accepting all factual allegations as true, the Bankruptcy Court concluded that [*9] Debtors had not stated a claim and, as Debtors did not request leave to amend, dismissed the FAC with prejudice." Section 524(a) - Automatic Stay Violation "Debtors challenge the Bankruptcy Court's holding that Debtors failed to sufficiently allege Appellees' post-plan collection of mortgage payments from Debtors violated the discharge injunction under 11 U.S.C. § 524(a) because (1) from October 2019 through May 2020 there was no discharge order and (2) after June 2020 the Loan was not discharged in the bankruptcy. ... "There are, however, three statutory provisions that, considered together, remove home mortgages from the discharge provisions of Chapter 13. First, section 1322(b)(2), the "anti-modification" provision, prohibits a Chapter 13 plan from modifying the rights of the holders of claims secured by home mortgages.... Section 1322(b)(2)'s broad prohibition of modifications to mortgage agreements is limited, however, by section 1322(b)(5), which permits certain narrow modifications. Section 1322(b)(5), irrespective of the terms of the mortgage contract, allows modification of home mortgages for the purpose of enabling debtors to cure mortgage arrearages and maintain current payments through a Chapter 13 plan. (Citation omitted.) Thus, section 1322(b)(5) gives debtors the opportunity to keep their homes by curing defaults and maintaining payments under the Chapter 13 plan. "Section 1322(b)(5) allows mortgage payments to be cured and maintained but does not provide a discharge mechanism. Among other debts, section 1328(a) excepts any debt "provided for under section 1322(b)(5)" from discharge. 11 U.S.C. § 1328(a)(1). Bankruptcy treatises explain that 11 U.S.C. § 1322(b)(5) "does not enable the debtor to modify the terms of the debt, except to 'spread out' payment of the arrearages for a 'reasonable time.' i.e., the debtor must continue making payments as they come due under the original loan terms during the life of the plan and thereafter until fully paid." (Citations omitted). "The Loan is a home mortgage debt treated under 11 U.S.C. § 1322(b)(5) in the Plan. As such, the Court agrees with the Bankruptcy Court that the Loan was not discharged on June 1, 2020, and payments on the Loan remained contractually due. Thus, Appellees' efforts to collect on the Loan did not violate the discharge injunction under 11 U.S.C. § 524(a)." Section 524(i) "Debtors also challenge the Bankruptcy Court's holding that Debtors failed to allege Appellees misapplied payments received "under the plan" pursuant to 11 U.S.C. § 524(i) because Debtors' claim was predicated on payments made to Appellees starting in October 2019, i.e., after the Plan payments ended. ... "Thus, there are two requirements to establish a violation of section 524(i): (1) a willful failure to credit payments received under a confirmed plan and (2) material injury to the debtor. "Nothing in the language of section 524(i) restricts its application to discharged debts. (Citations omitted.) Thus, although long-term mortgage debts are not typically discharged in bankruptcy, if a creditor willfully fails to properly credit mortgage payments under a confirmed plan, section 524(i) treats such conduct as a violation of the discharge injunction. ... "'Deeming willful misapplication of plan payments a violation of the discharge injunction under § 524(i) does not impermissibly modify home mortgage lenders' rights in violation of § 1322(b)(2); it simply enforces the plan provisions and ensures that the completion of the plan will actually result in a fresh start for the debtor.' (Citations omitted.) "Section 524(i) is a response to decisions in which courts questioned whether they had the ability to remedy a creditor's failure to credit payments properly" and clarifies "that a failure to properly credit plan payments that results in a post-discharge assertion that the debtor is in default is not simply a matter for state courts to resolve, but rather a critical issue that must be resolved by the bankruptcy court to ensure that the provisions and purposes of a plan are effectuated." 4 Collier on Bankruptcy ¶ 524.08 (Richard Levin & Henry J. Sommer eds., 16th ed. 2019). ... "The Court agrees with the Bankruptcy Court that the post-plan payments were not payments made "under the plan." In reviewing the plain language of the Plan, it is clear that the Plan provided for payments to be made by the Chapter 13 trustee directly to Appellees in order to cure and maintain the Loan, but there is no provision dictating the payments to be made by Debtors after the Plan's end. ... "However, Debtors' arguments and evidence cited in the FAC, as expounded on in their appellate briefings, also clearly raise concerns over Appellees' application of payments received from the trustee under the Plan. Debtors allege that they completed their Plan payments, yet the statements sent to them immediately after the Plan payments ended indicated significant arrears. ... "Appellees argue the payments made by the trustee were not misapplied. (Appellees' Br. at 26-27.) Rather, Appellees argued at the hearing that there were outstanding amounts due when the Plan finished because Claim 9-1 and the Debtors' confirmed Chapter 13 bankruptcy plans underreported the pre-petition arrears and monthly Loan payments, so Debtors were underpaying throughout the bankruptcy. (See also Reply Supp. Mot. Dismiss [*20] at 1773-74 ("Defendants applied the amounts received to the appropriate post-petition monthly payments and acknowledged they received from the trustee all payments the trustee was supposed to make under the Plan, but that nonetheless left a sizeable amount due when the bankruptcy ended.").) This alleged underreporting appears to stem, at least in part, from the fact that Debtors' first bankruptcy plan reported monthly payments at $1,784.42 (see First Plan at 81), an amount that was not raised until Appellees filed their first Notice of Mortgage Payment Change over two years later (see ECF No. 7-94 (Oct. 28, 2016).) "Appellees' arguments do not sway the Court in their favor. First, the Court notes that if the pre-petition arrearage amount was underreported, then Appellees would have needed to allocate more than $19,140.48, the arrearage amount listed in Claim 9-1, towards pre-petition arrears while the Plan was in place in order to report a "summary of amounts past due before bankruptcy filing" at "a current balance of $0.00" on September 16, 2019. (See FAC at 1651; see also Ex. 23 in Support of Compl. (ECF No. 7-110) at 1083.) The September 16, 2019 statement itself confirms this, as [*21] it states $20,623.04 was paid during the bankruptcy towards pre-petition arrears. (Ex. 23 in Support of Compl. at 1083.) Debtors did not begin sending payments directly to Appellees until October 2019, after the September statement confirmed that the pre-petition arrears had been paid off. (FAC at 1649-50.) This indicates the trustee's payments under the Plan may have been misapplied as portions of the payments intended to keep the Loan current during the bankruptcy were instead applied towards arrears. (See Debtors' Br. at 21.) "To make matters worse, Appellees also failed to properly inform Debtors they were underpaying during the bankruptcy. The terms of the Plan provided for the cure of arrearages on the Loan and maintenance payments to keep the Loan current. (See Second Mod. Plan at 243.) The Plan clearly stated that if "the amount specified in the plan is incorrect, the Class 1 creditor may demand the correct amount in its proof of claim", and if "a Class 1 creditor files a proof of claim or a notice of payment change pursuant to Fed. R. Bankr. P. 3002.1(b) demanding a higher or lower post-petition monthly payment, the plan payment shall be adjusted accordingly." (Id. at 242.) Thus, if the arrearage and [*22] monthly Loan payments were underreported, Appellees were given a clear opportunity to petition for an adjustment to those amounts during the bankruptcy. Indeed, the record shows that Appellees did exactly that, filing no less than seven Notice of Mortgage Payment Changes before Debtors were granted a discharge on June 1, 2020. (See ECF Nos. 7-94 (Oct. 28, 2016), 7-95 (Jan. 25, 2017), 7-96 (May 3, 2017), 7-97 (Jan. 26, 2018), 7-98 (Apr. 5, 2018), 7-99 (Mar. 31, 2019), 7-102 (Apr. 21, 2020).) Given this, it is astounding that Appellees now assert "[j]ust because [we] were bound to accept insufficient payments while the Plan was in effect does not mean that the other amounts due and owing simply disappeared." (Reply Supp. Mot. Dismiss at 1773-74.) Appellees were not bound to accept insufficient payments. They could have filed an amended proof of claim, but failed to do so, and failed to file any notice of payment change until two years after Debtors filed for bankruptcy. Thus, the fault for any underpayment lies with Appellees, not Debtors. "Finally, and perhaps most egregiously, at the end of the bankruptcy Appellees responded to the trustee's Notice of Final Cure and acknowledged that [*23] Debtors "have paid in full amount required to cure the prepetition default on the creditor's claim" and were current on the Loan. (Notice Final Cure; Resp. to Notice Final Cure.) Thus, Appellees argument now that they were underpaid while the Plan was in place directly contradicts their own Response to Notice of Final Cure, and ignores settled law that the terms of a confirmed Chapter 13 plan "bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a); see also Max Recovery v. Than (In re Than), 215 B.R. 430, 435 (9th Cir. BAP 1997) ("Another way of looking at the binding effect of confirmation is that the plan is a contract between the debtor and the debtor's creditors."). Appellees were and are bound by the Plan, the terms of which cured Debtors pre-petition arrearages and positioned Debtors to exit bankruptcy current on their Loan. (See Second Mod. Plan at 242-43 ("All arrears on Class 1 claims shall be paid in full by Trustee . . . [o]ther than to cure of arrears, this plan does not modify Class 1 claims.").) "In sum, the evidence shows that Appellees were aware of the Plan's terms, and were aware that they could [*24] file an amended proof of claim or notice of payment change, but instead allocated $20,623.04 of Plan payments towards pre-petition arrears despite clear provisions that only $19,140.48 was to be paid, thereby misapplying payments intended to keep the Loan current. This indicates that Appellees' misapplication of payments was likely willful. See In re Ridley, 572 B.R. 352, 361-2 (Bankr. E.D. Okla. May 31, 2017) (explaining the "requirement of willfulness is simply an intent to commit the act; it does not require a specific intent to violate the Code or plan provisions" and "only requires a showing that the creditor intended to credit payments improperly"); 4 Collier on Bankruptcy ¶ 524.08 (Richard Levin & Henry J. Sommer eds., 16th ed.) ("Absent a creditor's proof that the improper crediting was a mistake in conflict with the creditor's normal procedures, the creditor should be presumed to have intended its acts."). "Finally, Debtors have alleged that this willful misapplication of Plan payments caused them harm in the form of additional fees, costs, and expenses. (FAC at 1660-62.) "Thus, the Court holds that Debtors' allegations are sufficient to find that Debtors may have a cause of action under section (i) for the misapplication of payments made by the trustee under the Plan. Indeed, [*25] this is: [O]ne of the classic situations that led to the adoption of § 524(i): a chapter 13 debtor makes all the required payments on long-term debt required through the life of his confirmed plan, receives a discharge, and is then told that his mortgage is in default, he owes additional charges, and is threatened with foreclosure. Often, this is the same scenario that drove him to bankruptcy in the first place. Section 524(i) presents a remedy for such cases. In re Ridley, 572 B.R. at 361. Numerous courts construing section 524(i) have applied it in similar situations to the one at hand, where a debtor successfully completed a Chapter 13 case, but a long-term home mortgage creditor refused to acknowledge that the loan was current. See id. at 366 (finding a mortgagor violated section 524(i) when a debtor completed all plan payments, thereby curing his default, and was discharged by the bankruptcy court, yet the mortgagor "continued to report him in default, added unexplained charges, sent numerous statements and made phone calls to [debtor] notifying him that his mortgage was in default"); In re Pompa, 2012 Bankr. LEXIS 3051, 2012 WL 2571156, at *1-2, 7-8 (finding that creditors actions violated section 524(i) when debtors allegedly cured all arrears on their mortgage through a Chapter 13 plan, were deemed current by the bankruptcy court, and were granted [*26] a discharge, but the creditor subsequently alleged they were delinquent on their mortgage payments and threatened foreclosure because the creditor misapplied payments and improperly charged them undisclosed fees during the pendency of their Chapter 13 plan); In re Houston, No. 3:13-bk-7435-PMG, 2018 Bankr. LEXIS 4289, 2018 WL 11206276, at *2-4 (Bankr. M.D. Fla. May 15, 2018) (declining to dismiss debtors' section 524(i) claim when they alleged that "their confirmed Plan provided for payment of the regular mortgage amounts and for payment of the prepetition arrearage," "that they complied with the Plan in all respects and the Court entered a Discharge," "that the payments were misapplied during the plan period," and that the creditor "asserted that the mortgage was in default at the time of Discharge and threatened to foreclose on their home"). "The Bankruptcy Court has not yet considered Debtors' allegations that payments made by the trustee under the Plan were misapplied and should give rise to a section 524(i) claim. While the Bankruptcy Court dismissed Debtors' section 524(i) claim with prejudice, as discussed below, the Court will grant Debtors leave to amend so that the Bankruptcy Court may consider their arguments in the first instance." | 11 U.S.C. §§ 524(a) & 524(i) |
| In re Landon | Bankr. N.D.OK | 1/30/24 | In a non-dischargeability proceeding, the judgment debt for defamation issued by a Massachusetts trial court failed to meet the criteria for nondischargeability outlined in 11 U.S.C.S. § 523(a)(6). This was because the debtor did not act with willful and malicious intent; rather, she genuinely believed her statements were truthful at the time of utterance. The court observed that although the debtor's behavior may have amounted to recklessness, meeting the threshold for defamation under state law, it did not reach the level of willfulness as required by § 523(a)(6). Consequently, the debt was discharged. Conversely, the judgment debt for sanctions issued by an Oklahoma district court was exempted from discharge under § 523(a)(6) due to its characterization as a willful and malicious injury. "[C]reditor Christopher W. Kanaga ("Kanaga") holds a judgment from the Massachusetts Trial Court, Barnstable Superior Court Department (the "Barnstable Court"), Civil Action No. 1572-00335, against Sheldon E. Landon ("Defendant") for defamation, based on a 2015 Facebook post (the "Defamatory Post"). ... "From the perspective of Kanaga, this is an open and shut case. The defamatory remarks about Kanaga in the Defamatory Post were not written in a vacuum. The Defamatory Post was a long and meandering screed, of which the statements referring to Kanaga were just a small part. The larger post focused on an unnamed "cult," the escape of Defendant's husband, David Manuel ("Manuel"), from the so-called cult, and the cult's continued pursuit of Defendant's inheritance from Manuel's probate estate. In both the Barnstable Court litigation and here, Defendant denies writing the Defamatory Post, but, as discussed in Landon I and supra, this Court is bound by the jury's factual finding that she did so. Acknowledging this factual hurdle, Defendant insists the Defamatory Post was made as a private message to a limited audience of her 514 "friends" on Facebook. In an additional effort to separate herself from responsibility for the Defamatory Post, Defendant testified she was ill and under mild sedation at the time it was made. ... Analysis: "Kanaga bases his claim of non-dischargeability on § 523(a)(6) of the Bankruptcy Code, which provides: (a) A discharge under section 727, 1141, 1228(a), 1228(b) or 1328(b) of this title does not discharge an individual debtor from any debt — (6) for willful and malicious injury by the debtor to another entity or the property of another entity.28 Since this Court issued its opinion in Landon I, the United States Bankruptcy Appellate Panel of the Tenth Circuit has issued guidance on the interpretation of § 523(a)(6) as follows: [P]roof of a "willful and malicious injury" under § 523(a)(6) requires proof of two distinct elements — the injury must be both "willful" and "malicious." . . . . For an injury to be "willful," there must be a deliberate or intentional injury, not merely "a deliberate or intentional act that leads to injury." "[T]he (a)(6) formulation triggers in the lawyer's mind [*17] the category 'intentional torts,' as distinguished from negligent or reckless torts. Intentional torts generally require that the actor intend 'the consequences of an act,' not simply the act itself." A willful injury may be established by direct evidence that the debtor acted with the specific intent to harm a creditor or the creditor's property, or by indirect evidence that the debtor desired to cause the injury or believed the injury was substantially certain to occur. This is a subjective standard. . . . . For an injury to be "malicious," "evidence of the debtor's motives, including any claimed justification or excuse, must be examined to determine whether the requisite 'malice' in addition to 'willfulness' is present." "[A]ll the surrounding circumstances, including any justification or excuse offered by the debtor, are relevant to determine whether the debtor acted with a culpable state of mind vis-a-vis the actual injury caused the creditor." A willful and malicious injury requires more than negligence or recklessness. Six circuit courts have defined the "malicious" element to require an act taken in conscious disregard of one's duties and without just cause or excuse, even in the absence of personal hatred, spite or ill-will, or wrongful and without just cause or excuse. These definitions are similar to the pre-Geiger definition of "malicious" adopted by the Tenth Circuit in In re Pasek. . . . For an injury to be "malicious," therefore, the debtor's actions must be wrongful. "This statement affirms the Court's conclusion in Landon I that willfulness and maliciousness must be analyzed as separate prongs under § 523(a)(6), and provides additional guidance on how to do so.Following Kawaauhau v. Geiger,31 in order for conduct to be willful under § 523(a)(6), "the debtor must desire . . . [to cause] the consequences of his act or . . . believe [that] the consequences are substantially certain to result from it."32 In the Tenth Circuit, "malicious intent [may] be demonstrated by evidence that the debtor had knowledge of the creditor's rights and that, with that knowledge, proceeded to take action in violation of those rights."33 "[P]ersonal animus is not a requirement for malicious injury."34 For an injury to be malicious, the debtor must be conscious that their actions are wrongful.35 "Libel and defamation claims are nondischargeable under § 523(a)(6) when the statements [*19] were made with actual knowledge of their falsity."36 Therefore, defamation can constitute a "willful and malicious injury" where a debtor knew (or was substantially certain) that the published statements were false.37 "Mere reckless disregard for the truth or falsity of the statement, which can support a libel verdict, is not a willful and malicious injury for purposes of § 523(a)(6)."38 Note that the actual truth of the offending statement is not an available defense to Defendant at this point in the litigation.39 That ship metaphorically sailed upon the entry of the Defamation Judgment, where the jury found the statements to be false. At this juncture, the Court is only concerned with what the Defendant knew at the time she wrote the Defamatory Post. A court's determination under § 523(a)(6) requires a subjective assessment of the debtor's knowledge and motives, including any claimed justification or excuse.40 "The subjective standard correctly focuses on the debtor's state of mind and precludes application of § 523(a)(6)'s nondischargeability provision short of the debtor's actual knowledge that harm to the creditor was substantially certain."41 In conducting such [*20] an inquiry, a court is not limited to self-serving statements from the debtor; "[i]n addition to what a debtor may admit to knowing, the bankruptcy court may consider circumstantial evidence that tends to establish what the debtor must have actually known when taking the injury-producing action."42 "A totality of the circumstances inquiry is fact specific and hinges on the credibility of witnesses."43 "The United States Supreme Court, in Counterman v. Colorado,44 recently offered a primer on the various mental states used to evaluate the subjective mindset required to trigger a speaker's culpability for their actions in a criminal context: The law of mens rea offers three basic choices. Purpose is the most culpable level in the standard mental-state hierarchy, and the hardest to prove. A person acts purposefully when he "consciously desires" a result—so here, when he wants his words to be received as threats. United States v. Bailey, 444 U.S. 394, 404, 100 S.Ct. 624, 62 L.Ed.2d 575 (1980). Next down, though not often distinguished from purpose, is knowledge. Ibid. A person acts knowingly when "he is aware that [a] result is practically certain to follow"—so here, when he knows to a practical certainty that others will take his words as threats. Ibid. (internal quotation [*21] marks omitted). A greater gap separates those two from recklessness. A person acts recklessly, in the most common formulation, when he "consciously disregard[s] a substantial [and unjustifiable] risk that the conduct will cause harm to another." Voisine v. United States, 579 U.S. 686, 691, 136 S.Ct. 2272, 195 L.Ed.2d 736 (2016) (internal quotation marks omitted). That standard involves insufficient concern with risk, rather than awareness of impending harm. See Borden v. United States, 593 U. S.___, ___, 141 S.Ct. 1817, 1823-1824, 210 L.Ed.2d 63 (2021) (plurality opinion). But still, recklessness is morally culpable conduct, involving a "deliberate decision to endanger another." Voisine, 579 U.S. at 694, 136 S.Ct. 2272.45 "This inquiry is meant to balance a speaker's right of protected speech under the First Amendment, while discouraging unprotected speech, such as defamation.46 Using Counterman as a guide, the question before the Court is: did Defendant know or was she substantially certain that the statements in the Defamatory Post were false (willful), such that injury to Kanaga was desired or practically certain to occur (malicious)? ... "As noted supra, the evidence before the Court overwhelmingly leads to the conclusion that Defendant sincerely believed each and every allegation made about Kanaga in the Defamatory Post. While the Barnstable Court jury found those statements to be false, Kanaga has provided no evidence that Defendant ever entertained doubts about their veracity. ... Willfulness "Kanaga argues that the element of willfulness has been established by a finding of the Barnstable Court that the statements in the Defamatory Post were "defamation per se."54 To the extent Kanaga is arguing this Court is collaterally estopped from making a determination regarding willfulness, the Court finds that issue was never properly presented or supported.55 "Even if Kanaga had properly presented the underlying documents from the Barnstable Court to support a finding of willfulness, the Court would still have rejected his claim.56 HN13 Under Massachusetts law, certain types of defamatory statements are actionable without proof of economic loss, and are labeled defamation per se.57 These include statements that charge a plaintiff with a crime and statements that may prejudice their profession or business.58 Economic harm is presumed by such statements, if they are indeed proved to be false, without any additional evidentiary showing. When statements are found to be defamatory per se, the intent of the tortfeasor is not a factor. When faced with a state court finding of defamation per se, a bankruptcy court must still find subjective knowledge of falsity by the debtor to meet the threshold of § 523(a)(6). ... "Were this issue properly raised, the Court would have agreed with the Sixth Circuit's analysis that a state court finding of defamation per se, i.e., presumed injury, is not enough to find willfulness under § 523(a)(6).60 HN15 Where, as here, a state formulation of defamation per se is focused on a plaintiff's burden of proof of harm and does not address the subjective intent of the tortfeasor, it will not satisfy the elements of § 523(a)(6). ... Malicousness "A malice inquiry requires an assessment of the debtor's motives, including any claimed justification or excuse.61 First, the Court must find the Defendant's actions to be wrongful.62 That is satisfied here by the publication of false and defamatory statements, as found by the Barnstable Court jury.63 "But wrongful injuries are not malicious unless the Debtor also knew them to be false when he made them; otherwise there can be no 'conscious disregard of duty,' as the cases require."64 In this context, malice means the publication of knowingly false statements, such that the author desires or is practically certain to injure their target. "What becomes clear from Defendant's testimony and the documentary evidence introduced in this proceeding is that Defendant genuinely believed in the statements she made about Kanaga at the time of the Defamatory Post. She did not intend to—or even understand that she was—making false or defamatory statements. ... "As the United States Supreme Court has noted, the States have substantial latitude to determine and enforce legal remedies for the publication of defamatory falsehoods that are injurious to the reputation of a private individual.77 This includes imposing liability on a speaker upon a finding of at least negligence, as occurred in this case.78 If a State wants to impose liability based on presumed or punitive damages, it must raise the bar to require a showing of reckless behavior, which also occurred in this case.79 But nondischargeability under § 523(a)(6) requires yet another step—to a knowing or purposeful state of mind.80 Kanaga has not met this burden. As a result, his debt will be discharged in the Defendant's underlying bankruptcy case." | 11 U.S.C. § 523(a)(6) |
| In re Gilani | 5th Cir | 1/30/24 | The court held that the Rooker-Feldman doctrine prevented the Debtor from relitigating the issue whether 11 U.S.C. § 523(a)(7) excepted his debt from discharge after a state court held that it did. In 2009 the State of Nevada commenced a criminal action against the Debtor, charging him with multiple felonies including issuance of a check without sufficient funds. In 2011 the Debtor filed a chapter 7 bankruptcy listing the creditor. On June 1, 2011 the court entered a discharge order. On June 3, 2013 the Debtor entered into a written plea agreement regarding the charges. “In the 2013 plea agreement, Gilani pled guilty to passing thirty checks with the intent to defraud between August and October 2008, totaling $735,000, made payable to various hotels and casinos in Las Vegas, including Wynn, when he had insufficient money or credit. The agreement included a stipulation "to stay adjudication" for five years and that, if Gilani paid $100,000 during that time period, he could "withdraw his plea to the felony and enter a plea to a gross misdemeanor (Attempt NSF)." … “The state court documents in the record on appeal show that Gilani was unable to pay $100,000 within five years, and that in December 2019, he requested two more years to pay the amount. The record does not indicate whether Gilani ultimately paid a total of $100,000. But, on September 4, 2020, the state court rendered judgment convicting Gilani only of a gross misdemeanor charge and sentenced him to one day in a detention center with one day credit for time served. Additionally, the judgment of conviction ordered substantial amounts of restitution payable to the various hotels and casinos listed in the indictment. As relevant here, the judgment ordered restitution by Gilani payable to Wynn in the amount of $218,123.83. “On January 21, 2022, Wynn filed a petition in state court to enforce the restitution ordered in the September 4, 2020 judgment, pursuant to Nevada Revised Statute § 176.275. That statute provides that "[a]n independent action to enforce a judgment which requires a defendant to pay restitution may be commenced at any time."2 Gilani opposed Wynn's petition, arguing that Wynn was seeking to enforce "casino markers" that were discharged in his 2011 bankruptcy proceeding. Gilani further asserted that "[t]he automatic stay" imposed by the bankruptcy court was "still in place" and that Wynn, although notified of the bankruptcy proceeding, had never filed an adversary proceeding to dispute the discharge of the gambling debts. “On February 18, 2022, over Gilani's opposition, the state district court granted Wynn's petition to enforce the judgment requiring Gilani to pay restitution to Wynn in the amount of $218,123.83. In doing so, the court relied on the Supreme Court's decision in Kelly v. Robinson, in which the Court held that 11 U.S.C. § 523(a)(7) of the Bankruptcy Code "preserves from discharge any condition a state criminal court imposes as part of a criminal sentence." The court determined that therefore Gilani could not legally claim that his criminal restitution imposed as part of his criminal sentence was discharged in the 2011 bankruptcy proceedings. The court further noted that Gilani entered into the plea agreement two years after the bankruptcy filing and discharge; therefore, the restitution obligation noted in the plea agreement was not encompassed by the bankruptcy automatic stay or permanent injunction. “Gilani did not seek state appellate review of the judgment. Instead, on March 2, 2022, he filed a motion to reopen his bankruptcy proceeding for the purpose of filing a motion to enforce the permanent injunction he contended the bankruptcy court authorized in its order of discharge. Gilani asserted that Wynn was attempting to collect on an obligation that had been discharged and, in doing so, Wynn was violating the permanent injunction. … Rooker-Feldman “Gilani additionally argues that the Rooker-Feldman doctrine does not apply because the state-court judgment is void, and the doctrine does not prohibit review of void judgments. He asserts the state-court judgment is void under 11 U.S.C. § 524(a)(1) of the Bankruptcy Code, which provides that a bankruptcy discharge "voids any judgment at any time obtained to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged." But, in this case, the state court specifically determined that the restitution payable to Wynn fell under § 523(a)(7) of the Bankruptcy Code, which excepts restitution orders from bankruptcy discharge orders.12 “As the district court properly noted, it does not matter whether a federal district or appellate court agrees or disagrees with the state-court judgment herein because even if the state court erred, "the judgment is not void [and must] be reviewed and corrected by the appropriate state appellate court."13 In effect, Gilani's "void judgment" argument challenges the merits of the state-court judgment, which we are precluded from reviewing. Therefore, Gilani's argument has no merit.” | 11 U.S.C. § 523(a)(7) Rooker-Feldman |
| In re Kelley | Bankr. E.D. TN | 1/25/2024 | The Debtor's transfer of real estate to a trust for the benefit of their children, done without receiving any value in return, reduced the assets available to creditors and therefore could be reversed. A transfer made pursuant to a noncollusive divorce decree entered by a state court is NOT immune from avoidance as constructively fraudulent.The plaintiff successfully met the burden of proof by showing that the debtor did not obtain a fair equivalent value for the transfer. Additionally, the plaintiff was entitled to seek the reversal of the transfer under 11 U.S.C.S. § 544(b). "In the complaint initiating this adversary proceeding the chapter 7 trustee seeks to avoid as constructively fraudulent a prepetition transfer of the debtor's interest in real property to an irrevocable trust established in connection with a divorce proceeding. The co-trustees of the trust, the debtor and his ex-wife, deny that the transfer is avoidable. ... "Under Section 544(b) of the Bankruptcy Code, a trustee may avoid a transfer of property that is avoidable under applicable nonbankruptcy law by a creditor who has an allowable unsecured claim. That section enables the trustee to step into the shoes of a creditor to pursue avoidance actions on behalf of the bankruptcy estate. Watts v. MTC Dev., LLC (In re Palisades at W. Paces Imaging Ctr., LLC), 501 B.R. 896, 907 (Bankr. N.D. Ga. 2013). "In the complaint, the plaintiff identifies Synovus Bank as the creditor with an unsecured claim that may avoid the debtor's transfer of the Real Property pursuant to Georgia's Uniform Voidable Transactions Act. Ga. Code Ann. §§ 18-2-70 et. seq. ("UVTA"). ... "A transfer may be avoided as constructively fraudulent under Section 18-2-75(a) of the UVTA only if the trustee establishes that the debtor did not receive "reasonably equivalent value in exchange for the transfer." "The purpose of voiding transfers unsupported by 'reasonably equivalent value' is to protect creditors against the depletion of a bankrupt's estate." Senior Transeastern Lenders v. Off. Comm. of Unsecured Creditors (In re TOUSA, Inc.), 680 F.3d 1298, 1311 (11th Cir. 2012) (citation omitted); Walker v. Treadwell (In re Treadwell), 699 F.2d 1050, 1051 (11th Cir. 1983) (citation omitted) ("[T]he object of [the Bankruptcy Code's fraudulent conveyance provision] is to prevent the debtor from depleting the resources available to creditors through gratuitous transfers of the debtor's property."). "Whether a debtor received reasonably equivalent value requires application of a three-part test: "1) whether the debtor received value; 2) whether the value received was in exchange for the property transferred; and 3) whether the value was reasonably equivalent to the value of the property transferred." Mann v. Brown (In re Knight), 473 B.R. 847, 850 (Bankr. N.D. Ga. 2012) (citation omitted). Consideration of only the first two parts of that test is determinative in this case. "A debtor receives value if "property is transferred, or an antecedent debt is secured or satisfied." Ga. Code. Ann. § 18-2-73(a). The defendant points to the fact that, under the consent divorce decree, the debtor received various items of marital personal property and $5,000.00 cash. He also notes that his ex-wife assumed responsibility to satisfy certain antecedent debts, including debts secured by properties she was awarded by the divorce decree. That consideration would constitute "value" as defined by the UVTA. However, the value received by the debtor was in exchange for the debtor's transfer of his interest in marital property to his ex-wife. "The Real Property was transferred to the trust for the benefit of the Kelleys' children. The defendant has not identified any value given "in exchange for" the transfer of the Real Property to the children. The consent divorce decree does not reference any property received or any antecedent debt secured or satisfied in exchange for that transfer. The Kelleys' children certainly would not have received any portion of their parents' property had the state court been called upon to make an equitable division of the marital assets in a fully contested divorce proceeding. Payson v. Payson, 274 Ga. 231, 552 S.E.2d 839, 841 (2001) (emphasis added) (citation omitted) ("The equitable division of property is an allocation to the parties of the assets acquired during the marriage, based on the parties' respective equitable interests."). The fact that the transfer of the Real Property was consummated pursuant to a consensual divorce decree does not change the obvious fact that it was nothing more than a gratuitous transfer by the Kelleys solely for the benefit of their children." HN13 A gift, even a gift to one's children, may be subject to avoidance by a trustee. See, e.g., In re Treadwell, 699 F.2d at 1051. The transfer of the Real Property depleted the assets of both the debtor and his former spouse, and neither received any value in exchange to restore their respective estates. The defendant has pointed to nothing in the record and has proffered no evidence in the form of affidavits, deposition transcripts, [*19] or otherwise to suggest to the contrary. | 11 U.S.C.S. § 544(b) |
| In re McCrorey | Bankr. ID | 1/24/2024 | Following the approval of the debtors' Chapter 13 plan, any funds from a pre-petition claim that were received by the bankruptcy estate after the plan was confirmed, all plan payments were made, and a discharge was granted, became the property of the debtors. The plan did not include a clause that allowed the trustee to take control of and manage assets acquired after the plan was confirmed. Consequently, even though the trustee and the debtors had reached an agreement to allocate these funds to the unsecured creditors, the bankruptcy court was unable to sanction this arrangement. This was because 11 U.S.C.S. § 105 did not offer a legal means to endorse such an agreement, as treating these funds as a contribution from the debtor to the plan would necessitate a change to the plan, which is not allowed under 11 U.S.C.S. § 1329(a). "As agreed by Debtors and Trustee, and pursuant to the Bankruptcy Code, the funds are the result of a pre-petition claim and as such, are property of the bankruptcy estate. §§ 541(a)(1) & 1306(a)(1). The question is how they may be paid to creditors at this late date. "If the funds are viewed as a payment by Debtors into the plan, the plan would require modification; however pursuant to § 1329(c), modification is not possible after Debtors have completed all 60 months of payments. Section 1329(a) provides that a confirmed plan may be modified "[a]t any time after confirmation of the plan, but before the completion of payments under such plan[.]" (emphasis added). Courts have strictly enforced this provision. See Danielson v. Flores (In re Flores), 735 F.3d 855, 859 (9th Cir. 2013) (en banc) (plan modification must occur before the completion of payments under the plan); In re Profit, 283 B.R. 567, 573 (9th Cir. BAP 2002) ("Under § 1329(a), a chapter 13 plan cannot be modified in any respect after payments are completed."). Trustee does not seek to modify the plan, and the parties have not agreed to modification in their proposed stipulated order. "On the other hand, if the funds are viewed as an asset "recovered" by the Trustee when Wells Fargo mailed it to her, a modification may not be required. The Court turns to the terms of the confirmed plan, by which both Trustee and Debtors are bound. HN2 A plan is a contract between the debtor and the debtor's creditors. Derham-Burk v. Mrdutt (In re Mrdutt), 600 B.R. 72, 76-77 (9th Cir. BAP 2019) ("The order confirming a chapter 13 plan, upon becoming final, represents a binding determination of the rights and liabilities of the parties as specified by the plan."); In re Alonso, 570 B.R. 622, 629-30 (Bankr. D. Idaho 2017) ("[O]nce confirmed, the terms of a chapter 13 plan bind not only creditors and the trustee, but also the debtors."). While the plan provides for no payments to unsecured creditors, it does provide in Part 5 that "[a]llowed nonpriority unsecured claims that are not separately classified will be paid, pro rata from, the funds remaining after disbursements have been made to all other creditors provided for in this plan." Doc. No. 53. Presumably, it is under this provision that Trustee intends to distribute the funds from Wells Fargo to unsecured creditors. "There is a separate provision of the plan that curtails such an action under these facts, however. Under Part 7, property of the estate vests in Debtors at plan confirmation. Id. As such, even though §§ 541(a) and 1306(a)(1) decree that the Wells Fargo funds are estate property, confirmation of the plan on January 3, 2019 vested them in Debtors. ... "The Court cannot locate any authority in the Bankruptcy Code or the confirmed plan to permit Trustee to distribute the Wells Fargo funds to Debtors' creditors. In short, under these particular circumstances, when all 60 months of plan payments have been made, the trustee has filed a notice that the plan has been completed and recommended entry of the discharge, and the discharge has in fact been entered, and finally that there is no plan provision permitting Trustee to recover and administer post-confirmation assets, the Court can discern no authority for Trustee to administer these funds. ... Section 105 Doesn't Allow The Court to Approve the Agreement Between the Trustee and Debtor "While Debtors and Trustee have agreed to this arrangement, the Court still must approve their agreement. Because it cannot rely on a Bankruptcy Code section or plan provision, it would have to do so as an exercise of its equitable powers under § 105(a). HN3 To this end, the Supreme Court has observed: It is hornbook law that § 105(a) "does not allow the bankruptcy court to override explicit mandates of other sections of the Bankruptcy Code." Section 105(a) confers authority to "carry out" the provisions of the Code, but it is quite impossible to do that by taking action that the Code prohibits. That is simply an application of the axiom that a statute's general permission to take actions of a certain type must yield to a specific prohibition found elsewhere. Law v. Siegel, 571 U.S. 415, 421, 134 S. Ct. 1188, 1194, 188 L. Ed. 2d 146 (2014) (internal citations omitted). As such, under these facts, the Court declines to exercise its discretion to approve the arrangement agreed to by the parties, and instead directs Trustee to remit the Wells Fargo funds to Debtors" | 11 U.S.C.S. § 105 11 U.S.C.S. § 1329(a) |
| In re Smith-Freeman et al | Bankr. W.D. PA | 1/24/2024 | In a chapter 7 attorney's fee bifurcation situation, the court held that the cost of the factoring fee of $283.58, paid to the attorney's lender Fresh Start Funding, could not be passed along to be paid by the debtors. "Bifurcated fee agreements split an attorney's total fee into two components: pre-petition work and post-petition work. Attorneys often structure these agreements such that they perform very little work under the pre-petition agreement and perform the bulk of the work necessary to help a debtor complete a bankruptcy case under the post-petition agreement in exchange for a (presumably) nondischargeable fee. (Citations omitted.) "Presumably, debtors enter into these bifurcated fee agreements for one simple reason—they cannot afford to pay attorney fees up front and want to pay the attorney fees over time after a bankruptcy case has been filed. "Attorneys enter into bifurcated fee agreements because it provides for an avenue of payment in the bankruptcy context for two reasons. First, they structure their engagement this way because attorneys (and other professionals) cannot be compensated from [*28] estate property in chapter 7 cases, and therefore they have to look to the debtor for payment if no third-party (such as a family member) is willing to pay the fees. See Lamie v. United States Trustee, 540 U.S. 526, 537, 124 S. Ct. 1023, 157 L. Ed. 2d 1024 (2004). Second, because attorney fees owed under a pre-petition engagement agreement are generally eligible for discharge in bankruptcy, legal counsel un-bundle their services so that fees for services provided after a bankruptcy filing may be incurred and paid without violating the discharge injunction against the collection of prepetition debts under 11 U.S.C. § 524. See, e.g., Rittenhouse v. Eisen, 404 F.3d 395, 397 (6th Cir. 2005). ... Alleged Upcharge & Reasonable Fees "The third and most significant contention by the U.S. Trustee is that the fees earned by Mr. Shepherd contain an excessive "upcharge" for his post-petition services. Here, the U.S. Trustee contends that the total fees charged by Mr. Shepherd are unreasonable in light of both his statements in the record and the work actually performed in each of the Cases. ... "Regardless of the U.S. Trustee's position, the Court has an independent duty to examine the reasonableness of Mr. Shepherd's fees. In this context, the Court notes that of the $1,708.58 in fees actually charged in each of the cases, $283.58 was a pass-through factoring charge incurred by Mr. Shepherd. It is this factoring fee which the U.S. Trustee contends is part of an impermissible "upcharge." "The Post-Filing Agreement acknowledges the pass-through nature of this expense when it states that Fresh Start Funding "also charges the Law Firm a fee equal to 19.9% of the Pay Over Time Balance that the Law Firm passes on to you, as described above." See Post-Filing Agreement at ¶C.2. This "19.9%" sum is equal to $283.58 and is calculated by multiplying the $1,425 flat fee by 0.199. "The essential question presented by this pass-through charge is whether it is the sort of law firm overhead that can be passed along to the debtors in each of the Cases. This Court concludes that the factoring fee cannot be foisted upon the debtors. ... "The record here reflects that the bifurcation factoring fees charged by Mr. Shepherd are nothing but a coy device by which Mr. Shepherd forces his clients to pay financing fees to Mr. Shepherd's lender—after all, per Mr. Shepherd, he "shouldn't have to wait on [his] money." Hr'g Tr. 62:12. Thus, the pass-through charges are actually traceable to the capital structure of his firm, which includes monetization of receivables. It is in substance payment of overhead incident to the overall operation of the law practice, and is not a necessary component to direct attorney work that Mr. Shepherd does for the affected clients (because none of the cases were "emergencies" and Mr. Shepherd could have required his clients to save up the requisite funds to pay the attorney fees before commencing the cases or, alternatively, Mr. Shepherd could have simply not factored the post-petition fees paid by his clients). "Accordingly, the Court finds that the agreement and practice of imposing the factoring fee of $283.58 is unreasonable in all of the Cases. (Citations omitted.)" " | 11 U.S.C.S. § 329(b) 11 U.S.C.S. § 330 Fed. R. Bankr. P. 2016 |
| In re Miles | Bankr. E.D. KY | 1/24/2024 | The court sanctioned a creditor under 11 U.S.C. § 523(d) for filing a non-dischargeability action against the debtor under 11 U.S.C. § 523(a)(2)(A) for a $2,000 credit card debt. The court held that "charges incurred or payments not made are not sufficient in and of themselves" to support a nondischargeability action under § 523(a)(2)(A)." Futher the court held that "the notion that a debtor's failure to answer a creditor's collection calls or pursue its (unpublished) hardship programs somehow bears on a debtor's fraudulent intent at the time charges are incurred is, at best, without merit and, at worst, frivolous." Further the court found it was probative that the creditor failed to attend the meeting of creditors or conduct a 2004 examination. Finally, Plaintiff refused to dismiss the case once the facts were known because the debtor demanded that the creditor pay his attorneys fees. So instead, the creditor continued the litigation and trial. "Considering the totality of the circumstances and the relevant factors, Plaintiff failed to meet its burden to prove Debtor's intent to deceive Plaintiff, an essential element of its claim under § 523(a)(2)(A). "V. Debtor is entitled to attorney's fees and costs pursuant to § 523(d). "Debtor asks the Court to award him his costs and attorney's fees for defending this action. Section 523(d) provides: If a creditor requests a determination of dischargeability of a consumer debt under subsection (a)(2) of this section, and such debt is discharged, the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney's fee for, the proceeding if the court finds that the position of the creditor was not substantially justified, except that the court shall not award such costs and fees if special circumstances would make the award unjust. 11 U.S.C. § 523(d). Congress enacted this provision "to discourage creditors from commencing exception to discharge actions in the hopes of obtaining a settlement from an honest consumer debtor anxious to save attorney's fees because such practices impair the debtor's fresh start." Firstbanks v. Goss (In re Goss), 149 B.R. 460, 462 (Bankr. E.D. Mich. 1992). "Here, Plaintiff brought a nondischargeability action under § 523(a)(2)(A), the November Charges are consumer debts, and the Court has found those debts dischargeable. Therefore, "the burden then shifts to [Plaintiff] to prove either that its position was substantially justified or that special circumstances exist that would make an award of costs and attorney fees unjust." Swartz v. Strausbaugh (In re Strausbaugh), 376 B.R. 631, 636 (Bankr. S.D. Ohio 2007) (citations and quotation marks omitted). This Court has explained: [t]o be substantially justified a creditor's position must be reasonable in both law and fact. This has been expressed as a three-part test: (1) a reasonable basis in law for the theory propounded; (2) a reasonable basis in truth for the facts alleged; and (3) a reasonable connection between the facts alleged and the legal theory advanced. Further, a determination of substantial justification should turn on a totality of the circumstances. This analysis permits a trial court to examine a number of factors, including, but not limited to, whether the creditor attended the 341 meeting or conducted an examination under Rule 2004, as well as the extent of its pre-trial investigation. Bank of America v. Miller (In re Miller), 250 B.R. 294, 296 (Bankr. E.D. Ky. 2000) (citations omitted). Applying this test, Debtor is entitled to recover his costs of defense from Plaintiff. "First, this Court previously explained "[a]llegations that focus on charges incurred or payments not made are not sufficient in and of themselves" to support a nondischargeability action under § 523(a)(2)(A). Id. Such allegations essentially are all Plaintiff focused on here. Plaintiff based its case on an accounting of Debtor's charges on the Credit Card over eleven days in November 2022 and his subsequent payments to creditors other than Plaintiff. Creditors are "well advised to consider whether they can offer [other] facts which can support a finding of fraud pursuant to the standards set out in . . . Rembert [.]" Id. Moreover, the notion that a debtor's failure to answer a creditor's collection calls or pursue its (unpublished) hardship programs somehow bears on a debtor's fraudulent intent at the time charges are incurred is, at best, without merit and, at worst, frivolous. "Second, as in Miller, the Complaint's allegations derived from information in Debtor's petition and Plaintiff's own records. Plaintiff made no attempt to procure information through a Rule 2004 examination or by attending the § 341 meeting. "While the failure to attend the [§] 341 meeting or schedule a Rule 2004 examination is not 'dispositive' it is 'probative.'" Id. at 297 (citation omitted). Had Plaintiff done so before filing this action, it would have obtained the material facts contained in Debtor's two-page affidavit (which detailed Debtor's health issues and the unanticipated vehicle and veterinary expenses comprising about two-thirds of the November Charges). Performing a minimal investigation prior to filing suit may have caused Plaintiff to make a better decision. Instead, it litigated through trial the non-dischargeability of a $2,000 credit card debt without evidence of luxury purchases and after receiving uncontested evidence about Debtor's unexpected expenses and significant health issues resulting in three months of sharply reduced income. "Lastly, once a creditor knows it cannot "controvert the facts set out in [a debtor's] supporting affidavit, it [is] not substantially justified in going on." Id. Here, during closing argument, Plaintiff's counsel stated it offered to dismiss the action after reviewing Debtor's affidavit but did not do so because Debtor insisted Plaintiff pay his legal fees and costs. Notwithstanding Debtor's position, Plaintiff proceeded to increase costs further by litigating Debtor's motion for summary judgment, moving for leave to file its own belated dispositive motion, and trying this case. Plaintiff both failed to conduct a proper and required pre-filing investigation and compounded its errors through its post-filing litigation conduct." Plaintiff has failed to meet its burden to show its position was substantially justified or special circumstances exist making it unjust to award Debtor his costs and attorney's fees. Considering the totality of circumstances, Debtor will be awarded his reasonable attorney's fees and costs under § 523(d). | 11 U.S.C. § 523(a)(2)(A) 11 U.S.C. § 523(d) |
| In re Teter | 6th Cir | 1/3/24 | The court denied the debtor's request for attorneys fees from the United States Trustee under the Equal Access to Justice Act (EAJA) after the UST withdrew a motion to dismiss debtor's case. "Today's case involves a request for attorneys' fees under the EAJA during a bankruptcy proceeding. The EAJA empowers "a court" to award prevailing parties fees and costs incurred "in any civil action" that is "brought by or against the United States in any court having jurisdiction of that action." 28 U.S.C. § 2412(d)(1)(A). By way of background, in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (plurality op.), the Supreme Court struck down parts of the then-existing bankruptcy system. Congress responded by erecting the system that remains in place today. See Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665, 669-71 (2015) (discussing historical amendments to the bankruptcy system). In this modern regime, bankruptcy courts are officers of the district courts, meaning the former can adjudicate certain cases that are referred to those courts. Id. at 670. When that happens, the bankruptcy court's "statutory authority depends on whether Congress has classified the matter as a 'core proceeding' or a 'non-core proceeding.'" Id. (alterations adopted) (quoting 28 U.S.C. §§ 157(b)(2), (b)(4)). A core proceeding is "one that either invokes a substantive right created by federal bankruptcy law or one which could not exist outside of the bankruptcy." In re Bavelis, 773 F.3d 148, 156 (6th Cir. 2014) (cleaned up). Congress has provided a non-exhaustive list of examples. See 28 U.S.C. § 157(b)(2). Non-core proceedings, conversely, include causes of action that (1) are not identified in § 157(b)(2), (2) existed before the filing of the bankruptcy case, (3) would exist independent of the Bankruptcy Code, or (4) are not significantly affected by the filing of the bankruptcy petition. Bavelis, 773 F.3d at 156. For core proceedings, "Congress gave bankruptcy courts the power to 'hear and determine' core proceedings and to 'enter appropriate orders [*5] and judgments,' subject to appellate review by the district court." Wellness Int'l, 575 U.S. at 670 (citing 28 U.S.C. § 157(b)). For non-core proceedings, on the other hand, a bankruptcy court enjoys authority over the matter only to the extent that the parties consent to the court's jurisdiction. Id. at 671 (citing 28 U.S.C. § 157(c)(2)). "How do attorneys' fees requests under the EAJA fare in this dichotomy? The federal courts are not of one mind. Some describe EAJA fees requests as core proceedings, while others treat them as non-core proceedings. ... Were we to agree with those courts that treat the issue as a core proceeding, the bankruptcy court fairly asserted jurisdiction. Wellness Int'l, 575 U.S. at 670; 28 U.S.C. § 157(b). But we would say the same in this instance even if we were to treat the matter as a non-core proceeding. "That is because no party objected to the bankruptcy court's jurisdiction. Teter consented to the bankruptcy court's adjudication of her fees request by filing her motion with that court. In response, the Trustee has never argued that the bankruptcy court lacked jurisdiction to assess such fees. True, parties ordinarily cannot waive federal jurisdictional defects. See Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006). But things work slightly differently in bankruptcy court. See Wellness Int'l, 575 U.S. at 683-84. For non-core proceedings, again, bankruptcy courts have jurisdiction only where the parties have so consented. But "[n]othing in the Constitution requires that consent to adjudication by a bankruptcy court be express." Id. at 683. And by continuing to litigate Teter's EAJA request without objection, the Trustee in effect consented to the bankruptcy court's handling of the matter, making it a valid exercise of that court's jurisdiction. ... "Our inquiry here is limited. At Teter's direction, we examine whether the EAJA's "civil action" requirement has been satisfied in a very specific context: a motion to dismiss a bankruptcy case filed by the United States Trustee in accordance with 11 U.S.C. § 707(b). Whether, for example, a bankruptcy case itself constitutes a civil action for purposes of the EAJA is not a point pressed by Teter. Cf. In re Sisk, 973 F.3d 945, 947 (9th Cir. 2020) ("[U]ncontested bankruptcy cases do not clearly constitute civil action[s] brought by or against the United States within the meaning of the EAJA." (citation and quotation marks omitted)). "Our analysis is informed by principles of sovereign immunity. In "render[ing] the United States liable for attorney's fees for which it would not otherwise be liable," the EAJA "amounts to a partial waiver of sovereign immunity." Ardestani v. INS, 502 U.S. 129, 137 (1991). Although the EAJA waives sovereign immunity in some respects, such waivers "must be strictly construed in favor of the United States." Id. To honor that understanding, we read any textual ambiguity in favor of immunity, because "the Government's consent to be sued is never enlarged beyond what a fair reading of the text requires." FAA v. Cooper, 566 U.S. 284, 290 (2012). And, in the end, we agree with the bankruptcy court that the EAJA could be read to exclude § 707(b) motions to dismiss, leaving fees unavailable to a party like Teter. ... "...At day's end, if there is something special about bankruptcy motions to dismiss that makes them civil actions, Congress did not make that sufficiently clear.... "All things considered, it is at the very least plausible to conclude that a § 707(b) motion to dismiss does not initiate its own civil action. The absence of an express waiver by Congress of sovereign immunity therefore bars us from lifting the veil of immunity protecting the United States Trustee. Accordingly, Teter is unable to avail herself of the EAJA. See Ardestani, 502 U.S. at 137." | 28 U.S.C. § 2412(d)(1)(A) |
| In re Frantz | 9th Cir BAP | 12/29/23 | The court reversed the bankruptcy court's imposition of sanctions on a debtor's attorney who certified that the debtors had completed their plan payments even though the debtors were delinquent in their direct monthly mortgage payments. Debtors' counsel argued that the law in the 9th Circuit was not settled concerning the issue of whether direct mortgage payments are "plan payments" under 11 U.S.C. § 1328. The court reviewed the standards for imposing sanctions under Rule 9011. "However, the Ninth Circuit has urged restraint when imposing Civil Rule 11 sanctions: "[F]orceful and effective representation often will call for innovative arguments. For this reason, sanctions should be reserved for the rare and exceptional case where the action is clearly frivolous, legally unreasonable or without legal foundation, or brought for an improper purpose." Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 649 (9th Cir. 1997) (cleaned up). ... "The Ninth Circuit has reversed sanctions where a "plausible, good faith argument can be made by a competent attorney to the contrary." Zaldivar v. City of L.A., 780 F.2d 823, 833 (9th Cir. 1986), abrogated on other grounds by Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S. Ct. 2447, 110 L. Ed. 2d 359 (1990). It stated that, "[i]f, judged by an objective standard, a reasonable basis for the position exists in both law and in fact at the time that the position is adopted, then sanctions should not be imposed." Golden Eagle Distrib. Corp. v. Burroughs Corp., 801 F.2d 1531, 1538 (9th Cir. 1986). It directed that, when imposing Civil Rule 11 sanctions, the court must "look[ [*20] ] to whether or not a basis in law or fact exists . . . . [S]anctions should not have been imposed where a 'plausible good faith argument can be made.'" Id. at 1541 (quoting Zaldivar, 780 F.2d at 832). "In this case, Ms. Doling declared to the bankruptcy court that the Debtors had completed the chapter 13 plan. This statement implicitly represented that the Debtors had made all of their "payments under the plan." § 1328(a). The bankruptcy court could not sanction Ms. Doling if her position had a plausible, good faith legal basis, even if she did not explicitly argue that basis when she filed the Doling Declaration. ... "But the court's finding of her intent presupposes that her statement was false: in other words, that the Debtors had not made all of the "payments under the plan." This statement in turn presupposes that the direct payments to the mortgagee were "payments under the plan." The question of whether direct payments are "payments under the plan" is a pure question of law.... we hold that, as a matter of law, there was a reasonable legal basis for her argument, so the bankruptcy court erred in sanctioning her under the authorities on which it relied. "Rule 9011(b) incorporates a reasonableness standard which focuses on whether a competent attorney admitted to practice before the involved court could believe in like circumstances that his actions were legally and factually justified." In re Nakhuda, 544 B.R. at 899. Additionally, when the court imposes sanctions on its own initiative, it must "apply a higher standard 'akin to contempt' . . . ." Id. ... "... Additionally, the Ninth Circuit has recognized that, for purposes of Rule 9011, a BAP decision cannot be the basis for sanctioning a party for seeking a contrary result in a district where the underlying issue is unresolved. See Bank of Maui v. Est. Analysis, Inc., 904 F.2d 470, 472 (9th Cir. 1990) ("Whether a BAP decision is controlling authority for the circuit as a whole has not been decided by this court. . . . We need not and do not decide the authoritative effect of a BAP decision because, for the purposes of Bankruptcy Rule 9011, its binding effect is so uncertain that it cannot be the basis for sanctioning a party for seeking a contrary result in a district where the underlying issue has never been resolved."). Therefore, notwithstanding Mrdutt, competent counsel could make a nonfrivolous argument that the bankruptcy court should adopt the minority view." | 11 U.S.C. § 1328 Rule 9011 |
| In re Molina | Bankr. E.D. NY | 12/28/23 | The court dismissed the trustee's adversary proceeding seeking to avoid and recover tuition payments made to Defendant by the Debtor for his three minor children for the 2020-2021 school year totaling $163,639.97. "n considering whether the non-conclusory factual allegations in the Complaint are sufficient to state a claim for relief under Rule 8(a)(2) and, for those causes of action alleging actual fraud, meet the particularity requirements of Rule 9(b), the Court must first address a threshold question: Does the Complaint contain any well-pleaded assertion of a transfer of an interest of the Debtor in property as required for the avoidance and recovery of a fraudulent transfer under §§ 544(b), 548(a)(1) and 550, and for the avoidance and recovery of a preference under §§ 547(b) and 550? For the following reasons, and as discussed more fully below, the Court concludes that it does not. The Complaint fails to proffer sufficient non-conclusory facts to plausibly suggest a transfer of an interest of the Debtor in property. Generalized assertions, standing alone, do not suffice. Twombly, 550 U.S. at 557. The Trustee's unjust enrichment claim suffers the same fate. To succeed on such claim, the Trustee must establish, inter alia, that The Dalton School was enriched at the Debtor's expense. Absent a well-pleaded assertion of a transfer of an interest of the Debtor in property, the Complaint falls short of alleging facts from which the Court may reasonably infer that the tuition payments [*15] were made at the expense of the Debtor. | 11 U.S.C. § 544(b) 11 U.S.C. § 547(b) 11 U.S.C. § 548(a)(1) 11 U.S.C. § 550 FRCP 12(b)(6) |
| In re Gallagher | Bankr. E.D. NY | 12/28/23 | The court denied the debtor's objection to claim seeking to reduce a priority claim to the amount of funds available to pay that claim. "...the Amended Claim asserts an unsecured priority claim for a domestic support obligation under § 507(a)(1)(A) in the amount of $272,862.62, consisting of $224,021.49 for child support and child support addon expense arrears, $43,241.13 for spousal support and $5,600 for legal fees. In support of the total amount due, the Amended Claim, inter alia, references a judgment entered in the parties' matrimonial action and filed on June 2, 2017 ("June 2017 Judgment") awarding child support arrears to Claimant in the amount of $105,487.53, plus interest from April 5, 2017 in the amount of $1,508.62 for a total of $106,996.15. ... "...At the hearing, the debtor conceded that the Amended Claim is for a priority nondischargeable domestic support obligation and did not challenge the amounts set forth in the Amended Claim or how the amount was calculated. Rather, the debtor argues that the Amended Claim must be partially disallowed because the trustee has approximately $44,000 to distribute to Claimant and the amount subject to collection by the SCU is slightly more than $44,000. For this reason, the debtor maintained that the Amended Claim must be reduced to the amount of the available distribution. ... "As the objecting party, the debtor has the burden of coming forward with sufficient evidence (i) to rebut the validity or amount of the claim asserted or (ii) to show the claim should be disallowed. Here, the debtor does not deny that the Amended Claim is for unpaid child support, child support add-ons, spousal support and legal fees, and that the claim constitutes a domestic support obligation entitled to priority pursuant to § 507(a)(1)(A). While the debtor raises for the first time in his Reply that he doesn't owe Claimant any "add ons" or maintenance, the debtor offers no evidence to demonstrate that he has satisfied the debt or that the calculation set forth in the Amended Claim is incorrect. Indeed, the debtor's pleadings could hardly be characterized as [*13] an objection to the allowance of the Amended Claim or to its the validity when his arguments are simply 1) limit the Amended Claim to the amount available for distribution and 2) make the payments to a third party. "As to the first argument, the debtor offers no legal authority for partially disallowing and reducing Claimant's $272,862.62 claim to the $44,305.03 in outstanding child support arrears simply because there are insufficient funds in the estate to pay the Amended Claim in full. Availability of funds for distribution has no bearing on the validity, priority, and amount of a creditor's claim, and the debtor offers no statutory or case authority to support his position. ... "...Thus, the debtor's Objection seeks to improperly use the bankruptcy claims process to expunge the remainder of the Amended Claim in excess of $44,000, and thus, forestall Claimant's ability to enforce her nondischargeable domestic support obligation outside of bankruptcy. As this Court has noted, if the debtor wants to modify amounts owed to Claimant for spousal maintenance and child support, the state court that issued those judgments in favor of Claimant is the proper forum for that request. "The debtor's second argument that all distributions of the sale proceeds on account of the domestic support claim must be paid directly to SCU is not only legally and factually unsupported but, as discussed above, is grounded on a misrepresentation as to what is set forth in the state court judgments and orders. ... "Having carefully considered the submissions and arguments of the parties, the Court concludes that the debtor failed to meet his burden of coming forward to rebut the validity, priority or amount of the Amended Claim and failed to demonstrate that the SCU is the proper recipient of the trustee's proposed distribution on the Amended Claim." | 11 U.S.C. § 507(a)(1)(A) |
| In re Richards | 9th Cir BAP | 12/27/23 | The court ruled that a debtor does not have standing to appeal the disallowance of a claim (filed by her father) when her estate is insolvent. "Richards argues that she has standing to appeal because the POC 10-4 Order "affects her rights" and that she has a "legitimate interest" in the adversary proceeding. She offers no facts to support these assertions and cites only California cases. The Ninth Circuit has recently clarified the issue of standing in the bankruptcy context, reviewing the historical standard that to have standing a party must be a "person aggrieved." In Clifton Capital Group, LLC v. Sharp (In re E. Coast Foods, Inc.), 80 F.4th 901, 906 (9th Cir. 2023), as amended (Sept. 14, 2023), the Ninth Circuit reaffirmed that a person must establish Article III standing before the person aggrieved standard becomes relevant. HN8 To have Article III standing in federal court, a person must show that she has: "(1) suffered an 'injury in fact' that is concrete, particularized, and actual or imminent, (2) the injury is 'fairly traceable' to the defendant's conduct, and (3) the injury can be 'redressed by a favorable decision.'" Id. (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992)). "Richards has offered no facts to suggest that her "injury" is sufficient to meet the Article III factors set forth in East Coast Foods if for no other reason than that the disposition of this matter in a thoroughly insolvent estate cannot affect her economically in any material way. It is her burden to establish Article III standing and without that we lack subject matter jurisdiction to consider her appeal. "We recognize that a chapter 7 debtor may have standing when it is likely there will be a surplus bankruptcy estate. Duckor Spradling & Metzger v. Baum Tr. (In re P.R.T.C., Inc.), 177 F.3d 774, 778 n.2 (9th Cir. 1999) ("Ordinarily, a debtor cannot challenge a bankruptcy court's order unless there is likely to be a surplus after bankruptcy."). The Trustee asserts that there is likely [*13] to be insufficient funds even to pay the administrative expense creditors in this case and Richards makes no attempt to dispute that assertion." | |
| In re Shelton | D. C.D.CA | 12/26/23 | The court dismissed an appeal based on Appellant's failure to provide a transcript to the district court when the appealled ruling was made on the record. "Most crucially, Larson was required to "order in writing from the reporter . . . a transcript of such parts of the proceedings . . . as the [Appellant] considers necessary for the appeal, and file a copy of the order with the bankruptcy clerk," or take advantage of the alternatives provided under Rule 8009(b)-(d). Fed. R. Bankr. P. 8009. "When findings of fact and conclusions of law are made orally on the record, a transcript of those findings is mandatory for appellate review." Clinton, 449 B.R. at 83 (citation omitted). Otherwise, "[t]here is no other way for an appellate court to be able to fathom the trial court's action." In re McCarthy, 230 B.R. 414, 417 (9th Cir. BAP 1999) (citing Rule 8006, which requires that the record on appeal include, among other items, findings of fact and conclusions of law of the court). "Pro se litigants are not excused from complying with these rules." Clinton, 449 B.R. at 83. "Here, the Court finds that Larsen has not provided a complete record for review, including a rule-compliant designation of the record and corresponding transcripts containing the relevant rulings below. Although Larson filed a document entitled "Designation of record" dated March 20, 2022,3 Larson did not designate any items to be included in the record in that filing, nor did he provide a transcript of the matters that are the subject of this appeal.4 Because the Bankruptcy Court made its findings and conclusions on the record and incorporated those findings in its written orders,5 the Court cannot conduct an informed, substantive review of Larsen's appeal without the underlying transcripts. See In re Hale, 2021 Bankr. LEXIS 2345, 2021 WL 3829307, at *1 (B.A.P. 9th Cir. Aug. 23, 2021). Accordingly, the Court DISMISSES this appeal for failure to provide an adequate record." | Fed. R. Bankr. P. 8009 |
| In re Johnson | Bankr. S.D. GA | 12/26/23 | The court ruled that the power of attorney used to file a chapter 7 bankruptcy petition for an incarcerated debtor was insufficient and dismissed the bankruptcy. The court also denied the debtor's motion for exemption or waiver of the credit counseling requirement based solely on his incarceration. "The power of attorney Debtor's mother used to file the petition is insufficient as a matter of law. State law generally determines who has the authority to file a bankruptcy petition on behalf of another. See In re Kjellsen, 53 F.3d 944, 946 (8th Cir. 1995) ("state law determines who has the authority to file a bankruptcy petition on behalf of another."); In re Blanchard, 2001 Bankr. LEXIS 2054, 2001 WL 1825797 (Bankr. M.D. Fla. July 27, 2001) (determining whether guardians were properly authorized to file a bankruptcy petition on behalf of a debtor pursuant to the requirements listed in Florida's guardianship statute); Butner v. United States, 440 U.S. 48, 55, 99 S. Ct. 914, 59 L. Ed. 2d 136 (1979) ("Property interests are created and defined by state law."). ... "In this case, Debtor's power of attorney remains deficient for several reasons. First, Debtor did not sign the power of attorney. Dckt. No. 33. At the hearing, Debtor's mother testified she signed the power of attorney with authority from her son. While she testified that she signed the power of attorney at his direction, she failed to establish it was in his presence. See O.C.G.A. §10-6B-5(a)(1). Furthermore, the power of attorney has not been properly attested as required by O.C.G.A. §10-6B-5(a)(2) and (3).3 For these reasons, the Court finds the power of attorney has not been properly executed or attested and therefore is invalid and the case is dismissed. ... "Debtor requests a waiver from the §109(h) pre-petition credit counseling requirement because of his incarceration. To obtain a waiver based on exigency, Debtor must: submit a certification which describes the exigent circumstances meriting a waiver of the requirement; state that he requested the services but was unable to obtain it in time; and this explanation must be satisfactory to the Court. 11 U.S.C. §109(h)(3)(A)(i)-(iii). Debtor has provided no information regarding his efforts to obtain credit counseling pre-petition. [*9] This Court also agrees with the line of cases concluding that incarceration, by itself, does not constitute an exigent circumstance. See In re Wedig, 2021 Bankr. LEXIS 437, 2021 WL 717763 (Bankr. S.D. Iowa Feb. 5, 2021) (holding incarceration is not an exigent circumstance that warranted a temporary waiver of the credit counseling requirement); In re Larsen, 399 B.R. 634, 636 (Bankr. E.D. Wis. 2009) (same); In re Johnson, 2007 Bankr. LEXIS 3513, 2007 WL 2990563 (Bankr. D.D.C. Oct. 11, 2007) (same); In re McBride, 354 B.R. 95, 98 (Bankr. D.S.C. 2006) ("The assertion of [debtor's] incarceration has no bearing on the exigency of his need to file a petition for bankruptcy"); but see In re Patasnik, 425 B.R. 916 (Bankr. S.D. Fla. 2010) (granting debtor a temporary waiver of the credit counseling requirement pursuant to §109(h)(3)); In re Star, 341 B.R. 830 (Bankr. E.D. Va. 2006) (same); In re Walton, 2007 Bankr. LEXIS 1139, 2007 WL 980430 (Bankr. E.D. Mo. Mar. 5, 2007)(same). Therefore, Debtor is not entitled to a §109(h)(3) waiver of the credit counseling requirement. "Similarly, with respect to Debtor's alleged disability, this District and others have previously heldHN4 incarceration is not a "disability" as defined under §109(h)(4). See In re Sarlak, No. 13-20129, 2013 Bankr. LEXIS 5729 (Bankr. S.D. Ga. Feb. 20, 2013) (denying motion for waiver of the credit counseling requirement because "incarceration does not amount to a disability under §109(h)(4)"); In re Conner, No. 12-60685 (Bankr. S.D. Ga. Dec. 14, 2012) (same); In re Cole, No. 12-60062 (Bankr. S.D. Ga. Feb. 8, 2012) (same); In re Donaldson, No. 12-60044 (Bankr. S.D. Ga. Feb. 8, 2012) (same); cf. In re Goodwin, 2009 Bankr. LEXIS 1362, 2009 WL 6499330 (Bankr. N.D. Ga. Mar. 12, 2009) (holding incarceration is not a "disability" as defined by §109(h)(4) that excuses a debtor's requirement to take the financial management course under §111). Section 109(h)(4) defines "disability" to mean "the debtor is so physically impaired as to be unable, after reasonable effort, to participate in [*10] an in person, telephone, or Internet briefing." 11 U.S.C. §109(h)(4). Incarceration, without more, does not qualify as a §109(h) disability. Goodwin, 2009 Bankr. LEXIS 1362, 2009 WL 6499330, at *1-*2; Larsen, 399 B.R. at 637 (same). In addition, the lack of access to printing machines, materials, and an inability to pay similarly does not meet the definition of "disability" under §109(h)(4), especially when credit counseling services are offered via telephone without the need for printed materials and are also offered free of cost.5 Furthermore, incarceration does not constitute an "incapacity" as defined by §109(h)(4). "Incapacity" is defined in §109(h)(4) as someone who is "impaired by reason of mental illness or mental deficiency so that he is incapable of realizing and making rational decisions with respect to his financial responsibilities." 11 U.S.C. §109(h)(4). There is no evidence that the Debtor is incapable of realizing or making rational decisions with respect to his financial responsibilities. See In re Oliver, 2013 Bankr. LEXIS 1138, 2013 WL 1403336 (Bankr. S.D. Ga. Mar. 25, 2013) (denying motion to waive §109(h) credit counseling requirement because incarceration does not meet the definition of incapacity). "For these reasons, even if the power of attorney is deemed valid, Debtor is not exempt from obtaining the mandatory pre-petition credit counseling required by §109(h) and therefore the Motion for Exemption is denied, [*11] and the case is dismissed. The Motion to Reconsider Dismissal also is denied; however, given the particular facts and circumstances of this case, the Court strikes the following language from the Dismissal Order: " with prejudice, barring refiling of a petition by the debtor(s) within 180 days of this order. Filing fee in the amount of $338.00 is due and owing"." | 11 U.S.C. §109(h)(3)(A)(i)-(iii) |
| In re Solis-Ocon | Bankr. E.D. WI | 12/19/23 | The court granted the chapter 13 trustee's motion to vacate the discharge order based on the trustee's mistake in entering an incorrect amount on a proof of claim. "The trustee asserts that he made a mistake in entering a creditor's claim into his computer system, and that he erroneously failed to pay that creditor before issuing a notice that the debtor had completed plan payments. ... "The trustee's motion to vacate relied solely on Federal Rule of Civil Procedure 60(a), made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 9024. That rule provides: "The court may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record." Fed. R. Civ. P. 60(a). The trustee argued that his employee had made [*4] a clerical mistake when entering the Mariner Finance claim into the software system, and that the Court should correct the mistake by vacating the discharge order. "The debtor objected to the trustee's motion. The debtor argued that the discharge order does not contain any errors or mistakes, and that relief under Rule 60(a) is therefore unavailable. The debtor also argued that the only avenue for vacating a discharge order is under 11 U.S.C. § 1328(e), which requires fraud on behalf of the debtor. ... "Here, the Court concludes that the equities of this case favor granting the trustee's motion to vacate the discharge order. The debtor did not make sufficient payments to the trustee to pay all unsecured creditors in full, so she has not completed "all payments under the plan" as required for a discharge under § 1328(a). The trustee brought his motion less than a month after the discharge order was entered, and the Court finds that the motion was "made within a reasonable time" as required by Rule 60(c)(1). See Fed. R. Civ. P. 60(c)(1). Moreover, the timing is such that there are several months remaining in the five-year period available to complete plan payments under 11 U.S.C. § 1322(d). Finally, vacating the discharge order will not adversely affect the debtor because she always expected she would need to pay all unsecured claims in full before receiving a discharge." | 11 U.S.C. § 1328(a) FRCP 60(b)(1) |
| In re Rivera | 9th Cir BAP | 12/17/23 | The court reduced the chapter 7 trustee’s attorney’s fees from $3,390 to $870 on the basis that the disallowed services were not reasonable or necessary and did not involve services beyond the trustee’s duties performed without legal counsel. “The Bankruptcy Code requires the trustee to do his or her own work; this requirement sometimes creates a tension in small cases like these between the work that should be done by the trustee and that which genuinely requires the assistance of an attorney. Therefore, it is not surprising that the only meaningful review of the fees in small cases occurs at the end of the case, and may frequently be predicated on an objection, or the court's independent concern, that the services for which compensation is requested do not rise to the level of tasks for which the expertise of an attorney was required. … “The UST's main objection to the fee application was that the services performed by Smith purportedly as the trustee's attorney were services which the trustee would generally undertake. Section 328(b) unambiguously requires that the fees awarded to an attorney representing a trustee in a bankruptcy case must not include any time for "performance of any of the trustee's duties that are generally performed by a trustee without the assistance of an attorney . . . for the estate." “Section 704 sets forth the trustee's duties which include collecting and reducing to money the property of the estate, investigating the financial affairs of the debtor, examining the proofs of claim with a view toward objecting to allowance, and preparing the trustee's final account. The role of counsel for the trustee is to perform those tasks that require special expertise beyond that expected of an ordinary trustee. "Only when unique difficulties arise may compensation be provided for services which coincide or overlap with the trustee's duties and only to the extent of matters requiring legal expertise." Ferrette & Slater v. U.S. Tr. (In re Garcia), 335 B.R. 717, 725 (9th Cir. BAP 2005) (quotation marks and citation omitted). Attorneys must therefore present sufficient evidence including billing records with enough detail to establish that the services rendered went beyond the scope of the trustee's statutory duties and involve unique difficulties. Id. at 727. The cryptic descriptions in the billing statements provoked the court's concern about Smith's dual role in this case. Even the bankruptcy court's entreaties to Smith before the evidentiary hearing did not prompt Smith to adequately explain why the tasks required attorney expertise. Smith's failure to adequately explain the context of the time entries prevented the court from making the required findings in Smith's favor.” | 11 U.S.C. §326 11 U.S.C. §328(b) 11 U.S.C. § 330 11 U.S.C. § 704 |
| In re Evans | Bankr. NM | 12/12/23 | The court denied the debtor's motion to avoid judgement lien impairing the homestead exemption because the PMSI the creditor has on installed solar panels were not fixtures of the residence. "Debtors' first amended plan includes a motion to avoid a judgment lien that allegedly impairs the Debtors' homestead exemption.1 To rule on the motion, the Court must first decide whether Debtors' house is encumbered by a purchase money security interest in a solar panel system installed on the roof of the house. If the solar panels and related equipment are fixtures, the answer likely is yes; otherwise, the answer is no. ... "Whether the System is a fixture is a question of state law. See Flores de N.M., Inc. v. Banda Negra Int'l, Inc., 151 B.R. 571, 581 (Bankr. D.N.M. 1993) (whether an item has become a fixture is governed by state law). "Under New Mexico law, the System was consumer goods when delivered to the House. Id. at 578-79 (goods include all things movable at the time a security interest attaches, while consumer goods are goods "used or bought for use primarily for personal, family or household purposes"). However, if the System was permanently affixed to the House, then for the purposes of the New Mexico Uniform Commercial Code, it would no longer be consumer goods, but instead would have become "fixtures." See NMSA § 55-9-102(41) (fixtures are "goods that have become so related to particular real property that an interest in them arises under real property law"); see also Flores, 151 B.R. at 578-79 (quoting the definition); In re Ryan, 360 B.R. 50, 51 (Bankr. W.D.N.Y. 2007) (once a specialty bathtub, a consumer good, was installed it became a fixture). "To determine whether a particular good becomes a fixture under New Mexico law, [*8] three "guidelines" or "tests" are used: This court has long recognized three guidelines in determining whether an article used in connection with realty is to be considered a fixture. These guidelines are (1) annexation, (2) adaptation and (3) intention. Garrison General Tire Service, Inc. v. Montgomery, 1965- NMSC 077, 75 N.M. 321, 404 P.2d 143; Patterson v. Chaney, 1918-NMSC-077, 24 N.M. 156, 173 P. 859, 6 A.L.R. 90; Post v. Miles, supra. Boone v. Smith, 1968- NMSC 172, 79 N.M. 614, 616, 447 P.2d 23 (S. Ct. 1968); see also Giant Cab, Inc. v. CT Towing, Inc., 2019- NMCA 072, 453 P.3d 466, 470 (N.M. App. 2019) (citing Boone); Southwestern Public Serv. Co. v. Chaves County, 1973- NMSC 064, 85 N.M. 313, 316, 512 P.2d 73 (S. Ct. 1973) (citing Post v. Miles, 1893- NMSC 033, 7 N.M. 317, 34 P. 586 (S. Ct. 1893) and the three tests). "Annexation. Annexation is the "act of attaching," and "the point at which a fixture becomes a part of the realty to which it is attached." Black's Law Dictionary, (10th Ed.). Easily removed goods generally are not considered annexed. (Citations omitted.) The stipulated facts show that the System is not permanently attached to the House. It could easily be removed without damaging the roof or other parts of the House. It is bolted on and could be unbolted. No annexation has taken place. "Adaptation. Likewise, the System is not adapted or applied "to the use or purpose to which that part of the realty to which it is connected is appropriated." Garrison General Tire Service, Inc. v. Montgomery, 1965- NMSC 077, 75 N.M. 321, 324, 404 P.2d 143 (S. Ct. 1965). It is on the roof, but not part of [*9] the roof. The solar panels would function just as well if they were installed in a yard next to the house. A roof location often is chosen because it gets the solar panels out of the way and minimizes obstructions, but the panels are not part of the House or roof. Indeed, the roof would function better without the System. ... "The Court finds and concludes that the System remains consumer goods. Assuming the System has been installed on the House, it did not become a fixture. ... "In addition to being consistent with New Mexico and other law on fixtures, the ruling advances the laudable policy of reducing the cost of financing solar panel purchases and installation. To facilitate borrowing, it is helpful for solar panels and related equipment to remain consumer goods. If the panels and other equipment become fixtures, the lender could end up in a priority fight with the mortgage lender or could be prohibited from repossessing its collateral. Moreover, the lender would have to file a fixture filing to keep its perfected, first priority security interest, an additional expense and hassle. As consumer goods, Tech CU's purchase money security interest in the System was perfected when the security interest was granted. NMSA § 55-9-309. No financing statement was required. Had the System become a fixture, Tech CU would have been required to file a "fixture filing" (see NMSA § 55-9-102(40)), which must include the name and address of the debtor, a description of the collateral, the name and address of the secured party, and a description of the real property to which the System was affixed. NMSA § 55-9-502. It must be filed in the county where the real property is located. NMSA § 55-9-501(a)(1)(B). "Finally, it would be poor policy to allow debtors to covenant with their lenders that purchased solar panels are consumer goods, while arguing to the bankruptcy court in § 522(f) motions [*14] that the panels are fixtures. Evans made his bed when he signed the Loan Agreement and Note. Now he must lie in it. See, e.g., Ryan Operations G.P v. Santiam-Midwest Lumber Co., 81 F.3d 355, 359 (3d Cir. 1996) ("a party to litigation will not be permitted to assume inconsistent or mutually contradictory positions with respect to the same matter in the same or a successive series of suits."). ... "Because the System is not permanently affixed to the House and remains consumer goods after installation, Tech CU retained its perfected, purchase money security interest in the System. Tech CU's security interest never attached to the House, however. Its situation is similar to a lender financing furniture or appliances—it has a security interest in the goods financed but not the house where the goods are kept. "Conclusion The Court concludes that the System never became a fixture and has retained its character as consumer goods. Because of that, Tech CU's claim against Evans is not secured by the House or any portion of it. When determining the merits of Debtors' motion to avoid Rees' judgment lien against the House, the Court will disregard Tech CU's secured claim. The Court will enter a separate order." | 11 U.S.C. § 522(f) |
| In re Moreno | Bankr. NM | 12/7/23 | The court ruled that a debtor who does not have a mortgage or rent expense but does have cell phone and seasonal fuel expenses that fall within the IRS Local Housing and Utilities Standard, is entitled to deduct from current monthly income the full amount of the IRS Local Housing and Utilities Standard. This includes the standard amount for a mortgage that she doesn't pay. "Debtor contends that because she has an expense that falls within the category of Housing and Utilities under the IRS Local Standards, she is entitled to deduct the entire amount of the IRS Local Standard for Housing and Utilities. The Trustee points out that if Debtor is allowed a deduction for the entire IRS Local Standard for Housing and Utilities Standard, her monthly disposable income would be a negative $236.77; whereas, if no such deduction is allowed, her monthly disposable income would be a positive $1,567.23, which would be sufficient to pay non-priority unsecured creditors almost 100%. The Trustee reasons that the IRS Local Standard for Housing and Utilities is not applicable to Debtor because Debtor does not have a mortgage or rent expense, given the purpose of BAPCPA "to help ensure that debtors who can pay creditors do pay them." Ransom v. FIA Card Services, N.A., 562 U.S. 61, 64, 131 S. Ct. 716, 178 L. Ed. 2d 603 (2011) (citing H.R.Rep. No. 109-31, pt.1, p. 2 (2005)). ... "Both Debtor and the Trustee rely on the Supreme Court's decision in Ransom v. FIA Card Services, N.A., 562 U.S.61, 131 S. Ct. 716, 178 L. Ed. 2d 603 (2011), which involved vehicle-related expenses. Unlike the IRS Local Standard for Housing and Utilities, the IRS divided its Local Transportation Standard into two categories, one called "Ownership Costs" and the other called "Operating Costs,"26 and specified separate amounts for each category. In Ransom, because the debtor owned his car outright, he did not make car loan or lease payments. Ransom, 562 U.S. at 64. Consequently, he did not have any expenses in the Ownership Costs category of the IRS Local Transportation [*19] Standard. Nevertheless, the debtor claimed deductions from current monthly income in the full amounts the IRS specified for both the "Ownership Costs" and "Operating Costs" categories of the Standard. Id. at 67. The Supreme Court determined that a debtor who owned his car outright may not take a deduction for Ownership Costs but was entitled to take a deduction for Operating Costs when calculating projected disposable income. Ransom, 562 U.S. at 64, 72. "In interpreting § 707(b)(2)(A)(ii)(I), the Supreme Court focused on the word "applicable." Id. at 69. Based on the ordinary meaning of the term, the Supreme Court found that "an expense amount is 'applicable' within the plain meaning of the statute, when it is appropriate, relevant, suitable, or fit." Id. The Supreme Court reasoned that a debtor must "actually incur[ ] an expense in the relevant category" to qualify for the deduction in that category such that "[i]f a debtor will not have a particular kind of expense during his plan, an allowance to cover that cost is not 'reasonably necessary' within the meaning of the statute." Id. at 70-71. Because the debtor in Ransom did not have any expenses within the Ownership Costs category of the Transportation Standard, that category was not "applicable" to the debtor. Id. at 80. Thus, the debtor could not deduct the IRS Standard Ownership Costs amount because he did not have any expense in that category. Id. "Here, Debtor does not have a mortgage expense. The Trustee reasons that such expense therefore is not "applicable" to the Debtor so that she cannot claim a deduction under the Housing and Utilities Standard, which includes a mortgage expense. Debtor does have cell phone and fuel expenses, which the IRS includes in the Housing and Utilities Standard in its definition of "Utilities." The problem with the Trustee's argument is that, unlike the IRS Standard for Transportation (at issue in Ransom), which divides the Transportation Standard into two categories: "Ownership Costs" and "Operating Costs," and specifies separate amounts for each category, the IRS did not separate the Local Standard for Housing and Utilities into two categories. The IRS separately defines "Housing" expenses and "Utilities" expenses but only specifies a single amount for the entire Local Standard for Housing and Utilities. Because the IRS Local Standard for Housing and Utilities is a singular amount and Debtor has expenses covered by the Housing and Utilities Standard, the Standard is applicable to Debtor. ... "However, even though dividing the Housing and Utilities Standard into "Mortgage or Rent Expenses" and "Insurance and Operating Expenses" with separate deductible limits for each category may further an overarching policy underlying BAPCPA—requiring debtors to pay unsecured creditors what they reasonably can afford to pay—it conflicts with § 707(b)(2)(A)(ii)(I) of the Bankruptcy Code, which requires above-median-income debtors to use the applicable monthly expense amounts specified under the IRS National and Local Standards. The IRS Local Standard for Housing and Utilities specifies "a single amount that is inclusive of all housing expenses," Currie, 537 B.R. at 889, without breaking the amount down into any categories. "The Court therefore holds that Debtor, who does not have a mortgage or rent expense but does have cell phone and seasonal fuel expenses that fall within the IRS Local Housing and Utilities Standard, is entitled to deduct from current monthly income the full amount of the IRS Local Housing and Utilities Standard. See Currie, 537 B.R. at 894 (concluding that the debtor could deduct the entire IRS Housing and Utilities Standard despite the fact that the debtor's only housing-related expenses were for insurance and property taxes associated with property that had no mortgage indebtedness). ... "The Court recognizes that allowing Debtor to deduct from current monthly income the full amount of the IRS Local Standard for Housing and Utilities when she does not actually incur any mortgage expenses might not be good bankruptcy policy. But the Court does not have discretion to deny the full deduction based solely on bankruptcy policy. The Bankruptcy Code entitles Debtor to deduct the full amount of the IRS Local Standard for Housing and Utilities from her current monthly income notwithstanding the fact that she has no mortgage expense because she does incur at least one expense covered by the Standard." | 11 U.S.C. § 707(b)(2)(A)(ii)(I) 11 U.S.C. § 1325(b)(3) |
| In re Gallegos | 10th Cir BAP | 12/5/23 | Subsequent to the dismissal of a pending divorce action, the debtor's and trustee's interest in marital property vanished and was not property of the bankruptcy estate. "In this case, a husband and wife started down the path to divorce, only to reconcile after the wife sought the protection of the bankruptcy court. The chapter 7 trustee then commenced an adversary proceeding claiming the debtor's reconciliation with her spouse and subsequent divorce proceeding dismissal resulted in an unauthorized postpetition transfer of property. ... "Property of a bankruptcy estate consists of all (with some exceptions not applicable here) of the debtor's legal or equitable interests of the debtor in property at the commencement of a bankruptcy case. A bankruptcy trustee succeeds to the debtor's property interests, but only to the title and rights in the property the debtor had at the time the debtor filed the bankruptcy petition. Thus, when asserting rights of action related to a property interest, the trustee has no greater rights or control over an interest than the debtor. Simply put, the trustee's interest is limited in the same way as the debtor's. "A bankruptcy court relies on state law to determine what property constitutes property of the bankruptcy estate. In Colorado, when a divorce petition is filed, "all property acquired by either spouse subsequent to the marriage and prior to a decree of legal separation is presumed to be marital property, regardless of whether title is held individually or by the spouses in some form of coownership . . . . However, a spouse's property "acquired prior to the marriage . . . shall be considered as marital property . . . to the extent that its present value exceeds its value at the time of the marriage or at the time of acquisition if acquired after the marriage." Thus, filing a divorce petition in Colorado creates for each spouse a vested equitable interest in the marital estate and a "species of common ownership" over the property therein. ... Thus, "where the divorce is pending when the bankruptcy petition is filed, the divorcing [spouses' respective property interests are vested but subject to subsequent definition. For that reason, what constitutes property of the [bankruptcy] estate is undefined." The undefined interest, which vests as part of the marital estate upon the filing of divorce action, is inchoate subject to entry of a property disposition order. Therefore, the vested interest of a spouse remains inchoate unless and until the divorce court issues a divorce decree or divides the marital estate. ... "Finally, the Trustee contends that allowing such a transfer creates an "escape hatch" from § 549 avoidance actions and enables fraud. ... "The filing of the Divorce Case created for the Debtor a vested, but inchoate, equitable interest in the marital estate, which included the Property. Because the Trustee cannot have a greater interest in the Property than the Debtor, the Trustee also had a vested, but inchoate, equitable right of undetermined value in the Property at the commencement of the Bankruptcy Case. While the Property appreciated in value from the time of the Appellees' marriage and so was properly included in the Appellees' marital estate, the Debtor's interest in the Property was never fully defined because no divorce decree or order of division of property was entered in the Divorce Case.31 Such an undefined, inchoate interest does not survive dismissal of the related divorce action. Accordingly, both the Debtor's and Trustee's interest in the Property vanished when the Divorce Case was dismissed. Since the Property was not property of the bankruptcy estate, the Bankruptcy Court had neither an obligation nor any reason to ascribe a value to the Property." | 11 U.S.C. § 549 |
| In re Hopkins | D. NJ | 12/4/23 | The court ruled that when the order being appealed doesn't disclose the factual or legal basis of the court's opinion, then the appellant must order and submit a transcript of the proceeding. Failure to submit the transcript is grounds for dismissing the appeal. "Pursuant to Bankruptcy Rule 8009(b), appellants must order "a transcript of such parts of the proceedings not already on file as the appellant considers necessary for the appeal [.]" Bankruptcy Rule 8009(b). Accordingly, dismissal of a bankruptcy appeal "is appropriate where the order being appealed from does not disclose the factual or legal basis of the bankruptcy judge's decision because the court may not 'conduct a meaningful review of the issue without reviewing the transcript.'" In re Olick, 466 B.R. 680, 695 (E.D. Pa. 2011), aff'd, 498 F. App'x 153 (3d Cir. 2012) (quoting In re Corio, No. 07-5864, 2008 WL 4372781, at *6 (D.N.J. Sept. 22, 2008)). ... "Even if the Court were to focus on Hopkins's ethics contentions, the Court finds that "[Hopkins's] neglect to order transcripts prohibits this Court from conducting an 'informed, substantive appellate review'" of the appealed from orders, and therefore denial of his motion is warranted. Heine v. Wells Fargo Bank, NA, No. 20-10343, No. 20-10344, No. 20-10268,2020 WL 7417812, at *4 (D.N.J. Dec. 18, 2020), aff'd but criticized sub nom., In re Heine, No. 21-1531, 2022 WL 883938 (3d Cir. Mar. 24, 2022) (citations omitted) (dismissing appellant's motion because appellant failed to submit copies of relevant transcripts—which [*9] included the Bankruptcy Court's reasons for lifting the stay and denying reconsideration—for the court's consideration). "In sum, without the transcripts, the Court is unable to review the Bankruptcy Court's legal or factual findings. See also Secivanovic, 2006 WL 2376922, at *2 (denying petitioner's motion because petitioner "made no attempt to demonstrate why leave to appeal should be granted"). The Court accordingly denies Hopkins's appeal in its entirety." | Rule 8009(b) |
| Cafe Hanah v Sung | Bankr. N.D. IL | 12/4/23 | In a non-dischargeability proceeding under 11 U.S.C. § 523(a)(2)(A) using the false pretenses/representation claim, the court ruled that the creditor did not reasonably rely on the debtor's statements that construction inspections were completed. The creditor should and could have checked. "Although Plaintiffs have not met their burden of proving that Sung made a false representation with reckless disregard for the truth, or that he intended to deceive them, the court will still consider the final factor — justifiable reliance. Whether a creditor justifiably relied on a defendant's representations is based on the facts and circumstances of each case and of the particular plaintiff. See Field v. Mans, 516 U.S. 59, 71-72, 116 S. Ct. 437, 133 L. Ed. 2d 351 (1995); Ojeda, 599 F.3d at 717. The creditor is "required to use his senses, and cannot recover if he blindly relies upon a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation." Field, 516 U.S. at 71 (quotation omitted). See Ojeda, 599 F.3d at 717. "Baek testified that he visited the project frequently. Although he could not tell from a visit whether the Village had approved the rough inspections, it would have been simple enough to request a copy of the inspection report before handing over $61,500. In fact, Sung testified that he shared the inspection reports with Baek.3 "The court notes that Baek testified through an interpreter. There may have been miscommunications or misunderstandings due to language differences. But even if there were no such misunderstandings, Baek's failure to use "his opportunity to make a cursory examination or investigation" by requesting copies of the inspection reports, or reading the copies shared with him, means that he could not have justifiably relied on conversations he had with Sung in believing that the inspections resulted in approval." | 11 U.S.C. § 523(a)(2)(A) |
| Ruiz v Ruiz | 10th Cir | 11/30/23 | The court held that it was not a violation of the automatic stay for a divorced non-filing spouse to petition the divorce court to credit his car payments against his support obligations under the exception found at 11 U.S.C. § 362(b)(2)(A)(ii). "The filing of a bankruptcy petition automatically stays most litigation and collection proceedings, including "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the [bankruptcy] case." 11 U.S.C. § 362(a)(6). But the stay does not apply to all proceedings. See id. § 362(b). As stated, in this case, the bankruptcy court applied an exception for "the commencement or continuation of a civil action or proceeding . . . for the establishment or modification of an order for domestic support obligations." Id. § 362(b)(2)(A)(ii). "Ms. Ruiz argues that the proceeding at issue did not involve a "domestic support obligation," as that term is defined by the bankruptcy code. Under the code's definition, there are four parts to a "domestic support obligation." We quote only the portions relevant here. First, it must be "a debt . . . that is . . . owed to or recoverable by . . . a spouse, former spouse, or child of the debtor or such child's parent . . . ." 11 U.S.C. § 101(14A)(A). Second, the debt must be "in the nature of alimony, maintenance, or support . . . of such spouse, former spouse, or child of the debtor or such child's parent . . . ." Id. § 101(14A)(B). Third, the debt must be "established or subject to establishment . . . by reason of applicable provisions of . . . a separation agreement, divorce decree, or property settlement agreement [or] an order of a court of record." Id. § 101(14A)(C). And fourth, the debt is "not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily . . . for the purpose of collecting the debt." Id. § 101(14A)(D). "Ms. Ruiz views the "debt" at issue as her obligation to repay Mr. Ruiz for the Car Loan. Under this view, although the "debt" (the Car Loan) would be "owed to" the "spouse [or] former spouse . . . of the debtor" (Mr. Ruiz), she argues that subsection (B) cannot be satisfied, because the "debt" is not in the nature of support or maintenance for Mr. Ruiz. See Taylor v. Taylor (In re Taylor), 737 F.3d 670, 679 (10th Cir. 2013) ("[P]ursuant to the plain language defining 'domestic support obligation,' the debt must be in the nature of support to the creditor-spouse[.]"). "Another way of looking at the case, however, is that the "debt" at issue is Mr. Ruiz's monthly support obligation. Under this rubric, the "debt" (the support obligation) is "owed to or recoverable by" a "child of the debtor or such child's parent" (the Ruizes' children or Ms. Ruiz). And that "debt" would be "in the nature of . . . maintenance[] or support . . . of such . . . child of the debtor or such child's parent," as required by subsection (B). ... "Like the California Court of Appeal, we view the "debt" that was the subject of the state-court proceeding as the support obligation that Mr. Ruiz owed to Ms. Ruiz. Accordingly, Mr. Ruiz sought to modify a "debt" (the support obligation) "owed to or recoverable by" a "child of the debtor or such child's parent" (the Ruizes' children or Ms. Ruiz). And that "debt" was "in the nature of alimony, maintenance, or support . . . of such . . . child of the debtor or such child's parent." The support obligation was "established or subject to establishment" by the California court in the Ruizes' divorce proceeding. And nothing indicates the support obligation was assigned to a nongovernmental entity. Therefore, as a matter of statutory interpretation, the state-court proceeding to modify Mr. Ruiz's support obligation met the terms of § 362(b)(2)(A)(ii), and Ms. Ruiz failed to plead a plausible claim that Mr. Ruiz and Mr. Hardcastle violated the automatic stay." | 11 U.S.C. § 362(b)(2)(A)(ii) |
| In re Todd | Bankr. S.D. MS | 11/30/23 | After the debtors filed their chapter 13 bankruptcy, one of the debtors suffered an injury from medical malpractice. After he was diagnosed with the injuries, the debtors amended schedules b and c to disclose the claim, listed their attorney and valued the claim as unknown. After receiving their discharge, the defendant moved to dismiss the state court lawsuit on judicial estoppel grounds for failure to disclose the claim. ""[Fifth Circuit] precedent is clear: Chapter 13 debtors must disclose post-petition causes of action." United States ex rel. Bias v. Tangipahoa Par. Sch. Bd., 766 F. App'x 38, 42 (5th Cir. 2019) (collecting cases). When the Todds amended their Schedule A/B to show a "contingent post petition medical malpractice case," they disclosed their cause of action. And this disclosure was sufficient to put the Trustee on notice that they might file a lawsuit. "A. When the Todds Scheduled the Cause of Action, They Disclosed the Claim. Defendants' argument that the Todds were required to disclose the Lawsuit presupposes that a lawsuit and the underlying cause of action are separate "claims." They are not. ... "As the Trustee recognizes, filing a lawsuit on a previously scheduled claim does not create a new "claim." See Tr's. Resp. to Mot. for Summ. J., Adv. ECF No. 41 at 2 (stating that "to the Trustee's thinking," the Lawsuit and the claim disclosed in the Amended Schedule A/B "are indistinguishable"). It follows that when the Todds scheduled a "contingent post petition medical malpractice case," they disclosed the "claim." "Defendants cite no case that compels a different conclusion." | 11 U.S.C. § 1306 |
| In re Cooke | Bankr. N.D. IL | 11/27/23 | The debtor's plan paying for a secured vehicle was confirmed. Post-confirmation, the vehicle was stolen. The debtor filed a motion to incur debt to replace the vehicle and also filed a modified plan to surrender the stolen vehicle. The trustee objected that aa post-petition modified plan cannot change a secured creditor's treatment unless the creditor affirmatively accepts it. The creditor did not file an objection to the plan. "A chapter 13 plan nearly always requires payment over a period between three and five years. See 11 U.S.C. § 1322(d). Recognizing that life events can negatively affect a debtor's financial situation over that timeframe, HN1 the Bankruptcy Code provides a mechanism for the debtor to modify his plan. See 11 U.S.C. § 1329.3 This exception from the otherwise binding effect of a confirmed plan allows a debtor to adjust the plan's terms to accommodate his new situation. "Section 1329(a) specifies four types of permitted modifications. See Germeraad v. Powers, 826 F.3d 962, 970 (7th Cir. 2016) ("modification is allowed only if it will modify the plan in one of the ways specified [*9] in § 1329(a)(1)-(4)"). If the proposed modification is one of the types permitted by § 1329(a), and the requirements of § 1329(b) are met, then the court has broad discretion on whether to grant the motion to modify the plan. See Matter of Witkowski, 16 F.3d 739, 746 (7th Cir. 1994) (modification is discretionary). "The question before the court is whether Debtor's proposed modification falls within the four types of modifications permitted under § 1329(a). ... "The proposed plan, containing a permitted modification, must also satisfy "[s]ections 1322(a), 1322(b), and 1323(c) of this title and the requirements of section 1325(a)" of title 11. 11 U.S.C. § 1329(b)(1). Therefore, if the proposed modification qualifies as one of the four permitted modifications in § 1329(a) and the plan satisfies the requirements in § 1329(b)(1), the court may approve it. ... "1. Section 1329(a) permits surrender as a plan modification "a. 11 U.S.C. § 1329(a)(1) Section 1329(a) describes the four permitted modifications of a confirmed plan. A modification that will "increase or reduce the amount of payments on claims of a particular class provided for by the plan" is one of those four permitted modifications, pursuant to the [*14] express language of § 1329(a)(1). "Secured creditors are treated in Part 3 of Official Form 113, the national form chapter 13 plan used in this district. Each secured creditor is in its own class, provided with unique rights in its collateral. HN5 Therefore, a reduction in the amount of payments to one or more secured creditors is a permitted modification under § 1329(a)(1). A chapter 13 debtor who proposes a plan modification that would surrender a secured creditor's collateral is not changing the creditor's claim. He is instead reducing the amount of payments "on the creditor's secured claim from the amount stated in the original plan down to zero, after surrender of the collateral." In re Leuellen, 322 B.R. 648, 654 (S.D. Ind. 2005). "b. 11 U.S.C. § 1329(a)(3) "Another type of modification that is expressly permitted by § 1329(a) is the alteration of "the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim other than under the plan[.]" 11 U.S.C. § 1329(a)(3). Modifying a plan to change the amount of payment to a secured creditor when it receives its collateral — or the insurance proceeds from its collateral — is permitted. This type of modification complies with § 1322(b)(8) and § 1325(a)(5), as required by § 1329(b). "Section 1329(a)(3) does not distinguish between secured and unsecured creditors when it allows this type of modification. The Bankruptcy Code defines a "creditor" as an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor[.]" 11 U.S.C. § 101(10)(A). Congress could have chosen to limit this type of modification to unsecured creditors, just as it limited the power to seek modification to unsecured creditors, but it did not. "2. Surrender satisfies § 1329(b) Section 1329(b)(1) states that certain provisions of the Bankruptcy Code apply to modifications of a confirmed plan. Several of these provisions contemplate a modification that involves surrender of a secured creditor's collateral. "a. 11 U.S.C. § 1322(b)(8) Section 1322 governs the content of a chapter 13 plan, and subsection (b) provides that a plan may accomplish certain results. Found within § 1322(b) is subsection (b)(8), which states that the plan may "provide for the payment of all or part of a claim against the debtor from property of the estate or property of the debtor[.]" This subsection, which applies to proposed modifications, "contemplates surrender of collateral as a form of payment[.]" Leuellen, 322 B.R. at 652. "b. 11 U.S.C. § 1325(a)(5)(C) Another section of the Bankruptcy Code that is applicable to proposed modifications is § 1325(a). Found within § 1325(a) is subsection (a)(5), which provides three options for [*16] treatment of allowed secured claims. At least one of these options must be chosen in order to propose a plan that complies with § 1325(a). See Leuellen, 322 B.R. at 653 ("One of its three alternatives must be satisfied or there is no confirmation."). The third option, in § 1325(a)(5)(C), states that a plan shall be confirmed if "with respect to each allowed secured claim provided for by the plan ... the debtor surrenders the property securing such claim to such holder." "Accordingly, Congress's explicit incorporation of section 1322(b) and section 1325(a) into the standards for post-confirmation modification under section 1329(a) makes clear that Chapter 13 debtors retain the option to seek court permission to modify a confirmed plan by surrendering collateral to pay a secured claim." Leuellen, 322 B.R. at 653. "c. 11 U.S.C. § 1323(c) Although § 1323(c) is part of a section titled "Modification of plan before confirmation," it is applicable to post-confirmation modifications through the operation of § 1329(b)(1). See In re Hutchison, 449 B.R. 403, 408 (Bankr. W.D. Mo. 2011) ("While by its terms, it refers only to modifications made before confirmation, it is also made applicable to post-confirmation modifications by specific reference in § 1329(b)(1)."). ... Therefore, a change in the rights of a holder of a secured claim through a plan modification is expressly contemplated by the Bankruptcy Code." | |
| Ryniker v Sumec Textile | 2nd Circuit | 11/22/23 | The court ruled that the district court's grant of a motion to set aside a default judgment is not a final appealable order. Further, the court found unavailing the "collateral order doctrine" exception. "First, as a general matter, five circuits have held that an order setting aside a judgment pursuant to Federal Rule of Civil Procedure 60(b) is not an appealable, final order. See Nat'l Passenger R.R. Corp. v. Maylie, 910 F.2d 1181, 1183 (3d Cir. 1990) ("When an order granting a Rule 60(b) motion merely vacates the judgment and leaves the case pending for further determination, the order is akin to an order granting a new trial and in most instances, is interlocutory and nonappealable." (citations omitted)); Joseph v. Off. of Consulate Gen. of Nigeria, 830 F.2d 1018, 1028 (9th Cir. 1987) ("A district court's grant of a motion to set aside a default is not an appealable final order, where the setting-aside paves the way for a trial on the merits." (collecting cases)); Parks By & Through Parks v. Collins, 761 F.2d 1101, 1104 (5th Cir. 1985) ("When an order granting a Rule 60(b) motion[] merely vacates the judgment and leaves the case pending for further determination, the order is akin to an order granting a new trial and is interlocutory and nonappealable." (internal quotation marks and omitted)); Kummer v. United States, 148 F.2d 191, 193 (6th Cir. 1945) ("The order setting aside the default against [one defendant] and allowing her to plead was procedural only, and did not dispose of the case on its merits or determine the litigation between the parties. It was not appealable." (citations omitted)); Arrington v. Duvoisin, 36 F.3d 1091, 1091 (4th Cir. 1994) (unpublished opinion) ("An order granting a motion to set aside a default judgment is not an appealable final order." (collecting cases)). We have not explicitly addressed this issue; however, we see no reason to reach a different conclusion. ... "We find the Litigation Administrator's attempt to invoke the collateral order doctrine to be similarly unavailing. "The collateral order doctrine . . . is a judicially created exception to the final decision principle; it allows immediate appeal from orders that are collateral to the merits of the litigation and cannot be adequately reviewed after final judgment." Germain v. Conn. Nat'l Bank, 930 F.2d 1038, 1039-40 (2d Cir. 1991). An order is final under the collateral order doctrine if it "(1) conclusively determine[s] the disputed question, (2) resolve[s] an important issue completely separate from the merits of the action, and (3) [is] effectively unreviewable on appeal from a final judgment." EM Ltd. v. Banco Cent. de la República Arg., 800 F.3d 78, 87 (2d Cir. 2015) (internal quotation marks and citation omitted). "In making this determination, we do not engage in an individualized jurisdictional inquiry. Rather, our focus is on the entire category to which a claim belongs." Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100, 107, 130 S. Ct. 599, 175 L. Ed. 2d 458 (2009) (internal quotation marks and citations omitted). Here, there is no question that a district court's vacatur of a default judgment is reviewable on appeal from a final judgment. See, e.g., Johnson v. N.Y. Univ., 800 F. App'x 18, 19-20 (2d Cir. 2020) (summary order) (reviewing the district court's grant of a motion to vacate default judgment under Fed. R. Civ. P. 55(c) together with dismissal of the complaint); Sik Gaek, Inc. v. Yogi's II, Inc., 682 F. App'x 52, 55 (2d Cir. 2017) (summary order) (reviewing the district court's grant of a motion to set aside a notation of default, and subsequent denial of a motion for default judgment, together with its grant of summary judgment in favor of defendant). Therefore, notwithstanding the Litigation Administrator's practical concerns regarding his ability to effectuate service on Sumec and ultimately collect on any judgment, we see no basis to apply the collateral order doctrine to hear an appeal challenging the vacatur of a default judgment which can be reviewed, if necessary, upon the entry of a final judgment in the adversary proceeding." | Rule 9024 |
| LVNV Funding v Myers | 9th Circuit | 11/21/23 | In reversing the BAP's decision, the court allowed a claim that failed to provide documentation necessary to enforce the claim under Nevada law. Since Rule 3001 allowing claims conflicts with Nevada law, the requirements of Rule 3001 prevail. "The BAP held (and the Debtors conceded) that LVNV's proof of claim complied with Fed. R. Bankr. P. 3001 and was therefore entitled to prima facie validity. But the BAP concluded that LVNV's claim must be disallowed under 11 U.S.C. § 502(b)(1) because the documentation LVNV provided was insufficient to enforce the debt under Nevada law, in that the proof of claim did not comply with Nevada procedural requirements set out in Nev. Rev. Stat. §§ 97A.160 and 97A.165 (collectively, the "Nevada laws"). The BAP erred in this holding, because the principles of Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938), dictate that federal procedural law—Rule 3001, in particular—governs the requirements for a proof of claim. "Under Erie principles, federal bankruptcy courts apply federal procedural law and state substantive law. See Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 450, 127 S. Ct. 1199, 167 L. Ed. 2d 178 (2007). To determine whether a state law applies in a federal action, "we decide whether the state law conflicts with a valid [federal procedural rule]." Martin v. Pierce Cnty., 34 F.4th 1125, 1128 (9th Cir. 2022). A federal procedural rule is valid if it "is a 'general rule[] of practice and procedure' that does 'not abridge, enlarge or modify any substantive right' and is 'procedural in the ordinary use of the term.'" Id. at 1128-29 (citation omitted). "Here, Rule 3001 clearly controls over the Nevada laws. The Nevada laws conflict with this federal rule because the two give different answers to the same question: What must a creditor provide in support of a proof of claim on an open-end credit card account? See Rule 3001(c)(3); Nev. Rev. Stat. § 97A.160. Furthermore, Rule 3001 is a valid procedural rule. There is a strong presumption that federal rules of procedure have been properly promulgated under the applicable enabling statute and do not impinge on substantive rights. See Hanna v. Plumer, 380 U.S. 460, 471, 85 S. Ct. 1136, 14 L. Ed. 2d 8 (1965). And Rule 3001, in particular, is a typical procedural rule: it does no more than set out the procedural requirements for a proof of claim, see Rule 3001(a)-(e), and specify when a properly executed proof of claim constitutes prima facie evidence of its validity and amount, see Rule 3001(f)-(g). Consequently, Rule 3001 prevails over the Nevada laws, meaning that the Nevada laws are not "applicable law" that can render a claim "unenforceable" under 11 U.S.C. § 502(b)(1). Thus LVNV's failure to comply with Nev. Rev. Stat. §§ 97A.160 and 97A.165 is not a ground for disallowing its proof of claim." | 11 U.S.C. § 502(b)(1) Rule 3001 |
| Paulsen v Olsen | D. N.D. IL | 11/20/23 | The court made two rulings affirming the bankruptcy court's determination that the debtor's exemption based on tenancy by the entirety should be disallowed. First, the court expressed concern about the number of arguments made in the brief and quoted United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991) ("Judges are not like pigs, hunting for truffles buried in briefs."). Second the court found that under Illinois law, a transfer of an ownership interest in real estate to a tenancy by the entireties can be defeated if the transfer was made solely to protect the property from ongoing collection. "The Court counts at least eight assignments of error—not including those packed into the Pandora's box of repeated arguments, sub-arguments, and sub-sub-arguments. The Court attempts to address each of the Paulsens' alleged assignments of error in turn. See United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991) ("Judges are not like pigs, hunting for truffles buried in briefs."). ... "As the Paulsens allude, the "badges of fraud" analysis is "not to be used to avoid a transfer" under 735 ILCS 5/12-112. Premier Prop. Mgmt., Inc. v. Chavez, 191 Ill. 2d 101, 728 N.E.2d 476, 482, 245 Ill. Dec. 394 (Ill. 2000). The "tenancy by the entirety provision," 735 ILCS 5/12-112, "expressly includes its own standard to be used when a creditor challenges a transfer to that estate." Id. at 481. The "sole intent" standard is "substantially different" from the "actual intent" standard in that it "provides greater protections from creditors for transfers of property to tenancy by the entirety." Id. at 482. What's more, "if property is transferred to tenancy by the entirety to place it beyond the reach of the creditors of one spouse and to accomplish some other legitimate purpose, the transfer is not avoidable." Id. Critically, that same transfer "would be avoidable under the actual intent standard, which only requires an actual intent to defraud a creditor." Id. "The complaint alleges that the transfer of the Paulsens' interests in the residential property was "made by [Mr. Paulsen] with the sole intent to avoid the payment of debt which existed" at the time of the transfer "which was beyond [Mr. Paulsen's] ability to pay as it became due." Dkt. 12-1 at 13-14. This allegation alone is sufficient to state a plausible claim to relief. See RBS Citizens, N.A. v. Gammonley, No. 12 C 8659, 2015 U.S. Dist. LEXIS 2775, at *19-20 (N.D. Ill. Mar. 6, 2015) ("Plaintiff alleges that 'the transfer . . . into a tenancy by the entirety was designed with the sole intent to avoid any creditors pursuant to 735 ILCS 5/12-112.' . . . This is sufficient to withstand a motion to dismiss.")." | |
| In re Byrne | Bankr. ME | 11/20/23 | The court dismissed a chapter 13 bankruptcy under 11 U.S.C. § 1307(c) with a five month bar on refiling for missing an installment payment on her filing fee under 11 U.S.C. § 349(a). The court found that the "the debtor does not understand the importance of (or is not interested in) disclosing the true extent of her financial affairs in connection with a bankruptcy case." "In general, every petition must be accompanied by the filing fee for commencing the case. Fed. R. Bankr. P. 1006(a). In this case, the debtor made an oral motion to pay the filing fee in installments under Fed. R. Bankr. P. 1006(b)(1). That motion was granted after a hearing on August 10, 2023. The order granting the motion set a schedule for the installment payments and specifically cautioned as follows: If the debtor misses any of the deadlines set forth in this order, this case will be dismissed without further notice or hearing under 11 U.S.C. § 1307(c) and the Court will impose a ban on the filing of a subsequent bankruptcy petition by the debtor under 11 U.S.C. § 349(a). [Dkt. No. 10]. This warning should not have come as a surprise to the debtor: similar warnings were given to the debtor during the hearing on August 10. See [Dkt. No. 7]. The debtor made her first two installment payments, but has not made the third, which was due on November 6. She has not asked for additional time to make that payment. "This chapter 13 case is hereby dismissed for cause under 11 U.S.C. § 1307(c). This dismissal is with prejudice to the debtor's right to commence a voluntary case under any chapter of the United States Bankruptcy Code in any court through and including April 20, 2024. See 11 U.S.C. § 349(a). This five-month ban on future filings is being imposed because the debtor's performance in connection with this case and another recent attempt to obtain chapter 13 relief has been woefully deficient. In neither case has the debtor shown a good faith effort to perform the duties imposed by law on an individual who seeks a chapter 13 discharge. Chapter 13 is complex, and the debtor has attempted to navigate the process without the benefit of counsel. That said, the debtor has been given as much in the way of explanation and latitude as any litigant can reasonably expect from any court. Based on a review of the filings in this case and in the debtor's prior case — Case No. 22-10117 - and based on the representations made by the debtor in multiple hearings in both cases, the Court is left with the definite and firm conviction that the debtor does not understand the importance of (or is not interested in) disclosing the true extent of her financial affairs in connection with a bankruptcy case. | 11 U.S.C. § 349(a) 11 U.S.C. § 1307© |
| In re Vien Thi Ho | 9th Circuit BAP | 11/17/23 | The court affirmed the bankruptcy court's dismissal of an action for violation of the automatic stay when the chapter 7 debtor filed bankruptcy one day before the creditor filed a state court libel complaint and did not list the creditor in her schedules. The court addressed the following issues: Did the bankruptcy court abuse its discretion by dismissing Debtor's adversary complaint? Did the bankruptcy court err by denying leave to amend the adversary complaint? "Debtor's complaint is nearly devoid of factual allegations and thus, dismissal was unquestionably appropriate. While the complaint is replete with legal conclusions, the only real fact Debtor alleges is that Ms. Roshanian filed and maintained the Libel Action after the petition date. Not only does Debtor fail to make any argument relevant to the stay violation claim, but her own admissions—and the court's prior findings of fact—foreclose any possibility of a willful stay violation. "Section 362(a)(1) prohibits the commencement or continuation of a judicial action against a debtor to recover a prepetition claim. A creditor commits a willful violation of the automatic stay if she knows of the stay and her actions that violate the stay are intentional. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1215 (9th Cir. 2002). "Filing and maintaining the Libel Action is a clear violation of the stay, but Debtor did not allege that Appellees had notice of the stay, and the court specifically found they did not have notice until July 7, 2022. Thus, Appellees' actions were not a willful violation of the stay. ... "Pursuant to Civil Rule 15, made applicable by Rule 7015, leave to amend a complaint should be freely given when justice so requires. The court "should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). "This policy is 'to [*13] be applied with extreme liberality,'" Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (per curiam) (quoting Owens v. Kaiser Foundation Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001)), and the rule favoring liberal application "is particularly important for the pro se litigant," Crowley v. Bannister, 734 F.3d 967, 977-78 (9th Cir. 2013). "In determining whether to grant leave to amend, the bankruptcy court should consider several factors including: (1) undue delay; (2) bad faith or dilatory motive by the movant; (3) repeated failure to cure deficiencies by previous amendments; (4) undue prejudice to the opposing party; and (5) futility of amendment. Brown v. Stored Value Cards, Inc., 953 F.3d 567, 574 (9th Cir. 2020) (citing Foman, 371 U.S. at 182). The consideration of prejudice to the opposing party carries the greatest weight. Eminence Cap., LLC, 316 F.3d at 1052. "Absent prejudice, or a strong showing of any of the remaining Foman factors, there exists a presumption under Rule 15(a) in favor of granting leave to amend." Id. (citation omitted). "Debtor does not make any cogent argument why the court abused its discretion in denying leave to amend. She cites the Foman factors, but she does not address how the court abused its discretion by determining that amendment would be futile or that it would prejudice Appellees. Moreover, we find no abuse of discretion." | 11 U.S.C. §§ 362(a) &(k) Rule 7015 |
| Johnson v Bankers Healthcare Grp | 9th Circuit | 11/16/23 | In affirming the non-dischargeability of the underlying debt under 11 U.S.C. §§ 523(a)(2)(A) & (B), the court refused to hear the appellant's argument on the damage award on appeal because it was not raised below and no exceptions applied. "We turn to Dr. Johnson's argument that the bankruptcy court erred in its award of damages to BHG. Dr. Johnson did not "specifically and distinctly" raise this argument below. Padgett v. Wright, 587 F.3d 983, 985 n.2 (9th Cir. 2009). Thus, he has waived the argument by not raising it with the BAP. See In re Burnett, 435 F.3d 971, 975-76 (9th Cir. 2006) (HN6 "Absent exceptional circumstances, issues not raised before the BAP are waived."). While we have recognized three exceptions to the general waiver rule, none of them applies here because Dr. Johnson failed to explain why he did not raise the issue before the BAP, there is no evidence that a change in law provided a new ground for this appeal, and this issue is not a purely legal one. See In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988, 992 (9th Cir. 2010). We decline to address Dr. Johnson's damages argument." | 11 U.S.C. §§ 523(a)(2)(A) & (B) |
| In re Kane Kane - Appellants Brief Kane - Appellees Brief Kane - Appellants Reply Brief | 9th Circuit | 11/15/23 | The court affirmed the bankruptcy court's denial of a motion to convert the chapter 7 to a chapter 11 case. The court held it was not an abuse of discretion to consider the debtor's post-petition income when deciding whether to convert the case. "South River first argues that the bankruptcy court erred by considering Kane’s interest in his post-petition income because that interest runs contrary to the goals and policies of the Bankruptcy Code. But Chapter 7 explicitly allows debtors to keep their post-petition income to further the goals of the Bankruptcy Code. Chapter 7 “allows a debtor to make a clean break from his financial past, but at a steep price: prompt liquidation of the debtor’s assets.” Harris v. Viegelahn, 575 U.S. 510, 513 (2015). In exchange for that “steep price,” the debtor’s post-petition earnings are shielded from creditors, enabling the debtor “to make the ‘fresh start’ the Bankruptcy Code aims to facilitate.” Id. at 518 (quoting Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007)). It was therefore not an abuse of discretion to consider Kane’s interest in his post-petition earnings when deciding whether to convert the case. "South River also argues that the revisions to the Bankruptcy Code in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) reflect an “expectation that a debtor will pay a portion of disposable income to creditors.” But BAPCPA’s relevant revisions to Chapter 7 apply only to debtors with primarily consumer debts, and South River conceded that Kane did not fall into that category. Because the relevant provisions of BAPCPA did not apply to Kane, there was no need for the bankruptcy court to address them. " | 11 U.S.C. § 706(b) |
| In re Thurman-Prior Thurman - Motion to Dismiss Thurman - Brief in Response to Motion to Dismiss | Bankr. W.D. MI | 11/14/23 | The court held that an incorrectly listed creditor may file an untimely non-dischargeability complaint under 11 U.S.C. § 523(a)(2) through 11 U.S.C. § 523(a)(3). Prior to filing the debtor owed the Michigan Department of Health and Human Services for an overpayment. The debtor identified the creditor as the State of Michigan and included an address found on the last demand letter. Subsequent to the 60 day deadline to file a dischageability complaint based on fraud, the creditor filed an adversary proceeding to determine that the debt was non-dischargeable under Section 523(a)(3). The debtor filed a motion to dismiss. "In general, § 523(c) requires creditors seeking to except debts from discharge under § 523(a)(2), (4), or (6) to obtain a nondischargeability determination from the bankruptcy court by filing an adversary proceeding. 11 U.S.C. § 523(c); see also Fed. R. Bankr. P. 7001(6). Bankruptcy Rule 4007(c) governs the time for bringing such a request. In chapter 13 cases, it provides that a complaint to determine the dischargeability of a debt under § 523(a)(2) or (4) must be filed "no later than 60 days after the first date set for the meeting of creditors under § 341(a)." Fed. R. Bankr. P. 4007(c). This time period may be extended "for cause," but only if a party in interest files a motion to extend prior to expiration of the 60-day period. Id. In this case, the 60-day period for filing a complaint to determine the dischargeability of debts under § 523(a)(2) or (4) expired on January [*11] 3, 2023. There is no question that the MDHHS failed to file its adversary complaint or a motion to extend prior to the deadline. "If, however, the MDHHS lacked timely notice of the Debtor's bankruptcy case, as it has alleged, the debt it is owed may be excepted from discharge under § 523(a)(3). See In re Wilcox, 529 B.R. 231, 236 (Bankr. W.D. Mich. 2015); see also Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3d Cir. 1995) ("Inadequate notice is a defect which precludes discharge of a claim in bankruptcy."). Section 523(a)(3) governs the claims of creditors who are omitted from the debtor's schedules.... "Pursuant to Bankruptcy Rule 4007(b), a complaint to determine the dischargeability of a debt under § 523(a)(3) "may be filed at any time." Fed. R. Bankr. P. 4007(b) (establishing the [*12] time frame for filing a complaint "other than under § 523(c)"); In re Wilcox, 529 B.R. at 236 n.6 ("A complaint to except a debt from discharge under § 523(a)(3) is a complaint 'other than under §523(c),' even if the debt is 'of a kind' described in § 523(a)(2), (a)(4), and (a)(6).") The rationale for this distinction is readily apparent, as it would not make sense "to hold creditors to a deadline of which they were not aware, especially given a debtor's duty - the first duty listed in the statute - to make them aware by filing a list of all creditors so that they may have notice of the proceedings in time to participate." In re Wilcox, 529 B.R. at 236 (citing 11 U.S.C. § 521(a)(1)(A)). "In this proceeding, it is undisputed that the MDHHS lacked actual notice of the Debtor's bankruptcy filing prior to the deadline for filing a nondischargeability complaint because both the Notice of Chapter 13 Bankruptcy Case and the Chapter 13 Plan were served electronically on the MARCS Bankruptcy Unit, which is not affiliated with the MDHHS. ... "For the foregoing reasons, the court concludes that the MDHHS did not receive adequate notice of the Debtor's bankruptcy case in time to file a timely nondischargeability complaint. As a result, the MDHHS may seek a determination that the debt it is owed is nondischargeable under § 523(a)(3). The Debtor's Motion to Dismiss the complaint as untimely is denied and a separate order shall be entered accordingly." | 11 U.S.C. § 521(a)(1)(A) 11 U.S.C. § 523(a)(2) 11 U.S.C. § 523(a)(3) 11 U.S.C. § 523(c) Rule 1007(a)(1) |
| In re Ky Emps Ret Sys Ky Emps Petition for Writ of Mandamus | 6th Circuit | 11/14/23 | The court denied an appellant's petition for writ of mandamus to direct the bankruptcy court to enter final judgment pursuant to an opinion and mandate in a parallel appeal. ""The traditional use of the writ in aid of appellate jurisdiction . . . has been to confine the court against which mandamus is sought to a lawful exercise of its prescribed jurisdiction." Cheney v. U.S. Dist. Ct. for D.C., 542 U.S. 367, 380 (2004) (cleaned up). Because "the writ is one of 'the most potent weapons in the judicial arsenal,'" reserved for only extraordinary causes, three conditions must be present before the petitioner can obtain relief. Id. (quoting Will v. United States, 389 U.S. 90, 107 (1967)). First, the petitioner cannot have adequate alternative means to obtain the relief it seeks—"a condition designed to ensure that the writ will not be used as a substitute for the regular appeals process." Id. at 380-81. Second, the petitioner must show a "clear and indisputable" right to the relief sought. Id. at 381 (quoting Kerr v. U.S. Dist. Ct. for N.D. Cal., 426 U.S. 394, 403 (1976)). "Third, [*2] even if the first two prerequisites have been met, the issuing court, in the exercise of its discretion, must be satisfied that the writ is appropriate under the circumstances." Id. "KERS has multiple adequate alternative means to obtain review of the bankruptcy court's order. To begin, KERS already has a pending interlocutory appeal before us from the district court's order denying leave to appeal. See In re Seven Cntys Servs., Inc., No. 23-5383 (6th Cir. 2023). "We have rejected similar attempts in the past, denying protective mandamus petitions on the ground that a parallel direct appeal provides an adequate alternative means to relief. See, e.g., In re Harris Cnty., TX, No. 22-3493 (6th Cir. Dec. 13, 2022). And the Supreme Court has long held that mandamus should not be used to circumvent or accelerate the appeals process. See Ex parte Fahey, 332 U.S. 258, 260 (1947) ("[Common law writs] should be resorted to only where appeal is a clearly inadequate remedy. We are unwilling to utilize them as a substitute for appeal.")." | |
| In re Fletcher Fletcher - Appellants Brief Fletcher - Appellees Brief Fletcher - Appellants Reply Brief | E.D. MI | 11/14/23 | The court ruled that a chapter 7 discharge is not an automatic bar to conversion to a chapter 13. Prior to filing her chapter 7 bankruptcy, the debtor conveyed a one-half interest in her residence to her daughter. Post-discharge the debtor was concerned that the chapter 7 trustee would pursue the daughter for a fraudulent conveyance. The debtor filed a motion to set aside the discharge order and convert the case to a chapter 7. "Under the Bankruptcy Code, a Chapter 7 debtor "may convert" to Chapter 13 "at any time" as long as the case has not previously been converted and the debtor qualifies as a Chapter 13 debtor. 11 U.S.C. § 706(a), (d). The Supreme Court has rejected [*4] the argument that the right to convert is absolute and held that the Bankruptcy Code does not limit the authority of the court to deny a motion to convert upon a showing of bad faith on the part of the debtor. Marrama v. Citizens Bank, 549 U.S. 365, 370-71, 127 S. Ct. 1105, 166 L. Ed. 2d 956 (2007). The Bankruptcy Court here did not reach the issues of bad faith or whether Appellant otherwise qualifies as a Chapter 13 debtor. Instead, it found that the previously issued discharge in Appellant's Chapter 7 case precluded conversion. As noted in the Bankruptcy Court's order denying Appellant's motion for reconsideration, this is consistent with a number of cases, including In re Alcantar, No. 19 B 24926, 2021 Bankr. LEXIS 2488 (Bankr. N.D. Ill. Sept. 10, 2021), that have reached this conclusion.1 (See ECF No. 5, PageID.118 (citing cases).) These cases assume that post-discharge, there are no remaining debts to be paid pursuant to a Chapter 13 plan. See, e.g., Alcantar, 2021 Bankr. LEXIS 2488 at *10. But there is another line of cases that has rejected this holding. See, e.g., Mason v. Young (In re Young), 237 F.3d 1168, 1173-74 (10th Cir. 2001); In re Oblinger, 288 B.R. 781, 785 (Bankr. N.D. Ohio 2003); In re Carter, 285 B.R. 61, 68 (Bankr. N.D. Ga. 2002); In re Mosby, 244 B.R. 79, 88 (Bankr. E.D. Va. 2000). ... "The Court finds this analysis persuasive. This reasoning also refutes the notion that only non-dischargeable debt would be subject to any Chapter 13 plan. See In re Croghan, No. 21-10523, 2022 Bankr. LEXIS 3535, at *3-4 (Bankr. N.D. Ind. Aug. 31, 2022) (overruling an objection to a claim on the basis of a discharge entered prior to conversion from Chapter 7 to Chapter 13); In re Pike, 622 B.R. 898, 903 (Bankr. S.D. Ill. 2020) (same). And to the extent Appellee raises the issue of a potential abuse of the bankruptcy process, as the Mosby court reasoned, "the court is not without the means to deal with such attempts on a case by case basis."2 Mosby, 244 B.R. at 86. Thus, the Court finds that a Chapter 7 discharge is not an automatic bar to conversion to a Chapter 13 proceeding. This finding does not necessarily lead to a conclusion that Appellant is entitled to convert her case here. Instead, on remand, the Bankruptcy Court must consider whether Appellant qualifies as a Chapter 13 debtor. See Marrama, 549 U.S. at 374-76." | 11 U.S.C. § 706 |
| Purdy v Burnett Purdy - Appellants Brief Purdy - Appellees Brief Purdy - Appellants Reply Brief | E.D. NC | 11/13/23 | The court affirmed the bankruptcy court's imposition of a ten and five year bar on refiling for the debtors. The debtors sought review, in part, on the length of time they were barred from refiling another bankruptcy. "The Purdys contend that the bankruptcy [*10] court improperly dismissed their case with prejudice and improperly barred them from refiling bankruptcy for a period of time. See [D.E. 17] 22-23. "Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed." 11 U.S.C. § 349(a). Except as provided in 11 U.S.C. § 109(g), dismissal of a case does not "prejudice the debtor with regard to the filing of a subsequent [bankruptcy] petition." See id. If a debtor's case "was dismissed by the court for willful failure of the debtor to abide by orders of the court," then the debtor may not refile for bankruptcy for 180 days. 11 U.S.C. § 109(g). This provision, however, "merely provides a minimum amount of time before a case may be refiled, not a maximum period of time for which the bankruptcy court may dismiss a case with prejudice when there is a dismissal for cause." Lerch v. Fed. Land Bank of St. Louis, 94 B.R. 998, 1001 (N.D. 111. 1989) (emphasis in original); see In re Tomlin, 105 F.3d 933, 939 (4th Cir. 1997); In re Stockwell, 579 B.R. 367, 373 (Bankr. E.D.N.C. 2017); In re Weaver, 222 B.R. 521, 523 n.1 (Bankr. E.D. Va. 1998); In re Robertson, 206 B.R. 826, 830-31 (Bankr E.D. Va. 1996); In re Jolly, 143 B.R. at 387. "The bankruptcy court properly found that "a substantial temporal bar on filing subsequent petitions is appropriate." [D.E. 10-2] 19. The evidence established that Amanda Purdy intentionally devised a scheme to forge a letter from the Trustee to obtain [*11] a debt that she knew violated court orders. See id. Even if Marcus Purdy had no knowledge of Amanda Purdy's forgery, Marcus Purdy knew the court had explicitly denied the Purdys' requests to incur the debt, and he reaped the benefits of the Veterans United mortgage anyway. See id. The Trustee asked the bankruptcy court to bar the Purdys from refiling for bankruptcy for 15 years. See [D.E. 10-1] 25. Ultimately, the bankruptcy court barred Amanda Purdy from filing for bankruptcy for ten years and barred Marcus Purdy from filing for bankruptcy for five years. See [D.E. 10-2] 4. The record supports the bankruptcy court's finding of bad faith and that the Purdys egregiously abused the bankruptcy system. Accordingly, the court affirms the bankruptcy court's decision to bar the Purdys from refiling for bankruptcy for several years." | 11 U.S.C. § 109(g) |
| In re Chen Chen - Appellants Brief Chen - Appellees Brief Chen - Appellants Reply Brief | 9th Circuit BAP | 11/13/23 | The court ruled that a chapter 13 plan may modify and bifurcate an undersecured lien secured by the debtor's principal residence pursuant to 11 U.S.C. § 1322(c)(2). "...Mission Hen argued that the plan violated the anti-modification provision of § 1322(b)(2). It argued that a chapter 13 plan may not modify a lien secured only by a debtor's principal residence, including a claim that is undersecured. While § 1322(c)(2) allows a modification of a "payment of the claim" if the final payment falls within the plan term, Mission Hen argued that [*8] the statute allows for modification of only the payment term, not the claim itself. ... "Mission Hen asserts that the reasoning of Nobelman v. American Savings Bank, 508 U.S. 324 (1993), prohibits the bankruptcy court from modifying anything other than the repayment terms of its claim. In Nobelman, the bankruptcy court denied confirmation of a chapter 13 plan that would have allowed the debtors to bifurcate the secured creditor's lien on their real property into unsecured and secured claims [*13] and to make payments on only the secured portion. ... "Mission Hen's argument based on Nobelman fails. The Court's decision was founded on statutory interpretation. About a year after the Nobelman decision, Congress amended the statute by enacting current § 1322(c)(2). Congress undoubtedly has the power to overcome the Supreme Court's interpretation of a statute by amending the statute. Nobelman does not help us construe the amended statute. See In re Collier-Abbott, 616 B.R. 117, 122 (Bankr. E.D. Cal. 2020) ("When the Supreme Court issued its ruling in Nobelman, there was not, and there could not have been, consideration of the then yet to be enacted exception to 11 U.S.C. § 1322(b)(2) residence secured claim valuation limitation."). "Although the Ninth Circuit has not squarely addressed whether § 1322(c)(2) permits the bifurcation and stripdown of an undersecured, soon-to-mature claim, the [*14] Fourth Circuit, Eleventh Circuit, and other courts have answered in the affirmative. ... "Therefore, because Mission Hen's secured claim matures during the plan term, the plain language of § 1322(c)(2) allows the Debtors to bifurcate and cram down the Mission Hen claim.4 The bankruptcy court did not err in holding that Mission Hen's claim was not protected by the anti-modification provision." | 11 U.S.C. § 1322(b)(2) 11 U.S.C. § 1322(c)(2) |
| Truong v Crandall Truong Motion for Leave to Interlocutory Appeal Truong Response to Motion Truong Reply to Response to Motion | D. OR | 11/9/23 | The court ruled that the Business Judgment Rule applies to the rejection of a real estate purchase contract in a chapter 13 plan. Further, the court affirmed the bankruptcy court's ruling that debtor's second plan, which purported to provide reasons for the rejection, was barred by the law of the case doctrine. In the debtor's first plan proposing to reject the executory contracts, he did not adequately explain the reasons for the rejection. "Under the "business judgment" rule, a bankruptcy court should approve rejection of an executory Contract unless the debtor's reasoning behind rejection "is so manifestly unreasonable that it could not be based on sound business judgment." Id. at 13 (quoting In re Pomona Valley Med. Grp., Inc., 476 F.3d 665, 670 (9th Cir. 2007)). The court found that Mr. Truong failed to offer any evidence that he was exercising sound business judgment and rejected his plan.... "There is no substantial ground for difference of opinion on whether the business judgment rule applies to the rejection of a real estate purchase contract in Chapter 13 because the circuits are not in dispute on this question and it is not a novel or difficult issue of first impression. "Bankruptcy Code § 1322(b)(7) provides that a Chapter 13 plan may provide for the assumption, rejection, or assignment of any executory contract or unexpired lease "subject to section 365 of this title." 11 U.S.C. § 1322(b)(7). Section 365 authorizes a debtor to assume or reject an executory contract "subject to court approval." 11 U.S.C. § 365(a). The Supreme Court endorsed use of the business judgment rule under Section 365(a) as early as 1943. Grp. of Institutional Inv'rs v. Chicago, Milwaukee, St. Paul & Pac. R. Co., 318 U.S. 523, 550, 63 S. Ct. 727, 87 L. Ed. 959 (1943) ("[T]he question whether a lease should be rejected and if not on what terms it should be assumed is one of business judgment."). And when discussing whether a higher standard should apply to collective bargaining agreements, the Supreme Court has acknowledged that "the traditional 'business judgment' standard [is] applied by the courts [*11] to authorize rejection of the ordinary executory contract." N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513, 523, 104 S. Ct. 1188, 79 L. Ed. 2d 482 (1984). ... "The law of the case doctrine expresses the practice of courts generally to refuse to reopen issues that have been decided. Jeffries v. Wood, 114 F.3d 1484, 1489 (9th Cir. 1997), rev'd on other grounds. It is a jurisprudential doctrine which applies when the issue in question was decided either expressly, or by necessary implication in the previous disposition. Id., Thomas v. Bible, 983 F.2d at 154. The Ninth Circuit has held that the doctrine applies to interlocutory orders as it was created to avoid reconsideration of settled matters during a single continuing lawsuit. Pit River Home & Agric. Coop. Ass'n v. United States, 30 F.3d 1088, 1097 (9th Cir. 1994). Here, the bankruptcy court's decision to reject Mr. Truong's initial plan was an interlocutory [*13] decision. The bankruptcy judge acknowledged, as I do here, the tension between the liberal standards for modification of Chapter 13 plans and the policy underlying the law of the case doctrine. Hearing Tr. [ECF 7] at 25. But the policy reasons underlying the doctrine as described in the Ninth Circuit are fully applicable to Chapter 13 bankruptcy proceedings. Id. at 27. Litigants in bankruptcy proceedings have the same interest in certainty as other litigants, and bankruptcy courts have the same interest in judicial economy. Other courts have invoked these policy reasons to support applying the law of the case in the context of an amended plan. E.g., In re Budd, No. 20-21419-ABA, 2022 Bankr. LEXIS 592, 2022 WL 660591, at *7 (D.N.J. Mar. 4, 2022) ("The Debtor had his day in court."). Therefore, the question of applicability of the law of the case doctrine here is not a novel or difficult issue of first impression. "I further note that if I take up the second way of characterizing Mr. Truong's question, whether the bankruptcy judge erred in applying the doctrine in this case, there is still no ground for substantial difference of opinion. A court's decision whether to apply the doctrine is reviewed for abuse of discretion. Stacy v. Colvin, 825 F.3d 563, 568 (9th Cir. 2016). Here, the judge acknowledged the exceptions where the doctrine [*14] should not be applied. Hearing Tr. [ECF 7] at 27. The judge acknowledged that Mr. Truong presented new information but found it vague and hypothetical. Id at 18. Bearing the relevant standard in mind, a fair-minded jurist could not conclude that me [sic] judge abused his discretion." | 11 U.S.C. § 365 11 U.S.C. § 1322(b)(7) |
| In re Parsons | Bankr. W.D. TN | 11/9/23 | The court denied the chapter 7 pro se debtors' request to release unclaimed funds four years after their case was closed. "Section 347(a) of the Bankruptcy Code addresses the disposition of unclaimed property in chapter 7 cases. ... Once unclaimed funds are deposited with the court, disposition of those funds is governed by Chapter 129 of title 28. ... "Section 2042 of chapter 129 governs the withdrawal procedure for unclaimed funds deposited with a court. ... ""There are three requirements that a claimant must meet to withdraw funds held under these statutes." In re Bradford Prod., Inc., 375 B.R. 356, 358-59 (Bankr. E.D. Mich. 2007). "First, the claimant must file a petition." Id. at 359. "Second, there must be notice of the petition to the United States attorney." Id. "The third requirement is that the claimant must show that it is 'entitled to any such money' by providing 'full proof of the right thereto.'" Id. The Debtors in the case at bar failed to satisfy [*11] the second and third prongs of the Bradford test and, thus, their Application must be denied. ... "In pursuing an application for payment of unclaimed funds, the movant carries the burden of proof and must demonstrate its entitlement to the funds by a preponderance of evidence. In re Transp. Grp., Inc., No. 93-30015, 2007 Bankr. LEXIS 667, 2007 WL 734817, at *2 (Bankr. W.D. Ky. Mar. 7, 2007). "Under statutory requirements and due process principles, the Court has the duty to protect the original claimant's property interest by making sure that unclaimed funds are disbursed to their true owner." In re Applications for Unclaimed Funds Submitted in Cases Listed on Exhibit "A", 341 B.R. 65, 69 (Bankr. N.D. Ga. 2005). ... "Pursuant to 28 U.S.C. § 2041, "[t]he 'rightful owner' of unclaimed funds paid into the Court under § 347(a) is the holder of the proof of claim on account of which the trustee made the distribution." In re Applications for Unclaimed Funds Submitted in Cases Listed on Exhibit "A," 341 B.R. at 69." | 11 U.S.C. § 347(a) 28 U.S.C. § 2041 28 U.S.C. § 2042 |
| In re Stevenson Stevenson - Obj to Confirmation Stevenson - Response to Obj to Conf | Bankr. E.D. VA | 11/8/23 | The court held that even in the absence of in personam liability against the debtor, a mortgage creditor's claim against the debtor's inherited property is a claim and can be cured pursuant to 11 U.S.C. § 1322(b)(2). "The question is whether Wesbanco's in rem rights against the Property constitute a "claim" as defined by section 101(5) of the Bankruptcy Code, which claim can properly be included in the Plan. "The Fourth Circuit has not addressed this issue. Across the county, there is a split of authority as to whether a Chapter 13 plan may cure a defaulted secured claim when no privity of contract exists between the debtor and the creditor. The majority of courts apply the Supreme Court's broad interpretation of "claim" in Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (1991), to permit confirmation of Chapter 13 plans that cure arrears where there are only in rem rights and no contractual privity between the debtor and creditor. See, e.g., In re Curinton, 300 B.R. 78, 80 (Bankr. M.D. Fla. 2003); Bank of America, N.A. v. Garcia (In re Garcia), 276 B.R. 627 (Bankr. D. Ariz. 2002); In re Trapp, 260 B.R. 267 (Bankr. D.S.C. 2001); In re Allston, 206 B.R. 297 (Bankr. E.D.N.Y. 1997); In re Rutledge, 208 B.R. 624 (Bankr. E.D.N.Y. 1997); In re Hutcherson, 186 B.R. 546 (Bankr. N.D. Ga. 1995); Citicorp Mortgage, Inc. v. Lumpkin (In re Lumpkin), 144 B.R. 240 (Bankr. D. Conn. 1992)). On the other hand, a minority of courts interpret "claim" narrowly, such that a "claim" does not exist when there is no in personam liability. See, e.g., In re Parks, 227 B.R. 20 (Bankr. W.D.N.Y. 1998); Ulster Savings Bank v. Kizelnik (In re Kizelnik), 190 B.R. 171 (Bankr. S.D.N.Y. 1995); In re Threats, 159 B.R. 241 (Bankr. N.D. Ill. 1993). "The Court finds Johnson to be instructive and will adopt the majority approach." | 11 U.S.C. § 101(5) 11 U.S.C. § 1322(b)(2) |
| IRS v Wallace IRS v Wallace - Motion for Leave to Take Interlocutory Appeal IRS v Wallace - Response to Motion | C.D. IL | 11/7/23 | The court ruled that a dischargeability adversary brought by a chapter 7 debtor against the Internal Revenue Service is not a justiciable controversy unless the IRS has threatened to collect on the disputed debt. "The IRS cites a string of cases indicating that "dischargeability [*13] actions brought by debtors against the United States before the IRS had staked out a position on the dischargeability of the subject federal tax debts and commenced (or threatened to commence) collection activity are not currently justiciable disputes." Doc. 3 at 13 (citing Hinton v. United States, JHL-09-6920, 2011 U.S. Dist. LEXIS 52103, 2011 WL 1838724 (N.D. Ill. May 12, 2011); Namai v. United States (In re Namai), MMH-20-44, 2023 Bankr. LEXIS 2080, 2023 WL 5422627 (Bankr. D. Md. Aug. 21, 2023); Erikson v. United States (In re Erikson), WS-12-5546, 2013 Bankr. LEXIS 2049, 2013 WL 2035875 (Bankr. E.D. Mich. May 10, 2013); Sheehan v. United States (In re Sheehan), AIH-09-1351, 2010 Bankr. LEXIS 3884, 2010 WL 4499326 (Bankr. N.D. Ohio. Oct. 29, 2010); Mlincek v. United States (In re Mlincek), 350 B.R. 764 (Bankr. N.D. Ohio. 2006).16 The Court has reviewed these cases and adopts their reasoning but refrains from rehashing the repeated analysis in its entirety. Instead, the Court notes that these decisions arising from debtor-initiated adversarial proceedings without imminent threat of an IRS collection are rooted in principles of justiciability. Whether a court abstained from presiding over a case or dismissed an adversarial complaint for lack of jurisdiction, the underlying principle remains the same: A debtor does not have carte blanche to bring an action under § 523(a)(1) to determine whether his tax debts are excepted from discharge, as there is no justiciable controversy unless the IRS has argued that the exception applies or has otherwise threatened to collect the debtor's tax debts. ... "This Court is confident that, had the IRS threatened to collect Mr. Wallace's tax debt when he [*14] filed his Complaint, then he would have had standing to determine the extent of the dischargeability of his tax debts, as his injury (i.e., the IRS collection) would have most certainly been imminent and the case would have been ripe. Mathis v. Metro. Life Ins. Co., 12 F.4th 658, 663-64 (7th Cir. 2021) ("A case is ripe when it is not dependent on contingent future events that may not occur as anticipated, or indeed may not occur at all.") (quotation omitted).18 In this way, and in this case, the issues of standing and ripeness cannot help but bleed into one another and form a justiciable controversy. See Smith v. Wis. Dep't of Agric., Trade & Consumer Prot., 23 F.3d 1134, 1141 (7th Cir. 1994) ("The doctrines of standing and ripeness are closely related, and in cases like this one perhaps overlap entirely."). And so, under such hypothetical facts, the Bankruptcy Court could have rightly found it had subject matter jurisdiction over the Complaint. See Ind. Right to Life, Inc. v. Shepard, 507 F.3d 545, 549 (7th Cir. 2007) ("A case or controversy requires a claim that is ripe and a plaintiff who has standing.")." | 11 U.S.C. § 523(a)(1)(c) |
| In re Powell Powell - Emergency Motion for Stay | M.D. PA | 11/6/23 | The appellate court rejected debtor's argument that the bankruptcy court used the wrong standard of proof under the doctrine of "invited error". Debtor's counsel verbally stated that he had "a high burden to meet" under the clear and convincing standard. "As an initial matter, even if the Court were to accept the argument that Judge Conway erred in applying the clear and convincing standard, as Powell had only one prior bankruptcy matter pending within one year of the underlying matter,4 any such error was invited by Powell. "The doctrine of invited error refers to an error that a party cannot complain of on appeal because the party, through conduct, encouraged or prompted the trial court to make the erroneous ruling."5 "That is to say, when a litigant takes an unequivocal position [below], he cannot on appeal assume a contrary position simply because the decision in retrospect was a tactical mistake, or perhaps a candid but regretted concession."6 In the underlying proceedings, Judge Conway explicitly asked Powell's attorney—the same attorney representing Powell on appeal before this Court—whether they were proceeding under 11 U.S.C. § 362(c); Powell's attorney agreed that they were, and stated that he understood [*3] he had "a high burden to meet" under the clear and convincing evidence standard.7 Powell's attorney then argued at length regarding the clear and convincing standard, and asserted that the evidence met that standard.8 As a consequence, Powell invited any purported error, and may not challenge on appeal the standard of proof required by Judge Conway." | 11 U.S.C. § 362(c) |
| In re Sperry Sperry - UST Motion to Dismiss Sperry - Debtors Brief Sperry - UST Supplemental Brief | Bankr. CT | 11/6/23 | The court granted the United States Trustee's motion to dismiss a chapter 7 case converted from chapter 13 under the totality of the circumstances. During the chapter 13 bankruptcy, the debtor had successfully modified his mortgage which eliminated a $104,000 mortgage arrearage and correspondingly a monthly cure payment of $1,745.86. After conversion the UST moved to dismiss based on the debtor's ability to pay unsecured creditors subsequent to the modification. The court ruled that bad faith under means test is calculated at the time of the original filing unless there was a bad faith conversion. "Regarding the relevant date for the Means Test calculation, the conversion of a case from one chapter to another "does not effect a change [*11] in the date of the filing of the petition, the commencement of the case, or the order for relief." 11 U.S.C. § 348(a); ... A finding of bad faith in conversion would reset the relevant date for the Means Test from the "date of the filing of the petition, the commencement of the case, or the order for relief" to the conversion date. 11 U.S.C. § 348(f); 11 U.S.C. § 348(a)." However, the court ruled it could examine the post-petition ability to pay unsecured creditors under the totality of circumstances test. "Although this Court's consideration of information on the debtor's financial situation after the petition date is not appropriate in calculating a debtor's Means Test, the Court is allowed to consider that information in its analysis of whether the granting of relief would be abusive under the totality of the circumstances test. ... "Regarding whether the Debtor's disposable income permits the liquidation of his consumer debts with relative ease: This is emphatically true. The Debtor could pay the entirety of his unsecured claims under a Chapter 13 plan, amounting to some $25,842.00. Given the substantial increase in the Debtor's disposable income from curing the mortgage arrearage, this could likely be accomplished in less than two years. If the Debtor is allowed to proceed with his Chapter 7 Plan, these [*19] unsecured claims, taken together, would receive a distribution of $0. ... "Therefore, in light of the Debtor's indisputable financial ability to pay a significant dollar amount or percentage of his unsecured debts, as well as the factors enumerated above, the Court finds that the Debtor's Chapter 7 case shall be dismissed within 10 days hereof unless reconverted to a Chapter 13 with consent of the Debtor." | 11 U.S.C. § 348 11 U.S.C. § 707(b) |
| In re Oliver Oliver - Appellants Brief Oliver - Appellees Brief Oliver - Appellants Reply Brief | 9th Circuit | 11/2/23 | The court held the bankruptcy court did not abuse its discretion when it imposed terminating sanctions for discovery misconduct resulting in a complete denial of discharge."Before imposing terminating sanctions, the bankruptcy court considers five factors. See Conn. Gen. Life Ins. Co., 482 F.3d at 1096. The bankruptcy court properly balanced and provided reasons for all five factors. As to the fifth factor, the availability of less drastic sanctions, the bankruptcy court weighed Oliver's failure to comply with multiple court orders and monetary sanctions regarding his discovery misconduct and concluded that any "lesser sanction would be utterly useless." | 11 U.S.C. § 727 |
| In re Fiedler Fiedler - Order to Show Cause Fiedler - Response to Order to Show Cause | Bankr. E.D. CA | 11/2/23 | The court sanctioned a creditor and its lawfirm for filing a frivolous boilerplate complaint objecting to discharge under 11 U.S.C. § 523(a)(2). "This is a case of sue first and ask questions later. … The boilerplate Complaint alleged only two operative facts. First, Golden One made an unsecured loan of $9,000 on November 3, 2022, for the stated purpose of helping Defendant retire a $12,500 Wells Fargo credit card debt at 24.3% interest. Second, on December 20, 2022, the Defendant did not make the [*2] first payment when due. Those two facts, without more, were alleged to suffice to prove an intentional fraud perpetrated on November 3. ... Nevertheless, when it comes to commencing a legal action by filing a fraud Complaint, the existence of an early payment default fraud indicator may trigger an inquiry by a creditor but is not alone sufficient ground for a lawsuit in which the essential elements of fraud must be proved by preponderance of evidence. There still must be the "inquiry reasonable under the circumstances" and that is precisely what did not happen here. ... By any measure, there was not an "inquiry reasonable under the circumstances." ... "A creditor who requests determination of dischargeability of a "consumer debt" under § 523(a)(2) that ultimately is discharged is liable for the debtor's costs and a reasonable attorney's fee for the proceeding if the court finds that the position of the creditor was not substantially justified, unless special circumstances would make the award unjust. 11 U.S.C. § 523(d). ... The law of the Ninth Circuit regarding § 523(d) was established by First Card v. Hunt (In re Hunt), 238 F.3d 1098 (9th Cir. 2001) ... The creditor plaintiff has the burden to prove its position was substantially justified, which entails demonstrating a reasonable basis in law and fact. ... Rocha's argument is not persuasive — or worse. ... "What is reasonably necessary to deter repetition of the conduct in this instance is to impose a requirement of prefiling review by the undersigned judge of every complaint alleging nondischargeable debt before it is filed in the U.S. Bankruptcy Court for the Eastern District of California by Karel Rocha or the law firm of Prenovost, Normandin, Dawe & Rocha between now and June 30, 2025." | 11 U.S.C. § 523(a)(2) 11 U.S.C. § 523(d) |
| In re Keith Keith - Defendants Motion for Summary Judgment Keith - Plaintiffs Response Keith - Defendants Reply | Bankr. W.D. TX | 10/30/23 | The court granted debtor's motion for summary judgment on the non-dischargeability claim under 11 U.S.C. § 523(a)(2)(A) based on the allegation that the debtors failed to disclose outstanding debts when applying for loans. The court held that omissions regarding the debtors financial condition are not a basis for non-dischargeability under Section 523(a)(2)(A). "Confining the limiting phrase only to oral or written statements and not omissions about the debtor's financial condition leads to an odd result. If a debtor signed the statement "I am not in arrears on any debts," a creditor (like Kapitus here) could later argue that the debtor both omitted [*11] information about financial condition (violating § 523(a)(2)(A)) and supplied false information about financial condition (violating § 523(a)(2)(B)). This is despite Congress's intent to segregate these two claims. H.R. Rep. 959-595 at 129-132 (1977). Kapitus's reading of § 523(a)(2)(A) flouts legislative history suggesting that such a reading would encourage less scrupulous creditors to rush debtors through the loan application process, allowing the creditor to later file a nondischargeability action against an unwitting debtor. See Appling, 138 S. Ct. at 1763-64 (describing how § 523(a)(2)(B) was enacted specifically to counter Congressionally alleged creditor abuse and manipulation). HN8 Thus, creditors who seek nondischargeability for statements respecting financial condition have a higher burden: they need to get it in writing. The provisions of §§ 523(a)(2)(A) and (B) are mutually exclusive and binary—a statement either respects a Debtor's financial condition, or it does not. ... "All of the statements and omissions Kapitus alleges in support of its nondischargeability claim were made about Keith's or Coyote's financial condition. Pl.'s Compl. 17. Thus, Kapitus has not alleged an actionable nondischargeability claim under § 523(a)(2)(A). " | 11 U.S.C. § 523(a)(2)(A) |