Monday, May 30, 2016, in observance of Memorial Day.
Debtor v. M&I Bank FSB (In re Jeannie Lindskog) - Debtor filed a chapter 13 case in which she was ineligible to receive a discharge pursuant to § 1328(f), because the case was filed less than four years after she filed a chapter 7 case in which she received a discharge. Debtor commenced an adversary proceeding seeking to “strip off” her second mortgage because there was no equity for the lien to attach to. The creditor filed a motion to dismiss the adversary proceeding arguing that a discharge is a requirement for lien avoidance under § 506(d). An objection to confirmation of plan was filed on the same grounds. The court held that to allow a debtor in a no-discharge chapter 13 to avoid a junior lien would run afoul of § 1325(a)(5)(B)(i)(I)(aa) which provides that the holder of a secured claim shall retain such lien until the earlier of the payment of the underlying debt or discharge. The court further stated that permitting such action would be contrary to both the Congressional intent in enacting BAPCPA and the ruling of the U.S. Supreme Court in Dewsnup v. Timm. The court granted the motion to dismiss adversary proceeding and sustained the objection to confirmation of plan without prejudice to the right of the debtor to file an amended plan.
In re Joshua and Amy Hingiss - Debtors filed a chapter 13 bankruptcy case within 910 days of purchasing a vehicle. Their chapter 13 plan, which provided for full payment of the vehicle claim pursuant to the “hanging paragraph” contained in 11 U.S.C. § 1325(a)(9), was confirmed, but the case was dismissed nine days later for failure to make plan payments. Four days after the creditor took judgment in state court, the debtors refiled a second chapter 13 case which was now outside of the 910-day period. Accordingly, debtors plan proposed to “cram down” the vehicle claim. Creditor objected to confirmation based on bad faith and the theory of equitable tolling. The court rejected the bad faith argument finding that refiling outside of the 910-day period alone is not enough to establish bad faith. However, the court sustained the objection to confirmation based on the theory of equitable tolling and the U.S. Supreme Court case In re Young, 535 U.S. 43 which held that a “look-back period” is subject to equitable tolling in cases where a creditor is disabled from protecting its rights. * NOTE - Currently on appeal.
In re Robert and Carol Edmonds - Debtors filed a chapter 13 plan which separately classified their unsecured student loan debts. Debtors contended that under 11 U.S.C. § 1322(b)(5), they could maintain contractual payments (even if such payment would result in a substantially higher dividend to the student loan creditors than to other unsecured creditors) because it is a long-term debt that will continue after the final plan payment is due. The chapter 13 trustee objected to the plan claiming that such separate classification constitutes “unfair discrimination” under 11 U.S.C. § 1322(b)(1). The court held that 11 U.S.C. §§ 1322(b)(5) and 1322(b)(1) must be read in conjunction with one another and that, while such separate classification may be allowed in certain instances, based on the facts and circumstances in this case, the plan did unfairly discriminate against other unsecured creditors. The court further held, that pursuant to 11 U.S.C. § 1322(b)(10), the plan could not provide for payment of interest on the unsecured student loan debts when all claims were not being paid in full. The trustee’s objection to confirmation was sustained.
Mann, Trustee v. Debtor, et al (In re Rhonda Mitchell) - Chapter 7 trustee initiated an adversary proceeding seeking a determination that debtor’s interest in a trust was “property of the estate” and for turnover of the trust corpus for administration as an asset of the estate. The spendthrift provision restricted only involuntary transfer of debtor’s interest, not voluntary transfer of debtor’s interest, and therefore, the debtor had an absolute right to immediate payment of the principal, without restrictions. Accordingly, the court held that the trust did not contain a valid spendthrift clause under Arizona law, and, debtor’s interest in such trust was property of the bankruptcy estate. The adversary proceeding was dismissed and the trustee of the trust was ordered to turn over debtor’s beneficial interest in the trust corpus to the chapter 7 trustee for administration.
Pleguar Corp. v. Debtors (In re Thomas and Mary Reilly) - Pleguar entered into an asset purchase agreement with debtors’ LLC to be paid over an 8-year period. Under the terms of the agreement, intangibles, rather than physical assets, comprised approximately 96% of the value. 6-years into the agreement, the debtors defaulted. When Pleguar sued both the LLC and the debtors personally in state court, the LLC ceased business operations, but in an effort to find re-employment for its employees, transferred some of its intangibles to JHB, a competitor of Pleguar. The debtors then filed a joint personal voluntary petition for bankruptcy under Chapter 7. Pleguar instituted this adversary proceeding for denial of debtors’ discharge. The court held that debtors did not act with actual fraudulent intent in transferring to competitor LLC’s intangibles, precluding denial of discharge on grounds that debtors fraudulently transferred or concealed property. The court also held that omission from debtors’ bankruptcy schedules of such transfer did not warrant denial of discharge on grounds that debtors made false oath in relation to their bankruptcy case. Finally, the court held that denial of discharge was not warranted on grounds that debtor “gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act.” The adversary proceeding was dismissed, and the debtors were granted a discharge.
Stanfield v. First Midwest Bank (In re Daniel and Sharon Stanfield) - Debtors commenced an adversary proceeding seeking a determination that the Bank’s mortgage was void because the debtor-husband did not sign the mortgage on a homestead that was collateral for a business loan. Wis. Stats. § 706.02 states that both married persons must join in a conveyance. The bank responded that the mortgage it held was valid due to the “substitute requirements” contained in the statute, which allow extrinsic documents to prove the validity of a mortgage so long as there is intent on the part of the non-signing spouse to mortgage his interest in the property. The court found that no such intent was present. The court also rejected the bank’s argument that it would be inequitable to invalidate the mortgage, noting that the bank is a sophisticated entity and has the obligation to check the requirements of Wisconsin law.
Neary, UST v. Debtor (In re Ricky Leech) - When the UST discovered at the 341 meeting of creditors that debtor had failed to list some jewelry on his schedules, he commenced an adversary proceeding, seeking denial of debtor’s discharge under §§ 727(a)(40(A) and 727(a)(2) of the Bankruptcy Code. The court concluded that in failing to list substantial assets on his schedules, the debtor did intend to actually defraud the trustee and his creditors, or at least acted with reckless disregard for the truth, and should be denied a discharge. The fact that he later amended his schedules to include the omitted assets did not expunge the falsity of his prior oath. The court also rejected debtor’s attempt to shift blame onto his bankruptcy attorney, declaring that debtor has an independent responsibility to verify the information given to his counsel. The court also sustained the chapter 7 trustee’s objection to debtor’s claims of exemption.
Neary, UST v. Debtor (In re Stacie Happel) - Neary, UST v. Debtor (In re Stacie Happel) - Prior to filing her bankruptcy petition, debtor became involved in a business relationship in which her and her “partner” would execute fraudulent loan applications in order to buy residential properties in the Milwaukee area. Title was put in the debtor’s name only, and her “partner” handled everything else. Under the scheme, she received funds from him in order to artificially inflate her bank account and obtain approval of mortgage loans. Immediately after the loans were approved, the funds were removed and returned to her partner. Neither this partnership, the subsequent sale of these various properties, nor the proceeds thereof were disclosed on the debtor’s schedules. The UST objected to a discharge being granted to the debtor based upon §§ 727(a)(3) and 727(a)(4)(A) of the Bankruptcy Code. The court concluded that in failing to include key information in her schedules, the debtor demonstrated a reckless disregard for the truth, sufficient to bar a discharge. The court also found that a denial of debtor’s discharge was warranted based on her failure to keep or preserve business records. The court concluded that while debtor may not have been sophisticated in business dealings and was taken advantage of by her partner, she was not an innocent victim.
Debtor v. Creative Loans, LLC, Et Al (In re Eradean Walker) - The debtor, after filing a bankruptcy petition under chapter 13 and without obtaining court approval, entered into agreements, in which she believed she was refinancing the mortgages on her two residential properties. In reality, it was a scam and the agreements transferred her ownership interest in both properties, giving her only the right to occupy the properties as a tenant for a period of 1 year, with no option to re-purchase. The debtor, an elderly widow with a 9th grade education, commenced an adversary proceeding against defendants, seeking the return of her ownership interest in the properties. The court concluded that the debtor never understood what she was signing and found the transactions to have violated § 362(a)(3), as acts to obtain possession of property of the estate, and § 549(a), as a post-petition transfer not authorized by the court.
Neary, UST v. Debtors (In re John and Jennifer McCarthy) - The UST objected to the debtors' discharge based on § 727(a)(4)A) (false oath), § 727(a)(5) (failure to explain loss of assets), and § 727(a)(2) (fraudulent transfer of property within one year of the filing of the bankruptcy). The court concluded that the debtors were the victims of a scam, orchestrated by a clever con artist, and lacked the requisite intent to defraud. The court also found that the debtors transfer of non-exempt funds into exempt funds, totaling approximately $9,900, shortly before filing bankruptcy, was a proper use of pre-petition bankruptcy planning under the particular facts and circumstances of this case. The adversary proceeding was dismissed, and the debtors were granted a discharge.
In re Suzanne Reinstein - Creditor objected to confirmation of debtor's amended chapter 13 plan. Creditor contended that debtor improperly calculated both her housing and transportation expenses and failed to apply all of their disposable income to the plan. The debtor's actual monthly housing expense was $640, but she deducted the entire monthly housing allowance of $712 specified in the Local Standards. The debtor's actual monthly transportation expense totaled $95, but she deducted the $471 specified in the Local Standards monthly transportation allowance. The court found that the expenses in the Local Standards are fixed expenses and apply even if a debtor's actual expenses are lower than the Local Standard allowance. Accordingly, the court overruled creditor's objection to debtor's amended plan.
In re Melanie Collins - Creditor’s motion to dismiss case because of debtor’s failure to provide creditor with a copy of her most recent federal income tax return was denied. The court concluded that the creditor had the ability to obtain the requested tax return by other means, including use of§ 521(g)(2), and that dismissal of case would be unduly harsh.
Case -v- Wells Fargo Bank, NA (In re Case), Johnson -v- US Bank Nat’l Ass’n (In re Johnson), Herrera -v- JPMorgan Chase Bank (In re Herrera), Oven -v- Universal Savings Bank (In re Oven), Newsom -v- Bank of America Corp. (In re Newsom), Jendusa -v- North American Savings Bank, FSB (In re Jendusa), Ruhl -v- HSBC Fin. Corp. and HSBC Mortgage Services (In re Ruhl) - Chapter 13 debtor-mortgagors sued defendant-mortgagees in seven adversary proceedings, which were consolidated, for violating 11 U.S.C. § 1322(e) by wrongfully receiving interest-on-interest on their claims. The debtor-mortgagors sought disgorgement of the wrongfully paid interest-on-interest pursuant to 11 U.S.C. §§ 502(j) and 1322(e), and claimed abuse of process under 11 U.S.C. § 105(a). On remand, the court determined that the adversary proceedings were not moot as to those debtors who received discharges. The debtors conceded that § 105 did not create a private right of action, and the court dismissed that count. The court found that none of the equitable defenses of judicial estoppel, waiver, or laches raised by the defendants warranted dismissal. However, the court held that the confirmed plans proposed by the debtors are entitled to res judicata effect pursuant to § 1327(a). The court also held that § 1322(e) is a discretionary provision which did not render the orders confirming the plans in each of the adversary proceedings nugatory. As a result, the court dismissed all of the adversary proceedings. Aff'd on appeal.
Kovacs -v- United States of America (In re Kovacs) - Kovacs entered into an offer in compromise (OIC) with the IRS resolving her income tax liabilities for the years 1990 to 1995. Kovacs subsequently defaulted in the terms of the IOC. The IRS terminated the OIC in 1999 and reinstated her liabilities for the tax years in question. On July 3, 2001, Kovacs filed a petition under Chapter 7 and listed the IRS as a creditor and obtained a discharge on October 10, 2001. After Kovacs received her discharge, the IRS mailed to her a series of notices of intent to levy on her assets with respect to these outstanding tax liabilities. The debtor filed an adversary proceeding. At the outset of the trial, the IRS conceded its mistake in determining the dischargeability of the tax liabilities for these years in question and acknowledged it had violated the discharge injunction under § 524 of the Bankruptcy Code. The court concluded that Kovacs was the prevailing party and that the IRS’ breach of § 524(a) was a proximate cause of her damages. However, the court also found that Kovacs Attorneys’ also were mistaken in the impact of her discharge on the tax liabilities, and, in addition, unreasonably protracted the court proceedings in the adversary proceeding. The court concluded that a fair portion of the total damages of $71,901.37 for which the IRS should be liable was $25,000 and stated that a cause of action for violation of the discharge injunction must not be utilized as a profit-making endeavor by the debtor’s attorneys. *NOTE - currently on appeal.
In re Dunlap - The court held that the use of negative equity financing by the parties in connection with the purchase of a new car and trade-in of an another vehicle did not destroy the purchase money nature of Nissan’s PMSI. The court found that there was a close nexus between the debtors’ acquisition of the new car and the entire secured obligation, which included the negative equity financing. Therefore, pursuant to the hanging paragraph contained in 11 U.S.C. § 1325(a), the debtors could not cram down the secured lender’s claim into a secured claim and an unsecured claim under 11 U.S.C. § 506.
Elllsworth -v- Ellsworth (In re Ellsworth) - Plaintiff, former wife of debtor, sought a judgment of nondischargeability against the debtor for failing to promptly notify her of a stock distribution he was to receive and which, under the terms of the parties' marital settlement agreement, was to be sold with the proceeds first to be used to pay certain debts and the balance to be divided by the parties. Instead of promptly notifying the plaintiff, the debtor placed the stock in a margin brokerage account in his sole name, which he used for his personal purposes. By the time the plaintiff finally received notice of the stock distribution, it had dramatically dropped in value (in excess of $442,000). The court found that the actions by the debtor constituted violations of 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4) (for both defalcation by a fiduciary and embezzlement). The court declined to find that debtor’s conduct constituted a violation of 11 U.S.C. § 523(a)(6).
King, Trustee -v- Ernie von Schledorn, Inc. (In re McAlister) - The court found that the refinancing lender did not perfect its security interest under Wis. Stat. § 342.19. The fact that the original certificate of title still had the lien of the fully paid original lender is no defense. The refinancing lender obtained a release from the original lender, and there was no assignment from the original lender to the refinancing lender.
In re Erma L. Averhart - The court held that where a secured creditor files a proof of claim before confirmation, which is at odds with the debtor’s plan as to rate of interest, and the secured creditor fails to object to confirmation, the interest rate in the confirmed plan is controlling. The court also decided that the secured creditor was not denied due process. The argument raised by the secured creditor that established past practice in the Eastern District of Wisconsin required finding that the confirmed plan must yield to the proof of claim was rejected. The court stated that the established past practice was not as firmly entrenched as secured creditor suggested.
Grice -v- WE Energies, et al (In re Grice) - The debtor filed a Chapter 13 case and subsequently converted that case to Chapter 7, wherein she received a discharge . More than two years but less than four years later, the debtor filed a new Chapter 13 case. The court ruled that the four-year waiting period contained within 11 U.S.C. § 1328(f)(1) was applicable to this fact pattern (rather than the two-year waiting period contained within 11 U.S.C. § 1328(f)(2)). Accordingly, the court found that the debtor was ineligible to receive a discharge in the present bankruptcy case because four years had not elapsed since the filing of her prior bankruptcy case.
Maxwell, Trustee -v- Michigan Fidelity Acceptance Corp. (In re Maestas) - The trustee successfully avoided the defendant’s mortgage and preserved it for the benefit of the estate pursuant to 11 U.S.C. §§ 547 and 551. The trustee then brought a second action to recover a money judgment on the avoided transfer pursuant to 11 U.S.C. § 550. The court found that even though res judicata appeared to bar the second action, the "statutory scheme" exception to res judicata was applicable and allowed the trustee to bring a separate action to recover the value of the avoided transfer under 11 U.S.C. § 550. Consequently, the court found that the second action was properly brought and denied the defendant’s motion to dismiss or, in the alternative, for judgment on the pleadings.
Case -v- Wells Fargo Bank, NA (In re Case), Johnson -v- US Bank Nat’l Ass’n (In re Johnson), Herrera -v- JPMorgan Chase Bank (In re Herrera), Oven -v- Universal Savings Bank (In re Oven), Newsom -v- Bank of America Corp. (In re Newsom), Jendusa -v- North American Savings Bank, FSB (In re Jendusa), Ruhl -v- HSBC Fin. Corp. and HSBC Mortgage Services (In re Ruhl) - Chapter 13 debtor-mortgagors sued defendant-mortgagees for violating 11 U.S.C. § 1322(e) by wrongfully receiving interest-on-interest on their claims. The debtor-mortgagors sought disgorgement of the wrongfully paid interest-on-interest pursuant to 11 U.S.C. §§ 502(j) and 1322(e), and claimed abuse of process under 11 U.S.C. § 105(a). The court found that plaintiffs had standing to pursue this action on behalf of the Chapter 13 estate pursuant to Bankruptcy Rule 6009. Nonetheless, the court dismissed these actions, finding that the actions were procedurally deficient. The court reasoned that the parties were required to invoke Bankruptcy Rule 3008 and proceed by means of a motion to reconsider and only if then successful seek further relief. *Note- reversed and remanded.
Blomberg, et al -v- Riley (In re Elizabeth F. Riley) - The court denied the debtor’s discharge under 11 U.S.C. § 727(a)(2)(B) by applying the reverse alter ego theory and finding that the debtor’s failure to list certain real estate owned by a corporation in which the debtor was the majority and controlling shareholder and which had significant personal value to her, constituted a concealment of estate property with the intent to defraud the bankruptcy trustee. The court also denied the debtor’s discharge under 11 U.S.C. § 727(a)(4)(A), and found that the debtor’s listing of her corporate stock interest at a zero value in her schedules constituted a false oath.
Car Care Center of Crystal Lake, LTD. -v- Gary E. Miller - (In re Gary E. Miller and Bonnie B. Miller) - The court ruled that an adversary proceeding brought under 11 U.S.C. § 727(d)(1) must be brought within the jurisdictional time limitation set forth in 11 U.S.C. § 727(e).
In re John L. Meyer and Beth A. Meyer - In a dispute over the proper amount of a claim arising from the damage provision of a lease contract, the court followed the fundamental rule of statutory construction that ambiguous contract provisions should be construed against the drafter.
Kelvin W. Krause -v- Vicky Groom (In re Kelvin W. Krause) - Adversary proceeding involving the debtor's remaining obligation to non-filing ex-spouse of $14,500 (payable at the rate of $500 per month over 36 months and labeled as "maintenance payments" in the marital settlement agreement) which was determined by the court to be a maintenance debt which is nondischargeable under 11 U.S.C. Sec. 523(a)(5).