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Judge Pepper's Decisions

Fair v. GMAC Mortgage, LLC, 10-2362 (Bankr. E.D. Wis. July, 2011)
Debtor who had received a Chapter 7 discharge in a case commenced within the previous 8 years filed a Chapter 13. She then filed an adversary complaint, proposing to strip off the wholly unsecured, junior mortgage lien. When the defendant did not file an answer, the plaintiff/debtor filed a motion for default judgment. On October 26, 2010, the Court denied the motion for default judgment and dismissed the adversary complaint, holding that a debtor who was not eligible for a Chapter 13 discharge could not use the Chapter 13 case to strip off the wholly unsecured, junior mortgage lien. The debtor appealed, and on April 19, 2011, Judge Randa reversed the bankruptcy court's legal conclusion. In re Sandra Lee Fair, 10-C-1128. Judge Randa held that there was nothing in the Bankruptcy Code which tied modification of an unsecured lien to obtaining a Chapter 13 discharge. He noted, however, that bankruptcy courts had an obligation to determine whether debtors filed their Chapter 13 petitions in good faith, and that filing a Chapter 13 case "solely for the purpose of the lien avoidance" suggested manipulation of the Bankruptcy Code and constituted evidence of bad faith. He thus remanded the case to the bankruptcy court for a determination regarding whether the debtor filed her Chapter 13 case in good faith. On July 6, 2011, the bankruptcy court issued an oral ruling, finding that under the specific factual circumstances in this debtor's case, she had filed her Chapter 13 case in good faith. The Court found that she had filed the case for the purpose of paying the arrearage on her first mortgage and saving her home from foreclosure, and not just for the purpose of stripping off the wholly unsecured, junior mortgage lien.

In re Kohler, 09-35931, and Kohler v. U.S. Bank, et al., 10-2694 (Bankr. E.D. Wis. June, 2011)
Chapter 13 debtors argued that the mortgage creditor who filed motions for relief from the automatic stay, who filed proofs of claim in the bankruptcy case, and who objected to confirmation of their Chapter 13 plan did not have standing to do any of these things. The creditor who filed the various objected-to pleadings was the trustee for a structured asset investment loan trust. The debtors argued that this creditor did not own the mortgage or the note on their home, and thus did not have standing to assert rights in the bankruptcy proceedings. At an evidentiary hearing, the creditor produced, through an employee of the company acting as custodian for the trust's records, the original note and an endorsement in blank. The Court concluded that under Article 3 of the UCC, the creditor had proven that it was the entity entitled to enforce the note, because it possessed the note and the endorsement in blank. Because the creditor was the entity entitled to enforce the note, the Court held, it had proven that it had standing to move for relief from stay (by asserting that it had not received payment on the note--a fact which the debtors did not dispute), standing to file a proof of claim (thus asserting that it was entitled to payment on the note through the bankruptcy), and standing to objection to confirmation of the plan (which did not propose to pay its claim). The Court further held that ownership of the mortgage was not relevant to the question of standing, as the mortgage followed the note, and the Court was not being asked to consider whether the creditor could foreclose on the collateral. The Court noted that the fact that the creditor had attached to its proofs of claim two signed, dated allonges which post-dated the bankruptcy court litigation seemed to indicate that the creditor had made some effort to grant itself standing after the fact, but found that because the endorsement in blank had been present in the loan file prior to the petition date, the later-signed allonges were not relevant.

MacDonald, et al. v. HSBC Mortgage Services, Inc., 10-2287 (Bankr. E.D. Wis. October, 2010)
"Minutes from October 25, 2010 hearing in an adversary case, in which the Court held that debtors who were not eligible for a Chapter 13 discharge because they'd received a Chapter 7 discharge within four years of filing the Chapter 13 petitions could not use the Chapter 13 proceeding to avoid wholly-unsecured junior mortgage liens."

Starfire v. Dolata, 09-2056. (Bankr. E.D. Wis. October, 2010)
The defendant committed theft by contractor when he used trust funds to pay himself and to pay the overhead expenses of his business.  Accordingly, his debt to the materials supplier was nondischargeable pursuant to 11 U.S.C. section 523(a)(4).  The defendant's attempt to argue that he paid the materials supplier "proportionally" was not successful; the evidence did not demonstrate either that he paid the material supplier proportionally to himself, or that he paid the supplier proportionally to what he received from the project owners.  Nor was the fact that he used the funds to pay his overhead, and thus, to enable him to complete the jobs, a defense to the theft-by-contractor claims.  The plaintiff, however, did not prove the necessary intent to justify treble damages.

Levine v. Ward, 08-2240. (Bankr. E.D.Wis. March, 2010)
Plaintiff home buyers who paid contractor/seller $20,000 for post-purchase construction did not prove by a preponderance of the evidence that the defendant contractor obtained the $20,000 by false pretenses, and thus did not prove their cause of action for nondischargeability under 11 U.S.C. section 523(a)(2)(A). The plaintiffs did prove, however, that when the defendant used the $20,000 to pay the closing costs at the time of sale, rather than holding it in trust to pay subcontractors and material suppliers on the post-purchase construction, the defendant committed defalcation in a fiduciary capacity, and therefore that the debt was nondischargeable pursuant to 11 U.S.C. section 523(a)(4). The Court found, contrary to the defendant's assertions, that the plaintiffs clearly gave the defendant the $20,000 for "improvements," and that the fact that the defendant alleged that he'd told the plaintiffs he needed to use it to pay closing costs was not a defense.

George v. Travis Brothers, 09-2241. (Bankr. E.D.Wis. March, 2010)
Granting summary judgment to the plaintiff/trustee in a preference avoidance action in which, within 90 days of the petition date, Chapter 7 debtors paid a portion of the overdue balance due a landscaping contractor who had done work on their home.

Terra Dev. Co. v. McCoy, 09-2433. (Bankr. E.D.Wis. January, 2010)
Where a debtor converts the underlying bankruptcy case from one under Chapter 7 to one under Chapter 13 before the deadline for filing an answer to a 727 complaint objecting to discharge,the conversion does not moot the 727 cause of action.  Rather, it renders that cause of action dormant.  The appropriate disposition of the 727 adversary proceeding is for the court to stay the proceedings and close the adversary case, subject to a motion to reopen in the event that the underlying bankruptcy case reconverts to one under Chapter 7.

Ganther Construction, Inc. v. Ward, 08-2242(Bankr. E.D.Wis. October, 2009)
In a nondischargeability action under §523(a)(4), the plaintiff failed to prove the element of defalcation in a fiduciary capacity, because it failed to prove that the defendant's violation of Wisconsin's theft-by-contractor (Wis. Stat. §779.02(5)) law involved more than mere negligence.

In Re Hanley, 09-21220. (Bankr. E.D.Wis. August, 2009)
While the fact that a debt is "disputed" does not make it "unliquidated" for the purposes of determining whether a debtor has exceeded the Chapter 13 debt limit, a dispute over whether the debt ever existed or will exist can render the nature of the debt "unliquidated."  Even applying that test, however, the Court found that the particular debt in question was "liquidated," and needed to be included in the calculation of the debt limits.

Scaffidi v. Barbosa, 08-2056(Bankr. E.D.Wis. June, 2009)
The Court granted the plaintiff trustee's motion for default judgment against the debtor's former husband. The Court agreed with the trustee that the debtor's 2007 transfer of her interest in the former marital homestead via a quitclaim deed was avoidable pursuant to 11 U.S.C. 549(a) as an unauthorized, post-petition transfer of estate property. The Court further found that the debtor's 2005 transfer of her interest in certain assets to the defendant via a Marital Settlement Agreement ("MSA") constituted a transfer in constructive fraud of her creditors pursuant to Wis. Stat. 242.04(1)(b), and therefore was avoidable under 11 U.S.C. 544(b)(1). The Court concluded that when the debtor signed the MSA and transferred to the defendant her interest in half of the marital homestead, as well as her interest in anything in the defendant's possession, she reasonably should have believed that this transfer would cause her to incur debts beyond her ability to pay as they became due. After the transfer, the debtor--unemployed and disabled--was left with no real estate, no assets other than a 14-year-old car, and only her disability income and a small maintenance payment from the defendant.

In Re Streckrich Petro Corporation, 08-31860(Bankr. E.D.Wis. June, 2009)
The Court granted the Chapter 11 creditor's motion to compel the debtor-in-possession to assume or reject a lease. The Court first agreed with the creditor that the agreement in question was, in fact, a lease under Missouri law, overruling the debtor-in-possession's objection that the agreement was something other than a lease. The Court then held that by filing the motion to compel before the expiration of the 120-day assumption period, the creditor had, in effect, tolled that period. The Court concluded that seven (7) days remained during which the debtor-in-possession could elect to assume or reject the lease, or could request that the Court extend the time for it to make that decision.

In Re Gwaltney, 07-29919. (Bankr. E.D. Wis. March, 2009)
Debtor who obtained homestead property in violation of a due-on-sale clause does not impermissibly modify creditor's rights in violation of 11 U.S.C. section 1322(b)(2) in proposing to pay the arrearages on the mortgage debt through a Chapter 13 plan.

In Re Reynolds, 07-30434. (Bankr. E.D. Wis. January, 2009)
The Court concluded that the totality of the debtors' circumstances demonstrated an abuse of the provisions of Chapter 7, and therefore granted the United States Trustee's motion to dismiss if the debtors did not convert within 30 days.  The Court based its decision on the fact that the debtors appeared to have funds and assets available that gave them some ability to pay their creditors.  The Court noted, however, that the fact that the debtors were contributing to a 401k plan and were repaying a 401k loan did not, by themselves, justify dismissal of the case, as those payments would be deductible in a Chapter 13 context.  The Court also concluded that the United States Trustee had failed to present any evidence regarding how long the debtors would have to make the 401k loan repayments, and whether, at some point during the life of a Chapter 13 plan, those funds would become available to pay unsecured creditors.

In Re Lackowski, 08-21496. (Bankr. E.D. Wis. September, 2008)
Pursuant to the Wisconsin exemption statutes, debtor who lives part-time in rented apartment in Milwaukee and part-time in a mobile home she owns in Adams County can claim the homestead exemption for the Adams County property. She can do so in spite of the fact that all of the evidence presented at the evidentiary hearing on the matter indicated that the debtor considered the Milwaukee County apartment her legal residence. The Court found that the debtor "occupied" the Adams County residence for the purpose of the exemption, albeit on a part-time basis.

In Re Johns, 08-24311. (Bankr. E.D. Wis. July, 2008)
When the Court denies a serial debtor's motion to continue the stay pursuant to section 362(c)(3), the stay terminates as to the property of the estate, and not just as to the property of the debtor.

In Re Smith, 07-30540. (Bankr.S.D. Ill. June, 2008)
The debtor purchased a vehicle within 910 days of filing her Chapter 13 petition. The financing for this purchase included funds loaned to pay taxes, administrative fees, service fees, gap insurance, a service contract and the negative equity on the debtor's trade-in vehicle. The Court held that the fact that the debtor's obligation to the creditor included these components did not deprive the creditor of its purchase money security interest in the collateral, and therefore that, pursuant to the hanging paragraph of 11 U.S.C. section 1325(a), the debtor could not cram down the creditor's interest.

Nissan Motor Acceptance Corp. v. Smith, et al(No. 07-C-0698 (E.D. Wis. Oct. 12, 2010)

In Re Van Bodegom Smith, 07-25202. (Bankr. E.D. Wis. March, 2008)
Above-median-income Chapter 13 debtors cannot subtract from their current monthly income secured debt payments for collateral they intend to surrender when calculating their projected disposal income.

In Re Action Transit, 07-27904. (Bankr. E.D. Wis. January, 2008)
Contract between debtor-in-possession and creditor was not a true lease, but was a security interest as defined in Wis. Stat. section 401.201(37), and therefore the debtor was not required to pay the creditor according to the terms of the contract.  Rather, it could make adequate protection payments sufficient to protect the creditor's interest in the collateral.

In Re Scofield, 07-22127. (Bankr. E.D. Wis. November, 2007)
Debtors who convert from a case under Chapter 13 to a case under Chapter 7 are required to file a Form B22A upon conversion.

In Re Stoltz, 07-22864. (Bankr. E.D. Wis. October, 2007)
Chapter 13 plan which relied on the language of the Eastern District model plan could not be confirmed in the face of objections that it did not clearly direct the trustee to distribute the amount listed in the creditor's proof of claim rather than the amount listed in the plan, and that it did not clearly indicate when the debtors intended the property of the estate to revest in the debtors. 

Fritz v. USA Funding Corp. and GMAC Mortgage Corp., 06-2085. (BR case 05-45778) (Bankr. E.D. Wis. October, 2007)
The Court dismissed the plaintiffs'/debtors' Truth-in-Lending Act claims against defendant GMAC Mortgage Corp. in their entirety, and dismissed the plaintiffs'/debtors' TILA claims against defendant USA Funding Corp. in part, because (1) some claims were barred by the
Rooker-Feldman doctrine, (2) others were barred by the doctrine of claim preclusion, and (3) still others failed to state a claim upon which relief could be granted.  The only claims to survive the motions to dismiss were the plaintiffs'/debtors' claims for declaratory judgment and damages against USA Funding Corp. for alleged violations to TILA.

In Re Davis 07-24688. (Bankr. E.D. Wis. September, 2007)
In a case in which the debtors' plan proposed to pay 100% to the unsecured creditors, the court overruled the Chapter 13 trustee's objection to the debtors' proposal to pay the consenting secured auto lender's claim outside the plan.

In Re Kirsch 07-20338. (Bankr. E.D. Wis. August, 2007)
Contested Chapter 13 plan which was silent as to treatment of tax refunds in a case where below-median-income debtor listed the refund as income on Schedule I and utilized it for expenses on Schedule J could not be confirmed, because it violated the disposable income requirement of 11 U.S.C. 1325(b).

In Re Kiedrowski 06-24318. (Bankr. E.D. Wis. August, 2007)
The district court's decision in In re Ross-Tousey effectively overrules this Court's decision in In re Sawdy, and therefore Chapter 13 debtors may deduct the vehicle ownership expense on their Form B22C only if they have a note or loan payment, and not if they own a vehicle outright.

In Re Smith 06-20127. (Bankr. E.D. Wis. May, 2007)
When a creditor files its proof of claim pre-petition and the debtor (a) proposes a plan that specifically articulates how it will treat that creditor's claim, (2) that treatment is different than the treatment in the proof of claim, and (3) the debtor serves the plan on that creditor, the treatment in the confirmed plan controls over the proof of claim if the creditor does not object to its treatment pre-confirmation.

In Re Walls 06-21228. (Bankr. E.D. Wis. April, 2007)
The appropriate way for a below-median-income debtor to secure for her own needs the entirety of any tax refund she may receive over the life of the Chapter 13 plan is not by writing such a provision in the plan.  Rather, it is by asking the trustee, and if necessary the Court, to allow her to keep the refund for any particular year based on her need to retain for her support and maintenance.

In Re Sawdy 06-25130(Bankr. E.D. Wis.  February, 2007)
Chapter 13 debtors are entitled to deduct the IRS Local Standard expense for vehicle ownership from their Form B22C even if they own their vehicles outright and do not actually make note or lease payments each month.

In Re Kowalewski 06-20774(Bankr. E.D. Wis. November, 2006)
In In re Balcerowski, the Court held that a debtor must subtract his actual tax expense from his Schedule I income to determine projected disposable income for Chapter 13 purposes.  In this matter, the Court declines to dictate to the parties the method they should use to determine the actual tax expense.  Debtors must make a good-faith effort, under the circumstances of their particular cases, to determine what their actual tax expenses will be.

In Re Balcerowski, 06-21695. (Bankr. E.D. Wis. October, 2006)
The appropriate expense for the purpose of determining disposable income under section 1325(b)(1)(B) of BAPCPA is for the debtor to estimate, and subtract from his income, the actual tax he will incur, not the amount he has withheld from his wages.  The debtor should calculate this actual tax based on his income at the time he filed his petition, and not solely upon his historical, "current monthly income" income figure.

In Re Richie, 06-20188. (Bankr. E.D. Wis. October, 2006)
A debtor who, at the time of the hearing on the trustee's motion to dismiss, lacks the ability to pay her creditors because she has not engaged in a broad employment search, does not wish to work outside her chosen field, does not wish to work within her chosen field outside of southeastern Wisconsin, and takes this position at the expense of her creditors, "abuses" the provisions of Chapter 7 as that term is used in the new version of section 707(b) promulgated by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

In Re Baldewicz, 06-21117(Bankr. E.D. Wis. September 14, 2006)
Under the facts and circumstances of these particular cases, one month after the date the debtors filed their petitions was too soon to conclude that the $2,500 presumptively reasonable fee charged by debtors' counsel was unreasonable.  This is partly because one of the factors this Court considers in determining the reasonableness of the presumptively reasonable fee is the range of services counsel provides in exchange for the presumptively reasonable fee, and a month into the matter is too soon to determine whether counsel is providing a comprehensive range of services in exchange for the fee.

In Re Maxwell, 06-21226(Bankr. E.D. Wis. September 14, 2006)
Under the facts and circumstances of these particular cases, one month after the date the debtors filed their petitions was too soon to conclude that the $2,500 presumptively reasonable fee charged by debtors' counsel was unreasonable.  This is partly because one of the factors this Court considers in determining the reasonableness of the presumptively reasonable fee is the range of services counsel provides in exchange for the presumptively reasonable fee, and a month into the matter is too soon to determine whether counsel is providing a comprehensive range of services in exchange for the fee.

In Re Fuller, 06-30313. (Bankr. S.D. Ill. June 16, 2006)
In order to determine whether a Chapter 13 debtor is committing all of her "projected disposable income" to a plan under section 1325(b)(1)(B) of BAPCPA, parties must not limit their consideration to Form B22C ("Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income"), but must also consider the income at the time of filing as reflected on Schedule I.

In Re Spears, 06-21015(Bankr. E.D. Wis. June 19, 2006)
Section 109(h) of BAPCPA does not require a debtor to wait a day between the day she obtains her credit briefing and the day she files her petition for relief.  A debtor who obtains the credit briefing at any time during the 180 days prior to the moment she files her petition has complied with section 109(h).

In Re Pham, 06-20779.  (Bankr. E.D. Wis. May 31, 2006)
Discussion of the circumstances under which courts will require reaffirmation hearings under BAPCPA.

In Re Kinnee, 06-21356(Bankr. E.D. Wis. May, 2006)
Debtors whose debt is primarily business debt, rather than consumer debt, are not required to file Form B22A (the means test calculations). For a debtor to have debt that is "primarily" business debt, the business debt must comprise more than 50% of the overall debt.

In Re Adams, 06-20190(Bankr. E.D. Wis. April 12, 2006)
It was inappropriate for a bank to require a debtor to execute a reaffirmation agreement as a condition of re-activating her credit card, when debtor did not owe a debt to the bank and the bank did not hold a claim in the bankruptcy.

In Re Berntsen, 06-20644(Bankr. E.D. Wis. April 10, 2006)
Section 362(d)(4) of BAPCPA provides that in cases where the court finds that the debtor filed the petition as part of a scheme to hinder, delay or defraud creditors by multiple bankruptcy filings involving real property, if the order lifting the stay on the real property is recorded in compliance with state laws governing notices of interest or liens on real property, the order lifting the stay runs with the property and remains in effect as to anyone who files bankruptcy regarding that property for a period of two years after the date of the order, unless the subsequent filer can demonstrate a change in circumstances or good cause.

In Re French, 06-20066(Bankr. E.D. Wis. March 21, 2006)
The trustee withheld recommending confirmation until such time as the debtor could file her 2005 tax returns, relaying on section 1308 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. That section requires debtors to file the tax returns for the four years preceding the filing of the petition before confirmation can be recommended. The debtor argued that, because her 2005 return was not yet due under applicable tax law, she was not required to file it, and therefore the trustee was unreasonably delaying its discharge recommendation. The Court held that the trustee correctly delayed recommending confirmation until the 2005 return could be filed--the statue envisions and allows for just such a delay in cases where a debtor files for bankruptcy in the first 3 1/2 months of the year, before the previous year's returns are due.

In Re Perkins, 05-45816(Bankr. E.D. Wis. March 2006)
Section 1325(a) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 does not abrogate the Supreme Court's holding in Till v. SCS Credit Corporation as it relates to vehicles purchased for the debtor's personal use within 910 days of the bankruptcy filing. The 'hanging paragraph' of section 1325(a) does away with the practice of bifurcating claims into secured and unsecured portions; it does not alter the Till rate on post-petition interest.

In Re Farchmin, 05-45947(Bankr. E.D. Wis. February 2, 2006)
In most cases, it is not necessary or appropriate to move the court to extend the time for filing tax returns under section 521 of BAPCPA. Section 521(e) requires certain tax returns to be provided to the trustee, and therefore the trustee is the person to whom requests to extend time should be addressed. Section 521(f) requires tax returns to be filed with the court only if the court, the U.S. Trustee, or a party in interests requests that they be filed. If such a request has been made by the U.S. Trustee or a party, debtors seeking an extension should confer with the party requesting the filing, and should indicate in the motion whether that party agrees to the extension of time.

In Re Berntsen, 05-45950(Bankr. E.D. Wis. January 30, 2006)
Section 362(j) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 mandates that, upon the request of a party, the court shall issue a comfort order indicating that the 30-day stay has terminated in cases governed by section 362(c)(3) of the Act.

In Re Gray, No. 05-45793(Bankr. E.D. Wis. January 30, 2006)
A debtor for whom the automatic stay terminates after 30 days under section 362(c)(3)(A) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 because she had a previous filing dismissed within the year preceding the current petition may seek to have the stay re-imposed under section 362(c)(4)(B), if her request is filed within 30 days of the date of the current petition, she provides adequate notice to the appropriate creditors, and she rebuts the presumption that the current filing was made in bad faith.

In Re Harvey, 05-44655; In Re Ramirez, 05-44654; In Re Martin, 05-44653; In Re Stelmack, 05-44652; In Re Green, 05-44651; and, In Re Johnson, 05-44650(Bankr. E.D. Wis. December 8, 2005)
Debtors' cases were filed electronically. They were not received by the clerk's office until the early minutes of October 17, 2005--the date the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was implemented. Debtors argued that the matters would have been filed on October 16--under the Bankruptcy Code--but for a problem with the Court's CM/ECF system. The Court held that documents submitted electronically are not "filed" until they are received by the clerk's office and the clerk's office issues a Notice of Filing. The Court further found that there was insufficient evidence to demonstrate a problem with the CM/ECF system. Accordingly, the Court denied the debtors' request to find that their cases were filed under the Bankruptcy Code.

In Re Reed, 05-45739(Bankr. E.D. Wis. November 14, 2005)
Debtors who request a "waiver" of the BAPCPA requirement of pre-filing credit briefing must both describe exigent circumstances and indicate that they tried to get the briefing but couldn't do so within five days of their request. Even when they meet both of these requirements, debtors do not receive a "waiver" of the credit briefing requirement, but must obtain a credit briefing within 30 days of the date of filing, with a possible 15-day extension for cause.