The debtors had filed an objection to the creditor's Rule 3002.1 notices of postpetition fees, expenses and charges. The debtors argued that the creditor had charged monthly property inspection fees for a number of months, and that those fees were not reasonable. The Court agreed. The Court noted that Rule 3002.1(e) allowed a debtor to file a motion, asking the court to determine whether certain fees, expenses or charge were reasonable. The Court stated that it understood that mortgage creditors conducted property inspections in situations in which the debtor had defaulted, and the creditor needed to make certain that the debtor had not walked away from the property. The Court stated that it made sense for a creditor to conduct an inspection, and charge the fee, in months in which a debtor had not made a payment. But in months in which the debtor had made the mortgage payment, the Court stated that the creditor should be able to deduce from that fact that the debtor remained in the property and was maintaining it. In the current case, the debtors had missed only two payments. While these two missed payments had resulted in the debtors carrying a running two-month arrearage for almost a year, the Court found it significant that the debtors had made regular, monthly payments for most of that year. The Court concluded that the inspection fees of $13.50 each were reasonable for the two months in which the debtors had missed payments, but were not reasonable for the months in which they had actively made payments in spite of being in arrears. The Court therefore deemed the two months' worth of inspection fees (totalling $27) reasonable and collectible (as well as the one broker's price opinion fee, which the parties agreed was not in dispute), and deemed the remaining inspection fees unreasonable and uncollectible.
The Chapter 7 trustee objected to the debtor's claimed exemption in three EdVest college savings accounts. The trustee argued (a) that the debtor had transferred money into the accounts in order to hinder, delay or defraud creditors, (b) that pursuant to the reasoning in Judge Utschig's 2011 decision in In re Bronk, a debtor could not use the Wisconsin exemptions to exempt that debtor's interest in college savings plans, and (c) that rather that exempting the "fair market value" of the accounts, the Court should require the debtor to list a dollar value for the exemption. The parties had submitted briefs on the second issue--the question of whether a debtor could use Wisconsin exemptions to exempt the debtor's interest in college savings accounts--and the Court issued an oral ruling on that issue on February 25, 2013. The Court respectfully disagreed with Judge Utschig's decision in In re Bronk, 444 B.R. 902 (Bankr. W.D. Wis. 2011) (affirmed by Judge Conley on appeal, currently on appeal to the Seventh Circuit). In Bronk, Judge Utschig held that one should read Wis. Stat. section 815.18(3)(p) in conjunction with Wis. Stat. section 16.641(7) and Wis. Stat. section 16.64(8), and that to do so mandated the conclusion that only the beneficiary's interest in a college savings plan could be exempted. The Court in the instant case found that the language of section 815.18(3)(p) clearly allowed a debtor to exempt the debtor's interest in a college savings plan. The Court also found that section 16.641(7) did not conflict with 815.18(3)(p)--rather that negate a debtor's ability to exempt his interest in such a plan, it merely supplemented 815.18(3)(p) by also protected a beneficiary's right to qualified withdrawals from garnishment, attachment, execution or other process of law. The Court further concluded that it was not appropriate to look to the language of section 16.64(8)--protection monies deposited in and a beneficiary's interest in tuition and expense programs when interpreting 815.18(3)(p), because 815.18(3)(p) did not incorporate that statute by reference, and the two types of plans--college savings plans and tuition and expense programs--were different in purpose and structure. Accordingly, the Court overruled the trustee's objection to the debtor's claim of exemption to the extent that that objection was based on the In re Bronk reasoning, and held that a debtor could exempt his own interest in EdVest accounts. The Court scheduled a further hearing date on the other grounds stated in the trustee's objection.
"Chapter 13 debtor had made a series of payments to her uncle during the year prior to filing her bankruptcy petition. The trustee objected to confirmation of the debtor's plan, arguing that it failed the liquidation analysis because if the case were a Chapter 7, the trustee would be able to recover those payments as preferences and distribute them to creditors. At the evidentiary hearing, the debtor conceded that she'd made the payments during the preference period, but argued that they were subject to the ordinary-course-of-business defense under section 547(c)(2). She argued that she had taken three loans from her uncle over a ten-year period, and had repaid each with interest by having regular payments deducted from each of her paychecks. She argued that it was her ordinary course of business to borrow money from her uncle and to pay it back in this way. The trustee argued that a personal loan could not fall under the ordinary-course defense. The debtor responded that in cases such as In re Jackson, 90 B.R. 793 (Bankr. D.S.C. 1988); In re Gawronski, 411 B.R. 139 (Bankr. W.D.N.Y. 2009); and In re Eckman, 447 B.R. 546 (Bankr. N.D. Ohio 2010), courts had left open the possibility that repayment of a personal, family loan could be subject to the ordinary-course defense, although it would be very difficult for the debtor or the creditor to prove the defense. The Court found that, in this case, while the debtor may have presented evidence that it was in her ordinary course of financial affairs to borrow money from her uncle and repay it through wage deductions, she had not presented any evidence that it was in her uncle's ordinary course to make such loans, and that section 547(c)(2) required the debt to be incurred in the ordinary course of the financial affairs of both the debtor and the transferee. The Court nonetheless acknowledged that the cases the debtor had cited indicated that there could exist a set of facts which would make the ordinary course defense applicable to repayments of a personal, family loan."
Order denying payment of unclaimed funds
Order imposing $5,000 sanction on Attorney Emory H. Booker, III for violating the Bankruptcy Code and Rules through his provision of unbundled bankruptcy services.
In debtors' adversary proceeding to avoid the transfer of their real properties to the City of Milwaukee via tax lien foreclosure, the Court held that the City's "strict foreclosure" process under Wis. Stat. section 75.521, which did not involve any kind of sale, was not sufficient to establish the "reasonably equivalent value" element of a section 548 fraudulent conveyance action.
Court denied creditor's motion to compel the standing Chapter 13 trustee to pay the amounts listed in the creditor's supplemental notice to the proof of claim, which had been filed pursuant to the requirements of Fed. R. Bankr. P. 3002.1. The Court held that the Form B10S notice of post-petition fees, costs and expenses did not constitute a "supplemental" or "amended" proof of claim, and was simply a notice designed to make debtors aware that creditors claimed post-petition fees were owed.
Bankrupcty court found no justification for imposing an equitable lien in favor of the creditor on the debtors' rental property, when the reason that the creditor did not have a lien on that property was because it had erroneously applied the loan proceeds to a different property. The district court adopted the findings and conclusions in their entirety.
The Court denied the plaintiff credit card company's motion for default judgment. The Court held that, even taking together the complaint, the brief in support of the motion for default judgment, and the affidavit in support of the motion, the plaintiff had not alleged sufficient facts to demonstrate that it was entitled to the presumption of nondischargeability, nor had it alleged sufficient facts to prove a prima facie case of actual fraud.
Court Minutes and Order from hearing held on 11/28/11 -- Both parties presented oral arguments. The plaintiff first argued that the rent assignment was a separate document, and a separate agreement, from the loan agreement, and should be treated as such. If one viewed the rent assignment separate and apart from the loan agreement, the plaintiff argued, one then would have to consider what that assignment agreement accomplished. The plaintiff argued that it had enforced the assignment prior to the defendant filing bankruptcy, and that the assignment transferred all of the defendant’s rights to receive the rents to the plaintiff. Because the defendant transferred all of its rights prior to the petition date, the plaintiff argued, the rents never became property of the estate. The plaintiff argued that if the Court were to construe the rent assignment merely as security for the loan, as the defendant had urged it to do, the Court would render the rent assignment superfluous.
The defendant argued that the assignment agreement clearly indicated that it was intended simply to provide additional security for the loan. The assignment document left some of the defendant’s “bundle” of property rights with the defendant, including ownership of the real property that generated the rents, as well as the ability to resume collecting the rents once the secured debt had been paid in full. For this reason, the defendant argued–because the assignment did not constitute an “absolute assignment” of all of the defendant’s rights to the plaintiff–the rents constituted property of the estate under §541(a)(1). The defendant further argued that the rents constituted property of the estate under § 541(a)(6), because they constituted the proceeds of property of the estate. The defendant pointed to recent cases from other districts supporting that conclusion.
The Court first indicated that it did not agree with the plaintiff that it needed to determine whether the assignment document constituted a separate document from the loan agreement. The Court stated that it found the critical issue to be whether the assignment was an “absolute assignment” of all of the defendant’s rights to the plaintiff. To determine that, the Court indicated, it looked at the language of the assignment agreement itself, as had the court in In re Guardian Realty Group, LLC, 205 B.R. 1 (Bankr. D.D.C. 1997). The Court found that, upon reviewing all the relevant language of the assignment document, it was clear that the assignment was intended to provide additional security for the loan, and that the right to collect the rents was to revert back to the defendant upon payment of the secured debt. The agreement also provided that title remained with the defendant, so that the defendant retained part of the “bundle” of property rights in the property.
Given this conclusion, the Court found that the assignment did not constitute an “absolute assignment.” Accordingly, the Court held the rents did constitute property of the estate under §541(a)(1). The Court further held, however, that even if somehow one could construe the assignment language as creating an absolute assignment, it agreed with those cases which held that the rents were proceeds of estate property under §541(a)(6). The Court found persuasive the reasoning in In re Las Torres Development, LLC, 408 B.R. 876 (Bankr. S.C. Texas 2009) and In re Bryant Manor, 422 B.R. 278 (Bankr. D. Kan. 2010). The Court acknowledged that there were decisions finding otherwise, but indicated that because Wisconsin is a lien theory state, and because it found that the property which produced the rents was property of the estate, it found the Las Torres/Bryant Manor line of cases more persuasive.
For all of these reasons (stated in more detail on the record), the Court concluded that the rents constituted property of the estate under both §541(a)(1) and § 541(a)(6). Accordingly, the Court denied the plaintiff’s motion for summary judgment, and awarded summary judgment in favor of the defendant as to the assignment of rents issue.
The Court noted that in its counterclaim, the defendant also had requested an award of sanctions against the plaintiff for a willful violation of the automatic stay. The Court declined to sanction the plaintiff. The Court explained that the Code required a sanctionable violation of the stay to be willful and deliberate. The Court acknowledged that the plaintiff deliberately held on to the rents, but the Court also noted that the plaintiff did so relying on a legal position that the plaintiff believed was fully supported by case law. Although there was case law that disagreed with the plaintiff’s position, the Court concluded that this was not a situation where a party deliberately chose to act in contravention of well-settled case law. Therefore, the Court denied the defendant’s request to impose sanctions for violation of the stay.
Counsel for the defendant asked the Court to reconsider its denial of sanctions. He argued that the plaintiff’s willful act did not need to be malicious in order to be a willful and deliberate violation of the stay. He stressed that the defendant had had to fight for the rents, and reminded the Court of its comment at the emergency hearing in the underlying case that when in doubt, a creditor ought seek relief from the stay rather than assuming that it was not acting in violation of the stay. Counsel acknowledged, however, that he had not briefed the issue. He indicated that if the Court was not willing to vacate its ruling today, he would file a motion to reconsider. The Court opined that it would be more appropriate for the defendant to file a motion to reconsider, which would allow both sides to fully brief their positions.
Accordingly, the Court hereby DENIES Anchor Bank’s motion for summary judgment. The Court GRANTS summary judgment in favor of the defendant, and DISMISSES the plaintiff’s complaint. The Court DENIES the defendant’s request, raised in its counterclaim, to impose sanctions against the plaintiff for a willful violation of the automatic stay. The Court ORDERS the clerk’s office to enter judgment accordingly.