The debtors’ confirmed plan required them to make payments to the trustee for five years. The debtors named the Wisconsin Department of Children and Families as a creditor in the section of the model plan designed for listing domestic support obligations owed to governmental entities that are entitled to priority under 11 U.S.C. §507(a)(1)(B). After the plan was confirmed, two events occurred: (1) the debtors modified their plan to surrender collateral and reduce the plan’s payments to secured creditors and (2) the Seventh Circuit Court of Appeals determined that claims for benefit overpayments (like the one the Wisconsin Department of Children and Families asserted in the Terrells’ case) were not domestic support obligations entitled to priority under 11 U.S.C. §507(a)(1)(B). As a result of these events, the debtors moved to modify their chapter 13 plan under 11 U.S.C. §1329(a) to reduce the time within which they had to make payments to the trustee from five years to three, and the debtors objected to the priority of the Department’s claim. In In re Terrell, Case No. 18-28674-gmh, 2021 WL 4304839 (Bankr. E.D. Wis. Sept. 21, 2021), this court sustained the debtors’ objection and determined that the Department’s claim was not entitled to priority. The Department objected to the debtors’ motion to modify their confirmed plan to reduce the plan term from five years to three. The court overruled the Department’s objection, concluding that §1329(a) permits the requested modifications.
Meadows v. Ledesma (In re Ledesma), Ch. 7 Case No. 20-22941-kmp, Adv. No. 20-2129, 2021 WL 4514678, 2021 Bankr. LEXIS 2712 (Bankr. E.D. Wis. Oct. 1, 2021) (October 2021) -- Judge K.M. Perhach
The plaintiff filed a motion for summary judgment on his claims to deny the debtor’s discharge pursuant to 11 U.S.C. § 727(a)(3) based on the debtor’s failure to keep records about his financial condition and business transactions and pursuant to § 727(a)(4) based on knowing and fraudulent false oaths made by the debtor. The plaintiff established that the debtor failed to keep records from which his financial condition might be ascertained, and the debtor did not offer any compelling argument or evidence that this failure was justified. Most problematically, the Debtor failed to provide any record accounting for almost $35,000 that he received through services like Cash App and Venmo.
The plaintiff also established that the debtor “knowingly and fraudulently, in or in connection with the case made a false oath or account.” Although determinations about a person’s intent are often ill-suited for summary judgment, the plaintiff demonstrated a pattern of omissions and conflicting statements that led to the conclusion that the debtor acted with an intent to defraud. At the summary judgment stage, a “put up or shut up moment,” the debtor failed to file affidavits or exhibits to assert that facts were genuinely disputed as contemplated by Fed. R. Civ. P. 56(c)(1), instead relying on unsupported representations in counsel’s brief. The representations did not constitute evidence and could not defeat summary judgment.
Bach v. Office of Lawyer Regulation et al. (In re Bach), Ch. 7 Case No 20-23343-kmp, Adv. No. 21-2020, 2021 WL 4514680, 2021 Bankr. LEXIS 2714 (Bankr. E.D. Wis. Oct. 1, 2021) (October 2021) -- Judge K.M. Perhach
Defendants JPMorgan Chase Bank, N.A. and Federal National Mortgage Association filed a motion to dismiss the debtor-plaintiff’s claims against them based on lack of subject-matter jurisdiction under the Rooker-Feldman doctrine. Because the claims had already been considered and rejected in foreclosure cases in state court, the Court granted the motion and dismissed the claims. Even if the Court had subject-matter jurisdiction, issue preclusion or claim preclusion barred the debtor-plaintiff from relitigating some of the claims.
In re Hobbs, No. 20-27572-kmp (Bankr. E.D. Wis. Sept. 30, 2021) and Kasper v. Hobbs (In re Hobbs), Ch. 7 Case No. 20-27572-kmp, Adv. No. 21-2021 (Bankr. E.D. Wis. Sept. 30, 2021) (September 2021) -- Judge K.M. Perhach
A creditor filed a motion to disqualify one of the debtor’s attorneys from representing the debtor in the Chapter 7 bankruptcy case and in an adversary proceeding the creditor had filed. The creditor’s claim was the largest filed in the Chapter 7 case, followed by the attorney’s claim for legal fees he incurred representing the debtor in a state court case before the filing of the bankruptcy case. The creditor argued that the lawyer had a concurrent conflict of interest because there was a significant risk that his representation of the debtor would be materially limited by his personal interest in realizing as much of his claim as possible. Even if this were the case, the creditor failed to show that the conflict was not waivable under SCR 20:1.7(b), and the Court denied the motion. Essentially, the creditor took issue with the fact that the lawyer was the creditor’s competitor when it came to the funds available for distribution to creditors in the Chapter 7 case. However, disqualification of the attorney would not result in automatic disallowance of his claim.
Kasper v. Hobbs (In re Hobbs), Ch. 7 Case No. 20-27572-kmp, Adv. No. 21-2021 (Bankr. E.D. Wis. Sept. 30, 2021) (September 2021) -- Judge K.M. Perhach
The plaintiff sought a determination that the debtor-defendant owed a nondischargeable debt pursuant to 11 U.S.C. § 523(a)(2)(A) and/or § 523(a)(4). The parties were involved in litigation in state court before the debtor-defendant filed the bankruptcy case. The debtor-defendant removed the action to bankruptcy court and filed a motion to dismiss both the nondischargeability action and the removed action for failure to state a claim upon which relief could be granted. The motion to dismiss asserted that the plaintiff could not establish the existence of a “debt” that was nondischargeable because the state court action was time-barred, or subject to dismissal and a new action would be time-barred. The Court denied the motion, rejecting the debtor-defendant’s contention that service in the state court action was insufficient, relying in part on an earlier denial of a motion to dismiss by the state court. Questions of fact existed as to when the plaintiff’s fraud claim accrued and whether it was barred by the statute of limitations. Because the plaintiff also had a pending claim objection, the Court stated that the issues to be decided at trial were (1) whether there was a debt; (2) the amount of the debt; (3) whether the entire debt or a portion of the debt was nondischargeable based upon false representations, fraud, fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; and (4) the amount of the nondischargeable debt.
In re Michael Galesky, Case No. 20-25509 (September 2021) -- Chief Judge G.M. Halfenger
The trustee and a creditor objected to the debtor's claim of exemptions, primarily asserting that the debtor's exemptions under Wisconsin law should be denied pursuant to a state statute that affords a court the discretion to deny exemptions if the debtor has procured or transferred assets with the intention of defrauding creditors. After an evidentiary hearing, the court found no evidence of fraud or fraudulent intent and principally reasoned that the debtor engaged in permissible transactions to convert property from non-exemptible to exemptible forms before commencing his bankruptcy case, a practice broadly accepted in relevant state and federal caselaw as not fraudulent in itself. The court overruled the objections.
Weyauwega Star Dairy, Inc. v. Loehrke (In re Loehrke), Ch. 11 Case No. 20-24784-kmp, Adv. No. 20-2128, 2021 WL 4449020, 2021 Bankr. LEXIS 2650 (Bankr. E.D. Wis. Sept. 28, 2021) (September 2021) -- Judge K.M. Perhach
Weyauwega Star Dairy filed a complaint accusing the debtors of defrauding it by selling it milk that was 70% water. The dairy sought a determination that the amount it overpaid the debtors, considering the amount of actual milk it received, was nondischargeable under 11 U.S.C. § 523(a)(2)(A) and/or § 523(a)(6). The debtors filed counterclaims for fraud and breach of the duty of good faith and fair dealing and sought damages in the amount of the “expected gross income from milking” and the amount they believed they should have been paid for their last load of milk. After a trial, the Court determined that the debt owed to the dairy was nondischargeable under both § 523(a)(2)(A) and § 523(a)(6). Among other things, cheese made with the debtors’ milk failed to set, later samples of the debtors’ milk contained mostly water, the debtor had asked his brother to switch a milk sample, and the debtors delivered an unusually steady volume of milk to the dairy even though their herd consisted mostly of cows not suitable to be sold as dairy cows. The debtors did not seriously dispute the damage figure the dairy asserted, and the Court awarded the full amount requested. The Court dismissed the debtors’ counterclaims, finding that they failed to prove either counterclaim or establish damages.
In re Michael and Sandra Lampe, Case No. 19-30044 (September 2021) -- Chief Judge G.M. Halfenger
The trustee objected to the chapter 7 debtors' claim of real property in Wisconsin as an exempt homestead under that state's law because the debtors did not occupy the property at the relevant time as Wisconsin law requires. The court concluded that, despite Federal Rule of Bankruptcy Procedure 4003(c) assigning the burden of proof to the trustee, Wisconsin law governed that assignment under these circumstances and the debtors were required to prove that they did not impair their homestead exemptions because their removal from the property was temporary and with the intention to reoccupy the premises as a homestead. After an evidentiary hearing, the court sustained the trustee's objections, finding that the debtors failed to show that their removal from their claimed homestead was temporary or that they had a sufficiently certain intention to return and reside there.
In re Antonio and Angel Terrell, Case No. 18-28674 (September 2021) -- Chief Judge G.M. Halfenger
After the court confirmed the chapter 13 debtors' plan, the debtors objected to a claim of the Wisconsin Department of Children and Families, requesting a determination that the claim is not entitled to priority under 11 U.S.C. §507(a)(1)(B) based on new, post-confirmation precedent. The Department's response argued that the court should overrule the objection because the debtors' confirmed chapter 13 plan provided for the claim as a priority claim. The court sustained the objection, ruling that the applicable doctrines of law of the case and judicial estoppel did not preclude adjudicating the objection based on the post-confirmation precedent.
In re Delain, No. 21-20818-kmp (Bankr. E.D. Wis. Sept. 10, 2021) (September 2021) -- Judge K.M. Perhach
At the time of the dismissal of the debtor’s case filed under Subchapter V of Chapter 11, the Subchapter V trustee had not filed an application for approval of compensation and had not received any payment for services in the case. Following the dismissal, the trustee filed an application requesting approval of almost $25,000 for her extensive involvement with mediating disputes and supervising the parties. The Court approved the application, making the debtor “liable in the ordinary way (that is, outside of bankruptcy proceedings) to pay the debts that [he] had had as debtor in possession.” In re Sweports, Ltd., 777 F.3d 364, 366 (7th Cir. 2015). The approval of the trustee’s application involved the entry of an order the trustee could “take into state court as a basis for obtaining damages.” Id. at 367.