OpinionsThe chapter 13 debtors proposed a chapter 13 plan that did not pay unsecured creditors in full but did propose to pay student loan creditors principal and interest. The chapter 13 trustee objected, arguing that the plan (A) paid more to the student loan creditors and constituted unfair discrimination in violation of section 1322(b)(1), and (B) violated section 1322(b)(10) because it paid interest to the student loan creditors but was not otherwise paying all allowed claims in full. The court concluded that the plan violated section 1322(b)(10) because it paid interest on unsecured student loan debts that are not dischargeable under section 1328(a) but did not otherwise pay all claims in full. Clay v. City of Milwaukee, Case No. 14-2315 June 19, 2015 — Judge Halfenger (June 2015) -- Chief Judge G.M. Halfenger The debtor filed an adversary complaint against the City of Milwaukee to avoid under 11 U.S.C. §§522 and 548 the City of Milwaukee's tax foreclosure of her residence. The debtor moved for summary judgment. The City opposed the motion solely on the ground that the debtor had received reasonably equivalent value for her residence, even though the parties agreed that the property's value was not reasonably equivalent to the delinquent tax debt satisfied by the foreclosure. The City argued that the foreclosure's elimination of a mortgage that secured a $25,000 note was also value to the debtor. The court granted the debtor's motion for summary judgment. It held that the elimination of the mortgage did not improve the debtor's financial position because the debtor remained liable on the note. Therefore, the debtor did not receive value reasonably equivalent to the value of the foreclosed residence. In re Maurice Karl Buchanan, Case No. 14-27937 (May 2015) -- Chief Judge G.M. Halfenger The debtor proposed a chapter 13 plan to modify the City of Milwaukee's claim for back taxes on his principal residence by paying the City the value of the residence, which was less than the tax bill. The City of Milwaukee objected and argued that the debtor was not entitled to “cram down” its claim. The court concluded that section 1322(b)(2) did not apply to the City of Milwaukee's tax claim because the tax claim is not secured by a consensual lien; rather, it is secured by a tax lien that arises by operation of law. Because of this, the court concluded that section 1322(b)(2) ‘s “anti-modification” clause does not apply to the City of Milwaukee's tax claim. State of Wisconsin v. Cooper-Hoskins, Case No. 14-2351 (March 2015) -- Chief Judge G.M. Halfenger The State of Wisconsin, Department of Workforce Development (the "DWD") filed a complaint against the debtor's non-filing spouse and requested a declaration that the non-filing spouse owed it a non-dischargeable debt under 11 U.S.C. section 523(a)(2). It did so in an effort to avoid section 524(a)(3)'s bar on collection of most community debts from the debtor's community property. The court concluded that the complaint did not state a claim against the non-filing spouse for which relief could be granted. The court granted the DWD leave to amend the complaint to add the debtor as a defendant. In re Tucker (14-31262) (November 2014) -- Chief Judge G.M. Halfenger Decision discussing good faith in the context of a section 362(c)(3) motion. In re Brown (13-35593) (September 2014) -- Chief Judge G.M. Halfenger The trustee objected to confirmation of the debtors' proposed chapter 13 plan asserting that it failed to provide for all of debtors' disposable income. The trustee argued that the debtors must pay into the plan (i) any increase in the cash surrender value of their whole life insurance policy, and (ii) an additional $25 per month representing a reduction of the debtors' claimed recreation expense of $125 per month. The court held that the cash surrender value was not “income.” And the trustee (i) did not contest current monthly income or reasonableness of the debtors' expenditures (other than recreation), and (ii) failed to establish a basis for a Lanning adjustment. The court concluded that the reasonableness of the recreation expense could not be determined as a matter of law, but the debtors have no disposable income even if the recreation expense is excluded in its entirety. Consequently, the court ruled that the debtors' plan did not offend 11 U.S.C. §1325(b)(1)(B)'s requirement that they devote all projected disposable income during the plan term to pay unsecured creditors. In re Carr (13-34450) (August 2014) -- Chief Judge G.M. Halfenger The trustee objected to confirmation of the debtors' proposed chapter 13 plan asserting that it failed to provide for all of the debtors' disposable income. Debtors, who were repaying a 401k loan at the time their petition was filed, sought to commence making 401k contributions once their loan was fully repaid. The court held that because they were not making contributions during the look-back period, such contributions could not be factored into current monthly income. In theory, future contributions might justify a Lanning adjustment, but only if the expected contribution is both “reasonably necessary” for the debtors' maintenance and support and “known and virtually certain to occur”. The court concluded that the record did not support a Lanning adjustment. Confirmation was denied. In re Ward, et al (13-31965) (June 2014) -- Chief Judge G.M. Halfenger This decision grants debtor's counsel's motion for a stay pending appeal. Near the end of the objection period on the chapter 13 trustee's motion to dismiss debtor's case before plan confirmation, the debtor's counsel filed, on 14-day notice, an application for fees to be paid out of estate funds held by the trustee. The court dismissed the case before the fee application was ripe for decision. The court then denied the fee application under 11 U.S.C. §§349(b)(3), which provides that “[u]nless the court for cause orders otherwise, dismissal . . . revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case”, and 1326(b), which directs the trustee to return payments to the debtor after deducing “any unpaid claim allowed under section 503(b).” Counsel moved for reconsideration, which the court denied because counsel failed to show the ruling to be contrary to controlling authority or resulting in manifest injustice. Counsel appealed and asked the bankruptcy court to direct the trustee to continue holding the debtor's funds until the appeal is resolved. The court granted that motion, ruling that although the chance of success on appeal is minimal, the underlying issue, if preserved for consideration on appeal, lacks a clear answer, and the balance of harms favors awarding the requested relief. In re Smith (14-20281) (June 2014) -- Chief Judge G.M. Halfenger Section 1322(c)(2) allows a chapter 13 plan to provide for payment of a claim "as modified pursuant to section 1325(a)(5)" "notwithstanding [1322](b)(2)" when the claim is secured only by a debtor's principal residence and the last originally scheduled payment is due before the final payment under the plan is due. Overruling creditor's objection to plan confirmation, the court held that section 1322(c)(2) allowed the plan to pay the claim at an appropriate Till interest rate, rather than requiring the plan to pay the claim at the interest rate due under nonbankruptcy law. Monroe v. Seaway Bank & Trust Company, et al (13-2747) (April 2014) -- Chief Judge G.M. Halfenger Chapter 13 debtors filed an adversary action against an entity holding a junior lien on their principal residence. The debtors are ineligible for a discharge because they received a discharge in a case filed three years before filing their chapter 13 case. The parties stipulated that the defendant's lien is "underwater"—that is, the value of the debtors' residence is less than the amount the debtors owe to the holder of the senior lien on the property—and there is no dispute that the debtors' personal liability to the defendant was discharged in their earlier chapter 7 case. The debtors' adversary complaint seeks a judgment that either (i) voids the defendant's lien under section 506(d) or (ii) declares that the defendant's claim is an "unsecured claim" for purposes of sections 506(a) and 1322(b)(2) so that the debtors may eliminate the lien through their chapter 13 plan. The defendant argued that its claim is not void under section 506(d) because the claim is a valid secured claim under state law and the debtors' chapter 13 plan cannot eliminate its lien because the debtors are ineligible for a discharge under section 1328(f). Held: (1) section 506(d) does not allow a debtor to void a valid state-law lien based solely on the fact that there's no value in the property to which the lien can attach; and (2) the defendant's lien can be eliminated permanently by the full performance of a confirmed chapter 13 plan that so provides because the defendant's claim is an "unsecured claim" for purposes of sections 506(a), 1322(b)(2), and 1325(a)(5). |