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. **Reversed on appeal**
In re Robert and Carol Edmonds (November 2010) -- Judge J.E. Shapiro
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) (November 2009) -- Judge J.E. Shapiro
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) (October 2009) -- Judge J.E. Shapiro
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.
Neary, UST v. Debtors (In re John and Jennifer McCarthy) (August 2009) -- Judge J.E. Shapiro
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.
Stanfield v. First Midwest Bank (In re Daniel and Sharon Stanfield) (June 2009) -- Judge J.E. Shapiro
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.
Debtor v. Creative Loans, LLC, Et Al (In re Eradean Walker) (April 2009) -- Judge J.E. Shapiro
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. Debtor (In re Ricky Leech) (January 2009) -- Judge J.E. Shapiro
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) (September 2008) -- Judge J.E. Shapiro
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.
In re Suzanne Reinstein (July 2008) -- Judge J.E. Shapiro
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.