The debtor filed a motion to reconsider the court's denial of her post-conformation motion to modify a chapter 13 plan that would change payments on unsecured claims from 100% to 0%. She contended that she lacked a valuable interest in joint tenancy property, and, therefore, her proposed modification did not fail the best-interests-of-creditors test. Although the property deed lists her as a cotenant, she argued that her interest lacks liquidation value because she holds only “bare legal title” or, alternatively, that her interest in the property is impaired by an equitable lien.
The court denied the debtor's motion for reconsideration and held that (1) as against a trustee representing the interests of creditors, the deed's designation of ownership determines the allocation of real property rights and cannot be disregarded based on the debtor's limited use of the property or lack of contribution to maintaining it; and (2) under Wisconsin law, the debtor could not employ the equitable lien doctrine to shield property from creditors.
Neitzel v. J.P. Morgan Chase Bank, N.A. (In re Neitzel), Case No. 15-2057 (July 22, 2015) (July 2015) -- Judge G.M. Halfenger
The debtor commenced an adversary proceeding against J.P. Morgan Chase Bank, N.A., (“Chase”) requesting a declaration that Chase's claim secured by a junior lien on the debtor's principal residence is only allowable as an unsecured claim because the residence's value was less than the amount the debtor owes a senior lienholder. The parties entered into a stipulation to resolve the adversary proceeding and requested that the court approve the stipulation. The stipulation provided, in part, that once the court approved the stipulation Chase would be permitted to file an unsecured claim for its current outstanding loan balance, despite the fact that the claims bar deadline had expired and Chase had not filed a claim. Chase argued that it could file its unsecured claim after the claims bar deadline because Federal Rule of Bankruptcy Procedure 3002(c)(3) provided an exception to the general rule that proofs of claims in chapter 13 cases must be filed within 90 days after the first date set for the meeting of creditors. The court denied the parties' request to approve the stipulation and held that Chase did not qualify for the exception set out in Fed. R. Bankr. P. 3002(c)(3). The court reasoned that Rule 3002(c)(3) only applies where a judgment both (i) gives rise to an unsecured claim or makes the claim allowable, and (ii) provides for the recovery of money or property or avoids an interest in property. The proposed judgment in the adversary proceeding would not avoid Chase's lien; thus it would not satisfy criterion (ii). And the order confirming the plan, which, depending on the plan terms, might eliminate Chase's lien, would not satisfy criterion (i).
Clay v. City of Milwaukee, Case No. 14-2315 June 19, 2015 — Judge Halfenger (June 2015) -- 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) -- 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) -- 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) -- 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) -- 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) -- 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) -- 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) -- 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 (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.