Soon after the debtor commenced this chapter 7 case, James Raders moved under 11 U.S.C. §362(d) for relief from the stay imposed by 11 U.S.C. §362(a) to allow him to continue litigating against the debtor in the U.S. District Court for the Middle District of Florida or, in the alternative, for an order confirming that the §362(a) stay does not prevent him from deposing the debtor in connection with that litigation solely in his capacity as a member or manager of two limited liability companies that are defendants in the same action. The court denied Raders’s motion for relief from stay for lack of cause under §362(d). Although Raders would benefit from litigating in Florida, his preferred venue, the debtor faces similar claims to those asserted by Raders in other courts and the purpose of the §362(a) stay is to protect debtors from having to litigate claims by a multitude of creditors in several different forums. In addition, Raders has suggested that he intends to pursue a non-dischargeability claim under 11 U.S.C. §523(a)(2) against the debtor. Section 523(c) requires Raders to litigate his nondischargeability claim in the bankruptcy court; thus, Raders will have to litigate in this court to get full relief against the debtor in all events. Finally, the court denied Raders’s motion for an order confirming that the §362(a) does not prevent him from deposing the debtor in connection with the litigation pending in Florida as too amorphous to adjudicate. The court also explained that, although the §362(a) does not generally bar actions against non-debtors, courts recognize an exception to this rule where a judgment against a non-debtor would effectively be a judgment against the debtor given the degree of identity between them. The court observed that Raders’s amended complaint in the Florida litigation attributes to the debtor the conduct of which he complains. His complaint further alleges that one of the non-debtor companies is administratively dissolved and the other is the debtor’s alter ego. As a result, Raders’ acts to continue the litigation against these companies might be an “act to collect, assess, or recover a claim against the debtor” or to “exercise control over property of the estate” in violation of §362(a)(3) or (6). The bankruptcy court left these matter for the District Court in Florida to consider in the first instance.
Schouten v. Jakubiak, Adv. Proc. No. 16-2141 (March 2019) -- Chief Judge G.M. Halfenger
The plaintiff filed an adversary complaint against the debtor-defendant, asserting that the defendant's debt was excepted from discharge by several paragraphs of section 523(a). After summary judgment one claim remained: that section 523(a)(3) excepts the debt from discharge because the debtor-defendant did not list or schedule the plaintiff as a creditor in time to permit him to file a proof of claim or commence an adversary proceeding under section 523(c). After trial the court determined that the debt was dischargeable. The parties agreed that the debtor-defendant did not schedule the debt or list it, and the plaintiff did not have notice of the case, in time to file a proof of claim or file a section 523(c) adversary proceeding. The court noted that, while section 523(a)(3), by its terms, appeared to except the debt from discharge regardless of whether the debt was of a kind specified in section 523(a)(2), (4), or (6), precedent in the Seventh Circuit required the court to determine whether an equitable exception to section 523(a)(3) applied. After reviewing the facts of the case, the court concluded that the debtor-defendant met the requirements for the equitable exception and determined that the debt was dischargeable under section 523(a)(3)(A). With respect to section 523(a)(3)(B), the court concluded that the plaintiff did not meet his burden to prove that the debt was a debt covered by section 523(a)(2) or (6) and, accordingly, the court determined that the debt was dischargeable under section 523(a)(3)(B).
In re Hampton, Case No. 16-29012 (February 2019) -- Chief Judge G.M. Halfenger
The chapter 13 trustee moved to dismiss the case due to the debtor's failure to make plan payments and to pay one-half of her net income-tax refunds for 2016 and 2017. The parties agreed to resolve the trustee's motion on terms, including that the debtor would resume making plan payments and either pay one-half of the 2016 and 2017 refunds or modify the plan to provide for such payment. The court denied the trustee's motion on those terms. The debtor then filed a request to modify the plan, and the trustee objected, asserting that the modification did not comply with the court's order denying the motion to dismiss and that it was not proposed in good faith as required by 11 U.S.C. §§1325(a) & 1329(b). The court concluded that the modification satisfied the two applicable requirements of the order denying the trustee's motion to dismiss: (1) it provided for payment of one-half of the 2016 and 2017 tax refunds and (2) the plan as modified was feasible. The court also rejected the trustee's argument that the modification was not proposed in good faith, as that objection was based on terms that the trustee reportedly relied upon in settling the motion to dismiss but did not include in the parties' settlement agreement: namely, that the debtor could not modify the plan to require her to pay less than thirty-six months' worth of payments under the original plan terms (plus one-half of the net tax refunds received during the plan term, if any) or forgive plan payments already missed. Accordingly, the court overruled the trustee's objection.
In re Kristopher and Jody Hill, Case No. 18-30063 (February 2019) -- Chief Judge G.M. Halfenger
The debtors proposed a chapter 13 plan that proposed to value a secured claim. The debtors placed the plan language regarding the valuation of the secured claim in Section 8.1 of the model plan—the "nonstandard" provisions section—rather than in section 3.2—the section that includes a "request for valuation of security". The court denied confirmation of the debtors' chapter 13 plan because it did not conform with the model chapter 13 plan and because the record did not demonstrate that the debtors had served the plan on the secured creditor, as required by Federal Rule of Bankruptcy Procedure 3012(b).
In re Valent, Case No. 17-21634 (January 2019) -- Chief Judge G.M. Halfenger
The mortgage creditor filed an affidavit of default, asserting that the debtor failed to make monthly mortgage payments as required by the court's April 13, 2018 order. The debtor filed a response and asserted that she made the required mortgage payments. The court set an evidentiary hearing to determine whether the debtor defaulted under the terms of the April 13, 2018 order. The order setting the evidentiary hearing further stated that if the court determined that the creditor's affidavit was accurate, the court would consider whether the debtor had made a false representation to the court and whether sanctions should be issued. Conversely, the order stated that if the court determined that the creditor's affidavit was not accurate, then the court would consider whether the creditor had made false representations to the court and whether sanctions should be issued against it. Several days before the evidentiary hearing the mortgage creditor and debtor filed a letter informing the court that they had reached a verbal agreement to settle the matter and asked the court to cancel the evidentiary hearing. The court denied the request because the parties could not agree to resolve the issue of whether a false representation had been made to the court by one of the parties. The court emphasized that the court's practice of resolving motions with so-called "doomsday" orders "depends mightily on parties making accurate representations about compliance" with those orders. Accordingly, the court denied the parties' request to cancel the evidentiary hearing.
In re Gary and Jody Huenerberg , Case No. 17-28645 (January 2019) -- Chief Judge G.M. Halfenger
The Internal Revenue Service objected to confirmation of the debtors' amended chapter 13 plan asserting that its appeal of the court's earlier order disallowing a portion of its claim as a priority unsecured claim divested the court of jurisdiction necessary to confirm the plan. The court held that appeal of such an order does not generally divest the bankruptcy court of the jurisdiction needed to confirm a chapter 13 plan but that, in this instance, the principle underlying the divestiture doctrine cautions against confirming the amended plan, which contains language that is inconsistent with the court's order adjudicating the extent to which the IRS's claim is entitled to priority treatment and that directly concerns an open issue on appeal: whether the portion of the IRS's claim attributable to an outstanding shared responsibility payment imposed under 26 U.S.C. §5000A (enacted as part of the Affordable Care Act) is for a tax or a penalty for purposes of priority under 11 U.S.C. §507(a)(8). The court concluded that the problematic language in the amended plan is unnecessary and can therefore be removed through further amendment, thereby resolving the divestiture issue, to the extent one exists.
In re Michael J. Flynn, Case No. 18-24800 (December 2018) -- Chief Judge G.M. Halfenger
After the debtor did not pay the first installment of the filing fee as ordered, the court dismissed the case. Months later, the debtor paid the balance of the filing fee and moved to vacate the dismissal order. The court denied the motion for three reasons. First, the motion stated no legal basis for relief, as required by Local Rule 9013(b). Second, although the motion might be construed as a motion for relief from a final order under Federal Rule of Bankruptcy Procedure 9024 and, by reference, Federal Rule of Civil Procedure 60, its statements do not state plausible grounds for relief under those rules. Third, given that the meeting of creditors was scheduled to occur months earlier, the creditors received notice of the dismissal, and 11 U.S.C. §349(a) allows a debtor to file a new case and seek a discharge of his past debts, the equitable circumstances did not support vacating the dismissal order.
In re Patricia Reed, Case No. 18-26531 (November 2018) -- Chief Judge G.M. Halfenger
The court ordered the debtor to file an amended chapter 13 plan by a stated deadline. The debtor failed to do so. After the deadline expired, debtor's counsel instead used the ECF withdrawal event and added text suggesting that the debtor was withdrawing her most recent pre-confirmation plan amendment because counsel determined that the "original plan was correct". In ordering the debtor to show cause why the court should not deny her the opportunity to file an amended plan and dismiss the case under 11 U.S.C. sec. 1307(c)(5), the court explained that a debtor cannot withdraw a pre-confirmation amendment—what 11 U.S.C. sec. 1323 refers to as a "modification"—because section 1323(b) provides that, once a pre-confirmation modification is filed, "the plan as modified becomes the plan." 11 U.S.C. sec. 1323(b). In order to change the terms of a pre-confirmation modification that has already been filed, the chapter 13 debtor must further amend the plan. The court also observed that the debtor's attempted pre-confirmation withdrawal of the plan amendment did not comply with Local Rule 3015(c)(1), because the debtor did not use the court's local form for pre-confirmation amendments.
In re William Wester and Diana Miletich-Wester, Case No. 17-32315 (November 2018) -- Chief Judge G.M. Halfenger
The City of Kenosha City Treasurer filed a proof of claim two days after the expiration of the deadline for governmental units to file proofs of claim. In response to the trustee's objection, the City argued that it mistakenly calculated the proof of claim deadline as being six months— rather than 180 days—from the petition date, as stated in Federal Rule of Bankruptcy Procedure 3002(c)(1). The City asked the court to allow its claim because the minimal delay was unintentional and not prejudicial to the debtors. Rule 9006(b) does not allow the court to enlarge the time under Rule 3002(c) for filing a proof of claim except as permitted by Rule 3002(c). There was no basis for (further) enlarging the time under Rule 3002(c), and, accordingly, the court sustained the trustee's objection and disallowed the claim in its entirety.
In re Grunewald, Case No. 14-27529 (October 2018) -- Chief Judge G.M. Halfenger
The court closed the debtors' case in August 2015 after granting them a chapter 7 discharge. In September 2018, the former chapter 7 trustee allegedly received a report that the joint debtor expects to receive a payment in settlement of a personal injury claim. Based on that report, the United States trustee moved to reopen the case contending that, because the debtors had not scheduled the personal injury claim, unadministered assets may be available for distribution. The motion's allegations, even if presumed true, do not demonstrate that the joint debtor's personal-injury claim accrued before the debtors filed their bankruptcy petition, and thus do not demonstrate that the claim is property of the bankruptcy estate. As a result, the court reopened the case for the limited purpose of determining whether the personal-injury claim, and thus the proceeds from the settlement of that claim, are property of the bankruptcy estate.