OpinionsThe U.S. Trustee filed a complaint to deny the discharges of a married debtor couple, based on their conduct in creating several trusts and entities into which they transferred their home, personal property and income, while continuing to live in the home and retaining control over the alleged trust property. The U.S. Trustee asserted causes of action under 11 U.S.C. sections 727(a)(2) (concealment of assets), (a)(3) (failure to maintain adequate books and records), (a)(4)(A) (false oaths), and (a)(5) (failure to explain a loss or diminution of assets), and sought summary judgment on all four causes of action. The Court granted summary judgment on two of those causes of action, denying the debtors’ discharges under sections 727(a)(2) and (a)(4)(A). In re Jones, Case No. 19-31539-beh, 2019 WL 7342455 (December 2019) -- Judge B.E. Hanan The Chapter 13 debtor originally filed his bankruptcy petition without identifying a spouse, but eleven days later, he filed an “amended petition” to include a joint debtor spouse. Though Federal Rule of Bankruptcy Procedure 1009(a) allows a debtor to amend his or her petition “as a matter of course at any time before the case is closed,” the Rule does not trump the plain text prescriptions for filing joint cases under 11 U.S.C. section 302(a). Accordingly, the Court struck the amended petition and related documentation including the spouse. In re Kielman, Case No. 19-21900-beh, 2019 WL 6880082 (December 2019) -- Judge B.E. Hanan The Chapter 13 debtor inadvertently failed to provide notice of her bankruptcy case to a creditor, the lender on her non-filing husband’s vehicle. As a result, the creditor filed its proof of claim after the bar date and the Court disallowed the claim as untimely. Later, upon default of post-petition payments, the creditor moved for relief from the automatic stay and co-debtor stay. In resolving the motion, the creditor and the debtor stipulated to allow the post-petition arrearage to be paid through the plan pursuant to a claim under 11 U.S.C. § 1305. The Court determined that post-petition default on a pre-petition car loan did not constitute consumer debt arising after the date of the order for relief, as required to constitute a claim under § 1305. The Court also declined to reconsider the prior disallowance of the creditor’s proof of claim, noting that the debtor’s invocation of 11 U.S.C. § 521(j) at a hearing was not procedurally proper, nor was it likely to succeed on the merits. Alternatively, the Court noted that an option not yet pursued by the parties was for the debtor to seek an extension of the deadline to file a claim under Rule 3004, which may be enlarged under Rule 9006(b)(1). In re Zoromski, 19-20752-beh, 2019 WL 6869628 (December 2019) -- Judge B.E. Hanan After the Chapter 7 debtors received their discharges, and before the assets of the estate were fully administered, the debtors moved to convert their case to a Chapter 13. The Court ordered the debtors to file a supporting brief establishing their right to convert in the circumstances. The debtors then moved to vacate the discharge order under Civil Rule 60(b). The debtors asserted, among other things, that their attorney’s failure to stipulate to an extension of the deadline to object to their discharge for a third time—and thus to prevent the entry of the discharge order—amounted to excusable neglect. The debtors wished to save their non-exempt vacant land, which was appraised post-petition at a value much higher than they anticipated, by paying unsecured creditors in full through a Chapter 13 plan. After weighing the equitable factors identified in Pioneer Inv. Servs. v. Brunswick Assocs., Ltd. P’ship, 507 U.S. 380, 395 (1993), the Court concluded that excusable neglect existed and granted the motion. Braun v. U.S. Dep’t of Educ. (In re Braun), Case No. 18-23655-beh, Adv. No. 18-02184-beh, 2019 WL 6463254 (November 2019) -- Judge B.E. Hanan Chapter 7 debtors filed an adversary proceeding seeking to discharge $9,558.66 in student loan debt under 11 U.S.C. § 523(a)(8) because excepting such debt from a discharge would impose an undue hardship on them. Debtor Robert Braun had co-signed the loans for the benefit of the debtors’ son. The U.S. Department of Education (“DOE”) moved for summary judgment, arguing that the debtors could not meet the second prong of the undue hardship test set out in Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987), as adopted by In re Roberson, 999 F.2d 1132 (7th Cir. 1993), and somewhat softened by Krieger v. Educational Credit Mgmt. Corp., 713 F.3d 882 (7th Cir. 2013). Applying the second Brunner prong, the Court considered whether additional circumstances exist to indicate that the debtors’ inability to pay while maintaining a minimum standard of living is likely to persist for a significant portion of the repayment period. Shortly after filing their bankruptcy case, the debtors signed three reaffirmation agreements to maintain loans on two vehicles. By the time they filed this adversary proceeding, they had satisfied one of the car loans. Moreover, debtors anticipated fully repaying the second loan within seven months, and repaying the third within fourteen months. This progress will, at the fourteen-month point, allow the debtors to enjoy a net monthly income of more than five times the monthly amount due on the student loans. These impending improved circumstances allowed the Court to confirm that the debtors can repay the loan during the repayment period while maintaining at least a minimum standard of living. Based on the debtors’ failure to meet their burden to establish that the obligation to pay the son’s student loans would impose an undue hardship under 11 U.S.C. § 523(a)(8), the Court granted the DOE’s motion for summary judgment. In re Bruce, Case No. 18-21283-beh, 2019 WL 5887173 (September 2019) -- Judge B.E. Hanan The Chapter 13 debtor filed a motion seeking sanctions for violations of the automatic stay, and for contempt against a county child support agency based on the agency’s continued collection of both pre-petition arrears and current child support payments from the debtor via payroll deductions, even after the debtor’s plan was confirmed. The debtor later dropped his request for stay-violation sanctions, after conceding that the agency’s post-petition collection activity was excepted from the stay per 11 U.S.C. § 362(b)(2)(C) and proceeded with a motion for contempt sanctions and attorney fees. The agency argued that a finding of contempt was not warranted because it was not notified that the debtor’s plan had been confirmed until four months after the order, and it stopped collecting child support arrearages as soon as it was given notice. The Court determined that the agency’s continued garnishment of the debtor’s wages after plan confirmation and before it received actual notice of the confirmation order did not constitute contempt, warrant sanctions, or warrant granting attorney fees. The Court found that the agency, as a priority creditor, did not have a duty to monitor the debtor’s bankruptcy case for potential plan confirmation. Furthermore, the agency did not act in knowing or reckless disregard of the confirmation order because it had no actual knowledge of its existence during the time period in dispute. Additionally, the Court found that the debtor could not be awarded attorney fees because he failed to state an adequate basis for damages. In re Pugh, Case No. 19-20696-beh, 2019 WL 4180281 (September 2019) -- Judge B.E. Hanan In his Chapter 13 plan, the debtor proposed to modify the mortgage on his residence directly with the lender within six months, and amend the plan if not successful. The mortgage lender objected, pointing out that the debtor did not sign the corresponding note or mortgage; instead, the debtor’s deceased brother was the original borrower, and the debtor obtained title to the property via a quitclaim deed from his mother, who received the property through testation after his brother’s death. The mortgage lender argued that it should not be required to negotiate with a non-borrower, and further asserted that the transfer of the property to the debtor via quitclaim deed triggered the due-on-sale clause of the mortgage. In response, the debtor asserted that the lender should treat him as a borrower because he is a “successor in interest” under RESPA regulations, and that the lender was estopped from challenging mediation attempts because it had agreed to mediation in the debtor’s two prior bankruptcy cases. The court rejected the debtors’ arguments. Because the debtor did not receive the property directly as an heir of the borrower he was not a “successor in interest” under the regulations he cited, nor did a related federal law (the Garn-St. Germain Act) render the due-on-sale clause unenforceable. In re Pansier, Case No. 18-22297-beh, 2019 WL 3561593 (August 2019) -- Judge B.E. Hanan The pro se debtors sought the bankruptcy judge’s disqualification under 28 U.S.C. § 455(a)—which requires a judge to disqualify herself in any proceeding in which her impartiality might reasonably be questioned—based solely on the Court’s adverse legal rulings and excerpts of statements the Court made at related hearings. After carefully considering each of the twelve alleged bases for recusal identified in the motion, the Court denied the debtors’ request, concluding that a thoughtful and well-informed observer would not view the judge as displaying a deep-seated favoritism or antagonism that would make fair judgment impossible. The Court also observed that granting the debtors’ motion in the circumstances would set a dangerous precedent and create a system where unhappy litigants could demand recusal by any judge who issues one or more adverse rulings or otherwise disagrees with a litigant’s legal theories. Cuene v. Peterson (In re Peterson), Case No. 18-29081-beh, Adv. No. 18-2259-beh, 604 B.R. 751 aff'd sub nom. Peterson v. Cuene, 623 B.R. 758 (E.D. Wis. 2021) (July 2019) -- Judge B.E. Hanan A judgment creditor sought a determination that its debt was nondischargeable under 11 U.S.C. § 523(a)(2)(B) and (a)(6), as well as a denial of the debtor’s discharge under 11 U.S.C. § 727(a)(4)(A), based on the debtor’s failure to disclose his interests in real property titled to trusts that a state court judge ruled were the debtor’s alter-egos. The creditor moved for summary judgment on his claims under §§ 523(a)(2)(B) and 727(a)(4)(A), asserting that final judgments in two prior state court proceedings should be given preclusive effect in determining whether relief should be granted as a matter of law. The Court granted summary judgment on the creditor’s claim under § 727(a)(4)(A). Recognizing that summary judgment on a fraud-based claim is rare, the Court nevertheless concluded that it was warranted in the circumstances. The debtor’s only defense to the claim was his willful refusal to recognize the state court’s “alter-ego” ruling as valid, claiming that the state court judgment was illegitimate and void because the state court lacked jurisdiction to rule on “common law, pure contract trusts.” No trial was necessary to reject the debtor’s defense as baseless. As to the creditor’s claim under § 523(a)(2)(B), the Court alternately held that the creditor had established all elements of the claim, except for “reasonable reliance,” as a matter of law. The Court first considered whether to apply issue preclusion to a state court default judgment against the debtor for intentional misrepresentation, and found that application would not be “fundamentally unfair” in the circumstances, given the debtor’s extensive participation in the underlying proceeding and his apparent tactical decision not to present evidence at a hearing on damages. But because a claim for intentional misrepresentation under Wisconsin common law requires only justifiable, rather than reasonable, reliance, the state court judgment could not preclusively establish the reliance element of the claim. In re Bohland, Case No. 19-21399-beh, 2019 WL 2511735 (June 2019) -- Judge B.E. Hanan The pro se debtor was the sole member of an LLC which had as its only asset a bed and breakfast property. After the creditor obtained a default judgment against the LLC and the creditor attempted to recover her judgment against the LLC via an order for execution, the LLC transferred the property to the debtor, and the debtor filed a Chapter 7 bankruptcy petition. Shortly before the Chapter 7 trustee abandoned the property, the creditor filed a motion for relief from stay under 11 US.C. § 362(d)(1), arguing that the property was fraudulently conveyed in an attempt to avoid creditors and the petition was filed in bad faith solely to prevent collection efforts. The debtor denied any fraud and included a motion to avoid lien, asserting that the state court judgment in the creditor’s favor impaired her ability to seek the full $75,000 exemption under Wis. Stat. § 815.20. The creditor argued the property was not the debtor’s homestead at the time the judgment lien was recorded, so the request to avoid the lien should be denied. The Court determined there was cause to grant the creditor relief from the stay, because doing so would not harm the debtor or creditors and would not interfere with the case. The Chapter 7 trustee already abandoned the property, such that it would not be liquidated for the benefit of unsecured creditors, the debtor's discharge would occur imminently, and this was a “no asset” case. As to the debtor’s argument that the judgment lien should be avoided because it impairs her homestead exemption, the Court held the debtor could not claim any portion of her interest in the property as exempt, because she was not the title owner of the property at the time the judgment was docketed. |