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Opinions


    In re Lang, Case No. 23-20782 (September 2024) -- Judge R.M. Blise
    After reopening his chapter 7 case, the debtor moved to amend his schedules to disclose and exempt proceeds from a personal injury claim. As a matter of law, the Court determined that a debtor could amend his schedules after a case is reopened only if the debtor demonstrates that the time should be enlarged under Bankruptcy Rule 9006(b), which requires a showing of excusable neglect. The Court considered the factors set forth in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 385 (1993) – (1) the danger of prejudice to the opposing party; (2) the length of the delay and its potential impact on the proceedings; (3) the reason for the delay, including whether the delay was within the reasonable control of the movant; and (4) whether the movant acted in good faith. The Court found that two factors (prejudice against non-moving party and debtor’s good faith) weighed in favor of excusable neglect, and two factors (length of delay and reason for delay) weighed against. The Court determined that the lack of prejudice should be given great weight under the circumstances of the case. The Court concluded that the debtor had demonstrated excusable neglect and could amend his schedules to disclose and exempt the claim.

    Huebner v Humphrey (In re Humphrey), Case No. 23-22884, Adv. No. 23-2112 (September 2024) -- Judge R.M. Blise
    The plaintiff sought a determination that the debtor-defendant owed a nondischargeable debt for alleged misrepresentations in connection with the sale of residential real estate. The plaintiff alleged the debtor misrepresented the condition of the house by failing to disclose defects related to water intrusion in the living room, basement, and kitchen. After trial, the Court concluded that the plaintiff had not sufficiently proven the required elements for nondischargeability under 11 U.S.C. § 523(a)(2)(A) for debt related to any misrepresentation related to water intrusion in the living room and basement. The Court also concluded that the debtor owed a debt to the buyer for a misrepresentation on the pre-sale Real Estate Condition Report (RECR) related to water problems in the kitchen ceiling and that the debt was nondischargeable under § 523(a)(2)(A).

    In re Thomas Orthodontics, SC, Case No. 23-25432 (September 2024) -- Judge R.M. Blise
    The only creditor in an impaired class did not return a ballot accepting or rejecting the debtors’ chapter 11 plan by the deadline, and the debtors requested that the Court deem the creditor to have accepted the plan by its silence. After the conclusion of an evidentiary hearing on plan confirmation, the debtors contacted the non-voting creditor and requested that it return a ballot. The creditor returned a ballot accepting the plan, and the debtors filed a motion to deem the creditor’s late ballot timely. The Court denied both motions. The Court held that the “excusable neglect” standard in Bankruptcy Rule 9006(b)(1) should be applied when a request to extend the deadline to submit a ballot is made after expiration of the original deadline. The Court found that the factors set forth in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 385 (1993) – (1) the danger of prejudice to the opposing party; (2) the length of the delay and its potential impact on the proceedings; (3) the reason for the delay, including whether the delay was within the reasonable control of the movant; and (4) whether the movant acted in good faith – weighed against a finding of excusable neglect. In addition, the Court followed the majority view and concluded that an impaired class cannot accept a chapter 11 plan by silence. Because an impaired class of claims did not accept the plan, the plan could be confirmed only under § 1191(b).

    Layng v. Jackson (In re Bolden) Adv No. 23-2067 (July 2024) -- Judge R.M. Blise
    The U.S. Trustee filed an adversary complaint against Jeanine Jackson seeking to enjoin her from acting as a bankruptcy petition preparer (BPP) in the Eastern District of Wisconsin pursuant to 11 U.S.C. § 110. The Court found that Jackson repeatedly violated § 110(b) and (c) by failing to sign all documents she prepared for filing and failing to place her name, address, and identification number on all documents she prepared for filing. The Court also found that Jackson repeatedly violated § 110(e)(2), which prohibits BPPs from providing legal advice, when she characterized the nature of debts, chose the amount and applicable law for exemptions, completed means test forms, drafted chapter 13 plans, advocated on her clients' behalf with trustees and creditors, and prepared motions, letters, and an adversary complaint for her clients, all in violation of § 110(e)(2). Jackson was admonished by Judge Kelley in 2018 regarding the scope of permissible services that a BPP may provide. Based on Jackson's disregard of Judge Kelley's instruction and her apparent inability to distinguish between the unauthorized provision of legal advice and the scrivener's services permitted by the statute, the Court determined that a permanent injunction was appropriate.

    In re Higgins, Case No. 23-22024 (December 2023) -- Judge R.M. Blise
    The Court held that Matrix Financial Services Corporation did not have a security interest in property of the bankruptcy estate, and the Court sustained Matrix’s objection to the debtor’s chapter 13 plan and granted its motion for relief from stay. The debtor’s plan proposed to cure and maintain the mortgage on his deceased father’s house. The debtor’s father had died intestate, and his estate was never administered in probate court. The debtor and several siblings were entitled to equal shares of their father’s estate. The court held that a chapter 13 plan can provide for a mortgage under 11 U.S.C. § 1322(b)(5) where the debtor is not personally liable on the debt and is not in contractual privity with the creditor, but only if the underlying collateral is property of the bankruptcy estate. The debtor argued that the debtor’s interest in his parents’ probate estate, which included the house, was sufficient to draw the house into the bankruptcy estate pursuant to the definitions in 11 U.S.C. §§ 101(5) and 102(2). The creditor argued that the debtor’s interest was not in the house itself, but in the probate estate.

    The Court turned to Wisconsin probate law to determine the extent of the debtor’s interest in the house. The Court acknowledged that before the 1971 enactment of the Wisconsin probate code, legal title to a decedent’s real property passed automatically to the heirs, but since the probate code’s enactment a decedent’s interest in all property, including real property, passes to the personal representative of the decedent’s estate. Relying on Shovers v. Shovers, 2006 WI App 108, 718 N.W.2d 130, the Court held that legal title to a decedent’s property remains suspended until the appointment of a personal representative. Therefore, before property is transferred by an appointed personal representative, the heirs have an interest in the probate estate and at most have an equitable interest in the property that is part of the probate estate. The debtor was adamant the house would ultimately pass to him following probate, but such an outcome was not guaranteed. The Court held that Matrix’s security interest did not attach to whatever equitable interest the debtor may have in the house, so the house itself, as opposed to the debtor’s equitable interest, was not part of the bankruptcy estate for purposes of Matrix’s objection to confirmation and motion for relief from stay.

    In re Solis-Ocon, Case No. 19-27917 (December 2023) -- Judge R.M. Blise
    The Court granted the trustee’s motion to vacate a chapter 13 debtor’s discharge pursuant to Fed. R. Civ. P. 60(b)(1). An error by an employee of the chapter 13 trustee caused an unsecured claim to be incorrectly characterized as secured. The debtor paid the trustee an amount that the trustee represented would be sufficient to pay all unsecured claims. Thereafter, the trustee filed a notice of completion of plan payments and the Court entered an order discharging the debtor. The trustee discovered the error less than a month after the discharge order and filed a motion to vacate the discharge pursuant to Fed. R. Civ. P. 60(a). The debtor objected to the motion and the Court held that the discharge order did not contain the type of clerical error or mistake contemplated by Rule 60(a). The trustee then raised 60(b)(1) as a basis for vacating the discharge order, arguing the order was based on a factual mistake. The Court relied on In re Bethe, No. 11-25388-GMH, 2017 WL 3994813 (Bankr. E.D. Wis. Sept. 8, 2017), in holding that a discharge order could be vacated under Rule 60(b)(1) if it resulted from a mistake and if the equities of the case warranted relief. The Court concluded the discharge order was based on a factual mistake because the debtor had not made “all payments under the plan” as required for discharge pursuant to 11 U.S.C. § 1328(a) and that the equities of the case favored granting the trustee’s motion.

    In re Reeves, No. 19-31949 (September 2023) -- Judge R.M. Blise
    The Court held that the damages arising from the chapter 13 debtors’ post-confirmation breach of a vehicle lease assumed under the plan did not qualify as an administrative expense. The debtors’ plan provided for the assumption of a vehicle lease with Ford. The debtors returned the vehicle to Ford at the end of the lease term, which ended while the debtors were still making payments under their confirmed chapter 13 plan. Ford asserted that there were remaining amounts due under the lease for monthly payment, excess mileage charges, and a disposition fee, and that by not paying those amounts the debtors were in breach of the lease. Ford filed a motion for allowance of administrative expenses for the damages resulting from the breach. The Court concluded that the debtors’ breach of the lease likely was not a rejection of the lease as that term is used in 11 U.S.C. § 365(g), but the Court determined that regardless of whether the breach was a rejection, the breach gave rise to a post-petition claim for damages. The Court held that the damages did not qualify as an administrative expense under 11 U.S.C. § 503(b). To qualify as an administrative expense under that section, an expense must both (1) arise from a transaction with the estate, and (2) benefit the estate in some demonstrable way. The Court held that the damages did not arise from a transaction with the estate. The Court disagreed with other courts that have held that the act of assumption in a chapter 13 plan obligates the bankruptcy estate, and instead concluded that the debtors, in assuming the lease pursuant to a plan only they could propose, were acting on behalf of themselves and not the estate. The Court reasoned that a chapter 13 debtor, unlike a chapter 11 debtor-in-possession, does not act on behalf of the estate and does not have the power to assume leases under 11 U.S.C. § 365.

    In re Burkes, Case No. 21-23813 and In re Hull, Case No. 22-20431 (September 2023) -- Judge R.M. Blise
    The United States Trustee (UST) moved to dismiss two chapter 13 cases pursuant to 11 U.S.C. § 1307(c) for cause on the grounds that the debtors filed their petitions in bad faith by intentionally omitting certain financial information from their schedules. In both cases, the debtor filed a chapter 13 plan, the trustee eventually recommended confirmation, and the Court issued an order confirming the plan that included a finding that the plan met all the requirements of 11 U.S.C. § 1325. The Court held that the confirmation orders necessarily included a finding under 11 U.S.C. § 1325(a)(7) that the debtors had filed their petitions in good faith, and that those findings were res judicata. Granting the UST’s motions to dismiss would require revisiting those findings, and the UST did not provide any basis for doing so. No provision in Federal Rule of Civil Procedure 60(b) warranted relief from the confirmation orders, and the orders could not be revoked for fraud under 11 U.S.C. § 1330 because the UST filed his motions after the 180-day deadline in that statute. The Court rejected the UST’s argument that because § 1307(c) does not include a time limit, a case can be dismissed regardless of whether the basis for dismissal contradicts an earlier order. The Court held that § 1307(c) was not intended to be used as a mechanism to evade the factual findings in prior orders, so the UST could not seek dismissal based on the debtors’ pre-confirmation conduct. The Court also declined to find cause to dismiss under § 1307(c) based on the debtors’ post-confirmation conduct in failing to comply with the Court’s Rule 2004 orders requiring them to produce documents and appear for examination by the UST. The Court held that if the sole purpose of the Rule 2004 examinations was to bring the motions to dismiss based on the debtors’ pre-confirmation conduct, then the Court would not penalize the debtors for failing to comply because such a ruling would allow the UST to evade the res judicata effect of the earlier confirmation orders. The motions to dismiss in both cases were denied without prejudice to the UST’s ability to bring further motions to dismiss based on the debtors’ post-confirmation conduct.

    In re Dixson, No. 22-22589 (June 2023) -- Judge R.M. Blise
    The Bankruptcy Court denied confirmation of a proposed chapter 13 plan pursuant to 11 U.S.C. § 1325(a)(1), concluding that the plan was not feasible. The debtor’s amended chapter 13 plan provided for equal monthly payments to a secured creditor and to the debtor’s attorney. The monthly payment amount proposed in the plan would be just enough to cover these equal monthly payments, along with the trustee’s fee. However, the plan also provided that the debtor’s monthly payments would be spread over 26 bi-weekly payments per year under an employer wage order. This meant that in some months the debtor (through her employer) would remit less than the monthly payments provided for in the plan and in some the debtor would remit more than the monthly payment amount. In the months that the trustee received less than the full payment amount, the trustee would have insufficient funds to disburse the equal monthly payments along with the trustee’s fee. The debtor argued that the trustee could simply reduce the payments to the secured creditor and the debtor’s attorney in the months that the trustee received two bi-weekly payments and then make “catch up” payments in the months that the trustee received three bi-weekly payments. The Court disagreed and held that a plan that the trustee cannot faithfully administer is not feasible. The Court acknowledged that sometimes chapter 13 debtors fall behind on their payments, and that those defaults require the trustee to make the sort of distributions that the debtor contemplated here, with smaller payments being made in some months and “catch up” payments made when the debtor cures the default. But those cases are different because the confirmed plan does not expressly contemplate that the trustee will not be able to distribute the payments called for in the plan, and it was only the debtor’s later default that caused a problem with administration. The Court declined to confirm a plan that contemplated an issue with distributions from the outset. Moreover, the secured creditor had previously objected to the plan on the basis that it should receive equal monthly payments 11 U.S.C. § 1325(a)(5)(b)(iii) and had withdrawn that objection when the debtor proposed a plan that would pay equal monthly payments. Because the debtor would not be remitting sufficient funds to make equal payments each month, the creditor would not receive the equal payments contemplated in the plan. The Court therefore denied confirmation of the plan proposed by the debtor.

    In re Seymore, Case No. 19-22084 (March 2023) -- Judge R.M. Blise
    The Court denied a chapter 13 debtor’s motion seeking the release of a secured creditor’s lien on real estate at discharge. The creditor’s claim was secured by real estate other than the debtor’s primary residence, and the debtor’s confirmed plan provided for “cram down” of the claim. Under the plan, the creditor was to be paid $12,500, and the creditor would be required to release its lien at discharge. The plan also provided that a proof of claim must be filed for any creditor to receive a distribution under the plan. Neither the creditor nor the debtor filed a proof of claim, so the creditor received no distribution from the chapter 13 trustee. After the debtor completed plan payments, she argued that the plan compelled release of the lien even though the creditor had received no payment. The Court disagreed. Relying on Seventh Circuit precedent, the Court concluded that secured creditors may ignore a bankruptcy proceeding and look to the lien for satisfaction of the debt. The Court noted that Fed. R. Bankr. P 3004 permits a debtor to file a proof of claim on behalf of a creditor and thereby force the creditor to participate in the chapter 13 plan. The Court declined to interpret the district’s model plan to require release of a lien without any compensation where the debtor had acknowledged that the lien had value at the outset of the case and had not taken action to ensure that the creditor received the value of its lien.