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Opinions


    In re Patrick and Hope Souter, Case No. 19-21582 (September 2019) -- Chief Judge G.M. Halfenger
    The court ordered the debtors to show cause why their chapter 13 case should not be dismissed or converted based on their failure to file all applicable tax returns as required by 11 U.S.C. §1308, a requirement for plan confirmation specified in 11 U.S.C. §1325(a)(9). The debtors argued that some of §1325(a)'s requirements may be mandatory—including §1325(a)(1)'s requirement that the plan must comply with all applicable provisions of the Code, United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 277 (2010)—but others are discretionary, such as §1325(a)(9)'s requirement that the debtor must comply with §1308, and the court may confirm the plan even if such a requirement is not satisfied, if no one objects. The court held that the best construction of §1325(a), given Supreme Court and Seventh Circuit authority, is that all of its requirements are mandatory. The court denied confirmation and dismissed the case.


    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 Karl Boddy, Jr. and Theresa Boddy, Case No. 19-23004 (August 2019) -- Chief Judge G.M. Halfenger
    The chapter 13 debtors' amended plan provides for an allowed claim secured by a mortgage on their principal residence, stating that the debtors will seek a modification of the mortgage through the court’s mortgage modification mediation program; if mediation is successful, the debtors will pay the claim "outside of the plan"; if mediation is unsuccessful, the debtors "will file a feasible plan to address the mortgage claim." The mortgage creditor consented to mediation but objected to plan confirmation, asserting that the plan does not conform to 11 U.S.C. §1325(a)(5). The court denied confirmation.


    In re Foley, Case No. 18-29998 (August 2019) -- Judge B.H. Ludwig
    The debtors' proposed chapter 13 plans contained lien-retention language in the non-standard provisions which deviated from the lien-retention requirements in 11 U.S.C. §1325(a)(5)(B). The court found the language in the non-standard provisions was not a barrier to confirmation because the affected secured creditors had accepted the plans, concluding that a properly served secured creditor that declines to object to confirmation has accepted the proposed plan for purposes of §1325(a)(5)(A). Nevertheless, because the issue was not ripe, the court declined to interpret the non-standard provisions.


    In re Velicia Buchanan, Case No. 16-30201 (August 2019) -- Chief Judge G.M. Halfenger
    A mortgage creditor filed an affidavit of default and debtor’s counsel filed an “objection” that explained that counsel had not been able to contact the debtor but that counsel believed that there may have been extenuating circumstances for the debtor’s failure to make mortgage payments. The court overruled the debtor’s objection as baseless and granted the mortgage creditor relief from the automatic stay. The debtor filed a letter requesting that the court “rescind” the order granting the creditor relief from the automatic stay. The court refused to act on the debtor’s request to rescind the order, noting that the request was not properly made because it was made by letter, rather than by motion on notice as required by Federal Rules of Bankruptcy Procedure 9013 and 9014. The court also noted that the letter did not state with particularity the grounds for the relief the debtor sought, nor did it state the authority on which it was based, as required by Federal Rule of Bankruptcy Procedure 9013 and Local Rule 9013, respectively.


    In re Victoria Toliver, Case No. 17-20724 (August 2019) -- Chief Judge G.M. Halfenger
    The confirmed chapter 13 plan provides for payment with interest by the trustee of Consumer Portfolio Services Inc.'s claim secured by the debtor's vehicle. The debtor filed a request to modify the plan to surrender the vehicle and discontinue payments on CPS's secured claim. CPS objected to the proposed modification asserting that 11 U.S.C. §1329(a) does not permit such a modification and that the modification was not proposed in good faith, as required by 11 U.S.C. §§1329(b) & 1325(a)(3). The court concluded that the debtor's proposed modification is to "reduce the amount of payments on claims of a particular class provided for by the plan", as allowed by §1329(a)(1), and that the good-faith inquiry requires an evidentiary hearing.


    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.


    In re Velma Lowe, Case No. 19-20287 (August 2019) -- Chief Judge G.M. Halfenger
    The debtor moved to enlarge the time to file a tax return required by 11 U.S.C. §1308(a) after the time to file the return expired, asserting that the debtor's failure to file the return was the result of "excusable neglect" and that an enlargement is, therefore, permitted by Federal Rule of Bankruptcy Procedure 9006(b). The court denied the motion because Rule 9006(b) only applies "when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court". Fed. R. Bankr. P. 9006(b)(1) (emphasis added). Rule 9006(b) does not apply where, as here, the debtor was required to act within a period specified by a statute, such as §1308.


    In re Robert and Lois Long, Case No. 19-20186 (July 2019) -- Chief Judge G.M. Halfenger
    The trustee objected to confirmation of the chapter 13 debtors’ plan under 11 U.S.C. §1325(a)(9), which imposes a plan-confirmation requirement that the debtor file all tax returns “as required by” §1308. Section 1308(a) requires the debtor to file with appropriate tax authorities all tax returns for all taxable periods that ended during the four-year period preceding the filing of the petition by no later than the day before the date on which the meeting of creditors is first scheduled to be held “if the debtor was required to file a tax return under applicable nonbankruptcy law”. The court overruled the trustee’s objection, which was based on the debtors’ failure to file federal income-tax returns for the 2018 taxable year, holding that, because the meeting of creditors was first scheduled to be held before April 15, 2019, and applicable nonbankruptcy law did not require the debtors to file federal income-tax returns for 2018 until April 15, 2019, §1308(a) does not apply to those returns.


    Cuene v. Peterson (In re Peterson), Case No. 18-29081-beh, Adv. No. 18-2259-beh, 2019 WL 3000796 (appeal filed) (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.