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 Schmitt, Case No. 18-21755-beh, 595 B.R. 564 (December 2018) -- Judge B.E. Hanan
The trustee objected to the debtor’s exemption of a preferential prepetition payment made to satisfy a bench warrant, arguing that the payment was voluntary and therefore could not be exempted, citing 11 U.S.C. § 522(g). The debtor, on the other hand, claimed that the payment involved a heavy dose of coercion, so § 522(g) did not prohibit the exemption. The Court first noted that the preferential payment itself had not yet been recovered, meaning it was not property of the estate and the debtor’s exemption appeared premature. Nevertheless, because the relevant case law lacked clarity and consistency concerning the effectiveness of such an “early” exemption, the court considered the narrow question presented—whether the payment was “voluntary” within the meaning of § 522(g)—to provide guidance to the parties in pursuing recovery of the payment (a process the trustee already had begun). After analyzing other cases in which bankruptcy courts considered similarly coercive conduct as resulting in involuntary transfers, the Court concluded that the transfer at issue was not voluntary, but was the result of an operation of law. Section 522(g) therefore would not preclude the debtor from exempting the payment if it were recovered and became property of the estate under § 541(a)(3), so the Court overruled the trustee’s objection.
Doss v. Norhardt Crossing Condo. Ass’n (In re Doss), Case No. 17-21492-beh, Adv. No. 18-2091-beh, 2018 WL 6604270 (December 2018) -- Judge B.E. Hanan
A creditor moved for sanctions against the debtor-plaintiff’s attorney, asserting that counsel did not conduct a reasonable pre-filing inquiry before filing a complaint seeking to avoid the creditor’s lien, in violation of Rule 9011(b)(2). Because the motion for sanctions was filed just a few hours short of providing the full 21-day safe harbor period of Rule 9011(c)(1)(A), the Court first addressed, sua sponte, the creditor’s technical violation of the rule. The Court concluded that the debtor-plaintiff’s attorney had waived the benefits of the safe-harbor protection in the circumstances, and therefore the creditor’s lack of compliance did not prevent the Court from reaching the merits of the motion. As to the merits, the Court found that the attorney’s pre-filing legal investigation was objectively unreasonable under the circumstances, and therefore violated Rule 9011(b)(2), but declined to award the creditor the full amount of attorney’s fees and costs requested. Instead, the Court concluded that one quarter of the creditor’s reasonable attorney’s fees and costs was an appropriate sanction in the circumstances, after considering equitable factors including the attorney’s prior conduct and practice.
In re Rodriguez, Case No. 18-20215-beh (November 2018) -- Judge B.E. Hanan
The debtor objected to a creditor’s partially secured claim, arguing that the claim should be disallowed in its entirety because it lacked evidence of (1) the transfer from the original claim-holder to the current claimant, and (2) the creditor’s security interest (which, in substance, was actually an assertion that the claim lacked evidence of perfection). The court rejected the debtor’s arguments, noting that Rule 3001 does not require proof of a prepetition transfer of a claim and, even if it did, lack of such evidence is not a basis for disallowance under 11 U.S.C. § 502(b). The debtor did not dispute that she owed the debt, but rather listed both the claimant and the debt (as uncontested and unsecured) on her schedules. In addition, the debtor’s challenge to the secured portion of the claim was really an implied argument that the security interest was not perfected and therefore avoidable under the trustee’s strong-arm powers of § 544(a). This allegation was supported by an affidavit from the debtor’s attorney, not from the debtor or someone with personal knowledge of the relevant facts as required by Local Rule 3007(b), and was insufficient to establish a basis for disallowance.
Robert 100, LLC v. Draper (In re Draper), Case No. 17-26352-beh, Adv. No. 17-2296-beh, 2018 WL 6252865 (November 2018) -- Judge B.E. Hanan
The plaintiff, a commercial property lessor, brought an adversary proceeding alleging that it relied upon a false financial statement signed by the defendant/debtor when it agreed to lease restaurant premises to the debtor’s and his son’s limited liability company, and therefore the $40,817 debt stemming from the breached lease was nondischargeable under 11 U.S.C. § 523(a)(2)(B). Both parties agreed that the financial statement at issue was false, but the debtor denied that he signed either the financial statement or the lease, testifying that his son, who bears the same name, signed both without his knowledge. After trial, the Court determined that: (i) the debtor did not make a statement in writing, because the signature on the financial statement was not his and he did not present the statement to the plaintiff; (ii) the statement at issue was a statement respecting the debtor's or an insider's financial condition; (iii) the plaintiff actually and reasonably relied on the financial statement; and (iv) the plaintiff failed to establish that the debtor caused the written statement to be made or published with intent to deceive, because he did not make the statement and did not intend to deceive. The Court found in favor of the defendant.
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 Kolchinsky, Case No. 17-30872-beh, 2018 WL 5779861 (November 2018) -- Judge B.E. Hanan
In response to the Chapter 13 debtor’s Schedule I disclosure that she is unemployed and her only source of income is a $2,000 monthly contribution from her elderly mother, the Court issued an order requiring the debtor to show cause why her case should not be dismissed for ineligibility under 11 U.S.C. § 109(e), which limits debt relief to “individual[s] with regular income.” The Bankruptcy Code does not define “income” but does define an “individual with regular income” as one “whose income is sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13.” Courts have recognized that whether nontraditional sources of income, such as family contributions, create chapter 13 eligibility depends on a matter’s particular facts and circumstances. Although purely gratuitous contributions generally do not qualify as regular income, other considerations may result in a different outcome. Here, the Court found that because the debtor and her mother have shared a household for the preceding eight years and appear to provide mutual support (the debtor’s mother is a widow and the debtor is a disabled, divorced mother with sons living at home), the debtor’s mother has a substantial interest in the debtor's successful completion of her plan, and the contribution is thus consistent and stable enough to qualify the debtor as an “individual with regular income” under § 109(e).