Steven Custer Smith and Sandra Joanne Smith; Case No. 05-21483-7 (Somers) (October 18, 2006)
MEMORANDUM AND ORDER DISMISSING DEBTORS’ MOTION TO DETERMINE TAX LIABILITY PURSUANT TO 11 U.S.C. §505(a)(1)
• 11 U.S.C. §505(a)(1)
Facts:
The court took under advisement the objection to Debtors’ Motion to Determine Tax Liability pursuant to 11 U.S.C. §505(a)(1).
The Debtors filed for relief under Chapter 7 on April 8, 2005. The Debtors received post-petition tax refunds of $23,001.98 from the United States, $11,830.00 from the Kansas Department of Revenue, and $609.00 from the Missouri Department of Revenue. Trustee made a demand for turnover of the refunds in the amount of $35,843.74.
Debtors filed the Motion pursuant to 11 U.S.C. §505(a)(1) asking the court to determine the amount or legality of taxes before turnover. Debtors in essence seek a declaratory judgment that they have no unpaid tax liabilities for the years in issue.
The IRS argues that in order for a Bankruptcy Court to have jurisdiction over tax liability pursuant to §505, “the matter must be ripe for adjudication; a case or controversy must presently exist as to tax liability.” The IRS argues in this case there is no case or controversy with respect to the refunds issued by the IRS to the Debtors or with respect to liability for taxes for the tax years 2002 through 2005. Debtor assert that the plain language of §505 supports jurisdiction. In Debtors’ view, because in this case the estate has assets to be distributed, the determination of Debtors’ tax liabilities is a ripe issue.
Holding:
Bankruptcy courts are constrained by the Constitution just as district courts are, it follows that bankruptcy courts may not render advisory opinions but decide only cases and controversies. The court found there was no case or controversy as to the state or federal taxes. The court ruled it lacks jurisdiction to determine the Debtors motion to determine tax liability pursuant to 11 U.SC. §505(a)(1).
Panhandle Federal Credit Union v. George Austin Black (In re George
Austin Black); Adv. Case No. 05-5853; Case No. 05-17089 (Somers) (October 18, 2006)
MEMORANDUM AND ORDER DENYING COMPLAINT TO DENY DISCHARGE PURSUANT TO 11 U.S.C. §523(a)(2)(A)
• 11 U.S.C. §523(a)(2)(A)
Facts:
Panhandle Federal Credit Union (“Plaintiff”) has an undisputed claim against Debtor for the sum of $3,800.00, together with interest and cOSTS for payment of a prepetition state court judgment arising from Debtor’s endorsement and deposit of a counterfeit official bank check. Plaintiff contends that its claim is nondischargeable pursuant to 11 U.S.C. §523(a)(2)(A).
Debtor is a high school graduate who is not knowledgeable about financial transactions, and is not sure of the meaning of bouncing a check. Debtor became involved in an internet scam that involved receiving a check and then sending part of the check to Nigeria and keeping some for himself. After completing the transaction, Debtor was advised by a friend that the transaction did not sound legitimate and then Debtor contacted counsel.
By letter dated December 1, 2004, the Credit Union informed Debtor that the check had been dishonored and made demand upon the Debtor for payment. Credit Union filed an unsecured proof of claim and complaint to determine dischargeability.
Holding:
The Court denied the Complaint to Deny Discharge pursuant to §523(a)(2)(A). The Supreme Court in Field v. Mans, 516 U.S. 59, 70-72 (1995), construed the terms in §523(a)(2)(A) to incorporate the general common law of torts as stated in the Restatement (Second) of Torts (1976). According to the Restatement (Second) of Torts §526 (1976), a misrepresentation is fraudulent if the maker has knowledge of the untrue character of his representation. Establishing an exception to discharge based upon misrepresentation is often stated to require the following elements: 1. the debtor made a representation; 2. at the time of the representation, the debtor knew it to be false; 3. the debtor made the representation with the intention and purpose of deceiving the creditor; 4. the creditor justifiably relied on the representation; and 5. the creditor sustained the alleged loss and damage as a proximate result of the representation having been made.
The Bankruptcy Court must consider whether the totality of the circumstances presents a picture of deceptive conduct by the debtor which indicates intent to deceive the creditor. In this case there was no evidence that Debtor made the implied representation that the official check was properly payable knowing it was false, and there is no evidence that the debtor made the implied representation that the official check was properly payable knowing it was false.
For the foregoing reasons, the Court denied the Complaint to Deny Discharge pursuant to 11 U.S.C. §523(a)(2)(A) filed by Panhandle Federal Credit Union.
Barbara D.W. Heck, Case No. 03-21569-13 (Somers) (October 24, 2006)
OPINION DETERMINING: (1) ENGAGEMENT RING IS NOT PROPERTY OF THE ESTATE, (2)
DEBTOR DOES NOT HAVE SUFFICIENT REGULAR INCOME TO BE ELIGIBLE FOR CHAPTER
13 OR TO PROPOSE A FEASIBLE PLAN, AND (3) THE CASE MUST BE RE-CONVERTED TO
CHAPTER 7
• 11 U.S.C. §523(a)(6)
• 11 U.S.C. §541
Facts:
Debtor owed a corporation through which she ran an interior design store.
The Bank provided financing for the corporation, secured by its inventory and
the Debtor’s personal guarantee. When the corporation ran into trouble, the
Debtor used the proceeds of the inventory to pay suppliers, rather than the
Bank. During the spring of 2003, the debtor sold off all the inventory and
closed the corporation’s store.
By 2003, the debtor was engaged to Terry Sutcliffe who had given her an expensive
diamond engagement ring (value approx. $90,000.00). They planned to get married
on July 4 of that year. Debtor wore the engagement ring to the meeting of the
creditors, and the Chapter 7 trustee and the Bank’s attorney both ask her about
it. Soon after that the debtor broke off the engagement to Sutcliffe, as she
did not want Sutcliffe to get caught up in her bankruptcy.
The Bank filed a dischargeability complaint, seeking to have the debtor’s debt excepted from discharge. A trial was held, and the Court entered a judgment in March 2005 declaring the debt was covered by §523 (a)(6) and was therefore nondischargeable.
In April 2005, shortly after the Court declared the debt to the Bank to be nondischargeable, the Debtor converted her case to Chapter 13. The Court denied confirmation of the Plan and the Bank filed a motion to convert the case back to Chapter 7.
Late in May 2006, Sutcliffe’s attorney entered an appearance in the case and filed a motion for determination whether the engagement ring is property of Debtor’s estate.
Holdings:
1. Engagement ring is not property of the Bankruptcy Estate. The Bankruptcy Code generally provides that when a debtor files for bankruptcy, the debtor’s legal and equitable interests in property become property of the estate. But nonbankruptcy law, usually state law, defines the debtors’ rights in the property. The issue before the Court therefore requires determining the debtor’s interest in the engagement ring under Kansas law on the date of filing. The parties agree Heiman v. Parrish declares that the ring was a conditional gift under Kansas law. Because the estate’s interest in the ring as of the day the Debtor filed for bankruptcy was limited by the condition that that either the Debtor or Sutcliffe could cause full ownership of the ring to revert to Sutcliffe by calling off the marriage, the Court concludes the estates interest was worth nothing on that day.
2. Debtor lacks regular income and her plan is not feasible and cannot be confirmed. The circumstances make clear that the Debtor could not make plan payments without Sutcliffe’s contribution of housing, food, and utilities, and perhaps half of the plan payments themselves. A leading commentator on Chapter 13, Bankruptcy Judge Keith M. Lundin, reports in his treatise that courts have generally been somewhat willing to consider gratuitous contributions from the non-bankruptcy filing spouse of a debtor to be “regular income” for purposes of Chapter 13 eligibility, more reluctant when the contributions are from other family members or relatives, and willing to accept them from someone like a boyfriend only when he makes a formal promise to help fund the plan and testifies about his ability to do so. The Court concludes the Debtor does not have “sufficiently stable and regular” income to be able to fund the plan and is therefore not eligible to be a Chapter 13 debtor. The Court concludes the case should be re-converted to Chapter 7.
James Dale Schoonover and Ruth Ann Schoonover, Case No. 05-43662-7 (Karlin) (October 30, 2006)
MEMORANDUM OPINION AND ORDER GRANTING TRUSTEE’S MOTION FOR TURNOVER
• 11 U.S.C. §542
Facts:
Trustee seeks to compel turnover of funds in the amount of the balances in Debtors bank accounts on the date they filed their bankruptcy petition.
Debtors’ account balances listed on Schedule B and the actual amount in Debtors accounts on the date of filing were different. This difference was attributed to checks written by Debtors pre-petition, but which were honored by the respective banks post-petition.
The Trustee seeks an order requiring Debtors to return to the bankruptcy estate the amounts in their bank accounts on the date of the filing, not the amounts shown in their check register, for a total of $2,797.79.
Holding:
The only real decision for the Court is to determine who should be responsible for replenishing the estate of that property, if anyone.
The Trustee must show that Debtors had “possession, custody, or control” of the bank accounts on the date they filed their petition.
Debtors were ordered to turn over the funds. If Debtors do not have such funds, Trustee will be required to take normal collection efforts to collect judgment.
American Furniture v. Ladonna A. Bell (In re Ladonna A. Bell), Adv. Case No.
06-5068; Case No. 05-19091 (Nugent) (October 30, 2006)
ORDER GRANTING SUMAMRY JUDGMENT
• 11 U.S.C. §523(a)(2)(A)
• K.S.A. §60-2610(h)
Facts:
Plaintiff moves for summary judgment on its complaint to except defendant’s debt from discharge under 11 U.S.C. §523(a)(2)(A). Plaintiff alleges that debtor – defendant Ladonna Bell wrote a check on a closed account for some furniture in 1994. When the check was returned, plaintiff attempted to collect the check by sending Bell a notice to pay as prescribed by Kansas law. When Bell did not respond, plaintiff sued her and obtained a default judgment in the District Court of Sedgwick County, Kansas. The state court also included in its journal entry, a finding that the debt would be excepted from discharge in a subsequent bankruptcy case under §523(a)(2). Section 523(a)(2)(A) excepts from a debtors’ discharge debts for money obtained by false pretenses, a false representation or actual fraud (other than a false financial statement).
Holding:
Giving a worthless check is such a false representation covered by §523(a)(2). Given the state court’s findings concerning the debtor’s act in giving the check and the creditor’s reliance thereon, the debt evidenced by the journal entry is excepted from discharge under §523(a)(2)(A) as one incurred by misrepresentation or actual fraud. Plaintiff’s motion for summary judgment is GRANTED.
J. Michael Morris, Trustee v. Snap on Credit, L.L.C., f/k/a Snap-On
Credit Corporation; Adv. Case No. 05-5090; Case No. 04-16838 (Nugent) (November
1, 2006)
MEMORANDUM OPINION
• Kan. Admin. Reg. §7-17-22
• K.S.A. §84-9-506(b)
Facts:
On March 12, 2002 debtor applied to Snap-On for business credit. He signed the application as Richard M. Stewart. On March 13, 2003, debtor purchased tools on credit and signed a Retail Installment Contract containing a security agreement to secure payment of $2,578.68. Debtor signed the contract as Rick Stewart. On March 24, 2003, Snap-On filed a financing statement with the Kansas Secretary of State naming the debtor as “Richard Stewart”. Debtor listed his name as “Stewart IV, Richard Morgan” on the bankruptcy petition in the last name format indicated by the bankruptcy petition form. When the Trustee conducted an official search of the Kansas Secretary of State’s office for Snap-On’s financing statement using Stewart’s correct name “Stewart IV, Richard Morgan,” the official search did not yield the financing statement on file.
Holding:
The sole test of whether a financing statement is “seriously misleading” is whether a searcher using the individual debtor’s “correct legal name” presumably the same indicated on a birth certificate or a name otherwise maintained in the public records (e.g., social security card, driver’s license), could locate the financing statement in question. The revised UCC, as implemented by the Kansas regulations, disdains the human judgment factor. Since the standardized search logic parameters control, only a financing statement containing Stewart’s full legal name would be yielded by a search under the name, set out on his petition. Judgment should therefore be entered in favor of the Trustee and against Snap-On.
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