In re William Leroy McDonald and Bonnie Kay McDonald; Case No. 02-42850-7 (Karlin) (October 5, 2006)
MEMORANDUM OPINION AND ORDER GRANTING TRUSTEE’S MOTION FOR TURNOVER
Facts:
The Prairie Band of Potawatomi Indians of Kansas Tribe (the “Tribe”) owns a casino on its reservation. A portion of the revenue received from the operation of this casino is divided quarterly among the enrolled members of the tribe on a per capita basis. Debtor, Bonnie McDonald, was an enrolled member of the tribe and received per capita distributions. The Trustee seeks an order requiring Debtors to turn over to the Chapter 7 Trustee for administration post-conversion per capita contributions, contending they are property of the estate and are not exempt. This issue is one of first impression in this District, but is very important due to the increase in tribal gaming revenues in this state.
The court held that the distributions are not exempt under §522(b) and (b)(2)(B) [see holding #1]; the distributions are not exempt under Potawatomi Code §4-10-16 [see holding #2]; the per capita distributions are not exempt under §541(c)(2). [See holding #3].
Holdings:
1. This case was filed before the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and the sections Debtors rely on, §522(b)(1) and (b)(3)(B), did not exist prior to those amendments. Debtors intended to rely on §§522(b) and (b)(2)(B) (2004). The court analyzed Debtor’s position as if they were relying on the appropriate section under the prior version of the code. Based on a stipulation of the Debtors that any distributions and rights to distribution were not held in joint tenancy or as tenancy by the entirety, §522(b) and (b)(2)(B) are completely inapplicable.
2. Debtors are not entitled to rely upon exemptions contended in the Potawatomi Tribal Code. Nothing in the Bankruptcy Code allows a debtor to claim exemptions of another governmental entity. Pursuant to §522(b) and K.S.A. §60-2312, Debtors exemptions are limited to those under Kansas law.
3. The per capita revenues are not trust funds protected by spendthrift provision of §541(c)(2). The tribal ordinance places no restriction, or “trust,” upon the per capita payments to be made to competent, adult members, such as the Debtors in this case. The only per capita distributions that are subject to a trust and those that are to be paid to minors.
In re David Roy Hutchinson and Liberty Dawn Hutchinson; Case No. 05-43445-13 (Karlin) (October 5, 2006)
ORDER SUSTAINING TRUSTEE’S OBJECTION TO CONFIRMATION AND TO DEBTOR’S EXEMPTION OF PER CAPITA INCOME, DENYING MOTION FOR TURNOVER, WITHOUT PREJUDICE, AND CONTINUING MOTION TO DISMISS AND TO CONVERT
Facts:
The Prairie Band of Potawatomi Indians of Kansas Tribe (the “Tribe”) owns a casino on its reservation. A portion of the revenue realized by the casino is distributed among enrolled members of the tribe on a per capita basis. Members are not required to perform any services to receive a distribution. Debtor, David Hutchinson, has received and is likely to continue to receive per capita distributions. This case was originally filed as a Chapter 7 proceeding on October 3, 2005 and was converted to a Chapter 13 on May 2, 2006. The Chapter 13 Trustee objected to confirmation of Chapter 13 Plan as the plan did not satisfy the “best interest of the creditors” test, pursuant to 11 U.S.C. §1325(a)(4).
The Court held the per capita distributions are property of the estate [See holding #1]; per capita distributions are not exempt under 11 U.S.C. §522(d)(10)(A) or 25 U.S.C. §410 [See holding #2], Debtors Chapter 13 Plan did not meet the “best interest of the creditors” test [See holding #3]; Trustee is not entitled to turnover of per capita distributions pursuant to 11 U.S.C.§1303 [See holding #4].
Holdings:
1. The court found that per capita distributions do constitute property of the estate, see In re: McDonald. This court adopts the reasoning and holding of In re Kedrowski, 284 B.R. 439 (Bankr. W.D. Wis. 2002), as it relates to the issue of whether per capita distributions are property of the estate.
2. Pursuant to K.S.A. 60-2312(a), Kansas law contains a specific exemption that allows debtors to claim those exemptions found in §522(d)(10). Debtors argument that per capita distributions are exempt pursuant to §522(d)(10)(A) as a “local public assistance benefit” fails because the per capita distributions are not based on need, and are distributed regardless of the financial circumstances of the recipients. See In re: Longstreet, 246 B.R. 611 (Bankr. S. D. Iowa 2000) for definition adopted by this court of public assistance benefit; “government aid to needy, blind, aged, or disabled persons and to dependant children”.
The court also determined that 25 U.S.C. §410 was inapplicable to this case as per capita distributions are not revenues “from any sale of lease or land held in trust by the United States for any Indian” as required by 25 U.S.C. §410.
3. Debtors’ plan did not propose to pay any money to unsecured creditors. Debtors claimed that their per capita distributions cannot be valued due to their uncertain nature. The fact that distributions have been made regularly by the Tribe is evidence of some value. Debtors’ plan pays nothing to unsecured creditors and fails the requirements of §1325(a)(4).
4. 11 U.S.C. §1303 rests the exclusive right to use and control estate property in Chapter 13 Debtors. Had this case remained a Chapter 7 proceeding, the Chapter 7 Trustee would have retained the right to use or sell the property, and a motion for turnover would have been appropriate. Debtors are however required to turnover to the Trustee a copy of each payment received from the per capita distributions.
Linda S. Parks v. Michael R. Berry, JR, Snap-on Credit LLC (In re Micahel R. Berry); Adv. No. 05-5755; Case No. 05-14423 (Nugent) (September 26, 2006)
MEMORANDUM OPINION
Facts:
The question before the Court was whether the Trustee could invoke hypothetical lien creditor avoidance powers under 11 U.S.C. §544(a) to avoid a security interest that failed to use Debtor’s full legal name.
The Court held that in order to comply with K.S.A. §84-9-502(a)(1), a Kansas Financing statement must contain the legal name of the Debtor.
Holding:
In order to comply with K.S.A. §85-9-502(a)(1), a financing statement must contain the legal name of the debtor. The determination of whether the name used in a financing statement is seriously misleading depends on a search of the filing office using the filing office’s standard search logic, resulting in the financing statement being found. This Court concludes that the legal name should be used on the financing statement in order to insure the financial statement is revealed in a search.
In re D. Michael Case, trustee v. Stephen Hilgers, et al. (In re: Philip L. Hilgers, Nanette Hilgers) Adv. Case No. 04-5281; Case No. 04-11019 (Nugent) (September 25, 2006)
MEMORANDUM OPINION
Facts:
Chapter 7 Trustee seeks a declaration that debtor Philip Hilgers’ one-fourth remainder interest in the residue of three revocable inter vivos trusts is an asset of the bankruptcy estate and subject to turnover.
The facts are quite involved, but in summary, the debtor was a beneficiary under three trusts, having a remainder interest in the trust residue. Each of the trusts has a similar format, giving the settler the income from the trust property during settlors lifetime and upon death of the settler, granting a life estate in the trust residue and a remainder interest in the residue to the four children or grandchildren as the case may be.
The court noted that a creditor, Turnbull, obtained a pre-petition judgment against debtor Phillip Hilgers in the amount of $83,468.64. Turnbull garnished the trusts on October 2, 2003, months prior to debtors filing and over two years after the last settlor and life beneficiary under the Trusts had died.
Philip Hilgers contends that the trusts contain a valid spendthrift clause, and his interest under the trusts do not constitute property of the estate under §541(c)(2).
The Court ruled that the revocable trusts terminated upon the death of the life beneficiaries and the spendthrift provisions were no longer effective [see holding #1]; upon termination of the trust, the trustees were duty bound to wind up the trust and distribute the trust corpus [see holding #2]; turnover to trustee shall be subject to Turnbull’s garnishment lien.
Holdings:
1. Upon death of the settlor, all property held in trust passed to a designated life beneficiary and upon death of life beneficiary all trust property remaining (residue) passed to the remainder beneficiaries including Phillip Hilgers. Once the life beneficiary died the residue was to be divided and there is nothing further to administer with respect to the trust. Therefore, Phillip Hilgers’ future remainder interest in the trust corpus vested before the date of filing his bankruptcy petition and the spendthrift clause was no longer effective. Phillip Hilgers vested one-fourth interest in trust residue is property of the estate, subject to claims of creditors.
2. Section 58a-801 of the Kansas Uniform Trust Code (“KUTC”) requires the trustee “to administer the trust in good faith, in accordance with its terms and purposes and the interest of the beneficiaries, and in accordance with this code.” The Trustees were required to promptly wind up administration of the trusts upon termination in 2001 and distribute the residue.
3. At the time Turnbull executed its garnishment, Phillip Hilgers’ one-fourth vested remainder interest in the trust corpus was not yet property of the estate but had lost its spendthrift protection. Therefore, turnover to trustee is subject to Turnbull’s garnishment lien.
In re D. Michael Case, Trustee v. Stephen Hilgers, et al. (In re: Phillip L. Hilgers, Nanette Hilgers) Adv. Case No. 04-5281; Case No. 04-11019 (Nugent) (September 25, 2006)
JUDGMENT ON DECISION
Facts:
Chapter 7 Trustee seeks a declaration that debtor Phillip Hilgers’ one-fourth remainder interest in the residue of a trust is an asset of the bankruptcy estate and subject to turnover. Turnbull claims a prior interest in Phillips remainder interest under the trusts by virtue of its pre-petition garnishment lien.
Holding:
Trusts terminated and Phillip Hilgers’ one-fourth remainder interest in the trust residue vested under each trust upon death of the life beneficiary. Phillip Hilgers’ one-fourth interest in the trust property shall be turned over to the bankruptcy trustee, who takes such property subject to the prior garnishment lien of Turnbull.
In re Justin Wayne Mayer and Jessika Erin Mayer; Ronald A. Connell and Lora L. Connell and Allen Dale Dick and Julia Denice Dick Case No. 04-10013 (Nugent); Case No. 06-10300 (Nugent); Case No. 06-10418 (October 2, 2006)
MEMORANDUM OPINION
Facts:
Trustee objected to confirmation of three Chapter 13 cases because debtors’ counsel provided for payment of attorneys fees in excess of the “presumptive” chapter 13 fee that was established two years ago in In re: Reimer, Case No. 04-10204; In re Sharp, Case No. 04-10230; In re: Sanders, Case No. 04-11791. Counsel requests the presumptive fee be adjusted upward in light of significant burdens on debtors attorneys since the enactment and effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
The court held the presumptive fee shall be $2500.00 for any chapter 13 case and shall apply herein for any Chapter 13 case on or after July 18, 2006.
Holding:
The Court concluded that the increased workload and responsibilities of lawyers filing Chapter 13 cases in the wake of BAPCPA merits an increase in the presumptive fee from $2,000 to $2,500. The court noted that because it is imperative that competent and compensated counsel be motivated to seek, accept and handle Chapter 13 cases in this District, the increased fee is warranted and entirely justified.
In the event that counsel believes additional fees are warranted, counsel will be required to submit a customary fee application, with detailed time records from the outset of the representation, for consideration by the Trustee, the creditors, and the Court, consistent with this Court’s fee guidelines.
J. Michael Morris, Trustee v. Intrust Bank, N.A., et al. (In re: Brandi D. Anderson) Adv. Case No. 04-5341; Case No. 04-14105 (Nugent) (October 2, 2006)
MEMORANDUM OPINION
Facts:
Trustee invoked his 11 U.S.C. §544(a) hypothetical lien creditor powers to avoid and preserve an alleged unperfected security interest in favor of Intrust Bank, N.A. that encumbers debtors interest in a 1999 Chevrolet Tahoe and a 1994 Ford Ranger truck.
On October 23, 2003, debtor entered into a Note, Disclosure and Security Agreement with Intrust to refinance their existing loans with First National Bank of El Dorado on the two vehicles. Intrust mailed applications for secured title to the Kansas Department of Revenue (“KDR”). KDR received these applications on November 17, 2003, KDR issued two titles neither of which noted Intrust’s liens.
Debtor filed a Bankruptcy petition on July 23, 2004. At the time of filing, Intrust’s liens were not noted on the electronic titles. On September 20, 2004, KDR corrected its records to reflect the liens.
The Court held the Trustee could avoid Intrusts’ security interest in the vehicle because Intrust’s liens was not noted on the certificates of title issued by the Kansas Department of Revenue on the date of commencement of the bankruptcy case.
Holdings:
According to Kansas law, the perfection of a security interest in a titled vehicle that secures an obligation other than for purchase-money is only perfected upon notation of the lien on the certificate of title.
J. Michael Morris, Trustee v. Intrust Bank, N.A., et al. (In re: Brandi D. Anderson) Adv. Case No. 04-5341; Case No. 04-14105 (Nugent) (October 2, 2006)
JUDGMENT ON DECISION
Facts:
See Factual summary above.
Holding:
Pursuant to K.S.A. §8-135(c)(6)(2003 supp.), in a vehicle refinance situation the security interest is required to be indicated on the certificate of title as a condition of perfection.
In re: Gary Bruce Lanter d/b/a NEK Carriers, LLC, Adv. Case No. 05-40435 (Karlin) (October 12, 2006)
MEMORANDUM OPINION AND ORDER FINDING THAT THE AUTOMATIC STAY IS STILL IN EFFECT
Facts:
Debtor sought a determination that the automatic stay did not lapse as to Transport Funding, LLC, pursuant to an earlier agreement between Debtor and Transport Funding. The issue in dispute was whether Debtor’s motion to abate plan payments constituted an effective cure of the default.
Debtor filed a Chapter 13 plan on March 13, 2005. The parties agreed that the value of the collateral, a 1999 Freightliner to be paid through the plan was $35,000.00. The court entered an agreed order that conditioned the continuance of the automatic stay upon Debtor’s compliance with certain conditions. One condition was that Debtor shall remain current on payment plans at all times, and if Debtor fails to cure any default within 10 days the stay will be lifted.
The Freightliner was damaged in a fire; a claim for insurance was made; and a check was made jointly payable to ATC freightliner in Texas who did repairs on the truck, and Transport Funding. The check was mailed directly to ATC, and deposited without notice to Transport Funding.
Debtor made no payments on plan between May 23, 2006 and August 29, 2006 which constitutes a default under the Agreed Order. Trustee filed a Motion to Dismiss alleging default, and on August 4, 2006 Debtor filed a Motion for Abatement of Plan Payments that provided creditors 20 days to object. No objections were made.
Holding:
The Court held that the automatic stay is still in effect, as abatement of the plan payments constituted a cure of the default in the case. Transport Funding did not restrict abatement as a method of cure in the agreement and the court is not willing to read such a restriction into the agreement. The court found that abatement of the plan constitutes a cure of the default in the case.
However, Transportation Funding may seek relief from the stay based on the theory that Debtor misused insurance proceeds or the abatement of payments has rendered it inadequately protected.
Paul Douglas Coover and Teresa Ann Coover, Case No. 06-40176 (Karlin); Richard Lee Hines, Case No. 06-40328 (Karlin); Jeremy Paul Bond and Laura Ann Bond, Case No. 06-40423 (Karlin); GaryLee Moran and Melessa Ann Moran, Case No. 06-40453 (Karlin); Candace Marie Webb, Case No. 06-40572 (Karlin); Russell Mark Woodgate and Jennelle Rae Woodgate, Case No. 06-40587 (Karlin); Daniel Joseph Dashaw, Case No. 06-40502 (Karlin); Angel Francesca Rivera, Case No. 40627 (Karlin); Floyd Gene Hill and Veronica Jeanne Hill, Case No. 06-40654 (Karlin); Robert Dean Smith and Cathy Diane Smith, Case No. 06-40675 (Karlin) (September 28, 2006)
ORDER PARTLY SUSTAINING, AND PARTLY OVERRULING, OBJECTION TO MODEL PLAN LANGUAGE
Facts:
In each of these cases, a home mortgage creditor objected to standard language contained in the Chapter 13 Trustees recommended form plan.
The amount of the arrearage as specified in the creditor’s proof of claim shall govern unless specifically controverted in this plan or by an objection to the claim as required by D. Kan. LBR 3015(b).1. Interest will not be paid on the arrearage unless ordered by the Court.
If the Debtor pays the arrearage amount specified in this section, while timely making all required post petition payments, the mortgage will be reinstated according to its original terms, extinguishing any right of the mortgagee to recover any amount alleged to have arisen prior to the filing of the petition, unless such amounts were included in the allowed proof of claim filed in this case.
The model language is intended to require the creditor to file an accurate pre-petition arrearage by the bar date, and then be required to honor the claimed amount.
Holdings:
1. A decision that plan language is appropriate is not “advisory.” Looking at this model plan language at this time is not premature or an advisory opinion, it simply advises interested parties what will occur if they don’t play by the stated rules.
2. Some language in the plan form is potentially inconsistent and should be changed to remove any ambiguity. If the arrearage amount contained in the plan differs from the amount in the timely proof of claim, the amount in the claim governs unless specific order language, a stipulation, or specific language in the confirmation order states otherwise. The court determined that the problem will be remedied if the language is changed to state “If the Debtors pay the arrearage contained in the creditor’s proof of claim, as contemplated by D. Kan. LBR 3015(b). 1(d), instead of if the debtors pay the arrearage amount specified in this section,” this concern will be remedied.
3. Language is objectionable as to post-petition accruals as it could impact legitimate post-petition accruals. If the mortgagees note and mortgage expressly allow such changes, nothing in the complained-of-language bars accrual, and later attempt to collect such amounts. All the language attempts to do is to require mortgagees to pick a pre-petition number, and stick with it.
4. Creditor is not entitled to specific language that pre-petition arrearages can be changed by subsequent court order. The court declined to add the language as requested by the creditor, which would suggest a creditor would be allowed to amend at any time and under any circumstances a pre-petition claim.
Christopher J. Redmond and Kansas Express International v. Ashraf Fouad Hassan, et al. (In re. Ashraf Fouad Hassan, et al.), Adv. Case No. 05-6215 Case No. 06-40176 (Somers) (September 25, 2006)
ORDER GRANTING MOTION FOR JOINDER OF PERSONS NEEDED FOR JUST ADJUDICATION, AND REQUIRING PLAINTIFFS TO BRING THOSE PERSONS INTO THIS PROCEEDING
Facts:
This proceeding was before the court on a motion for joinder of persons needed for just adjudication. Plaintiffs commenced this proceeding to recover the proceeds of Debtor’s sale of Kansas Express International, Inc. (“Kansas Express”). Debtor Ashraf Hassan agreed to sell the stock to Al Moser for $550,000.00. Attorney and defendant Murphy and the Murphy Law Firm were involved in preparing the papers for the sale. After Moser paid some of the price he learned of Debtors Bankruptcy and contacted the Murphy defendants. Plaintiffs allege that the sale agreement was then substantially modified so it appeared to be a sale of services; rather than stock.
Defendant and Debtor used other entities as facades for business operations to try to keep the Debtors’ bankruptcy estate from obtaining any of the proceeds from the sale of Kansas Express. In December of 2005, the Plaintiffs commenced this adversary proceeding to recover the proceeds of Debtor’s sale of Kansas Express. In March 2006, Moser, his wife, and two Kansas Corporation he owns commenced suit in a Kansas State Court, seeking to recover money paid for Kansas Express.
On June 1, 2006 the Murphy Defendants filed the motion addressed by this order, seeking to join the Mosers as parties in this proceeding. The plaintiff’s objection to the effort to add the Mosers as parties is that the Murphy defendant failed to make the motion before the scheduling order’s deadline for defendants to join additional parties.
Holding:
If the suits proceed as they now stand, then, the Murphy Defendants could possibly be required by the state court to refund the purchase price to the Mosers and by this Court to turn the same money over to the Plaintiff’s. The court ruled that the reason described in Rule 19(a)(2)(ii) for ordering joinder exists in this proceeding.
Plaintiff’s did not dispute the conclusion that Rule 19’s requirements of joinder are met, they contend the motion comes too late. Bankruptcy Rule 7016 makes Civil Rule 16 apply in adversary proceedings. Rule 16(b) specifies various matters that may be included in a scheduling order and declares “A schedule shall not be modified except upon a showing of good cause and by leave granted by the Judge presiding over the proceeding. The Court was convinced that good cause existed to justify extending the deadline.
The plaintiffs will be required to get the Mosers added to this proceeding, either by getting them to join this proceeding voluntarily, or by amending their complaint to add the Mosers as defendants and serving process on them.
Dynamic Tooling Systems, Inc. Case No. 04-15900 (Nugent) (August 31, 2006)
ORDER OVERRULING HANTOVER, INC.’S OBJECTION TO CONFIRMATION OF BETTCHER INDUSTRIES, INC.’S PLAN OF REORGANIZATION DATED JULY 10, 2006 AND CONFIRMING BETTCHER’S PLAN
Facts:
The facts are quite involved, but in summary, creditor Bettcher Industries, Inc. (“Bettcher”) Plan of Reorganization dated July 10, 2006 came on for confirmation hearing on August 22, 2006. After acquiring a secured claim and several unsecured claims in this case, Bettcher filed a creditor’s plan to compete with the debtors proposed plan. On the eve of confirmation, Bettcher and Dynamic Tooling Systems (“DTS”) announced a settlement under which DTS would withdraw its plan and its opposition to Bettcher’s Plan. The last remaining objection to Bettcher’s Plan was that of Huntover, Inc. (“Huntover”).
Huntover’s objection raised the following issues. First, Huntover objected to Bettcher’s attempt to include exculpatory language releasing itself, its insiders, its attorneys, and consultants, and R & F and its counsel from any liability for any acts or omissions in connection with the plan. Second, Huntover, complained that the Plan did not comply with §1129(a)(4) because it did not make Bettcher’s and R & F’s fees and expenses subject to court oversight. Third, Huntover asserted that R & F’s intended treatment of the Agreement violated §363, 365, 541 and 1123, and as such did not comply with the provisions of Title 11 as required by §1129(a)(1).
Holdings:
1. Huntover did not have an allowed claim under §502, and it was not entitled to accept or reject the plan under §1126(a), and therefore its ballot did not count.
2. The plan was accepted by all voting creditors and conformed to Title 11 and Chapter 11’s requirements. Huntover’s objection to confirmation is overruled and Bettcher Plan dated July 10, 2006 is confirmed.
Nathan Douglas Brenzkofer, Case No. 05-12833 (Nugent) (October 4, 2006)
MEMORANDUM OPNION AND ORDER GRANTING TRUSTEE’S MOTION FOR TURNOVER
Facts:
Debtor filed Chapter 7 petition on May 11, 2005 and did not claim a 2004 Honda TRX450R (“ATV”) as exempt. On January 13, 2006 Trustee obtained default judgment against Motor Sports, Inc. and Honda Financial Corporation (“lienholders”), avoiding and preserving their lien. Trustee filed a motion for turnover, since then Debtor has made payments on the ATV totaling $1,420.00.
The Trustee then sought to require the debtor to turnover the ATV for liquidation. Debtor objects asserting that because he is current on his payments, K.S.A. 16a-5-109 protects him from repossession of the ATV notwithstanding the trustee having avoided and retained the creditor’s lien on the ATV pursuant to 11 U.S.C. §§544 and 550.
Holding:
The ATV is property of the estate. When a debtor files a bankruptcy petition under Chapter 7, he is required by §521 and §542 to turnover to the Trustee all property that is in his possession that is not exempt, whether the debtor is current or not, the Trustee is always first in line to possess property of the estate under §542. The Trustee’s motion for turnover was granted.
Jowana McFadden vs. Robert E. McFadden (In re: Robert E. McFadden. Adv. Case No. 05-7143; Case No. 05-43981 (Karlin) (October 20, 2006)
MEMORANDUM AND ORDER
Facts:
This matter was before the court on Plaintiff’s Complaint to Determine Dischargeability of Debt. Plaintiff contends that debt should not be discharged pursuant to §523(a)(15), and that she has a judicial lien on the real property that Defendant/Debtor received in the divorce and that lien cannot be avoided by a bankruptcy discharge. Defendant/Debtor claimed that debt should be discharged because he lacked the ability to pay pursuant to 11 U.S.C. §523(a)(15)(A).
Holdings:
1. The Defendant/Debtor has rebutted the presumption that the divorce obligation is nondischargeable, in personam, pursuant to §523(a)(15)(A), because he clearly lacks the ability to pay the $11,600.00 debt.
2. Defendant/Debtor cannot avoid the judicial lien on real estate, but the judicial lien can only be enforced in rem. Defendant/Debtor has been discharged of his in personam liability to pay the debt, however, nothing would prevent the filing of a lien foreclosure petition in state court to enforce in rem rights in the real property.
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