Steven L. Speth v. Associates in Women’s Health, P.A. (In re: William Michael Stevens and Holly Lynna Stevens); Adv. Case No. 05-5816; Case No. 05-10555 (Somers) (April 5, 2007)
MEMORANDUM AND ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT
• 11 U.S.C. §547(b)
• Fed. R. Civ. P. 56(c)
Facts:
The Chapter 7 Trustee filed a preference action against Associates in Women’s Health, P.A. (“AWH”) an alleged insider of the Debtor.
Debtor was a physician who was an employee, shareholder, and director of AWH. After terminating his relationship with AWH, Debtor filed for relief under Chapter 7 on February 11, 2005. The Trustee brought this action pursuant to 11 U.S.C. 547(b) to avoid the certain payments by Debtor to AWH totaling $203,507.99 between March and October, 2004.
AWH moved for summary judgment, contending that: (1) None of the payments could be recovered as preferences because the transfers were more than 90 days pre-petition and AWH was not an insider of the Debtor; (2) Because AWH had exercised a common law right of offset, three of the transfers cannot be considered preferential under §547(b)(5); and (3) the Trustee cannot prevail because the uncontroverted facts establish that Debtor was not insolvent at the time of the transfers.
Holding:
When transfers are more than 90 days prior to the date of filing, the elements necessary to recovery by the Trustee under U.S.C. §547(b) include that the transferee must have been an insider. The debtor must also be insolvent on the dates of the transfers. The burden of proof is on the Trustee to establish all elements.
The Court denied the motion of AWH for summary judgment on the issue of AWH’s insider status when the transfers were made. The Court found that AWH met the statutory definition of an insider under 11 U.S.C. §101(31) when the payments were made because the Debtor was an officer , employee, and shareholder of AWH. The Court noted that there were material facts in controversy as to whether AWH was an insider after Debtor terminated his relationship with AWH.
AWH also sought summary judgment on all challenged payments arguing the Trustee could not establish the required element that Debtor be insolvent on the dates of the transfers. An individual is insolvent if the sum of the individual’s debts is greater than all of such person’s property at a fair valuation, exclusive of property transferred, concealed, or removed with intent to hinder, delay, or defraud and property exempt under 11 U.S.C. §522. The Court found that there were material issues of fact on the insolvency question.
The defense that the payments were offsets permitted under the Code was foreclosed, but the Court noted the Trustee does have the burden to establish that the amount received by AWH on its claim is greater than is would receive if its right to payment were determined under Chapter 7.
Carl B. Davis v. Sherrie A. Tucker, et al. (In re: LeJuerrne Development Corporation); Adv. Case No. 06-5218; Case No. 04-12218 (Nugent) (March 27, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §544
•
K.S.A. §33-102
•
K.S.A. §33-204
•
K.S.A. §33-205
Facts:
The Debtor (“LDC”) was a corporation that developed residential real estate. Trustee sought to avoid the transfer of a remainder interest in a residence by LDC, to defendant Sherrie Tucker and Tucker’s subsequent transferee, Shelly Anderson. Under the authority of 11 U.S.C. §544(b), the Trustee sought to invoke Kan. Stat. Ann. §33-102, asserting that the transfer was made with intent to hinder, delay or defraud LDC’s creditors. The trustee also sought relief under Kan. Stat. Ann. §33-204 and § 33-205, sections of the Uniform Fraudulent Transfer Act (“UFTA”) as adopted in Kansas. The defendants denied that the transfer in question was fraudulent and claimed various defenses under Kan. Stat. Ann. §33-208.
LDC filed its chapter 7 petition on April 26, 2004.
Holding:
11 U.S.C. § 544(b) (1) incorporates state fraudulent conveyance law into bankruptcy proceedings. To prevail on either the §33-102 claim or the claims raised under the UFTA, the Trustee must make his case by a preponderance of the evidence, and the quality of proof must be clear and convincing.
To prevail under §33-102, the Trustee must demonstrate that the transfer
was made with (1) intent to hinder, delay or defraud; and (2) that the grantee
participated in the scheme with knowledge of it or of facts and circumstances
that would place the grantee on notice of it.
Kansas case law recognizes six badges of fraud under §33-102: (1) a relationship
between grantor and grantee; (2) grantee’s knowledge of litigation against
the grantor; (3) insolvent grantor; (4) grantee’s belief that asset transferred
was grantor’s last asset subject to execution; (5) inadequate consideration;
and (6) transaction consummated contrary to normal business procedures. After
hearing the testimony and studying the evidence, the Court was not convinced
that the LDC had an intent to hinder, delay or defraud creditors in its transfer
of the remainder to Tucker, or relative to Tucker’s transfer of the fee
to herself and Anderson.
The Trustee also sought to avoid the transfer under Kan. Stat. Ann. § 33-204(a) (2), the constructive fraud provision, arguing that LDC did not receive reasonably equivalent value for the remainder in trust. The only evidence as to marketability was a 2001 appraisal finding the entire fee to be worth $114,600.00, and a broker’s statement that the entire property might bring $95,000.00 to $100,000.00. Kan. Stat. Ann. § 33-205(a) relates to transfers made for less than reasonably equivalent value while the debtor is insolvent. These transactions are avoidable as to pre-transfer creditors only. The Court did not find that the transfer of the remainder interest by LDC to Sherrie Tucker should be avoided under any theory pled in this matter. The Court entered judgment for the defendants.
Curtis E. Murphy and Michelle R. Murphy; Case No. 05-17923 (Nugent) (April 3, 2007)
MEMORANDUM OPINION
• K.S.A §60-2301
•
K.S.A. §84-2-314
•
K.S.A. §84-2-608
•
K.S.A. §84-2-711(3)
•
K.S.A. §58-4204(h)
Facts:
The Chapter 7 Trustee objected to Debtors’ claim of exemption in certain causes of action related to their homestead. Debtors claimed as exempt not only the home they lived in, but also several causes of action that they had asserted in response to National City Mortgage Company’s pre-petition foreclosure action filed in state court.
Each of the causes of action asserted by Debtors related to alleged defects in the mobile home or deceptive practices committed by its seller, in violation of the Kansas Consumer Protection Act (“KCPA”) Kan. Stat. Ann. § 84-2-314 (1996).
Debtors ceased making mortgage payments to National City Mortgage because of the alleged defects and revoked acceptance of the mobile home on January 19, 2005. As a result of nonpayment, National City Mortgage commenced a foreclosure action in January, 2005. The Trustee exercised his lien avoidance powers with respect to the mobile home, alleging that National City Mortgage failed to properly perfect its security interest in the mobile home and consequently the lien was unperfected. The Trustee further argued that the causes of action were not sufficiently related to the homestead to warrant exemption in connection with the homestead.
Holding:
The Trustee bears the burden of proving by a preponderance of the evidence that the exemption is improper. Because Kansas has opted out of the federal bankruptcy exemption scheme, the Debtors claim the homestead exemption under Kansas law.
Both the Kansas Constitutions and the Kansas Statutes provide for the reservation of a one acre homestead within an incorporated town or city, including a mobile or manufactured home to be “occupied as a residence by the owner or the family of the owner ... together with all the improvements on the same” from any forced sale.
No Kansas appellate courts have considered whether damage actions of this type arising out of the homestead are exempt. One bankruptcy court in this District has, that being In re Stroble. In Stroble, Judge Berger considered whether a debtor’s recovery of certain illegally assessed mortgage fees and costs from the mortgage lender was exempt and determined that it was.
The instant Court overruled the Trustee’s objection. The Court held that the Debtors’ claimed homestead exemption in the causes of action asserted in connection with the purchase of their mobile home should be allowed in the scheduled amount of $130,000.00.
Dixie Katherine Anderson; Case No. 06-20664 (Berger) (April 13, 2007)
MEMORANDUM OPINION AND ORDER DENYING TRUSTEE’S OBJECTION TO
CONFIRMATION
• 11 U.S.C §1325
Facts:
The Chapter 13 Trustee objected to Debtor’s plan as not being proposed in good faith under 11 U.S.C. § 1325(a) (3). The Trustee alleged that the Debtor’s proposed three-year plan was too short, when her current monthly income indicated she was an above median income debtor.
Debtor’s initial Form B22C indicated annualized current monthly income of $48,136.56 with a household size of two. Debtor filed as a below median debtor. In June 2006, the Debtor filed amended Schedules I and J, indicating the addition of a five-year-old grandchild as a dependent. Amended Schedule I also included an annual bonus received within six months of the petition date, thereby increasing Debtor’s annualized current monthly income to $57,136.56. The Debtor did not file an amended Form B22C; however, with the inclusion of the bonus, Debtor would have been above median income even with an increased household size of three.
The Trustee objected on July 5, 2006, stating the disclosed bonus placed Debtor above median income, that the Debtor should have proposed a five-year plan, and Debtor’s plan was not proposed in good faith as required by 11 U.S.C. § 1325(a)(3). Also, on July 5, 2006, the Debtor filed second amended Schedules I and J and an amended Form B22C. These amendments indicated the household had grown to six with the addition of Debtor’s 24-year-old daughter and two more grandchildren. The amended Form B22C reflected the increased income from the bonus and the increased household size. Under the amended Form B22C, Debtor remained below median income.
The Trustee in turn objected because if the Debtor had included her bonus on the first Form B22C when her household size was reported as two, she would be an above-median debtor and committed to a five-year plan. The Trustee framed the issue as whether the means test under 11 U.S.C. §1325(b) is a snapshot on the petition date or subject to modification post-petition.
Holding:
The ultimate issues were the date that the Applicable Commitment Period for the Debtor’s Chapter 13 plan is determined, and the extent to which the Debtor’s post-petition and pre-confirmation change of household size affects the calculation of the Applicable Commitment Period.
The Court noted that under BAPCPA, current monthly income cannot be amended during the case because it is based on concrete, historical data. No such restriction exists in the Code regarding household size. The Trustee made no allegations that Debtor attempted to manipulate the bankruptcy process or otherwise tried to mislead the Trustee or the Court as to her true circumstances. The Debtor and Trustee stipulated that the Debtor’s household size did, in fact, increase from two to six people within two months after the petition date, but prior to confirmation.
The Court concluded the Debtor’s plan complied with §1325(a) (3) and § 1325(b) (4) and could be confirmed as a three-year plan.
David James Moore and Sharon G. Moore; Case No. 06-20031 (Berger) (April 13, 2007)
MEMORANDUM OPINION AND ORDER DENYING CONFIRMATION OF CHAPTER 13 PLAN
AND DENYING TRUSTEE’S MOTION TO DISMISS
• 11 U.S.C. §1325
•
11 U.S.C. §707(b)
Facts:
The Chapter 13 Trustee objected to the Debtors’ amended plan, because the Debtors’ proposed to pay nothing to unsecured creditors even though the disposable income requirement of 11 U.S.C. § 1325(b) showed that they could pay unsecured creditors $250.00 a month for five years.
Debtors reported annualized current monthly income of $65,424.00. The median family income for a family of two was $48,610.00. Debtors completed the disposable income calculation under l 1 U.S.C. §1325(b) (3) and reported monthly disposable income of $250.00.
Debtors had moved to amend their plan because co-debtor Sharon Moore had lost her income. The Trustee objected and argued Debtors’ Current Monthly Income (“CMI”) does not change during the case because it is statutorily set based on income received in the six months proceeding the petition date. The Trustee also filed a motion to dismiss.
Holding:
The Court noted that according to the BAPCPA, the Applicable Commitment Period shall be “not less than 5 years, if the current monthly income of the debtor and the debtor-spouse combined, when multiplied by 12, is not less than -- in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of (Kansas) for a family of the same number or fewer individuals ....” The Applicable Commitment Period may be shorter only if the unsecured claims are paid in full.
The Court further noted that in this case, the Debtors had higher income in the six months preceding their bankruptcy. Debtors’ CMI exceeded the median family income for a household of two. The Court ruled that the Debtors’ amended plan could not be confirmed because it did not provide for a five-year Applicable Commitment Period. The Trustee’s Objection to Plan Modification was sustained, but the Trustee’s Motion to Dismiss was denied. The Court allowed the debtors 45 days to file an amended plan and to establish any special circumstances they wished the Court to consider with respect to their disposable income calculation pursuant to 11 U.S.C. §707(b).
Harry Stuart Beckerle; Case No. 06-20572 (Berger) (April 13, 2007)
MEMORANDUM OPINION AND ORDER DENYING CONFIRMATION
• 11 U.S.C. §1325
Facts:
The Chapter 13 Trustee objected to Confirmation of debtors Chapter 13 plan because Debtor’s proposed plan would run less than five years and would pay nothing to unsecured creditors.
Debtor filed for Chapter 13 relief in April of 2006. Debtor’s Form
B22C indicated that the Debtor’s income was above median, but Debtor’s
disposable income under the means test was negative $1,498.52. Comparing Schedules
I and J, Debtor had monthly disposable income of $123.86. The plan proposed
to pay $120.00 per month for 38 months. Non-priority unsecured creditors would
receive nothing under the plan.
The issue before the Court was whether the Applicable Commitment Period created
in the BAPCPA determines a minimum plan length or a minimum monetary return
to unsecured creditors.
Holding:
The Applicable Commitment Period is a time frame of either three or five years under the plain language of 11 U.S.C. § 1325(b) (4) (A) (i) and (ii). However, the plain language of the Code does not require a set dividend to unsecured creditors; the Code language requires a minimum number of years for debtors to commit their projected disposable income, whatever the amount may be.
The Court first noted that the language of § 1325(b) (1) and (4) is temporal, describing a time frame of years, not a multiplier of months. Second, a monetary interpretation renders §1325(b) (4) (B) meaningless. Interpreting the statute to require debtors to multiply projected monthly disposable income times 36 or 60 unless a lesser number results in full payment of allowed claims says nothing more than debtors do not have to pay more than 100 percent on unsecured claims. Third, a monetary interpretation, in addition to having no statutory support, would be a gross departure from pre-BAPCPA practice requiring a three-year minimum for debtors’ best efforts to repay debts. Fourth, the monetary interpretation is inconsistent with other BAPCPA revisions regarding debtors’ ongoing financial reporting requirements.
The Court further noted a negative disposable income number on Form B22C does not conclusively establish the debtor has no disposable income to be received in the Applicable Commitment Period.
The Court observed that a negative number on Form B22C indicates a plan is not feasible. However, if the debtor can propose a feasible plan payment, then the debtor has shown there is in fact, disposable income, and the plan must last for five years if his income is above median. Debtors cannot have it both ways. If they want to rely exclusively on Form B22C with a negative disposable income number, then they cannot propose a feasible plan. On the other hand, a feasible plan payment commits debtors to a certain plan length, for the above median income debtor, of no less than five years. The Court does not find, however, that Schedules I and J necessarily determine the Debtor’s plan payment. The Debtor’s plan payment amount was not at issue in this case.
Here, Debtor’s plan cannot be confirmed because it does not provide for a five-year Applicable Commitment Period. Debtor relies on his Form B22C to avoid the appearance of any disposable income, but relies on Schedules I and J to calculate a feasible plan payment. Based upon the plain language of 11 U.S.C. § 1325(b) (l) and (4), the Code imposes a minimum plan length.
Kelly James Torline; Case No. 05-12251 (Somers) (April 13, 2007)
MEMORANDUM DENYING DEBTOR’S MOTION TO RECONISDER OR SET ASIDE
ALLOWANCE THAT PORTION OF THE CLAIM ATTRIBUTABLE TO THE GORDON BARNHARDT
NOTE
• 11 U.S.C §502
Facts:
The Court heard arguments on the Debtor’s Motion to Reconsider or Set Aside Allowance of that Portion of the Claim Attributable to the Gordon Barnhardt Note (“Motion”).
The Motion, filed in February 2007, sought reconsideration of the portion of the Memorandum and Order Following Trial on Objection to Confirmation of Debtor’s Third Amended Plan (“Order”) that addressed Rebecca Barnhardt’s claim against Debtor attributable to the Gordon Barnhardt Note (“Note”). The Court had held that Rebecca holds a secured claim for the principle and interest on the Note. Debtor contended that the Court’s ruling was erroneous, and that Debtor had no liability to Rebecca relating to the Note. Rebecca opposed the Motion.
Holding:
The Motion did not state the rule under which it was filed; however, since the portion of the Order in issue was the allowance of a portion of Rebecca’s claim against Debtor, the Court considered the motion as having been filed under §502(j), that provides: “A claim which has been allowed or disallowed may be reconsidered for cause.”
Section 502(j) and Bankruptcy Rule 3008 contemplate a two step procedure before an order allowing or disallowing a claim will be vacated or modified. First, the court determines whether to grant the motion to reconsider the claim. Second, if a motion to reconsider a claim pursuant to §502(j) is granted, the court “after hearing on notice shall enter an appropriate order.”
The Court found that Debtor had not established any basis for reconsideration of allowance of the claim for cause under §502(j). The Court noted that neither the Motion nor the arguments in support allege or evidence mistake, the existence of newly discovered evidence, allegations of fraud, that the December Order is void, or that the judgment has been satisfied or it is otherwise inequitable.
For the foregoing reasons, the Court denied the Debtor’s Motion. The Court held Debtor had not alleged a cause for reconsideration as required by §502(j).
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