Kelly James Torline; Case No. 05-12251-12 (Somers) (December 22, 2006)
MEMORANDUM AND ORDER FOLLOWING TRIAL ON OBJECTION TO CONFIRMATION
OF DEBTOR’S
THIRD AMENDED PLAN
• 11 U.S.C. §523(a)(5)
•
11 U.S.C. §502
•
11 U.S.C. §1225
•
K.S.A. §60-2202(a)
Facts:
Knowledge of the divorce proceeding is critical to understanding this Chapter 12 case, and the reader is directed to the opinion to become fully informed of the facts. A summary of the facts follows.
The primary parties to this case were married in December 1987 and were divorced by order of a state court in May 2002. During the years 1990 through 2001, the Debtor’s ex wife, Rebecca, had received, by inheritance and gift, stock having a total value of $1,511,345.00. The divorce court entered a Journal Entry and Order for disposition of property. When dividing the property, the court concluded that it was apparent that the purchase of certain farmland and machinery was only made possible by substantial contribution and loan collateral derived from Rebecca’s gifts and inheritances, and therefore fairness could only be achieved by setting over certain property purchased during marriage, with the related debt, to the Debtor. Certain debts in the amount of $607,504.00 were set over to the Debtor as his sole and separate obligation, for which he was to hold Rebecca harmless.
After the divorce court property judgment, Debtor did not do certain actions required by the divorce court, including effecting a release of certain of Rebecca’s property from claims of pre-divorce creditors. The divorce court therefore ordered sale of the real estate and machinery that had been set over to the Debtor in the property judgment. Debtor then filed for Bankruptcy in April 2005. In August 2005, Rebecca filed a proof of claim for $607,504.00, plus interest. Debtor objected to the proof of claim saying his obligations to Rebecca were contingent and that it should be disallowed under 11 U.S.C. §502(e)(1)(B). Debtor also objected to a claim filed by Rebecca as Trustee of the Ashley B. Torline, Lauren M. Torline and Jeff K. Torline Trusts.
Debtor eventually filed a third Chapter 12 plan, to which Rebecca objected. Rebecca’s objection was that she had a secured claim for $513,992.00, plus interest; and that the plan violated §1225(a)(5) when not making payment in full of her claim.
Holding:
The Court denied confirmation of the Debtor’s plan. The Court ruled that Debtor’s plan did not satisfy the standards for confirmation as stated in 11 U.S.C. §1225. The Court required the Debtor to file an amended plan and new liquidation analysis. The Court said treatment of Rebecca’s claim must comply with §1225(a)(5), which grants the flexibility to pay the claim in a lump sum or through periodic payments.
MEMORANDUM AND ORDER DENYING DEBTORS’ MOTION TO VOID SHERIFF’S
SALE AND REQUIRING AMENDED PLAN, CONVERSION OR DISMISSAL
• 11 U.S.C. §350(b)
•
11 U.S.C. §362
Facts:
The Debtors failed to make certain loan payments to creditor Washington Mutual, and a foreclosure action was pending when the Debtors filed their second bankruptcy petition in June, 2005. The Debtors had previously filed for bankruptcy relief but the case was dismissed for failure to make timely payments. Washington Mutual had obtained stay relief in the first case.
The Court also dismissed the Debtors’ second bankruptcy, for failure to make timely payments. Debtors filed a motion to reinstate in June 2006 pursuant to 11 U.S.C. §350(b). The Court entered an order of reinstatement in October, 2006. In the meantime, Washington Mutual conducted a foreclosure sale which was confirmed in July, 2006 as to the Debtors’ principal residence.
Debtors did not request an expedited hearing on their motion to reinstate, to stall the foreclosure sale, nor did they request the Court to enjoin the foreclosure sale by filing an adversary proceeding. They nevertheless requested the Court to void the sheriff’s sale.
Holding:
Debtors argue that the automatic stay under 11 U.S.C. §362 should be retroactively reinstated to apply during the time the case was dismissed. The Court ruled that this is simply not the law. Upon dismissal the automatic stay is no longer available to protect a Chapter 13 Debtor or his/her assets from collection efforts by creditors. The Court held that the automatic stay provided by 11 U.S.C. §362 was lifted upon dismissal of the Debtors’ Chapter 13 case. The Court refused to void the sheriff’s sale.
J. Michael Morris, Trustee v. 21st Mortgage Corporation (In re: Brent Andrew Jewell and Casey Renae Jewell); Adv. Case No. 05-5787; Case No. 05-15703 (Nugent) (December 4, 2006)
MEMORANDUM OPINION
• 11 U.S.C. §544
•
K.S.A. §84-9-317
•
K.S.A. §58-4201 et seq.
Facts:
This was an adversary proceeding in which the trustee exercised his hypothetical lien creditor avoidance powers to challenge the adequacy of defendant 21st Mortgage Corporation’s efforts to protect its security interest in Debtors’ mobile home.
The Debtors purchased a manufactured home from a dealer in 2000. The dealer assigned the note and a security agreement to Associates Housing Finance, Inc. Associates delivered to the Sedgwick County, Kansas Treasurer a NOSI. When KDR eventually issued the title, it placed Associates name in the “mailing information only” portion of the certificate, but did not show Associates as lienholder. The title receipt issued by KDR also omitted reference to Associates as lienholder. Associates assigned its interest to 21st Mortgage Corporation effective May 2005. Debtor then filed bankruptcy in September 2005.
Holding:
The Court entered judgment for the Trustee, avoiding the creditor’s lien under 11 U.S.C. §544 and preserving is for the benefit of the estate under 11 U.S.C §551. The Court noted that because the creditor’s lienholder interest was not disclosed on the certificate of title and did not appear in the records of the KDR, there would be no way a prospective purchaser or lender could have ascertained its interest. The Court ruled the creditors’ lien was not perfected because it was not noted on the Debtors’ certificate of title.
Steven L. Speth v. Gary R. Vaupel and AG Trend Sales, Inc. (In re: Linda Kay Smith); Adv. Case No. 05-5715; Case No. 04-14712-7 (Nugent) (December 8, 2006)
MEMORANDUM OPINION
• 11 U.S.C. §549
•
11 U.S.C. §544(a)(3)
Facts:
The Trustee sought to avoid a post-petition transfer made to defendants Gary
Vaupel and AG Trend Sales. The transfer was made by virtue of a warranty deed
from the Debtor to the defendants that was not recorded until well after the
date of the petition.
Holding:
Here, the Trustee relied on the provisions of 11
U.S.C §549(a) to avoid
the transfer. To succeed in that effort, the Trustee had the burden to prove
that (1) the transfer of estate property occurred after the commencement of
the case and (2) that the transfer was not authorized under the Bankruptcy
Code or by the Court.
The facts indicated that Vaupel’s recording of the deed clearly constituted a disposition of this property by the Debtor to Vaupel under 11 U.S.C. §549(a)(1). The Court did not authorize the transfer; nor does the Code. The Trustee met his burden of proof to demonstrate that the transfer was avoidable under 11 U.S.C. §549(a).
Further, 11 U.S.C. §544(a)(3) provides that at the date of the commencement of the case, the Trustee stands in the shoes of a hypothetical bona fide purchaser (“BFP”) for value who acquired a deed to the property on the date of the commencement of the case and had the rights and powers of such a BFP with respect to the property. There is no doubt that, had the deed not been recorded post-petition, the Trustee could have exercised his 11 U.S.C. §544 avoidance powers to avoid it.
The Court held that the post-petition recording of the deed constituted a post-petition transfer that was avoidable under 11 U.S.C. §549(a).
Stephany Danelee Coffman; Case No. 06-10819 (Nugent) (December 8, 2006)
Walter S. Monger; Case No. 06-10824 (Nugent) (December 8, 2006)
Terry Preston Miller, Robin Kay Miller; Case No. 06-10964 (Nugent) (December
8, 2006)
Jay Scott Breeding, Maile Kay Breeding; Case No. 06-11383 (Nugent) (December
8, 2006)
Jeremy Scott Holt, Stephanie Ann Holt; Case No. 06-11536 (Nugent) (December
8, 2006)
Larry James Kirby, Jeanie Kay Kirby; Case No. 06-11557 (Nugent) (December 8,
2006)
Jose Angel Torres; Case No. 06-11731 (Nugent) (December 8, 2006)
ORDER ON CHAPTER 13 MODEL PLAN LANGUAGE REGARDING CLAIMS SECURED BY
REAL ESTATE MORTGAGES ON DEBTORS’ PRINCIPAL RESIDENCES
• 11 U.S.C. §1322
• D. KAN. L.B.R. 3015(b). 1(d)
FACTS:
In these Chapter 13 cases, all filed after October 17, 2005, each of the Debtors proposed a Chapter 13 plan that contained certain model language dealing with the treatment of claims secured by real estate mortgages on the Debtors’ principal residences.
The plan language in question read as follows:
The amount of the arrearage as specified in the creditors proof of claim shall govern unless an objection to the claim is filed. Interest will not be paid on the arrearage, unless ordered otherwise 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.
In each of these cases, the mortgage creditor objected to confirmation of the plan due to the stated language.
Holding:
The Court noted that in an effort to forestall some of these disputes, the judges of this Court enacted D. Kan. L.B.R. 3015(b). 1(d) and authorized Chapter 13 trustee to pay mortgage creditors in accordance with their timely filed proof of claim. This Court then agreed with Judge Karlin’s analysis and ruling in In Re Coover, et al.; No. 06-40176 in which it was decided that the issue is easily remedied by altering the model plan language to state in the second paragraph, “specified in the mortgage company’s timely filed proof of claim” and eliminate the “specified in this section” language.
The Court accordingly modified the model plan language complained of by these creditors, and approved the plans as modified.
Mark Letterman; Case No. 05-60235-13 (Nugent) (December 21, 2006)
MEMORANDUM OPINION
Facts:
This contested matter was before the Court on the Trustee’s and creditor’s objections to Debtor’s claimed homestead exemption.
Debtor filed this case in December, 2005, about two weeks after his house burned down. In his first Schedule C, Debtor claimed property described only as 5706 S. Broadway, Wichita, Kansas, the address where his house was located, as his exempt homestead. The property in question consisted of Lot 2 of the Letterman Second Addition, was located within the city limits, and exceeded one acre in area. The house was subject to a first mortgage held by Equity One.
The Trustee objected to the claimed exemption because Debtor did not reside in the property on the petition date. Creditor objected to the claimed exemption on several grounds: the property was located within the city limits of Wichita and exceeded one acre, the property was used for commercial purposes (e.g. operation of a radiator shop and rental property), and Debtor did not reside in the property.
Holding:
Debtor’s right to the homestead exemption is determined as of the date the bankruptcy petition is filed. Debtor needed to occupy the claimed homestead property as his residence on the petition date, but must have an intent to do so and must take reasonable steps to make the property his home.
The Court ruled that even if it construed the homestead exemption liberally in favor of Debtor as it was required to do, Debtor’s filing and actions belie the necessary intent. Debtor neither identified the potential insurance proceeds as an asset of his estate nor claimed them exempt at the time of filing. The Court also noted that Debtor never returned to the home after the November gas leak was “repaired,” evidencing a strong intention to abandon the homestead. Debtor’s plan indicated Debtor’s intent as of the petition date to sell the property and apply the sale proceeds to pay claims.
The Court found that Debtor did not occupy the subject property on the date of the petition and did not intend to return to the property. Nor did the Debtor intend to reinvest the proceeds of the sale of the property in another homestead in Kansas or to rebuild the property. The Court denied the claimed exemption.
Carroll County Trust Company v. Frank Warren Gleason (In re: Frank Warren Gleason); Adv. Case No. 06-06041; Case No. 05-27126 (Somers) (January 17, 2007)
MEMORANDUM AND ORDER ON PLAINTIFF’S MOTION FOR SANCTIONS AND
EXTENSION OF TIME TO COMPELTE DISCOVERY AND DISPOSTIVE MOTIONS
•11 U.S.C. §523(a)(6)
• Fed.B.R. 2004, 7037
Facts:
This matter involved discovery in an adversary case filed pursuant to 11 U.S.C. §523(a)(6). The Plaintiff moved for sanctions and extensions of time to complete discovery and dispositive motions.
Plaintiff scheduled a 2004 examination of Debtor by agreement for July 12, 2006. Numerous extensions of time were requested by Debtor’s counsel and the discovery deadline was extended to October 1, 2006, and the deadline to file dispositive motions was extended to October 15, 2006. Debtor appeared at the scheduled time, but he only brought one document – one page from a bank statement, and testified generally as to the remaining document requests.
Holding:
The Court found that the Debtor did not satisfactorily participate in the discovery process and that he displayed an attitude of indifference and evasiveness which was not appropriate. In bankruptcy, the failure to keep or preserve any recorded information from which a Debtor’s business transaction can be ascertained is a serious matter and may serve as a basis to deny a discharge or dismiss the bankruptcy case.
The Court admonished the Debtor and his counsel to fully cooperate in the discovery process in the future and again ordered the Debtor to produce all records, within the scope of requests made in the 2004 examination notice, that were in Debtor’s possession, custody, or control. The Court imposed no sanctions, but directed Plaintiff’s lawyer to submit a request for fees for the Court’s consideration.
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