Sheryle L. Schwaiger v. Mark Joseph Schwaiger (In re: Mark Joseph Schwaiger and Susan Denise Schwaiger); Adv. Case No. 05-5769; Case No. 05-16267 (Nugent) (January 12, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §523(a)(15)
Facts:
Plaintiff Sheryle Schwaiger (“Sheryle”), former wife of debtor Mark Schwaiger (“Mark”), filed an adversary complaint under 11 U.S.C. §523(a)(15) to except a $400.00 per month property settlement obligation from Mark’s discharge. The parties were divorced in August of 2001 and entered into a property settlement agreement at that time. Both parties to the action had minimal income after expenses each month.
Holding:
The Court noted that Mark has the burden in the action to demonstrate that either: 1. he lacks the ability to make the settlement payment from income “not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor;” or 2. that the benefits to him of discharging the debt would outweigh any “detrimental consequences” to Sheryle. The Court applied the balancing test as set forth in 11 U.S.C. §523(a)(15)(B) and weighed the consequences of a discharge or non-discharge of Mark’s obligation to each party. The Court looked at a variety of factors in making that determination including: 1. the respective income and expenses of the parties; 2. the number of dependants; and 3. the nature of the debt. The Court also analyzed the possibility of granting a partial discharge based on prior case law in which a partial discharge of a non-support obligation was granted. The Court entered judgment for Sheryle on her discharge complaint and granted a partial discharge of $200.00 permanently.
Sheryle L. Schwaiger v. Mark Joseph Schwaiger (In re: Mark Joseph Schwaiger and Susan Denise Schwaiger); Adv. Case No. 05-5769; Case No. 05-16267 (Nugent) (February 23, 2007)
ORDER DENYING PLAINTIFF’S MOTION TO ALTER OR AMEND JUDGMENT
• Fed.
R. Civ. P. 60(b)
• Fed R. Civ. P. 59(e)
Facts:
Following a trial on Sheryle L. Schwaiger’s (“Sheryle”) complaint under 11 U.S.C. §523(a)(15) to except from defendants discharge his $400.00 per month property equalization obligation imposed in the parties divorce, the Court entered judgment in favor of Sheryle partially excepting the debt in the amount of $200.00 per month. Sheryle filed a motion to alter or amend judgment.
Holding:
A motion to alter or amend a judgment under Fed. R. Civ. P. 59(e) must be filed within ten (10) days after entry of the judgment. Sheryle did not file her motion timely and, therefore, the Court must construe it as a motion for relief from judgment under Fed. R. Civ. P. 60(b)
Relief under Fed. R. Civ. P.60(b) is discretionary with the Court and is warranted in only exceptional circumstances. Sheryle relied upon Fed. R. Civ. P. 60(b)(1), the mistake ground, basing the alleged mistake on evidence not offered at trial. The Court noted that Fed. R. Civ. P. 60(b) is not available to advance new arguments or supporting facts that were otherwise available for presentation when the matter was first presented. The Court further noted that the claims of error raised by Sheryle were the types of matters to pursue on appeal, and Fed. R. Civ. P. 60(b) is not intended to be a substitute for direct appeal. The Court denied Sheryle’s motion for relief from the judgment.
Norman Sabbaugh and Mary Lou Sabbagh; Case No. 05-14212 (Nugent) (February
2, 2007)
Dale R. Weaver; Case No. 05-14837 (Nugent) (February 2, 2007)
Michael E. Lowe and Jacqueline E. Flowers-Lowe; Case No. 05-14936 (Nugent)
(February 2, 2007)
Cedric W. Hollins; Case No. 05-15967 (Nugent) (February 2, 2007)
Alvin Johnson and Betty Johnson; Case No. 05-17141 (Nugent) (February 2, 2007)
Kenneth P. Cox; Case No. 05-9743 (Nugent) (February 2, 2007)
INTERIM ORDER ON CHAPTER 7 TRUSTEES’ MOTIONS FOR TURNOVER OF SPIRIT
AEROSYSTEMS’ DISTRIBUTIONS TO DEBTORS MADE UNDER EQUITY PARTICIPATION
PROGRAM
• 11 U.S.C. §541
Facts:
These cases were before the Court upon the Chapter 7 Trustee’s motions requiring debtors to turnover certain cash and stock distributions made to them by Spirit Aerosystems, Inc. (“Spirit”) under a Union Equity Participation Plan (“EPP”). The debtors in these six cases received a post-petition cash distribution under the EPP on or about December 6, 2006. The Trustee’s motions for turnover were filed in these cases on December 7, 8, 12, and 14, 2006. The question presented was whether the distributions under the EPP were property of the estate and subject to turnover.
Holding:
The Court noted that 11 U.S.C. §541 defines the property of the bankruptcy estate. As a general rule, the estate consists of all legal and equitable interests of the debtor on the date a case is commenced. 11 U.S.C. §541(a)(6) adds the proceeds and products of that property to the estate, while excluding post-petition earnings of the debtor from the bankruptcy estate.
The Court determined that the Trustee’s interim request for relief was akin to that for an injunction. To enter a preliminary injunction, a Court must determine that:1. the movant will suffer irreparable injury without the relief; 2. the movant’s risk of harm outweighs any harm the non-movant may suffer; 3. the relief sought is not adverse to the public interest; and 4. the movant has a substantial likelihood of success on the merits. The Court analyzed these four factors independently while concentrating much attention on the likelihood of prevailing on the merits.
The Court denied the Trustee’s motions for turnover because the Trustee did not meet the burden of showing a substantial likelihood of prevailing on the merits. The Court noted that the debtors acquired their interests in the EPP benefits well after their cases were filed, and none of them had a legal or equitable interest in any of the distributions on the date their cases were filed.
PHH Mortgage Corporation v. Roy L. Dick, Jr. et al. (In re: Roy L. Dick, Jr. and Robin R. Ford); Adv. Case No. 06-5286; Case No. 05-10881 (Nugent) (February 9, 2007)
ORDER DENYING PHH’S MOTION TO DISMISS COUNT V. OF TRUSTEE’S
COUNTER CLAIM
• 11 U.S.C. §362
•
11 U.S.C. §554(c)
• Fed. R. Civ. P. 12(b)(6)
•
K.S.A. §58-4204(g)
•
K.S.A. §58-4214
Facts:
Debtors owned real property in Reno County, Kansas upon which a mobile home was set. When they filed their bankruptcy petition on March 2, 2005, they failed to disclose the existence of the mobile home, and only scheduled the real estate. PHH held a mortgage encumbering the land. PHH sought and obtained an order lifting the stay to allow it to foreclosure its mortgage on the real estate. The Trustee did not object to the stay relief because he was unaware of the mobile home. The land and mobile home were sold at judicial sale. PHH commenced a quiet title action in state court, and the Trustee removed that action to the Bankruptcy Court. The Trustee contended that PHH had not perfected its security interest in the mobile home by complying with K.S.A. §58-4204(g) or K.S.A. §58-4214.The Trustee also filed a counterclaim against PHH for violating the automatic stay and for damages pursuant to 11 U.S.C. §362(h), and moved to dismiss the Trustee’s claim under Rule 12(b)(6).
Holding:
The Court observed that case law holds that any undisclosed assets in a bankruptcy estate remain assets of the estate whether or not the bankruptcy case is closed. 11 U.S.C. §554(c) makes it clear that only scheduled property is abandoned to the debtor when a case is closed, unless the Court orders otherwise. This Court concluded that the mobile home was undisclosed on the schedules and in the stay relief motion and, accordingly, remained in the estate. The Court denied PHH’s motion to dismiss and ruled that the adversary proceeding shall proceed to trial.
Victor S. Nelson v. Kimberly Lynn Nelson (In re: Kimberly Lynn Nelson); Adv. Case No. 06-5345; Case No. 06-10557 (Nugent) (February 21, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §523
• Fed. R. Civ. P.56
• D. Kan. Rule 7.4
Facts:
Plaintiff Victor Nelson (“Victor”) filed an adversary case seeking a judgment that his contempt claim arising out of his former wife Kimberley Nelson’s (“Kimberley”) post-divorce conduct was excepted from bankruptcy discharge under 11 U.S.C §523(a)(6). Kimberly moved for summary judgment, and Victor filed no response.
Holding:
The Court noted that Fed. R. Civ. P. 56 governs summary judgment and is made applicable to contested matters by Rule 9014 of the Federal Rules of Bankruptcy Procedure. When the non-moving party does not respond to a motion for summary judgment, the Court may accept as true the uncontroverted facts set forth in the motion for summary judgment. D. Kan. Rule 7.4 provides that if a respondent fails to file a response within the time required by Rule 6.1(d), the motion will be considered and decided as an uncontested motion.
The Court concluded that when it previously lifted the stay in Kimberley’s case to allow the financial matters portion of the divorce case to proceed in state court, it effectively deferred to that court the dividing of the parties’ property and allocating of their debts. The Court further concluded that to hold that Kimberley’s pursuit of her lawful remedies in state court after stay relief violated the provisions of the discharge would make its deferral to the state court meaningless. The Court held that Kimberly did not knowingly and willfully violate the discharge order and thus should not incur any liability to Victor as a result.
Jan Hamilton v. Washington Mutual Bank, FA. (In re: Jorge Colon, Jr. and Antoinette Valentina Ortiz-Colon); Adv. Case No. 05-7032; Case No. 04-42174 (Karlin) (February 26, 2007)
MEMORANDUM ORDER AND OPINION
• Fed. R. Bank. P. 8005
Facts:
This matter was before the Court on a motion for stay pending appeal filed by Defendant, Washington Mutual Bank, F.A. (the “Bank”). On January 26, 2007, the Court entered a Memorandum and Order granting judgment in favor of Plaintiff, Jan Hamilton, Chapter 13 Trustee, and against the Bank on the Trustee’s complaint to avoid the Bank’s mortgage lien against debtors’ homestead. The Bank filed a timely appeal to the Tenth Circuit Bankruptcy Appellate Panel. On February 8, 2007, the Bank filed this motion seeking stay of the Court’s judgment pending appeal.
Holding:
Fed. R. Bankr. P. 8005 provides that “a motion for a stay of the judgment, order, or a decree of a bankruptcy judge, for approval of a supersedeas as bond, or other relief pending appeal must ordinarily be presented to the bankruptcy judge in the first instance.” The four factors that are routinely used by the Court of Appeals for the Tenth Circuit to determine whether to grant a stay pending appeal pursuant to Fed. R. Bankr. P. 8005 are: 1. the likelihood that the party seeking the stay will prevail on the merits of the appeal; 2. the likelihood that the moving party will suffer irreparable injury unless the stay is granted; 3. whether granting the stay will result in substantial harm to the other parties to the appeal; and 4. the effect of granting the stay upon the public interest. The Court held that the Bank’s only basis for suggesting the Court’s decision was wrongly decided was its reliance on a case wholly distinguishable from the facts of this case. The Court further held that the Bank has failed to provide any basis that would allow the Court to find a likelihood of success on appeal. The Court denied the motion for stay pending appeal.
J. Michael Morris v. Conseco Finance Servicing Corp. (In re: Kevin Michael Wedman and Rachel Jolene Wedman); Adv. Case No. 05-5098; Case No. 05-10167 (Somers) (March 2, 2007)
OPINION DETERMINING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT, AND DENYING
PLAINTIFF’S CROSS-MOTION FOR SUMMARY JUDGMENT
• 11 U.S.C. §544
•
K.S.A §58-4204(h)
Facts:
This proceeding was before the Court on the defendant’s motion for summary judgment and the plaintiff Trustee’s cross-motion for summary judgment. In 1999, Robert Suttles bought a manufactured home with financing provided by Green Tree. Green Tree was properly perfected by notation on the certificate of title that was issued for the home in 1999. In February 2002, Suttles transferred ownership of the home to the debtors, who also assumed the obligations on Green Tree’s loan and lien. No new certificate of title was issued for the home in connection with the debtors’ purchase of the home and assumption of the loan. Debtors filed for bankruptcy.
The Trustee made alternative claims for relief: 1. Contending a security interest in a manufactured home owed by the debtors was not properly perfected under Kansas Law, and 2. that the transaction that created debtors’ interest in the manufactured home was fraudulent and void. The Trustee sought to recover payments the debtors made under a loan they assumed when they obtained their interest in the home.
Holding:
The Court ruled that Green Tree’s lien remained perfected because no certificate of title was ever issued that did not show the lien, and Green Tree never released the lien. The Court noted that the Kansas Manufactured Housing Act states that notation of a lien on the certificate of title for a manufactured home perfects the lien, but does not explicitly identify any subsequent event that terminates the perfection. The Court concluded that perfection continues until a new certificate of title is issued for the same home, unless the secured party executes a lien release before that occurs. The Court ruled that Green Tree was entitled to summary judgment declaring that its lien remained properly perfected. The Court held further that the transfer was not fraudulent and void under K.S.A. §58-4204(h).
Jeremy Kenneth Schoen; Case No. 06-20864 (Somers) (March 2, 2007)
OPINION DETERMINING A DEBTOR’S ABILITY TO PAY CAN BE CONSIDERED ON A
MOTION TO DISMISS UNDER 11 U.S.C.A. §707(b)(3)(B)
• 11 U.S.C. §707(b)(3)(B)
Facts:
This matter was before the Court for a ruling on the United States Trustee’s motion to dismiss or convert. The debtor filed his Chapter 7 petition on June 22, 2006, and his debts were primarily “consumer debts.” A month before he filed bankruptcy, the debtor started working for IBM. The parties stipulated that the debtor would have about $845.00 per month in disposable income he could devote to paying his creditors, which would provide $50,700.00 if paid over sixty months.
The U.S. Trustee filed a motion to dismiss or convert the case, claiming the totality of the circumstances of the debtor’s financial situation showed that granting him a discharge would constitute an abuse of the provisions of Chapter 7, in violation of §707(b)(3)(B). The question the Court decided to resolve was whether a debtor’s ability to pay some or all of his or her debts can be considered in deciding a motion to dismiss that is based on 11 U.S.C.§707(b)(3).
Holding:
Before the BAPCPA took effect, most courts, including the Tenth Circuit, had ruled the debtor’s ability to pay his or her debt out of future earnings was a primary factor to consider in determining whether granting relief would amount to substantial abuse. The Tenth Circuit had directed bankruptcy courts to apply a totality-of-the-circumstances test for deciding substantial abuse questions.
The BAPCPA dramatically modified 11 U.S.C. §707(b). First, in subsection (b)(1), Congress reduced the standard for dismissal from “substantial abuse” to “abuse,” and eliminated the presumption in favor of granting the debtor relief. Next, in subsection (b)(2), Congress created a detailed and complicated mathematical test for evaluating the debtor’s income and expenses to determine whether a presumption of abuse would arise. Finally, in subsection (b)(3), Congress provided that when the presumption under subsection (b)(2) either does not arise or is rebutted, courts can still find abuse if “(A)… the debtor filed the petition in bad faith” or, as relevant in this case, if “(B) the totality of the circumstances…of the debtor’s financial situation demonstrates abuse.”
The Court concluded that the debtor’s ability to pay is part of the “totality of the circumstances” that must be considered in determining under 11 U.S.C. §707(b)(3)(B) whether granting relief would be an “Abuse” of Chapter 7. The Court noted the debtor could convert his case to one under Chapter 13 or proceed to an evidentiary hearing on the abuse question.
Felicia S. Turner v. William Jack Keck (In re: William Jack Keck); Adv. Case No. 05-7149; Case No. 05-43269 (Karlin) (March 2, 2007)
MEMORANDUM ORDER AND OPINION
• 11 U.S.C. §727(a)(2)(A),(4)(A),(5)
•
11 U.S.C. §522(o)(4)
Facts:
This matter was before the Court on an objection to debtor’s homestead
exemption filed by the Chapter 7 Trustee, and an objection to discharge filed
by the United States Trustee.
The Trustee contended that the Debtor disposed of non-exempt property (cash
advances) to increase the value of his homestead exemption, and that 11 U.S.C. §522(o)(4)
prevents a debtor from exempting that portion of the value of his homestead
attributable to the disposition of such non-exempt property.
The United States Trustee initiated this adversary proceeding seeking a denial of debtor’s discharge on three grounds: 1. debtor transferred property with the intent to hinder, delay or defraud a creditor; 2. the debtor knowingly and fraudulently made a false oath or account in connection with his bankruptcy; and, 3. the debtor failed to satisfactorily explain the loss of assets that would have belonged in the bankruptcy estate.
Holding:
The Court found that, to succeed in an attempt to limit a homestead exemption under 11 U.S.C. §522(o)(4), the Trustee must show: 1. that the debtor disposed if property within 10 years preceding the filing of the bankruptcy petition; 2. that the proceeds from such disposition were used to increase the value of the debtor’s homestead; 3. that the property disposed of was not itself exempt; and 4. the debtor acted with the intent to hinder, delay, or defraud a creditor. The Court noted that this was not a case in which a debtor simply converted non-exempt property he already owned to exempt property in anticipation of filing for bankruptcy, as part of legitimate bankruptcy estate planning clearly allowed in this Circuit. Instead, this debtor incurred substantial debt on his unsecured credit cards in order to obtain the non-exempt property, which he then converted to his homestead. The Court reduced the debtor’s homestead exemption by $15,000.00 and granted the estate an equitable lien against the home in that amount.
The Court held that a denial of discharge under 11 U.S.C. §727(a)(2)(A) requires a showing of “actual intent to defraud creditors” along with three elements. Most courts typically look for a specific indication of fraud, often referred to as “badges of fraud,” when analyzing a case under 11 U.S.C. §727(a)(2)(A). The Court in this case held that due to debtor’s actions of obtaining cash advances with no means of repaying the debt his actions were done with the intent to hinder, delay, and defraud his creditors. The Court also found that the debtor should be denied a discharge pursuant to 11 U.S.C.§727(a)(4)(A), as the debtor made numerous false oaths and accounts with the intent to deceive the Court. The Court declined to deny the debtor’s discharge under 11 U.S.C. §727(a)(5).
J. Michael Morris v. First Bank of Newton and Aracely Gaiser (In re: Aracely Gaiser); Adv. Case No. 06-5140; Case No. 05-19138 (Somers) (March 2, 2007)
MEMORANDUM AND ORDER GRANTING TRUSTEE’S COMPLAINT FOR LIEN AVOIDANCE
• 11 U.S.C. §544(a)(2)
•
K.S.A. §8-135
Facts:
This matter was before the Court on two cross motions for summary judgment
on the complaint filed by the Chapter 7 Trustee to avoid the lien of Defendant
First Bank of Newton (the “Bank”) in debtor’s exempted 2003
Pontiac.
The Bank filed a “Kansas Manual Application for Duplicate, Secured, or Reissued Title,” together with the application fee and proof that the former lien had been released. The Harvey County Treasurer’s office made an error in processing the application and listed the lien of Capitol One, who was the prior lienholder and omitted the lien of the Bank. Debtor then filed for bankruptcy.
Holdings:
The Trustee sought to avoid the lien pursuant to 11 U.S.C. §544(a)(2). The Court noted that the right of the Trustee to avoid the Bank’s lien on the vehicle is determined pursuant to Kansas law. Under Kansas law, perfection of most security interests is governed by the Kansas version of Article 9 of the Uniform Commercial Code. For property subject to certificate of title statutes, perfection of a security interest is determined by “compliance” with such statutes and compliance “is equivalent to the filing of a financing statement under” Article 9.
Perfection of a lien in a motor vehicle is governed by K.S.A. §8-135. This case is nearly identical to In re Anderson, where Chief Judge Nugent held that a vehicle lien is unperfected if it is not stated on the certificate of title on the date of filing, even if the creditor submitted proper application for the title and the omission of the lien from the title was the fault of public employees. The Court in Anderson held that K.S.A. §84-9-311(b) requires compliance with the vehicle titling statutes and nothing in K.S.A. §8-135(c)(6) “provides that ‘presentation’ of the application for the title alone constitutes perfection of the lien securing the vehicle refinance.”
The Court ruled that the Bank’s lien on the vehicle was not perfected on the date of filing because it was not noted on the vehicle certificate of title. The Court held the Bank’s lien on the vehicle is avoidable pursuant to 11 U.S.C. §544(a)(2).
IBD, Inc., Case No. 05-23680 (Berger) (March 3, 2007)
ORDER DISMISSING INVOLUNTARY PETITION
• 11 U.S.C. §305
Facts:
The petitioning creditors commenced an involuntary bankruptcy proceeding on August 10, 2005, by filing an involuntary Chapter 7 petition against IBD, Inc. (“IBD”). The lead petitioning creditor was T. Scott Jenkins, IBD’s former CEO and a shareholder. Jenkins and IBD parted ways in October 2001 under bad terms. In 2002, IBD sued Jenkins and his new company in state court for converting IBD property and, as to Jenkins, for breaching his fiduciary duty. The petitioning creditors filed the involuntary petition shortly before that matter went to trial. In 2006, a state court jury entered judgment against Jenkins in favor of IBD in an amount in excess of $11,000,000.00. The jury also entered judgment against Jenkin’s new company in the amount of $275,000.00 for conversion. The state court judgments have been appealed. The Bankruptcy Court was left to decide whether the involuntary bankruptcy case was in the best interests of the creditors or the debtor and whether the petitioning creditors had adequate remedies at state law.
Holding:
The Court stated that it may decline to exercise jurisdiction and may dismiss a case if the interests of creditors and the debtor would be better served. The factors to be considered by the Court include: 1. the motivation of the parties seeking bankruptcy jurisdiction; 2. whether another forum is available or whether there is already a state court proceeding pending; 3. the economy and efficiency of administration; and 4. the prejudice to the parties. This Court noted that an involuntary bankruptcy petition is improper to resolve what is essentially a two-party dispute.
The Court held that this bankruptcy case was not in the best interests of the creditors or the debtor. The alleged debtor ceased operations, its assets were limited to an almost completed lawsuit, and there was little to administer but litigation, which creates administrative costs unduly burdensome to an estate. This bankruptcy case was dismissed pursuant to 11 U.S.C. §305.
Jani Leigh Bryson; Case No. 05-27009 (Somers) (March 6, 2007)
MEMORANDUM AND ORDER ADDRESSING WHETHER IN REM CLAIM AGAINST DEBTOR’S
RESIDENCE IS INCLUDED IN DEBTOR’S AGGREGATE “CONSUMER DEBT” FOR
PURPOSES OF 11 U.S.C. §707(b) MOTION TO DISMISS
• 11 U.S.C. §707(b)
Facts:
The narrow issue considered by the Court, was whether, even though the debtor has no personal liability on a note secured by her residence, “the lien against the debtor’s residence is included in calculating the debtor’s aggregate ‘consumer debt’” for purposes of the United States Trustee’s Motion to Dismiss pursuant to 11 U.S.C. §707(b).
Debtor’s Schedule A described the residence, disclosed her joint ownership, stated the current market value of $425,000.00, but listed the amount of related secured claim as zero. Schedule A included the following note in the “Description and Location of Property” column:
Debtor is on the title to the residence with her husband as joint tenants. However, debtor is not an obligor on the promissory note secured by the mortgage encumbering the property, and the creditor is not listed in debtor’s schedules. The lien has a balance of approximately $330,000.00.
Holdings:
The issue presented arose because the Court may grant a motion to dismiss by the United States Trustee pursuant to §707(b) based upon substantial abuse only if the debtor’s debts are primarily consumer debt.
It was the UST’s position that the threshold requirement, that debtor’s debts be “primarily consumer debts,” was satisfied because the note in the amount of $330,000.00 secured by the mortgage on the residence must be included and considered a consumer debt, making it unnecessary to determine whether the unsecured debt listed by debtor as business debt, as stated in her schedules, are in fact consumer debt.
The Court held that in rem debts are included when applying the condition of §707(b) that the UST may move to dismiss a case for substantial abuse only if the debtor’s debts are primarily consumer debts. In this case, where on the date of filing the debtor had no in personam liability on the note, but owned the residence in joint tenancy with her husband and had executed a mortgage securing her husband’s obligation, the extent of the debtor’s in rem liability did not exceed the value of her interest in the residence. Debtor’s ownership of the residence as a joint tenant gave rise to a presumption that she had a 50% interest in the residence, but this presumption is rebuttable, with debtor having the burden of proof on the issue.
The Court could not determine the eligibility of the UST to proceed on the motion to dismiss absent a determination of debtor’s ownership percentage in the residence. The Court ordered a status conference in the near future.
Michael P. Seal and Virginia S. Seal; Case No. 05-17262 (Somers) (March 6, 2007)
MEMORANDUM AND ORDER PARTLY SUSTAINING AND PARTLY OVERRULING OBJECTION TO
WICHITA MODEL PLAN LANGUAGE
• 11 U.S.C. §1328(a)(1)
•
11 U.S.C. §1325(b)(5)
• In re Coover, Case No. 06-40176 (Bankr. D. Kan. September 28, 2006)
• In re Coffman, Case No. 06-10819 (Bankr. D. Kan. December 8, 2006)
Facts:
In this Chapter 13 case, Wells Fargo Bank, NA, a creditor holding a claim secured by a mortgage on the debtors’ principal residence, on which the last payment was due after the final payment of the 13 Plan was due, objected to confirmation because of the inclusion of the following language in the debtors’ proposed plan from the Wichita Chapter 13 Trustee’s Model Plan:
Debtor will pay all post-petition mortgage payments directly to mortgage creditors. Arrearages will be paid pro rata with other creditors over the life of the plan.
The amount of the arrearage as specified in the creditor’s proof of claim shall govern unless an objection to the claim is filed. Interest will be paid on the arrearage, unless otherwise 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.
Wells Fargo contended that the second and third paragraphs are mutually exclusive and contradictory, that the third paragraph sought an advisory opinion as to the status of the debtors’ account upon discharge of their cases, that the mortgages are long-term debts under 11 U.S.C.§1325(b)(5) that are excepted from discharge pursuant to 11 U.S.C §1328(a)(1), and the debtors and the Trustee are confusing “claim” versus “debt.”
Holding:
The Court noted that Judge Karlin recently addressed substantially the same issues with respect to the Topeka Model Chapter 13 plan in In re Coover.A few months after Judge Karlin’s decision, Chief Judge Nugent, in In re Coffman. addressed creditors’ objections identical to the objections before the Court. For the reasons stated in Coffman, debtors’ Chapter 13 Plan provided the language is modified as stated in In re Coffman, and the objections of Wells Fargo are overruled, except to the extent the language of the plan is modified in accord with In re Coffman.
J. Michael Morris v. Prairie State Bank and Michelle Lucas (In re: Michelle (NMNI) Lucas; Adv. Case No. 06-5172; Case No. 05-18424 (Somers) (March 9, 2007)
MEMORANDUM AND ORDER GRANTING IN PART TRUSTEE’S COMPLAINT TO
AVOID AND PRESERVE PREFERENTIAL TRANSFER AND TO DETERMINE RIGHTS
• 11 U.S.C. §547(b)
•
11 U.S.C. §551
Facts:
The matter before the Court was the Chapter 7 Trustee’s adversary complaint filed against Prairie State Bank (the “Bank”) and Michelle Lucas. The Trustee sought to avoid the transfer of a security interest in debtor’s vehicle pursuant to § 547(b) and to preserve the lien for the benefit of the estate pursuant to § 551.
On or about August 25, 2004, Helen C. Cummings (“Cummings”),
debtor’s mother, borrowed $10,282.44 from the Bank for the purpose of
refinancing debtor’s loan with GMAC for the purchase of Debtor’s
2001 Saturn. Debtor signed a security agreement granting the Bank a security
interest in her vehicle, but debtor did not sign the note or otherwise have
personal liability on her mother’s note. The Bank’s security interest
in the vehicle was not perfected until an application for a secured title was
made to the Department of Revenue on July 26, 2005.
Debtor filed for relief under Chapter 7 on October 13, 2005. She claimed the
vehicle as exempt and listed the Bank loan as a secured claim. In December
2005, Cummings’ loan with the Bank was renewed. Only Cummings, not the
debtor signed the renewal note, the vehicle secured the renewed note. In January
2006, nearly three months post-petition, debtor set up an auto-debit with the
Bank to make payment toward Cummings’ renewed loan with Bank.
On March 27, 2006, the Trustee filed this Complaint to avoid perfection of
the lien as a preferential transfer, to preserve the lien for the benefit of
the estate, and to determine rights in the vehicle.
Holding:
The Court noted that 11 U.S.C. §547(b) states the conditions for avoidance of preferential transfers. The granting of a security interest in property of the debtor is a transfer. Under §547(b), a transfer is avoidable of it:
1. is of an interest if the debtor in property; 2. is for the benefit of a creditor; 3. is made for or on account of an antecedent debt owed by the debtor before the transfer was made; 4. is made while the debtor is insolvent; 5. is made on or within ninety days before the date the bankruptcy petition was filed; and 6. allows the creditor more than it would otherwise be entitled to receive from the bankruptcy estate.
The Court found that the Trustee had sustained his burden to establish each element for avoidance of the Bank’s security interest in the vehicle as a preferential transfer pursuant to11 U.S.C. §547(b). The Court also found that the security interest should be preserved for the benefit of the estate pursuant to 11 U.S.C. §551.
Frontier Farm Credit v. Leo J. Schwartz and Sharon J. Schwartz; (In re Leo J. Schwartz and Sharon J. Schwartz) Adv. Case No. 06-5368; Case No. 03-16197 (Nugent) (February 13, 2007)
ORDER GRANTING IN PART DEFENDANTS’ MOTION TO DISMISS COMPLAINT
• 11 U.S.C. §727(d)(1)
and (2)
•
11 U.S.C. §1144
Facts:
Plaintiff Frontier Farm Credit (“Frontier”) filed an adversary complaint seeking revocation of Leo and Sharon Schwartzs’ (“defendants”) discharge for fraud pursuant to 11 U.S.C. §727(d)(1) and (2).
On April 18, 1992, Leo’s mother, Mary Kay Schwartz, made a warranty deed conveying certain real estate located in Washington County, Kansas (“the property”) to Leo and his five siblings “in equal shares as tenants in common.”
On November 12, 2003, defendants filed their Chapter 11 petition. Defendants did not list Leo’s one-sixth remainder interest in the property on their schedules. The Court confirmed defendants’ Joint Plan of Reorganization on August 15, 2005. Pursuant to 11 U.S.C. §1141, the order of confirmation effectively granted defendants a discharge. After their plan was confirmed, Leo’s mother died, and he succeeded to ownership of the property.
On August 14, 2006, Frontier filed this adversary proceeding for revocation of defendants’ discharge for fraud under 11 U.S.C. §727(d).
Holdings:
Defendants moved to dismiss Frontier’s complaint alleging failure to state a claim upon which relief may be granted. Defendants’ contention was that 11 U.S.C. §727, the statutory basis for Frontier’s complaint, was not applicable to the Chapter 11 case. They also moved to dismiss because the complaint was filed more than 180 days after confirmation of the plan and was statutorily barred.
The Court found that Frontier’s 11 U.S.C. §727(d) cause of action should be dismissed because it failed to state a legal basis for relief. Section 727 did not provide a basis for relief in the Chapter 11 case. The Court did, however, note that there is authority allowing creditors to assert an independent action for fraud committed in the confirmation process, to seek money damages. Courts have allowed causes of action premised on fraud to proceed if a judgment awarding the plaintiff money damages would not ultimately effect the plan distributions made to the creditor body. However, Frontier did not properly plead this cause of action. The Court held that the defendants were correct that the complaint was facially insufficient to assert an independent action for fraud.
The Court granted Defendants’ motion to dismiss as to Frontier’s revocation of discharge claims, but denied without prejudice to refiling of Frontier’s fraud claim.
Advantage Properties. Inc.; Case No. 06-12363 (Somers) (March 14, 2007)
OPINION DETERMINING THAT EMPRISE BANK’S MOTION TO DISMISS SHOULD
BE GRANTED, WHICH MAKES ITS MOTION FOR STAY RELIEF MOOT
• 11 U.S.C. §1141(a)
•
11 U.S.C. §1127(b)
Facts:
This matter was before the Court for an evidentiary hearing on February 12, 2007, on creditor Emprise Bank’s motion to dismiss, and its alternative motion for stay relief.
In August 2002, the debtor signed a note to Emprise showing a debt of over $566,000.00 that was secured by mortgages on the mall owned by debtor. By 2003, the debtor had defaulted on the debt, and Emprise filed a foreclosure action in state court. Emprise obtained a foreclosure judgment, but in August 2003, on the day before a foreclosure sale was to occur, the debtor filed a Chapter 11 bankruptcy petition.
Eventually, in January 2005, the debtor obtained confirmation of a plan of reorganization under which it would pay Enterprise $575,000.00 on its secured claim. The debtor defaulted on its plan payments, and Emprise accelerated the debt, as allowed by the plan. Emprise returned to state court, and a new foreclosure sale was scheduled in December 2006. The day before the sale was to occur, the debtor filed its second Chapter 11 petition. Less than ten days later, Emprise filed a motion to dismiss the new case and a motion for stay relief, seeking authority to complete its foreclosure sale in the state court suit.
Holding:
This Court concluded the second bankruptcy case must be dismissed because it constitutes an attempt to modify the debtor’s confirmed and substantially consummated plan in the first bankruptcy case and is not permissible because no extraordinary change of circumstances occurred that would justify the new Chapter 11 case. The conclusion renders Emprise’s motion for stay relief moot.
Patricia A. Shapland v. Leland Leon Shaplan (In re: Leland Leon Shapland) Adv. Case No. 05-5611; Case No. 05-11637 (Nugent) (February 16, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §727
Facts:
Plaintiff Patricia A. Shapland (“Patricia”) filed an adversary complaint seeking an order denying defendant Leland Shapland (“Leland”) a discharge under various provisions of 11 U.S.C. § 727(a) or, alternatively, excepting from Leland’s discharge of his property settlement debt to her under 11 U.S.C. §523(a)(15).
Patricia asserted an objection to Leland’s discharge based on three subsections of 11 U.S.C. §727(a). First, she contended that Leland had taken, transferred, or concealed property with the intent to hinder, delay, or defraud his creditors within one year of the date of filing of his case. Second, she contended that Leland had concealed, falsified, or destroyed financial records. Third, she argued that Leland had made false oaths in the course of the case.
Holding:
The Court noted that the Tenth Circuit Bankruptcy Appellate Panel has cited the following factors from which a debtor’s fraudulent intent may be inferred: 1. concealment of pre-bankruptcy conversions of assets; 2. conversation of assets immediately before filing bankruptcy; 3. gratuitous transfers of property; 4. continued use of transferred property; 5. conversion after entry of a large judgment against debtor; and 6. engaging in a pattern of sharp deadline prior to bankruptcy.
The Court found fraudulent intent on Leland’s part using the above criteria and granted Patricia on her complaint under §727(a)(2)(A), (a)(3) and; (a)(4)(A). In light of that determination, Patricia’s cause of action under §523(a)(15) was moot.
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