In re Townsend; Case No. 07-20956-13 (Somers) (April 3, 2008)
• 11 U.S.C. § 506
•
11 U.S.C. §1325
Facts:
On April 25, 2006 Debtor purchased a vehicle from Marcus
Allen Broadway Ford, Inc. Wells Fargo provided the financing for the purchase.
Under the contract,
the debtor was required to maintain property insurance on the vehicle satisfactory
to Wells Fargo. If the debtor failed to maintain property insurance or Wells
Fargo was not satisfied with the debtor’s insurance, Wells Fargo could
purchase the property insurance at the expense of the debtor. In late 2006,
Wells Fargo received notice that the debtor’s property insurance had
lapsed and Wells Fargo purchased property insurance from January 1, 2007 through
April 30, 2007 for a total of $1,515.46. That amount was added to the principal
of the debtor’s note. Debtor filed for Chapter 13 relief on May 8, 2007,
within 910 days of purchasing the vehicle. Wells Fargo filed a proof of claim
for $25,064.89 and the debtor objected asserting, among other things, that
Wells Fargo was not entitled to the $1,515.46 in forced-placed insurance.
Holding:
The Court denied the Debtor’s objection to Wells Fargo’s proof
of claim and found that the amount for forced-placed insurance should be included
in Wells Fargo’s secured claim. Deciding the case under Missouri law,
the Court found that the definition of a purchase-money security interest under
Missouri’s article 9 included forced-placed insurance because a purchase
money security interest includes reasonable expenses incurred in preservation
of the collateral. Moreover, the Court declined to follow Judge Berger’s
decision In re Smith, Case No. 06-20508 (Bankr. D. Kan. Nov. 6, 2006), reasoning
that Judge Berger’s narrow interpretation of PMSI’s was without
consideration to article 9 details relied upon in this case.
In re Bruce Earl Anderson; Case No. 05-19222-7 (Nugent)(April 11, 2008)
• 11 U.S.C. § 522(o)
Facts:
This case involves the objection to debtors homestead
by two creditors. Debtor owned several entities; AeroTech Designs, Inc. (“AeroTech”) manufactured
auto lifts and Auto Lifters of America, L.L.C. marketed them. Central Plains
Steel invoiced Auto Lifters, and eventually AeroTech for steel to build the
lifts. Salina Steel also sold steel to Auto Lifters. Both asserted claims against
Anderson, with Central Plains claim predicated on its ability to piece the
corporate veil, whereas, Salina Steel asserted claim against Anderson on a
personal guaranty. Anderson challenged Salina Steels’ guaranty claim
asserting that his signature – Bruce Anderson, pres. – on the guaranty
was signed in his capacity as president of AeroTech.
The creditor’s objection to debtor’s homestead exemption involves a payment by debtor to his mortgage lender of some $240,000.00. The money came from what would otherwise be exempt assets; including a $100,000.00 CD acquired with proceeds of a now exempt real estate interest; $115,000.00 from the proceeds of Auto Lifts sale of its Newton Manufacturing Facility; $33,000.00 proceeds from a CD used to secure a line of credit.
Holding:
The Court first ruled that Central Plains has no
standing to object to the debtor’s homestead exemption because Central
Plains was not a creditor of the debtor. IN reaching that conclusion, the Court
ruled noted that the
debtors actions of personally borrowing funds and infusing capital into the
businesses did not constitute the fraud and injustice the piercing-the-corporate-veil
theory is designed to prevent.
The Court, on the other hand, found that Salina Steel had standing to object to the debtor’s homestead because of the debtor’s personal guaranty. In so deciding, the Court rejected the debtor’s argument that the guaranty he signed was in his corporate capacity as president of AeroTech. The Court specifically found that the placing of a corporate officer position is not enough to limit the debtor’s liability. The order for a signature to signed in a corporate capacity, the signature block, including stating the name of the corporation, followed by the names of the officers, preceded with “by” or “per” and since the signature block on the guaranty did not follow that format, personal liability could not be avoided.
With the Court decision that the guaranty was indeed personal, the Court ruled on Salina Steel’s objection to the debtor’s homestead exemption. The Court denied Salina Steel’s objection. The Court first noted that the “hinder, delay and defraud” provision in 11 U.S.C. § 522(o) should be interpreted simultaneously to the “hinder delay and defraud” language in § 727(a)(2)(A) or an action to recover a fraudulent transfer § 548(a), namely that the objecting creditor has the burden of proving by a preponderance of evidence the necessary intent to defraud. The Court found that Salina Steel failed to carry that burden. First, the Court noted that simply because the transfer was made shortly before the filing of the bankruptcy alone was not enough to prove the requisite intent necessary, and that when he was pressed about the reason for ht transfer, the debtor responded “I don’t know.” This evidence without more was not enough to carry the burden to prove the intent to hinder, delay or defraud his creditors.
United States of America, et al v. Garry E. Krause, et al (In re Krause);
Case
No. 05-17429-7; Adversary No. 05-5775 (Nugent) (April 21, 2008)
Facts:
This case derives its nexus from the debtor’s ownership interests in
certain ail-recovery partnerships in the 70’s and 80’s. These partnerships
were found to be tax shelter with no for-profit purpose. The IRS disallowed
the debtors loses from these partnerships which increased the debtor’s
income-tax liability substantially. That set in motion twenty years of what
the Court noted was the debtors efforts to hide his assets from the IRS. The
debtor’s actions included setting up five trusts, two accounts in his
wives name, and filtering his assets through his wife and his wife’s
accounts to the trusts. The convoluted machinations of the debtors transactions
are to numerous and complex to detail in a summary, but needles to say, when
the debtor filed bankruptcy on October 15, 2005, the IRS objection to his discharge.
The IRS claimed that its tax liens attached to the corpus, the five trusts,
various other accounts and various other entities, which the IRS claims were
controlled by the debtor. The Trustee joined the IRS in their nominee theory.
Holding:
The Court found that the trusts and other various entities were in fact the
debtors’ nominees. Of note, however, the Court found that for the government
to be successful on its nominee claim it must prove a two step process; whether
state law gave the taxpayer a property interest in the property the IRS is
trying to reach, and then whether the federal nominee theory would apply Although
the IRS glossed over the state law requirement, the Court recognized that a
donor of a fraudulent conveyance retains an equitable interest in the transferred
property and a resulting trust can occur when a transfer is made by one party,
but consideration is paid by another. Finding both of those theories applicable,
the Court found state law predicate awardable. Moreover, the Court found that
it need not decide fraudulent conveyance claims asserted by the IRS and the
trustee because it had already determined the nominee issue.
The Court also decided the issue of whether the debtors debts should be excepted
from discharge based on a fraudulent return theory and a willful evasion of
taxes issues. In regards to fraudulent tax return issue, the Court placed major
emphasis that actual fraud must be proven, a burden the Court found the IRS
did not meet for some of the tax years in question.
In re John Wesley and Cynthia Dawn Ford;
Case No. 07-11561-13 (Nugent) (May
8, 2008)
• 11 U.S.C. § 1325(a)(9)
•
11 U.S.C. §1325(a)(*)
Facts:
The debtors acquired a pickup truck within 910 days
of filing. The debtors financed $40,000.00 through the dealership to buy the
pickup – the cash
price of the vehicle was $29,975.00 and the debtors made a $1500.00 down payment.
The dealership also advanced $7200.00 to payoff the debtors’ lien on
the trade-in vehicle. The note was later transferred to Ford Motors Credit
Company (“FMCC”). The debtors’ plan bifurcated FMCC’s
claim by treating the negative equity portion as unsecured. FMCC objected.
Holding:
The Court concluded that the debtors’ negative equity in a trade-in
vehicle, financed by the lender, was part of the price of the collateral and
constitutes value given to enable the debtors to acquire the collateral. Therefore,
the Court found, the negative equity constituted a purchase-money obligation
and cannot be bifurcated under 11 U.S.C. § 506 because of 11 U.S.C. § 1325(a)(*).
In reaching its conclusion, the Court adopted the rationale expressed by the
bankruptcy court in In re Burt, 378 B.R. 352 (Bankr. D. Utah 2007). The Court
noted that a purchase-money obligation includes all or part of the price of
the collateral or value given to enable the debtor to acquire rights in the
collateral. And since part of the value given by the debtors’ was the
trade-in vehicle and since the lien on the vehicle had to be paid in order
for the dealership to realize the value of the trade-in vehicle, the credit
extended to realize that value constituted a purchase-money obligation.
In re Robert Allen and Denise Marie Hays; Case No. 07-41285-13 (Karlin)(April 29, 2008)
• Fed. R. Bankr. P. 3015
•
Fe. R. Civ. P. 52
Facts:
Debtors filed for relief under Chapter 13 of the Bankruptcy
Code on September 19, 2007. Concurrent with that filing, the debtors filed
Form 22C, which claimed
a household size of seven people. Those seven people included the debtors’ 28-year-old
daughter, their 22-year-old daughter, their daughter’s 28-year-old fiancé,
and two grandchildren – a six-year-old grandson and a four-year-old granddaughter – all
which lived in the debtors’ home. Both daughters were college students,
who have at least part-time jobs. Neither daughter nor the daughter’s
fiancé directly or regularly contributed to the debtors’ monthly
living expenses. The debtors claimed the grandchildren as dependents of their
tax returns, but not the daughters.
Also on their Form 22C, the debtors claimed an expense for a timeshare they intended to retain and pay the creditor $50.00 a month through the plan. As of the date of filing, the debtors were current on their timeshare obligation.
The Trustee objected to the allowance of the dependents and of the debtors’ proposed retention of the timeshare as not reasonable or necessary.
Holding:
The Court found that the debtors could not claim
non-dependent adults living in their home as dependents for the means test
calculation. The Court reasoned
that 11 U.S.C. § 707(b)(2)(A)(ii)(I) limits allowed expenses for the means
test calculation, for above median income debtors, to those of the debtor,
the debtor’s spouse, and the debtor’s dependents, unless certain
exceptions, such as those found in § 707(b)(2)(A)(ii)(II), apply. As such,
the Court reasoned that the debtors claimed expenses could not include their
28-year-old daughter or the fiancé of their daughter in calculating
household size and thus the expenses on the means test calculations. The Court
found however, that the debtors could claim expenses for the two grandchildren
and thus could include the two grandchildren on their Form B22.
Second, the Court found that the debtors were entitled to claim expenses for a timeshare on Form B22. In reaching that conclusion the Court reasoned that the clear language of post-BAPCPA § 1325(b)(3) strips the Court of discretion to determine the reasonable and necessary expenses of the debtor by stating that “[a]mounts reasonably necessary to be expended…shall be determined in accordance with subparagraphs (A) and (B) of 707(b)(2)” for above median income debtors. And since Section 707(b)(2)(A)(iii)(I) allows a debtor to divide “all amounts scheduled as contractually due to secured creditors” by 60 to arrive at a deduction for ongoing secured debt payments, the Court found that an above median income debtor does not have to show that an expense on Line 47 for a secured debt is reasonable or necessary for the support of the debtor or the debtor’s dependents for the expense to be included in the debtor’s means test calculation.
Finally, the Court noted that were it to read a general requirement that all expenses deducted on the means test be reasonable and necessary, then there would be no reason for the Code to limit the expenses allowed under § 707(b)(2)(A)(iii)(II) to those that are “necessary for the support of the debtor and the debtor’s dependents.”
In re Ronald Eugene Law; Case No. 07-40863-13 (Karlin)(April 24, 2008)
• 11 U.S.C. §707(b)
•
11 U.S.C. §1325
Facts:
Debtor filed for relief under Chapter 13 of the Bankruptcy
Code on June 28, 2007. The matter was before the Court on the Trustee’s Objection to Confirmation
of the Plan. The Trustee raised four separate objections to Debtor’s
completion of Form 22C. The Trustee’s objections were as follows: 1.
the Trustee objected to the inclusion of Debtor’s non-dependent, adult
son in his “household size” for purposes of calculating his applicable
commitment period and projected disposable income; 2. if Debtor is allowed
to include his son in his household size, the Trustee argued that the Debtor
must also include his son’s income, if any, in his projected disposable
income calculations; 3. the Trustee objected to Debtor’s deduction of
an expense for a tax levy on Line 33, noting that it was both improper, and
duplicative of an allowance Debtor has also claimed on Line 49; and 4. the
Trustee objected to the inclusion of a vehicle ownership expense because the
vehicle was unencumbered on the date Debtor filed his bankruptcy petition.
Holding:
The first objection raised by the Trustee concerned
the Debtor’s inclusion
of his non-dependent, adult son as a member of his household when calculating
deductions on the means test. At issue in this case was whether the Debtor
had complied with the requirements of 11 U.S.C. §1325(b)(1)(B) by providing
for payment, in his plan, of all of his projected disposable monthly income
during the life of his Chapter 13 plan towards the repayment of unsecured,
non-priority, creditors. The Court noted that based upon the clear statutory
language contained in 11 U.S.C. §707(b)(2)(A) and (B), that the Debtor
cannot claim expenses for his non-dependent adult son. The statutory language
that allows debtors to claim a deduction for monthly expenses under the National
Standards issued by the IRS clearly require that those expenses must be “for
the debtor, the dependents of the debtor, and the spouse of the debtor in a
joint case, if the spouse is not otherwise a dependent.” The Court stated
that there is nothing in 11 U.S.C §707(b)(2) that authorizes this Debtor
to claim expenses for his non-dependent, adult son who happened to be living
in his home on the date of filing.
The Trustee also objected to the Debtor’s deduction of $471.00 per month from his income as an automobile ownership expense, because the Debtor’s car was not encumbered by any debt. The Trustee argued that the Debtor cannot deduct the IRS standard transportation ownership/lease expense from income when completing the means test calculation if the Debtor does not actually have to make a monthly loan or lease payment. The Court agreed with the majority of courts that have considered this issue and noted that the central inquiry is what the term “applicable” means when describing the monthly expense amounts specified under the National and Local Standards issued by the IRS. The Court noted that although most courts agree what the issue is, there is a clear split among the dozens of courts who have issued opinions on this issue as to how that term should be interpreted and at last count, the courts were fairly evenly split.
The Court agreed with those cases which hold that if a debtor does not have an expense provided for in the National and Local Standards, then that expense is not “applicable” to the debtor and he cannot claim it on Form 22C. The Court found that the automobile ownership expense used in the means test calculations is not applicable to this Debtor. Based upon the Court’s holding on this issue, the Debtor was not allowed to claim any expenses on Line 28 of Form 22C, and the Trustee’s objection was confirmed.
The final objection raised by the Trustee concerned that the Debtor’s treatment of an IRS wage levy in the means test calculation. In completing Form 22C, the Debtor claimed that the amounts levied against his pay constitute “court-ordered payments” that can be deducted as an allowed expense on Line 33. Because the debt that is the subject of the wage levy is a priority debt, the Debtor also claimed a deduction on Line 49 of Form 22C, which allows for a deduction from income for the total amount of all priority claims. The Court found the debt in question cannot be deducted as an allowable expense on Line 33 of Form 22C. First, the Court noted that a wage levy is not a court ordered payment, which the Debtor readily admitted. Second, the debt in question, which the parties agreed was a priority claim that must be paid during this Chapter 13 case, has already been allowed on Line 49. Third, to the extent the Court were to consider treating the IRS tax levy as it would a court ordered payment for debts such as child or spousal support, Line 33 specifically instructs debtors not to enter amounts that are dealt with as priority debts on Line 49. The Court noted that the whole point of this instruction is to make it clear that debtors cannot “double dip” on their expenses by including the same debt twice. The Court stated that the Debtor was entitled to deduct the monthly expense for the payment of the priority tax claims, but that expense must be calculated on Line 49 of Form 22C, not included both on Line 49 and on Line 33.
Based upon the above-rulings, the Debtor’s chapter 13 plan could not
be confirmed.
Sidney Rhoades v. Dennis R. Pangborn (In re: Dennis R. Pangborn);
Case No.
05-25045; Adversary Case No. 05-6237 (Berger) (March 19, 2008)
MEMORANDUM OPINION AND ORDER GRANTING SUMMARY JUDGMENT IN FAVOR OF DEFENDANT
• 11 U.S.C. § 523(a)(6)
Facts:
Debtor filed for bankruptcy as an individual on September 30, 2005. Debtor
was also president, sole shareholder, and sole director of Paul Davis Restoration
of Northland, Inc. (PDR), a Missouri corporation.
When Debtor filed bankruptcy, a state court action was pending between Rhoades and PDR. Rhoades contracted PDR in 1999 for the restoration of Rhoades’ home which had been damaged by fire. The project did not proceed smoothly, and the parties’ business relationship disintegrated by 2000. On final invoice, Rhoades had total due of $8,199.18, but he never paid it. Instead, in 2004, Rhoades filed a state court action against PDR and Debtor personally for breach of contract, among other things. Rhoades’ allegations were that 1. Debtor unilaterally terminated the parties’ contract, 2. Debtor insisted as a condition of Debtor’s continuing work on Rhoades home that Rhoades’ insurance advances be held in a PDR bank account, and 3. Debtor subsequently withdrew the insurance proceeds from the account without Rhoades’ prior approval.
Rhoades sought exception from discharge under 11 USC § 523(a)(6) damages he claimed Debtor caused in attempting to restore Rhoades’ home. Debtor moved for summary judgment.
Holding:
Summary judgment granted in favor of Debtor. Rhoades’ breach of contract
claims were not excepted from discharge under 11 USC § 523(a)(6). A person
who commits an intentional tort will not be absolved of liability through discharge
in bankruptcy. However, a knowing breach of contract does not qualify as an
intentional tort under 11 U.S.C. §523(a)(6). Rhoades specifically failed
to provide evidence of intent on Debtor’s part to support a finding of
willful and malicious injury. Furthermore, the evidence did not establish conversion
on Debtor’s part.
Credit Union 1 of Kansas v. Joshua Aaron Murrow (In re: Joshua Aaron Murrow);
Case No. 07-41061, Chapter 7; Adversary Case No. 07-7119 (Karlin) (March 24,
2008)
MEMORANDUM OPINION AND ORDER
• 11 U.S.C. § 523(a)(6)
Facts:
Murrow filed a Chapter 7 bankruptcy petition on August 7, 2007. In his schedules,
Murrow indicated that he owned a wrecked 2001 Ford automobile and valued the
vehicle at only $150.00. The schedules noted that Credit Union held a secured
claim against the vehicle for $3,650.00, but did not indicate on the Statement
of Intention whether the debt to Credit Union would be reaffirmed or if the
property would be surrendered or redeemed. Credit Union filed a secured proof
of claim for $3,601.07.
Prior to the first 341 meeting, scheduled for October 15, 2007, counsel for Credit Union had an informal conversation with Debtor about the vehicle. Murrow indicated that he had “bashed” the vehicle and that it was worthless, and that he would surrender the vehicle. At that point, counsel for Credit Union stopped the discussion with Murrow. When questioned about the vehicle under oath at the actual 341 meeting, Murrow invoked his 5th Amendment right against self-incrimination and refused to answer any questions regarding the damage to the vehicle. Murrow declined to enter into a reaffirmation agreement with Credit Union and ultimately surrendered the car.
In November, 2007, Credit Union initiated this adversary proceeding, seeking a determination by the Court that the debt owed to it by Murrow was non-dischargeable. Credit Union 1 contends that Murrow willfully and maliciously damaged its property, and that the debt in question is non-dischargeable pursuant to 11 U.S.C. §523(a)(6). Credit Union filed an amended complaint on January 22, 2008.
Murrow moved to dismiss the amended complaint, claiming that it does not contain allegations sufficient to state a claim under 11 U.S.C. §523(a)(6). Murrow claims that the complaint should be dismissed because 1. the vehicle in question was his property, and not the property of Credit Union, and 2. Credit Union has not directly alleged that he intended to willfully and maliciously injure Credit Union 1’s property.
Holding:
The Amended Complaint failed to state a claim upon
which relief can be granted under 11 U.S.C. §523(a)(6). The Credit Union did have a security interest
in the vehicle. This was a sufficient property interest to state a claim under
11 U.S.C. §523(a)(6), but the Amended Complaint failed to allege that
Murrow acted with the required intent necessary to state a claim under 11 U.S.C. §523(a)(6).
The Credit Union alleged that Murrow “bashed” the car, but it did
not state that Murrow intentionally damaged the vehicle or that he had a willful
or malicious intent toward Credit Union in doing the “bashing.” 11
U.S.C. §523(a)(6) provides an exception to discharge “for willful
and malicious injury by the debtor to another entity or to the property of
another entity.” In Kawaauhau v. Geiger, 523 U.S. 57 (1998), the Supreme
Court held that this provision only applies to a deliberate or intentional
injury, not merely a deliberate or intentional act that leads to injury. Debtor
must have intended the consequences of the act he or she performed, not simply
the act itself. Further, the Tenth Circuit Court of Appeals has held that without
proof of both a willful act and an malicious injury, an objection to discharge
under 11 U.S.C. §523(a)(6) must fail. Panalis v. Moore (In re Moore),
357 F.3d 1125, 1129 (10th Cir. 2004).
However, a defective complaint is not subject to dismissal with prejudice, i.e. without opportunity to amend or replead, unless either it appears to a certainty that no relief can be granted under any set of facts that can be proved in support of its allegations or multiple repleadings have not cured the defects. That’s not the case here. Thus, the Court allowed Credit Union an additional 10 days to file a second amended complaint setting forth sufficient allegations to state a claim under 11 U.S.C. §523(a)(6).
J. Michael Morris v. Lillian Elletha Morris (In re Lillian Elletha Morris);
Case No. 05-18787, Adv. 07-5058 (Somers) (March 26, 2008)
MEMORANDUM OPINION AND ORDER DENYING TRUSTEE’S COMPLAINT
FOR REVOCATION OF DISCHARGE AND ENTERING MONETARY JUDGMENT AGAINST DEBTOR
• 11 U.S.C. §542
•
11 U.S.C. §727(d) (2) and (3)
Facts:
The matter before the Court was the Chapter 7 Trustee’s Complaint for
Turnover and Revocation of Discharge. The Trustee contended that the Debtor’s
discharge should be revoked pursuant to 11 U.S.C. §§ 727(d)(2) and
(3) for failure to turnover to the Trustee the estate’s interest in the
Debtor’s 2005 tax refunds. The Trustee also prayed for a judgment against
the Debtor for the estate’s share of the refunds and other related amounts.
Holding:
The purpose of the Bankruptcy Code is to provide
the honest, but unfortunate, debtor a fresh start. The availability of revocation
of discharge allows a
debtor to receive a discharge early in the case while protecting the estate
and creditors if one of the enumerated grounds for revocation arises. The Court
initially analyzed the timeliness of the Trustee’s complaint to revoke
the discharge. The time limits for seeking revocation of discharge under 11
U.S.C. §§ 727(d)(2) and (d)(3) are stated in 11 U.S.C. § 727(e).
The Court noted that, the order of discharge was filed on January 31, 2006, and the case was closed on the same date. The case was reopened by order filed on March 27, 2006. The Complaint to revoke discharge was filed on January 31, 2007. Debtor contended that the Complaint was filed one day late, urging that “one year after the granting of such discharge” ended on January 30, 2007. The Court found that the Complaint was timely filed because the one year period commenced on the day after the filing of the order of discharge. The Court held that the complaint was timely filed.
The Court then analyzed the Trustee’s claim that the Debtor’s discharge should be revoked pursuant to 11 U.S.C. §727(d)(2) because after receiving her discharge, she received tax refunds in which the estate had an interest and had failed to deliver or surrender the funds in response to the request of the Trustee and the Turnover Order entered by the Court. The Court noted that in order to revoke a discharge under this section, the Trustee must establish that the Debtor acquired property of the estate and knowingly and fraudulently failed to report or deliver the property to the Trustee. The Court was not convinced of Debtor’s fraudulent intent. The Trustee’s complaint to revoke Debtor’s discharge under 11 U.S.C. §727(d)(2) was denied.
As to the Trustee’s 11 U.S.C. §727(d)(3) claim the Court stated that in order to grant the Trustee’s Complaint for revocation of discharge under 11 U.S.C. §727(d)(3) the Court must find that the June 9, 2006 order was a “lawful order.” The Court had serious concern about the lawfulness of the June 9, 2006 order as a basis to revoke discharge. According to the holding of Hill v. Muniz, 320 B.R. 697, 699-700 (Bankr. D. Colo. 2005), “for an order for turnover to be appropriate, it is necessary that a trustee demonstrate, not only that the debtor received or had possession of estate property, but also that the debtor received or had possession of estate property, or its value, at the time the turnover motion was filed.” This Court noted that if the defendant cannot turnover the property or the proceeds of the property because they are no longer in the possession, custody or control, 11 U.S.C. §542 gives the alternative remedy of a judgment for the value of the property. The Court denied revocation under 11 U.S.C. §727(d)(3).
The Court denied the Chapter 7 Trustee’s Complaint for Turnover and Revocation of Discharge pursuant to 11 U.S.C. §§ 727(d)(2) and (3). The Court did enter judgment against the Debtor in favor of the Trustee in the amount of $5,990.82.
In re Eric A. Townsend; Case No. 07-20956-13 (Somers) (April 3, 2008)
MEMORANDUM AND ORDER HOLDING FOR PURPOSES OF
CONFIRMATION UNDER § 1325(a)(*) THE COST OF FORCED-PLACED
INSURANCE IS INCLUDED IN A PURCHASE-MONEY CLAIM
• 11 U.S.C. § 506
•
11 U.S.C. §1325
Facts:
On April 25, 2006 Debtor purchased a vehicle from Marcus
Allen Broadway Ford, Inc. Wells Fargo provided the financing for the purchase.
Under the contract,
the debtor was required to maintain property insurance on the vehicle satisfactory
to Wells Fargo. If the debtor failed to maintain property insurance or Wells
Fargo was not satisfied with the debtor’s insurance, Wells Fargo could
purchase the property insurance at the expense of the debtor. In late 2006,
Wells Fargo received notice that the debtor’s property insurance had
lapsed and Wells Fargo purchased property insurance from January 1, 2007 through
April 30, 2007 for a total of $1,515.46. That amount was added to the principal
of the debtor’s note. Debtor filed for Chapter 13 relief on May 8, 2007,
within 910 days of purchasing the vehicle. Wells Fargo filed a proof of claim
for $25,064.89 and the debtor objected asserting, among other things, that
Wells Fargo was not entitled to the $1,515.46 in forced-placed insurance.
Holding:
The Court denied the Debtor’s objection to Wells Fargo’s proof
of claim and found that the amount for forced-placed insurance should be included
in Wells Fargo’s secured claim. Deciding the case under Missouri law,
the Court found that the definition of a purchase-money security interest under
Missouri’s article 9 included forced-placed insurance because a purchase
money security interest includes reasonable expenses incurred in preservation
of the collateral. Moreover, the Court declined to follow Judge Berger’s
decision In re Smith, Case No. 06-20508 (Bankr. D. Kan. Nov. 6, 2006), reasoning
that Judge Berger’s narrow interpretation of PMSI’s was without
consideration to article 9 details relied upon in this case.
In re Christine Ann Champagne; Case No. 07-10913 (Somers)(April 4, 2008)
MEMORANDUM OPINION GRANTING MOTION TO DISMISS OR CONVERT BECAUSE DEBTOR’S
STUDENT LOAN PAYMENTS MAY NOT BE DEDUCTED FROM CURRENT MONTHLY INCOME AS A
SPECIAL CIRCUMSTANCE UNDER 11 U.S.C. §707(b)(2)(B)(i)
• 11 U.S.C. §707(b)
Facts:
Debtor filed for relief under Chapter 7 on April 24, 2007 and Form 22A was
filed with her petition. The UST filed a motion to dismiss or convert based
upon alleged abuse of Chapter 7, and Debtor filed an amended Form 22A on the
same day. Amended Form 22A established that Debtor was an above median income
debtor, with $257.09 monthly disposable income. If, however, the Debtor was
allowed to deduct her student loan payments, her disposable monthly income
would be $91.09, and she would rebut the presumption of abuse.
The Court considered whether student loan payments per se constitute special circumstances for the purposes of rebutting the presumption of abuse.
Holding:
The Court discussed the fact that BAPCPA materially
amended 11 U.S.C. §707(b)
to provide new and detailed provisions for the dismissal of Chapter 7 cases.
Section 11 U.S.C. §707(b)(2) created a bright line test applicable to
above median income debtors with primarily consumer debts to determine if the
Chapter 7 filing was presumptively abusive. If the Debtor’s monthly disposable
income remaining after the deduction of allowed expenses, multiplied by 60
is not less than the lesser of: 1. $6,575.00 or 25% of the debtor’s nonpriority
unsecured debts, whichever is greater, or 2. $10,950.00, then the case is presumed
to be abusive. The presumption of abuse may be rebutted by the debtor showing
special circumstances that justify additional expenses or a reduction of income
when applying the abuse test, thereby reducing the monthly income below the
foregoing standard for abuse.
In this case, the parties agreed that Debtor’s filing is presumed abusive
under
§
707(b)(2)(A)(i). Debtor’s monthly disposable income, after the deduction
of all allowed expenses, was $257.09. Sixty times this income is $15,425.
The Debtor asserted that her student loan obligations constituted special circumstances which justified reduction of her monthly income for purpose of the abuse test. The UST and the Debtor agreed that if her student loan payments were subtracted from her current monthly income for the purpose of applying the test for the presumption of abuse, Debtor’s filing would not be presumed to be abusive.
The Court noted that the majority of bankruptcy courts addressing the issue had held that payments on a nondischargeable student loan constitute special circumstances, allowing the reduction of current monthly income.
The majority of the courts considering the matter have held that “whether special circumstance exist is a fact-specific determination that should be made on a case-by-case basis.” In re Pageau, 2008 WL 482354 at *3 (citing In re Robinette, 2007 WL 2955960 at *4; In re Turner, 376 B.R. 370, 378 (Bankr. D.N.H. 2007); In re Knight, 370 B.R. at 437; In re Pampas, 369 B.R. 290, 298 (Bankr. M.D. La. 2007); In re Templeton, 365 B.R. at 216). Those cases finding special circumstances focus upon the characteristics of student loans and the resulting economic hardship, with non-dischargeability being the overriding factor.
The Court did note that those courts finding student loan debt not to be a special circumstance reject a per se rule based upon nondischargeability and look to the circumstances under which the debtor incurred the obligation. The Court further noted that if Congress intended to allow inclusion of all student loan expenses when calculating disposable income for purposes of the means test, it would have done so.
This Court agreed with the numerous courts which had concluded that whether special circumstances are present is a factual determination made on a case-by-case basis. The circumstances which gave rise to the loan are an important, if not the determinative, factor. Most student loans are incurred in the ordinary course to enhance earning potential or to change to a more desirable field of endeavor. It would be an unusual case where the circumstances of a student loan created a financial condition which justified the inclusion of this expense in the means test. The Court found that Debtor’s student loan expenses, standing alone, did not satisfy the special circumstances standard of 11 U.S.C. §707(b)(2)(B) for justifying additional expenses for the purpose of rebutting the presumption of abuse.
The reader is directed to the opinion for further clarification of the Court’s position on student loans for future rulings.
In re Bruce Earl Anderson; Case No. 05-19222-7 (Nugent)(April 11, 2008)
MEMORANDUM OPINION
• 11 U.S.C. § 522(o)
Facts:
This case involves the objection to debtors homestead
by two creditors. Debtor owned several entities; AeroTech Designs, Inc. (“AeroTech”) manufactured
auto lifts and Auto Lifters of America, L.L.C. marketed them. Central Plains
Steel invoiced Auto Lifters, and eventually AeroTech for steel to build the
lifts. Salina Steel also sold steel to Auto Lifters. Both asserted claims against
Anderson, with Central Plains claim predicated on its ability to pierce the
corporate veil, whereas, Salina Steel asserted a claim against Anderson on
a personal guaranty. Anderson challenged Salina Steels’ guaranty claim
asserting that his signature – Bruce Anderson, pres. – on the guaranty
was signed in his capacity as president of AeroTech.
The creditor’s objection to debtor’s homestead exemption involves a payment by debtor to his mortgage lender of some $240,000.00. The money came from what would otherwise be exempt assets; including a $100,000.00 CD acquired with proceeds of a now exempt real estate interest; $115,000.00 from the proceeds of Auto Lifts sale of its Newton Manufacturing Facility; $33,000.00 proceeds from a CD used to secure a line of credit.
Holding:
The Court first ruled that Central Plains has no
standing to object to the debtor’s homestead exemption because Central Plains was not a creditor
of the debtor. In reaching that conclusion, the Court noted that the debtor’s
actions of personally borrowing funds and infusing capital into the businesses
did not constitute the fraud and injustice the piercing-the-corporate-veil
theory is designed to prevent.
The Court, on the other hand, found that Salina Steel had standing to object to the debtor’s homestead because of the debtor’s personal guaranty. In so deciding, the Court rejected the debtor’s argument that the guaranty he signed was in his corporate capacity as president of AeroTech. The Court specifically found that the placing of a corporate officer position is not enough to limit the debtor’s liability. The order for a signature to signed in a corporate capacity, the signature block, including stating the name of the corporation, followed by the names of the officers, preceded with “by” or “per” and since the signature block on the guaranty did not follow that format, personal liability could not be avoided.
With the Court decision that the guaranty was indeed personal, the Court ruled on Salina Steel’s objection to the debtor’s homestead exemption. The Court denied Salina Steel’s objection. The Court first noted that the “hinder, delay and defraud” provision in 11 U.S.C. § 522(o) should be interpreted simultaneously to the “hinder delay and defraud” language in 11 U.S.C. § 727(a)(2)(A) or an action to recover a fraudulent transfer 11 U.S.C. §548(a), namely that the objecting creditor has the burden of proving by a preponderance of evidence the necessary intent to defraud. The Court found that Salina Steel failed to carry that burden. First, the Court noted that simply because the transfer was made shortly before the filing of the bankruptcy alone was not enough to prove the requisite intent necessary, and that when he was pressed about the reason for ht transfer, the debtor responded “I don’t know.” This evidence without more was not enough to carry the burden to prove the intent to hinder, delay or defraud his creditors.
In re: Kenneth R. Jordan, Debra I. Jordan, Debtors;
Case No. 05-18287-13 (Nugent)
(April 11, 2008)
ORDER ALLOCATING INSURANCE PROCEEDS
Facts:
At the time of the filing of this case, Southwest held
an allowed claim in the amount of $10,313.43, which was secured by Debtors'
vehicle. Under the
terms of Debtors' confirmed Chapter 13 Plan, Southwest was allowed a secured
claim of $5,500.00 and an unsecured claim of $4,813.43. The Plan provided that
Southwest's lien on the vehicle “shall be released upon the debtors'
successful completion of this plan.” The unpaid principal balance of
Southwest's secured claim under the Plan is $3,682.96, and no distributions
had been made on Southwest's unsecured claim. The vehicle was totaled in a
wreck, and Farmers Insurance Company, Inc. paid $5,843.37 in loss proceeds,
which was being held in Debtors' attorney's trust account pending resolution
of this matter. Southwest released its lien on the Vehicle, and the Vehicle
was transferred to Farmers free and clear of liens. The Court previously ruled
that by releasing its lien on the vehicle, Southwest did not release its lien
on the loss proceeds.
Debtors filed a motion to allocate insurance proceeds, requesting that Southwest be paid the balance of its secured claim in the amount of $3,682.96, and that the balance of the insurance proceeds be determined to be the debtors' property, free and clear of any lien of Southwest. Southwest maintained it was entitled to retain its lien on the proceeds until the debtors complete their Plan and obtain a discharge, and further contended that in the event the debtors do not complete their Plan and obtain a discharge, its claim should be reinstated on the contract terms, the cramdown will no longer be effective, and it will be entitled to the excess proceeds by virtue of its lien. Southwest argues it should be paid its secured claim of $3,682.96, plus accrued interest thereon, from the insurance proceeds, with the balance held in escrow pending entry of discharge, or dismissal or conversion of the case.
Holding:
Debtors were not entitled to release of Southwest’s lien under the
terms of the debtors’ plan. Given that this case did not arise in the
context of a confirmation setting (as do many cases involving whether the holder
of an allowed secured claim can be forced to release its lien upon payment
of that claim in full prior to the conclusion of the chapter 13 case), the
language of the debtors’ plan governed. In general, in a pre-BAPCPA case,
language in the debtor's confirmed plan that specifies that the creditor's
lien will be retained pending completion of the plan will be enforced.
In re Lina Buchanan Guebert; Case No. 07-41165-13 (Somers) (April 11, 2008)
MEMORANDUM OPINION DENYING DEBTOR’S MOTION TO VACATE DISMISSAL
AND ORDERING THAT PRIOR DISMISSAL IS WITH PREJUDICE
• 11 U.S.C. §109(g)
•
11 U.S.C. §349(a)
•
11 U.S.C. §1307(c)
Facts:
Debtor Lina Guebert (“Debtor”) filed this Chapter 13 case pro
se on August 24, 2007. At her 341 meeting, Debtor stated that when preparing
the pleadings in this case she was assisted by her husband, Jeffery Guebert
(“Jeffery”). Debtor did not have an attorney assist her in this
case or in her prior bankruptcies filed in 1998, 2001, 2003, 2004, 2006, and
2007, except as to one specific issue in one of the prior cases. The Court
was convinced that Jeffrey had been assisting Debtor in all aspects in this
and prior cases. Although not trained or licensed as an attorney, Jeffrey has
many times attempted to appear on his wife’s behalf, and the Court had
been required on multiple occasions to prohibit him from doing so.
The Debtor, either alone or jointly filing with Jeffrey, had been a party to at least 12 bankruptcy cases filed from 1986 though 2007. The history of the cases filed during 2002 and later shows a pattern of misuse of the bankruptcy process.
On October 19, 2007 the Chapter 13 Trustee filed a motion to dismiss with prejudice and to deem debts nondischargeable. The motion to dismiss alleged that the Debtor is a serial filer, has a history of not complying with Court orders and during this case had not made required plan payments, had not proposed a feasible plan, and had failed to provide a copy of her 2006 federal and state income tax returns.
Holding:
The Court noted that the authority to dismiss a Chapter
13 case upon motion of the Trustee for cause is found in 11 U.S.C. §1307(c). In the Tenth
Circuit, a case may be dismissed for lack of good faith filing, and the Flygare
v. Boulden, 709 F.2d 1344 (10th Cir. 1983) factors applicable to denial of
confirmation for lack of good faith under 11 U.S.C. §1325(a)(3) are applicable.
The dismissal is authorized under 11 U.S.C. §1307(c) for failure to commence making timely payments under 11 U.S.C. §1326 and failure to timely file a confirmable plan. The Court also found lack of good faith in filing this case, as evidenced by many facts, including: filing for the purpose of defeating the Caremark garnishment orders; the frequency with which Debtor alone, or in conjunction with Jeffrey, had previously filed for Bankruptcy relief; and failure to abide by Court orders, such as not attending scheduled §341 hearings and not providing copies of tax returns.
The Court further noted that the Code allows two types of prejudicial dismissal: 1. Dismissal with prejudice to the subsequent filing of a case under Title 11 pursuant to 11 U.S.C. §109(g); and 2. by negative implication, dismissal with prejudice as to the dischargeability of debts that were dischargeable in the dismissed case. According to Frieouf v. United States, 983 F.2d 1099 (10th Cir. 1991), 11 U.S.C. §349(a) is construed with 11 U.S.C. §109 to preclude a bankruptcy court from ordering dismissal with a bar to filing a subsequent case for a period in excess of 180 days. A bankruptcy court’s denial of access to bankruptcy courts for more than 180 days is beyond the authority conferred by 11 U.S.C. §349(a). There is no similar statutory or case limitation with respect to dismissal with prejudice as to future discharge of debts scheduled in the dismissed case.
In this case the Court stated that the evidence satisfied both legal standards required for a dismissal with prejudice. The Court ordered that the dismissal be with prejudice to the Debtor’s filing of another case under Title 11 for 180 days from the date of dismissal. The Trustee requested that such an order apply to all debts dischargeable in this case, but the Court found that an order limited to the claims of Caremark and KS Credit Union was more appropriate.
United States of America, et al v. Garry E. Krause, et al (In re Krause);
Case No. 05-17429-7; Adversary No. 05-5775 (Nugent) (April 21, 2008)
MEMORADUM OPINION
Facts:
This case derives its nexus from the debtor’s ownership interests in
certain ail-recovery partnerships in the 70’s and 80’s. These partnerships
were found to be tax shelter with not for-profit purpose. The IRS disallowed
the debtor’s losses from these partnerships which increased the debtor’s
income-tax liability substantially. That set in motion twenty years of what
the Court noted was the debtors efforts to hide his assets from the IRS. The
debtor’s actions included setting up five trusts, two accounts in his
wives name, and filtering his assets through his wife and his wife’s
accounts to the trusts. The convoluted machinations of the debtors transactions
are to numerous and complex to detail in a summary, but needles to say, when
the debtor filed bankruptcy on October 15, 2005, the IRS objected to his discharge.
The IRS claimed that its tax liens attached to the corpus, the five trusts,
various other accounts and various other entities, which the IRS claims were
controlled by the debtor. The Trustee joined the IRS in their nominee theory.
Holding:
The Court found that the trusts and other various entities were in fact the
debtors’ nominees. Of note, however, the Court found that for the government
to be successful on its nominee claim it must prove a two step process; whether
state law gave the taxpayer a property interest in the property the IRS is
trying to reach, and then whether the federal nominee theory would apply. Although
the IRS glossed over the state law requirement, the Court recognized that a
donor of a fraudulent conveyance retains an equitable interest in the transferred
property and a resulting trust can occur when a transfer is made by one party,
but consideration is paid by another. Finding both of those theories applicable,
the Court found state law predicate awardable. Moreover, the Court found that
it need not decide fraudulent conveyance claims asserted by the IRS and the
trustee because it had already determined the nominee issue.
The Court also decided the issue of whether the debtor’s debts should
be excepted from discharge based on a fraudulent return theory and a willful
evasion of taxes issues. In regards to fraudulent tax return issue, the Court
placed major emphasis that actual fraud must be proven, a burden the Court
found the IRS did not meet for some of the tax years in question.
Edward J. Nazar, Trustee, v. The James D. Wills and Melinda K. Wills Irrevocable
Family Trust,
James D. Wills, Melinda K. Wills, Clingan Tires, Inc., Robert
W. Clingan, Jr.,
Clingan Leasing (In re: James D. Wills, Melinda K. Wills);
Case No. 05-17977-7, Chapter 7;
Adversary Case No. 06-5337 (Somers) (April
23, 2008)
MEMORANDUM OPINION AND ORDER
• 11 U.S.C. § 544(b)(1)
•
11 U.S.C. § 502(b)(9)
•
K.S.A. §§ 33-204 and -205, Kansas Uniform Fraudulent Transfer Act
Facts:
The trustee sought to exercise his power under 11
U.S.C. §544(b)(1) of
the Bankruptcy Code to avoid transfers that at least one of the Debtors' unsecured
creditors allegedly could have tried to avoid under K.S.A. 33-204 and -205
of the Kansas Uniform Fraudulent Transfer Act. He attacked transfers one or
both of the Debtors allegedly made in January 2001, December 2001, and October
2005. He also tried to follow some of the property involved in those transfers
into the hands of third parties to whom the property was transferred in 2003.
Defendants filed a motion for partial summary judgment. The motion for summary judgment asserted some of the trustee's claims were barred by the Kansas statute of limitations applicable to certain types of claims to void allegedly fraudulent transfers. Trustee responded, conceding his attack on transfers made in January 2001 is barred by the statute of limitation.
In their reply to the trustee's response, the defendants conceded that they were not entitled to summary judgment with respect to debtor James Wills, and that the trustee could avoid the transfer that was made in October 2005. They maintained that the trustee's claims to avoid transfers made by debtor Melinda Wills fail because he had not identified an unsecured creditor she could have defrauded by making those transfers. The trustee relied on Sunflower Bank, the successor to Citizens State Bank, as the allegedly defrauded creditor. In December 2000, Mrs. Wills (and her husband) gave Citizens State Bank a guaranty of a rental company's debts to the bank. Sometime later, Sunflower Bank merged with Citizens, succeeding to its position with respect to the debtors. When they filed for bankruptcy in October 2005, the debtors listed Sunflower Bank as a creditor they owed $787,000.00, and reported that debt was secured by mortgages on rental properties worth $526,000.00. In November 2005, Sunflower Bank filed a motion for stay relief, similarly indicating its collateral was worth less than it was owed by the rental company and the debtors.
Holding:
Defendants’ motion for partial summary judgment was denied. Under 11
U.S.C. §544(b)(1), the claim the trustee succeeds to under 11 U.S.C. §544(b)(1)
must be one held by an unsecured creditor. The debtors' schedules reported
that Sunflower Bank was undersecured (that is, it had both a secured and an
unsecured claim). For summary judgment purposes, that is enough to create a
disputed issue of fact and, at this point in the proceeding, defeat the defendants'
argument the bank was not an unsecured creditor when they filed their bankruptcy
petition. Further, it did not matter that Sunflower had yet filed a proof of
claim. Sunflower’s claim was still “allowable” under 11 U.S.C. §502(b)(9),
and Sunflower was not altogether precluded from filing the proof of claim.
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