(Bankr. E.D. Ky. Dec. 30, 2014)
The bankruptcy court denies the bank’s motion for judgment on the pleadings. The bank initiated an adversary proceeding against the debtor, seeking a declaratory judgment that the bankruptcy estate did not have an interest in certain real property and seeking a judgment that the debt owed to the bank was non dischargeable under 11 U.S.C. § 523(a)(6). A prepetition state court judgment against the debtor held that the debtor did not have legal title to one parcel and the debtor scheduled the other parcel as being titled in the name of a partnership. The bankruptcy court holds that the pleadings do not establish that the estate has no interest in the property, even if legal title is held by others (i.e., the estate could have a possessory interest). The bankruptcy court also finds that the state court judgment does not preclude the debtor’s defense of lack of fraudulent intent. The court must predict how the Kentucky Supreme Court would rule on the preclusive effect of the state court judgment’s alternative statements regarding a fraudulent transfer. The court holds that the conclusory alternative statement should not be a bar to the defense. Opinion below.
2014-12-30 – bank of ky v nageleisen
(Bankr. N.D. Ind. Nov. 26, 2014)
The bankruptcy court sustains the debtor’s objection to his ex-wife’s claim to the extent it purported to be a priority claim arising from a domestic support obligation. The state court had resolved custody and child support issues in its initial divorce decree. A year later it entered an order titled “Order Dividing Marital Assets and Debts,” directing the debtor to pay $50,000 to his ex-wife “[t]o equalize the division of the marital state,” but also stating “the Court finds this judgment to be in the nature of child support and maintenance.” Despite the state court’s statement that the judgment was in the nature of child support and maintenance, the bankruptcy court looks to the context and purpose of the award to determine whether it is a domestic support obligation under the bankruptcy code. Under the circumstances, the bankruptcy court concludes it is not. Opinion below.
2014-11-26 – in re bartlett
(Bankr. N.D. Ind. Nov. 6, 2014)
The bankruptcy court denies the debtor’s motion to dismiss the complaint seeking to declare a particular debt nondischargeable under 11 U.S.C. § 523(a)(2) and denial of the discharge generally under § 727(a)(2). The plaintiff alleged that the debtor misrepresented his ownership interest in certain property. The debtor argued this was a statement of financial condition and that because it was not in writing it could not support a denial of discharge under § 523(a)(2). The bankruptcy court holds that statements related to an interest in property are not statements of financial condition, and the alleged misrepresentation was sufficient to state a claim under § 523(a)(2). The plaintiff also alleged the debtor was the alter ego of his corporation, and that the debtor caused the corporation to transfer property without consideration to another entity. The debtor argued the plaintiff failed to state a claim under § 727(a)(2) because the property transferred was not property of the debtor. The bankruptcy court held that a claim was properly stated because the plaintiff alleged the corporation was the alter ego of the debtor and thus the property was alleged to be property of the debtor. Opinion below.
2014-11-06 – wells v lorenz
(Bankr. N.D. Ind. Nov. 6, 2014)
The bankruptcy court dismisses the counterclaim for malicious prosecution asserted against the trustee. While the counterclaim recited the language of Indiana Rule of Trial Procedure 11, the bankruptcy court recognized that supporting facts must be plead to properly state a claim for relief. The counterclaim failed to set forth facts sufficient to constitute a cause of action, and the court granted the trustee’s motion to dismiss. Opinion below.
2014-11-06 – roach v barcus
(W.D. Ky. Dec. 23, 2014)
The district court affirms the bankruptcy court’s order setting the Chapter 7 trustee’s commission at an amount lower than the § 326 statutory rate. The trustee sold collateral property with a $50,000 carveout for unsecured creditors. However, after the debtor’s homestead exemption and bankruptcy estate taxes were paid, only about $22,000 of the carveout remained. The trustee requested the remainder as a commission, as it was less than the statutory commission. The United States Trustee objected and requested the commission be set at $5,000, and the bankruptcy court entered its order with the lower amount. The trustee appealed, arguing the statutory rate was a reasonable commission. The district court affirmed, noting that the trustee should not have conducted the sale if there would be no benefit to unsecured creditors. The court held that the circumstances warranted a commission lower than the statutory rate. Opinion below.
2014-12-23 – reisz v crocker
(7th Cir. Dec. 23, 2014)
The Seventh Circuit affirms the district court’s reversal of the bankruptcy court’s order discharging the debtor’s obligation to pay costs pursuant to an arbitration award. The creditor sued the debtor in state court for fraud and negligence in managing a trust, of which the creditor was trustee. The parties then agreed to arbitrate, but the debtor filed a chapter 7 petition prior to commencement of the arbitration. After the creditor filed the nondischargeability action, the parties again agreed to arbitrate the negligence and fraud claims. All but the fraud claim was settled, and the arbitration panel then ordered that the debtor pay the arbitration costs, rather than deciding the fraud claim. The debtor refused to pay the costs, and the creditor sought an order from the bankruptcy court directing him to do so. The bankruptcy court declined, and the district court reversed. The debtor argued that the arbitration award for costs was a prepetition debt that should be discharged because it only arose as a result of the prepetition claims. The Seventh Circuit disagrees. The debtor chose to arbitrate post petition and thus assumed the risk that he would be liable for the costs. Further, the arbitration panel implied in its award that the debtor had committed fraud, and thus the prepetition debt would not likely have been dischargeable. Opinion below.
2014-12-23 – in re ruben
(Bankr. S.D. Ind. Dec. 22, 2014)
The bankruptcy court overrules the creditor’s objection to the Chapter 13 debtor’s proposed plan. The creditor was the debtor’s ex-wife. She objected to the plan, arguing both the petition and the plan were filed in bad faith, as the debtor’s sole motivation was to discharge a judgment she had obtained following the divorce. The court discusses the standards for showing a petition and plan are filed in bad faith. The creditor failed to satisfy either standard. Although there were inaccuracies in the debtor’s schedules, they did not rise to the level of showing fraud or bad faith. The court ordered the debtor to correct the schedules and file an amended plan if necessary. Opinion below.
2014-12-22 – in re trainor
(Bankr. S.D. Ind. Dec. 18, 2014)
The bankruptcy court grants the trustee’s request for an order holding that the Indiana limited liability company and its members violated the automatic stay when they executed a resolution terminating the debtor’s voting rights post-petition. The debtor was the manager of the LLC and had control of the LLC’s business and affairs as of the petition date. After the petition was filed, the other members of the LLC executed the resolution and appointed a new manager without court approval. The court analyzes the terms of the operating agreement and Indiana LLC law and determines that the debtor’s interest in the LLC became property of the estate and the act to terminate his voting rights was a violation of the automatic stay. Opinion below.
2014-12-18 – walro v the lee group
(Bankr. W.D. Ky. Dec. 17, 2014)
The bankruptcy court dismisses the lien avoidance action for lack of jurisdiction. The defendant obtained an order abandoning the trustee’s interest in and granting stay relief with respect to the debtors’ manufactured home on which the defendant claimed a lien. The debtors then filed the adversary proceeding, seeking to avoid the lien for failure to properly perfect the lien, and filed a motion to reconsider the court’s order granting stay relief. The court granted the motion to reconsider, leaving the stay in place pending further orders of the court. The defendant moved to dismiss the adversary proceeding, arguing the debtors did not have standing to pursue the avoidance action. The court granted the motion, but did so on the basis that it had ordered the trustee’s interest in the property abandoned. Thus, because the property was abandoned and no longer property of the estate, the court had no jurisdiction over it. Opinion below.
2014-12-17 – robinson v manufactured housing contract
(6th Cir. Dec. 15, 2014)
The Sixth Circuit affirms the bankruptcy court’s order denying the chapter 7 debtor’s claimed exemption in a deferred-compensation retirement plan. The debtor claimed his deferred-compensation credits were exempt under Tennessee law. The trustee objected. While the plan fit the Tennessee statute’s general definition of exempt retirement accounts or plans, an exception to the statute applied. Because the debtor had the option to accelerate payment and take a lump sum distribution, the exemption did not apply. Thus, the deferred-compensation credits were correctly held to be property of the estate. Opinion below.
2014-12-15 – lawless v newton