Justia Bankruptcy Opinion Summaries

The Bankruptcy Appellate Panel dismissed debtors' appeal of the bankruptcy court's orders based on lack of standing. In this case, debtors challenged the bankruptcy court's orders (1) granting in part and denying in part the chapter 7 trustee's application to pay her law firm as attorney for the trustee, and (2) denying debtors' motion to remove the trustee, among other findings not at issue here. The court concluded that debtors are not personally aggrieved by the orders and therefore lack standing to appeal them. View "Levitt v. Jacoway" on Justia Law

In 1999, Kristina drugged her sons and put them, and herself, in a running car in a closed garage. Matthew died; Adam and Kristina survived. Kristina was convicted of second-degree murder and remained in prison until 2016. In 1999, Kristina had State Farm automobile and homeowners insurance policies. In 2001, Matthew’s estate, Adam, and their father (the Rotells) sued Kristina for wrongful death and bodily injury.Kristina tendered her defense to State Farm, which filed state court declaratory judgment actions, seeking determinations that her policies did not cover the incident. The Rotells allege that State Farm rejected a settlement offer even though Kristina wished to accept it. The state court then held that the policies did not cover the incident. State Farm withdrew from the wrongful-death lawsuit. The state court entered a default judgment against Kristina; a jury entered a $505 million verdict. Kristina was insolvent, so the Rotells petitioned for involuntary Chapter 7 bankruptcy. The bankruptcy court entered an order subjecting Kristina’s assets (claims against State Farm for bad faith and malpractice) to its control and appointed Carapella as trustee. The verdict is Kristina’s only liability. Carapella sued State Farm in Florida state court. State Farm then sought to intervene, post-judgment, in the wrongful-death action and moved to vacate the judgment, arguing that the Rotells’ fifth amended complaint was untimely and that the default judgment was void.The district court and the Eleventh Circuit affirmed the denial of the motion. The Bankruptcy Code’s “automatic stay” provision, 11 U.S.C. 362(a), precluded State Farm’s motion to intervene. View "State Farm Florida Insurance Co. v. Carapella" on Justia Law

BVS, a company owned by Palasota, and Palasota separately filed voluntary Chapter 11 bankruptcy petitions. An amended 2015 “joint” reorganization plan described the amounts BVS owed a secured creditor, Prosperity, and provided that Prosperity would have an Allowed Secured Claim of $1,812,472.43, to be paid based upon a 120-month amortization with interest at 5% per annum. Commencing on November 8, 2015, BVS was to make 59 equal payments of $19,224.72; the 60th payment would be of all outstanding principal and interest. Palasota, individually and on behalf of BVS, signed the 2015 Plan, which was confirmed. For 38 consecutive months, BVS made payments, which Prosperity applied to BVS’s principal and interest obligations.BVS then stopped making its monthly payments and, in 2019, again filed for bankruptcy. In the second bankruptcy, Prosperity filed a proof of claim for $1,333,695.84. After a hearing, the bankruptcy court allowed Prosperity’s claim. The district court and Fifth Circuit affirmed. BVS’s claim objection is barred by res judicata because Prosperity’s claim in the second bankruptcy—as it relates to whether Prosperity’s claim in the 2015 Plan was correct—arises out of the same transaction that was the subject of the 2015 Plan and BVS could have made this argument in the first bankruptcy but did not. View "BVS Construction, Inc. v. Prosperity Bank" on Justia Law

Jackson was traveling in his wheelchair along a street near the Louisville Embassy Suites Hotel when he was hit by a hotel valet driver. He suffered severe injuries. Jackson sued, in Kentucky state court, several entities connected to the hotel, including Le Centre, the owner of the hotel property. Le Centre had filed for Chapter 11 bankruptcy protection before the suit was filed; its reorganization disclosure statement explained that Le Centre’s Chapter 11 plan included the release not only of Le Centre but also of related non-debtor parties. Jackson's attorney received an amended version of the disclosure statement and a copy of the plan. Le Centre did not serve Jackson with a specific form of notice required by the Federal Rules of Bankruptcy Procedure, however.After the approved Chapter 11 plan went into effect, Le Centre and two other released entities moved to dismiss in the state court action as barred by the confirmation order. Jackson sought to proceed nominally against these entities to reach their insurers. The bankruptcy court denied this request. The district court and Eleventh Circuit affirmed. Jackson received sufficient notice to satisfy due process and the bankruptcy court did not abuse its discretion by ruling that Jackson could not pursue the nominal claims. View "Jackson v. Le Centre on Fourth, LLC" on Justia Law

After a grocery went bankrupt, a creditor filed a proof of claim for about $325,000, the balance on a loan it had made to the grocery. In the business's Chapter 11 plan, the bankruptcy court awarded the creditor the grocery store and the land where it was located. After assessing the value of the property at $225,000, the bankruptcy plan reduced the outstanding balance on the loan to $100,000, which the owners of the grocery remained liable for. The owners then filed for bankruptcy and the creditor again filed a proof of claim for the entire debt. The creditor argued that the $225,000 credit against the guaranteed loans should not apply in the owners' personal bankruptcy, because the store had not yet been transferred and the vacant property had declined in value.The Fifth Circuit concluded that the terms of the first bankruptcy are binding in the second bankruptcy. The court explained that, under section 1141(a) of the Bankruptcy Code, the provisions of a confirmed bankruptcy plan bind both the debtor and its creditors. Therefore, the creditor is bound by the provision of the first bankruptcy plan awarding it the grocery store in exchange for a fixed-value credit against the guaranteed debt. Accordingly, the court affirmed the district court's judgment upholding the bankruptcy court's orders sustaining the owners' objection and confirming their individual bankruptcy plan. View "New Falls Corp. v. LaHaye" on Justia Law

The Stanfords, the debtors in Chapter 11 bankruptcy proceedings, owned APC, another Chapter 11 debtor. Each had borrowed money from ServisFirst; each served as guarantor for the other’s debt. The Stanfords owed ServisFirst $5 million; APC owed $7.2 million. APC obtained a “roll-up loan” from ServisFirst to consolidate the debt and obtain working capital. The Stanfords had secured their loans from ServisFirst with real property. The bankruptcy court approved the sale of the property to ServisFirst “via a credit bid of $3.5 million,” 11 U.S.C. 363(k), stating that ServisFirst was “a good faith purchaser” and that the consideration “exceeds the liquidation value” of the property. The Stanfords then argued that APC’s roll-up loan converted ServisFirst’s pre-petition claims into post-petition administrative expense claims against APC alone and that because ServisFirst never required them to execute a guaranty of the roll-up loan, they had no remaining pre-petition obligations to ServisFirst, which no longer held a lien and could not make a credit bid.The bankruptcy court rejected their arguments, citing equitable estoppel, judicial estoppel, and law of the case but granted a stay conditioned on posting a $1.5 million supersedeas bond, which the Stanfords did not do. Ultimately, the Stanfords delivered an executed deed to ServisFirst, which was recorded. The Eleventh Circuit affirmed the dismissal of the Stanfords’ appeal as moot under 11 U.S.C. 363(m), citing its inability to undo a completed sale to a good faith purchaser under Section 363(m). View "Reynolds v. ServisFirst Bank" on Justia Law

The IRS recorded liens for unpaid taxes, interest, and penalties against the debtors’ residence. After debtors filed for bankruptcy, the IRS filed a proof of claim. The portion of the claim that was secured by liens on the residence and attributable only to penalties was $162,000. The debtors filed an adversary proceeding, asserting that the IRS’s claim for penalties was subject to avoidance by the trustee and that because the trustee had not attempted to avoid this claim, debtors could do so under 11 U.S.C. 522(h). The trustee cross-claimed to avoid the liens and alleged their value should be recovered for the benefit of the bankruptcy estate.The bankruptcy court dismissed the adversary complaint. The trustee and the IRS agreed that the penalty portions of the liens were avoided under 11 U.S.C. 724(a). The Bankruptcy Appellate Panel and Ninth Circuit affirmed. Section 522(h) did not authorize the debtors to avoid the liens that secured the penalties claim to the extent of their $100,000 California law homestead exemption. Section 522(c)(2)(B), denies debtors the right to remove tax liens from their otherwise exempt property. Under 11 U.S.C. 551, a transfer that is avoided by the trustee under 724(a) is preserved for the benefit of the estate; this aspect of 551 is not overridden by 522(i)(2), which provides that property may be preserved for the benefit of the debtor to the extent of a homestead exemption. View "Hutchinson v. Internal Revenue Service" on Justia Law

While their state suit against their mortgage service company was pending, the debtors filed for bankruptcy. On a schedule that asked about claims against third parties, they stated they had none. They listed the mortgage servicing company as a non-priority creditor and disclosed the lawsuit in their Statement of Financial Affairs. They discussed the state lawsuit with the bankruptcy trustee. The trustee determined there were no scheduled assets that would benefit the estate. The bankruptcy court discharged the trustee and closed the case. Later, the mortgage servicing company contacted the bankruptcy trustee, offering to settle the lawsuit. The trustee was reappointed, took over the state lawsuit, settled it, and got the settlement approved by both the state court and the bankruptcy court. The settlement proceeds went to the bankruptcy estate, not the debtors.The Bankruptcy Appellate Panel and Ninth Circuit affirmed. Under 11 U.S.C. 554(c), at the end of bankruptcy proceedings, property that has not been otherwise administered can generally be abandoned to the debtor only if it has been “scheduled.” Section 554(c) requires property to be disclosed on a literal schedule under 11 U.S.C. 521(a). Without trustee or court action, property disclosed only on a statement, such as a Statement of Financial Affairs, cannot be abandoned under section 554(c). The debtors did not meet the requirements of section 544(c), and their interest was not abandoned. View "Stevens v. Whitmore" on Justia Law

The Eighth Circuit affirmed the bankruptcy appellate panel's decision affirming the bankruptcy court's determination that debtor's debt to Lariat is excepted from discharge because it was obtained by actual fraud. The court explained that, although Lariat's claim was partially disallowed against debtor's bankruptcy estate under 11 U.S.C. 502(b)(6), the landlord cap does not foreclose Lariat's argument that the claim should be excepted from discharge under section 523(a)(2)(A). Therefore, Lariat's claim is excepted from discharge under section 523(a)(2)(A) to the extent that it was obtained by actual fraud. In this case, the bankruptcy court did not clearly err in finding that debtor had received a fraudulent transfer from her husband, and the record supports the bankruptcy court's finding that debtor participated in the scheme with the requisite wrongful intent. View "Lariat Companies, Inc. v. Wigley" on Justia Law

Berkovich filed California state tax returns as required for 2003-2005. In 2008, the IRS assessed about $145,000 of additional federal income taxes against Berkovich for those years. He did not notify the California Franchise Tax Board (FTB) of the increased federal assessments as required. (Cal. Rev. & Tax Code 18622(a)). The FTB learned of the federal assessments from the IRS. It assessed Berkovich additional state income taxes, approximately $45,000 plus penalties and interest. Berkovich did not challenge the assessments nor pay the additional state taxes. In 2012, Berkovich filed a chapter 13 bankruptcy petition. After the bankruptcy discharge, the FTB filed a complaint, alleging that the state tax debts were nondischargeable under 11 U.S.C. 523(a)(1)(B)(i) because Berkovich failed to report the increased federal tax assessments to the FTB and failed to challenge the FTB’s notices of proposed tax assessment. The Bankruptcy Appellate Panel held that Berkovich’s tax debt was not discharged.The Ninth Circuit affirmed. Berkovich’s tax debt was not discharged in bankruptcy because the debt derived from a “report or notice” “equivalent” to a tax return. Section 523(a)(1)(B) provides that, if a taxpayer fails to file a required “return, or equivalent report or notice,” the relevant tax debt is not discharged. California law requires a taxpayer to “report” to the FTB if the IRS changes the taxpayer’s federal income tax liability. View "Berkovich v. California Franchise Tax Board" on Justia Law