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The Ninth Circuit affirmed the Bankruptcy Appellate Panel's opinion reversing the bankruptcy court's order entering contempt sanctions against creditors for knowingly violating the discharge injunction in the Chapter 7 case. The panel held that creditors did not knowingly violate the discharge injunction because they had a subjective good faith belief that the discharge injunction did not apply to their state-court claim for post-petition attorneys' fees. The panel explained that creditors' subjective good faith belief, even if unreasonable, insulated them from a finding of contempt. View "In re Taggert" on Justia Law

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The Bankruptcy Appellate Panel affirmed the bankruptcy court's orders confirming debtors' chapter 13 plan. In order for the anti-modification provisions of 8 U.S.C. 1322(b)(2) to apply, creditors' claim must both be secured only by an interest in real property and the real property must be the debtor's principal residence. The panel held that debtors could modify creditor's secured plan because debtors' manufactured home was not a fixture under Iowa law. In this case, the panel saw no reason to disturb the bankruptcy court's finding that debtors' testimony was credible and that they did not intend to make the home a permanent accession to the real estate. View "The Paddock, LLC v. Bennett" on Justia Law

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At issue was whether the proceeds of a multi-million-dollar sale of certain railroad lines constituted property of the bankruptcy estate. Debtor purchased the assets of several United States and Canadian railways. Debtor obtained loans from the Federal Railroad Administration (FRA) and Railway and received funds from Investors. Debtor later proposed to sell 233 miles of track to the State of Maine. To make this possible, Debtor and the FRA amended the existing loan agreement so that the FRA provided a limited waiver of its senior lien over the lines in exchange for a replacement lien on certain of Debtor’s property in Canada. The limited waiver was conditioned on Debtor’s agreement that, upon closing of the sale, Debtor was to pay the FRA, Investors, and Railway certain sums in a “waterfall of disbursements.” After Maine purchased the lines, Debtor distributed the proceeds in accordance with the waterfall provision of the amendment. Debtor subsequently filed a voluntary petition for protection under Chapter 11 of the Bankruptcy Code. The Trustee instituted an adversary proceeding against Railway seeking to avoid its waterfall disbursement as constructively fraudulent under section 5(b) of Maine’s Uniform Fraudulent Transfer Act. The bankruptcy court dismissed the complaint with prejudice for failure to state an actionable claim. The First Circuit affirmed, holding that the waterfall disbursement to Railway did not consist of property of Debtor’s estate because this was a case in which a senior lien holder imposed conditions that precluded Debtor from exercising effective control over the sale proceeds. View "Keach v. Wheeling & Lake Erie Railway Co." on Justia Law

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Vendors and contractors provided materials and services in connection with an offshore mineral lease. Under the Louisiana Oil Well Lien Act, La. Rev. Stat. 9:4863(A)(1), 9:4864(A)(1), they secured liens on the lessee’s operating interest upon the commencement of labor. They timely recorded the liens. The lessee later sold “term overriding royalty interests” to OHA. In the lessee’s subsequent bankruptcy proceeding, the service providers intervened, seeking to enforce their liens on OHA’s royalty interests. The district court agreed with the bankruptcy court and dismissed their complaints, concluding that the statute that created the liens extinguished them via a safe-harbor provision. The Fifth Circuit affirmed. The safe-harbor question is one of statutory interpretation: Was OHA’s purchase of the overriding royalties a purchase of “hydrocarbons that are sold or otherwise transferred in a bona fide onerous transaction by the lessee or other person who severed or owned them” at severance? The royalties were “sold,” the transaction was “bona fide,” and the seller was a “lessee.” OHA purchased more than an interest in proceeds; it purchased an interest in the to-be-produced hydrocarbons themselves. A purchase of overriding royalties is a purchase of “hydrocarbons” under the statute, so the lienholders’ failure to provide pre-purchase notice renders their liens extinguished. View "OHA Investment Corp. v. Schlumberger Technology Corp." on Justia Law

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Debtor, a professional hockey player with the NHL’s Columbus Blue Jackets, filed a voluntary Chapter 11 bankruptcy petition. His Player Contract ends with the 2017–18 NHL season. He had $21,343,723.64 in pre-petition debt. The bankruptcy court denied a subsequent motion to convert to chapter 7 based on Debtor’s bad faith conduct and failure to abide by his fiduciary duties. Debtor and six creditors holding more than $12 million of debt settled. Under the Confirmed Plan, Debtor was required to use post-petition earnings existing as of the Plan's effective date to pay secured creditors the value of their collateral, in kind or in cash payments. Allowed General Unsecured Claims were paid a 35% dividend, bringing them on par with the settling creditors, and claims of $1,000 or less were paid the lesser of their claim or $500. When Debtor’s current Player Contract ends, Debtor must contribute his net earnings (minus living expenses) from any source up to the fifth anniversary of the confirmation order. The Sixth Circuit Bankruptcy Appellate Panel dismissed an appeal as equitably moot. Property has been transferred, a trust has been established and a trustee appointed. Distributions have commenced. That final funding will not occur until future income is received does not alter the fact that all property proposed by the plan to be transferred from debtor’s bankruptcy estate as of the Effective Date was transferred. View "In re Johnson" on Justia Law

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Gilman filed a voluntary Chapter 7 bankruptcy petition. Phillips was a creditor. Gilman identified properties in Van Nuys and Northridge, describing the Northridge property as “in escrow” and claiming a household exemption for the Van Nuys property, and stating “Debtor has Cancer and has not been able to work.” He did not list any contracts relating to the sale of the Van Nuys property. Gilman would later admit that escrow was open on that property when he filed for bankruptcy. Phillips filed an adversary proceeding, alleging fraud, and objected to Gilman’s homestead exemption. Gilman did not oppose the objection and did not appear at the hearing. The bankruptcy court sustained Phillips’ objections. Gilman filed an amended Schedule C, claiming a reduced exemption and obtained Rule 60(b) relief, based on his counsel’s mistaken failure to oppose Phillips’ objections. The bankruptcy court held that escrow did not eliminate Gilman’s right to a homestead exemption. The Ninth Circuit held that it had jurisdiction to review the district court’s order affirming the grant of the homestead exemption; that the bankruptcy court did not abuse its discretion in granting Rule 60(b) relief from judgment on the ground of excusable neglect; and that the bankruptcy court erred in concluding that the debtor established his claim to a homestead exemption under California law without determining whether the debtor intended to continue to reside in the property. View "Phillips v. Gilman" on Justia Law

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At issue in this case was whether substantial evidence was presented in support of the objection as a matter of law sufficient to rebut the Internal Revenue Service’s (“IRS”) proof of claim. Debtors-appellees Scott and Anna Austin filed a voluntary petition under Chapter 13 of the Bankruptcy Code with the Bankruptcy Court for the Eastern District of Missouri in 2014. In their schedules, the Austins listed two pending worker’s compensation claims as contingent and unliquidated exempt property. These claims were valued at $0.00 or an “unknown value.” The Austins listed the IRS as a secured creditor. The IRS filed proof of claim no. 5-1, asserting in part a secured claim as a result of a tax lien. The Austins objected to the amount of the IRS’s priority claim (“January Objection”), arguing that no value should be attributable to their worker’s compensation claims in determining the secured portion of the IRS’s claim. They also argued, in the alternative, that since there were neither settlement offers nor a basis to determine the value of the worker’s compensation claims, the present value of the worker’s compensation claims should be $0. The Bankruptcy Court overruled the Austins’ January Objection, finding they failed to meet their burden to produce substantial evidence to rebut the IRS’s claim. The Bankruptcy Court disagreed the worker’s compensation claims had no value. In the meantime, the Austins negotiated a settlement of the worker’s compensation claims for $21,448.80. After attorneys’ fees, the Austins received a net settlement of $15,661.60. The IRS learned of the settlement, and filed an amended claim, No. 5-3, which included as part of its secured claim the amount of $15,661.60 for the value of the settlement. The Austins again objected to the IRS’s claim, filing an affidavit their worker’s compensation attorney, who opined that the worker’s compensation claims had a “nuisance” value of $3,000.00 on the petition date. The IRS argued that the affidavit was not substantial evidence sufficient to overcome the prima facie validity of the IRS’s claim. The Bankruptcy Court ruled that the affidavit was “substantial evidence” of the value of the claims, sufficient to rebut the prima facie validity of the IRS’ claim. The Bankruptcy Court therefore sustained the Austins’ objection and valued the worker’s compensation claims at $3,000, and reduced the IRS’s secured claim by $12,661.00. Based on its de novo review of the record, the Bankruptcy Appellate Panel found the Austins failed to present substantial evidence sufficient to overcome the presumption of the validity and amount of the IRS’s proof of claim. Therefore, their objection to claim should have been overruled. View "United States v. Austin" on Justia Law

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Debtors filed their Chapter 7 bankruptcy petition in Ohio. They had homes in Ohio and Maryland and listed the Ohio Home as their residence, claiming a $265,800 homestead exemption (Ohio Revised Code 2329.66(A)(1)). They asserted their intent surrender their Maryland Home. During the 11 U.S.C. 341 Meeting of Creditors the debtors told the Trustee they wanted to move to Maryland, stating they had been commuting between Ohio and Maryland. They gave confusing responses about where they lived and where they intended to live. Ohio law permits each debtor to claim a $132,9001 exemption in a primary residence, while Maryland limits the exemption to $6,000, which may not be claimed by both spouses in the same proceeding. The bankruptcy court sustained the Trustee’s objection to the homestead exemption because the Ohio home was not their domicile during the 730 days immediately preceding their Chapter 7 filing, as required by 11 U.S.C. 522(b)(3)(A). The Bankruptcy Appellate Panel affirmed. In deciding that the debtors’ domicile was Maryland, the bankruptcy court applied the correct legal standards, noting "the tardy disclosure of an intricate organization that defies all explanation of necessity” and that the “Debtors’ credibility in providing complete and candid answers suffers” and that their “change in heart is a tactic to shield a valuable asset, rather than a valid assertion of domicile.” View "In re Felix" on Justia Law

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At issue was whether a provision in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 11 U.S.C. 526(a)(4), —on advice to incur debt to pay for a lawyer's bankruptcy-related representation—likewise entailed an invalid purpose requirement. The Eleventh Circuit held that a debt-relief agency (including a law firm) violates section 526(a)(4) if it advises a client to incur additional debt to pay for bankruptcy-related legal representation, without respect to whether the advice was given for some independently "invalid purpose"; plaintiff's allegation, in this case, that defendant law firm instructed him to pay his bankruptcy-related legal bills by credit card stated a viable claim under section 526(a)(4); and none of the constitutional arguments that the firm presented to the court warranted invalidating the statute on First Amendment grounds. View "Cadwell v. Kaufman, Englett & Lynd, PLLC" on Justia Law

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The Second Circuit vacated the district court's dismissal of plaintiff's personal injury claims against more than fifty corporate defendants, holding that the district court abused its discretion in invoking the equitable doctrine of judicial estoppel to dismiss her claims. In this case, Defendant Boeing argued that plaintiff's failure to disclose her husband's mesothelioma diagnosis during bankruptcy barred the personal injury claims related to the diagnosis. Plaintiff's husband passed away during the pendency of the appeal. The court held that the principles of equity required the courts to entertain plaintiff's personal injury claims where nothing in the record suggested that she withheld her husband's diagnosis from the bankruptcy court in an effort to game the bankruptcy system. View "Clark v. Advanced Composites Group" on Justia Law