Justia Bankruptcy Opinion Summaries

Two individuals entered into a loan agreement and mortgage with a bank in Puerto Rico, using their home as collateral. After a decade, they faced financial difficulties and stopped making payments. The bank denied a request to modify the loan but proposed a short sale. The bank then initiated foreclosure proceedings in Puerto Rico’s Court of First Instance, resulting in a judgment against the borrowers. Multiple short sale offers were rejected until one was conditionally accepted, but the sale did not close in time and the home was foreclosed. Subsequently, the bank garnished funds from the borrowers, who then filed for Chapter 13 bankruptcy.The United States Bankruptcy Court for the District of Puerto Rico confirmed the borrowers’ Chapter 13 plan, noting their intent to pursue claims against the bank. The borrowers filed an adversary proceeding seeking damages and other relief. The bank moved to dismiss the adversary complaint, but the bankruptcy court denied this motion, allowing the case to proceed. The borrowers later filed a similar complaint in the United States District Court for the District of Puerto Rico and moved to withdraw the adversary proceeding to the district court. The district court denied the withdrawal as untimely and dismissed the separate federal case. After the borrowers completed their bankruptcy plan and received a discharge, the bankruptcy court dismissed the adversary proceeding for lack of subject matter jurisdiction.On appeal, the United States Court of Appeals for the First Circuit held that the bankruptcy court erred in finding it automatically lost jurisdiction over the adversary proceeding post-discharge. The appellate court vacated and remanded the case for further proceedings, instructing the lower courts to reassess jurisdiction and properly address the borrowers’ motion for withdrawal and their jury trial request. View "Guallini-Indij v. Banco Popular de Puerto Rico" on Justia Law

Steven and Virginia Savage were officers and sole shareholders of a company that designed and installed digital planetarium equipment. When their company experienced financial distress, they used personal funds and credit cards to support business operations, but the company eventually defaulted on a large loan personally guaranteed by the Savages. In the year preceding their bankruptcy filing, the Savages received over $700,000 from the company, which they failed to fully disclose in their bankruptcy filings. Their bankruptcy schedules did not mention this income, and significant portions of the transferred funds were not satisfactorily explained, especially regarding rent payments from the company to the Savages and the use of those funds.After the company and the Savages filed for bankruptcy, the creditor, Coastal Capital, objected to the Savages’ discharge in their Chapter 7 proceedings. The United States Bankruptcy Court for the District of New Hampshire held a bench trial and found that, although the Savages explained most of the company funds they received, they failed to account for over $56,000. The court denied the Savages a discharge under 11 U.S.C. § 727(a)(5) for failing to satisfactorily explain the loss or deficiency of assets. The Savages’ post-trial motions were denied, and the United States District Court for the District of New Hampshire affirmed the bankruptcy court’s ruling.On appeal, the United States Court of Appeals for the First Circuit affirmed the district court’s judgment. The court held that § 727(a)(5) does not require a “substantial” loss of assets to deny discharge, nor does it require that the unaccounted-for funds be enough to pay all liabilities. It also found no clear error in the bankruptcy court’s factual determinations and rejected the Savages’ arguments regarding destruction of evidence and the sufficiency of their explanations. The denial of discharge was affirmed. View "Coastal Capital, LLC v. Savage" on Justia Law

In December 2021, the United States District Court for the District of Massachusetts partially recognized a multi-million-dollar foreign judgment obtained by PCC Rokita, S.A. against HH Technology Corp. (HHT). Shortly thereafter, HHT executed a trust agreement and an assignment for the benefit of creditors to wind itself down. About two months later, PCC Rokita petitioned the United States Bankruptcy Court for the District of Massachusetts to involuntarily place HHT into Chapter 7 bankruptcy. The Assignee moved to dismiss the involuntary petition, submitting a list of fifteen creditors of HHT that were allegedly qualified under section 303(b) of the Bankruptcy Code.The bankruptcy court issued an order setting a deadline for additional creditors to join the involuntary petition. Only one additional creditor, Shanghai Morimatsu Chemical Equipment Co., joined before the deadline. The court denied PCC Rokita's motion for an extension and subsequently denied DFT Properties, LLC's motion to join the petition after the deadline. The bankruptcy court held an evidentiary hearing and concluded that the Petitioning Creditors failed to prove that any of the twelve challenged creditors were unqualified, leading to the dismissal of the involuntary petition.The Petitioning Creditors appealed to the Bankruptcy Appellate Panel for the First Circuit, which affirmed the bankruptcy court's decision. They then appealed to the United States Court of Appeals for the First Circuit. The First Circuit held that the bankruptcy court may set a deadline for creditors to join a pending involuntary petition and that a putative debtor need not plead defenses to the avoidability of a pre-petition preferential transfer in its answer to the involuntary petition. The court also found that any error in requiring the creditors to disprove defenses to avoidability was harmless. Consequently, the First Circuit affirmed the dismissal of the involuntary petition. View "PCC Rokita, S.A. v. HH Technology Corp." on Justia Law

In 2008, Andy Luu Tran granted Citizens Bank a mortgage on his Massachusetts home. In 2022, the Bank foreclosed on the property, and Herbert Jacobs was the high bidder at the auction. The Bank recorded an affidavit of sale but the foreclosure deed lacked the required signature page. Tran filed a Chapter 13 bankruptcy petition and an adversary complaint to avoid the transfer of his interest in the property due to the improperly recorded deed.The U.S. Bankruptcy Court for the District of Massachusetts granted summary judgment against Tran, holding that the only transfer at foreclosure was of Tran's equity of redemption, which was extinguished at the foreclosure auction. The court found that the properly recorded affidavit of sale provided constructive notice, making the transfer unavoidable. The U.S. District Court for the District of Massachusetts affirmed this decision.The United States Court of Appeals for the First Circuit reviewed the case. The court held that Tran's equity of redemption was extinguished at the foreclosure auction when the memorandum of sale was executed. The court also held that the properly recorded affidavit of sale provided constructive notice of the foreclosure, making the transfer of Tran's equity of redemption unavoidable under Massachusetts law. Consequently, the court affirmed the judgment of the bankruptcy court. View "Tran v. Citizens Bank, N.A." on Justia Law

Mary E. Buscone, a Chapter 13 debtor, appealed an order rejecting her objection to a proof of claim for a Massachusetts state-court judgment owed to Ann Tracy Botelho. In a previous Chapter 7 bankruptcy, Botelho sought a determination that her judgment against Buscone was excepted from discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(4). Due to discovery abuse by Buscone and her counsel, the bankruptcy court entered a default judgment for Botelho. In her current Chapter 13 bankruptcy, Buscone objected to Botelho's proof of claim on the same grounds as before and argued that the interest rate and accrual date prescribed by Massachusetts state law should not apply to the judgment.The bankruptcy court overruled Buscone's objection, and the district court affirmed. Buscone then appealed to the United States Court of Appeals for the First Circuit. The appellate court reviewed the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. The court also reviewed the application of issue preclusion and determinations of post-judgment interest rates without deference.The First Circuit rejected Buscone's arguments. It held that she was precluded from raising the same affirmative defense to Botelho's proof of claim that she asserted in her motion to dismiss Botelho's adversary proceeding in the Chapter 7 bankruptcy. The court applied an exception to the actual-litigation requirement for issue preclusion, noting that the default judgment in the Chapter 7 proceeding was entered as a sanction for Buscone's misconduct. The court also held that the post-judgment interest on the state-court judgment debt should accrue at the rate set by Massachusetts law from the date of the state-court judgment's entry. The appellate court affirmed the lower court's decision. View "Buscone v. Botelho" on Justia Law

Plaintiff sued Debtor after Debtor defaulted on a loan. Plaintiff secured a default judgment in the amount of $137,030.78. Without making payment on the judgment, Debtor later filed for Chapter 7 bankruptcy protection. Plaintiff commenced an adversary proceeding in bankruptcy court seeking an order declaring the debt non-dischargeable. Specifically, Plaintiff claimed that the debt was within the purview of 11 U.S.C. 523(a)(2)(B), which exempts from discharge certain debts. Debtor answered the complaint and then moved to dismiss for failure to state a claim. Plaintiff then moved to amend her complaint to include an alternative claim that the debt was non-dischargeable under 11 U.S.C. 523(a)(2)(A). The bankruptcy court granted Debtor’s motion to dismiss and denied Plaintiff’s motion to amend. The Bankruptcy Appellate Panel for the First Circuit affirmed the bankruptcy court’s dismissal of Plaintiff’s complaint and refusal to allow Plaintiff to add a section 523(a)(2)(A) claim to her complaint. The First Circuit affirmed, holding (1) the section 523(a)(2)(B) claim was properly dismissed; and (2) an adequate basis existed for the bankruptcy court’s denial of Plaintiff’s motion to amend. View "Privitera v. Curran" on Justia Law

This was the First Circuit’s second set of appeals involving the automatic stay provision of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). Here, the parties disputed whether four claims included in Plaintiffs’ second amended complaint were within the scope of PROMESA’s temporary stay. Plaintiffs conceded that the majority of their claims were subject to the stay, but the district court allowed the suit to proceed on the four counts at issue, all of which were purportedly brought under various provisions of PROMESA. On appeal, Appellants challenged this ruling. The First Circuit reversed the district court’s holding that the PROMESA stay did not apply to Plaintiffs’ first, second, third, and twelfth causes of action, as the claims at issue plainly constituted attempts to exercise control over revenues of the Commonwealth of Puerto Rico. View "Lex Claims, LLC v. Garcia-Padilla" on Justia Law

In 2005, the Rhode Island Supreme Court found that title to the Regatta Club in Newport and the parcel of land on which it was constructed belonged to a group of condominium associations. Thereafter, the operator of the Regatta Club (Operator) voluntarily filed for Chapter 11 bankruptcy. Two of the title-holding associations (together, Associations) filed proofs of claim seeking relief for the Operator’s alleged trespass on their property between 1998 and 2005. The First Circuit affirmed the bankruptcy court’s finding that the Associations had impliedly consented to the Operator’s use and occupancy of the Regatta Club and remanded on the issue of whether there was an implied obligation that the Operator pay the Associations for its use and occupancy of the Club. On remand, the bankruptcy court found (1) there was no such implied-in-fact contract between the parties, and (2) the Associations were not entitled to relief under a theory of unjust enrichment. The First Circuit affirmed, holding (1) no implied-in-fact contract existed between the parties; and (2) the bankruptcy court did not abuse its discretion in concluding that inequity would not result if the Operator did not pay the Associations for the use and occupancy of the Regatta Club during the claim period. View "Goat Island South Condominium Ass’n v. IDC Clambakes, Inc." on Justia Law

After Appellants went bankrupt, Appellees foreclosed on their home. Appellants each received an IRS Form 1099-A in the mail at the end of the tax year stating that the foreclosure might have tax consequences. The mortgage debt, however, was discharged during Appellants’ Chapter 7 bankruptcy proceedings. Appellants sued Appellees, claiming that the Forms were a coercive attempt to collect on the mortgage debt, which Appellees had no right to collect. The bankruptcy court found the Forms gave Appellants “no objective basis” to believe Appellees were trying to collect the discharged mortgage debt. The district court affirmed. The First Circuit affirmed, holding that the evidence in the record showed that the Forms were not objectively coercive. View "Bates v. CitiMortgage, Inc." on Justia Law

The underlying dispute in this case concerned a mortgage purported granted by Andrew and Maureen DeMore to the predecessor in interest to HSBC Bank, USA, N.A. on a parcel of property owned by the DeMores. This appeal came by way of bankruptcy court after each of the DeMores filed separate voluntary petitions for bankruptcy under Chapter 7 of the Bankruptcy Code. Donald Lassman, as trustee for the DeMores’ bankruptcy cases, filed adversary actions against HSBC to avoid the mortgage, arguing that the mortgage on the DeMores’ property was voidable under Massachusetts state law because the certificate of acknowledgment was “materially defective.” Specifically, Lassman asserted that the certificate failed to make clear that the DeMores executed the mortgage as their free act and deed. The Bankruptcy Court granted summary judgment to Lassman. The district court reversed. The First Circuit affirmed, holding that the certificate of acknowledgment was not materially defective because it made clear that the DeMores had executed the mortgage as their free act and deed. View "HSBC Bank USA, N.A. v. Lassman" on Justia Law