Justia Bankruptcy Opinion Summaries

A debtor filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the District of Arizona, initially claiming exemptions for real property and a recreational vehicle under Arizona’s homestead law. The trustee objected, and the debtor amended his schedule to claim the same exemptions under Washington law. After the trustee objected again and the bankruptcy court sustained both objections, the debtor amended his schedule a second time, this time electing federal exemptions under 11 U.S.C. § 522(d), specifically claiming a homestead exemption for the real property and a wildcard exemption for the recreational vehicle.The bankruptcy court granted the debtor’s federal homestead exemption for the real property and the wildcard exemption for the recreational vehicle, even though the debtor had listed the RV under the homestead exemption rather than the wildcard exemption. The trustee appealed to the United States District Court for the District of Arizona, which reversed the bankruptcy court’s decision. The district court held that claim preclusion barred the debtor from asserting federal exemptions after his state law exemptions were denied and that the bankruptcy court lacked authority to grant the wildcard exemption for the RV because the debtor had not specifically claimed it.On appeal, the United States Court of Appeals for the Ninth Circuit reversed the district court’s judgment. The Ninth Circuit held that claim preclusion did not bar the debtor from amending his schedule to claim federal exemptions after the bankruptcy court ruled that state exemptions were unavailable, because bankruptcy procedure prohibits simultaneous claims of state and federal exemptions. The court also held that the bankruptcy court did not exceed its authority by granting the wildcard exemption for the RV, as the debtor’s claim was sufficient under the federal statutory scheme. The case was remanded to the district court with instructions to vacate its decision and remand to the bankruptcy court. View "WARFIELD V. NANCE" on Justia Law

A dispute arose between a woman and her daughter regarding the daughter’s alleged misuse of property held in an irrevocable trust for which she served as trustee. The mother initiated a lawsuit in Massachusetts state court, asserting several state-law claims against her daughter and her daughter’s then-husband. Subsequently, the daughter filed for bankruptcy under Chapter 13 in the United States Bankruptcy Court for the District of Arizona, which triggered an automatic stay of the state court litigation. The bankruptcy court initially granted the mother’s motion for relief from the automatic stay and for permissive abstention, allowing the state court case to proceed. However, after delays in the state court proceedings, the daughter moved for relief from that order, and the bankruptcy court vacated its prior order and reimposed the automatic stay.After the bankruptcy court’s March 2021 order reimposing the stay, the mother filed adversary proceedings in bankruptcy court, which were consolidated and tried. The bankruptcy court ruled in favor of the daughter on all claims and entered final judgment in July 2022. The mother then appealed the March 2021 order to the United States District Court for the District of Arizona, arguing that the bankruptcy court erred in granting relief under Rule 60(b)(6) rather than Rule 60(b)(1). The district court concluded that the appeal was timely because it believed the March 2021 order was not immediately appealable, and it affirmed the bankruptcy court’s decision.The United States Court of Appeals for the Ninth Circuit held that, under Ritzen Group, Inc. v. Jackson Masonry, LLC, the bankruptcy court’s March 2021 order was a final, appealable order because it definitively resolved a discrete dispute within the bankruptcy case. Since the mother did not appeal within the required fourteen days, her appeal was untimely, and the district court lacked jurisdiction. The Ninth Circuit vacated the district court’s order and remanded with instructions to dismiss the appeal for lack of jurisdiction. View "FANTASIA V. DIODATO" on Justia Law

Steven Zinnel was convicted of bankruptcy fraud, money laundering, and other financial crimes. He was sentenced to 152 months in prison and ordered to pay over $2.5 million in restitution and fines. The government sought to garnish funds from Zinnel's TD Ameritrade Individual Retirement Account to satisfy the unpaid restitution and fines. Zinnel objected to the garnishment and requested that the proceedings be transferred to the District of Oregon, where he claimed to reside.The United States District Court for the Eastern District of California denied Zinnel's motion to transfer the proceedings, ruling that venue was proper in the Eastern District of California. The court overruled Zinnel's objections to the writ of garnishment and ordered TD Ameritrade to disburse funds to cover the unpaid restitution, fines, and a litigation surcharge. Zinnel appealed the final garnishment order.The United States Court of Appeals for the Ninth Circuit reviewed the case and held that the district court erred in denying Zinnel's motion to transfer the garnishment proceedings. The Ninth Circuit agreed with the Sixth and Eleventh Circuits that the plain language of the Federal Debt Collection Procedures Act (FDCPA) imposes a mandatory obligation on the district court to transfer the proceedings upon the debtor's timely request. The court also held that the district court's failure to transfer the proceedings was not subject to harmless error analysis, as it necessarily affected the debtor's substantial rights.The Ninth Circuit vacated the district court's final order of garnishment and remanded the case, allowing Zinnel to litigate the proceedings in the district where he now resides. The court concluded that the appeal was not moot, as a partial remedy could still be fashioned by directing the United States to return the funds to TD Ameritrade. View "United States v. Zinnel" on Justia Law

Debtors Jason Lee and Janice Chen filed for Chapter 13 bankruptcy, listing their residence as their sole collateral. They proposed a plan to bifurcate and "cram down" creditor Mission Hen, LLC's junior secured claim to its secured portion. Mission Hen objected on grounds of eligibility, feasibility, and legality under 11 U.S.C. § 1322(b)(2). The bankruptcy court resolved all objections in favor of the debtors and confirmed the plan.The Bankruptcy Appellate Panel (BAP) affirmed the bankruptcy court's decision. The BAP held that the debtors were eligible for Chapter 13 bankruptcy under 11 U.S.C. § 109(e), which sets a noncontingent, liquidated, unsecured debt limit. The bankruptcy court reasonably relied on its own valuation of the property in determining eligibility, given the timing and procedural setting of Mission Hen's objection. The BAP also found the Chapter 13 plan feasible under § 1325(a)(6), as a renter's declaration showed that a rent increase would cover the shortfall in the debtors' reported monthly income.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed the BAP's decision. The court held that the debtors were eligible for Chapter 13 bankruptcy based on the bankruptcy court's valuation of the property. The court also found the plan feasible, as the increased rent payments would allow the debtors to make all payments under the plan. Additionally, the court held that the plan did not violate § 1322(b)(2) because § 1322(c)(2) creates an exception for short-term claims that mature during the term of a Chapter 13 plan. The court agreed with other circuits that § 1322(c)(2) allows for the modification of an entire claim, permitting the debtors to bifurcate Mission Hen's claim.The Ninth Circuit affirmed the BAP's decision, confirming the bankruptcy court's order. View "Mission Hen, LLC v. Lee" on Justia Law

SDVF, LLC registered a default judgment against Cozzia USA LLC in the U.S. District Court for the Central District of California to enforce and collect the judgment. This judgment was originally entered by the U.S. Bankruptcy Court for the District of Delaware. However, the Delaware Bankruptcy Court later vacated the default judgment.The U.S. District Court for the Central District of California dismissed SDVF's action to enforce the judgment, reasoning that the registered judgment was no longer valid after the underlying judgment had been set aside.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed the district court's dismissal. The Ninth Circuit held that a registered judgment under 28 U.S.C. § 1963 is not valid if the underlying judgment has been vacated. The court explained that the registered judgment relies on the existence of the original final judgment, and once the original judgment is vacated, the registered judgment cannot be enforced. The court also noted that neither Rule 60 of the Federal Rules of Civil Procedure nor the court's inherent equitable power allows SDVF to challenge the Delaware Bankruptcy Court's ruling in the Central District of California. Thus, the district court's dismissal of the case was affirmed. View "SDVF, LLC V. COZZIA USA LLC" on Justia Law

The Social Security Administration (SSA) overpaid a debtor, Cooper, before his Chapter 7 no-asset discharge in bankruptcy. Two years after his discharge, SSA recouped the overpayment by reducing his monthly benefits. Cooper moved to hold SSA in contempt for violating the bankruptcy discharge injunction.The bankruptcy court denied Cooper's motion, finding that equitable recoupment allowed SSA to recover the overpayment. The Bankruptcy Appellate Panel (BAP) affirmed, concluding that the overpayment and ongoing benefits were logically related as they arose from the same disability period and statutory scheme.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the logical relationship test for equitable recoupment requires consideration of the equities, including the purpose of the Bankruptcy Code. The court found that recoupment was impermissible where SSA sought to recoup overpayments from a bankrupt beneficiary who engaged in no malfeasance. The court emphasized that recoupment should only apply when it would be inequitable for the debtor to enjoy the benefits of a transaction without meeting its obligations.The Ninth Circuit reversed the BAP's decision and remanded the case for further proceedings, instructing the BAP to remand to the bankruptcy court. The court clarified that the logical relationship test demands consideration of the equities and the purpose of the Bankruptcy Code in each individual case. View "COOPER V. SOCIAL SECURITY ADMINISTRATION" on Justia Law

In Associates Commercial Corp. v. Rash, 520 U.S. 953, 956 (1997), the Supreme Court adopted a replacement-value standard for 11 U.S.C. 506(a)(1) cram-down valuations, holding that replacement value, rather than a foreclosure sale that will not take place, is the proper guide under a prescription hinged to the property's disposition or use. In this case, the en banc court held that, because foreclosure would vitiate covenants requiring that the secured property—an apartment complex—be used for low-income housing, foreclosure value in this case exceeds replacement value, which is tied to debtor’s actual use of the property in the proposed reorganization. The en banc court held, as Rash teaches, that section 506(a)(1) requires the use of replacement value rather than a hypothetical value derived from the very foreclosure that the reorganization was designed to avoid. The bankruptcy court did not err here by approving debtor's plan of reorganization and valuing the collateral assuming its continued use after reorganization as low-income housing. Accordingly, the en banc court affirmed the district court's judgment affirming the bankruptcy court's affirmance of debtor's Chapter 11 plan of reorganization. View "First Southern National Bank v. Sunnyslope Housing Ltd. Partnership" on Justia Law

Movant-Appellee Nabors Drilling USA, L.P. filed for reorganization under Chapter 11 of the Bankruptcy Code. That filing triggered the automatic stay under 11 U.S.C. 362(a)(1), which generally applied to protect a debtor after it has filed for bankruptcy protection. The question presented in this case was whether that stay applied to a lawsuit filed by appellant-plaintiff Jeremy Porter, who has asserted a claim under California’s Private Attorney General Act of 2004 (“PAGA”). Porter contended the exception established in 11 U.S.C. 362(b)(4) applied to exempt his PAGA claim from the automatic stay. The Ninth Circuit concluded that the exception does not apply to a claim brought by a private party under PAGA, and therefore granted Nabors’s motion to recognize the automatic stay. View "Porter v. Nabors Drilling USA, L.P." on Justia Law

In this bankruptcy appeal, the issue presented for the Ninth Circuit’s review was one of first impression regarding some key provisions of 11 U.S.C. 1111(b) that apply to Chapter 11 proceedings for those who hold non-recourse liens on real property who are granted recourse against the bankruptcy estate upon the filing of the bankruptcy petition. Those protected are creditors who have “a claim secured by a lien on property of the estate.” The issue before the Court was whether the creditor continues to have a right of recourse after there has been a non-judicial foreclosure, so that the property is no longer part of the estate and the liens have been extinguished. The Bankruptcy Appellate Panel (“BAP said no and the Ninth Circuit affirmed. View "Mastan v. Salamon" on Justia Law

When debtors filed for bankruptcy in 2013, PNC Bank filed a claim based on a 2007 note. Debtors objected, contending that the claim was barred by California's applicable four-year statute of limitations. PNC argued, however, that the claim was timely because the promissory note's choice of Ohio law incorporated Ohio's six-year limitations period. The bankruptcy judge agreed that Ohio's six-year limitations applied to this case. The Bankruptcy Appellate Panel reversed. The court concluded that where a choice-of-law provision does not expressly include the statute of limitations, the court has construed it as silent on the issue. The court explained that where no statute of limitations is provided for a federal cause of action, the law of limitations of the forum state is followed. However, in this case, the court reasoned that the application of Section 142 of the Restatement (Second) of Conflict of Laws compels the conclusion that California's shorter statute of limitations does not apply, because this case presents the sort of "exceptional circumstances" under which the 1988 version of the Second Restatement looks past the law of the forum, and applies a longer foreign limitations period. Accordingly, the court reversed and remanded to the bankruptcy court for further proceedings. View "PNC Bank v. Sterba" on Justia Law