Justia Bankruptcy Opinion Summaries

The debtor filed a voluntary chapter 7 petition, listing pre-petition judgment liens incorrectly on Schedule E. His residence was a listed asset. He did not claim an exemption in the property, nor did he seek to avoid the judicial liens; he intended to sell the home. The creditors received notice of the bankruptcy filing and of the discharge. The case was closed in March 2012. In December 2015, the debtor moved to reopen his case in order to avoid the judgment liens so that he could refinance rather than sell. Notice was provided to all interested parties; none objected. Debtor’s counsel admitted that “it was an oversight ... that I didn’t go through with the actual terminations of the liens.” The bankruptcy court denied the motion, noting that the liens were known when the case was open. The Sixth Circuit Bankruptcy Appellate Panel reversed. Neither 11 U.S.C. 350(b) nor FRBP 5010 impose a time limit on motions to reopen. The “[p]assage of time alone . . . does not necessarily constitute prejudice to a creditor sufficient to bar the reopening.” The bankruptcy court did not find that any prejudice would result or the existence of other factors which would bar reopening. The debtor established that avoidance of the liens would provide him relief. View "In re: McCoy" on Justia Law

In 2013, the City of Detroit filed for chapter 9 bankruptcy protection, facing problems “run[ning] wide and deep”—including the affordable provision of basic utilities. In 2014, plaintiffs, customers, and the purported representatives of customers, of the Detroit Water and Sewerage Department (DWSD), filed an adversary proceeding, based on DWSD’s termination of water service to thousands of residential customers. Citing 42 U.S.C. 1983 and the Supreme Court holding in Monell v. Department of Social Services, plaintiffs sought injunctive relief. The Sixth Circuit affirmed dismissal. Section 904 of the Bankruptcy Code explicitly prohibits this relief. Whether grounded in state law or federal constitutional law, a bankruptcy court order requiring DWSD to provide water service at a specific price, or refrain from terminating service would interfere with the City’s “political [and] governmental powers,” its “property [and] revenues,” and its “use [and] enjoyment of . . . income-producing property,” 11 U.S.C. 904. Plaintiffs’ due process and equal protection claims were inadequately pled. View "Lyda v. City of Detroit" on Justia Law

Debtors filed a voluntary Chapter 7 bankruptcy petition in 2008, signed by Fullen as the attorney of record. The original petition, schedules, and statement of financial affairs (SoFA), did not disclose Debtors’ interests in several trusts and corporations, annuities, property held for others, bank accounts, and an assignment to Grusin. The Trustee required both Debtors to submit an affidavit, affirming that they had read and signed their documents; that they were personally familiar with the information contained in the documents; and that, to the best of their knowledge, that information was true and correct. During the section 341 Meeting, Debtors testified under oath that they had helped prepare, had read, and had signed their bankruptcy petition; that it listed all of their assets and liabilities; that the information contained in their schedules and SoFA was true; and that the statements in their Affidavits were true. The SoFA and schedules were amended multiple times. The Trustee and creditors conducted extensive discovery and filed an adversary proceeding, seeking denial of discharges. The bankruptcy court removed Fullen and Grusin as counsel for Debtors, imposed sanctions on the attorneys, and, after a trial with new counsel, denied discharges pursuant to Bankruptcy Code sections 727(a)(2)(A) and (B) and 727(a)(4). The Sixth Circuit Bankruptcy Appellate Panel affirmed the denial of discharges under section 727(a)(4) for making false oaths. Separately, the Panel vacated sanctions against Grusin. View "In re: Blasingame" on Justia Law

The bankruptcy court imposed Rule 9011 sanctions against attorneys stemming from their representation of debtors in an adversary proceeding in which a creditor and the trustee sought denial of discharge. The attorney filed notice of appeal regarding the sanctions order. The bankruptcy court subsequently set the amount of sanctions and, days later, amended that order and imposed additional sanctions under 28 U.S.C. 1927. The Sixth Circuit Bankruptcy Appellate Panel first denied motions to dismiss an appeal, holding that it had jurisdiction because the amount of sanctions was set forth in a final order. Notice of appeal was timely filed. Resolution of the sanctions issue will have no discernable impact on the pending discharge issue. The Panel subsequently vacated the sanctions order. In seeking the sanctions, the creditor did not comply with Rule 9011’s “safe harbor” notice requirement and the exception to that requirement did not apply. The bankruptcy court also erred as a matter of law in concluding that the attorney’s “shadow representation” of the debtors vexatiously and unreasonably multiplied the proceedings. In a separate opinion, the Panel upheld the bankruptcy court's ultimate denial of discharges.. View "In re: Blasingame" on Justia Law

In 2013, Detroit filed for municipal bankruptcy, 11 U.S.C. 109(c). The city had $18 billion in debt, 100,000 creditors, negative cash flow, crumbling infrastructure, and could not provide basic police, fire, and emergency services. Based on settlements with almost all creditors and stakeholders, the bankruptcy court confirmed the city’s plan, which included the reduction of municipal-employee pension benefits. The city’s General Retirement System has a traditional defined-benefit pension plan and a 401(k)-style employee-contribution annuity savings program (ASF). The city is responsible for funding the defined-benefits plan. Detroit is not responsible for funding the ASF, but $387 million of city money had been wrongly directed into and distributed from it, to ensure participants a promised 7.9% annual return regardless of investment returns. The defined-benefit plan was underfunded by $1.879 billion. The city obtained outside funding ($816 million) from the state and philanthropic foundations in order to reduce defined-benefit pensions by only 4.5%, while eliminating cost-of-living increases, dental, vision, and life insurance benefits; reducing healthcare coverage; and establishing a mechanism for the partial recoupment of excess ASF distributions. Defined-benefit pension claimants voted 73% in favor of accepting the plan, which eliminated $7 billion in debt and freed $1.7 billion in revenue for city services and infrastructure. Many aspects of the plan have been implemented or completed. The Sixth Circuit affirmed dismissal of challenges to the reduction in benefits as equitably moot. View "Ochadleus v. City of Detroit" on Justia Law

Ramey filed a pro se Chapter 7 petition and sought permanent waiver of the pre-petition credit counseling requirement of 11 U.S.C. 109(h), arguing incapacity and exigent circumstances. The bankruptcy court found that the motion failed to comply with local notice rules. The case was then dismissed because Ramey failed to file schedules and other initial documents. Weeks later, Ramey filed a credit counseling certificate that was completed post-petition and other documents. Ramey sought to vacate the dismissal, but her filing did not address credit counseling. The court denied Ramey’s motion, citing the lack of pre-petition counseling. Weeks later, Ramey again moved to waive the requirement and vacate the dismissal, citing medical issues. The court denied the motion, stating that Ramey did not meet the definition of incapacity or disability, having successfully completed counseling, post-petition. The Sixth Circuit Bankruptcy Appellate Panel affirmed, stating that the court must apply the statute as written. Exceptions to the pre-petition counseling requirement apply only if the court determines, after a hearing, that debtor is unable to complete those requirements because of incapacity, disability, or active duty in a military combat zone. Incapacity “means that the debtor is . . . incapable of realizing and making rational decisions.” Disability means that “the debtor is so physically impaired as to be unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing.” View "In re: Ramey" on Justia Law

For six decades, the Fair family operated Fair Finance Company in Ohio. In 2002, Durham and Cochran purchased the Company in a leveraged buyout and transformed its factoring operation into a front for a Ponzi scheme, to fund their extravagant lifestyles and struggling business ventures. Textron allegedly assisted in the concealment and perpetuation of the Ponzi scheme. In 2009, the scheme collapsed. Durham, Cochran, and the Company’s CFO, were indicted for wire fraud, securities fraud, and conspiracy. The Company entered involuntary bankruptcy. The Chapter 7 Trustee brought adversary proceedings on behalf of the estate for the Ponzi scheme’s unwitting investors. The district court granted Textron’s motion to dismiss. The Sixth Circuit reversed with respect to a claimed actual fraudulent transfer, holding that the Trustee sufficiently alleged facts to demonstrate an ambiguity in a 2004 financing and funding contract between the Company and Textron. The court held that the Trustee was not required to plead facts in anticipation of Textron’s potential in pari delicto affirmative defense to survive a motion to dismiss a civil conspiracy claim. In light of the reinstatement of those claims, the court reversed the dismissal of equitable subordination and disallowance claims. The court affirmed the dismissal of the Trustee’s constructive fraudulent transfer claim as time barred. View "Bash v. Textron Fin. Corp." on Justia Law

In 2014, Jackson filed a Chapter 7 Bankruptcy petition. His mortgagee (BOA), sought relief from the stay; abandonment of his residence, a condominium; and in rem relief for two years under 11 U.S.C. 362(d)(4)(B), alleging a substantial arrearage and prior bankruptcy filings that included the Condominium as scheduled property. The court granted the motion. BOA and Jackson entered into a loan modification agreement. The owners’ association (Carlton House) sought a permanent in rem order. The court stated that post-petition amounts were current “and the issue seems to be the desire to move forward with the foreclosure for the outstanding [pre-petition] approximately $5,900.” The court entered a two-year in rem sanction. Jackson received his discharge; the case was closed. Carlton House immediately went to state court to schedule a sheriff’s sale--the final step in a foreclosure action commenced in 2008 by BOA’s predecessor. Carlton House and the lender had obtained a foreclosure decree in 2009. The bankruptcy court reopened the case, concluded that Carlton House violated discharge order by scheduling the sale, awarded monetary sanctions, and enjoined re-scheduling of the sale. The Sixth Circuit Bankruptcy Appellate Panel reversed, noting that Carlton House has statutory obligations to other unit owners. The bankruptcy court effectively imposed an “equity requirement” that is not part of the Ohio foreclosure sale process. View "In re: Jackson" on Justia Law

Debtor filed a chapter 13 bankruptcy petition in July 2014, listing a debt for delinquent property taxes, “oversecured” by a lien, so that 11 U.S.C. 506(b), authorizes payment of interest. Debtor’s plan proposed 12% interest under Tenn. Code 67-5-2010(a)(1) which provides: To the amount of tax due and payable, a penalty of one-half of one percent (0.5%) and interest of one percent (1%) shall be added on March 1, following the tax due date and on the first day of each succeeding month, except as otherwise provided in regard to municipal taxes.” Metro argued that the proper interest rate was 18% under Subsection 67-5-2010(d): For purposes of any claim in a bankruptcy proceeding pertaining to delinquent property taxes, the assessment of penalties determined pursuant to this section constitutes the assessment of interest (effective July 1, 2014) Subsection (d) was a response to an earlier decision that a 6% annual penalty under Subsection (a)(1) was not allowed under 11 U.S.C. 506(b). The bankruptcy court agreed with Debtor’s assertion that the rate should be 12%, holding that Subsection (d) directly conflicted with the bankruptcy statutes and “a well-defined federal policy that post-petition penalties that might otherwise be owed to secured creditors are simply not paid in bankruptcy cases.” The Sixth Circuit Bankruptcy Appellate Panel affirmed, holding that Subsection (d) is not applicable to determine the interest rate under 11 U.S.C. 511, and did not address whether Subsection (d) is constitutional. View "In re: Mildred Bratt" on Justia Law

The Hargers were Jones’ neighbors. Police reports indicate that there were issues between the neighbors for several years. Grad worked for CarMeds, ostensibly owned by Jones’ mother and run by Jones, occasionally visiting Jones’ home. Grad claimed to have been assaulted after such a meeting. At the police station, Grad identified Harger from a photo line-up. Ultimately, charges were dropped. The Hargers sued Grad and Jones, asserting conspiracy to have Harger falsely arrested. Meanwhile, Jones filed a Chapter 7 bankruptcy petition. Hoover, the Hargers’ attorney, moved to modify the automatic stay and filed an adversary complaint, alleging that Jones's debt was non-dischargeable and seeking denial of discharge based on the assertion that Jones lied about the ownership of CarMeds. The bankruptcy court later dismissed the adversary proceeding on the Hargers’ motion, and set a hearing sua sponte, directing the Hargers and Hoover to show that they had reasonable grounds for filing. The court found that Hoover violated Rule 9011 by filing without specific evidence and made intentional misrepresentations in his filings; directed him to pay $26,000 in attorneys’ fees; revoked Hoover’s electronic bankruptcy filing authority; and referred the matter for possible prosecution. The Sixth Circuit Bankruptcy Panel reversed, holding that the bankruptcy court relied on clearly erroneous factual findings ;erred as a matter of law in awarding fees on a sua sponte basis; and abused its discretion in imposing any sanctions. View "In re: Jones" on Justia Law