Articles Posted in US Court of Appeals for the Fourth Circuit

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The plain text of 11 U.S.C. 1322(c)(2) authorizes modification of covered homestead mortgage claims, not just payments, including bifurcation of undersecured homestead mortgages into secured and unsecured components. The Fifth Circuit overruled Witt v. United Cos. Lending Corp., 113 F.3d 508 (4th Cir. 1997), which held that Chapter 13 debtors may not bifurcate a narrow subset of undersecured home mortgage loans into separate secured and unsecured claims and cram down the unsecured portion of such loans. Accordingly, the court reversed and remanded for further proceedings. View "Hurlburt v. Black" on Justia Law

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The Fourth Circuit reversed the district court's decision affirming the bankruptcy court's conclusion that Alaska's award of damages to TKCA necessarily meant that debtor willfully and maliciously injured TKCA for purposes of section 523(a)(6) of the Bankruptcy Code. The Supreme Court, in Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998), held that section 523(a)(6) requires "a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." The court held that, because neither the Alaska district court, nor the bankruptcy court, determined the precise issue of whether debtor intended to injure TKCA, collateral estoppel and summary judgment were inappropriate. Therefore, the court remanded to the district court with instructions to remand to the bankruptcy court for further proceedings. View "TKC Aerospace Inc. v. Muhs" on Justia Law

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JJF appealed the district court's denial of its third party claim to funds in certain deposit accounts that plaintiff, owner of a Rent-a-Wreck (RAWA) franchise, sought to garnish in his effort to satisfy a contempt award against RAWA for engaging in a pattern of bad faith conduct. JJF argued that it had priority over plaintiff's claims to the accounts. The court affirmed and held that the district court did not err in concluding that Maryland law permitted a trial court to require a third party movant to establish a bona fide claim of ownership. Therefore, the court declined to grant preclusive effect to the debtor-in-possession order and gave effect to the district court's authority to ensure compliance with its contempt orders. View "Schwartz v. J.J.F. Management Services, Inc." on Justia Law

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The Bankruptcy Code does not bar a creditor from asserting an unsecured claim for attorneys' fees, if those fees are incurred after the filing of a bankruptcy petition but guaranteed by a pre-petition contract. The Fourth Circuit reversed the district court's determination to the contrary and remanded for further proceedings. In this case, the court held that neither 11 U.S.C. 502(b) or 506(b) expressly disallows a creditor like SummitBridge from asserting an unsecured claim for post-petition attorneys' fees based on a valid pre-petition contract. View "SummitBridge National Investments III, LLC v. Faison" on Justia Law

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The Fourth Circuit affirmed the district court's decision affirming the bankruptcy court's order requiring the bankruptcy trustee to return debtor's post-petition Chapter 13 payments to him. The court held that the plain language of 11 U.S.C. 1326(a)(2) required the trustee to return the post-petition payments to debtor. The court explained that section 1326(a)(2) prevents the Division from levying upon the trustee when he is in possession of the post-petition payments. In this case, once the trustee returned the funds to debtor, the Division or any other creditor was free to levy upon debtor or others who possess his property. View "Commonwealth of Virginia v. Webb" on Justia Law

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The Fourth Circuit reversed and remanded the bankruptcy court's dismissal of debtor's case, holding that the plain language of 11 U.S.C. 1307 required a hearing. The court held that Local Bankruptcy Rule 3070-1(C)'s procedure for dismissal of a voluntary bankruptcy case conflicted with the notice and hearing requirement of section 1307. Therefore, Local Bankruptcy Rule 3070-1(C) was invalid to the extent that it was inconsistent with section 1307's hearing requirement. View "No v. Gorman" on Justia Law

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The Fourth Circuit reversed and remanded the bankruptcy court's dismissal of debtor's case, holding that the plain language of 11 U.S.C. 1307 required a hearing. The court held that Local Bankruptcy Rule 3070-1(C)'s procedure for dismissal of a voluntary bankruptcy case conflicted with the notice and hearing requirement of section 1307. Therefore, Local Bankruptcy Rule 3070-1(C) was invalid to the extent that it was inconsistent with section 1307's hearing requirement. View "No v. Gorman" on Justia Law

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The Fourth Circuit affirmed the district court's decision affirming the bankruptcy court's ruling denying the bankruptcy trustee's objection to exemptions claimed by debtors. In this case, the district court concluded that the applicable bankruptcy statute authorized debtors to utilize Louisiana's state law statutory scheme to exempt personal property in West Virginia from debtors' bankruptcy estate. The court agreed with the well-reasoned analysis of the district court that the bankruptcy court correctly adopted the state-specific interpretation of 11 U.S.C. 522(b)(3)(A). The court explained that the district court's adoption of the state-specific approach was consistent with the rulings of at least two sister appellate courts that have addressed the issue. View "Sheehan v. Ash" on Justia Law

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At issue was whether a bankruptcy court may strip off valueless liens on a Chapter 13 debtor's principal residence when no proof of claims have been filed. The district court affirmed the bankruptcy court's refusal to strip the liens. The Fourth Circuit reversed and held that the liens may be stripped regardless of whether proof of claims has been filed. In this case, the liens at issue were entirely without value making the creditor the holder of an unsecured claim under section 1322(b). View "Burkhart v. Grigsby" on Justia Law

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The Fourth Circuit affirmed the bankruptcy court's denial of the receiver's motion to dismiss creditor's bankruptcy petition for cause under 11 U.S.C. 707(a). The court held that the bankruptcy court did not abuse its discretion in denying the motion to dismiss where creditor's decision to file for bankruptcy did not arise to the level of bad faith. The court noted that the standard of review was of paramount importance here where the court did not ask whether it necessarily would have reached the same result as the bankruptcy court, but did note the bankruptcy court's greater familiarity with creditor's case and the fact that the bankruptcy court gave good and sound reasons for ruling as it did. View "Janvey v. Romero" on Justia Law