Justia Bankruptcy Opinion Summaries

McDonald worked as an Ohio bank examiner and a loan officer. As a loan officer, McDonald obtained funds by fraudulently making loans to others. Some of the loans were unknown to the “borrowers.” McDonald filed for individual Chapter 7 bankruptcy. The U.S. Trustee argued that 11 U.S.C. 727(a)(5) prevented the discharge of his debts because McDonald had failed to satisfactorily explain the dissipation of many of his assets. McDonald produced bank statements, brokerage account statements, canceled checks, and his tax returns for 2012-2015. He did not produce his 2010-2011 tax returns, bank account records covering January-March 2010, or many canceled checks, which the court requested. More than $250,000 of McDonald’s assets were unaccounted for. At the Rule 2004 Exam, McDonald refused to testify about one loan, exercising his Fifth Amendment right against self-incrimination. He later confessed to the scheme.The bankruptcy court granted the Trustee summary judgment. The district court and Sixth Circuit affirmed. Section 727(a)(5) contains no intent requirement; it “imposes strict liability” when the debtor fails to provide a satisfactory explanation for the deficiency in assets. McDonald's threadbare recitation from memory is not enough. His testimony throughout the bankruptcy proceedings was rife with unclear, uncertain statements often couched with “likely,” “I think,” or “I don’t know.” View "Vara v. McDonald" on Justia Law

Debtor and Creditor have three children. Their decree of dissolution was entered in 2008. Domestic support and child custody issues have continued to be litigated. In 2017, Creditor obtained primary custody of the children; he filed a Motion for Child Support and Motion for Contempt in Family Court. A monthly support amount was determined. Pre-petition, the Family Court established that the parties would split the cost of the childrens' medical care and extra-curricular activities. Creditor was seeking reimbursement for Debtor’s share of incurred expenses when Debtor’s bankruptcy petition was filed. The Family Court, post-petition, found Debtor in contempt of a prior order.Debtor filed a motion with the Bankruptcy Court requesting sanctions for violation of the automatic stay for the post-petition hearing and Creditor’s collection efforts made pursuant to Family Court orders. The Bankruptcy Court found that some actions violated the automatic stay and awarded attorneys’ fees as actual damages and punitive damages. The Sixth Circuit Bankruptcy Appellate Panel affirmed. The Family Court hearing was conducted to modify a domestic support obligation; the hearing and subsequent garnishment order were excepted from the automatic stay, 11 U.S.C. 362(b)(2)(A)(ii); 362(b)(2)(C). The Family Court Judgment finding Debtor in civil contempt violated the stay and is void. An order of payment, directly to Creditor, toward a pre-petition debt, also violated the stay. View "In re: Dougherty-Kelsay" on Justia Law

Under the “individual mandate” within the Patient Protection and Affordable Care Act of 2010, non-exempt individuals must either maintain a minimum level of health insurance or pay a “penalty,” 26 U.S.C. 5000A, the “shared responsibility payment” (SRP). The McPhersons did not maintain health insurance for part of 2017, and Juntoff did not maintain health insurance in any month in 2018. They did not pay their SRP obligations. In each of their Chapter 13 bankruptcy cases, the IRS filed proofs of claim and sought priority treatment as an “excise/income tax”: for Juntoff, $1,042.39, and for the McPhersons, $1,564.The bankruptcy court confirmed their plans, declining to give the IRS claims priority as a tax measured by income. The Bankruptcy Appellate Panel reversed. DIstinguishing the Sebelius decision in which the Supreme Court determined that the SRP constituted a “penalty” for purposes of an Anti-Injunction Act analysis and a “tax” under a constitutionality analysis, the Panel concluded that the SRP is not a penalty but a tax measured by income. It is “calculated as a percentage of household income, subject to a floor based on a specified dollar amount and a ceiling based on the average annual premium the individual would have to pay for qualifying private health insurance.” View "In re: Juntoff" on Justia Law

Long and the Piercys operated a Tennessee quarry. Their agreement was silent as to whether their division of “profit” would be based on gross profit after payment of a royalty or net profit after payment of the royalty plus other costs. Based on the division of labor and respective contributions, Long believed that the four individuals should receive equal shares of the gross profit. When Long complained, the Piercys padlocked him off the property and threatened to call the sheriff, then stopped paying Long. A state court chancellor found that Long was entitled to the difference between what the Piercys had paid him and what Long should have received ($151,670.87) but rejected Long’s claim for lost anticipated profits, declining to find that the Piercys breached the partnership agreement but assessing costs against the Piercys.The Piercys sought Chapter 7 bankruptcy relief. Long initiated adversary proceedings, seeking a declaration that the judgment was nondischargeable under 11 U.S.C. 523(a)(4) for debts incurred by embezzlement, or through defalcation while acting in a fiduciary capacity. The Sixth Circuit reversed the bankruptcy court and district court. Long’s state-court judgment may be declared nondischargeable if Long can produce evidence of wrongful intent. The state-court judgment is unclear as to the basis for its relief and does not preclude a finding of fraud. Under the Tennessee Revised Uniform Partnership Act, partners owe each other fiduciary duties. View "Long v. Piercy" on Justia Law

In the Bankruptcy Court, Harang sought a declaration that his tax debts were dischargeable, notwithstanding 11 U.S.C. 523(a)(1). The IRS answered the complaint, served discovery requests, moved to compel answers, and eventually sought discovery sanctions, which the Bankruptcy Court imposed, stating that “[f]or all purposes in this case ... the Court will presume ... that the Debtor had sufficient income to pay his tax liabilities ... but consciously chose not to do so.” Later, after holding that a witness “refused to appear for his deposition at the direction of” Harang, the Court entered a second sanctions order with additional factual findings. The Court scheduled the trial for February 16, 2021; on January 21, Harang moved to dismiss the adversary proceeding under Rule 41.The Bankruptcy Court entered an Order of Dismissal with Prejudice, stating: Given the protracted and tortious [sic] history of this case, the court finds it proper to condition the dismissal ... upon the inclusion of its prior factual findings ...[and] that the dismissal should be with prejudice because that was the request of the Plaintiff ... the United States was ready to proceed to trial. The Sixth Circuit Bankruptcy Appellate Panel affirmed. A bankruptcy court has the duty and the discretion to address the misbehavior of parties appearing before it. Rule 41(a)(2) creates needed latitude for courts to exercise that discretion. The Bankruptcy Court did not abuse its discretion by restating earlier, unchallenged factual findings. View "In re Jack Warren Harang" on Justia Law

The Sixth Circuit affirmed the district court's decision rejecting the bankruptcy trustee's efforts seeking to avoid payments from Fair Finance to Textron as fraudulent transfers under Ohio's Uniform Fraudulent Transfer Act (OUFTA).The court concluded that the district court correctly rejected the trustee's bad-faith-invalidation argument at summary judgment. In this case, Textron's actions did not render its perfected interest ineffective against the holder of a judicial lien subsequently obtained in a hypothetical UCC priority contest. Therefore, Textron enjoyed a valid lien under OUFTA. The court explained that its conclusion is grounded in the nature of the UCC's priority test as well as critical distinctions between normal priority disputes and the OUFTA valid-lien test. The court also concluded that loan payments encumbered by the perfected 2002 security interest are not transfers under OUFTA and thus cannot be avoided as fraudulent transfers. The court disagreed with the trustee that the jury erred in determining that the 2004 changes did not amount to a novation and concluded that, to the extent there was an error in the jury instruction, it was harmless. The court rejected the trustee's additional argument to the contrary. View "Bash v. Textron Financial Corp." on Justia Law

In 1993-2017, Penfound worked for a company that provided its employees with a 401(k) plan and voluntarily contributed a portion of his wages to the plan. In 2017, Penfound transitioned to a new company, Protodesign, which did not offer a 401(k) plan. Penfound was unable to make further contributions to his retirement account. He left Protodesign in March 2018 and, weeks later started working for Laird, which offered a 401(k) plan. Penfound eventually resumed making contributions. In June 2018, Penfound and his wife filed for Chapter 13 bankruptcy, seeking to deduct $1,375.01 per month from their disposable income as voluntary contributions to John’s 401(k) retirement plan. The Trustee objected.The bankruptcy court found that the Penfounds could “not exclude their voluntary contributions . . . from the calculation of disposable income.” The district court affirmed. In the meantime, the Sixth Circuit held that 11 U.S.C. 541(b)(7) “is best read to exclude from disposable income a debtor’s post-petition monthly 401(k) contributions so long as those contributions were regularly withheld from the debtor’s wages prior to her bankruptcy.” Rejecting a “good faith” argument, the Sixth Circuit affirmed as to Penfound, who had made no contributions within the six months pre-petition. View "Penfound v. Ruskin" on Justia Law

In 1998, Old Ben Coal Company conveyed its rights to the methane gas in various coal reserves to Illinois Methane. A “Delay Rental Obligation” required the owner of the coal estate to pay Methane rent while it mined coal in areas that Methane had not yet exploited. A deed, including the Delay Rental Obligation was recorded. A few years later, Old Ben filed for bankruptcy and purported to sell its coal interests “free and clear of any and all Encumbrances” to Alliance. Old Ben did not notify Methane before the bankruptcy sale but merely circulated notice by publication in several newspapers. Alliance later sought a permit to mine coal. Methane eventually sought to collect rent in Illinois state court. Alliance argued that Old Ben’s “free and clear” sale had extinguished Methane’s interest.The bankruptcy court held that Alliance was not entitled to an injunction. The district court and Sixth Circuit affirmed. The deed indicates that the Delay Rental Obligation runs with the land and binds successors; it “is not simply a personal financial obligation between” Old Ben and Methane. The covenant directly affects the value of the coal and methane estates. Methane was a known party with a known, present, and vested interest in real property, entitled to more than publication notice. View "Alliance WOR Properties, LLC v. Illinois Methane, LLC" on Justia Law

On three separate occasions, Smith filed a Chapter 13 bankruptcy petition shortly before a scheduled foreclosure sale of his home, thereby preventing the sale, then moved for the dismissal of his bankruptcy case shortly afterward. The bankruptcy court dismissed Smith’s cases, notwithstanding his bad faith, because 11 U.S.C. 1307(b) plainly commanded the court to dismiss them. The bankruptcy court apparently did not exercise its power to sanction Smith for filing the petitions in patent bad faith, nor did the lender promptly seek relief from the stay on the ground that “the filing of the petition was part of a scheme to delay, hinder, or defraud creditors” 11 U.S.C. 362(d)(4)(B). A few months after the third filing, however, the bankruptcy court invoked its putative equitable powers and reinstated Smith’s most recent bankruptcy case, and lifted the automatic stay for a period of two years.The Sixth Circuit reversed. A court may exercise its equitable powers only in furtherance of the Bankruptcy Code’s provisions, not in circumvention of them. Nothing in section 1307 renders dismissal discretionary in cases where the debtor filed the bankruptcy petition in bad faith. View "Smith v. U.S. Bank National Association" on Justia Law

Coal companies (last signatory operators) must provide health and retiree benefits through individual employer plans (IEPs), 26 U.S.C. 9711(a), (b); the 1992 Plan provides benefits for retirees who do not receive benefits through a company’s IEP, section. Last signatory operators fund and provide security for the 1992 Plan. If the 1992 Plan assumes responsibility for IEP benefits, the Plan may assert that a prior employer must pay the benefits.A CONSOL entity sold mining operations to Debtors in 2013. Debtors provided healthcare and retiree benefits to about 2,200 Beneficiaries under an IEP. Debtors filed chapter 11 petitions in 2019, having negotiated agreements that compelled Debtors to minimize their liabilities to the Beneficiaries. To address the Coal Act obligations, the Trustee appointed a committee to represent Debtors’ retirees. Debtors and the Retiree Committee ultimately agreed that the parties would cooperate to transition the Beneficiaries from the IEP to the 1992 Plan to assure no coverage gap. The 1992 Plan would receive $12.5 million from the posted security. Debtors would cooperate in the Plan’s efforts to hold CONSOL responsible as the last signatory operator for those Beneficiaries who transferred to Debtors in 2013.The bankruptcy court approved the Settlement over CONSOL’s objection and confirmed Debtors’ Chapter 11 Plan. The order reserved CONSOL’s right to dispute its potential Coal Act liability for the Benefits, stating that its approval of the Settlement "in no way constitutes a finding that CONSOL is the last signatory operator.”The Sixth Circuit Bankruptcy Appellate Panel dismissed an appeal, finding that CONSOL lacks standing. Whether an order directly and adversely affects an appellant’s pecuniary interests is interpreted narrowly; “person aggrieved” standing does not arise from concerns about separate litigation unrelated to an interest protected by the Bankruptcy Code. View "In re Murray Energy Holdings Co." on Justia Law