Justia Bankruptcy Opinion Summaries

Debtors filed a voluntary Chapter 13 petition. The Bankruptcy Court confirmed a plan that required payments of $2,485 each month for 60 months. Later, because of an increase in mortgage payments, the plan was amended to increase the payments to $3,017 for the remainder of the 60-month period. Debtors made consistent payments and, after 60 months, had paid $174,104, slightly exceeding their projected plan base. The Trustee subsequently moved to dismiss the case under 11 U.S.C. 1307(c), alleging that Debtors still owed $1,123 to complete their plan base. Debtors cured the arrears within 16 days. The motion had been joined by an unsecured creditor, who claimed that the plan and the Code required completion within 60 months. The Bankruptcy Court agreed that the failure to completely fund the plan base within 60 months was a material default constituting cause for dismissal, but found that the default was not the result of Debtors' unreasonable delay, that Debtors promptly corrected the deficiency, and that the delay did not significantly alter the timing of distributions. The district court and Third Circuit affirmed and rejected an adversary proceeding, objecting to the discharge. Bankruptcy courts have discretion to grant a brief grace period and discharge debtors who cure an arrearage in their plan shortly after the expiration of the plan term. View "In re: Klaas" 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

The Bankruptcy Appellate Panel (BAP) concluded the bankruptcy court correctly declined to apply the doctrine of marshaling in favor of a secured creditor, because the common debtor requirement imposed by Colorado law was not satisfied. This appeal arose out of an adversary proceeding brought by the trustee of a Chapter 7 bankruptcy estate to determine how to divide the proceeds from the sale of the debtor’s real property. The BAP concluded the bankruptcy court did not err in determining the bankruptcy estate was entitled to retain the proceeds from the sale of the property subject to a home equity line of credit lien, or in determining the amount due under that lien. But the BAP found the bankruptcy court erred under 11 U.S.C. 506(c) by surcharging the secured collateral (and thereby reducing a secured creditor’s share) for expenses incurred contesting the validity of that secured creditor’s lien. The Tenth Circuit conducted a complete and independent review, and with several caveats, affirmed the BAP’s judgment and formally adopted its opinion. View "Bryan v. Clark" on Justia Law

On remand to the Bankruptcy Appellate Panel, debtors challenged the bankruptcy court's order granting in part and denying in part Starion's motion to compel payment of fees under the confirmed plan of reorganizations, and granting in part and denying in part debtors' motion to disallow attorneys' fees and costs claimed by Starion. The panel affirmed the bankruptcy court's judgment and held that its prior opinion was not clearly erroneous nor did it work a manifest injustice in this case. Therefore, it is law of the case and will not be reopened. The panel also held that the relatively short delay in submitting the requests for attorneys' fees did not prejudice debtors and was not a material breach of the plan that should prohibit Starion's right to collect its fees and costs under the plan. Finally, the bankruptcy court did not abuse its discretion by reducing the fees instead of denying all fees. View "McCormick v. Starion Financial" on Justia Law

Filing a bankruptcy proof of claim that is obviously time-barred is not a false, deceptive, misleading, unfair, or unconscionable practice under the Fair Debt Collection Practices Act (FDCPA).Midland filed a proof of claim in Johnson’s Chapter 13 bankruptcy case, asserting a credit-card debt and noting that the last time any charge appeared on Johnson’s account was more than 10 years ago. The Alabama limitations period is six years. The Bankruptcy Court disallowed the claim. Johnson filed suit under the FDCPA, 15 U.S.C. 1692. The Supreme Court reversed the Eleventh Circuit. The Bankruptcy Code defines “claim” as a “right to payment,” 11 U.S.C. 101(5)(A); state law usually determines whether a person has such a right. Alabama law provides that a creditor has the right to payment of a debt even after the limitations period has expired. The word “enforceable” does not appear in the Code’s definition. The law treats unenforceability of a claim due to the expiration of the limitations period as an affirmative defense. There is nothing misleading or deceptive in filing a proof of claim that follows the Code’s similar system. Concerns that a consumer might unwittingly repay a time-barred debt have diminished force in a Chapter 13 bankruptcy, where: the consumer initiates the proceeding; a knowledgeable trustee is available; procedural rules guide evaluation of claims; and the claims resolution process is “less unnerving” than facing a collection lawsuit. View "Midland Funding, LLC v. Johnson" on Justia Law

After the bankruptcy court granted Plaintiff a discharge of her debts, Plaintiff filed this action against the named defendants, alleging misuse of funds of a trust established by her mother. Plaintiff subsequently filed a motion to substitute the bankruptcy trustee as the proper plaintiff. The trial court denied the motion, concluding that Plaintiff failed to show that she had brought the action in her own name due to a mistake. The court then dismissed the action for lack of subject matter jurisdiction. While Plaintiff’s appeal was pending, the bankruptcy court granted the bankruptcy trustee’s motion to abandon the underlying cause of action. The Appellate Court affirmed. The Supreme Court dismissed Plaintiff’s appeal as moot, holding that because the bankruptcy trustee abandoned the underlying action and Plaintiff no longer was seeking to substitute the trustee as party plaintiff, resolution of this claim would afford Plaintiff no practical relief. View "Gladstein v. Goldfield" on Justia Law

The Fifth Circuit affirmed the bankruptcy court's holding that a promissory note debtor gave to appellee was a nondischargeable debt under 11 U.S.C. 523(a)(2)(A). Appellee had retained debtor to represent her in bringing a malpractice claim against another attorney. Debtor failed to properly file the malpractice suit and the case was ultimately dismissed. The Fifth Circuit held that the promissory note that debtor executed had its intended effect of giving him more time to pay back appellee, and therefore debtor received an extension of credit from appellee when she agreed to accept the promissory note. The Fifth Circuit also held that debtor obtained the extension of credit from appellee by actual fraud because debtor made a false representation, intended to deceive appellee, and appellee sustained loss as a proximate result of debtor's false representation. View "Selenberg v. Bates" on Justia Law

The Bankruptcy Appellate Panel affirmed the bankruptcy court's opinion and order abstaining from hearing Roberts Broadcasting's malpractice claim against Danna McKitrick pursuant to 28 U.S.C. 1331(c)(1). McKitrick represented Roberts Broadcasting in its chapter 11 case. The Panel explained that the bankruptcy court considered and addressed each of the listed criteria, and it considered and addressed only the listed criteria. Therefore, the bankruptcy court did not abuse its discretion either by failing to consider a relevant factor that should have been given significant weight or by considering and giving significant weight to an irrelevant or improper factor. View "Roberts Broadcasting Company v. DeWoskin" on Justia Law

The Bankruptcy Appellate Panel affirmed the bankruptcy court's grant of summary judgment to the Iowa Department of Revenue and dismissal of the adversary proceeding. The Panel held that the bankruptcy court did not abuse its discretion in denying debtor's motion to file newly discovered evidence where the motion did not deal with newly discovered evidence at all, but was just an attempt to make more arguments for why the Iowa income statute was void for vagueness; the bankruptcy court did not err when it gave res judicata effect to debtor's claim that the Iowa income tax statute is unconstitutional; the bankruptcy court did not err when it applied collateral estoppel to debtor's claim regarding the constitutionality of Iowa's income statute; debtor's void for vagueness argument lacked merit and the Rooker-Feldman doctrine prevented the bankruptcy court and the Panel from reviewing the state supreme court's decision; and Iowa is a state. Debtor's remaining arguments were frivolous and rejected by the Panel. View "Yuska v. Iowa Department of Revenue" on Justia Law

IRS Form 1040, filed after the IRS made an assessment of the taxpayer’s liability, did not constitute “returns” for purposes of determining the dischargeability in bankruptcy of tax debts under 11 U.S.C. 523(a)(1)(B). Giacchi filed his tax returns on time for the years 2000, 2001, and 2002 years after they were due and after the IRS had assessed a liability against him. In 2010, Giacchi filed for Chapter 7 bankruptcy; in 2012 he filed a Chapter 13 petition and brought an adversary proceeding seeking a judgment that his tax liability for the years in question had been discharged in the Chapter 7 proceeding. The district court and Third Circuit affirmed the bankruptcy court’s order denying the discharge. The tax debt was nondischargeable under 11 U.S.C. 523(a)(1)(B) because Giacchi had failed to file tax returns for 2000, 2001, and 2002, and Giacchi’s belatedly filed documents were not “returns” within the meaning of section 523(a)(1)(B) and other applicable law. View "Giacchi v. United States" on Justia Law