Justia Bankruptcy Opinion Summaries

After New Investments defaulted on a note borrowed from Pacifica, Pacifica commenced non-judicial foreclosure proceedings. New Investments then filed for Chapter 11 bankruptcy. The bankruptcy court confirmed New Investments’s plan of reorganization proposing to cure the default by selling the property to a third party and using the proceeds of the sale to pay the outstanding amount of the loan at the pre-default interest rate. In Great W. Bank & Tr. v. Entz-White Lumber & Supply, Inc., the court held that a debtor who cures a default “is entitled to avoid all consequences of the default— including higher post-default interest rates.” At issue is whether Entz-White’s rule that a debtor may nullify a loan agreement’s requirement of post-default interest remains good law in light of 11 U.S.C. 1123(d), a provision that Congress enacted after Entz-White. The court held that Entz-White’s rule of allowing a curing debtor to avoid a contractual post-default interest rate in a loan agreement is no longer valid in light of section 1123(d). In this case, the court concluded that Pacifica is entitled to receive payment of the loan at the post-default interest rate. Accordingly, the court reversed and remanded for further proceedings. View "Pacifica L 51 LLC v. New Investments Inc." on Justia Law

After the bankruptcy court enjoined Alfred Galaz from pursuing any claims related to Worldwide Subsidy Group (WSG) against his former daughter-in-law, Lisa Katona, Galaz appealed to the district court. The district court affirmed. The court concluded that Galaz’s suit in state court is arguably a violation of Katona’s discharge rights, directly implicating the bankruptcy court’s “arising under” jurisdiction; the bankruptcy court’s interpretation of the 2011 Settlement Agreement is determinative of Katona’s claim, and the bankruptcy court’s order was within its statutory authority; the bankruptcy court did not abuse its discretion in refusing to abstain because the proceeding at issue is “core” under 28 U.S.C. 157(b); Galaz’s claims are barred by res judicata, compromise and settlement, and accord and satisfaction; the bankruptcy court did not abuse its discretion in applying judicial estoppel; and the district court did not err in denying his motion for summary judgment. Accordingly, the court affirmed the judgment. View "Galaz v. Katona" on Justia Law

Frances Scott and her husband Galen Amerson filed for Chapter 7 bankruptcy protection. Scott amended her petition to identify as an asset her interest in a Florida state action that she and her half-sister had filed contesting the legitimacy of their father’s will. The bankruptcy trustee retained Florida counsel, who in turn reached a tentative settlement of the ongoing probate contest. The trustee then moved the bankruptcy court to approve the settlement agreement. The bankruptcy court granted the trustee’s motion over Scott’s objection and approved the settlement agreement. Scott appealed to the Tenth Circuit Bankruptcy Appellate Panel (BAP), which affirmed the bankruptcy court’s decision. Scott appealed the BAP’s decision to the Tenth Circuit Court of Appeals. At issue was whether Scott’s interest in a spendthrift trust created by her late father was properly treated as property of the bankruptcy estate, or if that interest was excluded. Finding no error in the BAP's conclusion, the Tenth Circuit affirmed inclusion of that Florida interest in Scott's bankruptcy estate. View "Scott v. King" on Justia Law

Barker filed a Chapter 13 bankruptcy petition; the bankruptcy court issued a notice that the deadline for creditors to file a proof of claim was January 8, 2013. On September 8, 2012, the Bankruptcy Noticing Center sent the notice to the Credit Union by first class mail. In September 2012, Barker filed her Chapter 13 plan, which was sent to the Credit Union that day via first class mail. Barker’s schedules of assets and liabilities listed the Credit Union as a secured creditor holding a $6,646.00 purchase money security interest in a Ford F-150 and as an unsecured creditor holding a $47,402.00 claim. Barker amended the plan several times over the next few months. Each time, Barker sent a notice to the Credit Union; the Bankruptcy Noticing Center notified the Credit Union of each court order. More than four months after the deadline expired, the Credit Union filed claims. The Trustee sent a “Notice of Late Filed Claims” to the Credit Union, which requested a hearing, asserting that a “disgruntled employee” failed to timely file the claims. The court disallowed the claims. The Ninth Circuit Bankruptcy Appellate Panel and the Ninth Circuit affirmed. If a creditor wishes to participate in the distribution of assets under a Chapter 13 plan, it must file a timely proof of claim. The debtor’s acknowledgment of debt in a bankruptcy schedule does not relieve the creditor of this affirmative duty. View "Spokane Law Enforcement Federal Credit Union v. Barker" on Justia Law

Appellant, a financially sophisticated individual, petitioned for bankruptcy. A bankruptcy court denied the petition, in part, because Appellant omitted the existence of his Cash Balance Plan (CBP), a retirement account, from his Schedule B filing. When questioned on whether he had a CBP that he failed to list on his Schedule B, Crawford said, “I gave all this information to [my former attorney].” Crawford, however, did disclose the account’s value through inclusion with a second retirement account, a 401(k). The bankruptcy court concluded that Crawford’s failure to include his CBP in his schedule B amounted to a false oath. The District of Massachusetts affirmed the false oath claim. The First Circuit affirmed, holding that, by omitting an account from his Schedule B, Appellant committed a false oath. View "Premier Capital, LLC v. Crawford" on Justia Law

Patrick Hannon and his wife sought protection from their creditors by filing a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code. Three companies filed an adversary complaint against Hannon in the bankruptcy proceeding objecting to his discharge in bankruptcy. The Companies then moved for partial summary judgment on their claim that Hannon had made a false oath or filed a false account in connection with his bankruptcy proceeding, and therefore, he should be denied a discharge. After a hearing, the bankruptcy judge granted summary judgment in favor of the Companies and refused to grant Hannon a discharge in bankruptcy. The First Circuit affirmed, holding that the Companies were entitled to judgment as a matter of law because Hannon made a false statement under oath in the course of his bankruptcy proceeding, Hannon did so knowingly and fraudulently, and the false statement related to a material fact. View "Hannon v. ABCD Holdings, LLC" on Justia Law

Monaco appealed the district court's opinion holding that Monaco individually owes TAG $171,942.03, a nondischargeable debt under bankruptcy law, 11 U.S.C. 523(a)(4), arising from the Texas Construction Trust Fund Act (CTFA), Tex. Prop. Code Ann. 162.001. Section 162.031(b) of the CTFA holds that “[i]t is an affirmative defense to prosecution or other action . . . that the trust funds not paid to the beneficiaries of the trust were used by the trustee to pay the trustee's actual expenses directly related to the construction or repair of the improvement.” Monaco explains that $124,053.00 went to salaries and overhead and an additional $50,400.00 went to supervision of the project. The court concluded that Monaco could assert the affirmative defense for overhead costs of the project. Therefore, Monaco should not have been held liable for misapplication of construction trust funds under the CTFA and the debt claimed by TAG should have been discharged. Accordingly, the court reversed and remanded with directions to discharge. View "Monaco v. TAG Investments, Ltd." on Justia Law

In 2010, Free, as the sole proprietor of Electra Lighting, filed a voluntary bankruptcy petition. He also owns Freedom Firearms, selling WWII-era guns. After Free fell behind on payments on business-related properties, the lender purchased them in foreclosure; Free purportedly filed for bankruptcy in an effort to “stay” the sale and “work out an agreement.” He had sufficient assets to pay his debts. He then hid assets worth hundreds of thousands of dollars from the Bankruptcy Court. Free was eventually convicted for multiple counts of bankruptcy fraud. His creditors received 100 cents on the dollar. The Sentencing Guidelines increase a fraudster’s recommended sentence based on the amount of loss he causes, or intends to cause. The district court treated the estimated value of the assets that Free concealed and the amount of debt sought to be discharged as the relevant “loss” under the Guidelines. The Third Circuit vacated. On remand, the court must determine whether Free intended to cause a loss to his creditors or what he sought to gain from committing the crime. Free will not necessarily receive a lower sentence on remand. Free’s repeated lying to the Bankruptcy Court and his manifest disrespect for the judicial system may merit an upward variance from the Guidelines. View "United States v. Free" on Justia Law

Plaintiffs filed for bankruptcy in 2011 and agreed that they would surrender their house to discharge their mortgage debt. At issue is whether a person who agrees to “surrender” his house in bankruptcy may oppose a foreclosure action in state court. The court affirmed the bankruptcy court's grant of Citibank's motion to compel surrender in the bankruptcy court because the word “surrender” in the bankruptcy code, 11 U.S.C. 521(a)(2), requires that debtors relinquish their right to possess the property. Therefore, the bankruptcy court had the authority to compel plaintiffs to fulfill their mandatory duty under section 521(a)(2) not to oppose the foreclosure action in state court. The court denied as moot the motion to strike. View "Failla v. Citibank, N.A." 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