Justia Bankruptcy Opinion Summaries

Chrysalis incurred a debt of $164,000 to Husky. Ritz, Chrysalis’ director and then-part-owner, drained Chrysalis of assets available to pay the debt by transferring large sums to other entities Ritz controlled. Husky sued Ritz, who then filed for Chapter 7 bankruptcy. Husky filed a complaint in Ritz’ bankruptcy case, asserting “actual fraud” under the Code’s discharge exceptions, 11 U.S.C. 523(a)(2)(A). The district court held that Ritz was personally liable under state law but that the debt was not “obtained by . . . actual fraud” and could be discharged. The Fifth Circuit affirmed. The Supreme Court reversed. The term “actual fraud” encompasses fraudulent conveyance schemes, even when those schemes do not involve a false representation. The term “fraud” has, since the beginnings of bankruptcy practice, been used to describe asset transfers that, like Ritz’ scheme, impair a creditor’s ability to collect a debt. This interpretation is not incompatible with Section 523(a)(2)(A)’s “obtained by” requirement. Even though the transferor of a fraudulent conveyance does not obtain assets or debts through the fraudulent conveyance, the transferee—who, with the requisite intent, also commits fraud—does. Reading the phrase “actual fraud” to restrict, rather than expand, the discharge exception’s reach would untenably require reading the disjunctive “or” in the phrase “false pretenses, a false representation, or actual fraud” to mean “by.” View "Husky Int’l Electronics, Inc. v. Ritz" on Justia Law

Net Pay managed clients’ payrolls and handled their employment taxes pursuant to a “Payroll Services Agreement,” which required clients to provide their employee payroll information and gave clients the option of authorizing Net Pay to transfer funds from their bank accounts into Net Pay’s account and to remit those funds to the clients’ employees, the IRS, and other taxing authorities. The Agreement established an independent contractor relationship between Net Pay and its clients. About three months before it filed its Chapter 7 petition, Net Pay transferred $32,297 on behalf of Altus; $5,338 on behalf of HealthCare Systems; $1,143 on behalf of Project Services; $352.84 for an unknown client; and $281.13 for another unknown client. The next day, Net Pay informed its clients that it was ceasing operations. The trustee for Net Pay sought to recover the five payments, arguing that they were avoidable preferential transfers, 11 U.S.C. 547(b). The district court concluded that four of the transfers were not subject to recovery, being below the minimum amount established by law ($5,850), and that distinct transfers may be aggregated only if “‘transactionally related’ to the same debt.” Because the IRS applied the entire $32,297 toward Altus’s trust fund tax obligations, the court held that the payment was not avoidable. The Third Circuit affirmed. Net Pay lacked an equitable interest in the Altus funds by operation of 26 U.S.C. 7501(a). View "In Re: Net Pay Solutions Inc" on Justia Law

The Partnership and Beher (the Lenders) loaned Community $16 million. Defendant is Community's founder, president and CEO. Defendant signed the identical loan agreements on behalf of Community and as a personal guarantor. On appeal, defendant argued primarily that summary judgment on his guarantor liability was premature because, in the bankruptcy proceedings at issue, he and Community were challenging the extent and validity of the underlying obligations. The court concluded that defendant personally guaranteed the Lenders that he would satisfy the obligations represented by the promissory notes no matter what. In this case, the Lenders presented sufficient evidence to establish defendant's liability as guarantor and they met their burden to recover on the guaranties. Furthermore, defendant has failed to present sufficient evidence to survive summary judgment on the amount of his obligation under the guaranty contracts. Accordingly, the court affirmed the judgment. View "Edwards Family P'ship v. Dickson" on Justia Law

Debtors purchased a home from creditors. The purchase was financed via a loan from creditors. In exchange for the loan, debtors granted creditors a deed of trust on the property and executed a promissory note requiring monthly payments. Where the rate of interest on debtors’ residential mortgage loan was increased upon default, at issue was whether a “cure” under section 1322(b) of the Bankruptcy Code allows their bankruptcy plan to bring post-petition payments back down to the initial rate of interest. The court held that the statute does not allow this, as a change to the interest rate on a residential mortgage loan is a “modification” barred by the terms of section 1322(b)(2). The court affirmed the judgment of the district court insofar as it required that post-petition interest payments be calculated using the seven percent default rate of interest, but reversed that part of the judgment which applied only a five percent rate of interest to payments calculated “for the period between September 16, 2013 and the December 2013, effective date of the plan.” The court remanded the case to the district court for further proceedings. View "Anderson v. Hancock" on Justia Law

Debtors Mathew and Marilynn held title to real property as joint tenants with Marilynn's parents. After debtors filed for bankruptcy, and Marilynn's parents died, the Trustee notified debtors that he intended to sell the real estate and a pickup truck Marilynn and her father owned as joint tenants. The Trustee maintained that the right of survivorship made the bankruptcy estate the sole owner. The court concluded that the Bankruptcy Appellate Panel did not err in affirming the sale of the real property and pickup because the joint tenancies remained intact through creation of the bankruptcy estate and therefore the bankruptcy estate included the joint tenancies. Accordingly, the court affirmed the judgment. View "Peet v. Checkett" 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

WI buys furniture wholesale. OEC provided WI with non-vessel-operating common carrier transportation services. WI signed an Application for Credit that granted a security interest in WI property in OEC’s possession, custody or control or en route. As required by federal law, OEC also publishes a tariff with the Federal Maritime Commission, which provides for a Carrier’s lien. WI filed voluntary Chapter 11 bankruptcy petitions. OEC sought relief from the automatic stay, arguing that it was a secured creditor with a possessory maritime lien. OEC documented debts of $458,251 for freight and related charges due on containers in OEC’s possession and $994,705 for freight and related charges on goods for which OEC had previously provided services. The estimated value of WIs’ goods in OEC’s possession was $1,926,363. WI filed an adversary proceeding, seeking release of the goods. The bankruptcy court ruled in favor of WI, citing 11 U.S.C. 542. The district court affirmed, holding that OEC did not possess a valid maritime lien on Pre-petition Goods. The Third Circuit reversed, noting the strong presumption that OEC did not waive its maritime liens on the Prepetition Goods, the clear documentation that the parties intended such liens to survive delivery, the familiar principle that a maritime lien may attach to property substituted for the original object of the lien, and the parties’ general freedom to modify or extend existing liens by contract. View "In re: World Imports LTD" on Justia Law

Plaintiff filed suit alleging that the Florida Supreme Court unlawfully denied her application to become a member of the Florida Bar in violation of federal bankruptcy law and her right to due process. The district court dismissed the complaint. The Florida Supreme Court denied plaintiff admission to the Bar based on her lack of candor and refusal to repay her financial obligations. The court concluded that the district court lacks subject matter jurisdiction over plaintiff's 11 U.S.C. 525(a) claim; sovereign immunity bars plaintiff's due process claim because the Florida Supreme Court is a department of the State of Florida; and the Ex Parte Young exception is not applicable in this case. Accordingly, the court affirmed the judgment. View "Uberoi v. Supreme Court of Florida" on Justia Law

Marilyn Scheer, an attorney with a suspended California law license, contends that the district court erred when it held that her debt to a former client was nondischargeable under 11 U.S.C. 523(a)(7). In this case, there were no costs or fees assessed for disciplinary reasons. Rather, the debt at issue was effectively the amount that Scheer improperly received from a client, but did not pay back. At its core, the $5775 at issue is not a fine or penalty, but compensation for actual loss. The court concluded that the the debt to her client does not fall within the section 523(a)(7) nondischargeability exception. Accordingly, the court reversed and remanded. View "Scheer v. State Bar of CA" on Justia Law

The Blanchards agreed to sell Marathon County property to the Hoffmans, who paid $30,000 up front. The land contract balance was due in 2015, with an option to close early by paying off the Blanchards’ new $142,000 mortgage, obtained as part of the agreement. The parties signed a separate “rental agreement,” under which the Hoffmans paid $500 per month. The land contract was not recorded. The lender obtained an Assignment of Leases and Rents as collateral, but did not obtain an Assignment of Land Contract. The bank recorded its mortgage and the Assignment. In 2014, the Blanchards filed a bankruptcy petition. The trustee filed an adversary proceeding against the lender under 11 U.S.C. 544(a)(3), which grants him the position of a bona fide purchaser of property as of the date of the bankruptcy, to step ahead of the mortgage and use the Blanchards’ interest in the land contract for the benefit of unsecured creditors. The trustee argued that a mortgage can attach a lien only to real property and that the Blanchards' interest under the land contract was personal property. The district court affirmed summary judgment in favor of the bank. The Seventh Circuit affirmed. A mortgage can attach a lien to a vendor’s interest in a land contract under Wisconsin law; this lender perfected its lien by recording in county land records rather than under UCC Article 9. View "Liebzeit v. Intercity State Bank, FSB" on Justia Law