Justia Bankruptcy Opinion Summaries

Debtor, a Grand Island pathologist, filed for Chapter 7 bankruptcy relief in 2011. Heritage holds an allowed, unsecured claim of $270,566.00. In 2012, the Debtor acquired her residence from the Elliotts and signed a $169,900 promissory note and granted a security interest in their favor. The case was converted to a Chapter 11 proceeding in 2012. The Elliotts filed a proof of claim asserting secured status. The Bankruptcy Court overruled Heritage’s objection to timeliness and allowed the claim. Heritage did not appeal, but continued to object to the Elliotts’ voting on the plan as an impaired class, arguing that they had a post-petition claim. The court found that the Elliotts had an allowed claim, that the plan altered the treatment of their claim, and, that the Elliotts were an impaired class entitled to the vote. The Bankruptcy Court confirmed the Debtor's Fifth Amended Plan. The Elliotts, the sole members of their class, voted in favor of the plan. No other impaired classes voted to accept the plan. The Eighth Circuit Bankruptcy Appellate Panel reversed. Although an impaired class of claims accepted the Plan, the absolute priority rule of 11 U.S.C. 1129(b)(2)(B)(ii)' applies to prevent Chapter 11 debtors from retaining property acquired prior to the filing of the petition when not all creditors' claims will be paid in full. View "Heritage Bank v. Woodward" on Justia Law

Needler filed a petition for Chapter 11 relief on behalf of “Miller Chrysler Dodge.” Because Needler is not admitted to practice in the Western District of Missouri, he moved to appear pro hac vice and to be employed as debtor’s attorney. The bankruptcy court agreed, stating that his fees and activities would be closely scrutinized. The Trustee discovered that the named entity did not legally exist and, when the error was not timely corrected, moved to dismiss. Needler filed an amended petition under the proper name. Needler subsequently received several orders to show cause for failure to comply with local filing requirements. Needler was unsuccessful in obtaining authority for the debtor to use cash collateral and to retain a broker to sell the business. Relief from the automatic stay was obtained by the primary creditors. Ultimately, the case was dismissed on the debtor’s motion. The court closed the file. Six months later, the Trustee moved to reopen under 11 U.S.C. 350(b), asserting that she had received a complaint from the debtor: that Needler failed to communicate accurate information, made potentially false and misleading representations, and may have filed documents and taken actions that were not authorized. Needler had filed a state court action for attorney fees of $49,000.00 and sought $63,000.00 more in fees and $3,600.00 in expenses. The Eighth Circuit Bankruptcy Appellate Panel affirmed denial of the fee application and the order of disgorgement. Since Needler was a repeat offender, in many jurisdictions, the bankruptcy court acted within its discretion in imposing the sanction of indefinite suspension from the practice of law and revocation of electronic filing privileges. View "Needler v. Casamatta" on Justia Law

The Richers filed for bankruptcy. Morehead, who had invested in commercial real estate owned by a trust controlled by Richer, filed an unsecured claim for $945,000 in the proceeding. The Richers filed an adversary action claiming that Morehead’s only lawful interest in the property was to receive a share of the net proceeds of the property if and when it was sold. The bankruptcy judge, the district court, and the Seventh Circuit upheld Morehead’s claim. The 2005 “Equity Participation Agreement” provided no security for Morehead, but did give him “the sole and exclusive option to convert his Participation Interest to a Demand Note payable within one hundred eighty (180) days of conversion.” Four years later, Morehead sent Richer by certified mail, a letter purporting to convert Morehead’s participation interest to a demand note for $700,000 (plus interest), effective the day after the letter was mailed, November 25, 2009—the anniversary date. The court rejected an argument that the letter had to be mailed or otherwise communicated to them on November 25, the anniversary date, neither before nor after. The Agreement provides that “the Conversion Option is exercised on the … anniversary date,” not that communication must occur on that date. View "Richer v. Morehead" on Justia Law

C.W. Mining Company was forced into bankruptcy after creditors filed a petition for involuntary bankruptcy on January 8, 2008. Several months before the petition was filed, C.W. Mining had entered into its first contract with SMC Electrical Products, Inc., an agreement to purchase equipment with a view toward greatly increasing coal production. One payment for the equipment was a $200,000 wire transfer from C.W. Mining on October 16, 2007. Because this transfer was less than 90 days before the petition was filed, the bankruptcy trustee sought to recoup the $200,000 for the bankruptcy estate by initiating an adversary proceeding to avoid the transfer under 11 U.S.C. 547(b). Granting SMC summary judgment, the bankruptcy court rejected the Trustee’s claim on the ground that the debt was incurred and the payment made in the ordinary course of business. The bankruptcy appellate panel affirmed. Finding no reversible error, the Tenth Circuit affirmed too. View "Rushton v. SMC Electrical Products" on Justia Law

The bankruptcy court awarded a fee of $28,030.33 to the bankruptcy trustee, Lanser, in a Chapter 7 bankruptcy. The district court affirmed, over a challenge by the debtors’ principal unsecured creditor, Mohns, which had a state court judgment of $142,899 against the debtors for construction of a house. The bankruptcy proceeding lasted for more than four years; the trustee collected $498,621.56 to distribute to Mohns and the debtors’ other creditors. The amount awarded the trustee was just under the maximum amount allowable; as the result of a mistake in his fee application he had asked for slightly less than the maximum allowable amount, 11 U.S.C. 330(a)(7). The Seventh Circuit affirmed. Although $370,996.54 went to mortgagees of the debtors’ home, which the trustee had sold to raise money for the creditors, administration of an estate with such secured claims frequently presents complex issues for the trustee. View "Mohns, Inc. v. Bruce Lanser" on Justia Law

The Debtors’ chapter 13 plan provided for cure of any defaults and maintenance of regular monthly mortgage payments on real property, pursuant to 11 U.S.C. 1322(b)(5). The Bank failed to file a proof of claim and did not receive any disbursements for the mortgage debts. After their chapter 13 discharge, the Debtors sought a determination that the Bank’s liens had been discharged. The bankruptcy court determined that the liens had passed through the bankruptcy, but that the amount of debt secured by each should be reduced by the amount that the Bank would have been paid if it had filed proofs of claim. The Sixth Circuit Bankruptcy Appellate Panel reversed the reduction of the debt amount. Although a secured creditor is not required to file a proof of claim to preserve its lien, its failure to do so affects its right to payment under a chapter 13 plan. The Debtors or the Trustee could have filed a proof of claim on the Bank’s behalf, so that the Debtors would not have exited bankruptcy in default on the debt. Excess cash of more than $9,000 was returned to the Debtors after the plan was consummated. If the decision to reduce the debt were affirmed, the Debtors would gain a windfall. View "In re: Matteson" on Justia Law

The City filed timely proofs of claim for property taxes owed by a Chapter 11 debtor with respect to quarters of the 2009 tax year that had been billed pre‐petition, but did not file proofs of claim with respect to property tax bills for later quarters that were billed during the bankruptcy proceedings.  A single lien secured payment of the entire tax burden - both taxes that were the subject of claims and those that were not. The bankruptcy court ruled that the now-confirmed plan extinguished the lien and the district court affirmed. The court held that a lien is extinguished by a Chapter 11 plan if: (1) the text of the plan does not preserve the lien; (2) the plan is confirmed; (3) the property subject to the lien is “dealt with” by the terms of the plan; and (4) the lienholder participated in the bankruptcy proceedings. The court concluded that all four requirements are satisfied when applied to the facts of this case. Accordingly, the court affirmed the judgment. View "City of Concord, N.H. v. Northern New England Telephone Operations" on Justia Law

Falco sold insurance for Farmers, under a 1990 Agent Agreement, which provided that Falco would be paid Contract Value upon termination of the Agreement. As a Farmers agent, Falco was entitled to borrow money from the Credit Union. In 2006, Falco obtained a $28,578.00 business loan and assigned his interest in his Agreement receivables—including Contract Value—as security. The loan document gave the Credit Union authority to demand payments that Farmers owed Falco; it could tender Falco’s resignation to levy on Falco’s Contract Value. Falco failed to make payments and filed a Chapter 7 bankruptcy petition, listing the loan on his schedules. Falco received a discharge in February 2011, covering his liability under his Credit Union loan. In April 2011, the Credit Union notified Farmers that Falco had defaulted and exercised the power of attorney to terminate his Agent Agreement. Farmers notified Falco that the resignation had been accepted, calculated Contract Value as $104,323.30, paid the Credit Union $29,180.92, and paid the balance to Falco. The Eighth Circuit affirmed summary judgment in favor of defendants, finding that the Credit Union’s secured interest survived bankruptcy; it did not tortuously interfere with Falco’s Agreement because it had a legal right to terminate the Agreement; and Falco failed to show an underlying wrongful act or intentional tort as required under civil conspiracy. View "Falco v. Farmers Ins. Grp." on Justia Law

Falco sold insurance for Farmers, under a 1990 Agent Agreement, which provided that Falco would be paid Contract Value upon termination of the Agreement. As a Farmers agent, Falco was entitled to borrow money from the Credit Union. In 2006, Falco obtained a $28,578.00 business loan and assigned his interest in his Agreement receivables—including Contract Value—as security. The loan document gave the Credit Union authority to demand payments that Farmers owed Falco; it could tender Falco’s resignation to levy on Falco’s Contract Value. Falco failed to make payments and filed a Chapter 7 bankruptcy petition, listing the loan on his schedules. Falco received a discharge in February 2011, covering his liability under his Credit Union loan. In April 2011, the Credit Union notified Farmers that Falco had defaulted and exercised the power of attorney to terminate his Agent Agreement. Farmers notified Falco that the resignation had been accepted, calculated Contract Value as $104,323.30, paid the Credit Union $29,180.92, and paid the balance to Falco. The Eighth Circuit affirmed summary judgment in favor of defendants, finding that the Credit Union’s secured interest survived bankruptcy; it did not tortuously interfere with Falco’s Agreement because it had a legal right to terminate the Agreement; and Falco failed to show an underlying wrongful act or intentional tort as required under civil conspiracy. View "Falco v. Farmers Ins. Grp." on Justia Law

Henry filed a Chapter 13 Bankruptcy Petition, without counsel. The Trustee objected to confirmation of his plan, arguing that the repayment period exceeded five years and was too speculative; there was no evidence Henry would be able to meet the required payments. Henry agreed to have his original plan denied and was allowed to remedy errors by filing an amended plan by January 22, 2015. Henry maintains that an amended plan was mailed to the Bankruptcy Court on January 22, 2015. The Court never received an amended plan, nor did the Trustee. The Trustee submitted an order for dismissal, which was entered on February 4. Henry received the order on February 9, and immediately went to the Bankruptcy Court and filed amended schedules and an appeal. The Bankruptcy Appellate Panel for the Sixth Circuit affirmed. The Trustee was extremely thorough in explaining what was expected and what to file; Henry was receiving communications from the Bankruptcy Court through traditional mail. If there was any doubt that the documents would arrive through the mail, he should have made arrangements to present the documents physically to the Court. Filing requirements and deadlines are necessary to an orderly bankruptcy process. View "In re: Henry" on Justia Law