Justia Bankruptcy Opinion Summaries

In the 90 days prior to filing for bankruptcy Debtor made payments for personnel to Roth Staffing totaling $81,997.57. After these preferential transfers, but before the petition was filed, Roth provided Debtor with services valued at $100,660.88 and was not paid. Debtor sought to pay its employees and independent contractors prepetition wages, compensation, and related benefits. The Bankruptcy Court granted the motion and after filing its bankruptcy petition, Debtor paid $72,412.71 to Roth for pre-petition staffing services. Debtor’s successor in interest later sought to avoid transfers made to Roth. Under the Bankruptcy Code, 11 U.S.C. 547(b), the trustee may avoid certain preferential transfers made by a debtor to a creditor during the 90 days before its bankruptcy petition was filed. A creditor who gives the debtor new value after a preference payment, however, may use the “new value” defense to offset an otherwise avoidable preference. That defense is not applicable to the extent that, thereafter, the debtor makes “an otherwise unavoidable transfer” to the creditor on account of the value received. The Bankruptcy Court, district court, and Third Circuit agreed that where “an otherwise unavoidable transfer” is made after the filing of a bankruptcy petition, it does not affect the new value defense.View "In Re: Friedman's Inc" on Justia Law

The debtors borrowed money secured by mortgages on real estate. The mortgages were recorded by the lenders to ensure the priority of their liens. The recorded mortgages did not state the maturity date of the secured debt or the interest rate. Those terms were included in the promissory notes, which were incorporated by reference in the mortgages. The debtors filed for bankruptcy. The trustees filed adversary complaints under 11 U.S.C. 544(a)(3), seeking to avoid the mortgages because they did not state the maturity dates or interest rates. In one case, the bankruptcy court granted summary judgment in favor of the trustee, but the district court reversed and granted judgment for the lender. In the other case, the bankruptcy court granted summary judgment in favor of the lender. The Seventh Circuit held that the trustee’s so-called “strong-arm” power to “avoid … any obligation incurred by the debtor that is voidable by—a bona fide purchaser of real property … from the debtor” could not be used to avoid the mortgages under a 2013 amendment to the Illinois statute on the form for recorded mortgage, 765 Ill. Comp. Stat. 5/11. View "Bruegge v. Farmer State Bank of Hoffman" on Justia Law

Debtor appealed the bankruptcy court's order sustaining the trustee's objection to debtor's claimed exemption. Debtor had filed a petition for relief under Chapter 13 of the Bankruptcy Code and had claimed exempt, as a public assistance benefit under MO.REV.STAT. 513.430.1(10)(a), the portion of her 2012 federal income tax refund that was attributable to a child tax credit allowed under 26 U.S.C. 24. The court affirmed the bankruptcy court's order sustaining the trustee's objection to debtor's claimed exemption, concluding that the refundable portion of the child tax credit was not a public assistance benefit within the meaning of the statute and could not be claimed exempt under the statute. View "Hardy v. Fink" on Justia Law

Horsfall worked as a real estate agent for First Weber, 2001-2002, and was the listing agent on First Weber’s contract with Call, who was trying to sell property. The contract gave First Weber exclusive rights collect commissions for sale of the property during the listing period and an exclusive right to collect commissions from sales to defined “protected buyers” for one year after the listing expired. The Acostas made an offer on the property and became “protected buyers.” Call’s contract with First Weber ended in August and at the same time, Horsfall left First Weber to establish his own brokerage, Picket Fence. In October, the Acostas contacted Horsfall. Without involving First Weber, Horsfall resuscitated the transaction with Call. The Acostas and Call executed a sales contract for the Call property. Picket Fence received a $6,000 commission, inconsistent with Horsfall’s status as First Weber’s agent under the earlier contract and in violation of Wisconsin real estate practice rules. Six years later, First Weber sued Horsfall in state court, asserting r breach of contract, tortious interference, and unjust enrichment. The state court entered a judgment against Horsfall for $10,978.91. Horsfall filed for Chapter 7 bankruptcy, listing First Weber as a creditor. First Weber responded that its judgment was non‐dischargeable under 11 U.S.C. 523(a)(6), as involving “willful and malicious injury.” The bankruptcy court, district court, and Seventh Circuit found the debt dischargeable. View "First Weber Grp., Inc. v. Horsfall" on Justia Law

The Debtor leased a building and, during liquidation in bankruptcy, assumed the lease, 11 U.S.C. 365, and sold the leasehold interest (and other assets) to Tenant. The bankruptcy judge approved the transaction in 2007, after Landlord did not object to the Debtor’s assertion that Landlord did not have any outstanding claim against the Debtor. The approval barred any claims based on pre‐sale events. The lease requires Tenant to maintain the roof. In 2010 the Landlord sued Tenant in state court, based on that obligation. By motion in the closed bankruptcy proceeding, Tenant asked the bankruptcy court to interpret the 2007 order as blocking the claim. The bankruptcy judge concluded that the order did not affect continuing obligations such as the duty to keep leased premises in good repair; Landlord requested a prospective remedy, not damages. The district court disagreed, ruling that Landlord can enforce the good‐repair clause only to the extent that defects in the roof first occurred after the lease’s assumption in bankruptcy. The Sixth Circuit dismissed an appeal for lack of jurisdiction, because the district court did not enter an injunction. The court expressed hope that the bankruptcy judge or the district judge will attend to several issues inherent in both opinions. View "Harrison Kishwaukee, LLC v. Rockford Acquisition, LLC" on Justia Law

McKenzie’s creditors filed an involuntary Chapter 7 bankruptcy petition in 2008. McKenzie filed a voluntary Chapter 11 petition a month later. The cases were consolidated and converted to a Chapter 7 bankruptcy. Several weeks before the involuntary petition was filed, McKenzie executed a promissory note and a pledge in favor of GKH for unpaid legal fees. The pledge listed several entities in which McKenzie held an interest, ranging from an “auto mall” to a farm. GKH filed a proof of claim for $750,000, describing the collateral as “Real Estate” and “Other” and sought relief from the automatic stay. The Trustee opposed relief on the ground that the pledge constituted a preferential transfer. The bankruptcy court granted relief with respect to certain real estate, but denied relief as to equity interests. The bankruptcy court held that McKenzie had not validly conveyed his equity interests in certain entities to GKH, that the Trustee could use his hypothetical lien-creditor status and avoidance powers defensively to defeat GKH’s security interest, and that the statute of limitations should be equitably tolled because of GKH’s conduct. The district court affirmed. The Sixth Circuit affirmed, holding that GKH had the burden of establishing the validity of its claimed security interest and that a trustee may use his hypothetical lien-creditor status and avoidance powers to oppose relief from the automatic stay after expiration of the statutory limitation on avoidance actions under 11 U.S.C. 546(a)(1)(A).View "In re: Grant, Konvalinka & Harrison v. Still" on Justia Law

The bankruptcy court ordered debtor's counsel to return all consideration he received, but in so doing it imposed an additional sanction beyond return of compensation. A bankruptcy judge may regulate attorney compensation by ordering debtor's counsel to return to the estate excessive compensation, 11 U.S.C. 329(b). Separately, a bankruptcy judge has authority to discipline attorneys who violate the disclosure requirements of the Bankruptcy Code and Rules. In this case, the court reversed and remanded the bankruptcy court's order because a bankruptcy judge's reach under the plain language of section 329(b) was limited to attorney compensation. View "Baker v. Cage" on Justia Law

The Gartleys filed an adversary proceeding in bankruptcy court against their former business partner, debtor, and his wife, co-debtor. The court concluded that In re Strangel remained good law, and the failure to file a timely notice of appeal in the district court leaves the district court without jurisdiction to hear the appeal. Because the district court did not have jurisdiction to hear debtor's appeal, the court dismissed the appeal for lack of jurisdiction, vacated the decision of the district court, and remanded with instructions to dismiss the appeal. View "Smith v. Gartley" on Justia Law

The sole issue presented to the Tenth Circuit in this appeal stemmed on whether the bankruptcy trustee could avoid an entire annual transfer or only a portion exceeding 15% a restricted debtor's gross annual income to a religious or charitable organization. The bankruptcy court and Bankruptcy Court of Appeals (BAP) said circumstances here only permitted the trustee to avoid the portion of the transfer exceeding 15%. Because that result was contrary to the plain language of the statute, the Tenth Circuit reversed. View "Wadsworth v. The Word of Life Center" on Justia Law

Appellant obtained a loan from a Bank for a home equity line of credit secured by a second mortgage on her home in Rowley, Massachusetts. Appellant later sold her home but did not notify the Bank of the sale. Appellant later took advantage of a mistake made on the part of the Bank and obtained $124,200, the exact limit on the home equity line. After Appellant failed to pay back the $124,200 drawn from the home equity account, the Bank commenced foreclosure proceedings on the Rowley property. The new owners were insured by Old Republic National Title Insurance Company, which paid the debt, took an assignment of all of the Bank's rights against Appellant, and sued Appellant in state court. A default judgment was entered against Appellant. Thereafter, Appellant filed for bankruptcy. Old Republic sought a determination that its pre-petition judgment was excepted from discharge as a debt. The bankruptcy court determined that Appellant's debt was not dischargeable in bankruptcy because it was for money Appellant obtained by false pretenses and because it was a debt arising from willful and malicious injury. The First Circuit Court of Appeals affirmed, holding that the bankruptcy court was correct to find the debt to be non-dischargeable. View "Old Republic Nat'l Title Ins. Co. v. Levasseur" on Justia Law