Justia Bankruptcy Opinion Summaries

A lender initiated a foreclosure action against a homeowner after the homeowner defaulted on a mortgage loan originally obtained in 2007. The mortgage was assigned several times before the foreclosure action began, and the lender’s predecessor filed suit in 2015. After a trial in 2018, the Vermont Superior Court, Civil Division, found in favor of the lender, concluding that the lender held the original note and mortgage at the time of filing and at trial, and that the homeowner had defaulted. The court issued a judgment of foreclosure by judicial sale, setting a redemption period for the homeowner.Following the expiration of the redemption period, the case was temporarily dismissed due to the homeowner’s bankruptcy. After the bankruptcy discharge, the lender successfully moved to reopen the case. The parties attempted mediation, which was unsuccessful. The lender then sought to substitute a new party as plaintiff due to post-judgment assignments of the mortgage, but later withdrew this request after issues arose regarding the validity of the assignments and the status of the note. The court vacated the substitution and ordered the lender to prove who the real party in interest was, warning that failure to do so would result in dismissal for lack of prosecution. After a hearing, the court found the lender failed to establish the real party in interest, dismissed the case with prejudice, and vacated the foreclosure judgment.On appeal, the Vermont Supreme Court held that the trial court abused its discretion by dismissing the case with prejudice for want of prosecution. The Supreme Court found no evidence of undue delay or failure to pursue the case by the lender, and concluded that the action could continue in the name of the original plaintiff under the applicable rules. The Supreme Court reversed the dismissal, reinstated the foreclosure judgment, and remanded for further proceedings. View "Ditech Financial LLC v. Brisson" on Justia Law

Yellow Corporation, a major trucking company, ceased operations and filed for bankruptcy in 2023. As a result, it withdrew from several multiemployer pension plans, triggering withdrawal liability—an amount owed to the pension plans to cover unfunded vested benefits for employees. The pension plans, which had received substantial federal funds under the American Rescue Plan Act of 2021 (ARPA) to stabilize their finances, filed claims against Yellow’s bankruptcy estate for withdrawal liability. The dispute centered on how much of the ARPA funds should be counted as plan assets when calculating Yellow’s liability, as well as whether certain contractual terms could require Yellow to pay a higher withdrawal liability than statutory minimums.The United States Bankruptcy Court for the District of Delaware reviewed the claims. It upheld two regulations issued by the Pension Benefit Guaranty Corporation (PBGC): the Phase-In Regulation, which requires ARPA funds to be counted as plan assets gradually over time, and the No-Receivables Regulation, which bars plans from counting ARPA funds as assets before they are actually received. The Bankruptcy Court found these regulations to be valid exercises of PBGC’s authority and not arbitrary or capricious. It also ruled that two pension plans could enforce a contractual provision requiring Yellow to pay withdrawal liability at a higher, agreed-upon rate, rather than the rate based solely on its actual contributions.On direct appeal, the United States Court of Appeals for the Third Circuit affirmed the Bankruptcy Court’s order. The Third Circuit held that the PBGC’s regulations were valid under ARPA and ERISA, as Congress had expressly delegated authority to the PBGC to set reasonable conditions on the allocation of plan assets and withdrawal liability. The court also held that pension plans could enforce contractual terms requiring higher withdrawal liability, as the statutory scheme sets a floor, not a ceiling, for such liability. View "In re: Yellow Corporation" on Justia Law

A dispute arose between a woman and her daughter regarding the daughter’s alleged misuse of property held in an irrevocable trust for which she served as trustee. The mother initiated a lawsuit in Massachusetts state court, asserting several state-law claims against her daughter and her daughter’s then-husband. Subsequently, the daughter filed for bankruptcy under Chapter 13 in the United States Bankruptcy Court for the District of Arizona, which triggered an automatic stay of the state court litigation. The bankruptcy court initially granted the mother’s motion for relief from the automatic stay and for permissive abstention, allowing the state court case to proceed. However, after delays in the state court proceedings, the daughter moved for relief from that order, and the bankruptcy court vacated its prior order and reimposed the automatic stay.After the bankruptcy court’s March 2021 order reimposing the stay, the mother filed adversary proceedings in bankruptcy court, which were consolidated and tried. The bankruptcy court ruled in favor of the daughter on all claims and entered final judgment in July 2022. The mother then appealed the March 2021 order to the United States District Court for the District of Arizona, arguing that the bankruptcy court erred in granting relief under Rule 60(b)(6) rather than Rule 60(b)(1). The district court concluded that the appeal was timely because it believed the March 2021 order was not immediately appealable, and it affirmed the bankruptcy court’s decision.The United States Court of Appeals for the Ninth Circuit held that, under Ritzen Group, Inc. v. Jackson Masonry, LLC, the bankruptcy court’s March 2021 order was a final, appealable order because it definitively resolved a discrete dispute within the bankruptcy case. Since the mother did not appeal within the required fourteen days, her appeal was untimely, and the district court lacked jurisdiction. The Ninth Circuit vacated the district court’s order and remanded with instructions to dismiss the appeal for lack of jurisdiction. View "FANTASIA V. DIODATO" on Justia Law

Whittaker, Clark & Daniels, Inc. and its affiliates, former processors and distributors of industrial chemicals including talc, faced thousands of asbestos-related tort claims after selling their operating assets in 2004. In 2023, following a $29 million jury verdict in South Carolina for a plaintiff diagnosed with mesothelioma, the South Carolina Court of Common Pleas appointed a receiver to manage Whittaker’s assets. The receiver was granted broad authority to administer Whittaker’s assets and protect its interests, but the order did not explicitly remove the board’s authority over corporate affairs.Whittaker’s board, without consulting the receiver, authorized a bankruptcy filing in the United States Bankruptcy Court for the District of New Jersey. The receiver moved to dismiss the bankruptcy, arguing that only he had authority to file. The Bankruptcy Court denied the motion, finding the board retained authority under New Jersey law, and the United States District Court for the District of New Jersey affirmed. Meanwhile, the Official Committee of Talc Claimants intervened in an adversary proceeding, contesting whether certain successor liability claims against a nondebtor (Brenntag) were property of the bankruptcy estate. The Bankruptcy Court granted summary judgment to the debtors, holding that these claims belonged to the estate, and certified the decision for direct appeal.The United States Court of Appeals for the Third Circuit affirmed both lower courts. It held that an improperly filed bankruptcy petition is not a jurisdictional defect but may be grounds for dismissal. The court determined that under New Jersey law, the board retained authority to file for bankruptcy because the South Carolina receiver had not been recognized by a New Jersey court. The court also held that successor liability claims based on a “product line” theory are general claims belonging to the bankruptcy estate, not to individual creditors, following its precedent in In re Emoral. View "In re Whittaker Clark & Daniels Inc." on Justia Law

Eileen Adams and her husband lost their New Jersey home to foreclosure after a series of events involving the transfer and assignment of their mortgage. The mortgage, originally held by AmTrust Bank, was assigned to EverBank after AmTrust’s failure, and then to Nationstar Mortgage. Adams defaulted on the mortgage, leading EverBank to initiate foreclosure proceedings. Although Adams answered the foreclosure complaint, she did not oppose summary judgment, which was granted in favor of EverBank. Subsequent assignments and litigation ensued, but Adams and her husband ultimately lost their appeals in the New Jersey courts, including a denial of review by the Supreme Court of New Jersey.After exhausting state-court remedies, Adams and her husband filed multiple bankruptcy petitions in an effort to prevent the foreclosure sale. In the most recent Chapter 13 case, Nationstar moved for relief from the automatic stay to proceed with the sale. The United States Bankruptcy Court for the District of New Jersey granted Nationstar’s motion. Adams appealed to the United States District Court for the District of New Jersey, which affirmed the Bankruptcy Court’s order and dismissed the appeal for lack of jurisdiction under the Rooker-Feldman doctrine, reasoning that Adams was seeking to overturn a state-court judgment.The United States Court of Appeals for the Third Circuit reviewed the case and held that, while the District Court erred in applying the Rooker-Feldman doctrine to dismiss for lack of jurisdiction, Adams’s claims were nonetheless precluded under New Jersey law. The Third Circuit clarified that Rooker-Feldman is a narrow doctrine and does not bar jurisdiction in this context; instead, principles of claim preclusion apply because Adams’s arguments had already been litigated and decided in state court. The Third Circuit affirmed the District Court’s order insofar as it upheld the Bankruptcy Court’s decision to lift the automatic stay. View "In re: Adams" on Justia Law

A businessman in the coal industry, John Siegel, used a network of family-owned companies to finance a project to develop a coal shipping terminal in Oakland, California. Over several years, Siegel directed one family company, Cecelia Financial Management, to advance funds to another, Insight Terminal Solutions, which was developing the terminal. These advances were documented as loans through promissory notes, but Siegel was involved on both sides of the transactions. After Insight filed for bankruptcy in 2019, Cecelia filed a claim as a creditor for over $6 million, asserting the advances were loans. However, the new owner of Insight, Autumn Wind, argued these were actually equity contributions, not loans, and sought to have the bankruptcy court recharacterize them as such, which would subordinate Cecelia’s claim.The United States Bankruptcy Court for the Western District of Kentucky held a trial to determine the nature of the advances. During the proceedings, Siegel died, and his deposition—taken before his death but without cross-examination by the opposing party—became central. The bankruptcy court excluded Siegel’s deposition, reasoning that the lack of cross-examination opportunity rendered it inadmissible, and ultimately ruled in favor of Bay Bridge Exports (which had acquired Cecelia’s claim), declining to recharacterize the advances as equity. The Bankruptcy Appellate Panel of the Sixth Circuit affirmed this decision.The United States Court of Appeals for the Sixth Circuit reviewed the case de novo. It held that the bankruptcy court committed legal error by categorically excluding Siegel’s deposition solely due to the absence of cross-examination, misinterpreting Federal Rule of Civil Procedure 32(a). The Sixth Circuit clarified that courts have discretion, not an absolute bar, in such circumstances. The court reversed the bankruptcy court’s decision and remanded for further proceedings, instructing the lower court to reconsider the admissibility of the deposition and, if admitted, its impact on the recharacterization analysis. View "Insight Terminal Solutions v. Cecelia Fin. Mgmt." on Justia Law

The debtor in this case voluntarily filed for Chapter 7 bankruptcy and listed his anticipated 2021 federal and state income tax refunds as assets, asserting that they were fully exempt from the bankruptcy estate under Colorado law. The debtor and his spouse, who did not join the bankruptcy petition, filed joint tax returns. The returns showed a federal refund of $1,455 and a state refund of $554, with the federal refund paid to the bankruptcy trustee and the state refund paid to the debtor. The parties stipulated that the debtor would file his tax returns and turn over any refunds to the trustee, who would return any exempt portion to the debtor.After receiving the refunds, the trustee moved to compel turnover of the non-exempt portion of the federal tax refund, arguing that only a portion of the refund was exempt and that a pro-rata calculation should be used to determine the exempt amount. The United States Bankruptcy Court for the District of Colorado denied the trustee’s motion, concluding that the entire federal refund was exempt because it was caused by a refundable child tax credit. The trustee appealed, and the United States District Court for the District of Colorado affirmed the bankruptcy court’s decision.The United States Court of Appeals for the Tenth Circuit reviewed the case de novo and affirmed the district court’s judgment. The Tenth Circuit held that, under Colorado law, the phrase “attributed to” in the relevant exemption statute means “caused by,” and that the full amount of a federal income tax refund is exempt if it would not have occurred but for the refundable child tax credit. The court rejected the trustee’s argument for a pro-rata method and emphasized that Colorado law requires liberal construction of exemption statutes in favor of debtors. View "In re: Garcia-Morales" on Justia Law

A debtor filed for Chapter 7 bankruptcy and sought to discharge student loan debts owed to both the Department of Education and a private lender, the Bank of North Dakota. The debtor, a 50-year-old woman with degrees in physics, education, communication, and mechanical engineering, had a history of mental health challenges and an unconventional work history, including periods of unemployment and underemployment. She consistently sought employment in her fields of study but often had to accept lower-paying or unrelated jobs. At the time of the proceedings, she was employed as an engineer earning $78,000 annually, with modest assets, minimal retirement savings, and reasonable living expenses.The United States Bankruptcy Court for the Northern District of Iowa held a trial and a supplemental evidentiary hearing. The court found that the debtor’s federal student loan debt was not dischargeable, but the private student loan debt owed to the Bank of North Dakota was dischargeable under 11 U.S.C. § 523(a)(8), concluding that repayment of the Bank’s loan would impose an undue hardship. The court based its decision on the debtor’s financial resources, reasonable expenses, lack of significant assets, ongoing mental health needs, and the inflexibility of the Bank’s repayment terms. The Bank of North Dakota appealed the dischargeability determination.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the bankruptcy court’s legal conclusions de novo and its factual findings for clear error. The panel affirmed the bankruptcy court’s decision, holding that the debtor met her burden of proving undue hardship under the totality-of-the-circumstances test. The panel agreed that the Bank’s student loan was dischargeable, while the Department of Education loan was not, and found no error in the bankruptcy court’s analysis or application of the law. View "Duncanson v. Bank of North Dakota" on Justia Law

Twelve days before filing for bankruptcy, the debtors purchased a new property in New Hampton, Iowa, but did not list this property in their bankruptcy schedules. Instead, they listed their Waucoma property, consisting of three contiguous parcels totaling just under 30 acres, as their residence and claimed it as fully exempt under Iowa’s homestead laws. No objections were filed to this exemption. The debtors later sold two of the three Waucoma parcels, retaining only a vacant lot (Parcel A). After their bankruptcy discharge, a creditor, AgVantage, sought to execute a pre-petition judgment lien against Parcel A, ultimately acquiring it at a sheriff’s sale.The United States Bankruptcy Court for the Northern District of Iowa denied the debtors’ motion to avoid AgVantage’s judicial lien, finding that the debtors had abandoned the Waucoma property as their homestead by purchasing and using the New Hampton property. The court also dismissed the debtors’ adversary complaint seeking contempt sanctions against AgVantage for violating the discharge injunction, concluding that AgVantage held a valid lien and was enforcing in rem rights, not collecting a discharged debt. The bankruptcy court further denied the debtors’ motion to amend the judgment.On appeal, the United States Bankruptcy Appellate Panel for the Eighth Circuit found that the bankruptcy court’s factual findings regarding the debtors’ homestead status on the petition date were not supported by the record. The panel held that the debtors’ exemption claim was presumptively valid and that AgVantage had not met its burden to rebut this presumption. The panel also determined that the bankruptcy court erred in granting a motion to dismiss the adversary proceeding without affording the debtors the procedural presumptions required at that stage. The panel reversed the bankruptcy court’s decision and remanded for further proceedings, including an evidentiary hearing. View "Jencks v. AgVantage FS" on Justia Law

Sammie Smith, Jr. and Elizabeth Smith filed for Chapter 13 bankruptcy three times within approximately two and a half years. Their first case was voluntarily dismissed. In their second case, they changed attorneys multiple times, filed several amended plans, and ultimately had their case dismissed for failure to make plan payments. Shortly after, they filed a third Chapter 13 case, again changing attorneys and submitting multiple amended plans and schedules. The Smiths also filed objections to creditor claims and requested several continuances. They failed to appear at a scheduled hearing on one of their objections, leading the bankruptcy court to issue an order to show cause regarding dismissal for failure to appear.The United States Bankruptcy Court for the Eastern District of Arkansas dismissed the Smiths’ third bankruptcy case, citing unreasonable delay prejudicial to creditors under 11 U.S.C. § 1307. The court also barred the Smiths from filing another bankruptcy case in any jurisdiction for one year. The Smiths appealed, arguing they were denied due process and a fair hearing, particularly objecting to the lack of notice regarding the possibility of a refiling bar.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the case. It held that the bankruptcy court did not abuse its discretion in dismissing the Smiths’ case, as the record supported dismissal for unreasonable delay and failure to appear. However, the appellate panel found that imposing a one-year bar on refiling without prior notice or an opportunity for the Smiths to be heard on that sanction was an abuse of discretion and violated due process. The panel affirmed the dismissal of the bankruptcy case but reversed and vacated the one-year refiling bar. View "Smith v. Gooding" on Justia Law