Justia Bankruptcy Opinion Summaries

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Ex-wife filed suit against her ex-husband, a Chapter 7 debtor, in bankruptcy court over a debt of $32,500 plus interest. The Fifth Circuit affirmed the district court's decision reversing the bankruptcy court's ruling in favor of the ex-husband. The court held that the ex-husband's payment to the ex-wife's former attorney did not terminate his obligation to the ex-wife because the attorney was no longer authorized to transact on the ex-wife's behalf. In this case, the attorney did not have actual or apparent authority to collect on the ex-wife's behalf. View "Russell v. Russell" on Justia Law

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The Eleventh Circuit affirmed the bankruptcy court's order revoking the discharge of debtors' debt. Debtors claimed that the trustee had pre-discharge knowledge of the alleged conduct that resulted in the revocation. The court held that the "lack-of-knowledge" requirement that is explicitly contained in one subsection of the bankruptcy statute, 11 U.S.C. 727(d)(1), cannot be read into the adjacent subsection of the same statute, 11 U.S.C. 727(d)(2), thereby barring revocation. The court need not reach the factual determination of whether the trustee had prior knowledge of the fraud issue, because it would be inappropriate to rewrite section 727(d)(2) to include that requirement. Therefore, the court held that the bankruptcy court and district court correctly interpreted section 727(d)(2). View "Thompson v. Gargula" on Justia Law

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In this homeowners' association (HOA) foreclosure case, the Supreme Court reversed the district court's grant of summary judgment to U.S. Bank, N.A. and remanded for entry of summary judgment for SFR Investments Pool 1, LLC, holding that the mere fact that a foreclosure sale was held in violation of a bankruptcy stay is not by itself evidence of unfairness. The homeowner filed for bankruptcy under Chapter 11, which imposed an automatic stay on actions against her real property. In violation of the stay, the HOA sold the property at a foreclosure sale. SFR, the purchaser, sought to quiet title. The bankruptcy court issued a limited order retroactively annulling the bankruptcy stay of the stay, which has the legal effect of validating the sale. The district court, however, set aside the sale and granted summary judgment for U.S. Bank finding that the HOA's foreclosure sale being conducted in violation of the bankruptcy stay was evidence of unfairness and that the sale price was inadequate. The Supreme Court reversed, holding that U.S. Bank failed to produce any evidence showing how the sale's violation of the automatic stay constituted unfairness and that SFR met its burden of showing that the HOA foreclosure sale complied with the procedures in Nev. Rev. Stat. Chapter 116. View "SFR Investments Pool 1 v. U.S. Bank, N.A." on Justia Law

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Appellant, Joseph Petrick, contracted with a homeowner, Donna Sabia, to perform remodeling work. Sabia paid Appellant a deposit of $1,750.00 plus $300.00 to cover the cost of city permits. Appellant began some of the contracted work at which time Sabia paid an additional $1,750.00 to Appellant. That same day, Appellant and Sabia’s son, Carmen Fazio, who also resided in the home, entered into a second contract for Appellant to do some painting in the home. As consideration, Fazio purchased a $600.00 saw for Appellant. Appellant and Fazio entered into a third contract to install siding on the exterior of the home. Fazio paid Appellant $2,300.00 to purchase materials. Appellant did not finish the work; Appellant eventually advised Sabia and Fazio that he could not complete the jobs but would refund $4,950.00 within a week. Appellant never refunded any money or the saw, nor did he ever purchase the siding materials or obtain the permits from the city. Appellant filed for Chapter 7 bankruptcy. In his petition, Appellant listed Sabia and Fazio as creditors. The bankruptcy court issued a discharge order in March 2016. In October 2015, a City of Scranton Police Detective filed a criminal complaint charging Appellant with theft by deception and deceptive business practices. After a bench trial, the court found Appellant guilty of theft by deception and not guilty of deceptive business practices. The court sentenced Appellant to a term of incarceration of three to eighteen months. Appellant was also ordered to pay $6,700.00 in restitution. Appellant filed a motion for reconsideration of his sentence, which the trial court denied. On appeal, the Superior Court affirmed the trial court’s judgment of sentence. On appeal to the Pennsylvania Supreme Court, Appellant argued that the portion of his sentencing order requiring him to pay restitution was illegal because the debt was discharged in bankruptcy. Appellant argued that the Bankruptcy Code specified that the filing of a petition operated as an automatic stay of any action to recover a debt that preceded the filing. The Supreme Court found the mandatory restitution order served criminal justice goals, and were distinct from civil debt liability with respect to discharge in bankruptcy. “This distinction is unaffected by the temporal relationship between the proceedings in the bankruptcy court and the criminal prosecution. Additionally, it is unaffected by a creditor’s participation in the bankruptcy proceedings.” The Court determined there was no indication in this case the restitution award was improperly sought by the prosecutor or awarded by the sentencing court. Accordingly, it affirmed the Superior Court. View "Pennsylvania v. Petrick" on Justia Law

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The First Circuit affirmed the judgment of the Title III court refusing to lift the automatic stay in PROMESA to allow the Municipality of Ponce to secure specific performance by the Commonwealth of Puerto Rico of public works projects required under a Puerto Rico Commonwealth court judgment, holding that the Title III court did not plainly abuse its discretion. In 2017, the Commonwealth filed a petition for debt adjustment relief under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), 48 U.S.C. 2101-2241. In 2018, Ponce moved for relief from the automatic stay to secure specific performance by the Commonwealth of public works projects required under a Puerto Rico Commonwealth court judgment. The Title III court refused to lift the automatic stay. The First Circuit affirmed, holding that where Ponce essentially sought priority over the claims of other communities and creditors of the Commonwealth, the Title III court clearly did not abuse its discretion in declining to give Ponce this priority. View "Autonomous Municipality of Ponce v. Commonwealth of Puerto Rico" on Justia Law

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In this PROMESA action the First Circuit affirmed in part and vacated in part the decision of the the lower court denying Plaintiffs' petition for relief from an automatic stay of collection actions against the Commonwealth of Puerto Rico to allow them to bring an enforcement action against the Commonwealth, holding that remand was required to determine whether the contested funds were Plaintiffs'. Plaintiffs, motor vehicle owners and operators who paid duplicate premiums to the Commonwealth in accordance with the Commonwealth's compulsory automobile-insurance law, entered into a settlement agreement pursuant to which the Commonwealth agreed to establish a notice and claim-resolution process for the motorists. Thereafter, the Financial Oversight and Management Board for Puerto Rico initiated Title III debt-adjustment proceedings on behalf of the Commonwealth pursuant to the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), triggering an automatic stay of collection actions against the Commonwealth. The Commonwealth subsequently halted its implementation of the settlement agreement's notice and claim resolution process. Plaintiffs unsuccessfully petitioned the Title III court for relief from the automatic stay. The First Circuit remanded the case, holding that the Title III court abused its discretion by not first addressing Plaintiffs' claim that the contested funds were their personal property and were merely being held in trust by the Commonwealth. View "Gracia-Gracia v. Commonwealth of Puerto Rico" on Justia Law

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The Bushes owed $100,000 in taxes. The IRS sought a 75% fraud penalty (26 U.S.C. 6663(a)); the Bushes proposed a 20% negligence penalty (section 6662(a)). On the date set for Tax Court trial, the Bushes filed for bankruptcy. The automatic stay prevented the Tax Court from proceeding. The government filed a proof of claim, proposing that the tax debt be given priority over other unsecured debts and that the penalty was nondischargeable. The Bushes initiated an adversary proceeding, asking for a 20% penalty, citing 11 U.S.C. 505(a)(1), which states that the court may determine the amount or legality of any tax, any fine or penalty relating to a tax ... whether or not contested before … [an] administrative tribunal. The IRS argued that section 505 does not grant subject-matter jurisdiction to bankruptcy judges and that only a potential effect on creditors’ distributions justifies a decision by a bankruptcy judge about any tax dispute. The Seventh Circuit held that a bankruptcy court can determine the amount of a debtor’s tax obligations. Section 505 does not address jurisdiction bu simply sets out a task for bankruptcy judges. Whether the judge should exercise that authority to determine tax liability is a distinct question. The bankruptcy is apparently done; the estate’s available assets have been used to pay debts and the stay has expired. This residual dispute should not remain with the bankruptcy judge but should be left to the Tax Court. View "Bush v. United States" on Justia Law

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Arianna Holding Company purchased a tax lien on a piece of property owned by the Hacklers and eventually obtained title to the Hacklers’ property via foreclosure proceedings. Shortly after Arianna obtained title, the Hacklers filed for Chapter 13 bankruptcy and sought to void the transfer of the title as preferential, 11 U.S.C. 547(b). The Bankruptcy Court and the district court ruled in favor of the Hacklers. The Third Circuit affirmed. The title transfer meets 547(b)’s requirements for avoidance. The transfer was made to or for the benefit of a creditor, was made for an antecedent debt, was made while the debtor was insolvent, was made on or within 90 days before filing for bankruptcy, and enabled the creditor to receive more than it would have received in a Chapter 7 liquidation proceeding. The petition and schedules listed the value of the property at $335,000, which far exceeded the value of the liens against the property; Arianna filed a proof of claim for $42,561.21 and other liens totaled no more than $89,000. The Hacklers’ Chapter 13 plan proposed to pay Arianna’s claim in full. Federalism concerns raised by Arianna cannot overcome the plain language of the Code. View "In Re: Hackler" on Justia Law

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Debtors appealed the district court's decision affirming the bankruptcy court's order deeming nondischargeable a prior default judgment against debtors in favor of plaintiffs in the Eastern District Judgment. The lower courts had relied in part on the preclusive effect of the Eastern District Judgment, which arose from a dispute between the families regarding two real estate projects. While a default judgment generally lacks preclusive effect because the underlying merits of the case are not actually litigated, the Second Circuit held that where, as here, the default judgment is entered as a sanction, it may be afforded preclusive effect. The court also held that the lower courts erred in treating the Eastern District Judgment as a whole, rather than analyzing each of the two underlying debts for nondischargeability separately. Accordingly, the court affirmed in part, vacated in part, and remanded in part. View "In re: Stuart Scott Snyder" on Justia Law

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The debtor obtained a commercial loan from Bank. The agreement dated March 9, 2015, granted Bank a security interest in substantially all of the debtor’s assets, described in 26 categories of collateral, such as accounts, cash, equipment, instruments, goods, inventory, and all proceeds of any assets. Bank filed a financing statement with the Illinois Secretary of State, to cover “[a]ll Collateral described in First Amended and Restated Security Agreement dated March 9, 2015.” Two years later, the debtor defaulted and filed a voluntary Chapter 7 bankruptcy petition. Bank sought to recover $7.6 million on the loan and filed a declaration that its security interest was properly perfected and senior to the interests of all other claimants. The trustee countered that the security interest was not properly perfected because its financing statement did not independently describe the underlying collateral, but instead incorporated the list of assets by reference, and cited 11 U.S.C. 544(a), which empowers a trustee to avoid interests in the debtor’s property that are unperfected as of the petition date. The bankruptcy court ruled that ”[a] financing statement that fails to contain any description of collateral fails to give the particularized kind of notice” required by UCC Article 9. The trustee sold the assets for $1.9 million and holds the proceeds pending resolution of this dispute. The Seventh Circuit reversed, citing the plain and ordinary meaning of the Illinois UCC statute, and how courts typically treat financing statements. View "First Midwest Bank v. Reinbold" on Justia Law