Justia Bankruptcy Opinion Summaries

Plaintiffs-appellees Byron and Laura McDaniel claimed they discharged some private student loans in their Chapter 13 bankruptcy. Defendant-Appellant Navient Solutions, LLC (“Navient”), the loans’ creditor, moved to dismiss the McDaniels’ claim under Federal Rule of Civil Procedure 12(b)(6), contending that the loans were excepted from discharge under 11 U.S.C. 523(a)(8)(A)(ii). This case raised a question of first impression to the Tenth Circuit of whether an educational loan constituted “an obligation to repay funds received as an educational benefit,” within the meaning of section 523(a)(8)(A)(ii). The Court concluded that it did not, therefore, the Court affirmed the bankruptcy court’s interlocutory order denying Navient’s motion, and remanded the case for further proceedings. View "McDaniel v. Navient Solutions" on Justia Law

The Fifth Circuit held that section 4.1 of the Local Plan, which requires debtors in the Western District of Texas turn over to the bankruptcy trustee any tax refund amounts they receive in excess of $2,000, is invalid because it abridges debtors' substantive rights and conflicts with the Supreme Court's guidance on 11 U.S.C. 1325(b)(2).In this case, the bankruptcy court confirmed debtor's revised Chapter 13 plan which did not strike Section 4.1 or contain any nonstandard provision in Section 8. Therefore, the court vacated the bankruptcy court's confirmation of debtor's revised plan and remanded to allow her to file a new plan. View "Diaz v. Viegelahn" on Justia Law

In Tribune’s reorganization bankruptcy plan, Senior Noteholders were assigned their own class (1E) of unsecured creditors. When they did not accept the Plan but other classes did, the Bankruptcy Court confirmed it under the cramdown provision.The provision at issue, 11 U.S.C. 1129(b)(1), provides: Notwithstanding section 510(a) … [making subordination agreements enforceable in bankruptcy to the extent they would be in nonbankruptcy law], if all of the applicable requirements of subsection (a) of this section [1129] other than paragraph (8) [which requires that each class of claims has accepted the plan] are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph [8] if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.The Third Circuit agreed with the district court that the text of section 1129(b)(1) supplants strict enforcement of subordination agreements. When “cramdown plans play with subordinated sums, the comparison of similarly situated creditors is tested through a more flexible unfair discrimination standard.” Subsection 1129(b)(1) does not require subordination agreements to be enforced strictly. The difference in the Senior Noteholders’ recovery is not material. Although the Plan discriminates, it is not presumptively unfair. View "In re: Tribune Co." on Justia Law

The trustee objected to the modification of debtor's Chapter 13 modification plan, arguing that the doctrine of res judicata barred debtor's modification. The bankruptcy court confirmed the modified plan, finding that 11 U.S.C. 1329 creates an exception to the finality of confirmed Chapter 13 plans, and that debtor's modified plan satisfied the express requirements of section 1329.The Eleventh Circuit affirmed and held that section 1329 does not impose a change-of-circumstances requirement on debtors. Therefore, debtor need not make any threshold showing of a change in circumstances before proposing a modification to a confirmed plan under section 1329. View "Whaley v. Guillen" on Justia Law

Eric Wagenknecht and his wife, Susan Colbert, filed for relief under Chapter 13 of the Bankruptcy Code in January 2016 (the “Petition Date”). The case was converted to Chapter 7 in April 2017. Jared Walters was appointed as the Chapter 7 trustee for the estate (the “Trustee”). Prior to the Petition Date, the Law Firm provided legal services to Eric. By the end of 2015, Eric owed the law firm of Stevens, Littman, Biddison, Tharp & Weinberg, LLC (the “Law Firm”) over $20,000. Eric borrowed money from his mother to pay the Law Firm, and executed a promissory note to repay her. In January 2018, the Trustee initiated an adversary proceeding against the Law Firm. The Trustee alleged that the payment to the Law Firm was a preferential transfer under 11 U.S.C. 547. The Trustee therefore sought to avoid and recover the payment under 11 U.S.C. sections 547 and 550. The parties cross-moved for summary judgment, and the bankruptcy court entered an order denying the Law Firm’s motion for summary judgment and granting the Trustee’s cross-motion for summary judgment. The Tenth Circuit reversed, finding that because Eric did not exercise control or dominion over the payment to the Law Firm, and because the payment did not diminish Eric’s bankruptcy estate, the payment did not constitute a “transfer of an interest of the debtor in property” under section 547(b). Therefore, the bankruptcy court erred in entering summary judgment in favor of the Trustee. View "Walters v. Stevens, Littman, Biddison" on Justia Law

The United States District Court for the Middle District of Georgia certified two questions to the Georgia Supreme Court regarding the timing under Georgia law when a lien is created on the title of real property as between a judgment creditor and a judgment debtor: at the time the judgment is entered or at the time the writ of fieri facias on that judgment is recorded. "This timing makes a difference under federal bankruptcy law because certain transfers of the bankrupt debtor’s property may be avoided if they occur within 90 days of the filing of the bankruptcy petition." The Supreme Court responded to the district court that under Georgia law, as between the judgment creditor and judgment debtor, a lien on the title to real property is not created until the judgment is recorded, that the date of that lien is the date of recording, and the date of the lien does not relate back to the date the judgment was entered. View "Synovus Bank d/b/a First Community Bank of Tifton v. Kelley" on Justia Law

The Eleventh Circuit affirmed the bankruptcy court's finding that UpRight, a debt relief agency that represented assisted persons, violated several applicable provisions and rules, and upheld the bankruptcy court's imposition of sanctions against it.The court held that the bankruptcy court had subject matter jurisdiction to impose sanctions; because adequate notice came from both the bankruptcy administrator and the bankruptcy court, and UpRight had a reasonable opportunity to respond both orally and in writing, the fundamental fairness of due process was met; UpRight's contention that the bankruptcy court applied the wrong legal standard in imposing the suspensions pursuant to 11 U.S.C. 105 is moot; the totality of the circumstances support a finding of a "clear and consistent pattern or practice" under 11 U.S.C. 526(c)(5); and the monetary sanctions that were imposed were not grossly excessive and did not fall outside the reasonable "range of choice" that was available to the bankruptcy court. View "Law Solutions of Chicago, LLC v. Corbett" on Justia Law

Attorney Ruston Welch received approximately $350,000 in fees for representing David and Terry Stewart in their Chapter 7 bankruptcy proceedings. This appeal stemmed from Welch's failure to disclose his fee arrangements and payments until ordered to do so by the bankruptcy court more than two years after he should have disclosed his fee agreement, and more than a year after he should have disclosed the payments. For these violations the bankruptcy court sanctioned Welch, requiring him to pay $25,000 to the bankruptcy estate. The bankruptcy appellate panel (BAP) affirmed the sanction after the Stewarts’ largest creditor, SE Property Holdings (SEPH), which had initiated the proceedings as an involuntary bankruptcy, challenged the sanction as so inadequate as to constitute an abuse of discretion. SEPH appealed that decision. The Tenth Circuit concurred, reversed and remanded the matter for further consideration. "The presumptive sanction ... is forfeiture of the entire fee. For good reason the bankruptcy court can impose a lesser sanction. But the court thus far has not provided good reason. It assumed facts that were not in evidence and, most importantly, apparently assumed good faith without examining the possible motives for nondisclosure." View "SE Property Holdings v. Stewart" on Justia Law

The Ninth Circuit affirmed the district court's judgment affirming the bankruptcy court's dismissal of a chapter 7 debtor's adversary proceeding seeking to exempt retirement funds from the bankruptcy estate. In dismissing the adversary complaint for failure to state a claim, the bankruptcy court held that debtor could not reclaim his retirement funds because he filed the bankruptcy petition after the execution lien had been satisfied.The panel held that debtor failed to state a claim under 11 U.S.C. 522(h), which allows a debtor to step into the role of the bankruptcy trustee and avoid certain transfers of exempt property made before the filing of the bankruptcy petition. The panel also held that, because the judicial lien was satisfied prior to the petition date, it was not voidable under section 522(f). Therefore, because it was not voidable, debtor could not succeed on his separate section 522(f) claim nor establish that the transfer of his IRA funds was a preferential transfer under section 547. Having failed to allege the elements of a section 547 preferential transfer, the panel held that the bankruptcy court correctly concluded that debtor failed to state a claim under section 522(h). View "Elliott v. Pacific Western Bank" on Justia Law

The Second Circuit affirmed the district court's judgment affirming the bankruptcy court's grant of defendants' motion to dismiss in an action arising out of the Chapter 11 bankruptcy of Lehman Brothers Holdings Inc. The bankruptcy court held that, in the context of synthetic collateralized debt obligations, certain "Priority Provisions" that subordinated LBSF's payment priority to claims of the Noteholder defendants are enforceable by virtue of section 560 of the Bankruptcy Code, which exempts "swap agreements" from the Code's prohibition of "ipso facto clauses."Like the district court, the court held that, even if the Priority Provisions were ipso facto clauses, their enforcement was nevertheless permissible under the section 560 safe harbor. The court explained that the Priority Provisions are incorporated by reference into the swap agreements and thus, for the purposes of section 560, are considered to be part of a swap agreement; the contractual right to liquidate included distributions made pursuant to Noteholder priority; the Trustees exercised a contractual right to effect liquidation when they distributed the proceeds of the sold Collateral; and, in doing so, the Trustees exercised the rights of a swap participant. Because the Priority of Payments clauses are enforceable under the Code, the court held that LBSF's state-law claims also fail. Finally, the district court and bankruptcy court correctly concluded that LBSF is not entitled to declaratory relief. View "Lehman Brothers Special Financing Inc. v. Bank of America N.A." on Justia Law