Justia Bankruptcy Opinion Summaries

The Eleventh Circuit affirmed the district court's decision affirming the bankruptcy court's denial of debtors' motion to convert their Chapter 7 case to a Chapter 11 proceeding and approving a compromise agreement between the trustee and a judgment creditor (72 Partners, LLC). The court held that the bankruptcy court properly denied the request to convert to Chapter 11 because cause existed to either dismiss the case or convert it back to a Chapter 7, based on substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation under 11 U.S.C. 1112(b)(4)(A). Furthermore, other section 1112(b)(4) causes for denying conversion to Chapter 11 existed, such as failure to comply with an order of the court, failure timely to provide information or attend meetings reasonably requested by the United States trustee, and inability to effectuate substantial consummation of a confirmed plan. Another cause not listed in the statute was debtors' lack of good faith. View "Daughtrey v. Rivera" on Justia Law

On July 11, 2013, the Idaho Department of Labor (“IDOL”) mailed an eligibility determination for unemployment benefits (the “2013 determination”) to William Wittkopf. This determination found Wittkopf underreported his wages for several weeks, which resulted in an overpayment in unemployment benefits. As a result, Wittkopf was: (1) ordered to repay the overpayment; (2) ineligible for any unemployment benefits for a fifty-two week period; and (3) assessed a civil penalty. Additionally, Wittkopf was told that he would remain ineligible for unemployment benefits until all amounts were repaid. Pursuant to Idaho Code section 72– 1368(3) the last day for Wittkopf to file a protest to the 2013 determination was July 25, 2013, which he failed to do. IDOL attempted to collect on the 2013 determination over the next year without success. Subsequently in early 2016, Wittkopf filed for Chapter 7 bankruptcy. The debt he owed to the state of Idaho was included in his bankruptcy and was discharged by order of the Bankruptcy Court. In September 2016, Wittkopf began filing new claims for unemployment benefits with IDOL because he worked a seasonal job and was not receiving any income in the winter months. After not receiving benefits for several weeks, Wittkopf called IDOL which informed him he was ineligible for unemployment benefits because he had failed to pay back his overpayment, civil penalty, and interest he owed IDOL, even though those amounts were discharged in bankruptcy. Wittkopf mailed a letter to IDOL protesting the denial of his unemployment benefits. Wittkopf claimed in this letter that he was eligible for unemployment benefits because his bankruptcy discharged any amount he owed to IDOL. An Appeals Examiner construed Wittkopf’s 2016 letter as a protest of the 2013 determination. Two days later the Appeals Examiner issued a written decision finding there was no jurisdiction to hear Wittkopf’s protest because it was not filed within fourteen days of when it was issued on July 25, 2013, as required by Idaho Code section 72-1368. On November 3, 2016, Wittkopf appealed the Appeals Examiner’s decision to the Industrial Commission. On January 27, 2017, the Industrial Commission affirmed the Appeals Examiner’s decision. The Idaho Supreme Court determined the Industrial Commission erred in affirming the examiner without having determined first whether: (1) the bankruptcy discharge voided IDOL's 2013 determination; (2) whether the discharge operated as an injunction against any effort to collect, recover or offset the 2013 debt; and if yes, (3) why the Department's denial of current benefits on the basis of the 2013 debt wasn't a violation of the injunction. The matter was remanded back to the Industrial Commission for further proceedings. View "Wittkopf v. Idaho Dept of Labor" on Justia Law

The Isaacs took out a home-equity loan, secured by a mortgage on their home. GMAC did not immediately record the mortgage. While the mortgage remained unrecorded, the Isaacs filed for Chapter 7 bankruptcy. GMAC recorded the mortgage after the automatic bankruptcy stay was in effect, without obtaining an order modifying or lifting the stay. The mortgage was listed as a secured claim. In 2004, the bankruptcy court entered a discharge order; the case closed. A decade later, the mortgage's new owner (DBI’s predecessor) obtained a Kentucky state court foreclosure order. Before the sale, Linda Isaacs filed a voluntary Chapter 13 petition, with an adversary complaint seeking to avoid the mortgage through the “strong-arm” power (11 U.S.C. 544(a)), which permits the trustee to “avoid transfers of property that would be avoidable by certain hypothetical parties,” arguing that it was never properly perfected and would lose under state priority law to the hypothetical parties. Isaacs alternatively argued that the lien had never attached because it contained conflicting language: one clause indicated that the lien attached once the Isaacs signed the mortgage another section stated the lien would attach upon recording. DBI contended that the bankruptcy court lacked jurisdiction under the Rooker-Feldman doctrine because Isaacs was effectively asking it to sit as an appellate court over the state court’s foreclosure judgment. The bankruptcy court granted Isaacs summary judgment. The Bankruptcy Appellate Panel reversed, holding that the bankruptcy court lacked jurisdiction under the Rooker-Feldman doctrine. The Sixth Circuit agreed but remanded. The primary claim, seeking avoidance under the strong-arm provision, was independent of the validity of the state-court judgment. View "Isaacs v. DBI-ASG Coinvestor Fund, III, LLC" on Justia Law

The Fifth Circuit treated appellant's motion to amend its opinion as a petition for panel rehearing and granted the petition. The court withdrew the prior opinion and substituted the following opinion.This appeal stemmed from a bankruptcy court order approving a trustee's application to employ special counsel. The court held that appellant lacked standing to object to the trustee's application to employ SBPC because his indirect interest in the order failed to meet the strict requirements for a "person aggrieved" under the exacting test for bankruptcy standing or a creditor under 11 U.S.C. 327(c). Accordingly, the court affirmed the judgment. View "Furlough v. Cage" on Justia Law

The First Circuit reversed the judgment of the bankruptcy court allowing The Patriot Group, LLC to amend its pleadings in its adversary complaint requesting denial of the discharge in bankruptcy of Steven Fustolo’s debt and denying Fustolo’s discharge pursuant to the newly added claim, holding that the allowance of this belated amendment failed to satisfy the prescripts of due process underlying Fed. R. Civ. P. 15(b)(2) and was therefore an abuse of discretion. Specifically, the Court held that Appellant did not receive adequate notice of an unpleaded claim and did not provide his implied consent. Therefore, the bankruptcy court’s order must be reversed and the case remanded for further proceedings. View "Fustolo v. Patriot Group LLC" on Justia Law

The Ninth Circuit reversed the district court's decision affirming the bankruptcy court's summary judgment in favor of a condominium association. The panel held that condominium association assessments that become due after a debtor has filed for bankruptcy under Chapter 13 were dischargeable under 11 U.S.C. 1328(a). In this case, debtor's personal obligation to pay the assessments was not the result of a separate, post-petition transaction but was created when she took title to the condominium unit. Therefore, the debt for the assessments arose pre-petition and was dischargeable under section 1328(a), unless the Bankruptcy Code provided an exception to discharge. The panel held that the personal debt arising from the assessments was not excepted from discharge under section 1328(a). Finally, the Takings Clause was not implicated and equitable arguments did not override the express provisions of the Bankruptcy Code. View "Goudelock v. Sixty-01 Association of Apartment Owners" on Justia Law

The bankrupt businesses had debts that far exceeded the value of their assets. Bankruptcy courts authorized the sale of their principal assets (gasoline stations and a movie theater and café). Under Illinois law, the Illinois Department of Revenue (IDOR) may pursue the purchaser in a bulk sale for state taxes owed by the seller. To facilitate sales of the debtors’ properties, the bankruptcy court (11 U.S.C. 363(f)) allowed the sales to proceed free of any interests other than the bankruptcy estate's. Under section 363(e), a party whose interest has been removed is entitled to “adequate protection,” typically payment from the sale proceeds to compensate for the decrease in value of the party's interest. Each bankruptcy court assumed that IDOR was entitled to adequate protection but concluded that, because the sale proceeds were insufficient to satisfy the claims of the senior-most creditors (mortgages holders), IDOR was entitled to no portion of the sale proceeds. There were no other assets available. The Seventh Circuit affirmed. While the removal of IDOR’s interest likely increased the price bidders were willing to pay for the properties, IDOR has not given a realistic assessment of the value of its interest. The court rejected an argument that IDOR would have recovered 100 percent of the tax delinquency from an informed purchaser; IDOR’s claims were properly denied for want of evidence enabling the bankruptcy court to assign a reasonable value under section 363(e). View "Illinois Department of Revenue v. First Community Financial Bank" on Justia Law

The Bankruptcy Appellate Panel held that it may not consider on appeal the merits of a matter for which there would not have been jurisdiction in the bankruptcy court and thus the panel did not consider the merits of the McDougalls' (defendants) arguments on appeal. In this case, the McDougalls did not bring a counterclaim or cross-claim and could not challenge a judgment in favor of defendant AgCountry and against debtors. The McDougalls only sought to determine whether they held title to a parcel of land free of AgCountry's lien and did not seek anything from the bankruptcy court on behalf of or from debtors or their estate. Therefore, the panel remanded with instruction to dismiss the claim regarding the validity of AgCountry's lien against the Home Quarter. View "McDougall v. Ag Country Farm Credit Services" on Justia Law

Debtor filed a chapter 7 bankruptcy petition, seeking the discharge of his student loan debt as an “undue hardship,” 11 U.S.C. 523(a)(8). Debtor graduated with an architectural drafting certification in 2008 and, since then, the loan has been in forbearance, deferment or an income-driven repayment plan. The U.S. Department of Education intervened as a Party-Defendant and sought dismissal or summary judgment. Debtor filed an objection, not refuting the facts alleged in the motion, but arguing undue delay. The bankruptcy court allowed Debtor to amend his complaint, which did not state sufficient facts to meet the second prong of the Brunner test: “that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans.” Debtor filed an amended complaint with exhibits showing proof of the Debtor’s status as a parolee, but did not otherwise correct the deficiencies. The court dismissed, finding that Debtor “only [made] conclusory statements about his inability to pay, without offering facts that may support these conclusions” and that status as a parolee, alone, was not “beyond the debtor’s control” as required under the third prong of the Brunner test. The Bankruptcy Appellate Panel affirmed, concluding that Debtor did not plead sufficient facts to support a discharge of his student loan debt notwithstanding the exception to discharge that would otherwise apply. View "In re Chenault" on Justia Law

The Eighth Circuit affirmed the bankruptcy appellate panel's ruling affirming the bankruptcy court's order determining that Starion Financial was entitled to $83,122.95 in attorney fees and costs incurred to collect on its secured debt in the course of debtors' bankruptcy proceedings. The court held that the parties had an agreement for fees within the meaning of 11 U.S.C. 506(b), and the bankruptcy court did not err in finding that Starion Financial's application for attorney fees, while untimely, was not abusively so. Because no prejudice to debtors resulted, the fee application was properly allowed. View "McCormick v. Starion Financial" on Justia Law