Topical Highlights - Bankruptcy ©     Coverage   Help   Search Westlaw In re Lee, (Bkrtcy.C.D.Cal.) July 24, 2009: Professionals - Sanctions for counsel's use of false statement and other misconduct would be limited to filing of court's opinion. Where counsel for a lender violated Rule 9011 by using a false statement of fact, namely, that the lender owned the underlying promissory note, in an attempt to mislead the court into making a ruling in the lender's favor, by failing to disclose that the copy of the note submitted with the lender's motion for stay relief was not a true and correct copy of the original note, by failing to join the true owner of the note in the motion for stay relief, and by failing to distinguish or to make a good faith argument for the extension, modification, or reversal of existing law requiring such joinder, the sanctions imposed by the bankruptcy court would be limited to the filing of the opinion published by the court following issuance of its order to show cause. Although, but for the court's intervention upon examining the original note, counsel's conduct could have caused serious injury to the debtor, including foreclosure on the deed of trust by a party with no interest in the note, the court found counsel's exemplary reputation over a course of some 20 years and his lack of prior discipline to be substantial mitigating factors. In re TOUSA, Inc., (Bkrtcy.S.D.Fla.) July 24, 2009: Pleading - Adversary defendants abandoned affirmative defense. Adversary defendants in a proceeding brought by an unsecured creditors committee abandoned their affirmative defense of "single business enterprise," a Florida bankruptcy court found. Rather than arguing the defense in the form articulated in their pleadings, the defendants focused instead on the argument that "value," within the meaning of 11 U.S.C.A. 548(d)(2)(A), the section of the Bankruptcy Code governing fraudulent transfers and obligations, could take the form of "indirect benefit" in addition to "direct benefit" to the debtor that received it. Accordingly, the issue became simply one of proof as to the value received, and was decidedly outside the scope of the "single business enterprise" affirmative defense. In re Lancelot Investors Fund, L.P., (Bkrtcy.N.D.Ill.) July 24, 2009: Injunction - Preliminary injunction barring investors' state-court action against debtors' auditor was warranted. A Chapter 7 trustee's likelihood of success on the merits arising from the ease with which the debtors' auditor could have discovered problems with the debtors' financial statements, as well as the public interest served by pro rata distributions and the orderly administration of the bankruptcy estate, warranted the issuance of a preliminary injunction, pursuant to the bankruptcy court's powers to issue orders necessary or appropriate to carry out the provisions of the Bankruptcy Code, enjoining investors' state-court action against the debtors' auditor for professional negligence and misrepresentations, assuming those claims were not estate property, while the trustee pursued potential causes of action against the auditor. This was particularly true since both the trustee and the investors were targeting the same insurance policy, and successful litigation by the investors could affect the amount of property that the trustee could collect to administer to the bankruptcy estate's creditors. Bank of Oklahoma v. Ashley, (Okla.Civ.App. Div. 4) July 24, 2009: Discharge - Judgment creditor's lien that attached to judgment debtor's realty, which survived Chapter 7 discharge, was not subject to release under state law. In a matter of first impression, the Court of Civil Appeals of Oklahoma has held that a judgment creditor's lien that attached to a tract of realty that judgment debtor owned in joint tenancy that was not her homestead, which survived the discharge that the judgment debtor received in her Chapter 7 bankruptcy proceeding, was not subject to release under a state statute providing that the lien of any judgment which has been satisfied by payment or otherwise discharged and which has not been released by the judgment creditor shall be released by the court upon written motion. The Court concluded that the statute did not apply retroactively to valid liens existing at the time the debtor filed her bankruptcy petition, in that the legislative intent of the statute was that judgments extinguished in bankruptcy proceedings no longer had vitality to attach as liens to real estate subsequently acquired by a debtor. In re Stark, (Bkrtcy.D.N.D.) July 24, 2009: Discharge - Debtor's deceptive conduct in omitting her signature from second mortgage precluded discharge of second mortgage debt. A debtor-purchaser's deliberate failure to sign second mortgage in favor of vendor to secure her debt to him for portion of purchase price that he was financing, all the while leading parties present at closing to believe that she was willing to sign it and had done so, was in the nature of a "false representation" made with intent to deceive, which prevented a discharge of the second mortgage debt. As a proximate result of the debtor's conduct, the vendor provided what he thought would be secured financing on an unsecured basis. In re TOUSA, Inc., (Bkrtcy.S.D.Fla.) July 24, 2009: Claims - Lenders could not assert third-party contract claims against debtors in creditors committee's avoidance action against them. Third-party claims asserted by prepetition lenders against Chapter 11 debtors for breach of contract, which were based upon representations made in loan documents that the debtor-borrowers, on a consolidated basis with their subsidiaries, would be solvent after the financing transaction, did not depend upon the outcome of the fraudulent transfer claims asserted against the lenders by the creditors committee, which relied upon a different showing, that the debtor-subsidiaries which pledged their assets as collateral in the financing transaction were insolvent as of, or were rendered insolvent by, the transaction. Therefore, the rule permitting impleader only if a third party's liability on a claim was dependent upon the outcome of the main claim did not permit the lenders to assert their third-party claims against the debtors. In re Mitan, (C.A.6 (Mich.)) July 24, 2009: Case Administration - Order converting Chapter 11 case to Chapter 7 could be entered nunc pro tunc. A bankruptcy court, in the exercise of authority granted to it to issue "necessary or appropriate" orders, had the power, on remand following reversal of its earlier case conversion order as entered without the requisite notice, to enter a second, nunc pro tunc conversion order retroactive to the date that the initial order was entered more than two years earlier, in order to preserve actions that the Chapter 7 trustee took in the converted case in compromising claims and in obtaining judgments as to the dischargeability of certain debts, all as a result of the debtor's failure to seek a stay of conversion pending appeal. The bankruptcy court not only had authority based on the unique circumstances of the debtor's case to make its order converting the Chapter 11 case to one under Chapter 7 retroactive to this earlier date, but acted appropriately in doing so. The only explanation offered by the debtor for not seeking a stay was that he had his "hands full." In re Cahillane, (Bkrtcy.N.D.Ind.) July 24, 2009: Avoidance - Party with check writing authority on account into which funds were fraudulently transferred was not initial transferee. The power which a Chapter 7 debtor's brother possessed as an authorized signatory on a corporate account into which the debtor's fraudulent transfers were made was insufficient to establish that he had the requisite "dominion and control" with respect to any specific transfer into the account, as required for the brother to be treated as an "initial transferee" in connection with these transfers on a "dominion and control" theory. Moreover, the brother was not the "entity for whose benefit" the debtor made these transfers. The only benefit that the brother derived was that, as result of the check writing authority which he possessed on the account, he was able to write checks to himself in satisfaction of debts owed to him by the debtor. The brother was at most a subsequent transferee, and only in connection with these checks that he wrote from the account in the aggregate amount of $6,462.04. In re Padgett, (10th Cir.BAP (Kan.)) July 23, 2009: Plans - "910 Creditor" had "purchase money security interest" for value given to pay off negative equity in trade-in vehicle. A creditor's financing of the payoff of Chapter 13 debtors' negative equity in a trade-in vehicle, no less than its financing of the sticker price on the new vehicle or any reduction thereof negotiated by the debtors and car dealer, gave rise to a "purchase money obligation," and the creditor enjoyed a "purchase money security interest" to secure the debtors' payments thereon. Thus, in a Chapter 13 case commenced less than 910 days after this credit transaction, the creditor was fully protected against having its claim bifurcated for purposes of cramming down a plan. The creditor's financing of the payoff of negative equity in the trade-in was value given to enable the debtors to acquire rights in the new vehicle and had the requisite close connection with the debtors' acquisition of that new vehicle as part of the debt which the debtors incurred at the same time and pursuant to the same contract for purposes of acquiring the car. In re Stalnaker, (Bkrtcy.M.D.Ga.) July 23, 2009: Discharge - Determinations in state court action had preclusive effect on nondischargeability only of fee award, not judgment debt. A lack of evidence as to what issues were submitted to the jury in a prior state court action and what issues it decided in finding that the Chapter 7 debtor had tortiously interfered with a bequest to her sister prevented the bankruptcy court from according collateral estoppel effect to the state court judgment on the question of the nondischargeability of the judgment debt itself. However, the state trial judge's determination, as a basis for an award of prevailing party attorney fees to the sister, that the debtor had acted "outrageously" in a manner exhibiting bad faith and vexatious conduct, collaterally estopped the debtor from contesting the nondischargeability of her debt on the attorney fee award entered in favor of the sister, as a debt for the debtor's "willful and malicious injury." In re Royster, (Bkrtcy.E.D.N.C.) July 23, 2009: Discharge - Punitive, as well as compensatory, award in odometer tampering case was for money "obtained by" fraud. The judgment that was entered against a Chapter 13 debtor individually as the manager of a licensed car dealership involved in odometer tampering, including both the judgment for compensatory damages in the amount of $1,911.00, based on the $1,911.00 that debtor had paid for a vehicle that she thought had 77,000 miles on it when it in fact had over 200,000 miles, and the judgment for $250,000 in punitive damages, was for money "obtained by" fraud, so as to preclude discharge of the entire $251,911.00 judgment debt in the debtor's bankruptcy case. In re Kuhn, (Bkrtcy.D.Kan.) July 23, 2009: Claims - Creditor did not lose security interest by obtaining personal judgment on Chapter 7 debtor's promissory note. Under Kansas law as predicted by a bankruptcy court in Kansas, the one action rule would not be applied in an action on a promissory note secured by personal property. Thus, a secured creditor's failure to foreclose on its security interest, in obtaining only a personal judgment on the debtor's note, would not operate as a waiver of its future right to realize on its collateral or require classification of the claim that it possessed in the debtor's Chapter 7 case as a mere unsecured claim. A bankruptcy judge in Kansas noted that he was not bound by a contrary decision by a district court judge in that district and disagreed with the district court. In re Zilka, (Bkrtcy.W.D.Pa.) July 23, 2009: Claims - Loan obligations underlying proofs of claim were not forgiven by conduct of lender. A lender's issuance of account statements to its debtor-borrower, indicating that the debtor's outstanding loan balances were $0.00 due to its "charge off" of the loans, was a mere accounting procedure, that was not the legal equivalent of its forgiveness of the loans and that did not prevent the bankruptcy court from allowing, over the debtor's objection, proofs of claim filed by the lender for the unpaid balances of the loans. So too, the lender's issuance of Internal Revenue Service (IRS) forms for the Cancellation of Debt, in amounts corresponding to the outstanding balances on the debtor's loans, did not operate to legally discharge the debtor from further liability on the loans. In re Koch, (Bkrtcy.S.D.Fla.) July 23, 2009: Case Administration - Chapter 7 debtor could take standard vehicle ownership expense deduction on vehicle that he owned outright. In performing a "means test" calculation to determine whether his Chapter 7 petition was presumptively subject to being dismissed as an abuse of the provisions of that chapter, a debtor could deduct, as an "applicable monthly expense amount" specified under Internal Revenue Service (IRS) standards, the standard vehicle ownership expense deduction allowed by the IRS. It did not matter that the debtor owned his vehicle outright and had no loan or lease payments thereon. The term "applicable" had to be contrasted with the term "actual," as used elsewhere in the same "means test" provision, and allowed the debtor to take the standard deduction to which he was entitled based on the area of the country where he lived, without regard to whether the debtor actually had any motor vehicle payments. In re Akulova, (Bkrtcy.D.Del.) July 23, 2009: Bankruptcy Estate - Debtor could not amend exemption schedule to claim settlement proceeds as exempt on equitable grounds. A Chapter 7 debtor would not be allowed to amend her exemption schedules after the trustee, in reliance on the fact that the debtor had not claimed an exemption in her prepetition personal injury claim, had retained the debtor's personal injury attorney as special counsel and successfully prosecuted the personal injury claim to a settlement, in order to use her state law "wildcard" exemption to claim the settlement proceeds as exempt and to eliminate the "wild card" exemption claimed for a time share interest that the trustee had abandoned ten months earlier. It was inherently inequitable to allow the debtor to induce the trustee to act on what the trustee believed to be creditors' behalf, in prosecuting the personal injury claim, while the debtor retained the option, for which no consideration had been paid, to exempt the fruits of the trustee's labor if, and only if, the trustee was successful. In re Nowlin, (C.A.5 (Tex.)) July 22, 2009: Plans - Fifth Circuit adopts forward-looking interpretation of "projected disposable income." Addressing an issue of apparent first impression for the court, the Fifth Circuit Court of Appeals has held that, although an above-median-income Chapter 13 debtor's "projected disposable income" presumptively consists of the debtor's statutorily defined "disposable income" mechanically projected into the future for the duration of the plan, any party may rebut this presumption by presenting appropriate evidence of changed circumstances, that is, present or reasonably certain future events that substantially change the debtor's income or expenses. In adopting a forward-looking interpretation of "projected disposable income," as that term is used in 11 U.S.C.A. 1325(b)(1), the Fifth Circuit joined the Eighth and Tenth Circuits, but disagreed with the approach followed by the Ninth Circuit. The forward-looking approach accounted for all relevant statutory language and recognized the independent significance of the word "projected," the Court of Appeals explained. In re Fruit of the Loom, Inc., (Bkrtcy.D.Del.) July 22, 2009: Jurisdiction - Permissive abstention was warranted in adversary proceeding alleging creditor's breach of settlement agreement. Permissive abstention was warranted in an adversary proceeding in which the reorganized debtors in a Chapter 11 case sought a declaration that the claims asserted against one debtor by a creditor in state-court actions were waived, released, and discharged under a settlement agreement and that the creditor's addition of the debtor as the defendant in the state-court actions breached the settlement agreement. The adversary proceeding would not have a significant effect on the efficient administration of the bankruptcy estate, since the debtors' plan took effect more than seven years earlier. Moreover, state law issues predominated over bankruptcy issues, and the issues were straightforward contract issues. The court's jurisdictional basis rested solely on bankruptcy jurisdiction, furthermore, and the adversary proceeding was remote from the main bankruptcy case and was not a core proceeding In re Arnold, (Bkrtcy.M.D.N.C.) July 22, 2009: Jurisdiction - Court adopts middle approach in interpreting jurisdictional bar on trial of personal injury tort claims in bankruptcy court. A North Carolina bankruptcy judge has held that the term "personal injury tort claim," as used in a federal statute prohibiting bankruptcy courts from trying such claims, should not be interpreted so narrowly as to prevent a bankruptcy court from trying only claims involving some type of bodily injury, nor should it be interpreted so expansively as to preclude trial in bankruptcy court on a whole broad category of private or civil wrongs or injuries for which a remedy is provided in the form of an action for damages. The term should be interpreted to prevent a bankruptcy court from trying tort claims involving bodily and reputational harm while preserving its ability to try a claim that has the earmarks of a financial, business or property tort claim, or a contract claim, or that is designated as a personal injury tort by statute only. National Union Fire Ins. Co. of Pittsburgh, PA v. Porter Hayden Co., (D.Md.) July 22, 2009: Insurance - Liability policies' "suit seeking damages" language included claims submitted to debtor's asbestos claims facility. Under Maryland law, as predicted by the district court, the term "suit . . . seeking damages," as used in the coverage section of a Chapter 11 debtor- insured's liability insurance policies, which required the insurer to defend the debtor against any "suit . . . seeking damages," was not limited to complaints filed in a court of law but, rather, encompassed claims submitted to the Asbestos Bodily Injury Trust that had been created as part of the debtor's confirmed plan. Given the ambiguity arising from the policies' use of the term, the court would construe the policy language liberally in favor of the debtor, as the insured. Moreover, the claims in question sought damages for the debtor's liability. The claimants and the Trust thus had competing, even adversarial, interests, inasmuch as the claimants sought maximum damages and the Trust, which had a limited supply of funds, sought to minimize those damages. Finally, the court noted, the equities supported a broad reading of the term. In re National Century Financial Enterprises, Inc., (Bkrtcy.S.D.Ohio) July 22, 2009: Injunction - Preliminary injunction against prosecution of adversary defendant's state-court action was warranted. A preliminary injunction against the prosecution of an adversary defendant's state-court action against the adversary plaintiffs, which included an unencumbered assets trust created by the debtors' Chapter 11 liquidating plan, the trust's trustee, the trustee's principal, and counsel for the trust and trustee, was warranted. The adversary plaintiffs demonstrated a strong likelihood of success on the merits of their claim that the adversary defendant violated the Barton doctrine. The adversary defendant, in her action, sought to hold the adversary plaintiffs liable for their postpetition actions to liquidate the debtors' assets, which appeared to be within the adversary plaintiffs' official capacities and authority as officers of the bankruptcy court. Moreover, the adversary plaintiffs established irreparable injury, given the risk that they would be distracted from their duties to the estates' creditors, and given the adversary defendant's request that the state court enter an order setting aside the debtors' entire bankruptcy case, which threatened to directly contravene the bankruptcy court's confirmation order and the transactions effectuated thereunder. A preliminary injunction would not substantially harm the adversary defendant, moreover, and would serve the public interest. In re Ryan, (Bkrtcy.N.D.Ill.) July 22, 2009: Discharge - Nondischargeability complaint filed one day after original complaint was dismissed without prejudice was untimely. A nondischargeability complaint that judgment creditors filed one day after their original nondischargeability complaint was dismissed without prejudice as a sanction for the failure to comply with the bankruptcy court's final pretrial order was untimely. The complaint was not filed within 60 days after the first meeting of creditors, as required by rule, and the dismissal order did not grant the creditors leave to reinstate the complaint or extend the time within which to file a complaint. The creditors did not seek an extension of the filing deadline within the applicable time period, furthermore, and the dismissal without prejudice of the original complaint did not allow the creditors to file another complaint without complying with the filing deadline. In re Leech, (Bkrtcy.E.D.Wis.) July 22, 2009: Discharge - Debtor's "false oaths" in omitting assets from schedules were also a fraudulent "concealment" of assets. A Chapter 7 debtor's failure to disclose assets in bankruptcy schedules prepared within the year preceding the filing of his bankruptcy petition constituted a "concealment" of assets, within the meaning of a discharge exception. Thus, the omission supported a denial of the debtor's discharge based not only on his "false oaths," but under 11 U.S.C.A. 727(a)(2)(A). A bankruptcy judge in Wisconsin found that the debtor had acted with at least a reckless disregard for the truth in failing to schedule nearly $10,000 in jewelry which he had purchased using his credit card. In re Harvey, (Bkrtcy.W.D.Va.) July 22, 2009: Case Administration - Chapter 7 debtor could deduct payments on claims secured by property he meant to surrender under "means test." In performing the "means test" calculation to determine whether his Chapter 7 case was presumptively subject to being dismissed as an abuse of the provisions of that chapter, a debtor was entitled to deduct, as "amounts scheduled as contractually due to secured creditors," the payments that he was contractually obligated to make on the petition date on real property that he intended to surrender. The payments were "contractually due," despite the fact that the debtor, based on the fact that he would be surrendering the real property that secured the creditors' claims, did not intend to make them. In re Gallo, (C.A.7 (Ill.)) July 22, 2009: Bankruptcy Estate - Bankruptcy court properly granted turnover. A bankruptcy court properly granted a Chapter 13 debtor's motion for an order requiring his former wife to turnover an amount which she owed under an Illinois marriage dissolution judgment and which provided the major part of the funding of the debtor's Chapter 13 plan, despite the former wife's alleged inability to pay. In re Bosse, (Bkrtcy.D.Me.) July 22, 2009: Attorney Fees - Code provision dealing with priority of payment of administrative expenses did not trump confirmed Chapter 13 plan. Chapter 13 debtors who agreed, in their confirmed plan, to make monthly payments in a fixed amount on a secured claim were bound by this provision, and could not suspend their payments on the secured claim in order to pay the allowed administrative expense claim of their attorney for legal fees. A Code provision dealing with the priority of payment of administrative expenses 11 U.S.C.A. 1326(b)(1) did not trump the terms of the debtors' confirmed plan. Accordingly, the attorney's claim could be paid only out of the monthly excess left over after the promised payments on the secured claim, though this meant that counsel would not be paid in full until 14 months into the plan. In re Nelson, (Bkrtcy.D.Colo.) July 21, 2009: Plans - Residential mortgage lender had no "right" not to account to its borrower or not to disclose accrued fees and charges. A paragraph in a debtor's proposed Chapter 13 plan, which obligated a residential mortgage lender, on receipt of a statement from the trustee or debtor that indicating that the final cure payment had been made, to reply by indicating whether it agreed that the prepetition arrearage had been cured and by stating whether all payments necessary to maintain postpetition obligations had been made, in a responsive statement that included an itemization of any payments that it claimed were due to cure the arrearage or to maintain the postpetition payments, whereupon, if the trustee or debtor disagreed, they could move for a court hearing to determine the status of the mortgage loan, did not impermissibly modify the lender's rights in violation of 11 U.S.C.A. 1322(b)(2). The lender had no "right" not to account to its borrower or not to disclose accrued fees and charges. In re Janac, (Bkrtcy.S.D.N.Y.) July 21, 2009: Discharge - Any false statements by debtor as to events underlying her lawsuit did not preclude discharge of fee debt to former counsel. Any loss to an attorney that represented a Chapter 7 debtor in the prosecution of domestic violence claims on her behalf occurred, not as a result of any misstatement by the debtor as to alleged underlying acts of domestic violence, but as a result of her nonpayment of the attorney's bill, and absent any showing that the debtor's implied promise to pay the attorney's bill was false when made, the attorney could not prevail on nondischargeability claims grounded in the debtor's alleged "actual fraud," despite the attorney's testimony that he had relied on the debtor's false allegations of domestic violence in putting more than $50,000 of work into her case. Indeed, even assuming that the requisite nexus were shown to exist between the debtor's alleged misstatements and the attorney's loss, the attorney's decision to totally rely on the debtor's version of events, and to either forgo discovery or disregard its fruits, was not "justifiable," as required to satisfy the reliance element of 11 U.S.C.A. 523(a)(2)(A). Wisotzke v. Ontario County, (W.D.N.Y.) July 21, 2009: Bankruptcy Estate - Debtor's right to redeem property subject to New York in rem tax foreclosure was not extended by Bankruptcy Code. At the time of his Chapter 13 filing, the debtor had already been stripped of title to property by operation of the New York statute governing in remtax foreclosure proceedings and the resulting default judgment, which directed the transfer of possession and title from the debtor to the county. Thus, the debtor's right to redeem the property was not extended or resurrected by the Bankruptcy Code provision providing that default with respect to the debtor's primary residence could have been cured up to the time of a foreclosure sale conducted in accordance with nonbankruptcy law. The auction of the property was not a "foreclosure sale" within the meaning of the Bankruptcy Code provision, but rather was a "resale" of the property that occurred after the county had already acquired possession and title. In re Brobeck, Phleger & Harrison LLP, (Bkrtcy.N.D.Cal.) July 21, 2009: Avoidance - Alleged value was not provided "in exchange for" alleged constructively fraudulent transfer. Even assuming that the consideration which the partner defendants allegedly provided to a dissolved debtor/law firm on or after the amendment of the partnership agreement to waive the debtor's interest, on dissolution, in profits realized or to be realized from any unfinished partnership business, consisting of a right to receive profits on certain excluded matters, or of the assistance of the partners in billing and collecting pre-dissolution receivables, in assembling and returning client files, and in ensuring the orderly transition of client work, constituted "value," any such value was not provided "in exchange for" a waiver of debtor's right to profits, for constructive fraudulent transfer avoidance purposes. In the case of the right to receive profits on excluded matters, this was a right that the debtor already possessed, and that it did not receive in exchange for its waiver. Moreover, the partners' other activities were activities that they were ethically obligated to perform. In re MarchFIRST, Inc., (C.A.7 (Ill.)) July 21, 2009: Claims - Fax transmission was not permissible means of submitting proof of claim. A creditor's use of a fax transmission to submit its proof of claim was not a permissible means of submission. The notice of claims bar date, in emphasizing that the "original" proof of claim form had to be submitted, and in providing for submission only by mail or by hand, sufficiently manifested an intent to preclude faxed submissions. Furthermore, a Bankruptcy Rule permitting the court, in interest of justice, to order that a paper erroneously delivered "shall be deemed filed with the clerk or transmitted to the United States trustee as of date of its original delivery" applied only in situations in which a paper was delivered to an improper party. It could not be invoked by a creditor whose proof of claim was not misdirected, but which, prior to expiration of the claims bar date, failed to use a proper method to submit its proof of claim. In re Kreisler, (Bkrtcy.N.D.Ill.) July 21, 2009: Claims - Proof of claim on which principal obligor was continuing to make payments had to be disallowed. Regardless of whether a Chapter 7 debtor was treated as a guarantor or surety on bank debt for which he had agreed to be liable, a claim that a creditor had filed for the debtor's liability as guarantor/surety had to be disallowed. The bank, the principal obligor, had not defaulted and was continuing to make routine payments pursuant to the terms of the underlying promissory note. While Illinois law treats a surety as having primary liability, unlike the secondary liability of a guarantor, Illinois courts have long recognized that a surety is generally not liable on his undertaking unless his principal is liable and in default on the underlying debt. In re DCNC North Carolina I, LLC, (Bkrtcy.E.D.Pa.) July 21, 2009: Case Administration - While debtors acted in good faith in filing Chapter 11 cases, later events doomed their reorganization and merited dismissal. Chapter 11 cases that were filed by single asset real estate debtors on the eve of a deed of trust lender's foreclosure on its trust deeds could not be dismissed as not having been filed in "good faith," given evidence that, when the petitions were filed, prior to entry of an order dismissing the debtors' state court lender liability claims, the debtors had a reasonable belief not only that they could develop their properties and ultimately sell them for a sum sufficient to satisfy all claims, but that they might either succeed in compelling the lender to provide development financing or, at very least, succeed in reducing its claims and in thereby facilitating their reorganization through the development of the subject properties. However, dismissal of the lender liability claims and the lender's ability to block acceptance of any plan proposed by the unsecured class warranted dismissal based on the debtors' "inability to effectuate a plan." In re Cedar Funding, Inc., (Bkrtcy.N.D.Cal.) July 21, 2009: Bankruptcy Estate - Investors in alleged Ponzi scheme could not rely on "resulting trust" theory to remove property from estate. Investors in a company that its principal had allegedly operated as a Ponzi scheme, while purporting to sell fractionalized interests in deed of trust loans, were never intended to have any equitable interest in the deed of trust property, which was merely presented as security for their investments. Thus, they were not entitled to a resulting trust in the deed of trust property to remedy the company's failure to properly perfect their security interests and were at most entitled to equitable liens, any determination as to which, following commencement of the company's Chapter 11 case, had to take into consideration the Bankruptcy Code's policy of ratable distribution between creditors. Under California law, a resulting trust is a judicial recognition that parties' relationship is and was always intended to be that of trustee and beneficiary, not debtor and creditor, and for that reason, property subject to a resulting trust never belongs to the titleholder, and does not become property of the estate if the titleholder files for bankruptcy. In re Stewart, (Bkrtcy.N.D.Ind.) July 21, 2009: Avoidance - Debtor's schedules would not suffice as evidence of amount of senior debt in proceeding to "strip off" junior liens. A bankruptcy courtwould not accept, as evidence of the amount of the senior mortgage debt in an adversary proceeding brought by a Chapter 13 debtor to "strip off" junior mortgage liens, the amount of debt stated in the debtor's schedules as being owed to the senior mortgagee. Rather, to establish a prima facie case for strip off, as required for entry of default judgment in his favor based on junior lienholders' failure to appear or otherwise defend the strip off claims, it would be necessary for the debtor to establish the amount of claims of any priority creditors which were to be utilized in determining whether the inferior liens could be stripped off. In re Brokers, Inc., (Bkrtcy.M.D.N.C.) July 17, 2009: Claims - Debtor's use of forklifts to move tenant-auto dealer's vehicles breached duty of care under North Carolina law. A Chapter 11 debtor-landlord breached its duty, under North Carolina law, to conduct itself with ordinary care when, acting without permission to move its tenant-auto dealer's vehicles, the debtor used forklifts to remove the vehicles from the leased premises to another portion of its property that was not rented or used by the dealer, and should have known that the dealer's property would be injured by its conduct. The debtor's employees moved the vehicles with forklifts without wooden blocks or other means to protect the vehicles from the forks, and the employees transported the vehicles down a hill using forklifts with defective brakes. The vehicles were placed bumper to bumper in a lot next to a drainage pond, furthermore, and the employees saw, heard, and caused damage while moving the vehicles and yet continued to move additional vehicles in the same fashion. In re General Motors Corp., (Bkrtcy.S.D.N.Y.) July 17, 2009: Bankruptcy Estate - Proposed sale outside the ordinary course was not improper sub rosa Chapter 11 plan. A proposed sale outside the ordinary course of business of the assets of a bankrupt automobile manufacturer to a purchaser sponsored by the United States government was not an impermissible "sub rosa plan." The sales agreement did not dictate the terms of a Chapter 11 plan of reorganization by attempting to restructure the rights of creditors of the estate, but merely brought in value. Furthermore, the term "interest," as used in a bankruptcy statute providing for the sale of estate assets free and clear of any interest in such assets possessed by an entity other than the estate, was broad enough to include successor liability claims, so as to authorize assets of a bankrupt automobile manufacturer to be sold free and clear of successor liability claims. In re General Motors Corp., (Bkrtcy.S.D.N.Y.) July 17, 2009: Appeals - Sales order could not be stay pending appeal even if threat of equitable mootness was "irreparable injury." Even assuming that the mere threat of having an appeal from the bankruptcy court's sales order deemed "moot" was itself sufficient to constitute "irreparable injury," a stay of the sales order, that authorized a transfer of the assets of a bankrupt automobile manufacturer to a government-sponsored purchaser in advance of a loss of government funding necessary to stave off liquidation, was still not warranted in light of the appellants' minimal chances of success, given the circuit precedent against them, and the threat of injury to other parties and the public if the car manufacturer was forced to liquidate. In re Sharif, (Bkrtcy.N.D.Ill.) July 16, 2009: Removal - Cause of action could not be "removed" from federal district to bankruptcy court. A federal bankruptcy judge in Illinois has concluded that a cause of action that had previously been commenced in federal district court in Texas could not be "removed" to a bankruptcy court in Illinois, as a matter related to a bankruptcy case that was pending in that court. Interpreting the bankruptcy removal statute as authorizing removal from federal district to bankruptcy court would jeopardize the district courts' referral authority regarding bankruptcy matters. In re CK Liquidation Corp., (1st Cir.BAP (Mass.)) July 16, 2009: Professionals - Court properly determined that law firm employed as special counsel to trustee had no disqualifying conflict of interest. A Massachusetts bankruptcy court did not abuse its discretion or commit an error of law in determining that a law firm had no disqualifying conflict of interest and approving the firm's retention as special counsel to the Chapter 7 trustee to represent the estate with respect to the motion of a creditor alleging fraud by a different law firm which then served as counsel to the trustee, even though the first firm was represented by the second firm in litigation outside of the bankruptcy case. In response to an objection to the first firm's retention, the trustee had filed the affidavit of an attorney employed by the first firm describing in detail the connection between the firms. This affidavit indicated that neither of the two lawsuits in which the second firm represented the first firm involved bankruptcy issues or this case. In addition, the affidavit of an attorney employed by the second firm stated that, as the client, the first firm was not inhibited from pursuing the second firm, and that the current representation would not prohibit an investigation into, or the bringing of, any claims against the second firm. In re Burnett, (8th Cir.BAP (Ark.)) July 16, 2009: Plans - Confirmed plan did not limit former wife's right to collect accrued interest on support arrearages. Where the debtor's confirmed Chapter 13 plan, based on an agreement reached by the parties, dealt only with the principal amount of the support obligation arrearage that was owed by the debtor to his former wife on the petition date, and specifically reserved the right of the former wife to return to state court after completion of the bankruptcy plan to litigate the issue of accrued interest on the arrearage, the bankruptcy court erred in finding that the plan limited the former wife's right to collection of any amount found to be due to her for accrued interest. Moreover, to the extent the debtor had a continuing, postpetition obligation to pay spousal support to his former wife, the confirmed plan could not, and did not, affect that obligation. In re Washington Mut., Inc., (Bkrtcy.D.Del.) July 16, 2009: Discovery - "Pending proceeding" rule did not prohibit debtors' Rule 2004 examination of asset purchaser. The "pending proceeding" rule, which provides that, once an adversary proceeding or contested matter has been commenced, discovery is made pursuant to F.R.B.P. 7026, the bankruptcy rule governing discovery, rather than by a Rule 2004 examination, did not prohibit the Chapter 11 debtors' use of a Rule 2004 examination against the entity that had purchased the assets of the debtors' savings and loan association, a Delaware bankruptcy court has ruled. The debtors did not seek the discovery of evidence "related" to an adversary action in which the asset purchaser sought a series of declaratory judgments that it owned certain assets, as, with respect to their potential business tort claims against the purchaser, the debtors sought to investigate conduct occurring before the Office of Thrift Supervision (OTS) closed the association, whereas the purchaser's adversary action involved events occurring after the OTS closed the association. In addition, the adversary action did not seek an ownership determination as to potential assets the debtors sought to investigate in connection with their fraudulent transfer, turnover, or preference claims. Finally, to the extent that the debtors sought documents related to their suit against the Federal Deposit Insurance Corporation (FDIC), the purchaser was not a party to that action, though it had moved to intervene in it. In re Sun 'N Fun Waterpark LLC, (10th Cir.BAP (Okla.)) July 16, 2009: Claims - Oversecured lender's contractual right to attorney fees was not extinguished prepetition by merger with decree of foreclosure. A lender's contractual right to fees, costs and out-of-pocket expenses under the mortgage agreement between itself and a Chapter 11 debtor-borrower was not extinguished, pursuant to the Oklahoma law of merger, upon the entry of a prepetition decree of foreclosure. The debtor's bankruptcy filing prevent a foreclosure sale from occurring. Accordingly, as long as the fees, costs and out-of-pocket expenses sought by the lender were reasonable in amount, the lender could recover the same as a part of its allowed oversecured claim. In re Kirkland, (C.A.10) July 16, 2009: Claims - Lack of supporting documentation, and failure to explain same, warranted disallowance of proof of claim. A creditor, which failed to produce a single document to support its proof of claim and also failed to explain its failure to provide supporting documentation, failed to meet its burden of proof, thus warranting disallowance of its claim. Although the bankruptcy court took judicial notice of the Chapter 7 debtor's appended schedules of unsecured creditors, which included a credit card debt in the approximate amount of the debt listed on the creditor's proof of claim and associated with an account number ending with the same digits as that listed on the proof of claim, the bankruptcy court correctly determined that the schedules were of no evidentiary value against the objecting trustee. "Had the bankruptcy court allowed creditor's claim despite creditor's failure to provide either supporting evidence or an explanation for its failure to provide supporting evidence, the burden would have improperly rested with the Trustee to disprove an unsubstantiated claim," the Court of Appeals explained. In re Carpenter, (8th Cir.BAP (Minn.)) July 16, 2009: Bankruptcy Estate - Provision of Social Security Act protecting benefits from operation of bankruptcy laws was not mere exemption. A section of the Social Security Act providing that none of the monies paid or payable as social security benefits shall be subject to execution, levy, attachment, garnishment, or other legal process, "or to the operation of any bankruptcy or insolvency law," was not a mere exemption statute, from which a Chapter 7 debtor, having elected his federal bankruptcy exemptions, lost any right to benefit. Rather, the statute served to remove social security benefits which were previously paid to the debtor, and which he had maintained in a segregated fashion, from the "property of the estate." In re Barrows, (8th Cir.BAP (Minn.)) July 16, 2009: Bankruptcy Estate - Debtors who failed to disclose funds in bank account acted in bad faith, warranting denial of motion to amend exemptions. A Minnesota bankruptcy court did not err in finding bad faith on the part of the Chapter 7 debtors, as warranted the denial of their motion to amend their schedules in order to claim previously undisclosed funds as exempt. The debtors had listed the amount in their bank accounts at $325.00 when they knew that they had borrowed $17,000.00 from a 401(k) account and had deposited the loan proceeds into their bank account shortly before filing bankruptcy. The debtors, moreover, had been actively spending the loan proceeds postpetition. The fact that, because the funds could have been exempted had they remained in the 401(k) account, the debtors' actions did not result in harm to creditors did not change the result. In re San Patricio County Community Action Agency, (C.A.5 (Tex.)) July 16, 2009: Appeals - Lender's challenge on appeal to settlement approved by Bankruptcy Court was not barred by equitable mootness. A lender's challenge on appeal to a Bankruptcy Court's approval of a settlement of all adversary proceedings, including the lender's suit, in a Chapter 7 non-profit debtor's bankruptcy case, was not barred by equitable mootness. Although the lender did not obtain a stay of the order approving the settlement, the settlement was mostly, if not entirely, paid, and large portion of the settlement went to the state of Texas, with that money scheduled to be paid to other non-profits, there was no complex reorganization plan put into effect that would need to be unraveled if the settlement were set aside. Also, the lender's claim that its suit was not properly part of the bankruptcy estate in the first place was a legitimate argument. Admanco, Inc. ex rel. Polsky v. 700 Stanton Drive, LLC, (Wis.App.) July 15, 2009: Receivers - Tenant's receiver was entitled to security deposit and letters of credit proceeds to extent that amount exceeded statutory limits. A commercial tenant's receiver was entitled to recover a cash security deposit and proceeds from letters of credit issued for the benefit of the landlord to the extent that the amounts exceeded statutory limits on landlord's recovery to past due rent, and to any actual damage caused by a rejection of the lease by debtor. The Wisconsin Court of Appeals relied upon bankruptcy law for guidance in its interpretation of the statutory limits. The letters of credit were in the nature of a security deposit which was required to be returned upon satisfactory completion of the lease term. The letters of credit would automatically terminate. A letter of credit with a related reimbursement agreement secured by the debtor's assets could overwhelm the estate to the detriment of other creditors. In re Murray, (Bkrtcy.W.D.Mo.) July 15, 2009: Discharge - Creditors failed to demonstrate that debtor embezzled funds that were to be used for their home construction project. Creditors failed to establish that the Chapter 7 debtor, who worked for her husband's home construction company, either appropriated or engaged in fraudulent conduct with respect to funds that were to have been used for construction of creditors' home, as required to establish embezzlement under 11 U.S.C.A. 524(a)(4). There was no evidence that the debtor controlled the disposition of funds or directed that any funds be paid from the corporate account or her and her husband's personal joint account for specific projects. The debtor did not manage projects' schedules, order materials and supplies, direct the payment of funds, or make the company's day-to-day decisions. Instead, the debtor's participation in the creditors' project was only ministerial, as she would prepare draw requests and deposit slips at her husband's request. Finally, the accounts in question were accessible by both the debtor and her husband, and the creditors failed to show that the subject funds were in fact not used to pay for work on their project. Lawrence v. Goldberg, (C.A.11 (Fla.)) July 14, 2009: Professionals - Barton doctrine applied to prevent suit against trustee, trustee's professionals and creditor that bank-rolled trustee. Barton doctrine applied to prevent a Chapter 7 debtor who had been held in contempt and incarcerated for failing to comply with the bankruptcy court's turnover order from pursuing, without the bankruptcy court's prior approval, a civil action against the Chapter 7 trustee, the trustee's court-approved attorneys, including individual attorneys in firms that served as general and special counsel to the trustee, investigators retained with the bankruptcy court's approval to assist the trustee in locating estate assets, and a creditor that, pursuant to a court-approved financing arrangement, had agreed to finance the trustee's efforts to bring property into the Chapter 7 estate, for allegedly violating the debtor's civil rights in connection with their collection efforts. Each of the parties sued functioned as the equivalent of a court-appointed officer. In re Probulk Inc., (Bkrtcy.S.D.N.Y.) July 14, 2009: Jurisdiction - Trustee made out prima facie case of personal jurisdiction over foreign insurers for preliminary injunction purposes. The termination, by foreign insurers, of the insurance of corporate Chapter 7 debtors due to an insolvency event would have an immediate, substantial, direct, and foreseeable impact on the United States debtors that the Bankruptcy Code's automatic stay and anti-forfeiture provisions were designed to prevent, and would also subvert the interest of the United States in administering the bankruptcy proceedings of domestic corporations in one forum. Therefore, the interim trustee made out a prima facie case that the bankruptcy court had personal jurisdiction over the insurers that provided the debtors with world- wide protection and indemnity coverage in connection with the debtors' maritime operations for the purposes of the trustee's motion for preliminary injunction against the purported termination of the debtors' insurance. In re Casarotto, (Bkrtcy.W.D.Mo.) July 14, 2009: Debtor Protections - State did not violate discharge injunction merely by refusing to release tax lien. The state had a legitimate reason for refusing to release a tax lien that it claimed in property that a Chapter 7 debtor-taxpayer owned as a tenant by the entireties with her husband pending determination of the lien's validity. Thus, its mere refusal to release the lien, absent evidence of any attempt by the state to collect a discharged prepetition tax debt, did not violate the discharge injunction. The lien, to the extent valid, provided a possible source for recovery of taxes in the event that the debtor sold the property. In re Wilhelm, (Bkrtcy.D.Idaho) July 14, 2009: Debtor Protections - Financial institutions were not "real parties in interest" with right to seek stay relief as to mortgaged property. Parties moving for relief from the stay to enforce the debtors' obligations under mortgage notes did not have a right to enforce the notes under governing Idaho law, and were not "real parties in interest" with the ability to seek stay relief, on the theory that they were "holders" of the notes. None of the notes was payable to any movant, nor were the notes endorsed, whether in blank or specifically to a movant. Moreover, the movants were not "real parties in interest" on the alternate theory that they were "nonholders in possession." They presented no evidence that they were in possession of the notes and, even if they were, they failed to establish the transactions by which they validly acquired any such possession based on copies of assignments signed by a loan servicer that was not shown to have authority to transfer the mortgage notes. In re Berg, (Bkrtcy.E.D.Pa.) July 14, 2009: Claims - Debtor-taxpayer failed to overcome presumption of correctness attaching to IRS's denial of business deductions. The mere fact that a Chapter 7 debtor-taxpayer was admittedly engaged in business and must have incurred some deductible business expenses was insufficient, absent any evidence from the debtor establishing a basis on which to estimate what these deductible business expenses were, to overcome the presumption of correctness that attached to the Internal Revenue Service's (IRS's) denial of all business expenses claimed. The issue arose in connection with the debtor's objection to a proof of claim filed by the IRS. In re Nealen, (Bkrtcy.W.D.Pa.) July 14, 2009: Case Administration - Chapter 13 debtor was not entitled to waiver of credit counseling requirement based on his disability or inability to pay. A Chapter 13 debtor's physical impairments, consisting of a torn rotator cuff and back problems, did not rise to the level of "disability," such as rendered him unable, despite reasonable effort, to participate in credit counseling and warranted a waiver of this counseling requirement. The debtor's impairments did not prevent him from traveling extensively between counties to attend numerous hearings or from conducting legal research over the Internet. So too, the debtor's professed inability to pay for the costs of credit counseling did not warrant a waiver of the counseling requirements. There was nothing in the record to suggest that the debtor ever asked a non-profit credit counseling agency to provide him with service on an in forma pauperis and/or reduced fee basis, let alone that any such request was improperly denied. In re Colleen, Inc., (Bkrtcy.D.Md.) July 13, 2009: Removal - Court had to abstain from hearing removed state law claims between non-debtors. A bankruptcy court had to abstain from hearing, pursuant to the mandatory abstention provision, a removed state court action brought by an issuer of money orders that a Chapter 11 debtor was in the business of selling against banks where the debtor did business, for the banks' alleged conversion in improperly using trust funds of the money order company to satisfy their own claims against the debtor. The proceeding involved purely state law claims, over which the court could exercise only "related to" but not "core" jurisdiction. The claims could not have been commenced in a federal forum but for the debtor's Chapter 11 filing. Moreover, the case could be tried in state court within one year of its being remanded. In re Jenkins, (Bkrtcy.N.D.Ind.) July 13, 2009: Professionals - Chapter 13 debtor is proper party to pursue unliquidated prepetition claim against third party. A Chapter 13 debtor is a proper party to pursue an unliquidated prepetition claim against a third party, although the claim is pursued for the benefit of the bankruptcy estate, and not for the debtor individually. However, a Chapter 13 debtor seeking to pursue such a claim via the employment of counsel other than the debtor's Chapter 13 bankruptcy counsel must obtain court approval, based upon an application by the debtor which conforms to the requirements stated in the statute governing the trustee's employment of professional persons and the corresponding rule and is served upon the Chapter 13 trustee and the United States Trustee. In re Journal Register Co., (Bkrtcy.S.D.N.Y.) July 13, 2009: Plans - Prepetition "gift" by lenders did not cause Chapter 11 plan to violate "equal treatment" provision. A provision in the debtors' proposed Chapter 11 plan, whereby undersecured prepetition lenders with security interests in substantially all of the debtors' assets proposed to fund, as a "gift" to trade creditors whose good will was essential to the postconfirmation success of the debtors' business, an additional distribution that other creditors who had been lumped with these trade creditors in the general unsecured class would not be receiving, did not violate a Code provision requiring that the plan must "provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment." All creditors in the general unsecured class were to receive the same distribution of roughly 9%, and any additional payment to trade creditors was to come, not from the estate, but from the prepetition lenders. In re DBSI, Inc., (Bkrtcy.D.Del.) July 13, 2009: Leases and Contracts - Compelling rejection is proper remedy for debtor's nonperformance of obligations under unexpired lease. A bankruptcy statute requiring the trustee to timely perform all obligations of the debtor under any unexpired lease of nonresidential real property, until the lease was assumed or rejected, did not automatically entitle the lessor to an administrative expense claim for any obligations not timely performed by the trustee or debtor-in-possession. Disagreeing with other bankruptcy court decisions to the contrary, a bankruptcy judge in Delaware held that the appropriate remedy, if a debtor's obligations under a lease went unperformed, was to cause the lease to be rejected in a timely fashioned manner. In re Waring, (Bkrtcy.N.D.Ohio) July 13, 2009: Discovery - Protective order would not issue to prevent disclosure of allegedly confidential information in papers filed with court. A creditor that had been directed by the bankruptcy court to file with the court a copy of the agreement between itself and another company that had agreed to provide administrative loan default services to the creditor in connection with a debt owed by the Chapter 7 debtors failed to satisfy its burden of showing that any of the information in this agreement, whether information regarding the identity of corporate officers of this other company who were authorized to sign the agreement or to receive notices on its behalf, information as to the types of insurance that the company was required to carry, or pricing information as to what the company charged for specific services, were in the nature of "trade secrets" or "confidential commercial information" deserving of the bankruptcy court's protection. While the pricing information was the type of information that, under appropriate facts, might qualify for protection, the creditor's position was undercut by the fact that the same type of information, including pricing details and services provided, had been in disclosed in another bankruptcy case. In re Hodges, (Bkrtcy.D.Kan.) July 13, 2009: Discharge - Payday lender failed to demonstrate that debtor obtained loan fraudulently and with false pretenses. A payday lender failed to demonstrate, for nondischargeability purposes, that the Chapter 13 debtor obtained her payday loan fraudulently and with false pretenses. Although the debtor filed for bankruptcy less than a month after the date of this payday loan and was contemplating bankruptcy prior to the date of the loan, it was undisputed that the debtor paid the lender $120.00 in interest over four months. The debtor's conduct in making bi-weekly interest payments did not evidence a fraudulent intent. The debtor paid the principal in full and almost 50% annual percentage rate (APR) interest. The debtor did not steal anything from the lender, the court reasoned, but was simply unable to afford the loan at 391% interest. In re Schoen, (Bkrtcy.W.D.Okla.) July 13, 2009: Discharge - Debtor's failure to remit health insurance check to hospital was not "willful and malicious injury." A Chapter 7 debtor was not shown to have acted with any intent to injure a hospital, or with the subjective belief that injury was substantially certain to follow, in endorsing over to his wife living in a different state the health insurance check that he had agreed to remit to the hospital for medical care previously provided to his wife. The debtor had endorsed prior checks, and the wife had remitted them to the hospital. Accordingly, the debtor's debt to the hospital could not be excepted from discharge on a "willful and malicious injury" theory. In re Buck, (Bkrtcy.E.D.N.C.) July 13, 2009: Discharge - Debtor-farmer's conversion of lender's collateral was in nature of "willful and malicious" injury. A Chapter 7 debtor's conversion of a lender's collateral, in allowing his brother to keep a portion of the crop proceeds that should have been remitted to the lender, and in trading in a tractor that secured the lender's claim for another tractor without notice to the lender, were in the nature of "willful and malicious" injuries, for dischargeability purposes. That the debtor had acted with knowledge of the wrongfulness of his acts could be inferred, for purpose of satisfying "malicious" element of the dischargeability exception, from the fact that the debtor never informed the lender that crop proceeds were being used to cover this alleged debt to the brother, and from the fact that the debtor continued to list the tractor that he had traded-in on documents provided to the lender even after the trade-in. In re Cox, (Bkrtcy.D.Kan.) July 13, 2009: Claims - Assignee was entitled to equitable mortgage on homestead even though debtor-wife's signature on mortgage had been forged. Under Kansas law, the assignee of a note and mortgage was entitled to an equitable mortgage on the Chapter 13 debtors' homestead property, even though the debtor-wife's signature on the mortgage had been forged. It was undisputed that the debtors jointly consented to the mortgage, the bankruptcy court reasoned. The debtors were not cheated, but received the loan, monthly payments, interest rate, and cashed-out equity they had requested in exchange for a lien on their home. The forgery thus caused no harm to the debtors, but benefited them. To deny the assignee an equitable mortgage would have provided the debtors a windfall and charged the assignee in excess of $101,600.00 as a punitive fine for the act of an unknown forger. In re Helmick, (Bkrtcy.W.D.Va.) July 13, 2009: Claims - Unsecured judgment lien could not be stripped off by debtor. A judgment lien, though wholly unsecured, was properly perfected and valid in substance. The lien thus could not be stripped off by the debtor pursuant to the statute generally rendering void a lien securing a claim that was not an allowed secured claim. In re Sneijder, (Bkrtcy.S.D.N.Y.) July 13, 2009: Claims - Debtor's retention of title warranted denial of motion to expunge second mortgagee's proof of claim. Even though a Chapter 13 debtor intended to surrender property serving as collateral as a part of her plan, title to the property remained vested in the debtor until the property was actually sold pursuant to a foreclosure sale and the second mortgagee continued to have a secured claim against the debtor. This necessitated the denial of the debtor's motion to expunge the second mortgagee's proof of claim. In re Moffitt, (Bkrtcy.E.D.Ark.) July 13, 2009: Claims - Claims of discharged Chapter 13 debtors against mortgage creditor fell within court's "arising under" jurisdiction. The claims that discharged Chapter 13 debtors asserted against a mortgage creditor, alleging violations of the automatic stay and the discharge injunction and challenging the fees that were paid to the creditor through the debtors' bankruptcy estate under the bankruptcy statutes and bankruptcy rule governing the allowance of claims, the determination of secured status, and the reimbursement of expenses, were based on provisions of the Bankruptcy Code. The claims thus fell within the court's "arising under" jurisdiction. The court lacked "related to" jurisdiction, however, over the debtors' claims against the creditor under federal non-bankruptcy law and state law, given that the debtors' bankruptcy case had closed and no bankruptcy estate remained. In re Clemente, (Bkrtcy.D.N.J.) July 13, 2009: Case Administration - Court avoids deciding whether "income" provision of Chapter 11 violates Thirteenth Amendment. A bankruptcy judge in New Jersey has applied the doctrine of constitutional avoidance in order to avoid the necessity of having to rule on the constitutionality of a provision added to Chapter 11 by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which required individual Chapter 11 debtors to devote their future income to the payment of creditors under the plan. Concerns were raised, in a Chapter 11 case in which a trustee had been appointed and in which the debtor thus lacked to ability to voluntarily dismiss, as to whether the income provision violated the Thirteenth Amendment prohibition against involuntary servitude. However, the court treated the debtor's motion to convert as a request to terminate the trustee for the limited purpose of converting the case and granted such relief. In re Eagle Creek Subdivision, LLC, (Bkrtcy.E.D.N.C.) July 13, 2009: Case Administration - Debtors' situation was not one of rare situations calling for substantive consolidation of different estates. A bankruptcy court would not exercise its general equitable powers in order to order the substantive consolidation of the separate Chapter 11 estates of limited liability companies (LLCs) established to develop one specific tract of land in different parts of North and South Carolina. With the possible exception of individual investors, parties had dealt with the debtors as separate single purpose entities, and there was no cross-collateralization between development projects. Furthermore, the debtors' records were fairly accurate concerning how funds were disbursed, and their records did not present the degree of hopeless entanglement on which to base substantive consolidation. In re Dutkiewicz, (6th Cir.BAP (Mich.)) July 13, 2009: Bankruptcy Estate - Meeting of creditors was "concluded" on the date it was initially held, and so trustee's exemption objection was untimely. Under either the bright-line or the case-by-case approach, a 341 meeting of creditors was "concluded" on the date it was initially held, even though the Chapter 7 trustee then requested a copy of the debtor's divorce judgment and did not file his Report of First Meeting Held until approximately two months after that date. Therefore, the trustee's objection to the debtor's claim of exemptions, which also was filed about two months after the meeting date, was untimely. Although the delay of approximately two months between the initial meeting and the filing of the trustee's report was relatively short, the trustee did not announce an adjourned date within 30 days from the initial meeting date, nor did the trustee state clearly that he was keeping the meeting open. Instead, the trustee merely expressed the possible need for further questioning or investigation, thus creating ambiguity in a case in which the estate was not complex and the debtor was cooperative. In so ruling, the Sixth Circuit Bankruptcy Appellate Panel (BAP) rejected the "debtor's burden" approach to determining whether a meeting of creditors was concluded or adjourned, but declined to adopt either the "bright-line" or the "case-by-case" approach. In re Rome Family Corp., (Bkrtcy.D.Vt.) July 13, 2009: Bankruptcy Estate - Title to propane tank system on debtor's property passed prepetition, when system was delivered and installed. Under Vermont's version of the Uniform Commercial Code (UCC), as predicted by a Vermont bankruptcy court, title shifts to a buyer of goods upon the delivery of such goods, by operation of law, even when the parties have explicitly agreed that title will remain in the seller post-delivery. This result was compelled by the statutory language and the overwhelming weight of authority, the bankruptcy court concluded, even though the approach might punish a seller of goods who acted in good faith and relied upon candid representations of the party with whom it was contracting. Thus, title to a propane tank system that was installed prepetition on a Chapter 7 debtor's property by a gas company passed by operation of law when the system was delivered and installed, even though the debtor and the gas company orally and explicitly agreed that the gas company would retain title to the system until it was paid for by the debtor, and even though the gas company contended that trade usage supported its ownership claim. The gas company was left only with a reservation of a security interest, which it failed to perfect as of the date of the trustee's sale of the debtor's assets. Therefore, the assets buyer acquired the system free and clear of any lien or interest of the gas company. In re Wahl, (Bkrtcy.S.D.Ohio) July 13, 2009: Avoidance - Mortgage was invalid under Ohio law and could be avoided by trustee under his strong-arm powers. Under Ohio law, a mortgage acknowledgment clause that omitted the name of the borrower-husband, but had the borrower-wife's name typed out, and contained no evidence establishing that the notary public acknowledged the borrower- husband's signature did not substantially comply with an Ohio statute requiring that the signature of a mortgagor be acknowledged by a notary public and that the notary public certify the acknowledgment. Therefore, the mortgage was invalid and unrecordable as to the borrower-husband's undivided one-half interest in the property and could be avoided by a Chapter 7 trustee, acting as a hypothetical bona fide purchaser without constructive notice of the mortgage pursuant to the Bankruptcy Code's strong-arm statute. It did not matter that both borrowers were listed on the mortgage's first page, both signed the mortgage, and both initialed every page of the mortgage. In re Portrait Corp. of America, Inc., (Bkrtcy.S.D.N.Y.) July 13, 2009: Abstention - Court would abstain from hearing postconfirmation dispute between non-debtors as to meaning of court's sales order. A bankruptcy court would exercise its discretion to permissively abstain from hearing a postconfirmation dispute between a purchaser of the Chapter 11 debtor's assets and another non-debtor party suing it in another forum for its alleged trademark infringement, though the purchaser, by way of defense to these trademark infringement claims, asserted that the infringement claims were barred by language in the bankruptcy court's sales order stating that the sale would be "free and clear of any prepetition or postpetition liens, claims, encumbrances, defenses and interests." The issues raised by the dispute overlapped significantly with those before the federal district court in the trademark infringement action and could be decided by the district court. The dispute was only tangentially related to the debtor's bankruptcy, and commencement of the proceeding in bankruptcy court raised more than a suggestion of forum shopping. In re Kozich, (Bkrtcy.S.D.Fla.) July 10, 2009: Sanctions - Chapter 7 debtor's conduct warranted restrictions on debtor's ability to make pro se filings in bankruptcy court. A Chapter 7 debtor's conduct in filing an adversary complaint for an alleged violation of the automatic stay when he was aware that the state appellate court had vacated its stay order prior to his filing and when he knew, or should have known, that he had no standing to bring the claim warranted the imposition of restrictions barring the debtor from filing any adversary proceeding or contested matter in the bankruptcy court on a pro se basis without prior court approval, pursuant to the bankruptcy court's inherent powers and powers under the statute allowing for the entry of orders necessary or appropriate to carry out the provisions of the Bankruptcy Code. The debtor's actions in filing the adversary proceeding were in bad faith, the arguments raised in the complaint were knowingly or recklessly frivolous, and the filing and pursuit of the litigation were undertaken for the purpose of harassing the defendants. The bankruptcy court indicated that it would not tolerate the debtor's continuing abuse of the parties who had "the misfortune of litigating against him in state court." In re Taylor, (Bkrtcy.E.D.Pa.) July 10, 2009: Professionals - Head of law firm that represented mortgagee would be subject to nonmonetary sanctions for attorneys' Rule 9011 violations. Nonmonetary sanctions would be imposed against the head of a law firm that had represented a mortgage lender in a Chapter 13 case, a Pennsylvania bankruptcy court has determined. Two of the firm's attorneys had violated Rule 9011 by advocating a misleading stay motion and by failing to make reasonable inquiry before signing documents, the court noted. The head of the firm was the one who set the firm's tone and established its culture, which appeared to value production over professionalism. Accordingly, this individual would be required to obtain training in the electronic information system used by the firm to obtain mortgage loan-related information, to spend a day observing the firm's bankruptcy attorneys, paralegals, managers, and processors as they handled referrals, and to provide training to members of the firm's bankruptcy department in appropriate use of a client's "escalation" procedure and the requirements of Rule 9011 with respect to pre-filing due diligence. In re Philadelphia Newspapers, LLC, (E.D.Pa.) July 10, 2009: Injunction - Issuing preliminary injunction against prosecution of state-court action against non-debtors was not abuse of discretion. The issuance of a preliminary injunction against the prosecution, by state- court plaintiffs, of a defamation action against non-debtors who were the chief executive officer and reporters, editors, and employees of a Chapter 11 debtor- newspaper company and related debtors was not an abuse of the bankruptcy court's discretion. There were no grounds to conclude that the debtors did not have a reasonable likelihood of reorganization. In addition, the continuation of the state action would distract from the reorganization process, and further delay in that process would cause irreparable harm and have an adverse effect on the debtors' reorganization efforts. Moreover, the balance of relative harm tipped in the debtors' favor, particularly since the state action would be stayed for a relatively short period of time, and the balance of the public interest also favored issuing the injunction. In re Moffitt, (Bkrtcy.E.D.Ark.) July 10, 2009: Discharge - Chapter 13 debtors stated claim for violation of discharge injunction. Chapter 13 debtors stated a claim for violation of the discharge injunction when they alleged that a mortgage loan servicer applied a portion of the trustee's final payment to the loan servicer to improper undisclosed fees and charges which were incurred during the pendency of the debtors' case and thus were included in the debtors' discharge. In so holding, the Arkansas bankruptcy court recognized a split of authority on the issue of whether undisclosed fees and charges incurred during a debtor's bankruptcy case are discharged, even though long-term debts provided for under the Bankruptcy Code's anti- modification statute are not discharged. The court emphasized, however, the debtors' burden of showing that the charges should have been included in their discharge and were not legitimate charges that should have survived discharge. In re Figler, (Bkrtcy.W.D.Pa.) July 10, 2009: Discharge - Judgment against one pirating satellite television services was entitled to preclusive effect on nondischargeability issue. A judgment previously entered against a Chapter 13 debtor in a federal district court action brought by a satellite television provider to recover for the debtor's unauthorized interception of its satellite signal and for his possession and use of devices designed to facilitate this illegal activity was entitled to issue preclusive effect in a subsequent proceeding to except the judgment debt from discharge as one for the debtor's "larceny." The district court's judgment established that the debtor had misappropriated satellite television services for his own benefit, and that he did so with fraudulent intent. In re Wells, (Bkrtcy.N.D.Ohio) July 10, 2009: Claims - Alleged assignee did not establish its right to enforce mortgage note. The unendorsed copies of a mortgage note that were attached to a proof of claim filed on behalf of an alleged assignee of the mortgage debt were insufficient to show that the alleged assignee was a "holder" of the note, with a right to receive payment thereon. Under Ohio law, while the negotiation of a promissory note is complete only upon the transfer of physical possession thereof, possession alone does not establish that the party in possession is a "holder" of note, with a right to receive payments thereon. In re Quillen, (Bkrtcy.D.Md.) July 10, 2009: Bankruptcy Estate - Deadline for objecting to debtor's claimed exemptions was not reset in converted case. The conversion of an individual Chapter 11 case to a case under Chapter 7 triggered the need for a new meeting of creditors, based on the plain terms of the bankruptcy statute dealing with the effects of conversion. Nonetheless, this new meeting did not reset the deadline for objecting to debtor's claimed exemptions to a date 30 days after the conclusion of the second meeting of creditors, at least not in a case in which, shortly prior to the appointment of a Chapter 7 trustee, the debtor filed an amended exemption schedule and thereby provided parties in interest with an opportunity to challenge his claimed exemptions in the converted case. The deadline expired 30 days after the amended exemption schedule was filed, as the later of 30 days after the conclusion of the meeting of creditors in the Chapter 11 case or 30 days after the debtor's amendment of the exemption schedule. In re Conner, (Bkrtcy.W.D.Va.) July 10, 2009: Bankruptcy Estate - Reservation of right to issue notice of assets did not affect when meeting of creditors was "held." A Chapter 7 trustee's reservation of the right to issue a notice of assets for an indefinite period after the first meeting of creditors took place did not affect the fact that the meeting was "held," as that term was used in a Virginia statute governing Virginia householders exemption rights in bankruptcy and requiring such householders, in order to have a homestead exemption that was enforceable in bankruptcy, to file a homestead deed no more than five days after the first meeting of creditors was "held," when the meeting was concluded without being adjourned to any future date. Accordingly, when the debtor failed to file a homestead deed within five days of this date, she was not entitled to a homestead exemption in bankruptcy. In re Ruiz, (Bkrtcy.E.D.Cal.) July 10, 2009: Bankruptcy Estate - Debtors were not judicially estopped from amending their schedules to exempt previously undisclosed property interest. Chapter 7 debtors gained no advantage based upon their original schedules, which omitted an interest held by the debtors in real property, and nothing had occurred in the debtors' case to give the perception that the bankruptcy court was misled by the original schedules or that the integrity of judicial process was compromised. Therefore, the debtors were not judicially estopped from amending their schedules to include the omitted property interest and claim an exemption therein. Although the bankruptcy court acknowledged the trustee's frustration with the debtors' failure to disclose their interest in the property at the initial meeting of creditors, it opined that the meeting of creditors was not necessarily a place where debtors could or would think clearly. It also declined to expand the bases for objecting to exemptions to include the doctrine of judicial estoppel. In re Clarke, (Bkrtcy.E.D.N.Y.) July 9, 2009: Professionals - Party could qualify as "bankruptcy petition preparer" even if he never intended for documents to be filed with court. A paralegal, who had graduated from law school but was not licensed as an attorney, prepared bankruptcy petitions "for filing," and qualified as a "bankruptcy petition preparer," regardless of whether he intended for the documents that he prepared to be filed with the court, or merely to be used as preliminary drafts by the attorney who paid his fee to assist the attorney and the debtors in the preparation of final petitions. Intent on part of the document preparer that the documents that he prepared be filed with the bankruptcy court was not an element of the definition of "bankruptcy petition preparer." In re Beimel, (Bkrtcy.W.D.Pa.) July 9, 2009: Discharge - Mere forbearance by creditors was not itself an "extension of credit," within meaning of dischargeability exception. The mere fact that the securities which a Chapter 7 debtor had touted as an allegedly "sound" investment later became worthless was insufficient, without more, to show that the debtor's representations were false when made, let alone that the debtor knew his representations were false, or that he made them with the requisite intent to deceive, of a kind required by the "false pretenses, false representation or actual fraud" dischargeability exception. Moreover, his subsequent nondisclosures, all of which postdated the investors' purchase of these securities, could not have enabled him to obtain any money, property, services or credit, within the meaning of this dischargeability exception. Investors' mere forbearance in not taking steps to recover on securities that they had previously purchased was not of itself an "extension of credit," within the meaning of the dischargeability exception. Educational Credit Management Corp. v. Jesperson, (C.A.8 (Minn.)) July 9, 2009: Discharge - Debtor who could afford income contingent payments for which he was eligible could not discharge student loan debt. A 43-year-old debtor-attorney who had a current monthly surplus in his income of $900 was not entitled to an undue hardship discharge of his more than $350,000 in student loan debt, given undisputed evidence that the debtor was eligible for the income contingent repayment program (ICRP), and that his required payments thereunder, at a rate of $629 per month, were payments that he could afford. The mere fact that, due to the size of the debtor's student loan debt, his monthly payments might not keep pace with interest, and that the debt would grow over the ICRP's 25-year repayment term was not a sufficient reason for granting the debtor an "undue hardship" discharge of this debt, especially where the debtor sought such a discharge near the start of his legal career, without having made a single payment on his loans out of the disposable income that he enjoyed. In re Lamb, (Bkrtcy.N.D.Fla.) July 9, 2009: Debtor and Creditor - Debtor failed to state claim against lender for wrongful garnishment. The facts alleged by a Chapter 7 debtor-borrower did not "nudge" her claims from conceivable to plausible, as required to state a claim against a lender for wrongful garnishment under Florida law, a Florida bankruptcy court has held. The propriety of the lender's state-court judgment against the debtor was undisputed, and the fact of the undisputed judgment entitled the lender to pursue execution by garnishment. Florida law did not require affirmative action on behalf of the lender to negative an exemption on behalf of the debtor, and so the fact that the debtor filed a letter of response in the state-court action indicating that she was a "single mother with kids" did not negate the lender's probable cause to file the garnishment proceeding. Finally, although the garnishment proceeding was stayed by the filing of the debtor's "Suggestion of Bankruptcy," that filing in no way terminated the state-court action in favor of one party over the other, or in any way passed upon the merits of the action, and so the debtor failed to demonstrate a bona fide termination. In re Sundale, Ltd., (Bkrtcy.S.D.Fla.) July 9, 2009: Claims - Court could not deny contractual default interest to oversecured creditor based on equities of case. An oversecured creditor's contractual right to default interest was enforceable under Florida law, and could not be denied by a bankruptcy court in the exercise of its equitable powers based on such considerations as the reasonableness of the rate specified, or whether the default rate amounted to a penalty. Indeed, even assuming that it was appropriate for the bankruptcy court, in ruling on the debtor's objection to default interest claimed by an oversecured creditor, to consider equitable factors, the court would not disallow such interest based on the equities of the case, given that the Chapter 11 debtor had repeatedly indicated that all creditors would be paid in full. Cobb v. Aurora Loan Services, LLC, (E.D.Cal.) July 9, 2009: Bankruptcy Estate - Debtor was no longer the "real party in interest" for the prosecution of her prepetition lawsuit. Following her bankruptcy filing, a Chapter 7 debtor-borrower was no longer the "real party in interest" for the prosecution of her prepetition lawsuit against the trustee and the servicer of her loan, and so the defendants' motion to dismiss the lawsuit would be granted. It was undisputed that the transactions giving rise to the debtor's lawsuit occurred before she filed her bankruptcy petition. The debtor did not otherwise allege that her claims were exempt from the bankruptcy estate. Finally, neither the debtor's alleged disclosure of the complaint to the bankruptcy trustee, nor any oral assurances she allegedly received that the trustee anticipated abandoning those claims, were apparent from the bankruptcy court's docket. In re Lunkes, (Bkrtcy.N.D.Ill.) July 9, 2009: Bankruptcy Estate - Trust in which debtor had interest was not spendthrift trust exempted from bankruptcy estate. A trust in which a Chapter 7 debtor had an interest was not a spendthrift trust under Illinois law. Therefore, the debtor's interest in the trust was not exempted from his bankruptcy estate. The trust directed the trustee to distribute the trust property, without discretion, upon the settlor's death, such that the debtor had an immediate right to a distribution under the trust when the settlor died, even though that the distribution had not occurred. Moreover, the debtor possibly had the authority to alienate the trust corpus or his interest in the trust, despite language in the trust purporting to restrict the debtor's ability to alienate and creditors' ability to attach the trust corpus, in light of language indicating that the anti-alienation provision did not limit the exercise of any power of appointment. In re Bremer, (10th Cir.BAP (Colo.)) July 9, 2009: Avoidance - Trustee who avoided and recovered liens for benefit of estate was not also entitled to money judgments against creditors. Where a Chapter 7 trustee's avoidance of creditors' untimely perfected liens on the debtors' motor vehicles as preferences automatically preserved the liens for the benefit of the estates under 11 U.S.C.A. 551, the section of the Bankruptcy Code providing for automatic preservation of avoided transfers, and thus had the same effect as recovering those liens under 550(a), the section of the Code governing liability of transferees of avoided transfers, the bankruptcy court did not abuse its discretion in determining that the trustee's preservation and recovery of the liens sufficed to place the estates in their pre-transfer positions. Therefore, the trustee was not also entitled to the recovery of money judgments against the creditors for the value of the avoided liens. In re QSI Holdings, Inc., (C.A.6 (Mich.)) July 9, 2009: Avoidance - Payments made to shareholders in connection with leveraged buyout of privately held securities were "settlement payment." Payments that made to a corporate debtor's shareholders in connection with the leveraged buyout of privately held securities qualified as a "settlement payment" for the purposes of the bankruptcy statute generally barring a trustee's avoidance of prepetition margin and settlement payments made by or to a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency. Ruling on the issue as a matter of first impression in its circuit, the Sixth Circuit Court of Appeals explained that the transaction had the characteristics of a common leveraged buyout involving the merger of nearly equal companies, and that nothing in the statute indicated a congressional intent to restrict the statute's protection to publicly traded securities. The Court of Appeals also noted that there was no reason to conclude that unwinding the settlement would have less of an impact on the financial markets than a settlement involving publicly traded securities. In re SemCrude, L.P., (D.Del.) July 9, 2009: Appeals - Bankruptcy court's interlocutory procedures order was not appealable as of right as amounting to denial of injunction. Creditors whose motion for injunctive relief to protect the alleged resof a trust was essentially mooted by debtors' agreement to suspend tracing requirements as of the petition date, which eliminated the risk of dissipation of the trust's res, could not appeal as of right, as an order that had the practical effect of denying them an injunction, a bankruptcy court's procedures order, pursuant to which the court had refused to hear creditors' request for injunctive relief. Under the circumstances, the bankruptcy court's refusal to consider the propriety of injunctive relief did not have the requisite serious, perhaps irreparable, consequences for creditors. In re City of Vallejo, (9th Cir.BAP (Cal.)) July 8, 2009: Case Administration - Municipality was not eligible for Chapter 9 relief on "good faith negotiation" theory. To satisfy the second alternative eligibility requirement for Chapter 9 relief 11 U.S.C.A. 109(c)(5)(B), that it must have "negotiated in good faith with creditors," it was not enough that a municipality, prior to filing its Chapter 9 petition, had engaged in good faith negotiations with labor unions that represented municipal employees regarding the alteration of its collective bargaining agreements (CBAs). Rather, these negotiations had to concern the terms of a possible plan of adjustment. It will be difficult for a municipality to prove that it has "negotiated in good faith with creditors," as required by this second alternative eligibility requirement, unless the municipality has a plan of adjustment drawn or at least outlined when it negotiates with creditors In re Enron Creditors Recovery Corp., (Bkrtcy.S.D.N.Y.) July 8, 2009: Avoidance - Payments debtor made to redeem its commercial paper were not "settlement payments" under "safe harbor" provision. Pro rated payments which a Chapter 11 debtor made, in its capacity as the issuer of short-term commercial paper, upon the early redemption of this paper by investors were for the retirement of its underlying debt on this paper, rather than for the purchase thereof, and did not qualify as "settlement payments," of a kind protected from avoidance by the trustee or debtor-in- possession by the "safe harbor" provision of the Code 11 U.S.C.A. 546(e). This was particularly true given that these payments, at prices established by pro rating the amount that would be due at maturity to the payment date, were in amounts well above those at which the paper was trading at the time. In re Emanuel, (Bkrtcy.S.D.N.Y.) July 7, 2009: Witnesses - "Good cause and compelling circumstances" did not exist for allowing testimony by video teleconferencing. "Good cause and compelling circumstances" did not exist for allowing an 80- year-old disbarred attorney who had acted as special counsel to a Chapter 7 trustee, prior to being disbarred and replaced as special counsel, to testify by video teleconference in support of his fee request for services provided prior to his replacement as special counsel. The attorney did not assert that he was unable, by virtue of his advanced age or any physical disability, to travel to New york to testify on open court, and specifically offered to do so if the bankruptcy court granted him immunity from arrest. He sought permission to testify by video teleconference based solely on his status as a fugitive, who had fled New York in order to avoid punishment meted out by a New York state trial judge and affirmed unanimously by the Appellate Division. In re Peanut Corp. of America, (W.D.Va.) July 7, 2009: Withdrawal of Reference - Reference to bankruptcy court would be withdrawn of interpleader action that was non-core adversary proceeding. A stakeholder's interpleader adversary proceeding, filed as an insurer of a Chapter 7 debtor to determine allocation of proceeds of a directors' and officers' policy in anticipation that demands for payment would exceed the aggregate liability limit, warranted a discretionary withdrawal of reference to the bankruptcy court for cause shown. The interpleader action was a non-core bankruptcy proceeding that neither invoked a substantive right provided by the Bankruptcy Code nor arose, by nature, only in the context of a bankruptcy case. Withdrawal would more efficiently use the parties' resources, promote judicial economy, and preserve the right to jury trial on state-law counterclaims by insured debtor's former director and officer. In re Larsen, (Bkrtcy.E.D.Wis.) July 7, 2009: Professionals - No "exceptional circumstances" existed, such as might warrant appointment of counsel to represent Chapter 7 debtor. No "exceptional circumstances" existed, such as might warrant appointment of counsel to represent a financially strapped Chapter 7 debtor the control of whose assets had previously passed to a state court receiver appointed by the court to collect past due child support. The order appointing the receiver was not reviewable in bankruptcy court, and any cause of action that the debtor might have against the receiver for any alleged malfeasance belonged to the trustee, such that the appointment of counsel to represent the debtor would be redundant. Finally, as shown by the quality of the debtor's pleadings, he was capable of adequately representing himself. In re Walker, (Bkrtcy.D.Minn.) July 7, 2009: Discharge - Debtor's decision to have children after incurring student loan debt did not affect dischargeability thereof. A 42-year-old Chapter 7 debtor with five children, two of whom had been diagnosed with autism and needed significant care from the debtor, which prevented her from holding more than very casual, low-hour, part-time employment without a significant degree of on-job responsibility, was entitled to an "undue hardship" discharge of her more than $300,000 in student loan debt. It did not matter that the debtor's husband, the chief wage-earner for the family, may have elected, less than two years prior to commencement of the nondischargeability proceeding, to take out a $50,000 loan to place a screened- in deck on the family home and may have purchased a new motor vehicle. So too, the mere fact that the debtor, a Roman Catholic, had not practiced birth control and had "elected" to have five children, two of whom were diagnosed with autism, after incurring hundreds of thousands of dollars in student loan debt was not a permissible basis for denying the debtor an undue hardship" discharge of this debt based on her life choices. In re Clark, (Bkrtcy.E.D.Ark.) July 7, 2009: Debtor Protections - Mortgagee's inconsistent conduct warranted relief from ex parte order lifting automatic stay. A mortgagee's inconsistent conduct in state and federal bankruptcy court in, on the one hand, seeking to have the debtor evicted from the mortgage property in reliance upon an ex parte order lifting the automatic stay based on debtor's failure to make certain agreed payments in a timely fashion while, on the other, receiving full payment on its claim through the Chapter 13 trustee was an "exceptional circumstance," of a kind warranting a grant of the debtor's motion to set aside the ex parte order and reinstate the automatic stay nunc pro tunc to the date that the nunc pro tunc order was entered. However, the debtor would be barred from pursuing a damages claim against the mortgagee based on any actions that it took while the ex parte order was in effect. In re SNTL Corp., (C.A.9 (Cal.)) July 7, 2009: Claims - Unsecured creditors may claim attorney fees incurred postpetition based on prepetition contract with debtor. The Ninth Circuit Court of Appeals has concluded that unsecured creditors may claim attorney fees incurred postpetition based on a prepetition contract with the debtor. The parties' execution of a prepetition agreement containing an attorney fees provision gives rise to a contingent, unliquidated attorney- fee claim. The Court noted that the Bankruptcy Code provision dealing with the determination of a claim's secured or unsecured status and with what may be included in oversecured claim 11 U.S.C.A. 506 does not provide an additional ground for the allowance/disallowance of unsecured claims, which is governed exclusively by a separate Code provision. In re Racing Services, Inc., (C.A.8) July 7, 2009: Claims - Reversal of claimant's criminal conviction warranted relief from equitable subordination order. Regardless of whether the reversal of the criminal conviction on which a bankruptcy court had relied as evidence of a claimant's inequitable conduct provided a basis for granting the claimant's motion for relief from an order equitably subordinating his claim under a provision of the Federal Rule of Civil Procedure authorizing such relief from judgment when it is "based on an earlier judgment that has been reversed or vacated," relief was authorized on the separate theory that prospective application of this subordination order was no longer equitable. Braunstein v. McCabe, (C.A.1 (Mass.)) July 7, 2009: Bankruptcy Estate - Transaction involving use of estate asset to reduce value of another estate asset was not in ordinary course. A transaction by which individual Chapter 7 debtors expended insurance proceeds that were one of the few assets of the jointly administered estate of a bankrupt holding company in order to pay for the costs of dismantling a houseboat that was the other major asset of the holding company's estate, and to thereby make it less valuable as an estate asset, in preparation for reconstruction work that was never accomplished, did not come within the ordinary course of business of the debtor/holding company. Thus, individual debtors' obligation for the turnover of insurance proceeds would not be reduced by proceeds expended on this dismantling work. In re Rucker, (C.A.9 (Cal.)) July 7, 2009: Bankruptcy Estate - Court did not clearly err in finding that funds were not established primarily for retirement purpose. A bankruptcy court did not clearly err in finding that so-called "employee retirement plans" established for a judgment debtor's benefit by his wholly- owned corporations were not used primarily for retirement purposes but to shelter the debtor's assets from liability on a judgment creditor's multimillion dollar civil judgment, and in sustaining the judgment creditor's objection to the state law exemption in account funds claimed by the debtor. Evidence was presented of the debtor's violation of various Internal Revenue Service (IRS) rules in the amounts contributed to the plans, as well as that plan contributions exceeded the debtor's salary from the corporations. Furthermore, the debtor admitted that he never intended to pay another cent on the creditor's "black hole" judgment. In re Odom, (Bkrtcy.D.Colo.) July 6, 2009: Plans - Presumptive approach for calculating "projected disposable income" is inapplicable when Chapter 13 debtor's income rises. A bankruptcy judge in Colorado has held that Lanning's presumptive approach to calculating "projected disposable income" that a Chapter 13 debtor must devote to the payment of unsecured claims, under which a debtor's "projected disposable income" is presumed to be his or her historically-based current monthly income (CMI) absent a showing of a substantial change in circumstances, is inapplicable when the debtor's projected discretionary income, as set forth on the income schedule, is greater than his or her CMI. In such cases, an above-median-income debtor must pay the net of his or her Schedule I income minus the standardized "means test" deductions, without the need for any showing of a change in circumstances, in order to ensure that the debtor pays unsecured creditors what he or she can afford. In re Moore, (Bkrtcy.E.D.Va.) July 6, 2009: Discharge - Law school violated discharge injunction by withholding bankrupt student's degree and transcript. A law school, in refusing to issue a final transcript or degree to a bankrupt student who had completed his course work and satisfied all the educational requirements for obtaining a degree, and in refusing to certify the student's graduate status, unless he first paid a tuition debt that had been discharged in bankruptcy, engaged in conduct whose only purpose was to collect a discharged prepetition debt. Accordingly, inasmuch as the school had received notice of the student's Chapter 7 discharge before it engaged in this conduct, contempt sanctions could be entered against it for willfully violating the discharge injunction. A bankruptcy judge in Virginia found that a $10,000 fine was appropriate unless the school timely issued a degree and transcript. In re United Artists Theatre Co., (Bkrtcy.D.Del.) July 6, 2009: Discharge - Factual issues precluded summary judgment on issue of whether debtor provided notice of its case to potential claimants. Material issues of fact existed as to whether, consistent with due process, a Chapter 11 debtor provided notice of its bankruptcy case to the then-putative class members in a prepetition state-court class action brought against the debtor pursuant to the Telephone Consumer Protection Act. These factual issues precluded a partial summary judgment for a class member on this question in its action to have the discharge order entered in the debtor's favor declared null and void as to the pursuit and collection of the state-court judgment against the debtor. In re Sunbelt Grain WKS, LLC, (Bkrtcy.D.Kan.) July 6, 2009: Claims - Lender's secured claim was not equitably subordinated to claim of unsecured buyer of lots of corn for which it prepaid. There was no evidence that the secured lender for a Chapter 7 debtor, an operator of grain elevators, engaged in fraud, breached its fiduciary duty, or controlled the debtor. Thus, the lender's claim could not be equitably subordinated to the unsecured claim of a feedyard operator that prepaid the debtor for corn lots which the debtor did not deliver. In re Mal Dunn Associates, Inc., (Bkrtcy.S.D.N.Y.) July 6, 2009: Claims - Doctrine of equitable mootness applied to bar relief sought by creditor in requesting clarification of court orders. The doctrine of equitable mootness applied to bar the relief sought by a creditor, which requested a clarification that orders entered in the debtor's Chapter 11 case did not preclude it from prosecuting its state-court action against the debtor's president. The creditor received timely notice of a global settlement, the debtor's disclosure statement, the Chapter 11 plan, and the confirmation order, but did not object to the release provisions in the plan and confirmation order until more than one year after the entry of the confirmation order and the plan's effective date. Sustaining the creditor's belated challenge to the plan and confirmation order, moreover, would be inequitable and unfair to the president, who claimed to have fully complied with the global settlement in reliance upon the continuing validity and effectiveness of the release provisions in the confirmation order and plan. In re Marshall, (8th Cir.BAP (Ark.)) July 6, 2009: Case Administration - Chapter 13 debtor unfairly manipulated Bankruptcy Code and was operating in bad faith, supporting dismissal of case. A Chapter 13 debtor, despite making significant payments to creditors throughout her various bankruptcy cases, unfairly manipulated the Bankruptcy Code and was operating in bad faith. Thus, the dismissal of her case for bad faith was warranted. The debtor failed to comply with more than one strict compliance order, and had a pattern of making unsuccessful filings on the eve of foreclosure. The debtor also had a history of filing excessive motions throughout her bankruptcy cases, and had refiled her petition to circumvent a strict compliance order in her preceding bankruptcy case. In re Scott Cable Communications, Inc., (Bkrtcy.D.Conn.) July 6, 2009: Case Administration - Conversion, rather than dismissal, of Chapter 11 case was warranted. The best interests of creditors and the bankruptcy estate would be served by the conversion of a debtor's Chapter 11 case to one under Chapter 7, rather than dismissal, due to the debtor's inability to effectuate a plan. A related proceeding was pending in another bankruptcy court and would resolve the last remaining administrative task in the debtor's case. In re Cook, (Bkrtcy.S.D.Ohio) July 6, 2009: Bankruptcy Estate - Disability benefits traceable into federal income tax refund retained their exempt character under Ohio law. Under Ohio law, as predicted by a federal bankruptcy court in Ohio, a federal income tax refund that a Chapter 7 debtor received as a result of the overwithholding of otherwise exempt Ohio Public Employee Retirement System (OPERS) disability benefits payable to the debtor prepetition was likewise exempt, as traceable to these exempt OPERS disability benefits. The breadth of the state law exemption R.C. 145.56, 2329.66(A)(10)(a) and the policy of liberally construing Ohio exemptions in favor of debtors counseled in favor of extending the exemption to a federal tax refund into which the benefits could be traced. In re Bostwick, (Bkrtcy.D.Minn.) July 2, 2009: Plans - Chapter 13 debtor's "household" was all persons, related and unrelated, who occupied same housing unit. A Chapter 13 debtor who was living in the same single-family home with an unrelated individual with whom she shared expenses was entitled to claim a household of two, and could look to the median income level for a family of two living in that locality in determining whether she was an above- or below- median-income debtor, for purpose of deciding, not only how she was to calculate her expenses to determine her "projected disposable income," but whether she had to propose a 36-month or 60-month plan. It did not matter that the debtor's roommate was an unrelated individual. The term "household," as used in pertinent provisions of the Code, had to be given the same definition utilized by the Census Bureau, as referring to all people, related and unrelated, who occupied a housing unit. In re Jensen, (Bkrtcy.C.D.Cal.) July 2, 2009: Case Administration - "Totality of the circumstances" test cannot be applied in a manner inconsistent with the "means test." A Chapter 7 case filed by debtors who were paying $4,446 per month on an $800,000 home, along with $396 per month on a motor home and $760 per month on a boat, would not be dismissed, based on the totality of the debtors' financial circumstances, as an abuse of the provisions of Chapter 7. The debtors incurred these secured obligations at least two years prior to their bankruptcy filing, at a time when their income was sufficient to support them, and there were no other indicia of abuse. While a "totality of the circumstances" analysis allowed the court to refine its prior "means test" estimate, it did not permit the court to dismiss based solely on the amount of debtors' secured debt payments, as this would be inconsistent with a provision of the "means test" granting debtors a deduction for "amounts scheduled as contractually due to secured creditors." The "totality of the circumstances" test cannot be applied in a manner inconsistent with the "means test." In re Richardson, (Bkrtcy.W.D.N.Y.) July 2, 2009: Case Administration - Case would not be dismissed based on debtor's failure to timely file all but her last pay advice from employer. A Chapter 7 case would not be dismissed under the "automatic" dismissal provision based on the fact that the debtor, within 45 days of the petition date, filed a payment advice only for the payment period immediately preceding the petition date. This payment advice provided year-to-date totals covering the requisite 60-day period. The advice did not contradict other "information" provided by debtor and allowed a determination of the debtor's pay during the applicable 60-day period. Finally, the debtor had acted in good faith and later supplied the missing payment advices, albeit four days after expiration of this 45-day deadline. In re Grove-Merritt, (Bkrtcy.S.D.Ohio) July 2, 2009: Avoidance - Debtor's initial transfer of one-half interest in property was not fraudulent as to creditors. A Chapter 7 debtor's transfer of a one-half interest in real property which she owned outright after her divorce, to allow the transferee, her paramour and former law school professor, to obtain refinancing in his own name in order to save the property from foreclosure, was not avoidable by the trustee in the exercise of her strong-arm powers as actually fraudulent to creditors under Ohio law. It did not matter that the transfer was surrounded by multiple badges of fraud, including the debtor's retention of possession, the fact that the transfer occurred in face of pending foreclosure, and the fact that the debtor was insolvent at the time. While the confluence of these badges shifted to the transferee the burden of establishing that the debtor received a benefit or that the transfer served some legitimate purpose, he demonstrated not only a legitimate purpose but value to the debtor, in the form of being relieved of any liability on the preexisting mortgage debt, which was paid off by a loan that the paramour obtained solely in his own name. In re Bresnick, (Bkrtcy.E.D.N.Y.) July 2, 2009: Attorney Fees - Chapter 11 debtor's counsel could not be compensated for legal services performed after trustee's appointment. A court's previous grant of authorization to an individual Chapter 11 debtor-in-possession to employ a law firm as counsel to the debtor-in- possession terminated, together with the debtor's status as debtor-in- possession, upon appointment of a Chapter 11 trustee. Thus, the law firm was not entitled to be compensated from the estate for any legal services which it performed after the trustee's appointment. The fee provision of the Code 11 U.S.C.A. 330(a)(1) does not authorize compensation awards to debtors' attorneys from estate funds, unless they are employed as authorized by a separate Code provision 327 governing the employment of estate professionals. In re Ponce, (Bkrtcy.M.D.Pa.) July 1, 2009: Plans - "Projected disposable income" is forward-looking concept, that should not be equated with "disposable income." A bankruptcy judge in Pennsylvania has held that "projected disposable income," such as a Chapter 13 debtor must devote to the payment of unsecured claims in order for a plan that results in less than a 100% distribution on such claims to be confirmed over the objection of the trustee or an unsecured creditor, is a forward-looking concept, that should not be equated with the historically-defined term "disposable income." Rather, "projected disposable income" must be interpreted in a way that allows the court, in certain circumstances, to consider information beyond the debtor's disposable income as determined on the "means test" form. In re New Century TRS Holdings, Inc., (D.Del.) July 1, 2009: Plans - Proposed Chapter 11 plan was unfairly discriminatory in violation of plan confirmation requirement. A multi-debtor protocol which Chapter 11 debtors had negotiated with creditors holding the same claim against more than one debtor, and which was included in the joint liquidating plan that the debtors had proposed, which required such creditors to waive the claims that they had to a distribution in one class in exchange for a 130% distribution on the claim that they possessed in the other class, unfairly discriminated in favor of these creditors and against other creditors in class from which the 130% distribution was made without these other creditors' consent, in violation of 11 U.S.C.A. 1123(a)(4). It did not matter that the overall effect on creditors receiving this 130% distribution may have been negative, and that the creditors receiving this 130% distribution may have consented to this "negative" treatment. In re Verilink Corp., (Bkrtcy.N.D.Ala.) July 1, 2009: Plans - General reservation of claims language in confirmed plan was insufficient to preserve claims. Legal malpractice, breach of fiduciary duty, and aiding and abetting claims that the trustee of a liquidating trust established under a corporate debtor's confirmed Chapter 11 plan sought to assert against a law firm that had represented the debtor prepetition in connection with a corporate acquisition that allegedly precipitated its bankruptcy filing were barred by the res judicata effect of the debtor's confirmed plan, as claims which were known to the debtor and which could have been asserted preconfirmation, and for which the plan did not specifically provide as being among the claims retained for prosecution by liquidating trustee postconfirmation. General reservation language in the plan was insufficient to avoid the res judicata effect of the plan confirmation order. In re Pilgrim's Pride Corp., (Bkrtcy.N.D.Tex.) July 1, 2009: Case Administration - UST would be directed to appoint official committee of equity holders in Chapter 11 cases of possibly solvent debtors. The United States Trustee (UST) would be directed to appoint an official committee of equity holders in corporate debtors' jointly administered Chapter 11 cases. The debtors were not clearly insolvent, and there was the possibility of a return to equity holders. Moreover, neither the debtors' current management nor an ad hoc committee of equity holders could adequately represent shareholders' interests, especially given the complexities of these jointly administered cases. Finally, the costs of an official committee to the estate could be contained by requiring the committee to adhere to a budget. In re Marshall, (Bkrtcy.D.Mass.) June 30, 2009: Plans - Chapter 13 debtors could take "secured debt" deduction for payments on wholly unsecured junior mortgage debt. Above-median-income Chapter 13 debtors, in performing a "means test" calculation to determine the "projected disposable income" available for payment of unsecured claims, were entitled to deduct, as "amounts scheduled as contractually due to secured creditors," the payments that they were contractually obligated to make on the petition date to a junior mortgagee whose lien was wholly unsupported by any equity in the mortgage property over and above the amount of the senior mortgage debt. It did not matter that the debtors, on the same date they filed their amended plan, also filed a motion to "strip off" the junior mortgage lien and proposed to treat the junior mortgagee as unsecured creditor in their plan. In re Armenakis, (Bkrtcy.S.D.N.Y.) June 30, 2009: Avoidance - Creditor could challenge debtor's right to exemption for lien avoidance purposes despite failing to timely object. Due to a judgment lien creditor's failure to timely object to the increased homestead exemption claimed by a Chapter 7 debtor in liened property, the debtor became entitled to this increased exemption by default, despite the fact that the New York statute increasing the homestead exemption amount went into effect after commencement of her bankruptcy case. Nonetheless, the creditor could still contest whether the debtor "would have been" entitled to an increased exemption on the petition date for purposes of defending the debtor's motion to avoid its lien on exemption-impairment grounds. In re Atari, (Bkrtcy.E.D.Va.) June 29, 2009: Debtor Protections - Repeat filer's motion for imposition of stay did not prevent creditor from seeking "comfort order." The mere fact that a Chapter 13 debtor who had more than two prior cases pending within the preceding one-year period had filed a motion for entry of an order imposing a stay, based on her purported good faith in filing her current petition, did not prevent the creditor from seeking a "comfort order" that as a result of the debtor's prior petitions, both of which were dismissed, no automatic stay arose. The entry of the comfort order would be without prejudice to the debtor's pending motion for imposition of an automatic stay. In re Bryan, (10th Cir.BAP (Colo.)) June 29, 2009: Claims - Debtor, as nonparty to settlement agreement, had no right to designate how settlement proceeds were applied. A Chapter 13 debtor, as a nonparty to a settlement agreement, had no right to designate how settlement proceeds were applied by a creditor holding separate judgments against both the debtor and his wholly-owned corporation, jointly and severally, and against the corporation. The creditor could elect to apply the settlement proceeds to the satisfaction of its judgment against the corporation, thereby leaving the joint judgment against both the debtor and the corporation intact. The settlement proceeds represented the only source for the payment of the corporate judgment, and this allocation served to maximize the creditor's potential return. The issue arose on the debtor's objection to the creditor's proof of claim. In re Ellis, (Bkrtcy.E.D.Va.) June 29, 2009: Case Administration - Court would not exercise whatever authority it had to allow withdrawal of Chapter 13 petition filed in bad faith. Even assuming that a bankruptcy court had authority to permit a Chapter 13 debtor to withdraw her bankruptcy petition, and assuming that there was a meaningful difference between withdrawal of the petition and dismissal of the case, and that withdrawal would have less adverse impact on the debtor, the court would not exercise its authority to allow withdrawal but would instead enter an order dismissing the case. There was evidence that the debtor had filed her petition in bad faith in an attempt to continue avoiding the payment of obligations to her ex-husband, obligations that she had the financial ability to pay. The debtor moved to withdraw her petition, as serving no purpose, immediately after entering into a settlement agreement with her former spouse. In re Rodriguez, (Bkrtcy.E.D.Va.) June 29, 2009: Bankruptcy Estate - Debtors could not claim entireties exemption in motor vehicles. Under Virginia law, motor vehicles may not be held in a tenancy by the entirety. Thus, Chapter 7 debtors could not claim an entireties exemption therein. A specific statute prohibiting the issuance of a tenancy by the entirety certificate of title West's V.C.A. 46.2-622 controlled over a Virginia statute generally permitting spouses to hold personal property by the entireties West's V.C.A. 55-20.2(A). In re Brown, (Bkrtcy.M.D.Fla.) June 29, 2009: Bankruptcy Estate - Debtors were receiving benefit of Florida homestead exemption and not entitled to enhanced personal property exemption. Chapter 7 debtors were "receiving the benefits of a homestead exemption," and were thus not entitled to the enhanced personal property exemption accorded by the Florida legislature to debtors who neither claim nor "receive the benefits of a homestead exemption." The debtors proposed to retain their overencumbered residential property and had entered into reaffirmation agreements with respect to the mortgage debt. The mere fact that the debtors had not claimed a Florida homestead exemption was an insufficient basis for according them an increased personal property exemption, absent any evidence that the trustee was likely to administer the property, by attempting to negotiate a short-sale and carve-out with mortgage lenders. In re Kruse, (Bkrtcy.N.D.Iowa) June 26, 2009: Plans - Chapter 13 plan unfairly discriminated in favor of long-term student loan debt. A debtor's proposed Chapter 13 plan unfairly discriminated in favor of long- term student loan debt and could not be confirmed, though the debtor asserted that the discrimination was necessary to prevent interest from accumulating at an undue rate on the student loan over the pendency of her Chapter 13 case and thereby jeopardizing her fresh start. The debtor's proposed monthly payment of $250 on the student loan debt was less than the rate at which interest was accruing, so that the student loan debt would rise over the life of the plan in any event. Moreover, the debtor, by treating the student loan debt with the other unsecured debt, could increase the dividend to unsecured creditors from 5.02% to 20.64%, while reducing the dividend to the student loan creditor by less than 6%. Penthouse Media Group, Inc. v. Pachulski Stang Ziehl & Jones LLP, (S.D.N.Y.) June 26, 2009: Judgment - Court could not conclusively determine res judicata effect of fee order on legal malpractice claims. Genuine issues of material fact as to whether a Chapter 11 debtor, despite its bankruptcy counsel's repeated assurances that notice of the rejection bar date was properly served on the counterparties to the debtor's executory contracts, should have known that this was not the case based solely on a claim asserted by one such counterparty shortly prior to the hearing on the counsel's final fee application, and as to whether the debtor had a full and fair opportunity to raise counsel's deficient performance in failing to serve the notice at this fee hearing, precluded entry of summary judgment for counsel on the debtor's subsequent legal malpractice claims. The court could not determine as a matter of law whether the claims were barred by the res judicata effect of the bankruptcy court order approving counsel's fee. In re Adam, (Bkrtcy.E.D.Va.) June 26, 2009: Discharge - Bank's reliance on debtor's materially false financial statements was not reasonable in light of "red flags." A bank did not "reasonably rely" on a Chapter 7 debtor's materially false financial statements in making loans, and the debtor's loan obligations could not be excepted from discharge even though he submitted the financial statements with the requisite intent to deceive. There were various "red flags" in the financial statements which, if investigated by the bank, would likely have alerted it to the fact that assets listed as being owned by the debtor individually were held by the entireties and would also have revealed that the debtor's individual net worth was substantially less than stated and substantially less liquid. In re Demesones, (Bkrtcy.E.D.Va.) June 26, 2009: Case Administration - In performing "means test" calculation, Chapter 7 debtors could deduct payments on collateral to be surrendered. In performing a "means test" calculation to determine whether their Chapter 7 petitions were presumptively subject to being dismissed as an abuse of the provisions of Chapter 7, debtors were entitled to deduct, as "amounts scheduled as contractually due to secured creditors," the payments that they were contractually obligated to make on the petition date on debt secured by collateral that they intended to surrender. It did not matter that the debtors, as a result of their surrender of the collateral, would not actually be making payments on this secured debt. In re Warren, (C.A.9 (Cal.)) June 26, 2009: Case Administration - Court could excuse debtor's failure to file requisite financial disclosures after deadline had already expired. A bankruptcy court had authority, despite a Code provision requiring "automatic dismissal" of a case 45 days after the order for relief if the debtor failed to file the requisite financial disclosures mandated by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), to excuse a Chapter 7 debtor's failure to comply with this comprehensive financial disclosure requirement, pursuant to a separate Code provision requiring the debtor to provide disclosures only if the court did not "order otherwise." The court possessed such authority to excuse the debtor's noncompliance with his financial disclosure obligations and to deny the debtor's motion to sua sponte dismiss the bankruptcy case after the trustee discovered assets that he could administer, despite the fact that, when the debtor filed his dismissal motion, this 45-day deadline had already expired, in order to prevent the debtor from abusing the bankruptcy system. In re Fort Worth Osteopathic Hosp., Inc., (Bkrtcy.N.D.Tex.) June 26, 2009: Abstention - Bankruptcy court would exercise its jurisdiction to abstain from hearing removed state court action. Even assuming that it could exercise "related to" jurisdiction over a removed state court action brought by a probate estate that had previously obtained a judgment against the debtor-hospital for its medical malpractice in connection with the testator's death, to recover from a third party that administered a trust created by the debtor-hospital in lieu of purchasing liability insurance based on the third party's role in the depletion of trust assets, the bankruptcy court would exercise its discretion to permissively abstain from hearing the proceeding. The proceeding was in the nature of a state law dispute between non-debtor parties that was only tangentially related to the bankruptcy case, and the probate estate had requested a jury trial. In re Old Carco LLC, (Bkrtcy.S.D.N.Y.) June 25, 2009: Leases and Contracts - Chapter 11 debtor-car manufacturer and affiliated debtors could reject contracts and leases of automobile dealers. A Chapter 11 debtor-car manufacturer and its affiliated debtors exercised sound business judgment in deciding to reject the executory contracts of certain domestic automobile dealers, which resulted in the requisite benefit to bankruptcy estates and thus would be authorized. The rejection of the contracts and leases removed the debtors' burden of postpetition performance and gave the affected dealers claims against the bankruptcy estates. In addition, the rejection's acceleration of the rationalization of the debtors' dealership network served the debtors' needs to remain within their debtor-in-possession budget and fulfill lender commitments. Moreover, the need for the rationalization of the dealership network was acknowledged by the dealers, and no evidence supported the affected dealers' assertions of bad-faith rejection decisions. In re Szenda, (Bkrtcy.D.Mass.) June 25, 2009: Leases and Contracts - Cross-default provision did not broaden debtor's "cure" obligation with respect to assuming lease. Subleases that a Chapter 13 debtor executed six years apart for the operation of franchised fast food restaurants at two separate locations were not part and parcel of the same bargain, regardless of the inclusion of a cross-default clause by which the franchisor sought to integrate them. Thus, the that debtor, as prerequisite to assuming the sublease for the profitable location, did not first have to cure a monetary default related to his operation of the second restaurant. Nonetheless, the sublease could not be assumed unless the debtor also assumed the corresponding franchise agreement. In re Eccles, (8th Cir.BAP (Mo.)) June 25, 2009: Discharge - Debtors' silence regarding intended use of loan proceeds was "false representation." A bankruptcy court did not clearly err in finding that, regardless of whether Chapter 7 debtors, in connection with a loan from friends in the precise amount which the debtors allegedly needed to renovate six separate properties for resale, and which was intentionally broken down into six promissory notes in equal amounts secured by deeds of trust on each of these six properties, had ever expressly told friends that the loan proceeds would be used only for purpose of renovating the properties, the debtors' silence in failing to disclose their acknowledged intent, from the time that the proceeds were advanced, to use them for other purposes was a nondisclosure of a material fact. It constituted a "false representation," of a kind required to except their resulting debt from discharge on an "actual fraud" theory. In re Jasinski, (Bkrtcy.W.D.Pa.) June 25, 2009: Claims - Creditors that file timely proofs of claim prior to conversion of case need not refile postconversion. Claims for which creditors had filed timely proofs of claim prior to the conversion of the debtor's Chapter 7 case to one under Chapter 13 could not be disallowed solely because the creditors failed to file new proofs of claim following conversion. The creditors were under no obligation to refile, especially where their previously filed claims had been acknowledged as "undisputed" on the debtor's bankruptcy schedules. In re Pandl, (Bkrtcy.S.D.Ohio) June 25, 2009: Case Administration - Chapter 7 case filed by debtors whose housing expense was 1.75 times that allowed by IRS guidelines was abusive. A Chapter 7 case that was filed by debtors who, by eliminating their monthly contributions to an employee retirement plan and their monthly payments on a loan from the plan, by reducing their tax withholding to the extent it was excessive, and by giving up a home in which they had no equity and which required them to spend 1.75 times the monthly housing expense allowed by Internal Revenue Service (IRS) guidelines, had the ability to pay 61% on their unsecured debt had to be dismissed, based on the totality of circumstances of their financial situation, as abusive. The mere fact that, if debtors sold a residence that was already financially "under water," they might incur a deficiency balance was no excuse for their continuing to pay a monthly housing expense that was 1.75 times the Internal Revenue Service (IRS) housing allowance for a family of their size, for purposes of deciding whether the totality of circumstances of their financial situation demonstrated that their Chapter 7 petition was abusive. In re Neal, (Bkrtcy.E.D.Mich.) June 25, 2009: Avoidance - Unperfected mortgage, for which affidavit of lost mortgage was filed, could be avoided by trustee. A Michigan statute allowing a party to file an affidavit of facts pertaining to demographic facts relating to the parties named in real estate instruments does not allow a party to file an affidavit of lost mortgage as a substitute for the original for recordation purposes. Even if recorded, an affidavit of lost mortgage does not perfect a mortgage as if the original had been properly recorded. Thus, the mortgage held by a credit union on the residence of Chapter 7 debtors, which was not recorded and as to which the credit union had filed an affidavit of lost mortgage, was unperfected and could be avoided as a preferential prepetition transfer and under the trustee's powers as a hypothetical lien creditor. In so holding, the Michigan bankruptcy court acknowledged that the register of deeds had accepted the affidavit of lost mortgage for filing, and might have had a practice of doing so; the court, however, was constrained by the governing statutory language. In re Farr, (8th Cir.BAP (Minn.)) June 25, 2009: Avoidance - No constructive trust could be imposed based on simple mistake to protect transfer from avoidance. Under Minnesota law as predicted by the Eighth Circuit Bankruptcy Appellate Panel (BAP), a simple mistake by an obligor's bank in misunderstanding the obligor's oral instructions to transfer $23,195 to the obligee's bank, and in instead transferring the sum of $123,195, could not the form basis for imposing a constructive trust for the obligor's benefit on the excess $100,000 paid. Thus, when the obligee discovered this error shortly before the commencement of his Chapter 7 bankruptcy case and transferred $90,000 back to the obligor in partial repayment of his debt for the overpayment, this prepetition transfer involved an "interest of the debtor in property," as required for the trustee to avoid it as a preference. In re Stevens, (Bkrtcy.N.D.Ill.) June 25, 2009: Attorney Fees - Trustee's general counsel could not be compensated for trustee services or services duplicative of those of special counsel. A Chapter 7 trustee's law firm, which she had retained as general counsel to the trustee, was not entitled to be compensated from the estate for services that ordinarily would have been performed by the trustee, including services related to the analysis and recovery of assets and to the administration of Chapter 7 case. The firm was also not entitled to be compensated for services which were unnecessarily duplicative of the trustee's special litigation counsel, or for services which were performed prior to the filing of the trustee's motion to authorize the firm's employment nunc pro tunc. Thus, of the total $22,507.50 in fees sought by the law firm for representing the trustee in a two-asset Chapter 7 case that netted a total of $58,851.05, $14,495.00 would be disallowed. © 2009 West, a Thomson business Westlaw Integration Solutions  /  Westlaw.com

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