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Case Summaries A-F

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AIRADIGM v. FCC (10/27/06) (372 B.R. 894)

AIRADIGM (5/11/07) (376 B.R. 903)
A creditor's claim was allowed because no grounds were stated for its disallowance. A claim can be disallowed under section 502(b) or reconsidered under section 502(j). There is no such theory of disallowance as "recharacterization" pursuant to Section 105(a) of the Bankruptcy Code. The Court granted summary judgment in part, overruling the objection to a secured creditor's claim in a chapter 11 case.

AIRADIGM (9/17/07) (unpublished)

AIRADIGM (1/18/08) (393 BR 647)

ALPINE ASSURANCE, LTD. (3/6/00) (Unpublished)

A trial on the Petition of Robert F. Craig, as Joint Official Liquidator of the Estate of Alpine Assurance, Ltd., was held on December 9, 1999.  The court entered its Proposed Findings of Fact and Conclusions of Law on December 29, 1999.  Petitioner moved for a new trial under Bankruptcy Rule 9023, which adopts Federal Rule of Civil Procedure 59, alleging that the court's Proposed Findings of Fact and Conclusions of Law constituted a mistake of fact or a manifest error of law.  The Seventh Circuit has held that for the court to grant a Rule 59 motion, the petition must "clearly establish either a manifest error of law or fact or must present newly discovered evidence."  See LB Credit Corp. Resolution Trust Corp., 49 F.3d 1263 (7th Cir. 1995).  Since the petitioner did not allege that there was any newly discovered evidence, the court (Judge Martin) determined only whether there had been a mistake of fact or a manifest error of law.  The court determined that it was not a manifest error of law for it to conclude that the officers of HIMI were not personally liable for HIMI's conversion of Alpine funds.  The court refused to extend Capen Wholesale, Inc. v. Probst, 180 Wis. 2d 354 (Wis. Ct. App. 1993) to the insurance context, and found instead that Wis. Admin. Code § 42.03(3) governs the personal liability of insurance agents.  Second, the court found that its refusal to pierce the corporate veil was not a manifest error of law.  The evidence that the president of HIMI borrowed $5,000 from the Alpine Policyholders Trust Account, which was separately accounted for by the corporate bookkeeper, was insufficient to show that HIMI had no separate legal existence and was no more than an instrumentality of the president.  Finally, the court found that it was not a manifest error of law to rule that Alpine was not a customer of the Royal Bank of Hillsboro.  Alpine does not meet the Wisconsin Uniform Commercial Code definition of "customer"; therefore, the Bank had no duty to close the Alpine Policyholder Trust Accounts upon instructions from the Joint Official Liquidator.

AMERICAN LAND & CATTLE, INC. (3/20/87) (Unpublished)

Debtor's application to have state court action removed to bankruptcy court pursuant to 28 U.S.C. § 1452(a) and bankruptcy rule 9027(a) is denied. Action for fraud against corporate debtor is based on state law and, even if action had been properly removed, it is based on state law and policy and equity would demand it be remanded to state court. In addition, interests of comity and respect for state law would warrant abstention by this Court pursuant to 28 U.S.C. § 1334(c)(1). Citing In re Krupke, 57 B.R. 523 (Bankr. W.D. Wis. 1986).

ASSOCIATED BANK v. GRAHAM (2/16/12) (472 B.R. 524)

Associated Bank erroneously deposited $64,467.67 into the debtors’ personal account, and the debtors spent the funds. The bank alleged that the amount the debtors owed was non-dischargeable under 11 U.S.C. § 523(a)(2)(A) and 11 U.S.C. § 523(a)(6). The bankruptcy court held that the elements of 11 U.S.C. § 523(a)(2)(A) were not met because the money was not obtained by false pretenses. The bank also failed to meet its burden of proof under 11 U.S.C. § 523(a)(6). While the evidence supported an inference that the debtors knew the deposit was made in error, it also supported an inference that the debtors believed the deposit was part of an expected inheritance. The bank failed to establish the time period when the debtors knew they were spending money that did not belong to them. It was therefore impossible to determine what portion of debt was based on a willful and malicious injury. The court held that the debt owed to the bank was dischargeable.

BALLARD (5/9/91) (131 B.R. 97)

  • IRS cannot assert defense of sovereign immunity in preference action by chapter 7 debtor.
  • Wages received by creditor during preference period pursuant to prepetition garnishment constitute a "transfer by the debtor of an interest in property" for purposes of § 547.
  • Equality of distribution among creditors is a fundamental tenet of the bankruptcy code and as such should take precedence over considerations of administrative efficiency. Continuing levy concept does not save IRS garnishments from potential application of preference provision.

BARSAMIAN (11/3/04) (318 B.R. 508)

Plaintiffs, six businesses, filed complaints alleging nondischargeability of debts under section 523(a)(2)(A) for writing checks that bounced.  Defendants' attorney failed to appear at the hearing, and the matter was dismissed for want of prosecution.  Defendant's attorney moved the Court to reopen the adversary proceeding, and simultaneously moved the Court for a default judgment against the debtor.  The Court granted the motion to reopen under the excusable neglect theory.  Defendants were less fortunate on their default motion.  A check is not a representation, writing a check that bounces is not fraud, and the court would not default a debtor without proof of specific false representations or fraud.  The Court gave the defendants 30 days from the date of the decision to request a prove-up hearing.

BARTELS (3/2/11) (449 BR 355)

Trustee sought to revoke abandonment of property and to sell real estate upon discovery that the creditor’s mortgage did not cover all of the property in question. The creditor moved to dismiss the adversary proceeding on the grounds that the trustee’s request to revoke the abandonment was untimely. The court concluded that while abandonment orders are ordinarily irrevocable, in the Seventh Circuit an exception may be made for instances in which the abandonment was the result of an inadvertent error and the parties were not “unduly prejudiced.” See In re Lintz West Side Lumber, Inc., 655 F. 2d 786 (7th Cir. 1981). The fact that the trustee’s request came almost 18 months after the initial abandonment was not controlling as the creditor was not unduly prejudiced by the request. The motion to dismiss the adversary proceeding was denied.

BELL (10/1/91) (Unpublished)

  • Past taxes for which the debtor never filed a tax return are not dischargeable in bankruptcy. Citing 11 U.S.C. § 523(a)(1)(B)(i). Plaintiff debtors acknowledged that they did not file returns for the years in question. Granting IRS's motion for summary judgment is therefore warranted.
  • Debtor's assignment of personal injury proceeds to the defendant IRS did not constitute a "filing" of a tax return for purposes of § 523(a)(1)(B)(i).

BENNETT v SVEINSVOLL (7/3/07) (376 B.R. 918)

BLOSSFIELD (12/23/04) (321 B.R. 913)
Debtor acquired homestead property from his mother. At the time of the transfer, the parties contemplated that the mother would have a life estate in the home and that she would be able to live in the home. The debtor subsequently mortgaged the home and in so doing a new deed was recorded which did not contain the “life estate” provision of the old deed. While the debtor indicated he had his mother’s consent to terminate the life estate interest, she denied discussing it with him. The court found that the debtor did not have consent and that the destruction of the life estate interest constituted a “willful and malicious injury” under 11 U.S.C. § 523(a)(6).

BOE (5/15/87) (Unpublished)

Debtor's motion for voluntary dismissal and revocation of discharge pursuant to 11 U.S.C. § 707 is denied. § 707 specifies that court may grant such motions "for cause." Fact that debtor incurred substantial unexpected postpetition medical indebtedness does not constitute "cause" pursuant to § 707. Debtor voluntarily chose date of filing of petition and should not be allowed to now alter it absent compelling showing of cause. Citing In re Crenshaw, 65 B.R. 703 (Bankr. D. Me. 1980).

BOLLES (2/1/93) (Unpublished)

  • Debtor is entitled to exempt $12,808 in personal injury award proceeds -- $6,904 pursuant to Wis. Stat. § 815.18(3)(i)(c) [pain and suffering exemption] and $5,904 pursuant to Wis. Stat. § 815.18(3)(i)(d) [loss of future earnings exemption]. Debtor's exemption rights are to be determined on the basis of conditions as they existed on the date of bankruptcy filing; Court refuses to retroactively apply Wisconsin exemption statutes to debtor's prepetition expenditures. Prepetition expenditures from two separate award amounts (one for pain and suffering and the other for loss of future earnings) are to be allocated pro-rata between both amounts for purposes of determining exemption rights under Wisconsin law.
  • Amount "reasonably necessary for the debtor's support" for exemption purposes is to be determined on the basis of the debtor's present circumstances and income, other exempt property, and any other relevant factors. Citing In re Haga, 48 B.R. 492, 496 (Bankr. E.D. Tenn. 1985).

BOYLEN (1/24/06) (Unpublished)

Two and a half years prior to filing his Chapter 7 petition, the debtor obtained a loan to purchase a manufactured home. The debtor applied for a new title certificate from the Wisconsin Department of Commerce (DOC). His application was returned because he did not submit an existing certificate of title to accompany the application. The debtor took no further action to title the home. When the bank filed a motion for abandonment in the debtor’s bankruptcy the trustee objected, stating that the bank’s lien was not perfected because there was no title showing the bank’s interest. The bank argued that its security interest in the debtor’s home was perfected when the DOC received the application and accompanying fees, and that sending an existing certificate of title was unnecessary because one did not exist. The bank’s alternative argument was that the debtor did not own his home because there was no certificate of title indicating his ownership, and if the debtor has no interest in the home the trustee has no standing to challenge the bank’s lien. This court held that the bank’s security interest was not perfected because the requirements of Wis. Stat. § 101.9213(2) were not met. Not having a certificate of title on hand is not the same as there being no certificate of title in existence. The bank did not comply with statutory requirements to timely perfect its lien. The bank’s argument that the debtor did not own his home and that the trustee lacked standing to object to the bank’s motion also fails. Even if the debtor did not have all the legal indices of ownership of the property due to his failure to comply with Wis. Stat. § 101.9209, he still has an equitable interest in the property based on his payment of the purchase price to the seller. The bankruptcy estate includes equitable interests of a debtor in property as of the commencement of the case. The bank’s motion for abandonment was denied.

BRACH (8/3/95) (195 B.R. 897)

Creditor filed adversary proceeding objecting to debtor's discharge after the time specified in bankruptcy rule 4007. Debtor filed motion to dismiss. The court concluded that the fact that the court issued an erroneous notice which did not specify a last date to object to discharge and which incorrectly characterized the debtor as a "partnership" necessitated allowance of the complaint. While a court may not extend the time to object to discharge if the creditor fails to file a motion for extension of time as required by the rule, the court can accept an untimely complaint if it is justified under the circumstances. The only justification is if the court issues an erroneous notice, which happened in this case.

BRIESE (5/6/96) (196 B.R. 440)

Credit card company brought adversary proceeding against debtors, contending that credit card debt was nondischargeable under 11 U.S.C. § 523(a)(2). Court rejected assumption of the risk approach to credit card debt, the implied representation theory, and the totality of the circumstances test. Instead, Court found that the relevant inquiry focuses upon common law of fraud, citing Field v. Mans, 516 U.S. 59, 116 S. Ct. 437, 133 L. Ed. 2d 351 (1995). Under common law of fraud, a promise of future performance is actionable as fraud if, at the time the statement or representation was made, the debtor never actually intended to honor the statement.

Further, the court found that the absence of face to face contact was irrelevant to the inquiry. Debtors still make a representation to the creditor by using the card, given the broad meaning of the term "representation." That representation, however, is only actionable if the debtors did not intend to honor the promise to pay. Intent is based upon a subjective standard, not an objective reasonable person test. Under this test, the debtors lacked an intent to deceive. Furthermore, the creditor failed to demonstrate justifiable reliance upon any misrepresentations made by the debtors.

BRINGE (5/15/92) (Unpublished)

  • IRS was provided with adequate notice of debtors' bankruptcy even though the notice contained a one-digit error in Mr. Bringe's social security number and did not contain his employee identification number. The notice contained the correct names and address of the debtors as well as Mrs. Bringe's correct social security number. Citing bankruptcy rules 1005 & 2002.
  • IRS claim was filed almost one year after the deadline and the debtors have already made payments pursuant to their chapter 12 plan. Allowing the late-filed claim would harm the debtors and the unsecured creditors holding allowed claims. Trustee's objection to IRS's claim is therefore granted and the claim is disallowed. Citing B.R. 9006.

BRONK (1/7/11) (444 B.R. 902)

The chapter 7 trustee sought to deny the debtor’s discharge and his exemption claims on the grounds that the debtor’s pre-petition bankruptcy exemption planning had risen to the level of conduct which “hindered, delayed, or defrauded creditors” under either § 727(a)(2)(A) or the relevant Wisconsin statute, Wis. Stat. § 815.18(10). The standard applied to these issues is essentially the same in the Seventh Circuit, and exemption planning, in and of itself, is not objectionable. Instead, the plaintiff is obligated to demonstrate that the debtor engaged in some act “extrinsic to the conversion” which hinders, delays, or defrauds. After reviewing the stipulated facts, the court concluded that there was no evidence that the debtor engaged in the type of “extrinsic” conduct required for denial of his discharge or his exemption claims. However, the court also concluded that the debtor was not entitled to claim an exemption for a number of college savings plans under Wis. Stat. § 815.18(3)(p) because a review of the statute and the “surrounding or closely-related statutes” as required by relevant Wisconsin case law indicated that the exemption was limited to protection of the “beneficiary’s right to qualified withdrawals” under Wis. Stat. § 14.64(7).

BRONK (2) (1/7/11) (444 B.R. 902)

The bankruptcy court entered a judgment allowing the debtor an exemption in an annuity, disallowing an exemption in college savings plans, and granting the debtor’s discharge. On appeal, the district court vacated the judgment, affirmed as to the college savings plans and the discharge, and remanded for further factual findings regarding the annuity. After remand, the bankruptcy court conducted a hearing and reviewed the specific terms of the annuity contract. The court found that distributions under the annuity were conditioned upon the debtor’s age, disability, or death. Because the distributions were in fact based upon these conditions, the annuity fell within the statutory terms and was properly claimed as exempt. The trustee’s objection to the annuity was again overruled and judgment was entered in accordance with the court’s findings.

BRUNNER (12/15/05) (Unpublished)

Four creditors in a chapter 13 case filed claims secured by the debtor’s home. A hearing was held to determine the value of the home. After subtracting the first three secured claims from the determined value, there was $4,024.22 in equity remaining. Therefore, the fourth claim (Sherman) was entitled to a secured claim of $4,024.22 and a general unsecured claim for the remainder of its claim. Sherman filed a motion to reconsider based on its assertion that the equitable doctrine of marshaling of assets should be applied. Since a priming creditor’s claim was also secured by the debtor’s automobile, Sherman argued that the creditor should be required to satisfy its debt to the extent possible through the automobile, so to leave more equity in the home to secure Sherman’s debt. A request for marshaling of assets must be brought as an adversary proceeding pursuant to Bankruptcy Rule 7001. Sherman brought its request for marshaling as a defense to the debtor’s objection to claim. Sherman’s attempt to argue for marshaling in this manner does not allow a full inquiry into facts relevant to the elements listed above. Nor was the evidence presented at the hearing sufficient to make the necessary findings, if the procedural requirements were ignored.

BRUSKI (9/11/98) (226 B.R. 422)

Trustee's objection to debtors' exemption of a "Flexible Premium Retirement Annuity" was overruled.  The debtors purchased the annuity on the eve of bankruptcy, using proceeds of a loan they obtained by pledging non-exempt assets as collateral.  The trustee's objection was based upon the belief that the annuity could not be exempt because there was no limit on the amount of annual contributions.   However, the Wisconsin legislature said "any annuity" in Wis. Stat. 815.18(3)(j), and placed no limitation upon the exemption other than that it "comply" with the Internal Revenue Code.  The Court would enforce the provision as written. 

BUKOWSKI (E.D. Wisconsin) (5/26/99) (Unpublished)

Former business partner sued the debtors, contending that his judgment against the debtors was nondischargeable under §§ 523(a)(4) and (a)(6). Creditor also claimed the debtors' discharge should be denied for alleged misrepresentations and other activities related to valuation of their assets, primarily their stock interest in a company which the debtors valued at "$0" in their schedules.  The court found that the debtors' use of a "liquidation value" rather than a "going concern" value was appropriate under the circumstances, and as a result there was no basis to deny the debtors' discharge under § 727(a). Likewise, the court concluded that there was no "fiduciary capacity" between the parties under § 523(a)(4).   However, the state court jury did find that the detor acted in a manner which qualified as "willful and malicious" conduct under § 523 (a)(6), and the debt was excepted from discharge on that basis.

BUTLER (5/29/12) (472 BR 786)

The trustee objected to the debtor’s claimed exemption in a “CSI Retirement Savings Plan” under 11 U.S.C. § 522(d)(10)(E). The trustee argued that the Plan was actually a limited partnership interest, and therefore, it did not meet the standard under 11 U.S.C. § 522(d)(10)(E). Examining the three elements of the statute, the bankruptcy court overruled the trustee’s objection. The court found the Plan to be a “similar plan or contract” because it provided income that substituted for wages. The Plan payments met the second element of the statute, as redemption of units could occur “on account of” disability, death, or illness. Finally, the court found the Plan to be reasonably necessary for the support of the debtor. The debtor was entitled to claim an exemption in the Plan under the statute.

C.Q. LLC (12/19/05) (343 B.R. 915)

Chapter 11 debtor converted to Chapter 7. After conversion, the debtor did not assume or reject its long-term lease with Madison East Shopping Center Partners (MESC), nor were any payments made for the amount due under the lease as required by 11 U.S.C. § 365(d)(3). Sixty days after conversion, the lease automatically terminated pursuant to 11 U.S.C. § 365(d)(4). MESC sought immediate payment of post conversion rent under 11 U.S.C. § 365(d)(3). The trustee objected to immediate payment, arguing that the disputed amount was entitled only to administrative expense priority because there is no provision in the Bankruptcy Code granting “super-priority” status to claims under Section 365(d)(3). The trustee also stated that the bankruptcy estate did not have funds sufficient to make the payment. This court determined that the language in Section 365(d)(3) requiring “timely performance” places payment of rent before the payment of administrative expenses. That is true even where the bankruptcy estate is administratively insolvent. Pre-rejection lease payments are required to be timely made. Where the trustee does not perform that obligation, he cannot be excused from the consequence of his nonperformance. The claims must be paid when due, or in any event prior to allowed administrative expenses.

CAESARS PALACE (1/31/11) (444 BR 573)

Desert Palace commenced this adversary proceeding against the defendant to determine the nondischargeability of its claim under § 523(a)(2)(A) and (B). Before trial, Desert Palace moved for summary judgment arguing that its claim against the defendant for fraud was already litigated in Nevada state court, and therefore the parties were barred from relitigating the issue of fraud in the defendant’s bankruptcy case. Interpreting Nevada law, the court held that the issue of fraud had not been “actually litigated” in state court, because the defendant never filed an answer to Desert Palace’s allegations of fraud in the amended complaint. As a result, issue preclusion did not apply and the court denied summary judgment.

CALAWAY (6/30/00) (Unpublished)

Trustee moved for turnover of debtor’s interest in a trust. The debtor argued that the trust was a "spendthrift trust" that was excluded from the bankruptcy estate by virtue of 11 U.S.C. § 541(c)(2). The Court, however, agreed with the trustee that since creditors could reach the trust res, it was not a true spendthrift trust. The motion for turnover was granted.

CALHOUN (1/22/10) (430 B.R. 536)

The initial chapter 7 trustee resigned due to a conflict of interest, and a successor trustee was appointed.  The initial trustee applied to the court for compensation pursuant to the formula in § 326(a).  The successor trustee objected.  The court noted that § 326(c) caps compensation for multiple trustees, but fails to specify how trustees should divide compensation.  After considering a variety of approaches, the court determined that the total compensation due under § 326(a) should be calculated when the case was closed, then divided between the two trustees on a pro rata basis based on the quantity of disbursements each made to creditors.

CAM CONSTRUCTION CO., INC. (2/15/00) (248 B.R. 134)

The debtor’s plan treated the creditor as unsecured. The creditor contended that it had a mechanic’s lien associated with certain repair services performed on the debtor’s equipment. The Court interpreted Wis. Stat. § 779.41(1) to require that the mechanic retain "actual physical possession" of the property in order to maintain a mechanic’s lien claim. As the services here were performed on the debtor’s premises, the creditor never had possession of the property and therefore had no lien. The creditor’s claim was unsecured.

CARR (11/30/04) (318 B.R. 517)

Where secured lender, whose rights were modified by the plan in violation of section 1322(b)(2) failed to object to plan confirmation, and the plan was confirmed without objection, moves to vacate the plan as in violation of section 1325(a)(5), the plan must be vacated.  In the 7th Circuit, following Matter of Escobedo, a plan that violates the code is a nullity, and is properly vacated despite the creditor's failure to object, and despite section 1330 apparently allowing vacation of a plan only for fraud.

CARTER (11/7/08) (401 B.R. 369)

The Chapter 13 debtors’ attorney filed an application for additional fees shortly before the debtors obtained a discharge. The debtors objected. The Court concluded that it had “arising under” jurisdiction pursuant to 28 U.S.C. § 1334(a) to consider the attorney’s request as to the estate. The request for compensation was denied because the estate was already closed, and no fees could be awarded from the closed estate. The Court also concluded that the attorney’s post-confirmation fees were not discharged in bankruptcy. The Court expressed no opinion as to whether it had jurisdiction to consider the attorney’s claim against the debtors personally, or whether it would grant such a request.

CASPER (11/2/10) (440 B.R. 500)

The creditor sought a determination of nondischargeability under 11 U.S.C. § 523(a)(2). The creditor had invested money in the debtor’s real estate venture, essentially a scheme that involved the “flipping” of real property in an attempt to make a profit in the speculative market. On summary judgment, the court found that even if the creditor had loaned money to the debtor in reliance upon a representation that the funds would be used for the specific purpose of purchasing certain properties in Texas, he failed to demonstrate justifiable reliance upon the representation. Even the creditor’s own statements indicated that he was far more interested in the timing of his proffered return on his investment and was not concerned with the specific use of the funds. His personal background and experience in real estate speculation, as well as the facts surrounding the transaction in question, required the conclusion that the plaintiff did not justifiably rely upon any representation by the debtor. Summary judgment in favor of the debtor was granted and the debt was discharged.

CHAPMAN (03/19/03) (unpublished)

The debtors filed their Chapter 7 petition on August 8, 2001. An attorney for the trustee was appointed. The debtors valued certain owned real estate. The trustee’s attorney investigated that value and found that the county tax assessor valued the property substantially higher and informed the debtors. The debtors then moved to convert their case to Chapter 13 and their motion was granted. The trustee’s attorney objected to confirmation of the plan because it failed to meet the best interest of creditors’ test. The debtors amended their plan before the final confirmation hearing was held. Meanwhile attorneys fees were incurred on behalf of the trustee preparing for the hearings, hiring an appraiser, and examining the debtors at their § 341 meeting.

In December, 2002 the trustee’s attorney moved for an allowance of an administrative claim for services rendered in connection with the bankruptcy case and debtors objected. The Chapter 13 trustee did not object.

At their motion hearing, trustee’s attorney argued that it was entitled to administrative expense priority under U.S.C. § 503(b)(1). Trustee’s attorney filed a brief supporting their motion. Debtors did not file a brief.

It was determined that trustee’s attorney objected to confirmation and incurred post-conversion costs and expenses, based upon its pre-conversion investigation of the value of debtors’ real estate. The post-conversion costs and expenses were intertwined with the pre-conversion services that trustee’s attorney rendered and are reasonable in light of the benefit to creditors. Post-conversion costs and expenses should be treated as administrative expenses.

CHAPMAN (4/12/05) (323 B.R. 470)
When debtors have a post-petition personal injury claim that is exempt, the entire amount is exempt including an amount paid to the attorney out of the settlement funds.  Having received payment from the debtors, even though from exempt funds, the debtors' attorney was required by section 329 and Rule 2016(b) to disclose the agreement to receive the fees and receipt of the fees within 15 days.  The debtors' attorney failed to comply with the Code and Rule, and was erroneously informed by the trustee that she had to apply for the fees.  She did not have to apply for fees, she only had to disclose the fees received.  Under the mistaken impression that she needed court approval to receive the fees, the debtors' attorney returned the $2000 payment to her trust account, but when asked by the Court whether she had received the funds misrepresented to the Court that the funds were in her trust account where they had always been.  The court ultimately learned that the debtors' attorney had returned the funds from her operating account to her trust account immediately prior to the hearing.  While not material to the issue of whether the debtors' attorney had earned the fees under section 330, the attorney's misrepresentation was material to an analysis under section 329.  Although the misrepresentation was not ultimately very serious, the court sanctioned the debtors' attorney $1000, forwarded the opinion to the Wisconsin Office of Lawyer Regulation, and published its decision.

CHASE BANK v MUELLER (7/6/11) (455 B.R. 151)
Chase Bank commenced this action for nondischargeability under § 523(a)(14) against the defendant. The defendant had charged a tax deposit to the IRS on his Chase Bank credit card. The deposit was not for the payment of tax, but rather served as a deposit if the IRS later determined that the defendant owed income tax for tax year 2009. Subsequently, the defendant received a refund from the IRS for an amount in excess of the initial deposit. Because Chase presented no evidence that the defendant actually had a tax liability for 2009, Chase could not establish that the deposit was used to pay a “tax owed” to the IRS under § 523(a)(14). Accordingly, the court dismissed Chase’s complaint and rendered the debt discharged.

CIARPAGLINI v JAKE'S MOBIL et al. (7/18/07) (unpublished)

CILEK (4/13/90) (115 B.R. 974)

  • Debtor motorcycle-dealer's conversion of proceeds from sale of motorcycle inventory in which creditor had a security interest did not constitute "willful and malicious" injury pursuant to 11 U.S.C. § 523(a)(6).
  • Creditor's objection to debtors' claim of exemption in individual retirement accounts is denied. IRAs qualify as "similar plan[s]" pursuant to 11 U.S.C. § 522(d)(10)(E) -- addressing debtor's interest in a "stock bonus, pension, profit sharing, annuity, or similar plan."
  • Third party defendant insurance agency's claim against debtors is equitably subordinated to claim of creditor which provided inventory financing, due to agency's misrepresentations and coercive dealings in connection with the sale of debtor's business.

CLARK (5/10/11) (450 BR 858) (pending appeal)

Chapter 7 debtors claimed wife’s interest in a beneficiary individual retirement account as exempt under both 11 U.S.C. § 522(b)(3)(C) and Wis.Stat. § 815.18(3)(j). Wife had received the account funds as a beneficiary after her mother, the owner of the IRA, died. The trustee filed a timely objection to the exemption, which was ultimately sustained by the bankruptcy court. In its ruling, the court held that funds contained in the “inherited IRA” were not “retirement funds” within the meaning of federal and state exemption law. The court reasoned that the funds in the inherited account were neither designated for the debtors’ retirement, nor were they currently held for wife’s deceased mother’s retirement. Additionally, the court found no persuasive legal source that concluded that inherited IRAs were indeed exempt from taxation under the internal revenue code.

CLAUSEN & JENKINS (11/16/11) (465 BR 776)

The debtors’ bankruptcy schedules were not printed on the Official Forms. While most of the information required by the Official Forms was included, the debtors’ homemade schedules departed somewhat in substance and substantially in format. The chapter 7 trustee moved to strike these schedules as failing to conform to Fed. R. Bankr. P. 1007(b)(1). Counsel for the debtors objected, arguing the Official Forms do not have the force of law, and his submitted forms complied with Fed. R. Bankr. P. 9009.
The bankruptcy court granted the trustee’s Motion to Strike Schedules in both cases. The court held that while the Official Forms do not have the force of law, Fed. R. Bankr. P. 9009 requires that Official Forms prescribed by the Judicial Conference of the United States should be observed and used with alterations as may be appropriate. The alterations on the debtors’ schedules were not appropriate.

CLEASBY (7/22/91) (Unpublished)

  • Chapter 11 debtor can properly schedule a previously discharged debt and include it in her reorganization plan. Citing Johnson v. Home State Bank, 111 S. Ct. 2150 (1991).
  • Effect of § 1111(b) election by the creditor is to secure its claim to the full extent to which it is allowed, notwithstanding the value of the collateral as determined under § 506(a). Fact that debtor's personal liability had been previously discharged in a prior chapter 7 proceeding does not change this result.

COENEN (9/10/12) (487 B.R. 539)

The debtor was 100% owner of a limited liability company (LLC), which in turn held legal title to the property on which the debtor resided. The debtor attempted to take a Wisconsin homestead exemption in the property, but the court determined that the debtor did not have a property interest which could be exempted. The court held that the debtor and his LLC were separate legal entities, so the debtor did not have legal title to property, and his equitable interest in the property had passed to the trustee along with his ownership interest in the LLC.

COMPANY STORE (6/2/93) (Unpublished)

Debtors' objection to numerous claims for priority status is granted. Claims represented fees for modeling services performed by numerous minors for debtors' catalog. Claims for priority wage status not warranted on the basis of clear statutory language of 11 U.S.C. § 507(a)(3) -- which limits priority status to wages earned within ninety-day period before filing. Wages at issue were earned outside of ninety-day period.

COMPANY STORE (10/5/92) (Unpublished)

Debtors' motions to extend exclusivity periods for filing their plans and for obtaining acceptances to those plans are granted. Case is large and complex and involves significant amounts of litigation; debtors are not merely attempting to prolong the reorganization process for the purpose of pressuring creditors to accede to their plans; objecting creditors will not be unduly prejudiced by the reasonable extensions requested.

CONDER (12/20/95) (196 B.R. 104)

Debtor did not "embezzle" loan proceeds used to purchase truck. Embezzlement under 11 U.S.C. § 523(a)(4) is the fraudulent appropriation of property by a person to whom the property has been entrusted, and creditor must prove that debtor used property for a purpose other than that for which it was intended. Debtor used loan proceeds to purchase truck, as contemplated by the parties. Thereafter, when parties discovered truck was actually stolen property, debtor's use of the refund to purchase another truck, rather than return the refund to the bank, did not constitute embezzlement because the truck was the debtor's property, not the creditor's. The creditor held merely a security interest in the property. Further, there was no injury within the meaning of 11 U.S.C. § 523(a)(6) because the debtor had an honest belief that the bank's lien no longer existed.

CONDON OIL v. WOOD (8/9/13) (503 BR 705)

COSMOS TRUST (12/18/87) (Unpublished)

Defendant-debtor's motion for default judgment as to its counterclaim against plaintiff USA-IRS is granted. Plaintiff failed to timely answer defendant's counterclaim and has not met standard for excusable neglect pursuant to B.R. 9006(b). Citing Redfield v. Continental Casualty Corp., 818 F.2d 596 (7th Cir. 1987).

COUILLARD (11/9/12) (486 BR 481)

Trustee sought to avoid a mortgage because it did not have legal descriptions of the property attached to it. The lender had filed an “affidavit of correction” in which it attempted to add two parcels to the mortgage. The trustee contended that the mortgage was void against a subsequent purchaser for value and that the affidavit of correction was likewise invalid because it was not executed by the owners of the property. The court found that the original mortgage was defective insofar as the failure to attach the legal descriptions meant that the mortgage did not appear in the relevant tract index. The affidavit of correction was invalid because it was not properly executed, and could not provide constructive notice of another defective instrument. The lender was also not entitled to an equitable lien or equitable subordination. The lender’s motion for summary judgment was denied.

COUILLARD (2) (12/6/12) (486 BR 466)

The chapter 7 trustee sought to exercise his rights as a subsequent purchaser under state law and avoid a mortgage pursuant to 11 U.S.C. § 544(a)(3). The lender filed a motion for summary judgment, which the court denied. The trustee then moved for summary judgment and the bank sought reconsideration. The court found that the mortgage did not identify the property with a “definite reference” because the lender did not attach legal descriptions for two parcels. As such, the mortgage was not recorded “as provided by law” and was subject to the interests of a subsequent purchaser. Because the affidavit of correction filed by the lender was invalid under state law, it did not provide constructive notice of anything beyond the defective original mortgage. Consequently, the trustee was entitled to avoid the mortgage. The trustee’s motion for summary judgment was granted, and the bank’s request for reconsideration was denied.

COUNTY OF LACROSSE v. STEVENS (5/17/10) (436 BR 107)

The county initiated this adversary proceeding contending that a debt owed to it was non-dischargeable.  The debt consisted of fees incurred by a guardian ad litem and two other members of a custody assessment team in response to motions brought by the debtor.  The court held that the debt was a non-dischargeable domestic support obligation under 11 U.S.C. § 523(a)(5).  Because state law charged the members of the custody team with a duty to act in the best interest of the child, fees they incur would almost inevitably be domestic support obligations.  Only if the debtor could show a total lack of nexus between the activities and the support of a child might the fees be dischargeable.  Since the debtor failed to make that showing, the fees could not be discharged.

CRAWFORD (7/23/01) (2001 WL 1136919)

Shortly before debtor filed for bankruptcy he filed his federal income tax return for the previous year and was entitled to a refund. Approximately one month after the tax return was filed, the IRS applied the refund to debtor's 1993 federal income tax deficiency. The IRS filed a proof of claim for unsecured priority (for 1995 and 1996) and non-priority ( for 1993 and 1994) taxes due. Debtor then brought this adversary proceeding seeking to reallocate the funds set off by the IRS and objecting to its claim of priority for the 1995 taxes. The parties agreed tht the IRS had a valid right to setoff under § 553(a). Debtor contends that it is inequitable to permit the IRS to setoff against non-priority debts, rather than priority debts, because this gives teh IRS a preference over other general creditors. However, a setoff under § 553 is a preference condoned under the Code and an exception to the bankruptcy principle of equal distribution among creditors. It was determined that the IRS had properly exercised its ability to offset in this case. It was further determined that because the due date for the debtor's 1995 tax return fell outside the three year period preceding his bankruptcy case, the 1995 taxes would ordinarily not be entitled to priority under § 507(a)(8). There was an added wrinkle in the case, however, since the debtor had previously filed bankruptcy in 1996 and was discharged in 1997. The IRS argued that the three-year period of § 507(a)(8) was tolled during the period of the prior bankruptcy case and for an additional six months thereafter. It was determined that § 6503(h) is given effect by § 108(c) and that the two provisions operate jointly to toll the three-year period in § 507(a)(8) when the taxpayer's assets are tied up in a court proceeding. It was further determined that the 1995 taxes are entitled to priority under § 507(a)(8).

CRAWLEY (11/24/04) (318 BR 512)

In Chapter 13 case where creditor bank failed to record a mortgage, and trustee did not avoid the mortgage, debtor sought to use trustee's section 544(a)(3) avoiding power.  Held, the debtor in chapter 13 may use only the trustee's powers as enumerated in section 1303.  Because the trustee's section 544 lien-avoiding power is not one of the enumerated powers available to the debtor, the debtor may not avoid a mortgage under section 544.  Further held, equitable subrogation is not a remedy available to a lender who fails to record a mortgage even though the loan was used to consolidate previous mortgage loans.  The mortgage lender gets security in the form of a recordable mortgage, and the court will not invoke equitable subrogation to cure a lender's negligence.

CROSSEN (5/11/05) (325 BR 787)

Chapter 7 trustee sought to avoid a mortgage as a preferential transfer. The debtor had refinanced his home and executed a promissory note for $187,000 on March 1, 2004. The defendant did not fund the loan until March 19, and did not record the mortgage until March 26. The trustee contended that this delay took the mortgage outside the “safe harbor” provision of § 547(e)(2). The court found that the transaction qualified for the “safe harbor” provision, and that even if it did not, the delay did not preclude the transaction from being considered as a “contemporaneous exchange for new value” under § 547(c)(1). Under the facts of the case, the Court found the transaction to be such a contemporaneous exchange. Judgment was entered in favor of the defendant.

CROSSROADS HILLS (8/5/92) (Unpublished)

  • Secured claim of Resolution Trust Corporation was properly transferred to P.J. Investments. Variances in exhibits attached to the proofs of claim filed by each entity did not effect a bifurcation of the claim.
  • Even a substantial variance between the price paid for a claim and the value of that claim against the estate does not, without more, warrant application of the court's equitable powers to reduce or limit the amount of the claim. The Seventh Circuit has consistently required a showing of fraud, breach of fiduciary duty or improper insider dealings as justification for a judicial reduction of a claim.
  • Wisconsin law does not contain an election-of-remedies requirement and the fact that the creditor chose to proceed against the debtor on the basis of the promissory note does not preclude it from foreclosing on the mortgage.
  • Imposition of sanctions against the debtor is not warranted. There is some limited support in the case law that courts in similar situations have used their equitable powers to reduce the amount of a claim filed against the bankruptcy estate.

DEALER SERVICES CORPORATION (DSC) v ERB (4/8/11) (453 BR 914)

Dealer Services Corporation (“DSC”) filed this adversary action to determine the nondischargeability of its claim under § 523(a)(2), § 523(a)(4) and § 523(a)(6). At trial, DSC established that the defendant, owner of a used car dealership, purchased his inventory under a “flooring planning” agreement whereby DSC financed the purchase of all inventory in exchange for a security interest in the vehicles. Under the agreement, all proceeds that the defendant received from the sale of his inventory were to be held “in trust” for DSC. When the defendant stopped making payments to DSC on the loan, a DSC representative performed a field audit and determined that the inventory had inexplicably “disappeared.” The debtor denied all wrongdoing, and at trial was asked no questions by DSC’s counsel relating to the vehicles’ whereabouts. Accordingly, the court found that DSC did not meet its burden of proof under either § 523(a)(2), or § 523(a)(6) as there was no proof that the defendant acted with any “negative intent” or “scienter.” The court also found that while the floor planning agreement did constitute an express trust, DSC failed to establish that the debtor committed defalcation. The court dismissed DSC’s complaint.

DEARDORFF (4/10/96) (195 B.R. 904)

Debtors filed adversary proceeding, contending that garnishment payments to creditor within the 90 days preceding bankruptcy constituted a preference under 11 U.S.C. § 547. The "transfer" of the debtor's wages did not take place until the point at which the debtor earned the wages. Until that time, he had no right to the funds and could not transfer them before that time. As a result, the garnishment of his wages within the 90 days prior to the bankruptcy filing constituted a preference. Citing In re Ballard, 131 B.R. 97 (Bankr. W.D. Wis. 1991).

DEARTH (1/21/92) (Unpublished)

Security interest of objecting creditors did not have purchase money status so as to warrant denial of debtors' motion to avoid the creditors' lien in a Ford tractor. Mere fact that creditors were co-makers on a note, part of the proceeds of which were used to pay off the balance on their son's tractor, did not give them an interest in that tractor. Creditors therefore did not "give value" for purposes of Wis. Stat. § 409.107, the Wisconsin purchase money security interest provision.

DECORA (3/28/08) (387 B.R. 230)
Trustee sought to avoid security interest of bank in a debtor’s per capita interest in tribal gaming revenues. The court concluded that the debtor’s right to the distributions was property of the estate, and the bank failed to properly perfect its security interest when it mailed a copy of the assignment documents to the Ho-Chunk Nation but did not file a financing statement as required by Wisconsin law. Trustee, as hypothetical lien creditor, may avoid security interest for benefit of the estate.

DELAFUENTE (10/17/05) (Unpublished)

Janesville Water & Wastewater, a creditor in the debtors’ Chapter 13 case, sought priority status for its claim for unpaid utilities under 11 U.S.C. 507(a)(8). The debt was incurred up to 4/22/05 and was not yet assessed as a tax. The court determined that Janesville Water & Wastewater was not entitled to priority status because the claim had yet to be assessed as a tax, therefore there is no basis to claim a priority. Taxes for the unpaid utilities would not be assessed until November 16 of the year for which payment is owing, in this case November 16, 2005. 11 U.S.C. 507(a)(8)(B) grants priority to property taxes assessed before the commencement of the case, it does not grant priority to utility bills. Therefore, the claim of Janesville Water & Wastewater was not entitled to priority status.

DERRICK (10/6/94) (Unpublished)

Trustee objected to debtor's voluntary dismissal of case.  Court concluded that under 11 U.S.C. § 1208, the court "shall" dismiss a case upon the debtor's request.  The only basis for delaying dismissal would be an allegation of fraud on the debtor's part, which was not raised by the trustee.  A chapter 12 debtor has a right to the immediate dismissal of the case, without notice or a hearing, unless there is evidence that the debtor engaged in fraud which would render the dismissal unjust.

DERRICK (10/13/95) (190 B.R. 346)

Upon dismissal of debtor's chapter 12 case, creditor sought to reinstate judicial lien which had been avoided as a preferential transfer during the pendency of the case. The debtor objected, contending that the lien could not be reinstated. The court held that under 11 U.S.C. § 349, the general idea is that upon dismissal the parties are returned to the position they were in when the petition was filed. Under the statute, preferential transfers are reinstated unless the court, "for cause," orders otherwise.

"Cause" simply means an acceptable reason, and in determining whether there is such a reason the court should focus upon the interests of creditors or other third parties who may suffer injury, rather than the debtor. There must have been some right gained in the course of the bankruptcy which is threatened by reinstatement. Here, the debtor could offer no such acceptable reason. The burden was upon the debtor to justify a deviation from the natural operation of § 349, and the debtor could not do so.

DEVINE (7/15/13) (Unpublished)

Debtors' counsel filed an Application for Approval, Allowance and Payment of Compensation and Reimbursement of Expenses as an Administrative Creditor seeking reimbursement for a total of 17 hours of work. An examination of the billing entries showed that the bulk of the work was performed in the course of representing the Debtors against small claims actions in state court. The Court acknowledged that the attempt to resolve the matters quickly and inexpensively in state court was a logical choice, but noted that opting not to remove the matters to the bankruptcy court entailed a risk of prolonged litigation. It ruled that the additional fees that resulted from complications in the state court should not be paid by the bankruptcy estate, and denied the balance of Debtors' counsel's request beyond the initial amount budgeted for "a single appearance followed, perhaps, by one brief."

DEVRIES (7/22/91) (Unpublished)

  • Anti-discrimination provision of § 525(a) can apply to the denial by the ASCS/CCC of a request to participate in the Conservation Reserve Program.
  • CRP contracts are executory contracts for purposes of § 365.
  • Denial of debtors' application to participate in the CRP program was not done "solely" on the basis of their bankruptcy and was therefore not in violation of anti-discrimination provision of § 525.

DIENBERG (11/8/95) (Unpublished)

The court denied creditor's motion for relief from the stay, together with motion to temporarily revoke the debtors' discharge. Creditor sought to enter a judgment in state court in connection with a tort claim. However, the debtors' discharge precluded the entry of any judgment against the debtors personally. Further, the court did not have the authority to temporarily revoke the debtors' discharge. Under the sixty-day period contemplated by Fed. R. Bankr. P. 4004(a) and 4007(c), the court shall "forthwith" grant the debtors' discharge. Despite creditor's belief that issuance of discharge was "unfair," debtors were entitled to discharge in the absence of any objection to discharge or waiver by the debtors.

DIGITAL SYSTEMS v MORENO (8/17/09) (414 B.R. 485)

The plaintiff brought a prepetition suit against the chapter 7 debtor in state court, alleging that the debtor stole nearly $300,000 from the plaintiff, her employer.  During the pendency of the proceeding, the state commenced a criminal proceeding against the debtor, and she invoked the privilege against self-incrimination.  The state court granted the plaintiff’s motion for summary judgment as to fraud and unjust enrichment in a minute entry, but made no factual findings.  Later, the state court held the debtor’s marital community liable for unlawful acts, including racketeering.  The plaintiff then moved for summary judgment in the adversary proceeding and argued that the doctrine of collateral estoppel barred the debtor from litigating the issue of nondischargeability.  The Court agreed with the plaintiff and found that the state court’s two holdings, taken together, should be given preclusive effect as to the plaintiff’s § 523(a)(2), (4), and (6) claims.  The Court held that the minute entry order constituted a final judgment and rejected the debtor’s argument that she was prevented from litigating the state court suit due to her invocation of the privilege against self-incrimination.

DISCH (2/11/03) (Unpublished)

The debtor-defendant owned and operated a business known at Faval, Inc. In late 1999, Faval was struggling financially. The plaintiff owned and operated a restaurant and two rental buildings and maintained steady employment. Plaintiff had known the debtor-defendant for over 40 years. In January, 2000 debtor-defendant and plaintiff met to discuss the Faval business, culminating in a payment made to debtor-defendant with a promise for more money in the future. In the period January, 2000 through May, 2001 plaintiff gave debtor-defendant in excess of $810,000 through loans, lines of credit, checks and cash to use in Faval. The parties agreed that debtor-defendant would make payments when due on plaintiff’s bank loans and begin to pay plaintiff for his personal loans once Faval became profitable.

During this time, and unknown to plaintiff, debtor-defendant adopted a number of unusual bookkeeping methods that made tracking Faval’s finances virtually impossible. Debtor-defendant did not keep a general ledger and generally relied on her memory instead of books and records. Debtor-defendant is unable to explain how loans were disbursed and even admitted to losing track of large loans made by other investors. Debtor-defendant also frequently dealt with cash in an effort to avoid a Wisconsin Department of Revenue levy for unpaid income taxes.

In January, 2001 plaintiff gave debtor-defendant his employer’s credit card number so she could purchase approximately $3,000 worth of materials from a supplier that would only accept a credit card. Debtor-defendant continued to use the credit card to purchase other supplies, incurring over $6,800 in charges.

In the spring of 2001 debtor-defendant contacted one of the banks with whom plaintiff took out a loan for Faval’s benefit and requested that the address be changed from plaintiff’s home address to debtor-defendant’s business address in an effort to save plaintiff the hassle of being notified when debtor-defendant was late in making payment. Debtor-defendant did not inform plaintiff of the request, instead, the bank contacted him seeking his authorization.

The plaintiff became concerned about debtor-defendant’s management of Faval and sought the assistance of his personal accountant to examine the Faval records. The accountant was unable to trace funds beyond their initial payment and sought bank records from debtor-defendant. Those records were not provided. A disturbing pattern of misappropriation and uncertainty as to the proper allocation of Faval funds was discovered. Debtor-defendant did not provide sufficient information to explain the many discrepancies.

In August, 2001 plaintiff’s attorney demanded that debtor-defendant repay his client $120,000 of the personal loans by the end of the month. Debtor-defendant failed to do so. In October, 2001 plaintiff then changed the locks on the building. In response, debtor-defendant ceased operations of Faval.

In February, 2002 debtor-defendant filed for Chapter 7 protection. At her first meeting of creditors debtor-defendant asserted her Fifth Amendment privilege as to her personal and business financial statements, dates on which she incurred debts to certain creditors, and the use to which she put those funds.

Plaintiff filed an adversary complaint arguing that the court should draw a negative inference from debtor-defendant’s use of the Fifth Amendment privilege and that the debt to him was non-dischargeable under 11 U.S.C. §§ 523(a)(2), (4), and (6). He also argued that debtor-defendant’s behavior warranted the denial of her discharge. In total he sought recovery of $657,700 of funds loaned to debtor-defendant.

The court granted debtor’s discharge before hearing plaintiff’s adversary proceeding. In the vast majority of cases, parties plead adequately in adversary proceedings and the clerk of court’s staff can determine whether a claim has been filed under § 727. If none has, the clerk follows the standard procedure of granting a debtor’s discharge 60 days after their first meeting of creditors as to all debts that are not the subject of a pending adversary proceeding brought under § 523. Plaintiff’s complaint alleged grounds for relief under § 523, not § 727. Thus, on August 19, 2002, following its standard procedure and without evaluating the substance of plaintiff’s claims, the court issued debtor-defendant’s discharge as to all debts not subject to a pending adversary proceeding. At trial it was then determined that the pleadings should be constructively amended to include the § 727 objections and that debtor-defendant should not have received her discharge.

Debtor-defendant’s discharge was revoked and denied pursuant to §§ 727(a)(2), (3), and (5). A money judgment in the amount of $657,700 was entered in favor of plaintiff.

DUOSS (08/28/03) (Unpublished)

The Debtor is a graduate of the University of Wisconsin Law School who began her study of law at Marquette University School of Law (“Marquette”). In her application for admission to the Wisconsin bar, she was required to present a transcript from Marquette. Marquette conditioned its delivery of a transcript upon Debtor’s payment of past due student loans. Debtor had yet to pay Marquette or to receive her Marquette transcript and brought a motion to hold Marquette in violation of her bankruptcy discharge injunction.

As part of her student loan package at Marquette, Debtor signed a promissory note under which Marquette disbursed funds toward tuition costs, and to the Debtor directly. After receiving the loan funds and prior to the “drop deadline,” Debtor withdrew from Marquette. Marquette reversed the tuition charge leaving Debtor owing the amount paid to her directly. Marquette received one nominal payment from the Debtor in April, 1999. After receiving no further payments, the account was turned over to a collection agency.

Debtor filed a Chapter 7 petition in September, 2000. She included the debt to Marquette on her schedules designating it as “tuition.” The collection agency ceased its collection efforts. In January, 2001 Debtor received her discharge.

Debtor contends that her debt to Marquette was not a student loan and that it had been discharged. She argued that Marquette was violating the permanent injunction provision of 11 U.S.C. § 524(a). She is incorrect. Marquette is subrogated to the government entities which it reimbursed for Debtor’s student loans, and its methods of collecting from Debtor are unexceptionable as a matter of bankruptcy law.

It was determined that Marquette complied with the requirements established by the U.S. Department of Education with respect to the loans made to Debtor. As a subrogee, Marquette was entitled to all of the U.S. Department of Education’s rights against the Debtor, including the right to collect the non-dischargeable loan. Marquette was not required to release the transcripts to Debtor. Debtor’s arguments based upon Marquette’s subsequent characterization of the funds owed to it by Debtor are of no merit. The true nature of the obligation, not how it was described after it became past due, governs how the obligation is viewed in bankruptcy.

DUSS (10/30/87) (79 B.R. 821)

  • Debtors' motion to avoid lien of FmHA pursuant to 11 U.S.C. § 522(f)(2)(A) on 30 acres of hay is denied. Hay is not consumable and cannot be considered to be held primarily for personal, family or household purposes.
  • Debtors' motion to avoid lien of FmHA pursuant to 11 U.S.C. § 522(f)(2)(A) on various items of farm equipment claimed as exempt is granted. Term "tools and implements of trade" in lien avoidance provision is not restricted to small hand tools and modest implements.
  • Debtor choosing state law exemptions pursuant to 11 U.S.C. § 522(b)(2) is not limited to the value limitations of the federal exemptions contained in 11 U.S.C. § 522(d) when seeking to lien avoid on exempt property pursuant to 11 U.S.C. § 522(f).

E.S. PROFESSIONAL SERVICES (10/20/05) (S.D. Florida) (335 B.R. 221)

Alleged debtor sought dismissal of involuntary bankruptcy petition on grounds that it had more than 12 creditors. The petitioning creditor contended that the debtor did not have more than 12 creditors. The court found that an involuntary bankruptcy petition was an “extreme remedy” with serious consequences for a debtor. Here, the debtor sought to handle its affairs outside the bankruptcy forum and the case appeared to be little more than an extension of an ongoing two-party dispute pending elsewhere. There was unlikely to be a meaningful payout to chapter 7 creditors. The involuntary petition was dismissed.

EDWARDS (12/19/13) (Unpublished)

EGELAND (1/14/10) (2010 WL 170258)

The chapter 13 debtors agreed to pay their mortgage lender $555.56 per month toward mortgage arrears. The parties memorialized this agreement in an agreed order signed by the court. Five months after the order was entered, the debtors objected to the lender’s proof of claim for mortgage arrears. The trustee then began to withhold the monthly payment that would otherwise have gone to the mortgage lender, pending resolution of the objection. Before the objection was resolved, the debtors voluntarily dismissed their case. The mortgage lender moved for disbursement of the withheld funds and the debtors objected, contending that the monies should be paid to them or to other secured creditors, pro rata. The Court held that under its prior order, the monies should be paid to the mortgage lender. Section 1322(a)(3) required that all secured creditors be treated the same, and the other secured creditors had already received their pro rata shares.

EHLEN (10/16/96) (202 B.R. 742)

Debtors/farmers filed motion to avoid the lien of Farm Service Agency in "tools of the trade." The equipment in question had been claimed as exempt property under the Wisconsin exemption statutes, Wis. Stat. § 815.18(3)(b). FSA objected to the motion, contending that 11 U.S.C. § 522(f)(3) created a federally mandated "cap" on lien avoidance on tools of the trade. According to FSA, the debtors should only be entitled to lien avoid $5,000.00 each of its lien, rather than the $7,500.00 allowed by the state exemption.

Court held that § 522(f)(3) did not apply in Wisconsin because Wisconsin did not allow unlimited exemptions in tools of the trade and also did not expressly prohibit lien avoidance. Declined to follow In re Parrish, 186 B.R. 246 (Bankr. W.D. Wis. 1995), and adopted the reasoning of the court in In re Zimmel, 185 B.R. 786

ELSEMORE (4/14/11) (Unpublished)

The chapter 7 trustee sought to revoke a report of no distribution in order to pursue certain fraudulent transfer claims. A creditor objected, arguing that the abandonment was irrevocable. Following the same rules as articulated in Bartels, the court concluded that the trustee’s no asset report was an “inadvertent” error. The question was whether the creditor could claim to be unduly prejudiced by the revocation. If the bank were the beneficiary of a transfer, the delay was not itself prejudicial. The creditor did not significantly alter its position in reliance upon the abandonment order, and as such the objection was overruled.

ELSEMORE (2) (3/20/12) (Unpublished)

The chapter 7 trustee sought to recover an alleged preference. The defendant had received the proceeds of the sale of various assets, including several patents. The defendant subsequently obtained the patents and offered to return them to the estate in satisfaction of the preference claims. The trustee refused the offer and the defendant moved for summary judgment, arguing that under § 550(a) the trustee was only entitled to “the property transferred” if that property was actually available. The court ruled that the purpose of the statute is to restore the bankruptcy estate to the financial condition it would have enjoyed if the transfer had not occurred. As such, the statute permits bankruptcy courts the flexibility to award either the return of the property or a money judgment for its value, depending upon what would best return the estate to its pre-transfer position. The motion for summary judgment was denied.

F.F. MENGEL CO. (9/23/94) (Unpublished)

Amounts sought by bank for "residual value" of leased equipment were not provided for in lease agreement. The bank contended that it was entitled to not only the rents "lost" as a result of the debtor's failure to comply with the lease, but also an additional amount which constituted the expected value of the items at the end of the lease term. As the contract did not specify that such damages were to be awarded in the event of default, Court would construe the agreement against its drafter (the bank's predecessor). Accordingly, the objections to the bank's proof of claim were sustained.

FARMER (6/18/03) (295 B.R. 322)

Debtor was entitled to an exemption for retirement funds received pursuant to Qualified Domestic Relations Order executed in accordance with the debtor’s divorce decree. The funds were held in an “ERISA-qualified” pension plan and therefore excluded from the debtor’s bankruptcy estate; even if it were part of the bankruptcy estate, it fell within the Wisconsin exemption for retirement assets.

FASSETT (3/20/12) (Unpublished)

The trustee sought to recover a transfer as constructively fraudulent under § 548. The debtor transferred money to her daughter about 11 months before the bankruptcy. She withdrew the funds from a 401(k) account and placed them into her personal account prior to the transfer. The funds were intended to help the daughter buy a mobile home. The transfer was essentially a gift and the debtor received only intangible, emotional satisfaction in exchange for the funds. Further, even if the money did not lose its exempt character once it was removed from the 401(k) account, the debtor voluntarily transferred the funds to the daughter. Once the transfer is avoided by the trustee and the property is returned to the bankruptcy estate, the debtor is precluded from asserting an exemption in such assets under § 522(g)(1). Judgment was entered in the trustee’s favor.

FESS (5/4/09) (408 B.R. 793)

The chapter 7 debtor was a member of the Ho-Chunk Nation. The Court entered an order on the debtor’s default directing the Nation to turnover future per capita payments due the debtor. The Nation refused, and the chapter 7 trustee moved for turnover of future per capita payments received by the debtor. The Court denied the motion, holding that future per capita payments were not property of the estate. Federal and tribal law determined the nature of the debtor’s property interest in the future per capita payments. Under tribal law, the debtor had no interest in a per capita payment until the payment was received. Therefore, the debtor had no interest in future per capita payments at the time of filing that entered the bankruptcy estate. The Court also held that law of the case doctrine did not prevent it from reconsidering a previous order, entered on the debtor’s default , that future per capita payments were property of the estate.

FIBISON (12/12/11) (474 B.R. 864)

The trustee sought to recover a parcel of real estate as a fraudulent transfer. The defendant had purchased the property from his son pursuant to an unrecorded land contract and received title to the property via quit claim deed about ten months prior to the bankruptcy filing. The trustee contended that execution of the quit claim deed constituted a fraudulent transfer as the debtor did not receive reasonably equivalent value for the property. A “transfer” occurs for purposes of fraudulent conveyance law at the time when a subsequent purchaser could no longer acquire an interest in the property which is superior to that of the transferee. The defendant took actual possession of the property long before the date of the quit claim deed and a subsequent purchaser would have had constructive notice of his claim. The trustee likewise could not avoid the transfer as a fraudulent conveyance.

FIRST WEBER v HORSFALL (3/1/11) (444 B.R. 578)

First Weber Group commenced this adversary proceeding to determine the nondischargeability of its claim under 11 U.S.C. § 523(a)(6) for a willful and malicious injury. Its claim arose from a state court judgment for tortious interference of a contract rendered in favor of First Weber. On motion for summary judgment, First Weber argued that the doctrine of issue preclusion precluded the parties from re-litigating the facts previously litigated on its claim for tortious interference of a contract. Denying First Weber’s motion, the bankruptcy court held that issue preclusion did not apply because the state court’s finding that the defendant tortiously interfered with a contract did not support a finding that the defendant willfully and maliciously intended to injure First Weber. Likewise, the bankruptcy court found that an application of issue preclusion in this case would be “fundamentally unfair” to the defendant in light of the state court’s standard of review and the differences in the evidentiary burdens between the state court claim and First Weber’s claim for nondischargeability.

FISHER (2/12/99) (Unpublished)

Trustee sought approval of stipulation with debtors concerning the nonexempt portion of their homestead.  The stipulation proposed that the debtors would "buy back" the nonexempt portion for $29,000.00, secured by a promissory note and mortgage.  The largest creditor objected, contending that the settlement was unreasonable and should not be approved.  The court held that while the best interests of the estate is the "benchmark" for determining the propriety of a settlement, a creditor's views are not controlling.  Rather, the court must determine whether the settlement falls below the lowest point in the realm of reasonableness.   The settlement agreement was not so unreasonable, and would be approved.

FISHER (8/10/99) (Unpublished)

Debtor filed an adversary proceeding seeking to discharge a judgment entered in state court in favor of his former spouse. The judgment consisted of unpaid child support dating from the 1970s, together with accrued interest. The debtor contended that the Court should discharge the obligation as it did not represent support and was no longer necessary to support debtor's children, who were now in their mid-30s. Based upon 11 U.S.C. § 523(a)(5), the Court concluded the debt was nondischargeable.

Under § 523(a)(5), the Court's focus is upon the parties' intent at the time of the divorce. Subsequent circumstances are irrelevant. As the debtor admitted the debt was originally in the nature of child support, it could not be discharged. The accrued interest was ancillary to the primary debt, and likewise nondischargeable.

FOOTHILL, WELLS FARGO INC. (5/25/04) (Unpublished)

After the perogatives exclusive to the FCC were carved out, there remained an interest in the proceeds generated from the sale of the FCC license in which Foothill held a perfected security interest. When the license was sold, the existing security was liquidated and proceeds were generated. It was ordered that the proceeds from the sale of the license be distributed to Foothill.

FRISKE (12/7/92) (Unpublished)

Amounts constituting a MasterCard obligation and state and federal income tax obligations paid by debtor's ex-wife are dischargeable in debtor's bankruptcy. This is in spite of the state court judge's approval of a stipulation between the parties which explicitly provided that any such amounts paid by one spouse above and beyond that spouse's 50% share would constitute a maintenance obligation of the non-paying spouse. Court applied the factors identified in In re Messnick, 104 B.R. 89, 92 (Bankr. E.D. Wis. 1989).

FRYSETH (9/14/11) (Unpublished)

The debtors attempted to avoid a lien on a car on the grounds that the lien had not been properly assigned. The court found that the lien had been assigned under the terms of Wis Stat § 342.21, which provides that a secured party may assign a security interest in a vehicle and that upon assignment, the assignee does not need to reissue the certificate of title with the assignee named as the secured party. Under Wisconsin law, the assignment affected neither the owner’s interest nor the validity of the original security interest. The debtors could not avoid the lien.