On remand from the District Court, the court was instructed to determine whether the creditor even had standing to assert nondischargeability of the debt. Debtor’s wife was awarded contribution of $70,000 in attorneys’ fees in the divorce decree. The law firm which represented debtor’s wife in the divorce proceeding asserted priority under § 507(a)(1). The court held that, absent an express provision in the divorce decree directing payment to the law firm, the payment of the attorneys’ fees was, by default, payable to the spouse. The court noted that historically, in Wisconsin, attorneys’ fees could not be awarded in a law firm, but must be awarded to the spouse. In 1977, the Wisconsin legislature amended the statute, permitting attorneys’ fees to be awarded directly to the law firm. Nevertheless, the historical and ethical background suggested that, unless otherwise stated, attorneys’ fees were to be interpreted as awarded to the wife. The court also noted that the unique enforcement provisions for alimony precluded alimony from being enforced by an action at law. Allowing alimony to be indirectly enforced by an action at law, through a garnishment, would be an injustice.
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- Chief Judge Catherine J. Furay--2013-present
- Judge William V. Altenberger--2016-present
- Judge Brett H. Ludwig--2017-present
- Judge Robert D. Martin (retired)--1990-2016
- Judge Thomas S. Utschig (retired)--1986-2012
Judge Robert D. Martin
Debtor’s father filed an adversary proceeding to determine dischargeability of debt. Debtor’s father had taken out a loan, secured by his principal residence, and then loaned the funds to his daughter to refinance her student loans. The court held that non-dischargeability was not warranted under § 523(a)(8)(A)(ii) because loans are not included within the purview of the section. While some courts have allowed loans to be classified under § 523(a)(8)(A)(ii), the court found that the section, which refers “to educational benefit, scholarship, or stipend” contemplated payments of a different nature than loans, and that the inclusion of loans within the section would render the remainder of § 523(a)(8) superfluous.
11 U.S.C. § 523(a)(8) -- Nondischargeability – student loans
The parties filed a stipulation requesting a ruling as a matter of law on three issues: (1) the choice of law to be applied in interpreting the contract; (2) whether the Consent Provision is a condition precedent to the formation and enforceability of the Contract, such that the stipulated failure to obtain the executed Consent rendered the contract null and void; (3) whether Houlihan could unilaterally waive the Consent Provision. The court held that when the very formation of a contract is at issue, a choice-of-law provision included in the contract does not apply. The court noted that the 7th Circuit has declined to determine whether bankruptcy courts apply federal or state choice-of-law rules; typically, the same result will be reached. The court further held that when the entirety of the bargained for services under a contract is conditioned on an event, then the existence of the contract is conditioned on the occurrence of such event. Since one party’s duty to provide services, and the other party’s duty to pay for such services, are both suspended until the occurrence of the event, the party could not unilaterally waive the Consent Provision, since that would be the equivalent of providing an indefinite option contract. Since consideration is required to keep an option contract open, by definition this Consent Provision cannot have been for the sole benefit of Houlihan.
Chapter 11 debtor’s secured creditors (banks) held $57.6M in claims. At a valuation hearing the court determined the value of the banks’ collateral to be $36M. However, the banks made the § 1111(b) election. Accordingly, in order to be confirmable, the debtor’s plan was required to provide the banks with total payments under the plan equal to the amount of the banks’ claims ($57.6M), which payments were required to have a current value equaling the value of the banks’ collateral ($36M). The banks objected to confirmation of the plan arguing that: (1) the plan was not proposed in good faith as it artificially impaired a class of creditors in order to secure superficial compliance with § 1129(a)(10); (2) the debtor failed to establish feasibility of the plan; (3) the plan violated § 1129(b)’s absolute priority rule as the debtor’s sole member was allowed to retain its ownership interest; (4) the plan failed to comply with § 1129(b)(2)(A)(i)(I) because it improperly eliminated some of the creditor’s prepetition security interests; (5) the plan improperly provided for a reduction in the current value of the banks’ claims ($36M) as a result of the payment to the banks of a $3.8M debt service reserve fund held on their behalf; and (6) that the interest rate proposed by the debtor (4.65%) failed to comply with Till. Despite these objections, the court confirmed the plan. As to (1), the court found that “the concept of artificial impairment is a chimera.” As to (2), the banks’ protestations notwithstanding, the court found that the debtor had “met its burden is establishing that the proposed plan is feasible,” as “the proponent [of a plan] need not demonstrate that a plan carries a guarantee of success.” As to (3), the court found that the banks no longer had standing to argue that the plan violated the absolute priority rule given that, as a result of their § 1111(b) election, they no longer held unsecured claims. Additionally, the court found that the membership interest held by the debtor’s sole member, a non-profit, was not the sort of for-profit equity interest to which the absolute priority rule would apply. As to (4), the court found that, based upon the representations made by the debtor’s attorney that the debtor would assist the banks in perfecting security interests in all prepetition collateral in which the banks had perfected security interests, the plan did not violate § 1129(b)(2)(A)(i)(I). As to (5), the court found that nothing in the record supported the banks’ argument that the debtor was attempting to reduce the current value of the banks’ claims ($36M) as a result of the payment to the banks of the $3.8M debt reserve fund. Finally, as to (6), the court found the opinion of the debtor’s Till expert to be “much the more persuasive and firmly based.” In fact, the court determine that the testimony of the banks’ Tillexpert appeared to “facile and predirected to a result.”
Chapter 7 debtors Timothy and Pamela McCarthy sought an exemption for what they alleged were closely held business interests, under Wis. Stat. § 815.18(3)(B)(2), in a partnership which they claimed to have formed to operate a duplex which they purchased with their son. The Chapter 7 trustee objected to the exemption, arguing that both the McCarthys’ formation of an LLC to operate the duplex and their failure to file partnership tax returns established that they had not intended to form a partnership. As to the former, citing McDonald v. McDonald, 192 N.W.2d 903 (Wis. 1972), the court held that nothing prevented the McCarthy’s from utilizing an LLC as an “instrumentality of the partnership.” As to the latter, in light of the fact that the McCarthys introduced evidence establishing, per Wisconsin’s four part test for establishing the existence of a partnership discussed in Tralmer Sales and Service, Inc. v. Erikson, 521 N.W.2d 182 (Wis. Ct. App. 1994), that (1) they intended to form a bona fide partnership; (2) they had a community of interest in the capital employed; (3) they had an equal voice in the partnership’s management; and (4) they shared and distributed the partnership’s profits and losses, the court found that “failure to file partnership tax returns, though marginally relevant, [was] insufficient to defeat the McCarthys’ assertion that they operated a partnership.”
In her Chapter 7 schedules the debtor claimed fee simple ownership of two pieces of real property, one located in Madison, Wisconsin, the other in Laona, Wisconsin. Although the debtor essentially conceded that she had resided in the Madison property since 2011, she sought to exempt the Laona property as her homestead under Wis. Stat. § 815.20(1). The Chapter 7 trustee objected to the claimed exemption, arguing that the fact that the debtor had clearly resided in the Madison property (as evidenced by the debtor’s driver’s license, tax filings, and the bankruptcy filing itself), precluded her from claiming the homestead exemption for the Laona property. The debtor responded by asserting that although she had not residedin the Laona property, she had, per § 815.20(1), occupied it, as evidenced by the fact that she spent weekends and summers at the property and maintained the property with food and furnishings. Relying on In re Lackowski, No. 08-21496-pp (Bankr. E.D. Wis. Sept. 2008), the court found in favor of the debtor. Specifically, the court held that although the trustee had established that the debtor resided in the Madison property, § 815.20(1) required only that a debtor occupy a property in order to claim the homestead exemption, and nothing prohibited a debtor from occupying two properties concurrently, only from claiming both as homesteads.
Wis. Stat. § 815.20
Following the granting of his discharge, debtor’s Chapter 7 case was closed by the court on September 20, 2001. On September 25, 2015, debtor moved to reopen his case. In the period leading up to the filing of the motion, the debtor’s student loan creditors contacted the debtor to collect on student loan debts which he incurred in 1987. Debtor moved to reopen his bankruptcy in order for the court to either determine that the loans were dischargeable, based upon debtor’s minority at the time he entered into the loan agreements, or that the collection charges sought by his creditors were unreasonable. Citing Judge Easterbrook’s observation in Pettibone v. Easley, 935 F.2d 120 (7thCir. 1991), that “[o]nly a belief that bankruptcy is forever could produce a case such as this,” the court found no justification for reopening the debtor’s 14-year-old bankruptcy case so that the court could exercise jurisdiction. Accordingly, debtor’s motion was denied.
Case No. 01-33567-7
Where spouses are jointly liable for prepetition debt, but only husband files bankruptcy, wife's individual property remains available to satisfy the debt. Actions by creditors against wife to separate wife's individual property from the couple's community property, which is protected by the section 524 discharge injunction, do not violate the discharge injunction.
Chief Judge Catherine J. Furay
Case No. 16-10037-7
Debtors Julie Roen and Robert Dorshak filed a voluntary chapter 7 petition. Both Debtors claimed a $75,000 exemption in real property as homestead property under Wis. Stat. § 815.20. The Chapter 7 Trustee objected to Debtor Dorshak’s $75,000 exemption claim, but conceded to Debtor Roen’s homestead exemption. Prior to their marriage, Debtor Roen owned the homestead free and clear with no liens as of 2007. There was no mortgage on the homestead throughout the Debtors’ marriage. Debtor Dorshak claimed that his payment of real estate taxes, home insurance, and necessary maintenance repairs constituted a mixing of marital property with individual property converting the homestead into marital property. The Court found Dorshak’s payments did not constitute a mixing under Chapter 766 because such payments were not applied to the mortgage nor did the payments substantially increase the property’s value. The Court sustained the Trustee’s objection and denied the exemption.
Wis. Stat. § 766.01 -- Marital property
Wis. Stat. § 766.63 -- Mixed property
Wis. Stat. § 815.20 -- Homestead exemption
Case No. 15-13725-13
Both Defendants hold mortgages against Plaintiff’s property. Plaintiff seeks to determine priority of the liens. Associated Bank had a first mortgage on the property from 1982. This mortgage contained a future advance clause with specific requirements. United FCS received a mortgage on the property in 1993. In 2000, Associated Bank refinanced their loan by giving the Plaintiff a line of credit and received a new mortgage in return. They then satisfied the 1982 mortgage. In 2001, Associated modified the 2000 loan to extend the credit line. The property is worth significantly less than the sum of the debts. Associated filed a cross-claim against United to assert a theory of subrogation to place its 2000 mortgage in first priority ahead of United’s mortgage.
The Court found that Associated was entitled to subrogation in the amount of $5,965.49, but no more. That is the amount of the 1982 loan that Associated refinanced. All other amounts of Associate’s claim were placed behind United’s lien. Associated did not satisfy the specific requirements of the future advance clause, so it cannot rely on that to secure its 2000 loan. It also did not order a title report before granting that loan to reveal the existence of United’s lien. Subrogation under Wisconsin law is based upon equitable factors. Granting subrogation to Associated beyond the refinanced amount would place it in a position it would not have enjoyed if it had not satisfied and released the 1982 mortgage. Further, it would place United in a worse position than it otherwise would have enjoyed. Therefore, the balance of the equities on the remaining amounts of Associated’s claim beyond the refinanced amount of $5,965.49 favor United and subrogation for those amounts is denied.