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In re Schmidtke, Case No. 09-18484 EEB, March 11, 2014; 11 U.S.C. §522(f).
Debtors reopened their case to avoid a judgment lien on their residence under 11 U.S.C. § 522(f). The lien creditor objected, arguing that debtors could not utilize § 522(f) to avoid the lien because they did not claim a homestead exemption prior to the closing of their case. The Court granted debtors' motion to avoid the lien, holding: (1) § 522(f) allows a lien to be avoided if it impairs an exemption to which debtors "would have been entitled," regardless of whether the property was actually claimed exempt; (2) creditor could raise debtors' lack of entitlement to an exemption as a defense to lien avoidance, but there was no basis for such a challenge in this case; (3) there was no need for debtors to amend their exemptions because the property was abandoned to debtors upon closing of their case and was no longer subject to the claims of general creditors; (4) debtors need not have equity in the property in order to avoid a judgment lien under § 522(f); and (5) applying the formula of § 522(f)(2)(A), creditor's lien impaired the homestead exemption to which debtors would have been entitled.
Posted: 7/25/2014 1:44:57 PM
In re K Lunde, LLC, Case No. 13-17775.
Chapter 11 debtors, who were co-owners of a shopping center, proposed a plan and disclosure statement that separately classified a county secured tax claim that provided for the county to retain its lien on Debtors' property and receive payments on its claim in equal monthly installments, with statutory interest, over a one-year period. A creditor objected to the adequacy of Debtor's disclosure statement, arguing that the Debtors could not separately classify and deem impaired the secured tax claim. The Court acknowledged that such confirmation issues are not normally considered in the context of a disclosure statement objection, but held it was proper to do so in this case because the classification and impairment issues presented could make the plan patently unconfirmable. The Court then determined that § 1129(a)(9)(D), added to the Bankruptcy Code in 2005, applied to the county's secured tax claim. Because § 1123(a)(1), which controls the classification of claims, does not contain an express exclusion for § 1129(a)(9)(D) claims, the Court held those secured tax claims must be separately classified. The Court further held that the secured tax claim was not impaired because the foundation of § 1124's concept of impairment is built on plan impairment. In this case, the secured tax claims were impaired, but that impairment was dictated by the Bankruptcy Code, not the Debtors' plan. The Court concluded that when a plan merely provides the statutorily prescribed treatment afforded claims that fall within the purview of § 1129(a)(9)(D), and does not otherwise alter the secured tax claimant's non-bankruptcy rights, the plan itself is not the source of the claim's impairment. Because the secured tax claim was not impaired, the county could not vote on the plan and Debtors could not secure an accepting vote of at least one impaired class as required by § 1129(a)(10), rendering the proposed plan unconfirmable.
Posted: 7/25/2014 1:39:13 PM
Sender v. Cygan (In re Rivera), Adversary Proceeding No. 11-01378-SBB, Bankruptcy Case No. 09-23209-SBB.
This case has a long and tortured history. It concerns a Trustee's strong arm powers under 11 U.S.C. Section 544(a) and whether a bankruptcy Trustee qualifies as a bona fide purchaser and can thus avoid a deficient deed of trust, or if the Trustee has sufficient notice of the deficient deed of trust - and thus cannot qualify as a BFP, and thus cannot avoid the deficient deed of trust.
The case came before the Court on remand from the Colorado Supreme court to interpret and examine the recent amendments made to Colorado's real property title recording statute, C.R.S. § 38-35-122, by the Colorado legislature during and in response to the litigation in the instant case. An adversary proceeding was initiated by the Chapter 7 Trustee against holders of a deed of trust on Debtor's property pursuant to the Trustee's "strong arm powers" under 11 U.S.C. § 544(a)(3). At the commencement of the adversary case, the issue before this Court was whether a recorded deed of trust in Colorado provides sufficient notice of a party's interest in the property if the deed of trust contained no legal description of the property, but identified the property by a street address alone. This Court certified the legal inquiry under State law to the Colorado Supreme Court, which initially accepted this Court's certification and issued an opinion answering the question in the negative. However, following the Colorado Supreme Court's opinion, and in direct response to that opinion, the Colorado legislature passed House Bill 13-1307 intending to clarify Colorado law on the issue and specifically nullifying the opinion issued by the Colorado Supreme Court. In response, Colorado Supreme Court withdrew its opinion and remanded the case back to this Court again.
On remand, the original issued remained before the court: did the Trustee qualify as a BFP under the recent amendments to the Colorado real property recording statute, and thus he could avoid the deficient deed of trust, or did he have sufficient notice of the deed of trust, and thus he did not qualify as a BFP and could not avoid the deficient deed of trust.
But after remand, an additional threshold issue came before the court: whether the legislative amendments could apply to the facts of this case in disposing of the legal inquiry before the Court or whether application of the new amendments to the previously pending case would be unconstitutionally retrospective. This Court applied a three factor test articulated by the Colorado Supreme Court in City of Golden v. Parker, 138 P.3d 285 (2006) and found that under the facts of the case, application of the new amendments was not unconstitutionally retrospective. Specifically, the Court determined that: (a) the new amendment advanced the public interest by providing an explicit, consistent, and predictable recording statute in the State; (b) in this case, the Trustee's rights under 11 U.S.C. § 544 were subject to and contingent upon State law and therefore the Trustee did not have a reasonable expectation of a vested right during the pending litigation in this case; and (c) there was no surprise and reliance on contrary law by the Trustee because Colorado recording statutes were not clear as to the effect of a missing legal description on the validity of a lien.
The Court concluded that the Trustee did not qualify as a BFP and was not entitled to avoid the deed of trust pursuant to 11 U.S.C. § 544(a)(3). Summary Judgment was entered in favor of the Defendants and against the Trustee.
Posted: 7/24/2014 12:48:16 PM
Midwest Motor Supply Co., Inc. v. Jeffrey A. Hruby (In re Hruby); Case No. 14-11849 HRT; Order entered May 16, 2014, (§ 362(d)(1) cause to continue pre-petition litigation).
Movant, based in Ohio, employed Debtor as a salesman to service accounts primarily located in Colorado. Following the Debtor's resignation, Movant sued the Debtor in Ohio seeking breach of contract damages and injunctive relief. After commencement of Debtor's chapter 7 case, Movant sought relief from stay to continue that pre-petition litigation with respect to the injunctive relief. In cases of this type, Bankruptcy courts in the 10th Circuit frequently look to the Curtis factors, In re Curtis, 40 B.R. 795, 799-800 (Bankr. D. Utah, 1984), for considerations relevant to a finding of cause under § 362(d)(1). A factor that does not appear on the Curtis list, and which is frequently considered by courts outside of the 10th Circuit, is the likelihood the movant will prevail on the merits of the litigation. In In re Gindi, 642 F3d 865 (10th Cir. 2011), the movant sought relief from the automatic stay for cause under § 362(d)(1) in order to pursue a state court appeal. The 10th Circuit held "that the bankruptcy court should have lifted the stay under § 362(d)(1) only if [the movant] showed that his appeal was likely to succeed," Id. at 873, and discussed the likelihood of success on the merits in cases of this type. In light of Gindi, the Court considered whether it was necessary to address likelihood of success on the merits in this case and determined that it was. The Court determined that Movant was likely to succeed on 2 of its 3 injunctive relief claims and lifted the stay as to those 2 claims.
Posted: 7/10/2014 8:24:27 AM
In re Fogel, Case No. 10-38010 ABC, Docket #66, (Bankr. D. Colo. June 20, 2014) (Notice of Appeal filed 7/1/14 at Docket #69); Fed.R.Bankr.P. 1016
The wife of a deceased Chapter 13 debtor, the personal representative of the debtor's probate estate ("PR"), moved the Court to reconsider its order published at In re Fogel, 507 B.R. 734 (Bankr. D.Colo. 2014). The order denied the PR's request to waive the requirement that the debtor complete a course in personal financial management because of his death. The order also dismissed the deceased debtor's Chapter 13 case relying, in part, on Fed.R.Bankr.P. 1016. The PR urged the court to consider her interests and the interests of her children as among the interests referred to in Fed.R.Bankr.P. 1016. The Court denied the PR's motion to set aside the dismissal order concluding again that dismissal was the appropriate course in the case before it and that the PR is not entitled to obtain and receive the benefit of a discharge in a bankruptcy case which she did not file
Posted: 7/3/2014 8:12:36 AM
In re Lopez, Case No. 13-22220- HRT, Chapter 13; Order entered July 1, 2014 (Application of 11 U.S.C. § 506(a)(1) and 1322(b)(2) to the Colorado Common Interest Ownership Act, Colo. Rev. Stat. § 38-33.3-316 (the "Act")).
A condominium owners association ("COA") filed an objection to the Debtor's Chapter 13 plan that proposed to pay the COA six months of assessments under the Act and "strip off" the remaining past due assessments under § 506(a)(1), where the parties agreed that the Debtor's primary residence was valued at less than the first mortgage on the residence. The COA argued that part of its lien for assessments was secured due to the priority given the six months of assessments under the Act, and that, pursuant to § 1322(b)(2) and Nobelman v. American Sav. Bank, 508 U.S. 324(1993), its lien could not be stripped off in a Chapter 13 Plan. Debtor contended that under the Act, the COA had a super priority lien over the first mortgage holder's otherwise senior deed of trust in the event of a foreclosure, but that by the terms of the Act, the lien was limited to the assessments accruing within six months of the initiation of foreclosure proceedings. The Debtor argued that the remainder of the COA's lien could be stripped off in the Chapter 13 Plan under § 506(a)(1) and (d). The Court held in Debtor's favor, finding that under the plain terms of the Act, the COA's lien was a statutory lien, and not a "security interest" as defined in the Bankruptcy Code, the Act, or the COA Declarations. Because the COA's lien was not a security interest, it was not subject to the anti-modification clause of § 1322(b)(2), and was subject to 506(d), making the unsecured portion of the COA's lien void upon completion of the Chapter 13 Plan. The Court noted that Debtor's obligation to pay post-petition assessments was unaffected by the Court's order.
Posted: 7/3/2014 8:03:36 AM
In re Zachary Mason, Case No. 12-26209 ABC, 11 U.S.C. §§ 362(a)(1), 524(a)(2)
The Court denied, in part, Debtor's motion for sanctions based on creditor's post-petition application in state court for judgment for attorneys fees incurred in post-petition judicial foreclosure. Creditor's right to recover the attorneys fees was part of its pre-petition claim, and although judicial proceedings against the Debtor to collect such claim were no longer stayed by Section 362(a)(1) after Debtor's discharge entered, creditor's actions may have violated the discharge injunction of Section 524(a)(2), depending on outcome of a pending dischargeability adversary proceeding. The matter of violation of the discharge injunction was consolidated with the trial of the adversary proceeding.
Posted: 5/5/2014 7:44:55 AM
Lofstedt v. Kendall (In re Kendall), Adv. Proc. No. 10-01710 MER; Order entered April 25, 2014 (Fed. R. Bankr. P. 8005 - Stay Pending Appeal)
Following a trial on the merits, the Court entered an order and judgment in favor of the Chapter 7 trustee and against the defendants avoiding three fraudulent conveyances. The defendants appealed the matter to the United States Bankruptcy Appellate Panel of the Tenth Circuit ("BAP"), and obtained a stay pending appeal from this Court pursuant to Fed. R. Bankr. P. 8005. Later, the BAP issued a written opinion affirming the Court's order and judgment, and issued the mandate. Defendants filed a subsequent appeal to the Tenth Circuit, and that appeal is still pending. As a matter of first impression in this district, the Court examined whether the stay pending appeal imposed by this Court under Rule 8005 terminated at the conclusion of an appeal to the BAP, or whether the stay continues through the entire appeal process, including a subsequent appeal from the BAP to the United States Court of Appeals for the Tenth Circuit. While the Court agreed Rule 8005 is a flexible tool for a bankruptcy court to determine whether a stay pending appeal is appropriate given the facts of a specific case, the Court found a Rule 8005 stay should not continue through a subsequent appeal of a BAP or district court judgment to the Tenth Circuit. Ultimately, the Court held its stay pending appeal under Rule 8005 terminated at the conclusion of the BAP appeal.
Posted: 4/29/2014 9:08:13 AM
In re Fogel, Case No. 10-38010 ABC, Docket #58, (Bankr. D. Colo. April 1, 2014); Fed.R.Bankr.P. 1016
The Chapter 13 debtor died within a month of confirming his plan. The debtor's widow, who was not a debtor in the case, made the payments under the plan to the Chapter 13 trustee. Three (3) years later, upon completion of those payments, an attorney entered an appearance, purportedly on behalf of the deceased debtor, and moved to waive the requirements that debtor: (1) complete the course in personal financial management; and (2) file a certificate to obtain a discharge, because debtor had died. Upon that record, and in light of Fed.R.Bankr.P. 1016, the Court dismissed this case concluding that the non-debtor widow, as either personal representative of the deceased debtor's probate estate, or as a co-obligor on any of her husband's debts, could not achieve the benefits of the stay and the discharge without filing a bankruptcy case.
Posted: 4/8/2014 2:14:44 PM
Horizon Womens Care Professional LLC; Case No. 13-28436 HRT; Order entered February 14, 2014 (relief from stay under § 362(d) to continue state court appeal).
Movant is the appellant in a state court appeal against the Debtor where she appeals a judgment the Debtor obtained in pre-petition state court litigation. In this Court, Movant seeks a declaration that the automatic stay is inapplicable to the pending appeal or, alternatively, an order lifting the automatic stay. Based on TW Telecom Holdings, Inc. v. Carolina Internet, LTD, 661 F.3d 495 (10th Cir. 2011), because the original suit was filed by the Debtor against the Movant, the court determined that the pending appeal does not constitute an action against the Debtor that is stayed under 11 U.S.C. § 362(a). As to the Movant's alternative prayer for relief from the automatic stay, Debtor took the position that the Court should deny relief from stay because this Court could decide the issues that are on appeal in the process of considering an adversary proceeding Debtor filed against the Movant. The Court rejected the Debtor's position because federal bankruptcy jurisdiction does not permit the Court to act in the role of an appellate court with respect to the state court judgment. Moreover, the Court's analysis of the Curtis factors, In re Curtis, 40 B.R. 795 (Bankr. D. Utah 1984), showed ample cause to lift the stay under § 362(d)(1).
Posted: 3/6/2014 7:46:05 AM
In re John Gazzo (Gasso v. Ruff and Merrick), Bankruptcy Case No. 12-33683-SBB, Adversary Proceeding No. 13-01356-SBB.
Debtor/Plaintiff initiated an adversary proceeding against his former spouse and her counsel for violating the automatic stay by continuing on with a domestic court hearing the day after the Debtor filed for bankruptcy relief and seeking an order from the domestic court against the Debtor post-petition. Defendants argued that the domestic court hearing and the resulting order did not violate the automatic stay because they fell under exceptions from the stay under 11 U.S.C. §§ 362(b)(1) and 362(b)(2)(A)(ii), respectively. Specifically, Defendants argued that the domestic court hearing was a hearing for criminal contempt of court and the resulting order was a modification of an order of domestic support obligation and they were both, thus, excepted from the automatic stay.
The Court however found that the nature of the domestic court hearing was not criminal nor was the resulting order a modification of a domestic support obligation, and thus was not excepted from the automatic stay. Rather the ultimate goal of the hearing was to enforce the terms of a divorce decree and otherwise compel the Debtor to pay on a debt. Additionally, the Court found that the order entered by the domestic court was not an order modifying a domestic support obligation but an award of costs and therefore was not excepted from the broad reach of the automatic stay.
The Court treated the Defendants' Motion to Dismiss as a Motion for Summary Judgment under FED. R. CIV. P. 12(d) and denied relief to the Defendants. Because the Defendants knew of the Debtor's bankruptcy and acted in a deliberate manner, the Court found that the Debtor was entitled to an award of actual damages. Additionally, the Court concluded that because the Defendants acted with a reckless disregard of the Debtor's bankruptcy filing, punitive damages may be appropriate. The Court instructed the Debtor to file a separate application/motion for damages.
Posted: 2/10/2014 8:03:25 AM
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