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Blackwell Oil Co., Inc., v. Potts, Case No. 12-23027- HRT; Adversary Proceeding No. 11- 1592, Order entered November 14, 2013 (Denial of discharge under § 727(a)(5))
Creditor moved to deny Debtor's discharge under 11 U.S.C. §§ 727(a)(3), (a)(4)(A), (a)(4)(D), and (a)(5). The Court granted the Creditor's complaint for denial of discharge under § 727(a)(5) because Debtor failed to explain satisfactorily a loss or deficiency of assets; namely, the value of Debtor's 100% interest in a corporation. The Creditor showed the corporation had over $700,000 in unexplained cash losses for several years prior to the filing of Debtor's Chapter 7 bankruptcy petition, and Debtor then transferred the assets of the corporation for significantly less than their value prior to filing for bankruptcy. The Court concluded that the dissipation of assets, combined with the transfer, was not too remote in time to be considered under § 727(a)(5), citing, in part, In re Lindemann, 375 B.R. 450 (Bankr. N.D. Ill. 2007). Because the Debtor failed to satisfactorily explain the loss of assets, the Court denied his discharge under
Posted: 12/11/2013 8:04:21 AM
In re Kurtz, No. 11-35725 ABC (Bankr. D.Colo. November 26, 2013) ECF#71
Debtor, joined in by Douglas Kiel, Chapter 13 Trustee, moved to reconsider the Court's order denying a postconfirmation motion to modify his confirmed Chapter 13 Plan. Debtor proposed in his modified plan to surrender his home and discharge any deficiency balance owed to the first mortgage holder. The Court denied Debtors' motion to reconsider holding that: (1) the Debtor is bound to the provisions of his confirmed plan; (2) section 1329 does not contemplate the bifurcation of a secured claim not subject to bifurcation at confirmation; (3) Debtors could not seek to discharge any deficiency because the claim of the first mortgage holder was one excepted from discharge by section 1328(a)(1).
Posted: 12/2/2013 8:35:05 AM
In re Calderon, ___ B.R. ___ (Bankr. D.Colo. 2013) (Bankr. Case No. 12-23843-SBB, issued October 23, 2013)
The debtor used tools and equipment owned by him in his personal capacity in conducting his masonry business through a wholly-owned corporation. The trustee contended that debtor was not entitled to tools of the trade exemptions under Colo. Rev. Stat. § 13-54-102(1)(i) because the tools and equipment at issue were used and kept not by the debtor, but by his legally distinct corporation. The Court concluded that the mere creation of a separate legal entity does not render a debtor's claim of exemption in his tools and equipment to be improper. The Court held that the focus of the inquiry is on ownership and the nature of the use and keeping of the tools and/or equipment. The Court set forth a nonexclusive five-factor test to help determine whether under Colo. Rev. Stat. § 13-54-102(1)(i), tools and equipment are "used and kept for the purpose of carrying on any gainful occupation." Based on the parties' stipulations, the Court determined that the debtor was the proper entity who owned, maintained, used and kept the tools and equipment related to his masonry business. The Court further concluded that the tools and equipment were integral to the debtor's masonry business and to his fresh financial start. Consequently, the Court denied the trustee's objection to the debtor's claim of exemptions.
Posted: 11/20/2013 2:12:24 PM
In re: Soles, Bankruptcy Case No. 12-32042 EEB.
The chapter 7 trustee objected to debtors' claim of homestead exemption for a vacant lot adjacent to the lot on which their house was situated. Debtors owned the vacant lot jointly with their neighbor. Trustee argued that the vacant lot was not "occupied as a home" by the debtors for purposes of the homestead exemption statute, Colo. Rev. Stat. § 38-41-201(1)(a). The Court overruled the trustee's objection, emphasizing that exemption statute specifically allows a homestead to consist of multiple lots. The statute does not require that a homestead consist of only one parcel or legal description, that all lots be purchased at the same time, or that a house touch every lot. Further, there was no evidence that debtors had used the vacant lot as anything other than as part of their residence. Accordingly, the Court concluded debtors were entitled to claim a homestead exemption for both lots.
Posted: 9/20/2013 11:45:56 AM
In re Lisa L. Spence, Bankruptcy Case No. 12-23626-SBB.
After the Debtor voluntarily converted her case from Chapter 7 to Chapter 13, counsel for the former Chapter 7 Trustee filed a fee application for an administrative claim of attorney's fees and costs incurred during Debtor's Chapter 7 case. The Debtor objected to the allowance of the fee application arguing that (1) the bankruptcy code does not confer standing upon counsel of Chapter 7 trustees to seek administrative claims after the case converts from Chapter 7 to Chapter 13; (2) the work performed by counsel for the Chapter 7 Trustee in this case lacked substantial justification and was not necessary or likely to benefit the Debtor's estate; and (3) even if the Court finds that counsel is entitled to an administrative claim, attorney fees for counsel of Chapter 7 trustees are limited to a percentage of the monies actually disbursed by the trustee pursuant to 11 U.S.C. § 326(a).
The Court relied upon the plain and logical reading of 11 U.S.C. §§ 1322(a)(2), 507(a)(1)(c), 503(b)(2) and 330(1)(a) to conclude that the statutory scheme provided therein authorizes bankruptcy courts to grant administrative claims for work performed by counsel for the Chapter 7 trustees during the Chapter 7 case. The Court also concluded that while conversion of a case from Chapter 7 to Chapter 13 terminates the Chapter 7 trustee and his or her counsel from the case, it does not bar standing of the trustee or counsel from seeking an administrative claim for attorney's fees and costs for work performed and services rendered during the Chapter 7 case. Further, the Court found that based on the facts of this case, work performed by counsel of the Chapter 7 Trustee was not only justified in light of Chapter 7 trustees' statutory and common law fiduciary obligations to investigate, examine, evaluate and pursue debtors' interest in non-exempt property for the benefit of the estate, but also that the hourly rates charged and time spent by counsel for the Chapter 7 Trustee in this case were reasonable and necessary under 11 U.S.C. § 330. Finally, the Court concluded that while 11 U.S.C. § 326(a) provides certain statutory limitations on compensation of trustees in Chapter 7 or 11 cases, the limitation simply does not apply to counsel for trustees. The Court made adjustments to counsel's fee application and allowed her a claim for fees and costs limited to work performed and services rendered post-petition but pre-conversion.
Posted: 9/12/2013 9:36:42 AM
In re BAAB Steel, Inc. 08-12067ABC, Docket #202 entered on August 22, 2013; 11 U.S.C. §§ 502(f), 503(b) and 507(a).
Attorney who represented the alleged debtor in opposing an involuntary petition made a claim against the estate for fees. The Court ruled that there are no provisions in the Bankruptcy Code which authorize payment of such attorney's fees from the bankruptcy estate.
Posted: 8/27/2013 8:59:33 AM
In re: John Watson, Bankruptcy Case No. 07-21077EEB.
Special counsel was employed in chapter 11 case to pursue fraudulent transfer claims on contingency basis. The amount counsel recovered through litigation was not sufficient to enable it to receive a contingency fee that approximated the amount of their usual hourly rates. The firm then sought to enhance its fees by filing a motion for allowance of administrative expense in a related chapter 7 case. The two bankruptcy cases were related in that the chapter 7 debtor was an individual who formerly owned the debtor-corporation in the chapter 11 case, and the chapter 7 trustee had caused the corporation to file a chapter 11 petition. Law firm argued that the work it performed on behalf of chapter 11 debtor also benefitted chapter 7 estate, thus entitling firm to an additional administrative expense beyond its contingency-based fee. The Court denied the motion, holding that firm was not entitled to seek fees under 11 U.S.C. § 503(b)(3)(B), (b)(3)(D) or (b)(4). The Court also denied the firm's quantum meruit argument, holding that it would be inequitable to allow the firm to evade its contingency fee agreement by seeking payment of its fees from another bankruptcy estate.
Posted: 8/20/2013 7:46:36 AM
In re: River Canyon Real Estate Investments, LLC, Bankruptcy Case No. 12-20763EEB.
Partially secured creditor asserting statutory special district liens on various lots in chapter 11 debtor's real estate development filed an election under 11 U.S.C. § 1111(b). The Court invalidated the election because it did not comply with the class voting requirements contained in § 1111(b)(1)(B)(i), which states that the election is made if the class of which such claim is a part elects "by at least two-thirds in amount and more than half in number of allowed claims of such class." Two special districts asserted the same statutory lien and the debtor's plan classified both creditors in the same class. Neither creditor had objected to this classification. Because the other member of the class did not make an election, only half of the claims in the class made the election, rather than "more than half." The Court also rejected the creditor's equitable arguments, holding that the Court's powers under § 105 could not be used to permit the creditor to make a non-class election in violation of the clear requirements of the Code.
Posted: 8/20/2013 7:44:37 AM
In re McGehan, Case No. 12-27662-SBB, and In re Milano, Case No. 112-30027-SBB, opinion issued July 19, 2013.
The Chapter 13 Trustee objected to confirmation of above-median Debtors' repayment plan, which proposed 100% repayment over 60 months, on the sole basis that Debtors had enough disposable income to complete 100% repayment in a significantly shorter period of time. McGehan proposed to pay only 23% of his net monthly income to creditors and the Milanos proposed to pay only 51% of their net monthly income to creditors. If the Debtors committed 100% of their net monthly income to repay creditors, then McGehan would fully repay his creditors in 15 months and the Milanos would fully repay their creditors in 31 months. In considering the merits of the Chapter 13 Trustee's objection, the Court reasoned that just as the good faith test set forth by the Tenth Circuit Court of Appeals in Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983) has been narrowed by the 1984 amendments to the Bankruptcy Code, which added section 1325(b)(1), commonly known as the "ability to pay test," so too was the good faith test narrowed by the 2005 amendments to the Code, which added section 1325(b)(4), which sets forth the duration of a repayment plan. In adding sections 1325(b)(1) and (b)(4) to the Code, Congress provided courts with bright-line tests for determining, respectively, the amount of debtors' proposed payments as well as the duration of debtors' payments. Thus, since Congress has provided the Court with bright-line tests for determining the amount and duration of debtors' payments, it would be improper for the Court to fashion an amendment to the Code under the banner of good faith. The Court found that the Debtors' calculated and proposed their plans exactly as the Bankruptcy Code explicitly allowed and therefore the Debtors' calculations of the amount and duration of their payments, alone, cannot constitute a lack of good faith. The Court confirmed both plans.
Posted: 8/12/2013 2:37:44 PM
In re Ellis (Ellis v. United States Dep't of Homeland Security), Bankruptcy Case No. 08-24670-SBB; Adversary Proceeding No. 10-01013-SBB
Debtor filed a §525(a) complaint against the United States Department of Homeland Security (DHS) alleging that the DHS illegally discriminated against him by making a determination of unsuitability (for security clearance) based on his Chapter 13 bankruptcy filing and temporarily denying him employment as a government contract security worker.
DHS asserted that Debtor was employed by DECO, Inc., a contractor for the DHS, and DHS was not the proper defendant under §525(a). DHS argued that because §525(a) only applied to prohibit conduct on part of a debtor's employer, the waiver of sovereign immunity under §106(a) did not apply. Alternatively, DHS argued that the determination that led to the temporary denial of employment to Debtor was not "solely because" of Debtor's bankruptcy.
The Court found that DHS was the proper defendant in the action because it, and not DECO, Inc., the contractor for DHS, was the de facto employer or the party in control of the suitability determination and security clearance apparatus and responsible for the temporary firing of the Debtor. Here, it was the actions of DHS and its relationship with Debtor's employer, DECO, Inc., that made §525(a) applicable.
The Court further found that because Congress did not limit §525(a) actions to employer governmental units of Debtors, the waiver of sovereign immunity under §106(a) applied.
The Court declined to find DHS liable under §525(a) because evidence showed it was not Debtor's bankruptcy filing that was the sole reason or the "proximate cause" of denial of employment to Debtor, but rather Debtor's own failure to produce appropriate and necessary bankruptcy information and documents upon request of DHS.
The Court concluded that neither the policy of DHS with respect to the inquiry into the bankruptcies of its contractor's employees nor its actions against the Debtor in this specific case fell within the prohibition against discrimination under §525(a).
Posted: 7/10/2013 12:14:20 PM
In re Towler, Case No. 12-10126EEB.
In an effort to ensure repayment of a nondischargeable claim owed to the State of Colorado arising from the overpayment of unemployment benefits, Debtor proposed a chapter 13 plan that either treated the claim as a "tax" entitled to priority treatment, or placed it in a separate class receiving full payment. The Court held that the plan could not be confirmed because the State's claim was not entitled to priority treatment as a "tax" or "tax penalty" under 11 U.S.C. § 507(a)(8). Further, the Debtor's separate classification of the nondischargeable claim amounted to unfair discrimination because, viewed from the perspective of the other general unsecured creditors, her full repayment of the State's debt would only benefit the Debtor. In so doing, the Court rejected the usual four-factor test for "unfair discrimination" and instead adopted a standard the views the discrimination from the perspective of the less favored class to determine whether it is "unfair" to that class. The Court also held that Debtor's proposal of a longer, five-year plan did not alleviate the unfair discrimination because Debtor proposed a longer plan not to benefit her non-priority unsecured creditors, but rather to ensure repayment her priority debts and the nondischargeable debt.
Posted: 7/1/2013 8:13:51 AM
In re Murphy, Case No. 11-13280EEB.
Debtor sought to void a sheriff's sale of her home that occurred after her chapter 13 case had been dismissed for non-payment of her plan obligations and before its reinstatement. The Court held that although reinstatement of Debtor's case had vacated the dismissal order, that fact did not re-impose the automatic stay retroactively, such that it would invalidate the foreclosure. Further, although many courts generally assume that the parties will continue to be bound by a previously confirmed chapter 13 plan following reinstatement, this practical solution did not apply in cases where the rights of the parties have substantially changed during the gap between dismissal and reinstatement. Because there had been such a substantial change in rights, the Court deemed the prior confirmation order to be no further legal effect. Finding no equitable basis to overturn the foreclosure, the Court denied the Debtor's request to set aside the foreclosure and granted the foreclosing creditor relief from stay to proceed with eviction.
Posted: 7/1/2013 8:11:00 AM
In re Palilla, Case No. 11-24809EEB, Adversary Proceeding No. 12-1092EEB.
Debtor was a partner in a used car lot which sold cars on a consignment basis. Debtor's partner in the business embezzled money that Plaintiff had paid to purchase a truck, along with the funds of numerous other customers. The Court held that the debt owed to Plaintiff was nondischargeable in Debtor's bankruptcy case under 11 U.S.C. § 523(a)(4), even though Debtor had no knowledge of his partner's fraudulent activity. Under the Supreme Court's holding in Strang v. Bradner, 114 U.S. 555 (1885), the wrongful conduct of one party may be imputed to an innocent debtor for purposes of nondischargeability when state law imposes vicarious liability. Because the Colorado Uniform Partnership Act holds all partners in a general partnership jointly and severally liable for the embezzlement of funds received by a partner in the course of the partnership's business or otherwise within the scope of the partner's actual authority, the Debtor was vicariously liable for his partner's embezzlement and the debt was nondischargeable.
Posted: 7/1/2013 8:07:27 AM
In re Baetz, Case No. 12-10519EEB.
Debtors alleged that their former landlord engaged in numerous violations of the automatic stay. The Court determined that the landlord had committed technical violations of the stay by initiating eviction proceedings for past-due, postpetition rent without relief from stay, and by offsetting the Debtors' security deposit against outstanding pre- and postpetition rent obligations. However, testimony at trial revealed that Debtors had orchestrated a scheme to dupe the landlord and were attempting to play games with the bankruptcy process. Under these circumstances, the Court found that a narrow, equitable exception to 11 U.S.C. § 362(k) applied. This narrow exception relieves a court from what is otherwise a mandatory obligation to impose sanctions for stay violations where compelling equitable considerations outweigh the court's need for enforcement of an orderly administration of the bankruptcy estate. The equitable exception is limited to those situations, like the instant case, in which a debtor's own conduct bears a significant portion of the responsibility for creating the stay violation.
Posted: 7/1/2013 8:03:21 AM
In re Carter, Case No. 11-13475 ABC;
(trustee's objection to claim under § 502(d) requires judicial determination of avoidable transfer; trustee without a prior determination establishing claimant's liability under §§ 547(b) and 550 may include the claim objection in an adversary proceeding to avoid the transfer)
Posted: 6/26/2013 11:32:54 AM
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