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Plaintiffs and Debtor/Defendant had been embroiled in litigation over family trusts in which the Debtor served as trustee. On the eve of a scheduled deposition, the Debtor filed his Chapter 7 bankruptcy case.

Plaintiffs actively participated in the bankruptcy case, scheduling a Rule 2004 examination and requesting the production of various documents. Throughout this process, the Debtor resisted production and engaged in a pattern of delay.

In May 2019, within a year after the granting of the Debtor’s discharge but well after the expiration of the dischargeability deadline, Plaintiffs filed their Complaint, alleging claims under 11 U.S.C. § 727 for revocation of discharge and to except their claims from discharge under 11 U.S.C. §523(a)(4), (a)(2), and (2)(6). The Debtor filed a Motion to Dismiss the dischargeability claims on the basis that no timely extension was sought and the claims were filed after the expiration of the deadline established by Fed.R.Bankr.P. 4007(c).

The Court, relying on Kontrick v. Ryan, 540 U.S. 443, 447 (2004), wherein the United States Supreme Court held that the time period within which to object to discharge under 11 U.S.C. § 727 prescribed in Fed. R. Bankr. P. 4004(a) is not “jurisdictional,” concluded the deadlines to object the dischargeability established by Fed.R.Bankr.P. 4007(c) are similarly “procedural” and therefore subject to equitable defenses including equitable tolling.

Recognizing the Plaintiffs bear the burden of proof to establish the doctrine of equitable tolling applies, the Court looked to the factual allegations set forth in the Complaint and held they were sufficient to withstand a Motion to Dismiss.

Individual and corporate debtors in two consolidated chapter 7 cases formerly provided accounting and payroll services to clients. Prior to filing, the debtors engaged in a fraudulent scheme pursuant to which they stole in excess of $11 million dollars from their clients by filing false payroll tax returns with the IRS and stealing client funds meant to pay payroll taxes. Some of the debtors’ clients, including the defendant, discovered the fraudulent scheme prepetition and forced the Debtors to pay funds to the IRS during the preference period. The chapter 7 trustee sought to recover the payments from defendant as a preference. The defendant moved for summary judgment, arguing the payments were not recoverable as preferences because they were not the debtors’ property but were instead either trust funds of the IRS under 26 U.S.C. § 7501 or stolen property. The Court granted summary judgment in part, holding that the defendant had only established a portion of the funds transferred were covered by the § 7501 statutory trust. The Court further held the defendant had failed to adequately trace those funds it alleged were its stolen property.

Debtor inadvertently omitted an unsecured creditor from his schedules and his creditor matrix and the creditor did not receive timely notice of the case. The creditor later filed a late proof of claim and motion to deem the proof of claim timely. The chapter 13 trustee objected, arguing that Fed. R. Bankr. P. 3002(c) lists the only circumstances in which a creditor may file a late proof of claim and that none of them applied to this case. The Court overruled the objection, concluding that Rule 3002(c)(6) applied. That subsection, by its express terms, permits a late filed proof of claim if notice was insufficient because the debtor failed to file the creditor matrix required by Rule 1007(a). Under a plain language interpretation, this Rule would not apply because the Debtor had timely filed a creditor matrix, albeit an incomplete one. However, the Court concluded that this interpretation would render the Rule superfluous because other requirements would dictate the dismissal of the bankruptcy case due to the untimely filing of a creditor matrix long before any creditor would face a bar against an untimely proof of claim. Thus, the Court held that Rule 3002(c)(6) should be read to apply where a debtor fails to list a particular creditor on the creditor matrix, thereby preventing adequate notice to that creditor.

The above-median income Debtors proposed a Chapter 13 Plan providing for monthly payments of $681 over a sixty-month period.  The Debtors sought to reduce their calculated monthly disposable income of $1,701.27 by claiming special circumstances deductions of $210 per month for cigarettes and $900 per month for medical marijuana.
The Chapter 13 Trustee and the United States Trustee objected to confirmation of the Plan.  Specifically, the UST argued the Plan failed to meet the requirements of 11 U.S.C. § 1325(a) and (b) in that the Plan was not proposed in good faith and failed to provide for the payment of all disposable income.
The Court declined to address the good faith argument but sustained the UST’s objection and denied confirmation because the Plan did not provide for the payment of all disposable income as required under 11 U.S.C. § 1325(b)(1)(B). Marijuana use, whether for medical or recreational purposes, remains illegal under federal law.  The Court held the deduction of a medical marijuana expense cannot be allowed as either an ongoing out-of-pocket medical expense or as a deduction for special circumstances.
Several years pre-petition, the plaintiff obtained a default judgment against the defendant and her then-husband in state court.  After the defendant filed for bankruptcy relief, the plaintiff commenced an adversary proceeding against her under 11 U.S.C. § 523(a)(2)(A), seeking a determination that the state court judgment was excepted from discharge.
The plaintiff was a small business owner who previously worked in the financial services industry and was either employed as, or receiving training to be, a licensed investment advisor when he entered into two transactions to provide funds for real estate development projects undertaken by the debtor, her then-husband, and companies they controlled.
The loans were documented by two promissory notes; one executed by the defendant, and the other executed by the defendant’s former husband.  Both promissory notes provided that the loans would be secured by trust indentures on certain lots of real property, but no trust indentures were ever executed for the subject lots.  The plaintiff received no payment under either promissory note.  
The evidence presented to the Court was complicated and at times contradictory.  Nevertheless, the testimony established that the terms of the transactions were exclusively negotiated by and between the plaintiff and the defendant’s former husband; the defendant’s former husband falsely represented to the plaintiff which lots would be pledged as security for the promissory notes; and the defendant was not present when the false representations were made.
The issues before the Court were whether the defendant, who was not directly involved in the negotiations, possessed deceptive or fraudulent intent, and whether the plaintiff’s reliance on the false representations was justifiable.
The Court analyzed law pertaining to imputed fraudulent intent in the marital context.  With respect to the promissory note executed by the former husband, the Court found that under the facts the former husband’s fraudulent intent could not be imputed to the defendant.  However, given her direct involvement with the other promissory note, the Court found that the former husband’s fraudulent intent could be imputed to the defendant with respect to that transaction.
The Court then addressed whether the plaintiff justifiably relied on the false representations in the promissory note and related negotiations.  The Court concluded that because the plaintiff, a small business owner and licensed investment advisor, was not an unsophisticated lender, and because he ignored red flags regarding the nature of the transaction and the promissory note itself, his reliance as to the defendant was not justified.  Accordingly, the Court found that the plaintiff failed to carry his burden under 11 U.S.C. § 523(a)(2)(A) and awarded judgment in favor of the defendant.

Judgment creditor with a prepetition judgment lien against the debtor’s home allowed the lien to expire following entry of discharge in the debtor’s chapter 7 bankruptcy case. The creditor then sought to obtain a new judgment lien by renewing its judgment and filing it with the county clerk and recorder. The debtor filed an adversary proceeding against the creditor, alleging violation of the discharge injunction. The creditor moved for summary judgment, arguing its actions did not violate the discharge injunction because liens ride through bankruptcy, thereby allowing the creditor to initiate in rem actions against the debtor’s property. The Court held that, although liens do ride through bankruptcy, that principle only protects liens in existence on the petition date. When the creditor allowed its prepetition judgment lien to expire under Colorado law, it became merely an unsecured creditor of a discharged debt and lost its ability to execute against the debtor’s property. Because creation of a new lien necessarily involved establishing the in personam liability of the debtor for a discharged debt, the creditor’s actions violated the discharge injunction.

A 55-year-old Chapter 13 debtor with above-median income filed a plan in which he proposed to pay $142 per month for 60 months to the Chapter 13 Trustee.  The plan payments, totaling about $8,521, were just enough to pay for his attorneys’ fees, the Chapter 13 Trustee’s fees, and his priority tax debt.  The debtor also proposed to continue making voluntary retirement contributions in the approximate amount of  $59,700 over the life of the plan, while paying nothing to his unsecured creditors, to whom he owed over $66,000 for credit card debt.  The debtor wished to continue his retirement contributions for the term of his plan, he explained, because he wanted to be “done working” by age 60 and “just relax” for the rest of his years. 

The Chapter 13 Trustee objected on the ground that the debtor’s plan was not proposed in good faith, as required by 11 U.S.C. § 1325(a)(3).  Evaluating the plan under the totality of the circumstances standard, the Court found that the debtor had failed meet his burden under Section 1325(a)(3), concluding that the debtor’s plan to enlarge his already-substantial retirement account while paying his unsecured creditors nothing was an abuse of the purpose and spirit of Chapter 13 as well as a manipulation of the Bankruptcy Code.  The Court, therefore, denied confirmation of the plan.

The Chapter 7 Trustee filed a motion to seal in which he sought to be authorized to file under seal several motions, including (1) a motion to employ a law firm as counsel to the Trustee for investigating and collecting assets of the Debtors’ bankruptcy estate; (2) a secret motion to approve, on an interim basis, a funding agreement between the Trustee and certain creditors of the estate, pursuant to which one of the creditors agreed to guarantee payment of the Trustee’s legal costs; and (3) a motion seeking authorization for the Trustee to conduct covert discovery by issuing subpoenas to unidentified third-party banks in New York without notice.  The Trustee requested permission to file the motions under seal because he believed that the strategy of the creditor who had agreed to fund the Trustee’s legal costs would be compromised if the debtors learned of the law firm’s investigation and collection efforts before such efforts were officially executed. 

The Court denied the motion, finding that the proposed secret employment and discovery process was contrary with the concept of public access to judicial documents and not authorized by 11 U.S.C. § 107(b), Fed. R. Bankr. P. 9018, or 11 U.S.C.  § 105(a).  Further, the Court found that the secret discovery process proposed by the Trustee failed to comport with the procedural notice requirements of Fed. R. Bankr. P. 2004 and 9016, which incorporate Fed. R. Bankr. P. 45.  Accordingly, the Court denied the Trustee’s motion to seal.

The Chapter 7 trustee commenced an adversary proceeding against the Debtor’s (non-debtor) widow to recover fraudulent transfers under the Colorado Uniform Fraudulent Transfer Act (“CUFTA”), Colo. Rev. Stat. §38-8-105(1)(a) and (1)(b), and 11 U.S.C. §544. In addition, the trustee brought an unjust enrichment claim to obtain a declaratory judgment that the bankruptcy estate held an interest in residential real property which was solely owned by the widow. After a three-day trial, the Court held that the trustee had not sustained his burden on any of his eight (8) claims for relief. The Court entered judgment in favor of the defendants and against the trustee.

The Court’s findings of fact and conclusions of law included legal analysis of the following: the elements of both actual and constructive fraud under CUFTA and the “badges of fraud”; CUFTA’s narrow definition of “insider” in contrast to the broader Bankruptcy Code definition of “insider” at 11 U.S.C. § 101(31); “reasonably equivalent value” under CUFTA and whether “love and affection” in exchange for a transfer constitutes reasonably equivalent value; the balance sheet insolvency test under CUFTA and its definition of “assets” which excludes property to the extent encumbered by a lien or property to the extent exempt before the time of the transfer; fair valuation of contingent liabilities; constructive fraud under CUFTA and the transferor’s “ability to pay debts as they become due”; analysis of CUFTA’s “ability to pay debts as they come due” does not exclude exempt assets as a source of repayment; 11 U.S.C. § 551 and preservation of avoided transfers requires that the transfer be avoided in fact, not merely alleged to be avoidable; 11 U.S.C. § 502(d) and disallowance of the claim of a target of avoidance action requires that the target be adjudged liable for a fraudulent transfer; 11 U.S.C. § 544(a) encompasses trustee’s claim for unjust enrichment and constructive trust and are subject to statute of limitations under 11 U.S.C. § 546(a); elements of unjust enrichment under Colorado law; 11 U.S.C. § 108(c) applies only to actions against the debtor and does not toll the time for the trustee to bring his claim for unjust enrichment claim against the widow of Debtor.

Chapter 13 debtor who owned a small business sought confirmation of a three-year plan, asserting that he and his wife were below-median income debtors.  The debtors calculated their current monthly by including the husband’s net business income, as instructed on Official Bankruptcy Form 122C-1.  The chapter 13 trustee objected, arguing that, regardless of the Form, the debtors had to include the husband-debtor’s gross business income when calculating their current monthly income.  The Court reviewed the minority and majority views on this issue and concluded that neither approach could fully resolve what appears to be a mistake in drafting by Congress.  Nevertheless, the Court adopted the majority view, which includes gross business income in the debtors’ current monthly income, and then deducts business expenses later when calculating disposable income.  Applying the majority view meant that the debtors had above-median income and, thus, had to propose a five-year plan.