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Unpublished Opinions

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Judge Joseph G. Rosania, Jr. (JGR)

In re Thomas Allen Froehlich and Lori Ann Frohlich, Case No. 17-14231-JGR Order entered September 27, 2018 (revestment of property of estate in Chapter 13 cases) 09/27/2018

The Debtors initially filed a pro se Chapter 7 bankruptcy case not understanding their home would be liquidated and non-exempt equity would be used to pay creditors.  Thereafter, they retained counsel and converted the case to Chapter 13.  The plan, which proposed to pay to creditors the equity in the home over time, drew an objection from the Chapter 13 Trustee due to the provision that the home would revest with the Debtors upon confirmation.

The Court discussed various approaches addressing what constitutes property of the estate post-confirmation and determined the Tenth Circuit adopted the estate termination approach in In re Talbot, 124 F.3d 1201, 1208 (10th Cir. 1997).  The Court then examined possible scenarios that may confront the Debtors during the pendency of the plan. One of the potential scenarios speculates the Debtors could sell their home, spend the proceeds and seek to re-convert their case to Chapter 7.  The Chapter 13 Trustee argued this scenario could be avoided by preventing the revestment of the property at confirmation. 

The Court held under 11 U.S.C. §1327(b) Chapter 13 debtors are entitled to propose plans that provide for the revestment of property of the estate upon confirmation notwithstanding a prior conversion from Chapter 7 and discussed other remedies that would be available in the event of a subsequent bad faith conversion.

In re Eastman, Case 17-21290-JGR; Order entered July 20, 2018 (Colorado Statute of Limitations, C.R.S. Sections 13-80-103.5(1)(a) and 13-80-108(4)). 07/20/2018

The Court addressed the issue of whether the amount due under a secured promissory note providing for installment payments could be reduced for missed payments due more than six (6) years prior to the acceleration of the note. 

The Debtor filed a Chapter 13 bankruptcy case seeking to save his home.  The home was valued at $152,000 and subject to two secured claims:  A first priority claim in the amount of $80,974 held by Wells Fargo; and a disputed second priority claim held by NPL Capital, LLC (“NPL”) in the amount of $64,738.00.  

In July 2017, NPL accelerated the note and commenced a foreclosure proceeding which precipitated the bankruptcy filing.  The Debtor objected to NPL’s Proof of Claim arguing the claim should be reduced by the cumulative amount of missed installment payments occurring more than six-years prior to acceleration.  In this case, seventeen payments between March 2010 and July 2011, totaling approximately $2,621, occurred more than six-years prior to acceleration. 

The Debtor argued the statute of limitations began to run on the date each respective installment payment became due and the payments that became due more than six prior to acceleration are barred.  The Debtor finds support for his argument in In re Church, 833 P2.d 813 (Colo. App. 1992).  Church held that when an obligation is payable in installments, and the holder of the note possesses the option to accelerate and declare all amounts due upon a single default but fails to do so, a separate cause of action arises on each unpaid installment and the statute of limitations begins to run when the payment is missed.   

NPL argued that the six-year statute of limitations did not begin until the acceleration of the debt in July 2017 when it initiated foreclosure proceedings and all amounts due under the note became due at that point relying on the more recent cases of Hassler v. Account Brokers of Larimer County, Inc., 274 P.3d 547 (Colo. 2012) and Castle Rock Bank v. Team Transit, LLC, 292 P.3d 1077 (Colo. App. 2012).  In Hassler, the Colorado Supreme Court held a suit to recover a deficiency balance after the repossession of vehicle was barred by the six year statute of limitations when the action was filed more than six years after the note was accelerated and opined that while the six-year statute of limitations runs from the date of the default of each installment, when an obligation to be repaid in installments is accelerated the entire remaining balance becomes due.

Castle Rock Bank discusses options the holder of an installment note may exercise upon default.  First, the creditor could elect to file suit on each missed installment payment.  Second, the creditor could elect to accelerate the note and demand payment of the entire unpaid balance.  Third, the creditor could sue for the unpaid balance upon maturity.    

The Court held the entire amount due under the installment obligation became payable when the note was accelerated in July 2017 and overruled the claim objection to the extent the Debtor sought to reduce the claim by the amount of the missed installment payments.

The holding was consistent with two recent Colorado District Court decisions: Froid v. Ditech Financial, LLC, 2018 U.S. Dist. Lexis 23377; 2018 WL 835041 (D. Colo. 2018) and Davis v. Wells Fargo Bank, 2017 U.S. Dist. Lexis 167150; 2017 WL 451830 (D. Colo. 2017).  

Atna Liquidating Trust, Kenneth J. Beuchler, Liquidating Trustee v. Black Diamond Blade Company, d/b/a Cutting Edge Supply, Adv. Pro. No. 17-1156 JGR Order entered March 23, 2018 (preference avoidance and ordinary course defense under 11 U.S.C. § 547) 03/23/2018

The liquidating trustee sued the defendant under 11 U.S.C. §§ 547 and 550  to avoid certain preferential transfers. The defendant moved for summary judgment, arguing that the transfers were made in the ordinary course of business pursuant to 11 U.S.C. § 547(c)(2)(A). For two years before the petition was filed, the debtor contracted for the defendant to provide products, tools, and equipment for the debtor’s business operations. The agreement was silent as to payment terms. During the earlier part of the two-year period, the debtor paid twenty-two of the defendant’s invoices in full. In the ninety days before the petition was filed, the debtor made payments toward two invoices. The debtor did not pay either of the invoices in full. Rather, the debtor made split payments in equal amounts toward one of the invoices and a partial payment toward the other invoice. The defendant did not engage in any unusual collection activities with respect to the split and partial payments.

Comparing the pre-preference period payments to the preference period payments, the Court found that the amount of the payments made by the debtor during the preference period differed markedly from the amount of the payments made by the debtor before the preference period. Specifically, the debtor paid the pre-preference period invoices in full but made split and partial payments toward invoices during the preference period. Examining the factors set forth in In re Sunset Sales, 220 B.R. 1005 (10th Cir. B.A.P. 1998), and citing In re Ewald, 45 B.R. 52 (Bankr. D. Minn. 1984) and In re Radnor Holdings Co., 2009 WL 2004226 (Bankr. D. Del. 2009), the Court found that the split and partial payments differed fromthe debtor’s pre-preference period payment practices such that the payments made during the preference period were not made in the ordinary course of business.

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