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Chapter 13 Debtors’ Official Form 22C reflected Current Monthly Income of $6,181.31 which exceeded the median family income for a household of the same size in Utah. The Debtors’ monthly Disposable Income reflected on Form 22C was -$188.70 (negative $188.70). Trustee objected to confirmation arguing that because this is an above-median income case, the applicable commitment period requires 60 monthly payments under § 1325(b)(4)(A)(ii)(II). Debtors’ Schedules I and J disclosed total monthly income of $4,910.00 and total monthly expenses of $4,780.00, resulting in Schedule J monthly net income of $130.00. Debtors’ plan proposed payments of $130.00 per month for so long as necessary to return $1,750.00 to non-priority unsecured creditors. The court held; (1) when a debtor’s Form 22C Disposable Income is negative, in order for the debtor to propose a confirmable chapter 13 plan, projected disposable income under § 1325(b)(1)(B) may be calculated using Schedules I and J, and (2) when a debtor’s Current Monthly Income is above the applicable state median income the "applicable commitment period" is defined by § 1325(b)(4) and is 60 months in all instances. The Court also held that when debtors include social security income to calculate a positive projected disposable income, all of the debtors’ projected disposable income, including any amount attributable to social security income, to be received in the applicable commitment period must be applied to make payments under the chapter 13 plan.
Chapter 13 debtors’ confirmed chapter 13 plans required debtors to pay their tax refunds into their plan. Debtors sought to modify their plans to permit them to retain their tax refunds. Held: Prepetition tax refunds are property of the bankruptcy estate and should be considered in §1325(a)(4) liquidation analysis. Agreement to pay tax refunds into plan eliminates need for §1325(a)(4) liquidation analysis of tax refunds for confirmation. Debtors must demonstrate a legitimate reason to modify their confirmed chapter 13 plan and any modification must satisfy §1325(a)(4) liquidation analysis, including value of prepetition tax refunds.
Chapter 13 debtor filed three bankruptcy petitions within a one year period and the automatic stay did not go into effect in the third case. The debtor proposed a plan that would cure his prepetition default on a secured claim. The secured creditor objected to confirmation arguing: (1) the presumption under § 362(c)(4)(D) establishes that the debtor’s petition was not filed in good faith and the plan can not be confirmed, and (2) confirming the chapter 13 plan that proposes to cure the debtor’s prepetition default with the debtor is a de facto reinstatement of the automatic stay and impermissibly circumvents the statutory scheme established by Congress to reinstate the automatic stay. The court held; (1) the presumption under § 362(c)(4)(D) is limited in application to § 362(c)(4)(B), (2) even if there is no automatic stay in effect the court may confirm a chapter 13 plan that cures a prepetition default on a secured claim, and (3) if a secured creditor objects to confirmation the chapter 13 debtor has the burden to establish that his petition was filed in good faith and the plan is proposed in good faith. The debtor failed to carry his burden on these issues and confirmation was denied.
Under U.C.A. § 78B-5-505(1)(a)(xiii) in the absence of a creditor’s levy or execution, proceeds or avails of insurance policies are exempt. Because the Trustee’s rights and powers as a hypothetical creditor under § 544 are based on hypothetical events Section 544(a)(2) is inapplicable to U.C.A. § 78B-5-505(1)(a)(xiii). In the absence of express Congressional intent the Trustee’s rights and powers as a hypothetical creditor under § 544 may not be used to limit state law exemptions provided for and allowed by Congress in § 522.
Attorneys representing the debtor in an involuntary chapter 11 case during the "gap" period may not be compensated if they are not employed under § 327. If attorneys representing the debtor in an involuntary chapter 11 case during the "gap" period represent an interest adverse to the estate or are not disinterested they may be denied compensation under § 328 and/or § 330. If attorneys representing a debtor in an involuntary chapter 11 case during the "gap"period fail to comply with § 329 they may be denied compensation and may be ordered to disgorge fees they have been paid.
A chapter 7 trustee is not entitled to a default judgment on his complaint objecting to debtor’s discharge under § 727 and seeking a money judgment against the debtor unless his complaint contains specific factual allegations which constitute a legitimate cause of action. Mere conclusory allegations without supporting factual averments are insufficient to state a claim upon which relief may be granted.
Chapter 7 debtors are not obligated to turnover to chapter 7 trustee funds that debtor’s bank paid postpetition to honor checks debtors wrote prepetition.
Section 506(d) does not allow a debtor to "strip off" a creditor’s lien of the creditor has a claim that is allowed pursuant to § 502.
In deciding the dischargeability of a debt arising from a "stated income loan" under 11 U.S.C. § 523(a)(2)(B), the Court found that the evidence presented confirmed the Debtors’ statements that their income listed on the loan application was correct and the creditor failed to carry its burden of proof. Further, an inadvertent mistake on a confusing form was not sufficient to prove the Debtors had an intent to deceive the creditor. Finally, a debtor’s representation cannot be the sole basis upon which a creditor can reasonably rely because a creditor has a duty to ensure some basis exists for relying upon the debtor’s representations. Self-developed procedures that excuse reasonable reliance cannot insulate a creditor’s claim from discharge.
In defending a fraudulent transfer action, the defendants attempted to rely on 11 U.S.C. § 546(e), but adopting the proposed reading would have produced an absurd result. The protection of § 546(e) cannot be extended to include transactions related to a purchase or sale of securities simply because the parties utilize the banking industry to effect the transaction. The Court looked to congressional intent as explained in Kaiser Steel Corp. v. Charles Schwab & Co., Inc. (Kaiser I), 913 F.2d 846 (10th Cir. 1990) and Kaiser Steel Corp. v. Pearl Brewing Co. (In re Kaiser) (Kaiser II), 952 F.2d 1230 (10th Cir. 1991) to grant summary judgment for the trustee and deny summary judgment for the defendants as to this defense.
Pre-petition, Bank of Utah entered into a letter of credit transaction with the Debtor wherein the Bank issued a letter of credit in the amount of $362,000 secured by funds in the amount of $362,000 deposited with the Bank by the Debtor. In addition to being secured by the funds on deposit, the letter of credit was cross collateralized to other assets of the Debtor. Post-petition, and knowing that the Debtor was in bankruptcy, the Bank declined to renew the letter of credit and applied the proceeds from the certificate of deposit to payoff the indebtedness. The Trustee commenced an adversary proceeding to recover the entire $362,000 plus interest free and clear of any encumbrance in favor of Bank arguing that by avoiding the transfer under § 549, the Trustee could recover the transfer free and clear of the Bank’s security interest and that the transfer was void as a violation of the automatic stay and that the Trustee was entitled to turnover of the $362,000 plus interest under § 542. In doing so, the Trustee did not allege that the post-petition actions of the Bank caused any damage to the Debtor. The Court held that a transfer to a fully secured creditor may not be avoided under § 549 without reviving the secured creditor’s lien, that the remedies available to a non-individual debtor are subject to the limitations of the Court’s § 105 powers, that § 362(a) does not permit the Court to strip a bank’s lien, and that although an act committed in violation of the automatic stay is “void,” some acts cannot be undone. The law does not recognize a void act, and that judicial machinery is not available for use to one that acted in violation of the automatic stay.
Creditors filed and adversary proceeding against the Debtor under § 523(a)(2)(A) and § 727(a)(2). Creditors asserted that their debt should be excepted from discharge because the Debtor failed to disclose that he had violated his noncompete agreement when the parties were negotiating a separation agreement. The Creditors also asserted that the Debtor should be denied a discharge because he transferred his equity interest in a business within one year of filing for bankruptcy.
Creditors’ § 523(a)(2)(A) claim. Held: To prevail on a claim for nondisclosure, the plaintiff must establish that the debtor had a duty to disclose a fact, that the undisclosed fact was material and that the debtor knew the undisclosed fact was material. In addition, the plaintiff must establish that the debtor failed to disclose the fact with intent to deceive the creditor, that the creditor relied on the nonexistence on the fact and that the creditor’s reliance was justified. Creditors failed to establish any of the elements under § 523(a)(2)(A) and their debt was therefore dischargeable. Creditors’ § 727(a)(2) & (5) claims. Held: To prevail on a § 727(a)(2) claim the plaintiff must establish that a transfer was made with actual intent to hinder, delay or defraud creditors. To prevail on a § 727(a)(5) claim the plaintiff must establish that there was a loss or deficiency of debtor’s assets. Absent any evidence that a transfer hindered or delayed a creditor, the transfer of an asset with little or no value did not give rise to a § 727(a)(2) or (5) claim. Debtor was granted a discharge.
Debtor filed a chapter 13 plan, which was neither novel or complex. The plan provided for payment of a prepetition arrearage to an oversecured creditor. A dispute arose between debtor and creditor over the amount of the prepetition arrearage and, at the court's urging, the parties negotiated a settlement. After reaching the settlement, creditor filed a motion under § 506(b) for allowance of postpetition attorney's fees in the amount of $24,647.50. Debtor objected arguing that the fees sought by creditor were unnecessary, that creditor did not act reasonably or prudently and the time expended by creditor"s counsel was excessive, not adequately described, and that many services were duplicative. The Court found that § 506(b) awards were controlled by federal law and that a lodestar approach to allowance of a § 506(b) claims should be followed using a two step approach: 1) were the services were necessary to protect the creditor's legitimate interests ?; and 2) were the fees sought for the legal services reasonable? The Court allowed some, but not all of the fees requested and applied nine factors to weigh the necessity and the reasonableness of the fee request.