Articles Posted in Bankruptcy

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In 2008, Purdy borrowed from Citizens First, using his dairy cattle as collateral. Purdy refinanced in 2009, executing an “Agricultural Security Agreement" that granted Citizens a purchase money security interest in “all . . . Equipment, Farm Products, [and] Livestock (including all increase and supplies) . . . currently owned [or] hereafter acquired.” Citizens perfected this security interest by filing with the Kentucky Secretary of State. Purdy and Citizens executed two similar security agreements in 2010 and 2012, which were perfected. After the 2009 refinancing, Purdy increased the size of his herd, entering into “Dairy Cow Lease” agreements with Sunshine. The parties also executed security agreements and Sunshine filed financing statements. In 2012, milk production became less profitable. Purdy sold off cattle, including many bearing Sunshine’s brand, and filed a voluntary Chapter 12 bankruptcy petition. Both Citizens and Sunshine sought relief from the stay preventing the removal of the livestock. In 2014, the Sixth Circuit held that Citizens failed to demonstrate that the "Leases” were actually security agreements in disguise. On remand, the bankruptcy court determined that all cattle sold at a 2014 auction were subject to Citizens’ security interest. The district court affirmed, awarding Citzens $402,354.54. The Sixth Circuit affirmed; the bankruptcy court did not contravene its mandate by holding a hearing on the question of ownership. View "Sunshine Heifers, LLC v. Citizens First Bank" on Justia Law

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The Burkes filed a Chapter 7 bankruptcy petition, listing their Chattanooga home as worth $108,000, with a $91,581 mortgage debt. Jahn, the appointed trustee, sought an eviction order, stating that he could not sell the property with the debtors living there and that its value was about $200,000. The Burkes moved to compel the trustee to abandon the property, alleging that their equity would provide little value to creditors. Jahn tendered a check for $7,500, the value of their Tennessee statutory homestead exemption. The Burkes rejected the tender; their first witness estimated that the residence would be worth $171,000 after repairs related to mold and roofing that would cost $63,000, leaving a net value of $108,000. The Burkes’ second appraiser valued the home at $185,000 after making repairs estimated at $60,000, for a final appraisal of $125,000. Jahn’s realtor testified that the Burkes’ residence was worth $204,000, based on his tour of the property. Jahn's home inspector testified that there was no problem with the roof and that the mold issue had been overstated. The bankruptcy court granted the Burkes’ motion to abandon, noting that houses are often sold while occupied by their owners. The district court and Sixth Circuit affirmed. Under these circumstances, the trustee cannot simply tender the homestead exemption and cause the debtors to “skedaddle.” View "Jahn v. Burke" on Justia Law

Posted in: Bankruptcy

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The Isaacs executed a mortgage to GMAC encumbering their Kentucky property. It states: “The lien ... will attach on the date this Mortgage is recorded.” The Isaacses filed a Chapter 7 bankruptcy petition in March 2004, listing the GMAC mortgage debt as secured debt. GMAC did not record the Mortgage until June 2004. GMAC did not seek relief from the automatic stay. No party sought to avoid the Mortgage. The Isaacses obtained a discharge; the case closed. Months later, the bankruptcy court reopened the case at the request of the Isaacses, avoided two judgment liens, and closed the case again. About 10 years later, GMAC’s successor obtained a default foreclosure Judgment and Order of Sale. Immediately before the scheduled sale date, wife (without husband) filed a chapter 13 petition, seeking to avoid the GMAC lien (11 U.S.C. 522(f)). In an adversary proceeding, the bankruptcy court found that GMAC was an unsecured creditor in the chapter 7 case, which discharged the debt; the foreclosure judgment was an improper modification of the discharge order, so that the Rooker-Feldman doctrine did not apply. The Sixth Circuit Bankruptcy Appellate Panel reversed. The bankruptcy court lacked subject matter jurisdiction under the Rooker-Feldman doctrine, precluding it from avoiding the state foreclosure judgment because the mortgage was enforceable against the Isaacses’ interests on the chapter 7 petition date. Since unavoided pre-petition liens pass through bankruptcy unaffected, the foreclosure judgment could not violate the chapter 7 discharge. View "In re: Isaacs" on Justia Law

Posted in: Bankruptcy

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Reid founded Capitol, which owned commmunity banks, and served as its chairman and CEO. His daughter and her husband served as president and general counsel. Capitol accepted Federal Reserve oversight in 2009. In 2012, Capitol sought Chapter 11 bankruptcy reorganization and became a “debtor in possession.” In 2013, Capitol decided to liquidate and submitted proposals that released its executives from liability. The creditors’ committee objected and unsuccessfully sought derivative standing to sue the Reids for breach of their fiduciary duties. The Reids and the creditors continued negotiation. In 2014, they agreed to a liquidation plan that required Capitol to assign its legal claims to a Liquidating Trust; the Reids would have no liability for any conduct after the bankruptcy filing and their pre-petition liability was limited to insurance recovery. Capitol had a management liability insurance policy, purchased about a year before it filed the bankruptcy petition. The liquidation plan required the Reids to sue the insurer if it denied coverage. The policy excluded from coverage “any claim made against an Insured . . . by, on behalf of, or in the name or right of, the Company or any Insured,” except for derivative suits by independent shareholders and employment claims (insured-versus-insured exclusion). The Liquidation Trustee sued the Reids for $18.8 million and notified the insurer. The Sixth Circuit affirmed a declaratory judgment that the insurer had no obligation with respect to the lawsuit, which fell within the insured-versus-insured exclusion. View "Indian Harbor Insurance Co. v. Zucker" on Justia Law

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The Debtor owned nonresidential real estate that FNB sold in a pre-petition foreclosure sale. Before Debtor's bankruptcy filing, FNB obtained a deficiency judgment and filed two judicial liens. During her chapter 7 case, Debtor moved, under 11 U.S.C. 522(f)(1)(A), to avoid those liens as impairing Debtor’s Ohio homestead exemption in her residence. The bankruptcy court denied Debtor’s motion, ruling that section 522(f)(2)(C) specifically prohibits the avoidance of a deficiency judgment lien because it is a lien based on a judgment arising out of a mortgage foreclosure. The Sixth Circuit Bankruptcy Appellate Panel reversed, finding that section 522(f)(2)(C) is not ambiguous, so reference to either state law or legislative history is not required to interpret it. Section 522(f)(2)(C) does not preclude avoidance of mortgage deficiency judgment liens but “clarifi[es] that the entry of a foreclosure judgment does not convert the underlying consensual mortgage into a judicial lien which may be avoided.” The court noted that most courts hold that mortgage deficiency liens are not "judgments [that] aris[e] out of a mortgage foreclosure" and are therefore avoidable. View "In re: Pace" on Justia Law

Posted in: Bankruptcy

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Debtor-landlord did not retain sufficient rights in rents assigned to lender for those rents to be included in landlord's bankruptcy estate. Town Center owns a 53-unit Shelby Township residential complex; its construction was financed by a $5.3 million loan owned by ECP. The mortgage included an assignment of rents to the creditor in the event of default. Rents from the complex are Town Center’s only income. Town Center defaulted. ECP sent notice to tenants in compliance with the agreement and with Mich. Comp. Laws 554.231, which allows creditors to collect rents directly from tenants of certain mortgaged properties. ECP recorded the notice documents as required by the statute. ECP filed a foreclosure complaint. A week later, Town Center filed for Chapter 11 bankruptcy relief, then owing ECP $5,329,329 plus fees and costs. The parties reached an agreement to allow Town Center to collect rents, with $15,000 per month to pay down the debt to ECP and the remainder for authorized expenses. Town Center’s bankruptcy petition resulted in an automatic stay on the state-court case, 11 U.S.C. 362(a). ECP unsuccessfully moved to prohibit Town Center from using rents collected after the petition was filed. The district vacated. The Sixth Circuit reversed; Town Center did not retain sufficient rights in the assigned rents under Michigan law for those rents to be included in the bankruptcy estate. View "In re: Town Center Flats, LLC" on Justia Law

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The Sixth Circuit affirmed the Bankruptcy Court’s order in Conco’s Chapter 11 bankruptcy, interpreting Conco’s Confirmed Plan to prohibit the sale of the Employee Stock Ownership Plan (ESOP)-held Conco stock (Equity Interests) and enjoining any such sale through December 31, 2018. The creditor’s committee had agreed to support the Plan, which provided both defined distributions and contingent distributions, to be funded by the operation of the Conco’s business, to continue through December 31, 2018. The Plan guaranteed the creditors a higher recovery than if the business were sold. ESOP participants sued Conco, its Board of Directors, the ESOP, and ESOP Trustees (ERISA Litigation) claiming breach of fiduciary duties by not evaluating and responding to offers by to purchase the Equity Security Interests. The Bankruptcy Court found, and the Sixth Circuit agreed, that the four corners of the Confirmed Plan, and the creditors’ abandonment of an objection under the absolute priority rule of 11 U.S.C. 1129(b)1 to the ESOP’s retention of the Equity Interests, evidenced an intent for the Equity Interests not to be sold through December 31, 2018. View "In re: Conco, Inc." on Justia Law

Posted in: Bankruptcy, ERISA

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In his 2010 Chapter 7 petition, the debtor listed a claim against Simms based on an injury while under Simms’ employ, but did not claim an exemption on Schedule C. In 2011, a complaint was filed against Simms; in 2012, a companion action was filed against BWC. The debtor filed amended schedules, valuing the Simms claim at $21,625, but claiming no exemption. The debtor never listed the BWC claim. In 2013, the certified that the estate had been fully administered except for the Simms claim, stating: The ... settlement shall remain property of the bankruptcy estate upon the entry of a final decree; if money becomes available ... the case will be re-opened. The bankruptcy court closed the case; the order contained no reservations regarding the claim. In 2015, the trustee was notified of a settlement offer and moved to reopen the case. The debtor argued that the trustee had abandoned any interest in the personal injury litigation and that the settlement encompassed the claim against BWC in which the trustee had no interest. The court approved a settlement of $180,000. At a hearing, without evidence or testimony, the bankruptcy court found that the claims were not abandoned. The Sixth Circuit Bankruptcy Appellate Panel reversed in part. The court made no findings to support approval of the settlement over the debtor’s objections. Because no court order preserved the personal injury claim as an asset, the bankruptcy court erred by holding that the trustee did not abandon that claim under 11 U.S.C. 554(c); the unscheduled BWC claim was not abandoned. View "In re: Wayne Wright" on Justia Law

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In 2014, Brown filed a voluntary Chapter 7 bankruptcy petition, disclosing her ownership of a residence in Ypsilanti, Michigan, valued at $170,000 and subject to $219,000 in secured mortgage claims held by two separate creditors. Brown’s initial petition stated her intent to surrender her residence to the estate and did not claim any exemptions for the value of her redemption rights under Michigan law. The Trustee sought the court’s permission to sell the house for $160,000 and to distribute the proceeds among Brown’s creditors and professionals involved in selling the home. Brown objected and sought to amend her initial disclosures to claim exemptions for the value of her redemption rights (about $23,000) under Mich. Comp. Laws 600.3240, citing 11 U.S.C. 522(d). The bankruptcy court granted the Trustee permission to sell the property and denied Brown’s requested exemptions. The district court and Sixth Circuit affirmed, reasoning that Brown lacked any equity in the property after it sold for substantially less than the value of the secured claims. View "Brown v. Ellmann" on Justia Law

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Stubbs filed a pro se Chapter 7 petition before she filed her 2014 tax returns. The Trustee completed the creditors’ meeting in February 2015, instructing Stubbs to send him a copy of her tax returns when filed and to not spend any refund. Stubbs received her discharge in April 2015. The Trustee did not receive the tax returns nor hear from Stubbs by September; he obtained an order for a Rule 2004 examination, requiring Stubbs to bring copies of her returns. Stubbs did not appear. The Trustee filed an adversary proceeding to revoke Stubbs’ discharge. Despite proper service, Stubbs failed to respond. The Trustee moved for default judgment. Stubbs did not appear. The court entered a sua sponte order to show cause why she should not be found in contempt. Stubbs did not respond nor appear at a subsequent hearing. The court sua sponte vacated the order scheduling the Rule 2004 examination; denied the default motion, and dismissed the adversary proceeding. The order criticized the Trustee for not seeking to hold Stubbs in contempt for failure to cooperate (11 U.S.C. 521) or otherwise preventing her discharge, indicating a preference to have the case dismissed. The Sixth Circuit Bankruptcy Appellate Panel vacated. A 2004 examination is a reasonable and usual method to compel a Chapter 7 debtor to provide information that a trustee or creditor cannot obtain voluntarily. View "In re Stubbs" on Justia Law

Posted in: Bankruptcy