Justia U.S. 6th Circuit Court of Appeals Opinion Summaries

Plaintiff filed a voluntary Chapter 13 bankruptcy petition and successfully sought to avoid a lien on her manufactured home held by defendant. The Bankruptcy Appellate Panel and Sixth Circuit affirmed. The mortgage did not originally cover the manufactured home, which was personal property until 2007,when a state court entered an in rem judgment and order of sale converting it to an improvement to real property. After that, the home was covered by the mortgage. The conversion, unlike the mortgage, was involuntary as to the plaintiff, so she had standing under 11 U.S.C. 522(h) to avoid the lien.

Plaintiff sued the bank after it refused to honor cashier's checks it thought he had obtained by fraud. One check, for $100,000, had previously bounced, another was a starter check for $80,000 and was dated five months earlier. The bank had communication with plaintiff's former employer, indicating fraud. The district court granted summary judgment to the bank. The Sixth Circuit affirmed. Under the Uniform Commercial Code as enacted in Michigan, the bank's actions were lawful even absent any finding of fraud. The checks were not supported by consideration, plaintiff was not a person entitled to enforce the instruments, and plaintiff was not harmed.

The debtor's property was subject to first and second mortgages with complex histories of assignment involving the defendants. The district court dismissed the chapter 7 trustee's action for declaratory judgment to determine the validity, extent, and priority of defendants' liens and vacated a default judgment entered against one defendant, Wilmington. The Sixth Circuit vacated and remanded in part and affirmed in part. Under 11 U.S.C. 544 and Ky. Rev. Stat. 355.9-102(1)(az)(3), operating together, the trustee's interest as a hypothetical judicial lien creditor is superior to those security interests which are unperfected as of the filing of the petition, so the trustee stated a claim against GMAC. The bankruptcy court must make further factual findings regarding Litton and Bank of New York as to the first mortgage, to determine which was the secured party on the date of the filing of the petition. The record established that Wilmington was not a proper party, having assigned its interest years earlier, and the bankruptcy court acted within its discretion in setting aside the default judgment.

After a chapter 11 case was converted to a chapter 7 case, the bankruptcy court entered orders granting fees for the chapter 7 trustee's counsel, denying fees requested by chapter 11 counsel, and requiring chapter 11 counsel to disgorge its pre-petition retainer so that administrative expenses from the chapter 7 case could be paid. The Sixth Circuit vacated the denial of fees and disgorgement order and remanded for determination of whether a pre-petition retention letter between the firm and the debtor established a valid lien under Ohio law, securing payment of fees for necessary and reasonable services provided while the firm served as counsel to the debtor as debtor in possession. The bankruptcy court erred in basing its denial on 11 U.S.C. 726, which is a priority scheme for distribution on allowed claims; 11 U.S.C. 330 governs analysis of whether to allow compensation.

The debtor was a member of an investment LLC, engaged in construction. In state court proceedings prior to the bankruptcy filing, the debtor entered a settlement agreement that included an agreement to pay the title company $241,500. The bankruptcy court held that the debt was nondischargeable based on a finding that the debtor obtained financial benefit as the result of fraudulent representations concerning the condition of title, satisfying the elements of 11 U.S.C. 523(a)(2)(A). The Sixth Circuit affirmed.

The debtor did not pay his $2,902 bill for treatment of an infection, which was turned over to a collections agency. He made payments for several years. When the balance was at $536.35 the agency sued in Michigan court for $678.27, attaching to the complaint a document titled "Combined Affidavit of Open Account and Motion for Default Judgment." An agency employee then incorrectly told the debtor that he owned $1,016. The district court rejected the debtor's suit under the Fair Debt Collection Practices Act 15 U.S.C. § 1692e. The Sixth Circuit reversed in part, holding that the title to the document attached to the complaint could be misleading. The mistaken balance was not given as part of a collection effort and was not a violation of the Act.

The Chapter 7 trustee sought to avoid a mortgage with respect to wife's interest in the property because the mortgage did not name or identify her in the body of the mortgage. The wife had signed the mortgage, and a rider that contained a provision for joint and several liability, but not the note. The bankruptcy court ruled in favor of the trustee. The Sixth Circuit reversed. Relying on 11 U.S.C. 544(a) and Kentucky property law, the court concluded that the identities of both borrowers was readily ascertainable from examination of the entire mortgage, which includes the rider.

The trustee in Chapter 7 proceedings sought to avoid the mortgage, recorded in 2006, asserting that the words "see EXHIBIT A," in the spot for the legal description on the signature page did not satisfy the statutory requirement found in Ky. Rev. Stat. 440.060(1). The Bankruptcy Court rejected the argument and the Sixth Circuit affirmed, holding that the practice of incorporating an exhibit containing the legal description is common and satisfies the statute.

The Chapter 7 debtors' federal tax return listed: withholding of $6,777; total tax liability of $2,934, a non-refundable child tax credit of $2,903, an additional child tax credit of $1,097, and a total federal tax refund of $8,542. The credit allows some taxpayers to claim a tax credit of $1,000 for each qualifying child. If the taxpayers have tax liability, the non-refundable portion is applied to satisfy the tax liability. If the taxpayer qualifies, a portion of the refundable amount of the credit, not used to offset tax liability, is sent as an income tax refund. The refundable portion, unlike the non-refundable portion, is treated as an overpayment. The bankruptcy court sustained the trustee's objection that the $2,903 credit was not exempt. The Sixth Circuit affirmed. Under 26 U.S.C. 24(a) and (d), the non-refundable portion of the credit is not property of the estate cannot be exempted as a payment under Ohio Rev. Code 2329.66(A)(9)(g). The entire tax refund of $8,542 is property of the estate from which the debtors may exempt $1,097 as the refundable portion of the credit.

When the debtors filed for Chapter 7 relief they listed the residence in which they had lived since 1995 as having fair market value of $205,000.00 with secured debt of $164,978.92. Pursuant to Ohio Revised Code 2329.66(A)(1), they claimed a homestead exemption of $40,400.00. They did not disclose a pending contract to sell the house for $205,000. After the sale closed, the debtors moved to an apartment and told creditors that they were using the proceeds for living expenses. The bankruptcy court sustained the trustee's objection to the homestead exemption and ordered turn over of the proceeds. The Sixth Circuit reversed and remanded. Exemptions are determined on the date a bankruptcy petition is filed. The debtors were using the property as their principal residence on the date they filed their petition; their intention to leave was irrelevant and does not defeat their claim to the homestead exemption.