In In re Jones, 327 B.R. 297 (Bankr. S.D. Tex. 2005), Bankruptcy Judge
Jeff Bohm addressed a motion by the chapter 7 trustee to deny the debtor's
discharge based on a failure to keep and preserve financial records. The chapter
7 trustee had requested additional documents to support transactions between
the debtor and third parties. The debtor provided the chapter 7 trustee with
bank statements and cashier's check deposits, but did not supply any other evidence
to support the debtor's expenditures. The bankruptcy court began by noting that
under §727(a)(3), the chapter 7 trustee was not required to demonstrate
any fraudulent intent on the part of the debtor, and a mere showing of negligence
was sufficient to deny the debtor's discharge. In considering whether the debtor's
records prevented the chapter 7 trustee from ascertaining the debtor's financial
condition, the bankruptcy court canvassed several related opinions. The bankruptcy
court denied the debtor's discharge, finding that the case was analogous to
those where the debtor had failed to provide sufficient documentation.
Court Has No Authority under §363 for Nonconsensual Distribution of
Sale Proceeds

In In re Westpoint Stevens Inc., 333 B.R. 30 (S.D.N.Y. 2005), the bankruptcy
court entered an order authorizing the sale of substantially all of the debtors'
assets outside the ordinary course of business in exchange for cash and a transfer
of certain unregistered securities and unregistered subscription rights to acquire
securities of the corporate parent of the purchaser. The sale order provided
that certain secured creditors would receive replacement liens in the securities,
placed a value on the securities, and directed a distribution of a portion of
the securities to the senior secured creditors in full and complete satisfaction
of their claims and a partial distribution of the securities to junior lienholders,
free and clear of the senior secured lenders' liens. The first-lien creditors
appealed the "in kind" distribution of the securities, the rulings
on satisfaction of the senior secured claims and the lien releases, and obtained
a stay of any distribution to the junior lienholders, while the actual sale
closed. The underlying argument was that the sale order converted more than
$240 million of secured monetary claims against the debtors into an illiquid
minority equity interest in the parent of successor entities. District Judge
Laura Taylor Swain noted that the "bankruptcy court pointed to no
authority, nor has this court despite the extensive research efforts of counsel
and the undersigned's own chambers found any standing, for the proposition that
an action in permanent derogation of a senior creditor's contractual rights
can be forced upon that creditor for the purpose of providing 'adequate protection'
to a junior creditor... Taken to its logical extreme, the bankruptcy court's
notion of adequate protection would allow a powerful creditor and a debtor anxious
to achieve some value for its favored constituencies to run roughshod over disfavored
creditors' rights, so long as a §363(b) asset sale transaction could be
defended as an exercise of reasonable business judgment in the context of dire
economic circumstances." The district court reversed the provisions of
the sale order relating to imposition of the distribution, claim satisfaction
and lien-elimination provisions, holding that nothing in §363 or 105 provides
the authority to impair the claim satisfaction rights of objecting creditors
or to eliminate the replacement liens granted by the court.
Substantial Abuse Standards 
In In re Beitzel, 333 B.R. 84 (Bankr. M.D.N.C. 2005), the issue was
whether a case should be dismissed as a substantial abuse (pre-BAPCPA). Bankruptcy
Judge Thomas W. Waldrep Jr., relying on In re Green, 934 F.2d
568 (4th Cir. 1991), held that a "totality of the circumstances" test
is used in determining whether a case should be dismissed under the former §707(b).
Factors to be considered include whether (1) the bankruptcy petition was filed
because of sudden illness, calamity, disability or unemployment; (2) the debtor
incurred cash advances and made consumer purchases far in excess of ability
to repay; (3) the proposed family budget is unreasonable or excessive; (4) the
true financial condition is reflected in the debtor's schedules and statement
of current income and expenses; (5) the petition was filed in good faith; and
(6) most important, the debtor has an ability to repay a significant portion
of the debt, which can be determined by calculating the amount of such indebtedness
that could be repaid in a hypothetical chapter 13 plan.
Letter to Debtor's Counsel Is Not "Communication" under Fair Debt
Collection Law

In In re Holloway, 337 B.R. 6 (Bankr. D. Mass. 2006), counsel for the
creditor sent a letter to debtor's counsel that stated, in part, "[p]lease
be advised that our client holds a purchase-money security interest in the consumer
goods in regards to the above-referenced claim." The letter also requested
the debtor's intent and listed three options that a consumer debtor may select
under §521(2)(A). A copy of a proposed reaffirmation agreement was included
with the letter. In response, the debtor's attorney demanded documentation of
the security interest and value of the consumer goods "within 30 days and
threaten[ed] future legal action if the documents are not timely received."
The debtor then filed a "Motion to Determine Secured Status of Claim Pursuant
to 11 U.S.C. §506(d) and for Further Others (sic)." The creditor failed
to respond to the motion, and an order was entered that found that the creditor
was unsecured. The debtor then filed an adversary proceeding alleging that the
letter from the creditor's counsel constituted a violation of the Fair Debt
Collections Practices Act and/or the automatic stay. Bankruptcy Judge Joel
B. Rosenthal, on cross motions for summary judgment, found that a subsequent
determination regarding secured status cannot be the basis for finding that
the letter was unlawful. Further, the court held that the letter to debtor's
counsel regarding the debtor's intentions can neither be a violation of the
stay nor a violation of the Fair Debt Collection Practices Act.
Miscellaneous
 • In re American Plumbing & Mechanical Inc., 327 B.R. 273
(Bankr. W.D. Tex. 2005) (indenture trustee was not entitled to recover fees
as an administrative expense of the estate since efforts provided by indenture
trustee were for the benefit of its constituents, not the estate in general);
• In re Braun, 327 B.R. 447 (Bankr. N.D. Cal. 2005) (nondischargeable
debt for willful and malicious injury could include an award for sanctions,
attorney fees and costs);

• Muegler v. Bening, 413 F.3d 980 (9th Cir. 2005) (where award
of compensatory and punitive damages is based on same conduct, punitive damages
award is nondischargeable under "willful and malicious" provision
if compensatory-damage award is found to be nondischargeable);
• In re TWA Inc. Post-Confirmation Estate, 327 B.R. 706 (Bankr.
D. Del. 2005) (payment made within terms of the invoice did not qualify as being
made in the "ordinary course of business," where history of dealings
between the parties demonstrated payments well outside such terms);
• In re Murphy, 327 B.R. 760 (Bankr. E.D. Va. 2005) (sale of chapter
13 debtor's home for amount significantly above value listed in schedules constituted
a substantial change in debtor's financial circumstances and warranted a modification
of the debtor's confirmed plan to increase the dividend to creditors);
• In re United American Inc., 327 B.R. 776 (Bankr. E.D. Va. 2005)
(critical vendor motion denied where the debtor could not demonstrate that such
creditors were necessary for the debtor's successful reorganization);
• In re Quinn, 327 B.R. 818 (W.D. Mich. 2005) (debtor's interest
in retirement plan was excluded from property of the estate due to restrictions
placed on the ability of the trust to distribute to debtor);
• In re U.S. Aeroteam Inc., 327 B.R. 852 (Bankr. S.D. Ohio 2005)
(creditor entitled to exercise right of setoff, where surety established mutuality
with debtor upon assignment of the right to collect following satisfaction of
debt owed to third party);

• In re Hutchinson, 328 B.R. 30 (Bankr. W.D.N.Y. 2005) (chapter
7 debtor denied a discharge for failing to list a $3,000 promissory note as
an asset);
• In re Binns, 328 B.R. 126 (BAP 8th Cir. 2005) (Rooker-Feldman
doctrine did not apply in determining whether state court fraud judgment was
a nondischargeable debt);
• In re Wind n' Wave, 328 B.R. 176 (BAP 9th Cir. 2005) (attorney
for petitioning creditors is entitled an administrative expense claim against
the estate for reasonable fees and expenses, even if petitioning creditors expenses
have not been allowed); and
• In re Schlitzer, 332 B.R. 856 (Bankr. W.D.N.Y. 2005) (§521(a)(2)
requirement that debtor file a statement of intention applies only in chapter
7, thus §362(h) early stay termination does not apply in chapter 13).

Journal Authors

Deborah D. Williamson

Thomas Rice

Journal Date

Saturday, July 1, 2006 - 12:00

Bankruptcy Rule

2006

none