2008 – January

In re Amireh, Case No. 05-12358, January 2nd, 2008

Treatment of codebtor claims

Debtor originally filed a Chapter 13 which was denied confirmation and then was converted to a Chapter 7. Codebtor purchased Debtors interest in the property, believing the case had been dismissed after the denial of confirmation.  In exchange for payments towards certain liens, the debtor gave the codebtors a quitclaim deed.

Trustee avoided the postpetition transfer.  Chase then foreclosed and there was a surplus of approximately $13,000.  The codebtors filed a proof of claim for the following:  Secured – 1.)  $13,655.98 paid to Chase by codebtor, 2.) $15,000 paid to judgment lienholder, 3.) $10,813 for judgment held by codebtor against debtor, and 4.) $940/mo debtor was living in property as “rent” payment;  Unsecured – $6,500.00 unsecured.

When debtor converted case to a chapter 7 case, all property held in debtor’s possession or under his control became property of the chapter 7 estate to be administered by the Trustee.  See 11 U.S.C. § 348(f)(1). A co-tenant receiving more than his proportionate share of rent or income must account to other co-tenant.  Because Trustee never received any rent for debtor living in property, does not owe codebtor and therefore, objection to claim for rent sustained.

Codebtors claim payment of $6,500 to the debtor should actually be treated as administrative expense.  Under controlling Fourth Circuit precedent, a §503(b)(1)(A) claim must arise from a postpetition transaction between the creditor and the DIP.  However, this did not involve the Trustee nor is it clear the payment benefitted the estate.

The codebtors claim a secured claim by way of §549(c), but they knew of commencement of case, therefore court cannot expand §549 beyond its written scope.  Because the Trustee avoided the transfer of the Property, the codebtors are entitled to recover any funds paid to the debtor.

Codebtors argue they should be subrogated to the rights of the creditors they paid off, thereby giving them a secured claim.  Court, citing §509(a)(1) says that, with respect to the judgment lien paid off, because the codebtors were not liable with the debtor in this debt, they are not entitled to a claim against the debtor.  As to the payment to Chase, the Court cites §509(b)(2), which says that an entity is not subrogated to the rights of such creditor to the extend that as between the debtor and such entity, such entity received consideration for the claim held by such creditor.”  Because they were co-liable on the note, they also received consideration, the original loan, and therefore unable to maintain a claim for subrogation.

In re Local Communications Network, Inc., Case No. 07-12433-SSM, Januarary 2nd, 2008

Motion for Reconsideration and Involuntary Bankruptcy

This matter was before the court on a Motion to Reconsider an order dismissing an involuntary petition.  The motion was filed by the petitioning creditors.  In denying the motion to reconsider, the court cited the relevant Fourth Circuit precedent regarding a Motion to Reconsider (FRCP 59(e) & Bankruptcy Rule 9023), which states that relief is proper (1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent a manifest injustice. citing Hutchinson v. Slaton, 9947 F.2d 1076, 1081 (4th Cir. 1993).  The court further state a Rule 59(e) motion is not proper. .  .if it simply reiterates arguments already made and considered. Durkin v. Taylor, 444 F.Supp. 879, 889 (E.D. Va. 1977) (a Rule 59(e) motion is not “intended to give an unhappy litigant one additional chance to sway a judge.”)  Because the present motion did not raise any new issues or meet any of the elements just cited, the court nonetheless, addressed some of the arguments again.

A debtor may be put into bankruptcy involuntarily on a petition filed by three or more creditors, “each of whom is either a holder of a claim against such person that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount . . . ., if such noncontingent, undisputed claims aggregate at least [$14,425] more than the value of any lien on the property of the debtor securing such claims.”  Bankruptcy Code § 303(b)(1).  The contingent nature of the creditors’ claims ultimately caused the court to rule against the petitioning creditors, but in doing so, the court cited the definition of contingent liability used in the Southern District of Texas, which stated that “a claim is contingent as to liability if the debtor’s legal duty to pay does not come in to existence until triggered by the occurrence of a future event and such future occurrence was within the actual or presumed contemplation of the parties at the time the original relationship of the parties was created.  The court further distinguished a contingent claim from an avoidable claim by explaining that if a legal obligation to pay arose at the time of the original relationship, but that obligation is subject to being avoided by some future event or occurrence, the claim is not contingent as to liability.

In re Kim, Case No. 07-12972-SSM, January 4th, 2008

Relief from Automatic Stay when Third Party Harmed

Wachovia brought a Motion for Relief from the Automatic Stay to enforce its security interest in the debtors formerly owned property.  The property had been sold a few years prior, but the title examiner failed to find and dispose of Wachovia’s lien on the sale of the property. The title agent, RGM, defended this motion requesting more time to investigate whether there was coverage for the Owner in this case.

Judge Mitchell defined the automatic stay, recited that, even though a “creditor may be entitled to relief from the automatic stay does not necessarily require that the stay be terminated, since the statute gives the court broad discretion as to whether relief should take the form of annulment, termination, modification, or conditions protecting the stayed party’s interests.”  citing In re Charles H. Jones, No. 98-17991-SSM.

The court pointed out that, “although harm to a third parties from enforcement of a deed of trust is certainly a factor that the court may consider, it should not be allowed to usurp the primary function of the automatic stay, which is to protect the debtor and the bankruptcy estate.”

The court then decided that, because there has been no objection from the Chapter 7 Trustee any concerns respecting the right of innocent third parties were more appropriately directed to the state courts, the motion for relief was granted.

In re Shea; Case No. 08-10014-SSM; January 7th, 2008

Application for Waiver of Pre-Petition Counseling Requirement

In this matter, the pro se debtor filed for a waiver of the pre-petition credit counseling requirement under 11 USC 109.  The court points out that the requirement may be deferred with respect to a debtor who submits to the court a certification that (1) describes exigent circumstances that merit a waiver of the credit counseling requirement; (2) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services. . . during the 5-day period beginning on the date on which the debtor made that request, and (3) is satisfactory to the court.  §109(h)(3)(A).

In this case, the debtor did not certify that the debtor requested and was unable to receive credit counseling from an approved agency within 5-days of the request.  Therefore, the motion was denied and the case was dismissed.  However, the judge pointed out that the debtor is free to refile, but if she does so within one year, she must motion the court to extend the say beyond 30 days.

In re Ayres-Haley; Case No. 07-10314-SSM; January 16, 2008

Repossessed car and payment of late filed claim

Ms. Ayres-Haley filed a Chapter 13 plan whereby she was to pay the car lender, Americredit, the regular contractual rate outside of the plan and the plan provided for 100% payment of unsecured creditors and was to be funded with the sale of real estate.  Ms. Ayres-Haley, the Debtor, was unable to keep up with the car payments and eventually Americredit filed a Motion for Relief from the Automatic Stay to repossess the collateral, which they did.

Meanwhile, the Debtor sold the real estate, the Trustee administered the estate and returned the excess to the Debtor.  Then the Trustee closed the case.  After all of this, Americredit filed an amended proof of claim for the deficiency balance and demanded the Trustee recoup the money from the Debtor.  This hearing was brought on the Trustee’s objection to the amended proof of claim.

The court noted that a creditor seeking to be paid in a Chapter 13 case is required to file a proof of claim by the claims bar date.  FRBP 3002.  The court noted that treatment of all claims is governed by the Plan.  In this case, the plan provided that the Debtor was to make the contractual payments going forward.  Even though Americredit had an allowed secured claim, the trustee had no responsibility to pay anything more than the prepetition arrears. The court notes that it is common for courts to freely allow amendments to proofs of claim after the bar date has passed, for example, to cure defects or to describe the claim with greater particularity, so long as the amendment will not cause undue prejudice to the debtor or other creditors.  The court, however, decides that a different result obtains when the late-filed amendment will prejudice administration of the estate.

But all was not lost for Americredit, the court pointed out that, because the debtor treated the Americredit claim under §1322(b)(5), such debts will not have been fully paid upon the completion of the plan and are excluded from the discharge upon the completion of plan payments.  §1328(a)(1).  The court says that an Adversary Proceeding would need to be filed to determine the dischargeability and refused to make a ruling on the dischargeeability of the debt.

In Re Exum; Case No. 08-10079-RGM; January 17, 2008

Bankruptcy before eviction

The Debtor’s home was foreclosed on prior to the bankruptcy filing.  The new owners filed an Unlawful Detainer to remove the debtor from the property and obtained a Writ of Possession.  Before the writ was executed, debtor filed for bankruptcy.  The new owners filed this motion, which is really a motion for relief from the automatic stay, to proceed with evicting the debtors from the residence.

To decide the case, the court cited Bankruptcy Code §362(b)(22), which provides that the automatic stay does not apply to “the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of filing of the bankruptcy petition, a judgment for possession of such property against the debtor.”  Id. The court then noted that this provision, actually, doesn’t apply since the debtor did not obtain possession under a “lease or rental agreement.”

The court said, because this provision didn’t apply, and even if it did, the automatic stay does not apply to the owner’s of the residence and the court terminated the automatic stay to allow the new owners to execute their writ of possession.

In re O’Halloran, Case No. 07-13528-RGM; January 17th, 2008

Court hearing required when presumption of undue hardship.

The debtor has attempted to enter into a reaffirmation agreement, pursuant to Bankruptcy Code §524(c).  The court noted that, under that section, paragraph (3) requires that the agreement has been filed with the court.  Bankruptcy Code §524(m)(1) states that a reaffirmation agreement presents an undue hardship on the debtor if the debtor’s monthly income is less that the debtor’s monthly expenses and that such findings requires a review by the court.  If the presumption is not rebutted to the satisfaction of the court, the court may disapprove such agreement.  See id.  Finally, “no agreement shall be disapproved without notice and hearing to the debtor and creditor, and such hearing shall be concluded before the entry of the debtor’s discharge.  See id.

In this case, the difference between the income and expenses did not leave enough money for the car payment.  Under Bankruptcy Code §524(c)(6), involving reaffirmation agreements for pro se debtors, the court can only approve reaffirmation agreements as not imposing an undue hardship.  Because of the undue hardship presumption in this case, the court decided that a hearing was required before it could disapprove of the agreement.

In re Sisson; Case No. 06-10676-SSM; January 28th, 2008

Effect of Prior State Court Judgments

The Debtor was an individual involved in the buying and selling of real estate. In the course of this Chapter 11, a Creditor filed two claims in the amount of $1.06 million.  The present order was the ruling on a motion for summary judgment on behalf of the creditor who claimed that res judicata barred the debtors objections to her claims.

The claimed amount was the result of an 8 day bench trial in the District of Columbia.  That award was appealed and upheld.  The appeal for the award of attorneys fees is currently pending.

A proof of claim executed and filed in accordance with FRBP constitutes “prima facie evidence of the validity and amount of the claim.”  FRBP 3002(f).  As a result the objecting party has the initial burden of presenting sufficient probative evidence to overcome such prima facie effect.  In re C-4 Media Cable South, L.P., 150 B.R. 374, 377(Bank. E.D.Va. 1992).  Once the debtor has done so, the burden of proof then shifts to the creditor to establish the validity and amount of its claim unless the debtor would have the burden outside of bankruptcy.

The court noted that the validity of a claim based on a state court judgment may be attacked in bankruptcy court on the ground of lack of jurisdiction or that the judgment was procured by fraud; however, if the contention that the judgment had been obtained by fraud had already been previously litigated in state court, it could not be relitigated in the bankruptcy case.

In the prior case in DC, the debtor filed a 60(b) motion for relief from a judgment or order and a Rule 59(e) motion, supported by deposition testimony, to alter or amend the order denying Rule 60(b) relief.  The court pointed out that mere refusal to grant an evidentiary hearing does not mean that the issue has not been litigated.

The court noted that a claim based on a judgment may be attacked on any ground that would be available outside bankruptcy, including ground s that could be asserted in an independent action to set aside the judgment.  However, the court did not agree that an independent action may be brought to address the same grounds that were already raised on rejected in a Rule 60(b) motion.

Rule 60(b) enables a court to grant relief from a judgment, by determining the need for truth and justice outweighs the need for finality.  Rule 60(b)(3) permits the court, on motion made within one year of the entry of judgment, to relieve a party from a final judgment arising from fraud, misrepresentation, or other misconduct of an adverse party.

As to the applicability of res judicata, surely it would not apply where an independent action raised different grounds than those asserted in a prior Rule 60(b) motion.  Nor would an independent action be barred is Rule 60(b) relief were denied solely on other non-substantive grounds not relating to the merit of the challenge.  However, it is quite another thing to allow an independent action when the grounds for challenging he judgment has already been considered on a Rule 60(b) motion.

The creditor’s claim for summary judgment was sustained.