The court denied summary judgment on the United States Trustee’s complaint seeking a denial of discharge under §§ 727(a)(2), (a)(4)(A), and (a)(4)(D). While the plaintiff proved that the debtor failed to disclose several bank accounts, gave incorrect balances for accounts that were disclosed, and failed to disclose a number of cash transfers, under circumstances that lead to a presumption of intent to deceive, the debtor should be given the opportunity to rebut that presumption at trial. Likewise, the plaintiff established that the debtor made false oaths in his bankruptcy schedules and Statement of Financial Affairs, but the question of whether those false oaths were made knowingly and fraudulently should be established at trial.
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The bankruptcy court granted the defendant-debtor’s motion to dismiss the amended complaint as untimely, with no leave to further amend because the original complaint did not plausibly set forth a § 523(a)(6) claim or contain a § 727(a)(5) claim, so any additional amendment would not relate back.
The plaintiff obtained a judgment against the defendant’s company for willful retaliation after her employment was terminated. The company subsequently went out of business, and the judgment remained unpaid. The plaintiff sued the defendant and certain related entities to pierce the corporate veil and hold him personally liable for the judgment; she was awarded a judgment after she established that the defendant diverted corporate funds for improper uses, used the company for personal dealings, and committed fraud to contravene the plaintiff’s rights.
The defendant then filed a Chapter 7 bankruptcy petition, and the plaintiff filed an adversary proceeding seeking relief under § 523(a)(2) and (a)(6). The plaintiff amended the complaint, citing §§ 523(a)(6) and 727(a)(5), after the defendant moved to dismiss for failure to state a claim. The defendant again moved to dismiss.
The bankruptcy court granted the defendant’s motion to dismiss the amended complaint, finding that it was time-barred under Rules 4004(a) and 4007(c). The claims in the amended complaint did not “relate back” to the original complaint and therefore were not timely filed.
First, although both complaints referenced § 523(a)(6), the claims did not arise out of the same set of operative facts. The original complaint was based on allegations of fraudulent representations regarding the debtor’s assets, which were not sufficient to put the debtor on notice that the plaintiff was claiming a willful and malicious injury through retaliation for engaging in protected employment activity. One would need to interpret the original complaint broadly to conclude it was based on the plaintiff’s termination, discrimination, or retaliation, but Rules 4004 and 4007 require strict interpretation.
Moreover, the facts in the amended complaint establish that another employee of the company terminated the plaintiff’s employment, so the alleged “willful and malicious injury” was not caused by the debtor. Even though the state court found the debtor liable under an alter ego theory, the actions of another cannot be imputed to the debtor under § 523(a)(6).
Second, while a plaintiff may be allowed to amend a complaint that originally contained only a § 523 claim to include a § 727 claim, the amended pleading must arise out of the same conduct, transaction, or occurrence set forth in the original pleading. Here, the original complaint did not contain any allegations to support the plaintiff’s subsequent § 727(a)(5) claim that the debtor diverted or dissipated assets. As such, the newly pleaded facts were not tied to a common core of operative facts in the original complaint and could not justify relation back.
Accordingly, the amended complaint was dismissed, and the court found that any further amendment would be futile.
The court awarded sanctions in the form of attorneys’ fees to the debtor’s wife after determining that the debtor filed his Chapter 7 petition for an improper purpose. The evidence at trial showed that the debtor was not insolvent, was not under the weight of oppressive indebtedness, and did not required a fresh start. The debtor also knowingly and fraudulently represented his assets in his bankruptcy schedules, and the court found that “he did not intend to surrender his property for distribution as required in a Chapter 7 case.”
Instead, the court held, the debtor filed the bankruptcy case to delay his marital dissolution proceedings, increase the costs for his wife, and “attempt to obtain leverage or to change what debtor believed might involve an undesired outcome” regarding property settlement. As a result, the court awarded sanctions under Rule 9011 to the wife for fees “directly caused by the filing of the petition,” and the fees and costs in connection with presenting the motion for sanctions. The court ruled that the fees awarded were “warranted for effective deterrence by others similarly situated” and were reasonable in amount.
After a trial, the court denied the Chapter 12 debtors’ open-ended motion to use cash collateral because the debtors could not prove they had a sufficient equity cushion in land, equipment, and livestock available to the secured creditors. The overall equity cushion, which the court said was a more appropriate calculation because interest and attorney fees for senior secured creditors significantly affect the equity cushion for junior creditors, was less than six percent and was subject to erosion through depreciation, death loss, market volatility, and the debtors’ proposal to make interest-only payments to secured creditors.
There was also an unexplained discrepancy between the debtors’ motion and plan regarding how much cash the debtors had on hand and how much of it was cash collateral. The court refused to allow the debtors to use all of the cash collateral. It also was clear that the debtors would need more cash collateral than they were asking for because they had no other financing lined up for 2021, but they did not put on evidence to demonstrate they were reasonably likely to successfully reorganize.
The court said it would consider allowing a short-term use of cash collateral while the debtors work to get a plan confirmed if the debtors could file a proposed budget for cash collateral for the next two months; a statement of the projected value of replacement liens on livestock and crops; an accounting of all cash and cash collateral since the petition date; and all monthly bank records since the petition date.
The court also denied the bank’s motion for an order requiring the debtors to transfer cash collateral pursuant to § 363(e) because the court hadn’t authorized the use of any cash collateral. However, the court said it would consider conditioning the debtors’ future use of cash collateral on them making an adequate protection payment to the bank, including transfer of the cash collateral.
On stipulated facts, the court denied the creditors’ motions to approve a purported settlement or extend the deadline to file an adversary proceeding. The parties had already obtained an extension of time in which to file an adversary complaint while they negotiated the non-dischargeability of and a payment plan for the debts owed to these creditors. However, that extended deadline expired while the parties were close to, but had not yet completed, a settlement. Upon realizing the deadline had passed, the creditors moved to approve the settlement or obtain another extension of time to file a complaint.
The court denied the motion to approve and enforce the settlement, finding that no enforceable agreement was in place when the extended deadline expired, as there had not been an acceptance of the terms or a meeting of the minds by the deadline. Even if the agreement were enforceable, the court would not approve it under Rule 9019.
While the equitable doctrines of waiver, estoppel, and equitable tolling can be invoked against a statute of limitations defense when a untimely request for enlargement of time is made under Rules 4004 or 4007, there is a high bar to their applicability and the movants did not reach it. Therefore, there was no basis upon which to grant the belated motion for extension of the complaint deadline.
After a trial, the court reluctantly denied the debtor’s complaint to discharge his private student loan debt. The court found that the debtor, a combat veteran, holds a stable position with a good salary in the Veterans Administration in a field that will qualify him for debt forgiveness on student loans from the U.S. Department of Education; he is new to his civilian career, which is likely to last for another 25 years or more; and he and his family have taken significant steps to improve their finances and reduce their expenses and are likely to close their monthly budget deficit in the near future. The totality of the circumstances does not show that repayment of the loan would be an undue hardship.
The court granted summary judgment to the Chapter 7 trustee and avoided a preferential transfer. The debtor and a non-debtor jointly purchased a vehicle on an installment contract prior to filing bankruptcy and are both listed as owners on the title. The non-debtor is in possession of the vehicle and makes the payments on it. The seller noted its lien on the certificate of title within 90 days prior to the petition date, which led the trustee to file this adversary proceeding to avoid the lien under § 547(b).
The only contested element was § 547(b)(5) – whether the transfer enabled the defendant to recover more than it would have in a Chapter 7 liquidation. The court ruled in the trustee’s favor, finding that if the transfer was avoided, the defendant would hold a partially unsecured claim and be paid pro rata with other unsecured creditors in an amount less than its fully secured claim.
The defendant argued that it could recover the full amount of its claim from the non-debtor co-owner even if the lien against the debtor’s interest were avoided. The court explained that it cannot consider potential recoveries from third parties and must only evaluate a hypothetical recovery from the debtor’s bankruptcy estate.
The defendant, relying on the Nebraska Motor Vehicle Certificate of Title Act, also argued that the lien could not be avoided because the debtor’s undivided one-half interest in the vehicle cannot be transferred without the co-owner’s consent. The court rejected this argument, citing Nebraska case law holding that “[the Act] is the exclusive method of transferring title to a vehicle, but it is not conclusive of ownership.” The court also pointed out that the trustee may sell the vehicle pursuant to § 363(h) even if it is partially owned by a non-debtor.
Finally, the court declined to accept the defendant’s equitable argument that the co-owner would lose the vehicle while the defendant continued to collect the debt from her. The court observed that equitable defenses are generally not recognized in preference actions, and the co-owner may raise the issue of detriment in response to a motion to sell, if one is filed.
The bankruptcy court granted the debtor’s objection to the claim of a creditor holding a promissory note signed by a member of the debtor in his personal capacity. The creditor had also obtained summary judgment against the individual in a state court lawsuit, where the automatic stay prevented the state court from considering the allegations against and defenses of the debtor.
The bankruptcy court found that affidavits filed with the register of deeds and construed as mortgages under Nebraska law did not encumber the debtor’s real estate because they were signed by the borrower in his individual capacity at a time when he was not a member of the debtor. Therefore, the liens are avoidable by the debtor pursuant to § 544.
The state court ruling finding the promissory note secured by the affidavits to be an obligation of the individual borrower is not preclusive on the issue of whether the note was an obligation of the debtor because the debtor’s liability on the note was not litigated or decided, due to the automatic stay. Moreover, the debtor was not a party to the judgment, nor was it in privity with the individual.
Finally, even if the debtor were found to owe the claimant a general receivable, the creditor has not taken timely steps to collect on it, nor has it been acknowledged and reinstated. The claim is stale and unenforceable.
After a trial, the bankruptcy court granted the debtor a discharge of her student loans for undue hardship.
The debtor works two jobs and her future income is unlikely to increase significantly and may even decrease if she is physically unable to continue to perform a second job.
Her living expenses are modest. Although the Department of Education challenged her entertainment and cigarette expenditures, the court found that the debtor will likely have to reduce or eliminate them in light of increased post-petition expenses. The debtor also has additional expenses – with no concomitant income or support – because she cares for her special-needs teenage grandson. The court refused to judge the debtor’s family arrangement, finding it “entirely inappropriate to find or suggest that [the debtor] should not care for her grandson or to weigh undue burden factors against her for doing so.”
Finally, the court found that while the debtor’s failure to avail herself of loan repayment programs offered by the Department of Education was a factor weighing against discharge, it was not dispositive in light of the other facts and circumstances that demonstrate an undue hardship.
After a trial, the court ruled in the debtor’s favor in a § 523(a)(2) non-dischargeability action. The debtor had given security interests in personal property to two creditors – the bank and his father; the lien priorities are the subject of a pending state court action between the creditors. The bank filed this adversary proceeding to except the deficiency, if any, from discharge under § 523(a)(2)(A) and (B).
The court found the debtor had informed the bank about the loan from his father, and there was no evidence of a knowingly false or reckless statement by the debtor. The court also found the bank had not proven it justifiably relied on the debtor’s alleged misrepresentations about the collateral available to the bank because it had not done its due diligence. “Absent some evidence that the bank required . . . documentation [that a prior loan was paid off and the prior security interest in assets was released], the Court cannot find that the bank justifiably relied on boilerplate representations in its loan documents as to lien priority[.]”