After a trial in two related adversary proceedings on complaints seeking denial of discharge under § 727 or the exception of a debt from discharge under § 523(a)(2)(B), the court ruled in favor of the debtors.

There was no evidence of intent to delay, defraud, or hinder a creditor or the trustee by concealing property of the estate, failing to disclose assets, or making a false oath. The debtors were able to adequately explain discrepancies in asset valuations between their bankruptcy schedules and prior financial statements, as well as why certain assets were not included in the schedules. Moreover, the lender’s evidence failed to establish the debtors’ intent to defraud or its own reliance on the allegedly false financial statements. Accordingly, the debtors should receive a discharge.

The bankruptcy court denied a secured creditor’s motion for leave to pursue a surcharge under § 506(c) against the collateral of another secured creditor. Generally, only a trustee may seek a § 506(c) surcharge. However, creditors may pursue such a cause of action if they can establish derivative standing. To do so, the creditor must show (1) it petitioned the trustee to bring the claims and the trustee refused; (2) its claims are colorable; (3) it sought permission from the bankruptcy court to initiate an adversary proceeding; and (4) the trustee unjustifiably refused to pursue the claims. The bankruptcy court is charged with evaluating whether a trustee’s reasons for not bringing a surcharge claim are unjustified.

Here, the court found the creditor lacked standing because it provided no evidence that its claims are colorable or that the trustee’s refusal to pursue the surcharge was unjustified. In addition, the creditor had voluntarily agreed during the debtor’s Chapter 11 case to provide fuel on an unsecured basis in exchange for a super-priority claim. The debtor’s failed reorganization does not allow the creditor to “now come back and secure its obligation through the back door with a surcharge request.”

The court denied the debtor’s motion to avoid the fixing of a non-possessory, non-purchase-money lien on his vehicle for two reasons: failure to properly serve the creditor, and failure to demonstrate that the vehicle is a tool of the trade or whether he is even claiming it is.

The court explained that federal law, rather than state law, determines the availability of lien avoidance under § 522(f), pursuant to Cleaver v. Warford (In re Cleaver), 407 B.R. 354 (B.A.P. 8th Cir. 2009). “At its essence, Cleaver holds that the bankruptcy court must first look to see if the creditor has a nonpossessory, non-purchase money security interest in a tool of the trade as defined by federal law. If so, the bankruptcy court then looks to state law to determine if the lien impairs an exemption to which the debtors would have been entitled. The exemption can be any exemption to which the debtors would have been entitled and does not need to be a tool of the trade exemption.” *4.

The motion was denied without prejudice.

After a trial, the court sustained the debtor’s objection to the claim of an over-secured lender and reduced the fees and expenses included in the claim to a reasonable amount. The claim included fees for late charges, appraisals of collateral, and environmental assessments. The evidence indicated the late charges were improperly calculated, so they were reduced. The lender’s standard operating procedures require appraisals and environmental assessments, but the court noted those requirements are not unrestricted. The court found the loan servicer’s decision to order formal appraisals and reports at will, especially while the debtor was attempting to work out a loan modification, was unreasonable. Neither party was entitled to attorneys’ fees in connection with the claim objection and its defense.