An unsecured junior lien on the debtors' residential real estate may be avoided after the debtors complete Chapter 13 plan payments. The case law in the Eighth Circuit permits wholly unsecured liens to be stripped off.
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An unsecured junior lien on the debtor’s residential real estate may be avoided after the debtor completes Chapter 13 plan payments. The case law in the Eighth Circuit permits wholly unsecured liens to be stripped off.
The court denied the debtor’s motion for sanctions for violation of the automatic stay by a creditor who sent billing statements for medical expenses incurred by the debtor’s late wife. While the debtor argued that the bills were an attempt to collect the debt from him because a husband is liable for his wife’s medical expenses under Nebraska law, the court found no evidence either that the creditor knew the husband had filed bankruptcy or was in fact attempting to collect from the husband because the bills were addressed only to the non-debtor wife. The court held there was no willful violation of the automatic stay and sanctions were not warranted.
On remand, with no party requesting the court to recall witnesses for further testimony, the bankruptcy court reviewed the transcript and recordings of the original trial and concluded that the funds at issue were property of the debtor’s bankruptcy estate rather than simply held in trust for a group of investors. The funds fall within the scope of a lender’s security agreement, so the lender’s claim is entitled to priority over the claim of the bankruptcy estate’s unsecured creditors.
The court granted the debtors’ motion for contempt against a mortgage servicer who continued to contact the debtors about collecting on the loan for more than three years after a discharge was granted. The court awarded the debtors their attorneys’ fees, $2,500 in actual damages, and $10,000 in punitive damages for these violations of the discharge injunction.
After a trial on the dischargeability of the debtor’s student loan indebtedness, the court ruled that the debt was excepted from discharge. The evidence indicated the debtor’s income is likely to increase in the foreseeable future, as a result of higher salaries as well as a reduction in expenses. Several of the monthly expenses listed by the debtor are relatively short-term obligations, such as repayment of some small loans and support for a child in college In addition, the debtor’s income tax withholding is higher than necessary and changing it would free up some cash as well. The debtor is also eligible for the income-based repayment plan and, as a public employee, the debtor is eligible for a public service loan forgiveness program, meaning she could complete payments in 10 years instead of 25, thereby averting the hardship of paying on student loans well past retirement age, and she may not be subject to an oppressive tax obligation for the forgiveness of the loan balance.
A party moved to recuse the bankruptcy judge assigned to the case from handling the matter on remand, asserting that the judge would be biased due to an inability to set aside impressions formed from the judge’s review of and familiarity with the trial testimony, evidence, and earlier rulings in the case. The court denied the motion, explaining that the scope of the disqualification statute does not extend to knowledge gleaned and opinions formed in the course of judicial proceedings. Because the movant did not show the court’s previous decision was based on extrajudicial information, nor did the movant demonstrate the existence of “deep-seated favoritism or antagonism that would make fair judgment impossible,” recusal was unwarranted.
The state Department of Health and Human Services objected to the Chapter 11 trustee’s proposed sale of a health care facility free and clear because when such a facility is sold, state law allows the department to recapture depreciation payments made to the facility as part of its Medicaid reimbursements. The court ruled that the right to recapture the payments was an “interest in property” as contemplated by § 363(f)(5), so the trustee can sell the property free of the department’s recapture right as long as the trustee provides a monetary satisfaction of its interest. Here, the buyer’s agreement to create an indemnification fund for such expenses provides sufficient satisfaction of the department’s interest. Any other damages caused by the trustee’s rejection of the current Medicaid provider agreement would not be a property interest, but would be general unsecured claims under § 365(g)(1).
After a trial, the court overruled the debtors’ objections to the claims of their lenders, finding that the debtors had ratified the loans and waived any challenges to the loans’ validity by virtue of their conduct and course of dealing with the lender. The court also dispensed with the debtors’ “mutual mistakes” argument concerning the loan documents, and ruled that the debtors failed to produce sufficient evidence that they are not liable on the loans to overcome the prima facie validity of the lender’s claims. The court also deferred ruling on the lender’s motion to appoint a trustee pending the production of additional evidence about unauthorized and undisclosed cash loans allegedly made from estate assets.
The bankruptcy court remanded a state-court lawsuit filed by debtors concerning the basis for the creditors’ claim. The issues raised, including state-law causes of action and arguments regarding preclusion, are not unique to bankruptcy and can be decided in state court.