After the FDIC intervened in the Chapter 7 trustee’s lawsuit alleging gross negligence and breach of fiduciary duty against officers and directors of the debtor holding company as well as of its subsidiary bank, the federal district court referred the case to the bankruptcy court. The trustee questioned the district court’s subject matter jurisdiction, as the FDIC had not obtained leave from the bankruptcy court to intervene pursuant to the Barton doctrine. The bankruptcy court ruled that Barton may not apply to this case, and in the event it does, the court retroactively authorized the FDIC to intervene. The bankruptcy court also found that the resolution over the dispute as to whether the trustee or the FDIC owned certain causes of action against the defendants required the application of state law and federal non-bankruptcy law. Because bankruptcy law was not at issue, the matter belonged in the federal district court, and the bankruptcy court recommended withdrawal of the reference.
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The court granted the U.S. Trustee’s motion to dismiss this Chapter 7 case for abuse. The debtors are repaying a 401(k) loan, which is considered a “special circumstance” for rebutting the presumption of abuse. However, the loan will be paid off in 18 months, so those monthly payment amounts will be disposable income which would provide a significant payment to unsecured creditors. In addition, the potential fluctuations in the debtors’ income and expenses over the life of a Chapter 13 plan do not constitute “special circumstances” sufficient to rebut the presumption of abuse. Chapter 13 is designed to allow for plan modifications to accommodate changes in circumstances.
Federal bankruptcy law determines whether a lien may be avoided, so when a debtor moves to avoid a lien on a tool of the trade under § 522(f)(1)(B)(ii), the court must first examine whether the creditor holds a non-possessory, non-purchase money security interest in a tool of the trade as defined by federal law . In this case, the liens on the debtors’ vehicles could not be avoided because the vehicles were used solely for commuting to work and therefore were not tools of the trade under the federal definition. This does not change the vehicle-as-tool-of-the-trade analysis under state law for exemption purposes.
The court denied a request for monetary sanctions for violation of the discharge injunction where a creditor received an overpayment after the bankruptcy case was completed and closed. The creditor’s counsel did not respond to repeated requests for return of the funds until a hearing was scheduled on the debtor’s motion for turnover of property. The creditor then released the funds. However, the court found no basis in the Bankruptcy Code or Rules for sanctioning a failure to promptly respond, and also noted counsel for the creditor had no reason to expect the debtor would incur significant costs to resolve the matter. The creditor’s counsel did volunteer to repay the debtor for the cost of reopening the bankruptcy case to deal with this motion.
The court granted the Chapter 7 trustee’s requests for payment of fees and expenses for professionals retained to assist him with his duties as administrator of the debtor’s ERISA plans. The bankruptcy court has jurisdiction to authorize payments from the ERISA plan assets as well as from the bankruptcy estate assets, and estate assets may be used to compensate the professionals if the U.S. Department of Labor subsequently reviews the matter and determines the payments should not have been made from plan assets.
The court overruled a creditor’s objections to the debtors’ disclosure statement and Chapter 11 plan, ruling that the plan appeared to be feasible and the creditor’s claim could be crammed down because the creditor would retain his lien until the property is sold and then would be paid from the proceeds.
The bankruptcy court deferred a motion to assume a lease with purchase option and motion to sell free and clear of liens, finding that permissive abstention was appropriate because the validity of the purported pre-petition termination of the agreement was the subject of pending state-court litigation. The state court could determine whether the agreement was properly terminated and the amount of damages, if any, owed to either party.
The bankruptcy court granted the creditors’ application for an administrative expense claim for damages resulting from the debtor’s breach of a lease she had assumed pursuant to her Chapter 13 plan. Following In re Masek, 301 B.R. 336 (Bankr. D. Neb. 2003), the court found the post-assumption breach gave rise to an administrative expense claim rather than a general unsecured claim.
The court sustained the Chapter 7 trustee’s objection to a claimed exemption in a retirement fund belonging to the debtor’s late mother because it did not constitute an “inherited retirement account.” The debtor did not receive the retirement account directly. Rather, the fund was to be liquidated and the proceeds paid to his mother’s estate; from there, the money would be distributed to the heirs, including the debtor. The fund loses the attributes warranting the exemption of a retirement account by being liquidated through the probate estate.
The court permitted the debtor to claim a personal property exemption in wages garnished within the 90 days before bankruptcy filing because the debtor would have standing to avoid the transfer of exempt property, which the wages would have been, once in the debtor’s possession, had they not been garnished.