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Opinions

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Judge Ben T. Barry

The debtor asked the court to declare that the Contract for Deed between her and a homeowner was an equitable mortgage.  The court found that the contract was a contract that allowed the debtor to rent the property for one year while arranging alternative financing to purchase the property and that the sellers did not waive the forfeiture clause contained within the contract.  The debtor also wanted the court to find that the sellers had breached the contract even though the debtor has remained in the house for almost twelve years after entering into the contract, eleven of which she has been in a bankruptcy case.  The court denied all of the debtor’s requested relief.

In this opinion, the court resolved two legal issues: (1) whether a putative debtor is entitled to the protection of the automatic stay if it is later determined that such debtor was not eligible to be a debtor under § 109(h) and (2), if the stay does go into effect, should any action that is taken in violation of the stay be annulled after the Court determines that the debtor was not an eligible debtor under § 109(h).

The court granted the IRS’s motion for summary judgment finding that the debtor’s tax liability for post-petition interest and unpaid unsecured debt was not discharged under § 523(a)(1). The debtor argued that under Espinosa, the debtor’s tax liability was discharged because the IRS did not object to the debtor’s plan, which proposed to pay only the IRS’s priority debt and a pro rata amount of the IRS’s unsecured debt. The court distinguished Espinosa and found the Court’s holding in Espinosa was not applicable in this instance.

In a motion to prohibit the debtors' use of cash collateral, a creditor-bank alleged that the debtors defaulted on eight loans with the bank before filing their chapter 11 petition. The bank argued that the debtors' pre-petition default triggered an absolute assignment of rents that excluded the rents from the debtors' estate. Because the court found that no pre-petition default had occurred, the court denied the bank's motion without prejudice to the filing of an objection to a subsequent motion of the debtors' to use cash collateral under § 362(c).

In this opinion, the court confirmed the debtors’ modified plan that proposed to surrender collateral to a secured creditor and treat any deficiency as an unsecured claim. The court also explained its interpretation of the debtors’ motion for authority to incur a debt in the light of the trustee’s response that he “does not necessarily oppose the motion.”

In this Allens/Veg Liquidation adversary proceeding, the Court granted the defendants’ second motion to dismiss, which addressed what remained of the trustee’s complaint. (The defendants' first motion to dismiss was granted by the Court on September 29, 2016.) The Court found that the doctrine of res judicata and the requirement for finality of a § 363 sale dictated dismissal. For those same reasons, the Court denied the trustee’s incorporated request for leave to file a second amended complaint.

The chapter 7 trustee filed a motion for the imposition of sanctions under Rule 2019 for failure of some of the parties to disclose certain relationships between the parties in this case prior to the authorized § 363 sale when the case was a chapter 11 case. The court dismissed the motion finding that the chapter 7 trustee had not suffered an “injury-in-fact” sufficient to satisfy Article III standing.

Judge Phyllis M. Jones

Trustee's objection to exemptions sustained. Real property could not be exempted as a residence used by the Debtors under Section 522(d)(1) where Debtors did not live on the property, the dwelling on property was uninhabitable, and where Debtors were neither physically nor financially able to repair the house or prepare the property to accommodate a travel trailer. In addition, Debtor and Joint Debtor could not exempt personal property owned solely by the other spouse. However, Debtor was found to have an inchoate curtesy interest in real property owned by Joint Debtor and may amend his exemptions to include the present value of that interest.

Based on the facts of this case, the Former Chapter 7 Trustee’s Application for Compensation calculated using the highest rates allowed by Section 326(a) is denied. Trustee compensation for the Former Trustee and Successor Trustee shall be calculated under Section 326(a) based on total distributions made in the case, but will be divided pro rata at the end of the case by dividing each trustee’s distributions by the total amount disbursed.

Following Supreme Court precedent in Harris v. Viegelahn, upon conversion of a case from Chapter 13 to Chapter 7, including conversion pre-confirmation, all undistributed funds on hand with the Chapter 13 Trustee paid from the Debtor’s postpetition wages must be returned to the Debtor. Motion for Allowance of Administrative Claim filed by former counsel for the Debtor after conversion was denied.

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