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CHAPTER 13 PLAN FORMATION

 

 



SECURED CLAIMS

Nobelman v. American Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d (1993) (Justice Thomas) (9:0)

http://supct.law.cornell.edu/supct/html/92-641.ZS.html

certiorari to the U.S. Court of Appeals for the 5th Circuit

This case means that chapter 13 bifurcation of undersecured claim secured by lien on debtor's principal residence is not permissible. Chapter 13 debtors attempted to reduce, pursuant to 11 U.S.C. § 506(a), value of secured claim under mortgage to fair market value of collateral and classify remainder of mortgage as an unsecured claim. The Court held 11 U.S.C. § 1322(b)(2) prohibited debtors from modifying the "rights" of the secured creditor and bifurcating the secured claim into secured and unsecured portions. The Court held that Congress intended for state law to control and to define the secured claim holder's property rights pursuant to 11 U.S.C. § 1322(b)(2). Therefore, the rights established in the mortgage document are the "rights" under 11 U.S.C. § 1322(b)(2) which may not be modified. 11 U.S.C. § 506(a) is only used for judicial valuation of the "claim," which is distinguishable from the "rights" language under 11 U.S.C. § 1322(b)(2).

Rake v. Wade, 508 U.S. 464, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993). (Justice Thomas) (9:0)

http://supct.law.cornell.edu/supct/html/92-621.ZS.html

certiorari to the U.S. Court of Appeals for the 10th Circuit

Oversecured creditor in chapter 13 was entitled to preconfirmation and postconfirmation interest on mortage arrearages. Chapter 13 debtors proposed to pay post confirmation, but not post-petition, pre-confirmation, interest to oversecured mortgage creditor on the amount of the prepetition arrearage in mortgage payments. A unanimous Court held 11 U.S.C. § 506(b) directs debtors to pay post-petition interest on arrearage to oversecured creditors even if the mortgage instrument and state law do not provide for such interest. In addition, the plain language of 11 U.S.C. § 506(b) provides for interest on all oversecured claims, and therefore, the debtors must pay interest on the prepetition arrearage. 11 U.S.C. § 1322 does not conflict with 11 U.S.C. § 506(b) because while 11 U.S.C. § 1322(b)(5) authorized Chapter 13 debtors to cure a default on a residential mortgage by making payments on the arrearage, it does not establish any terms of the cure or mention interest payments.

Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). (Justice Blackmun) (6:2)

http://laws.findlaw.com/US/502/410.html

The Supreme Court held that a chapter 7 debtor may not "strip down" under 11 U.S.C. § 506(a) & (d) a creditor's lien on real property to the value of the collateral, as judicially determined, when the value is less than the amount of the claim secured by the lien. The Court reasoned that, in a chapter 7 case, a lien must pass through bankruptcy unaffected and is fully allowed under 11 U.S.C. § 502, and, therefore, contracted value of the lien may not be bifurcated into secured and unsecured portions under 11 U.S.C. § 506(a) & (d).

Johnson v. Home State Bank, 111 S.Ct. 2150 (1991).

(Justice Marshall) (9:0)

http://supct.law.cornell.edu/supct/html/90-693.ZS.html

certiorari to the U.S. Court of Appeals for the 10th Circuit

The Supreme Court held that a debtor can include a mortgage lien in a chapter 13 bankruptcy reorganization plan once the personal obligation secured by the mortgaged property has been discharged in a chapter 7 proceeding. The mortgage lien in such a circumstances remains a "claim" against the debtor that can be rescheduled under chapter 13.


PRIORITY CLAIMS

 


CLASSIFICATION OF CLAIMS

Mickelson v. Leser, 939 F.2d 669 (8th Cir. 1991)

A chapter 13 plan providing for the separate classification and treatment of unsecured claims for child support arrearages assigned to county collection departments did not unfairly discriminate against other unsecured claims, though the counties' claims would be paid in full and only 8% of the other unsecured claims would be paid. Child support obligations are nondischargeable and the assignment of a claim for delinquent child support to a county agency does not render the obligation dischargeable.

Groves v. LaBarge, 39 F.3d 212 (8th Cir. 1994)

A chapter 13 plan that proposes to separately classify and fully repay nondischargeable student loans discriminates unfairly against other unsecured creditors who will not be paid in full.


NON-DISCHARGEABLE CLAIMS 

Ulwelling v. Dick Wehner Crane Service, Inc., (8th Cir. 1998) unpublished appeal from the United States District Court for the District of Minnesota, filed February 5, 1998.

http://www.wulaw.wustl.edu/8th.cir/Opinions/980205/971577.U8

Court held that the lower courts properly granted appellee's motion for summary in an adversary proceeding to determine the dischargeability of a debt for restitution under chapter 13. Debtor/appellant embezzled approximately $70,000 from Wehner, her former employer; and pled guilty to theft in Minnesota state court. In a sentencing order, the state court stayed imposition of sentence and placed debtor on supervised probation subject to her paying restitution to her former employer. The state court also entered a civil judgment for restitution against the debtor. When the debtor did not pay the restitution payments, the state court ordered the debtor jailed. The appellate court held that the restitution payments were nondischargeable pursuant to 11 U.S.C. § 1328(a)(3).

Holliday v. Kline (In Re Kline), 65 F.3d 749 (8th Cir. 1995)(Chapter 7) (Circuit Judge Bowman) (before Bowman, Heaney, Morris Arnold)

The Court of Appeals held that judgment against chapter 7 debtor for former wife’s attorney fees in divorce action was nondischargeable maintenance, even though payable directly to attorney.

Carter v. Van Buskirk, 3 F.3d 1174 (8th Cir.1982)

The Court held that losses lender sustained to foreclose on original note and executed renewal note constituted sufficient grounds for refusing to discharge fraudulently renewed credit. Debtor fraudulently obtained renewal of loan from his mother-in-law by intentionally failed to disclose his deteriorating relationship with wife. Debtor's intent to divorce lender's daughter constituted "material fact," nondisclosure of which would render debtor's obligation on renewal note nondischargeable in bankruptcy.

In Re McDaniel, Bk. No. 97-80661 (Bankr. D. Neb. October 10, 1997) (Judge Timothy J. Mahoney)

Chapter 13 debtor’s marriage was dissolved in Sarpy County District, and custody of the children was awarded to the ex-wife who later relocated to Texas. During the children’s summer visitation with the debtor, Steven McDaniel filed a Motion for Temporary Custody in Sarpy County District Court. Ex-wife had to travel to Nebraska to litigate the matter, and the state district court found that under the UCCJA (Uniform Child Custody Jurisdiction Act) that Texas was a more appropriate forum to litigate the custody and visitation matters. The state district court also ordered the debtor to pay $1500 toward the ex-wife’s attorney fees, but did not specifically state that such award was for support and did not, in the order, compare the financial status of the parties. Debtor and his current wife filed chapter 13 bankruptcy and sought to treat the $1500 attorney fee award as a general unsecured claim which would be discharged with little or no payment under the plan. The Bankruptcy Court ruled in favor of the ex wife and held that the award of attorney fees was in the nature of support and was excepted from discharge by 11 U.S.C. § § 523(a)(5) and 1328(a)(2).

In Re Frye, Neb. Bkr. 93:575 (Bankr. D. Neb. 1993) (Chapter 13) (Judge John C. Minahan, Jr.)

Court concluded that the interest accruing on a nondischargeable child support obligation is excepted from discharge pursuant to 11 U.S.C. § 523(a)(5).


DIRECT PAYMENTS BY DEBTORS

In Re Centineo, 4 B.R. 654 (D. Neb. 1980), Neb. Bkr. 80:25,30 (Crawford, J.) very old law


CO-SIGNED DEBTS

 


ALIMONY, MAINTENANCE, AND SUPPORT

Holliday v. Kline (In Re Kline), 65 F.3d 749 (8th Cir. 1995)(Chapter 7) (Circuit Judge Bowman) (before Bowman, Heaney, Morris Arnold)

The Court of Appeals held that judgment against chapter 7 debtor for former wife’s attorney fees in divorce action was nondischargeable maintenance, even though payable directly to attorney.

Boyle v. Donovan, 724 F.2d 681 (8th Cir. 1984). The debtor had promised, as part of a property settlement agreement incorporated into his divorce decree, to pay all college and professional school education expenses for his two minor children. Years later, the debtor became delinquent in the payments, and his ex-wife was awarded a state court judgment on the debt. The debtor filed bankruptcy and sought to have the debt discharged. The Eighth Circuit, affirming the bankruptcy court's determination that the college expenses constituted support within the meaning of 11 U.S.C. § 523(a)(5), held that "the crucial question is what function did the parties intend the agreement to serve when they entered into it." Id. at 683.

Draper v. Draper, 790 F.2d 52 (8th Cir. 1986). A husband's obligations under settlement agreement for child support, education, medical & dental expenses of the parties' children were nondischargeable and the "needs" test was irrelevant in determining whether the obligations were actually in the nature of support and thus nondischargeable.

Williams v. Williams (In Re Williams), 703 F.2d 1055 (8th Cir. 1983)

With regard to the issue of dischargeability, the determination of whether a particular debt constitutes maintenance or support is an issue of federal, not state law.

Adams v. Zentz (In Re Zentz), 703 F.2d 1055 (8th Cir. 1983)

With regard to the issue of dischargeability, the determination of whether a particular debt constitutes maintenance or support is an issue of federal, not state law.

Scholl v. McLain (In Re McLain), No. 99-6060SI (B.A.P. 8th Cir. November 30, 1999) (Judge Kressel) (before Kressel, Hill, and Dreher)

(chapter 7)

Bankruptcy Court erred, and the Appellate Court found that debt between ex-spouse was in the nature of alimony, support, or maintenance and therefore not except from discharge pursuant to 11 U.S.C. § 523(a)(5). The language of the divorce decree being unambiguous, there was no reason to give undue consideration to the debtor's brief, conclusory, and self serving testimony as to what he thought the language meant or what he and School did or did not intent it to mean. The agreement left no question as to the parties' intentions. Because the debtor's obligation on the credit card debts was meant to constitute support, and because it was, in reality, in the nature of support, the debt was nondischargeable.

In Re McDaniel, Bk. No. 97-80661 (Bankr. D. Neb. October 10, 1997) (Judge Timothy J. Mahoney)

Chapter 13 debtor’s marriage was dissolved in Sarpy County District, and custody of the children was awarded to the ex-wife who later relocated to Texas. During the children’s summer visitation with the debtor, Steven McDaniel filed a Motion for Temporary Custody in Sarpy County District Court. Ex-wife had to travel to Nebraska to litigate the matter, and the state district court found that under the UCCJA (Uniform Child Custody Jurisdiction Act) that Texas was a more appropriate forum to litigate the custody and visitation matters. The state district court also ordered the debtor to pay $1500 toward the ex-wife’s attorney fees, but did not specifically state that such award was for support and did not, in the order, compare the financial status of the parties. Debtor and his current wife filed chapter 13 bankruptcy and sought to treat the $1500 attorney fee award as a general unsecured claim which would be discharged with little or no payment under the plan. The Bankruptcy Court ruled in favor of the ex wife and held that the award of attorney fees was in the nature of support and was excepted from discharge by 11 U.S.C. § § 523(a)(5) and 1328(a)(2).

In Re Frye, Neb. Bkr. 93:575 (Bankr. D. Neb. 1993) (Chapter 13) (Judge John C. Minahan, Jr.)

Court concluded that the interest accruing on a nondischargeable child support obligation is excepted from discharge pursuant to 11 U.S.C. § 523(a)(5).


CRIMINAL CONDUCT

Pennsylvania Dept. of Public Welfare v. Davenport, 110 S.Ct. 2126 (1990). (Justice Marshall) (7:2)

certiorari to the U.S. Court of Appeals for the 3rd Circuit

http://laws.findlaw.com/US/495/552.html

The Supreme Court held that restitution obligations imposed as conditions of probation in state criminal actions are "debts" as defined by 11 U.S.C. § 101(11) and are dischargeable under chapter 13.

Ulwelling v. Dick Wehner Crane Service, Inc., (8th Cir. 1998) unpublished appeal from the United States District Court for the District of Minnesota, filed February 5, 1998.

http://www.wulaw.wustl.edu/8th.cir/Opinions/980205/971577.U8

Court held that the lower courts properly granted appellee's motion for summary in an adversary proceeding to determine the dischargeability of a debt for restitution under chapter 13. Debtor/appellant embezzled approximately $70,000 from Wehner, her former employer; and pled guilty to theft in Minnesota state court. In a sentencing order, the state court stayed imposition of sentence and placed debtor on supervised probation subject to her paying restitution to her former employer. The state court also entered a civil judgment for restitution against the debtor. When the debtor did not pay the restitution payments, the state court ordered the debtor jailed. The appellate court held that the restitution payments were nondischargeable pursuant to 11 U.S.C. § 1328(a)(3).

Handeen v. LeMaire, 112 F.3d 1339 (8th Cir. 1997).

ftp://server.wulaw.wustl.edu/8th.cir/970507/953678.P8

An allegation that debtor's attorneys conspired with debtor and the debtor's parents to minimize a creditor's recovery in a chapter 13 case by inflating expenses and hiding income were sufficient to state a cause of action for civil RICO. Victim of debtor's prepetition claimed that the law firm "instructed the debtor to inflate the amount of his debts by agreeing to pay his parents rent and by executing a false promissory note payable to the debtor's parents." Complaint alleged that the debtor concealed from the trustee a higher paying job which required moving from Minneapolis to Houston, Texas. "Specifically, the ruse called for the debtor to mail his father a parcel every month. Within that package would be an enveloped addressed to the bankruptcy trustee and containing a check representing the debtor's monthly payment under the plan. The debtor's father would, in turn, place the enclosed envelope in the mails, and the trustee would thus receive a letter postmarked from Minneapolis rather than Houston. The object, it is clear, was to fool the trustee into believing that the status quo ante existed." These allegations could constitute a "pattern of racketeering activity" for purposes of RICO. Complaint was remanded for trial.


STUDENT LOANS

Groves v. LaBarge, 39 F.3d 212 (8th Cir. 1994)

A chapter 13 plan that proposes to separately classify and fully repay nondischargeable student loans discriminates unfairly against other unsecured creditors who will not be paid in full.


PAWN AND "TITLE LOAN" TRANSACTIONS

In Re McAtee, Bk. No. 99-80004 (Bankr. D. Neb. March 22, 1999)

http://www.nebar.com/bankruptcy/Mcatee.htm

Court sustained debtor's motion for turnover because lease had not been terminated by repossession, and the debtors did have an interest in the lease, and in the vehicle on the bankruptcy petition date. Prior to bankruptcy, the debtors entered into an agreement with Cash In A Flash, Inc., who paid the debtors $1000 in exchange for debtors transferring title to their automobile to the creditor. In a separate transaction, the debtors executed a document entitled "Automobile Lease Agreement" whereby they leased the same vehicle back from Cash In A Flash for a given period. The lease contained numerous provisions which were reviewed by the Court and found to be ambiguous and inconsistent with each other. Debtors defaulted in the payments, and creditor obtained possession of the vehicle. Debtors filed a chapter 13 petition and the motion for turnover, and the creditor resisted on the theory that the lease was terminated by repossession.

Court did not resolve another pending dispute between the debtors and Cash In A Flash regarding the legal significance of the document which had been referred to as a lease. The debtors suggested that the actual transaction was a loan of $1000 and the granting of a security interest in the vehicle. Cash In A Flash asserted that the document was a true lease with an option to purchase. Court stated that particular issue could only be resolved by an appropriate adversary proceeding.


CURING DEFAULT

 

 

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