Judge David D. Cleary - Opinions

Judge David D. Cleary

In re: Linda Stamps
September 30, 2022

19 B 21730
In accordance with section 3.1 of Debtor’s confirmed plan, the chapter 13 Trustee sought recovery of funds distributed to the City of Chicago after relief from stay as to the City’s collateral was granted to another creditor.  The City brought a motion to enforce the plan and for declaratory relief, seeking a finding that the Trustee wrongly interpreted the following language in section 3.1: “If relief from the automatic stay is ordered as to any item of collateral listed in this paragraph, then, unless otherwise ordered by the court, all payments under this paragraph as to that collateral will cease, and all secured claims based on that collateral will no longer be treated by the plan.”  HELD: The court has both inherent authority and a statutory basis to interpret and enforce a confirmed plan.  This language in section 3.1 is unambiguous.  The plain meaning of the language is that when relief from stay is granted, all secured claims based on that collateral – even those not listed in section 3.1 – are no longer treated by the plan.  This provision does not render the national form plan unconfirmable, and the history of the form plan’s drafting does not dictate a different result.  If parties prefer a different result, they may include a nonstandard provision in section 8.1, or request that the court “order otherwise” at the time stay relief is granted.  In this case, the Trustee was correct to stop making payments and to demand that the City return funds paid after the court granted relief from the stay.

21 B 11947, 22 A 8
Plaintiffs invested in a company for which Defendant was a managing member.  They have not received any return on their investment and brought a four count complaint seeking to except their claim from Defendant’s discharge.  HELD: Plaintiffs did not plead sufficient allegations to establish a plausible claim for relief under § 523(a)(2), although they will be allowed to amend the complaint to do so.  Among other issues, a document on which Plaintiffs allegedly relied was not provided to them by Defendant, and the complaint did not allege that the employee who did provide it was Defendant’s agent.  The complaint does state a claim under § 523(a)(4), but only with respect to actions taken after Plaintiffs had already invested in the company, and not for securities fraud.  Finally, the complaint does not state a claim for relief under § 523(a)(6).  Plaintiffs did not respond to Defendant’s argument that the § 523(a)(6) claim should be dismissed.

In re: Marie A. Cahill
August 15, 2022

16 B 01529
After investigating Debtor’s assets and the estate’s potential claims, Trustee filed a qui tam lawsuit.  Several years of litigation ensued, including an appeal to the Illinois Supreme Court.  The qui tam defendant – now a creditor as well, having bought a claim against the estate – offered to purchase the lawsuit from the Trustee for an amount equal to all allowed claims against the estate.  Trustee declined the offer.  The defendant brought a motion to compel Trustee to comply with his duties under 11 U.S.C. § 704.  HELD: Movant did not comply with Fed. R. Bankr. P. 9013, which requires every motion to “state with particularity the grounds therefor[.]”  At oral argument, movant clarified that it sought a determination that this is a surplus estate case.  The court found that this determination would be an advisory opinion.  Under the case-or-controversy requirement of the Constitution, the court does not have subject matter jurisdiction to render an advisory opinion.  Therefore, the request to determine whether there is a surplus estate was denied.  To the extent the motion to compel sought to require the Trustee to provide information regarding his pre-lawsuit investigation of asset transfers by the Debtor, the motion was granted.  The movant’s request to find that the special counsel Trustee employed to prosecute the lawsuit had an undisclosed conflict was denied after movant admitted this motion was not the appropriate procedure for reconsideration of a retention order.

21 B 13170
Chapter 13 Trustee sought dismissal prior to confirmation, arguing that the proposed plan did not comply with 11 U.S.C. § 1325(a)(6).  HELD: Debtor did not establish by a preponderance of the evidence that she would be able to make all payments under the plan and to comply with the plan.  To be feasible, a plan must have a reasonable likelihood of success.  Although this requirement is not rigorous, a debtor must show that her income exceeds expenses by an amount sufficient to make the proposed payments.  While Debtor had sufficient disposable income on the petition date, her spouse’s monthly severance pay would end in September 2022, leaving her with negative disposable income.  Her assertions that she would have additional income from a new job and a friend’s voluntary contributions, and that her spouse would look for employment, were not supported by evidence.  Neither were her vague contentions that there was room in her budget to reduce expenses.  Therefore, she could not satisfy the feasibility requirement of § 1325(a)(6).

20 B 20833
Chapter 11 subchapter V debtor confirmed its consensual plan.  After the effective date of the plan, and after four payments were made to creditors, debtor requested authority to modify the confirmed plan.  The U.S. Trustee objected on the grounds that the plan was substantially consummated and could not be modified.  HELD: 11 U.S.C. § 1193(b) permits a debtor to modify a plan confirmed under § 1191(a) at any time after confirmation and before substantial consummation.  “Substantial consummation” is defined in 11 U.S.C. § 1101(2) and contains three elements.  The parties did not dispute that the first and second elements were satisfied.  Debtor took the position that payments under the plan were de minimis, which did not satisfy the third requirement of “commencement of distribution under the plan.”  The court determined that under the plain, unambiguous language of the statute, § 1101(2)(C) requires only that distribution under the plan has begun.  “It means, simply, that the process contemplated in the confirmed plan is underway.”  Since four payments had been made, the process of distribution was underway and the plan was substantially consummated.  Therefore, the debtor could not modify the plan.

21 B 10216
Trustee objected to confirmation of Debtor’s chapter 13 plan on the grounds that he did not propose the plan in good faith and that the plan does not provide that all of his projected disposable income will be committed to unsecured creditors.  HELD: Objection overruled.  Debtor established by a preponderance of the evidence that he proposed the plan in good faith.  The testimony supported a finding that he is separated from his non-filing spouse and that his amended schedules I and J represent his current financial situation.  Debtor also established that his plan provides for all of his projected disposable income to be applied to make payments to his unsecured creditors.  The proper test for whether his separated spouse’s income should be included asks if her income is paid on a regular basis for the household expenses of the debtor or his dependents.  Also, as a below-median debtor, his claimed expenses are necessary and reasonable; this was a question of fact resolved by the testimony, exhibits and judicial discretion.  Finally, Debtor established the amount of his income.

In re: Dimitrios Tsanos
April 29, 2022

22 B 00998
Chapter 13 Trustee sought dismissal of Debtor’s case as well as a bar to refiling.  HELD: While automatic dismissal was not appropriate, cause existed to dismiss the case under 11 U.S.C. § 1307(c).  There was no evidence that Debtor, who owed significant arrearages to two mortgagees and had not made any postpetition mortgage payments, could propose a feasible plan.  Additionally, Debtor did not timely file his schedules, did not attend two scheduled meetings of creditors and did not make his first plan payment until well past the deadline in § 1326.  The court declined to impose a 180-day bar to refiling under § 109(g)(1).  Trustee did not prove that Debtor deliberately and intentionally failed to abide by court orders or to appear before the court in proper prosecution of the case.  The court also denied the Trustee’s request to impose a bar under § 349, finding that the evidence did not establish that Debtor filed this case in bad faith.

In re: Tracy Drake
February 23, 2022

21 B 4903
Tax purchaser Integrity objected to confirmation of chapter 13 plan on the grounds that the interest rate Debtor proposed did not provide Integrity with the present value of the allowed amount of its claim as required by 11 U.S.C. § 1325(a)(5)(B)(ii).  HELD: Objection sustained.  A portion of Integrity’s claim is a tax claim under 11 U.S.C. § 511.  Therefore, the appropriate interest rate is determined by reference to applicable nonbankruptcy law.  Since a tax purchaser holds a secured claim for delinquent taxes, the applicable nonbankruptcy law is the section of the Illinois Property Tax Code that calculates interest on unpaid taxes at 1.5% per month, or 18% annually.  The appropriate rate of interest on the remainder of Integrity’s claim is determined under the standard set forth in Till.

In re: Robert Smith, Jr.
February 17, 2022

21 B 12101
Debtor filed a chapter 13 plan that proposed to separately classify a nondischargeable claim and pay it in full while other unsecured creditors receive a 10% distribution.  The Chapter 13 Trustee objected to confirmation on the grounds that the plan unfairly discriminated under 11 U.S.C. § 1322(b).  HELD: The Bankruptcy Code allows separate classification of unsecured claims and does not prohibit discrimination in a plan.  Any discrimination, however, must be fair.  Although the Code does not define what is fair, the Seventh Circuit allows bankruptcy judges to seek a result that is reasonable in light of the purpose of the applicable chapter of the Code.  The separately classified claim in this case is not of the type that would enable a plan to be viable.  It is a nondischargeable debt that resulted from overpayment of disaster assistance funds.  Therefore, it is not reasonable to separately classify this claim, and by doing so the plan unfairly discriminates.

In re Cecilia Gonzalez
December 17, 2021

21 B 1498
Mortgagee Byline Bank sought to vacate confirmation of Debtor’s chapter 13 plan under Fed. R. Civ. P. 60(b).  HELD: Motion denied.  First, Byline’s mistake in confusing this debtor with another did not support relief under Rule 60(b)(1) for “mistake, inadvertence, surprise, or excusable neglect.”  Second, Byline presented no evidence to support its claim that fraud justified relief from the confirmation order under Rule 60(b)(3).  Third, Byline’s allegations did not rise to the level of extraordinary circumstances that must be found for a court to provide relief from an order for “any other reason that justifies” it under Rule 60(b)(6).  Byline did not contend that the confirmation order was void and should be vacated under Rule 60(b)(4).  Nevertheless, the court considered this argument and determined that Debtor provided Byline with notice that satisfied the requirements of due process.

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