23 A 194, 23 B 6782
Chapter 11 Debtor/Plaintiff filed an adversary proceeding against five defendants, seeking to determine the extent, validity and priority of their liens and interests against its assets. Plaintiff reached agreement with four of the five defendants. The fifth defendant, Eby-Brown, raised several arguments in opposition to Plaintiff’s contention that its claim was unsecured. HELD: First, to determine whether Eby-Brown holds a secured claim, and its priority among the competing defendants, the court must consider the issue of perfection. Eby-Brown did not file a financing statement, and so it did not perfect its lien under state law. The court rejected Eby-Brown’s request to treat a state court complaint and asset freeze order as “equitable perfection.” The court also declined to create an equitable lien, which in any event would have been subordinated to the Debtor’s status as a hypothetical lien creditor. Finally, the court held that the Rooker-Feldman doctrine did not apply. Judgment entered in favor of Plaintiff.

12 B 18946, 23 A 00361
Plaintiff sued Defendant in state court in 1999, alleging breach of contract and fraud.  The parties resolved the lawsuit with a consent judgment in which the state court entered judgment in a certain amount in favor of Plaintiff and dismissed the fraud count with prejudice.  Defendant filed for relief under the Bankruptcy Code in 2012 and did not provide notice to Plaintiff.  In November 2023, Plaintiff brought a motion to reopen that 2012 bankruptcy case, and then filed an adversary proceeding seeking relief under 11 U.S.C. §§ 523(a)(2) and (a)(3).  Defendant brought a motion to dismiss, arguing that res judicata (claim preclusion) barred Plaintiff from pursuing a nondischargeability claim based on fraud.  Plaintiff opposed the motion on the grounds that there was no identity of cause of action, as required by Illinois law to apply claim preclusion.  HELD: Plaintiff’s assertion was correct – dismissal of the fraud claim in state court, even through the mechanism of a consent judgment, did not preclude Plaintiff from bringing a claim under § 523(a)(2).  Courts are generally in agreement that claim preclusion does not prevent a state court plaintiff from litigating dischargeability in bankruptcy court, because it is a different cause of action that could not have been litigated in a prior lawsuit.

23 A 124, 23 B 2003
Plaintiff filed a complaint objecting to Debtor’s discharge under 11 U.S.C. §§ 523(a)(2)(A), (a)(6), and (a)(19).  Plaintiff alleged he invested money with the Debtor in 2018 and 2019 and only received a small repayment in return.  The complaint was dismissed with leave to amend.  In his amended complaint, Plaintiff alleges the investment was obtained through fraud and misrepresentations and that the Debtor never intended to provide a return or repayment of the investment.  Debtor filed a motion to dismiss the amended complaint.  Held: Plaintiff successfully stated a claim under §§ 523(a)(2)(A) and (a)(6) by making additional allegations with particularity sufficient to put the Debtor on notice of Plaintiff’s claims.  Plaintiff failed to state a claim under § 523(a)(19) by failing to plead that the alleged investment was a security and failing to make any allegations satisfying (a)(19)(b).  The court denied the motion to dismiss as to counts I and II and granted the motion as to count III, with leave to amend.

23 B 16481
Chapter 7 debtor sought conversion under 11 U.S.C. § 706(d) to subchapter V of chapter 11.  The case trustee and the Debtor’s ex-wife opposed the request on the grounds that Debtor was not eligible to be a debtor under chapter 11.  HELD: The Supreme Court explained in Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007), that the right to convert under § 706 is limited.  Bankruptcy judges may deny a motion to convert if the case would simply be reconverted.  Since a state court judge found that Debtor failed to pay a number of postpetition domestic support obligations, cause would exist to convert if this was a chapter 11 case.  Debtor argued that although he had not paid maintenance and support from his own income, his ex-wife and children had received payment of those obligations from a trust.  The state court judge had already rejected that argument.  Under the Bankruptcy Code, the plain language of § 1112(b)(4)(P) does not ask whether the ex-spouse is out of pocket but whether a debtor failed to pay the domestic support obligation.  Debtor presented no evidence to find otherwise and in fact admitted that he had not made the payments.  Therefore, any chapter 11 case would be reconverted for cause, and conversion to chapter 11 would be futile.  The court denied the motion to convert.

23 B 11641
Chapter 11 debtors sought conditional approval of their disclosure statement, and authority to hold a combined hearing on the disclosure statement and plan. The U.S. Trustee objected to both requests. HELD: Objection overruled. The Bankruptcy Code provides for combined hearings on disclosure statements and plan confirmation in all chapter 11 cases, not just small business cases, so long as the court deems it appropriate to ensure that the case is handled expeditiously and economically. This disclosure statement contained adequate information to enable parties to make an informed judgment about the plan. Therefore, the court conditionally approved the disclosure statement, and entered an order setting a combined hearing on plan confirmation and final approval of the disclosure statement.

23 B 6782
Chapter 11 debtor operates gas stations, some owned and the rest leased from a national company (“CAP”) that also supplies fuel and licenses its marks.  Debtor sought authority to assume its agreements with CAP.  Meanwhile, CAP sought to compel rejection or, in the alternative, relief from the stay to terminate the agreements.  HELD: Assumption of the CAP agreements was a proper exercise of the Debtor’s business judgment.  There was no dispute that Debtor had no monetary defaults.  Its agreements with a number of management companies did not constitute assignments of its interests under the CAP agreements, and so were not nonmonetary defaults.  Even if certain additional actions could be considered nonmonetary, noncurable defaults, those were not material and did not cause substantial economic detriment.  Since there were no defaults under the CAP agreements, Debtor was not required to provide adequate assurance of future performance.  Moreover, the Code does not authorize the court to compel rejection, only to fix a time within which a debtor must decide whether to assume or reject.  In light of the court’s decision to approve assumption, stay relief was not warranted.

23 B 12544
The District of Columbia sought leave to take discovery of Debtors and related entities pursuant to Fed. R. Bankr. P. 2004.  Debtors objected.  HELD: The scope of a Rule 2004 examination is broad.  Standing to take Rule 2004 examinations is not limited to creditors, but instead is allowed for any party in interest.  So long as the inquiry under Rule 2004 is relevant to the wide range of topics described in the Rule, it is appropriate.  Under this standard, the District’s request would be granted.  Although the parties disputed whether the District could plausibly allege a claim for relief against Debtors, a Rule 2004 motion was not the proper forum for resolution of that dispute.  Finally, the District had attached proposed document requests to the motion, and requested approval of those in its proposed order.  The court declined to approve the requests because the issue of whether particular questions or document requests comply with Fed. R. Civ. 45 is more appropriately resolved after subpoenas are issued.

21 B 13626
Court allowed Debtor to reopen her bankruptcy case in order to seek sanctions for violation of the discharge injunction and the automatic stay, as well as a renewed motion to avoid judicial lien, all against the same judgment creditor.   HELD: All three motions would be denied.  Prepetition, Debtor executed a warranty deed while the creditor’s foreclosure action was pending.  Although Debtor directed the grantee not to record the transaction, delivering the deed effected a transfer.  Therefore, when Debtor filed for relief under the Bankruptcy Code, she did not own the real property in question and could not claim an exemption in it.  Consequently, Debtor could not assert that the creditor’s lien impaired an exemption.  Nor could she prevail on her motion for sanctions for violation of the automatic stay.  As for the discharge violation motion, the creditor asserted that by continuing its foreclosure action, it sought only to enforce its in rem rights.  The creditor had neglected to revive its judgment within seven years, however, so there was a question regarding its ability to pursue the foreclosure action.  But, since there is a split in the Illinois courts, there was an objectively reasonable basis for concluding that the creditor’s conduct might be lawful.  Therefore, under the standard set forth in Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), sanctions for violation of the discharge injunction were not warranted.

23 B 16481
During a contempt hearing in state domestic relations court regarding turnover of property awarded to his ex-wife (“Kerry”), the ex-husband (“Marty”) filed for relief under chapter 7.  The state court continued with the contempt hearing and remanded Marty to jail.  Marty filed a motion to enforce in bankruptcy court, requesting a finding that the contempt proceeding and incarceration order violated the automatic stay.  Kerry filed a competing motion to clarify that the stay did not apply to the proceedings.  HELD:  Although the contempt proceeding was part of Kerry’s efforts to collect a prepetition debt, collection of a domestic support obligation from property that is not property of the estate is excepted from the automatic stay under 11 U.S.C. § 362(b)(2)(B).  “Collection” is not limited to the receipt of a voluntary payment.  After consideration of the split in the case law, the court held that “collection” includes enforcement.  This holding is also supported by the legislative history and principles of statutory construction.  Additionally, Kerry was not seeking to collect from property of Marty’s bankruptcy estate.  The state court had already divided the marital property, and once that had been accomplished, Marty’s contingent interest in the property awarded to Kerry disappeared.  Therefore, the property she sought to collect did not became property of the estate upon the filing of Marty’s bankruptcy petition.  The court denied Marty’s motion to enforce and granted Kerry’s motion to clarify, in part.

19 B 554, 19 A 604
Plaintiffs entered into a contract with Defendant’s construction company.  The contract required Plaintiffs to pay a percentage of the total contract price at “rough-in inspection approval.”  Over several months, Plaintiffs made payments constituting a portion of that percentage after Defendant told them that inspections had been approved with conditions.  Eventually the relationship soured, Plaintiffs stopped making payments and Defendant withdrew as general contractor.  Plaintiffs sought a finding that their claim against Defendant was nondischargeable under 11 U.S.C. § 523(a)(2)(A).  HELD: Defendant made a false statement to Plaintiffs.  Although there was no consensus about whether “rough-in inspection approval” meant full approval or approval with conditions, it was undisputed that Defendant had never requested or participated in a rough mechanical inspection.  Nevertheless, Plaintiffs did not establish that Defendant made that statement with a reckless disregard for the truth or with the intent to deceive them, or that they justifiably relied on it.  Moreover, there was no basis under Missouri law to pierce the corporate veil and hold Defendant responsible for the debts of his construction company.  Mere participation in a breach of contract is not sufficient to disregard the corporate form.

22 B 5968
Debtor sought to modify his chapter 13 plan to provide for surrender of a motor vehicle.  The chapter 13 Trustee objected based on the reasoning set forth in In re Nolan, 232 F.3d 528 (6th Cir. 2000).  HELD: Debtor’s proposed plan falls within the four types of modifications permitted by 11 U.S.C. § 1329(a).  Section 1329(a) permits surrender as a plan modification.  Moreover, the modified plan would satisfy the requirements of § 1329(b)(1).  Nolan is not binding authority, and the court does not find its reasoning to be persuasive.  Debtor’s motion to modify plan is granted.

17 B 25014, 22 A 00189
Debtor/Plaintiff Jackson filed for relief under chapter 13 in 2017.  The City of Chicago seized his car in August 2017, while the case was pending.  Four days later, Debtor/Plaintiff Butler filed her own chapter 13 case.  Jackson had allowed her the possession and use of the car.  Both Plaintiffs demanded the car’s return, which did not occur until they paid a prepetition debt.  Butler sought and obtained dismissal of her case less than two weeks after filing her petition; Jackson’s case was dismissed about six months later.  More than five years after the court dismissed Butler’s case, she and Jackson filed a complaint alleging claims against the City under 11 U.S.C. §§ 362 and 542.  The City filed a motion to dismiss the entire complaint. HELD:  Motion to dismiss granted.  Only Butler sought relief under § 362, and the claims asserted under § 362 are contested matters that must be brought by motion, not by adversary proceeding.  To the extent that Plaintiffs’ claim under § 542 sought damages for failure to turn over the car immediately upon the filing of Butler’s bankruptcy case, it is a contested matter that must be brought by motion.  To the extent that the § 542 count sought an accounting for the value of the temporary loss of the vehicle, it did not state a claim for relief.  Dismissal and closing of the underlying bankruptcy cases did not eliminate Plaintiffs’ ability to seek a finding of contempt for failure to comply with the turnover requirement.

23 B 06723
Lender asked the court to excuse a state court receiver from compliance with its obligation to turn over real property to a chapter 11 debtor.  HELD: Motion denied.  Congress mandated that a custodian of property of the debtor must turn it over at the commencement of a bankruptcy case.  The court has significant latitude to exercise its discretion to excuse that obligation, but the burden is on the Lender to convince the court that it should do so.  The facts of this case do not rise to the level required to flip the statutory presumption.  First, the Lender has other remedies available under the Code, which may be more appropriate.  Allowing the Lender to achieve a similar result under a lesser standard of proof would be contrary to the purposes of chapter 11.  Second, an “abstention” from turnover would render the Debtor unable to pursue a reorganization for the benefit of all creditors.  Finally, the judicially-created factors for analyzing a motion to excuse compliance weigh in favor of denying the Lender’s motion.  For all of these reasons, the Receiver should not be excused from his turnover obligation.

23 B 5260

Debtor and his partner purchased real property in 1994. Over the past three decades they granted several mortgages, which resulted in four separate foreclosure proceedings, transferred the property between themselves and other entities, and filed a combined ten bankruptcy cases. The City of Chicago requested dismissal of Debtor’s current chapter 13 case with a three year bar to refiling. HELD: Court made findings of fact as to the actions of Debtor and his partner with regard to this piece of real property. Based on those findings of fact, under the standard articulated by the Seventh Circuit, Debtor did not file this bankruptcy case in good faith. Cause exists under 11 U.S.C. § 1307(c) to dismiss this case. Furthermore, Debtor’s lack of good faith, pattern of conduct and failure to comply with the requirements of the Bankruptcy Code support a finding of bad faith. Therefore, it is appropriate to dismiss this case with a three year bar to refiling under 11 U.S.C. § 349.

20 B 05362
The court granted the chapter 13 Trustee’s motion to modify plan, increasing Debtor’s plan payments to reflect previously undisclosed commission income.  About a month later, Debtor filed her own motion to modify plan, alleging that her employer had changed her position and she was no longer eligible for commissions.  The Trustee opposed the Debtor’s motion on the grounds that her plan was not proposed in good faith.  HELD: Debtor submitted two letters from her employer to document the change in her employment.  Her proposed plan payments included income that she could have excluded, as benefits received under the Social Security Act.  And, she offered to turn over any future bonuses and to provide copies of her paystubs.  Although Debtor had previously submitted schedules that did not disclose all of her commission and bonus income, the question before the court was whether Debtor’s conduct supporting this plan represented a good faith effort to satisfy her creditors’ claims.  Considering the totality of the circumstances and finding that it did, the court granted her motion to modify plan.

16 B 01529
Debtor objected to the claim filed by the father of her children.  She asserted that he was precluded from relitigating the allocation of certain expenses by an agreed order entered in state court.  HELD: The state court agreed order, signed by both parties, is a settlement agreement.  When reviewing a settlement agreement, the court must look to the objective intent of the parties rather than their subjective intent.  Since the state court agreed order opened with the statement that it was “coming to be heard on the remaining financial issues in the cause,” it did not leave the allocation of those expenses open for later resolution.  The parties were bound by the terms of the order and barred from continued litigation.  Claim preclusion (res judicata) also applied to preclude the parties from relitigating the issues covered by the agreed order.  Although the father had filed a motion to vacate the agreed order after Debtor filed her objection to his claim, this did not affect the finality of the agreed order for purposes of claim preclusion.  Since the father’s claim was unenforceable under state law, the court sustained Debtor’s objection to claim.

23 B 00837
Chapter 13 debtor proposed a 36-month plan.  A secured creditor with a claim treated in section 3.3 of the plan objected on the grounds that the plan did not comply with 11 U.S.C. § 1325(a)(6), since this creditor would not receive payment in full within 36 months.  HELD: The language of Official Form 113, which is the national form chapter 13 plan and must be used by debtors in the Northern District of Illinois, provides in section 2.1 that “[i]f fewer than 60 months of payments are specified, additional monthly payments will be made to the extent necessary to make the payments to creditors specified in this plan.”  Pursuant to this language, Debtor would be required to continue paying after the 36-month term of the plan had passed, until the Trustee had sufficient funds to pay this secured creditor as specified in section 3.3.  Therefore, Debtor satisfied the requirement of § 1325(a)(6) that she would be able to make all payments under the plan and to comply with the plan.  Objection overruled and plan confirmed.

21 B 14066
The chapter 13 Trustee filed a motion to dismiss for nonpayment.  Debtor filed a motion to modify his plan, requesting suspension of payments while he was out on medical leave.  Debtor then filed an amended motion to modify, requesting a longer suspension when his medical leave was extended.  After hearing testimony from the Debtor, the court HELD: Temporary suspension of payments can be an appropriate modification of a chapter 13 plan.  Both case law and non-statutory procedures used in various courts support this proposition.  In this situation, although the Debtor was sincere and credible, the proposed modification did not meet the requirements of 11 U.S.C. § 1325(a).  Suspension is temporary, not indefinite.  Debtor did not have a return-to-work date that was certain.  Suspension of payments for an indefinite period of time did not satisfy the requirements that a plan must be proposed in good faith and that a debtor must be able to make all payments under the plan.  Therefore, the amended motion to modify was denied and the motion to dismiss was granted.

21 B 01817
Chapter 13 Trustee moved to dismiss Debtor’s bankruptcy case for failure to make payments.  Debtor responded with a motion to modify his chapter 13 plan, requesting a decrease in plan payments as well as a reduction in the plan term.  Although he was a below-median debtor, he had confirmed a 60-month plan in order to accommodate the claim filed by his mortgage lender, who had subsequently been granted relief from the stay.  The chapter 13 Trustee objected to Debtor’s motion to modify.  The parties did not request an evidentiary hearing.  HELD:  Motion to modify denied and motion to dismiss granted.  It is a plan proponent’s burden to prove that the statutory requirements for modification are satisfied.  When an objection is raised to the requested relief, the proponent must do more than upload bills to the court docket in order to show that the modification is proposed in good faith as required by 11 U.S.C. § 1325(a)(3) and is feasible as required by 11 U.S.C. § 1325(a)(6).   Debtor submitted utility bills and credit card payment coupons that did not support his amended Schedule J.  In light of the Trustee’s objection, the court could not take Debtor’s schedules at face value, and, without knowing whether Debtor’s expenses were accurate, the court could not determine whether the modification was proposed in good faith or whether it was feasible.  Debtor asserted that his Social Security income could not be counted toward his available income, but without any contribution of Social Security benefits, Debtor’s proposed modification was not feasible.  Debtor included a line item on Schedule J for mortgage/rent that appeared to be a monthly payment due to the lender for which relief from the stay had been granted.  Debtor presented no evidence that he was currently making those payments; in fact, the mortgage statement he submitted appeared to show that no payments had been made for six months.  For all of these reasons, the court found that Debtor had not met his burden of proof and his motion to modify would be denied.  Without modification, it was appropriate to grant the Trustee’s motion to dismiss for nonpayment.

22 B 02091
Debtor moved to modify her chapter 13 plan seven months after confirmation. She requested a decrease in plan payments as well as a reduction in the percentage to unsecured creditors, asserting that certain expenses had increased. The chapter 13 Trustee objected to Debtor’s motion to modify.  The parties did not request an evidentiary hearing.  HELD:  Motion denied.  The utility bills Debtor submitted in support of her request were insufficient to satisfy her burden of proof that required her to establish reasonable and necessary expenses, including the amount of, and services provided for, the proposed expenses, and that her plan was proposed in good faith as required by 11 U.S.C. § 1325(a)(3).  None of the bills supported a finding that Debtor’s expenses increased post confirmation.  Similarly, Debtor’s apparently voluntary decision to increase her rent payment at the expense of her unsecured creditors was not evidence of good faith.