12 B 49658
Upon the Motion for Allowance of Secured Claim and Turnover of Collateral Proceeds, brought by United Central Bank (“UCB”), and the Cross Motion for Partial Turnover of Proceeds of Sales, brought by the Illinois Department of Revenue (“IDOR”), to determine the higher priority claim in the proceeds from a section 363 sale, held: UCB is entitled to a claim secured in the entire amount of the proceeds of the sale.  IDOR has secured, priority unsecured and general unsecured claims, all of which are lower in priority to UCB’s secured claim.  IDOR’s right to assert transferee liability is an “interest” for purposes of a section 363(f) sale, potentially entitling IDOR to adequate protection under section 363(e).  As IDOR’s interest is, however, subordinate to that of UCB’s secured claim and IDOR’s claim is therefore “out of the money,” there is no harm from which IDOR is entitled to protection.  The court therefore grants UCB’s request for allowance of secured claims and turnover of collateral proceeds and denies the IDOR’s request for partial turnover.

13 B 31265
Upon the Construction and General Laborers’ District Council of Chicago and Vicinity’s and the Laborers’ Pension and Welfare Funds’ objection to the Debtor’s application pursuant to 11 U.S.C. § 1113 to reject all collective bargaining agreements to which it was a party, held:  The Debtor, having sold substantially all of its assets prior to commencing bankruptcy, has demonstrated sufficiently that rejection of all collective bargaining agreements is necessary for a valid “reorganization,” as that term must be interpreted in section 1113 in a liquidating chapter 11 case.  The court therefore grants the Debtor’s motion to reject  its collective bargaining agreements.

10 B 44866, 13 A 01048
Petitioners, as trustees for a family trust created by the debtor, move for abstention or remand of an Illinois state court proceeding to dissolve the family trust that had been previously removed to this court by the chapter 7 trustee. The chapter 7 trustee, in turn, seeks a determination from this court that the state court proceeding is void, as the proceeding was commenced after the commencement of the bankruptcy case and without relief from the automatic stay. Held: While the dissolution of a trust against which an estate has a claim may not violate the automatic stay, per se, under the facts of this case, a stay violation did occur. While the state court, not this court, is the proper tribunal with authority to order the dissolution of the family trust, the state court proceeding is invalid as having been commenced in violation of the automatic stay and the request for abstention or remand is therefore moot.

10 B 44866, 13 A 00631
After the trustee filed a motion for default judgment against one of multiple adversary defendants for failure to file a timely answer in response to an amended complaint, the defendant filed two answers; one to the original complaint and another one to the amended complaint. The trustee moved for the court to strike both answers as untimely and filed without leave or excuse. The bankruptcy court held that: (i) the defendant failed to file an answer within the prescribed time period; (ii) the defendant failed to challenge service in its first responsive pleading and thus has waived the defense of insufficient service; (iii) the defendant failed to show that its untimely answer is excusable pursuant to Federal Rule of Bankruptcy Procedure 9006(b)(1); (iv) the answers will therefore be stricken; (v) service of the motion for default judgment satisfies the due process requirement; and (vi) after having held three hearings on the motion for default judgment and having stricken the answers, it is proper to enter a default judgment against the defendant. Accordingly, the court grants both of the trustee’s motions.

13 B 28123
The Chapter 7 trustee filed an objection to the exemption that the debtor claimed in her interest in her former husband’s retirement plan pursuant to section 12-1006 of the Illinois Code of Civil Procedure. The parties disagreed on whether the debtor had the right to obtain the funds for her immediate consumption. The debtor argued, alternatively, that the retirement plan was excluded from the bankruptcy estate under 11 U.S.C. § 541(c)(2). Held: The debtor’s interest in the retirement plan is property of the estate. However, the debtor satisfied the requirements for exemption under Illinois law. The debtor’s ability to take an immediate distribution did not defeat the retirement nature of the retirement plan, as the distribution is to be made pursuant to a qualified domestic relations order in a way as to preserve the retirement nature of the funds. The court therefore overrules the trustee’s objection to the claimed exemption.

13 B 42168
The chapter 13 trustee filed a motion to dismiss the Debtor’s chapter 13 case pursuant to 11 U.S.C. § 1307. The Trustee alleged that the Debtor failed to meet the requirements under 11 U.S.C. § 109(h)(1) because the Debtor did not receive counseling during the 180-day period preceding the date of filing of the case. Held: The Debtor meets the requirements under 11 U.S.C. § 109(h)(1), as the Debtor received credit counseling the date of the filing of the petition. The plain language of section 109(h)(1) permits a debtor to receive credit counseling on the date of the petition. Credit counseling received on that date, though after the time of the filing of the petition, satisfies the requirements of section 109(h)(1). The court therefore denies the motion to dismiss.

13 B 18697
The Debtor brought a motion for contempt sanctions against Ahad Real Estate, LLC, Beach Business Bank, Macon Group, LLC and the receiver John Flanders Kennedy for alleged violations of the automatic stay of 3680 Riverside Drive, Macon, GA 31210. The court finds that the Debtor, as the movant and the party on whom the primary burden falls, failed to carry that burden as to establishing that an interest in 3680 Riverside Drive, Macon, GA 31210 became property of the Debtor’s bankruptcy estate, so as to afford that interest the protections of the automatic stay and allow the Debtor to seek damages arising from an alleged violation of those protections. The Debtor failed to show that the foreclosure and transfer of title of 3680 Riverside Drive, Macon, GA 31210 that occurred on February 5, 2013 did not divest the Debtor of its interests, if any. The court also finds that the Debtor’s allegations against the Receiver for coercion of funds are likewise unsubstantiated. The court therefore denies the motion for contempt sanctions against all parties.

11 B 12584 and 13 B 13374
11 A 01455 and 13 A 00687
Creditor commenced adversary proceedings against debtors husband and wife in their respective bankruptcy cases seeking a determination that a debt allegedly owed by each of the debtors to the creditor is nondischargeable under 11 U.S.C. § 523(a)(2)(A). The creditor alleged that the debtors obtained a loan from him through false pretenses, false representation and/or actual fraud. Held: Each of the debtors is obligated on the debt despite arguments to the contrary. Nonetheless, creditor failed to prove that either of the debtors obtained the loan by false pretenses, a false representation, or actual fraud, or that a third party’s fraudulent actions with respect to the debt should be imputed to either debtor under agency or other principles. As a result, the debt is dischargeable by each of the debtors.

12 B 26779
Secured judgment creditor brought motion for stay pending appeal of prior court order avoiding its judicial lien on debtor’s exempt retirement accounts and denying creditor’s motion for relief from stay. The Bankruptcy Court held that pursuant to the four factors balanced in analyzing a motion for stay pending appeal under Rule 8005 of the Federal Rules of Bankruptcy Procedure: (i) creditor failed to establish a likelihood of success on the merits by not raising a new issue or case law supporting its position not already addressed in the court’s previous opinion; (ii) creditor showed irreparable injury absent a stay due to lack of clarity as to the value of debtor’s assets and possibility that creditor might not be able to recover the full value of its judgment; (iii) substantial harm to other parties in the litigation existed where debtor’s pending motion to convert from chapter 7 to chapter 11 would not be possible without access to the retirement accounts in question; and (iv) harm to the public interest existed where prolonged litigation goes against the bankruptcy public policy of distribution to creditors within a reasonable time. Pursuant to its discretion to fashion an equitable remedy under Rule 8005 for the benefit of all parties in interest, the court granted the motion with instruction to debtor that the stay would be lifted upon its specific request to the court to use the exempt funds, as, until the court’s previous order became final, the funds were still property of the bankruptcy estate.

12 B 48031
Mortgagee bank brought a motion to dismiss for bad faith and a motion for relief from stay on three investment properties of the Debtor. Bank contended the infeasibility of the Debtor’s proposed plan, along with the Debtor’s conduct, including filing three bankruptcies within a year, established sufficient grounds to warrant cause for dismissal. In regards to the relief for stay, the bank alleged that the Debtor’s failure to pay delinquent taxes and the pending expiration of tax redemption period demonstrated that the bank inadequately protected. The bank also reasoned that with respect to two of the properties, grounds exists to grant relief from the stay because there was no equity in the properties and the Debtor did not have a reasonable possibility of confirming a reorganization plan. The Bankruptcy Court held that: (i) the Debtor’s conduct, while troubling, did not warrant cause for dismissal under section 1112(b); and (ii) the failure of the Debtor to confirm a plan that proposes to pay all delinquent taxes in full prior to expiration of the tax redemption period will result in the bank being inadequate protected and thus failure to do so will cause sufficient grounds to arise to grant relief from stay on the three investment properties.

12 B 26246

Condo association brought motion for relief from stay eight days after debtor’s chapter 13 plan was confirmed. Condo association alleged that an unexecuted prepetition order for possession and a default in postpetition, but preconfirmation, direct payments to creditor constituted lack of adequate protection. The court denied the motion and condo association filed a motion to reconsider.
The Bankruptcy Court held that: (i) the res judicata effect of the order confirming a plan precludes a creditor from seeking relief from stay immediately following confirmation of a plan when the basis of the relief is based on grounds that could have been raised preconfirmation; and (ii) the existence of a creditor’s unexecuted, prepetition order for possession does not extinguish a debtor’s actual possessory interest and does not constitute grounds for relief from stay.

11 B 27030, 12 A 01057

State court judgment creditor brought a complaint seeking declaratory judgment that three bank accounts that were the subject of or created by state court orders were not property of the Debtor’s estate. State court judgment creditor filed motioned for summary judgment. The Bankruptcy Court held that: (i) the parties consented to judgment on one account; (ii) summary judgment in favor of state court judgment creditor was appropriate as to a second account because funds were deposited to restore previously depleted trust funds, and as such were not property of the estate; and (iii) summary judgment in favor of bankruptcy estates was appropriate as to the third account because, even though the state court orders requiring the creation of the account described the account as an “escrow” account, the nature of such orders did not clearly indicate the precise legal obligation for which the account was established, the condition upon which the funds would be released, or the beneficiary of the account.

09 B 39937, 11 A 02236

The court considers whether the causes of action raised by the Plaintiff in this instance, matters of avoidance under sections 544 and 548 of title 11 of the United States Code, state fraudulent conveyance law and federal preference law, are properly brought by the Plaintiff in its second amended complaints. Given that the Plaintiff has not sufficiently addressed the badges of fraud in its second amended complaints and the Ponzi scheme presumption does not apply, the court grants the Plaintiff leave to further amend in order to meet the standards of Rule 9(b). The Defendants’ other grounds for dismissal are rejected for the reasons stated within.

09 B 30477

In considering the trustee’s objection with respect to claims pursuant to sections 502 of title 11, United States Code and Rule 3007 of the Federal Rules of Bankruptcy Procedure, the court addresses the sole issue – one on which there is no direct binding case law in the Seventh Circuit – as to whether the debtor, as the 100% shareholder, sole director, CEO and President of the corporation, is personally liable with respect to wage claims against the corporation under the Illinois Wage Payment and Collection Act. The Court finds that the trustee’s objection to the wage claims is well taken as the debtor is not be held personally liable for such claims solely because the debtor discontinued infusing personal funds into the corporation to keep it alive as a going concern. In so doing, the court notes that piercing the corporate veil is not favored, that deepening insolvency does not stand as an independent ground for relief, and that absent fraud, of which there is no indication, the claimant’s claims against the debtor individually are not well founded.

09 B 17582, 12 A 00799
Upon the Defendants’ motion to dismiss the Chapter 7 trustee’s adversary complaints for failure to state a claim upon which relief may be granted and the statute of limitations contained in 11 U.S.C. § 546(a)(1), held: (i) the commencement of the adversary proceedings on May 11, 2012 was timely as Congress clearly intended to afford a bankruptcy trustee no less than a year to bring avoidance actions, while at the same time limiting the time period to no more than three years; and (ii) an additional year afforded to the trustee runs from the date an interim trustee begins service under section 701, if that appointment occurs within two years of the order for relief and if that interim trustee becomes the permanent trustee by operation of section 702(d).  Motion to dismiss denied.

08 B 10095, 10 A 00998
Upon the Defendant’s motion for summary judgment in the adversary proceeding brought by the Chapter 11 Liquidation Trustee to avoid and recover fraudulent and preferential transfers and disallow claims, held: (i) without evidence supporting an implied contract theory, the Liquidation Trustee could not establish that the transfer was on account of an antecedent debt, an element of the preference avoidance claim; but (ii) for many of the same reasons that the preference avoidance claim fails, genuine factual disputes exists as to whether an indirect benefit defense exists as to the fraudulent transfer avoidance claim.  Motion for summary judgment granted in part and denied in part.

08 B 10095, 10 A 00824
Upon the Defendant’s motion to dismiss the Chapter 11 Liquidation Trustee’s adversary proceeding to avoid alleged fraudulent or preferential transfers, citing Stern-challenges to constitutional grounds and failure to state cause of action on which relief could be granted, held: (i) bankruptcy court, even as non-Article-III court, had constitutional authority to enter final decision on preference avoidance claims; (ii) court also had authority to finally decide fraudulent transfer claims, regardless of whether claims were asserted under bankruptcy fraudulent transfer statute or pursuant to state law in exercise of powers accorded under strong-arm statute; and (iii) allegations in the Liquidation Trustee’s complaint stated plausible claim for relief.  Motion to dismiss denied.

12 B 26779
Upon the Judgment Creditor’s motion for relief from automatic stay and the Debtor’s motion to avoid the Judgment Creditor’s  liens as impairing exemption, held: (i) the Debtor’s ownership rights in funds that were in possession of third party were estate property, despite the Judgment Creditor’s prepetition service of state-court turnover order on third party; (ii) any postpetition setoff against judgment without leave of court by the Judgment Creditor of the Debtor’s royalties was void; (iii) conditional grant of motion for stay relief was warranted; (iv) neither res judicata nor Rooker-Feldman doctrine applied to bar the Debtor from claiming exemptions and seeking to avoid judicial liens impairing those exemptions; and (v) any royalties collected by the Judgment Creditor postpetition were estate property in which the Debtor could claim exemption. Motion for relief from stay granted in part and denied in part.  Motion to avoid liens granted.

09 B 39937, 11 A 02239
Upon the Defendant’s motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from Debtor to Defendant that purportedly were part of fraudulent scheme, held: (i) the claims in the Amended Complaint clearly provided the elements of a Ponzi-type scheme and thus provided a theory out of which a constructive trust may arise under Illinois law; and (ii) while the in pari delicto doctrine may be available in the context of a claim for constructive trust, there are no allegations in the count in question that the Plan Administrator also participated in the alleged fraud, only that such a fraud existed.  Motion to dismiss denied.

09 B 39937, 11 A 02196
Upon the Defendants’ motion to dismiss the Chapter 11 Plan Administrator’s adversary proceeding, seeking to avoid and recover as fraudulent transfers lease payments transferred from the Debtor to the Defendant that purportedly were part of fraudulent scheme, held: (i) the Defendants’ interpretation of the interplay between sections 11 U.S.C. §§ 544 and 546 with respect to the statute of limitations to avoid fraudulent transfers was not well founded as the overwhelming majority of opinions in this circuit interpreting such interplay go against the Defendants’ assertions; (ii) that the Debtor may have received “reasonably equivalent value” was not fatal to cause of action to avoid lease payments as actually, and not just constructively, fraudulent transfers; (iii) allegations in complaint did not establish “good faith and for value” defense on face of complaint for purposes of 11 U.S.C. § 548(c); but (iv) the Plan Administrator failed to adequately allege Ponzi-type scheme and to explain how challenged payments were used to further alleged scheme and harm the Debtor’s other creditors.  Motion to dismiss granted.