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Bankruptcy Year In Review - 2004

San Diego County Bar Association
January 18, 2005

I. U.S. Supreme Court Decisions

Kontrick v. Ryan
540 U.S. 443 (2004)

Time limit to object to discharge is not jurisdictional and can be waived if not timely (before court adjudicates on the merits) asserted by the debtor.

Lamie v. U.S. Trustee
540 U.S. 526 (2004)

Code does not authorize payment of counsel for the debtor for services rendered after case converted to Chapter 7 unless attorney is appointed as counsel for trustee under section 327.

Tennessee Student Assistance Corp. v. Hood
541 U.S. 440 (2004)

Suit to determine student loan is dischargeable is not a suit against the State for purpose of the Eleventh Amendment. The mere determination is an exercise of in rem jurisdiction.

Till v. SCS Credit Corporation
541 U.S. 465

Formula approach adopted for determining proper rate under a Chapter 13 plan to determine that creditor received payments over time equal to present value of secured claim.

II. Ninth Circuit Court of Appeals

In re Dawson
367 F.3d 1174 (9th Cir. 2004)

Debtor may not recover damages for emotional distress when a creditor violates automatic stay.

Decker v. Advantage Fund, Ltd.
362 F.3d 593 (9th Cir. 2004)

Sale of preferred stock by insolvent company is not a fraudulent transfer because stock is not property for which the debtor has an interest.

In Re Deville
361 F.3d 539 (9th Cir. 2004)

Bankruptcy Court has inherent power to sanction attorney’s bad faith conduct, but penalty should be paid to the Court rather than to a party.

In re Enewally
368 F.3d 1165 (9th Cir. 2004)

Chapter 13 plan may not divide loan into secured and unsecured claims, with secured claim to be satisfied beyond the life of the plan.

In re Focus Media
2004 WL 2590496 (9th Cir. 2004)

  1. Petitioning creditors qualified where claim is subject to bona fide dispute so long as undisputed portion of claim exceeds statutory minimum.
  2. A lawyer who represented client during bankruptcy proceedings may be deemed to be the implied agent for service of process.
  3. Court has equitable power to order a freeze of assets.

In re George
361 F.3d 1157 (9th Cir. 2004)

Claim for reimbursement by CA Uninsured Employer’s Fund against debtor who did not have worker’s compensation insurance is not an excise tax and, thus, is dischargeable.

Higgins v. Vortex Fishing Systems, Inc.
379 F.3d 701 (9th Cir. 2004)

Non-consensual dismissal of involuntary petition creates rebuttable presumption of right to attorneys’ fees and costs, but bankruptcy court could not assess fees or costs attributable to non-frivolous appeal.

In re JWJ Contracting Co., Inc.
371 F.3d 1079 (9th Cir. 2004)

Subcontractor provided unconditional lien release in exchange for NSF check. The replacement check provided by the debtor within the preference period was avoidable as a preference as no new value given.

In re Latman
366 F.3d 774 (9th Cir. 2004)

Trustee may surcharge debtor’s exempt property where debtor did not disclose and used funds and concealed assets to the detriment of the estate.

In re Miller
363 F.3d 999 (9th Cir. 2004)

Ambiguity in Chapter 11 plan concerning treatment of certain tax claims is construed against the debtor as the “drafter” of the plan.

In re Nielsen
383 F.3d 922 (9th Cir. 2004)

Setting aside a Chapter 7 discharge for fraud requires a showing that, but for the fraud, the debtor would not have received a discharge.

In re Northern Merchandise, Inc.
371 F.3d 1056 (9th Cir. 2004)

Indirect benefit to the debtor may constitute the receipt of “reasonably equivalent value” under section 548(a). Lender had agreed to advance funds to shareholder, secured by corporate assets, on the understanding that the corporate debtor would use the funds.

In re Olshan
356 F.3d 1078 (9th Cir. 2004)

Burden of proof on an IRS claim requires the debtor to show calculation is incorrect, to shift burden back to IRS as to each type of tax if more than one is assessed.

In re Treesource Industries, Inc.
363 F.3d 994 (9th Cir. 2004)

Following lease rejection, the obligation to restore premises to pre-lease condition is deemed a pre-petition general unsecured claim, not an administrative expense.

III. 9th Circuit BAP Decisions

In re Bankruptcy Petition Preparers Who Are Not Certified
307 B.R. 134 (9th Cir. BAP 2004)

Arizona Supreme Court rules requiring all document preparers to be certified does not conflict with Bankruptcy Code section 110.

In re Burnett
306 B.R. 313 (9th Cir. BAP 2004)

Assignee of claims has no duty to disclose what it paid original creditor.

In re Captan Blythers, Inc.
311 B.R. 530 (9th Cir. BAP 2004)

Where Chapter 11 plan contemplates distributions from creditors from assets vested in reorganized debtor, assets revert to Chapter 7 estate upon failure of the plan and conversion.

In re Gose
308 B.R. 41 (9th Cir. BAP 2004)

Under California law, a cause of action for medical malpractice is exempt to the extent necessary for support. CCP section 704.140(a).

In re Mason
315 B.R. 554 (9th Cir. BAP 2004)

For student loan hardship discharge, the additional circumstances showing that inability to pay will continue do not have to be new or unknown at the time of the loan.

In re Mayan Networks
306 B.R. 295 (9th Cir. BAP 2004)

Payment to lessor under a letter of credit reduces the lessor’s allowable claim under section 506(b)(6). (Note: LC was secured by property of the estate.)

In Re NYS
308 B.R. 463 (9th Cir. BAP 2004)

Student loan hardship discharge requires, among other things, showing of “additional” not “exceptional” circumstances that the inability to repay the loan is likely to persist.

In re Repp
307 B.R. 144 (9th Cir. BAP 2004)

Discharge of student loan requires service of summons and complaint, and cannot be based on notice contained in Chapter 13 plan.

In Re Robbins
310 B.R. 626 (9th Cir. BAP 2004)

Denial of stay relief improper where sole reason is to prevent creditor from obtaining state court judgment to perfect lien under pre-petition writ of attachment.

In re Valenti
310 B.R. 135 (9th Cir. BAP 2004)

There is no equitable tolling of the 180 period to revoke a confirmation of Chapter 13 plan for fraud even if debtor concealed assets and income.

In Re Villar
317 B.R. 88 (9th Cir. BAP 2004)

State Court attorney is not agent for service of a motion to avoid judgment lien.

In re Wheatfield Business Park, LLC.
308 B.R. 463 (9th Cir. BAP 2004)

Proof of claim filed with US Trustee is timely.

IV. Bankruptcy S.D. Cal. Decisions

In re Garcia
317 B.R. 810 (SD Cal.2004) (Hargrove)

Court disallowed fees for counsel for Trustee as routine matters that should have been performed by the Trustee.

V. California State Court Decisions

McLaughlin v. Walnut Properties, Inc.
119 Cal.App.4th 293 (2004)

Rejection of lease under section 365 acts as a breach and limits the liability of the bankruptcy estate to the lessor, but does not terminate the lease.