Relationship Between Fiduciary Duty In and Out of Bankruptcy and Non-Dischargeability
In re Stewart; Case No. 07-10860-RGM; March 7th, 2008 This case was before Judge Mayer on a motion for summary judgment filed by the debtor. The Plaintiff in this case filed an adversary proceeding asserting that a judgment it had obtained in District Court in Oregon was nondischargeable under §§523(a)(4) and (a)(6) of the Bankruptcy Code. Secton 523(a)(4) and its predecessors have long narrowly construed the scope of fiduciary relationships encompassed by them. There must be a technical or express trust which predates and exists apart from the act creating the liability. Agents, bailees, brokers, factors, partners and similarly situated persons are generally excluded. 4 Collier on Bankruptcy ¶523.10[d]. See KMK Factoring, LLC v. McKnew(In re McKnew), 270 B.R. 593, 624 (Bankr.E.D.Va. 2001). The court determined that the debtor’s duty in this case was akin to the fiduciary duty partners owe each other and does not fall within the parameters…Read More
Proceeding with Divorce When in Bankruptcy
In re Exum; Case No. 08-10079-RGM; February 21st, 2008 Debtor’s spouse filed a Motion for Relief from the Automatic Stay to Proceed with divorce proceedings. Court noted that the automatic stay, does not operate as a stay of the commencement or continuation of a civil action “(ii) for the establishment or modification of an order for domestic support or obligations” or “(iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property of the estate.” Bankruptcy Code §362(b)(2)(A). The court does have a problem, however, with allowing the equitable distribution hearing to go forward. The court notes that because the Trustee and the creditors are not proper parties before the circuit court in the divorce proceeding and they may be adversely affected by any division of property. Ms Exum argued, that she will be adversely prejudiced because it is the…Read More
Joint Owner’s Agreement to Settle Home and Approval by Court
In re Pertis; Case No. 04-14471-RGM; March 6th, 2008 This case was before Judge Mayer on a motion to approve a settlement between the debtor and herself relating to the division of the proceeds of sale of their former marital home. The non-debtor party, Ms. Herrick, asserts that the debtors failure to make post-petition payments should be taken into account in the distribution of the proceeds of the sale. While the debtor’s attorney agreed to this, the judge had a problem with the distribution of the proceeds. In Virginia, when adjusting accounts between joint tenants, the party who makes the mortgage payment is credited with one-half of the mortgage payments and the party that is not in possession is credited with one-half the fair rental value of the property. In this case, there was an agreement for possession in return for certain compensation, so the aforementioned principal is not applicable.…Read More
Motion to Extend Stay and Third Party Injunction
In re Shea; Case No. 08-10350-RGM; February 27th, 2008 The debtor in this case previously had a case dismissed within the last year. Because of this, according to Bankruptcy Code §362(c)(3)(B), a hearing to extend the automatic stay beyond this 30 day period must be “completed before the expiration of the 30-day period.” That court rules that because the motion for an expedited hearing to extend the stay was not filed until one day after the 30-day period, it is futile to set the hearing and therefore the motion was denied. Interestingly, the court also commented on the purported reason the debtor was seeking the stay (to prevent foreclosure of home she didn’t own, but lived in). The court noted that the automatic stay does not extend to the lender of the debtor’s landlord. Judge Mayer noted that, “at best, the debtor could seek an injunction premised on Bankruptcy Code…Read More
Right to Prevent Modification of Stay Limited
In re Aime; Case No. 07-12388-SSM; February 28th, 2008 This matter was before the court on the motion of the creditor to enforce a security interest in a motor vehicle and the debtor’s motion to amend the previously entered order conditioning the automatic stay. The Debtor was in default of her payments on the vehicle by 10 months, but needed the vehicle to get to work and wanted to enter into an agreement for additional time to make payments and otherwise catch up on her payments. The court discusses the automatic stay and points out that “if the debtor is granted a discharge, the discharge acts as a permanent injunction against many kinds of creditor actions but does not prevent enforcement of a valid lien against property of the debtor, since liens, unless specifically avoided in the course of a bankruptcy, pass through and may be enforced against the collateral…Read More
Modifying a Chapter 13 Plan
In Murphy, Jr. v. O’Donnell v. Goalski, 474 F.3d 143 (4th Cir. 2007), the Fourth Circuit determined when and how a confirmed Chapter 13 plan may be modified. There were two fact patterns at issue in this matter and the Court started out by setting forth the principal that a confirmed Chapter 13 plan is “a new and binding contract, sanctioned by the court, between the debtors and their pre-confirmation creditors,” id., citing Matter of Penrod, 169 B.R. 910, 916 (Bankr.N.D.Ind. 1994). The Court continued that, “like other contracts, a confirmed Chapter 13 plan is subject to modification.” Murphy, 474 F.3d at 148 (citing In re Arnold, 869 F.2d 240, 241 (4th Cir. 1989); but see snarky comment (unlike other contracts, both parties do not need to consent to the modification). Section 1329 of the Bankruptcy Code provides that a confirmed plan may be modified at any time after confirmation…Read More
Avoiding Security Interests Without Adversary Proceeding. . . Why do I Need an Attorney?
In 1995, the Fourth Circuit decided Cen-Pen Corp. v. Hansen, 58 F.3d 89 (4th Cir. 1995), which decided the notice requirements within a Chapter 13 case to alter the security interests of a secured creditor. The facts around how the security interest arose were a little convoluted, but suffice it to say, the pre-bankruptcy security status of the lien was not at issue. However, the Hanson’s filed a Chapter 13 plan that treated Cen-Pen as an unsecured creditor. The plan further required creditors to submit proofs of claim and objections within a specified time period and provided that the plan would be automatically confirmed if no objections were received. A few years after the Hansen’s received their discharge, Cen-Pen filed a Complaint in bankruptcy court to determine the validity of its liens on the Hanson residence The Hanson’s argument rested on 11 USC § 1327(c) which reads that, “[e]xcept as…Read More
Modified security interests, how much notice required?
In 1993, the Fourth Circuit decided Piedmont Trust Bank v. Linkous, 990 F.2d 160 (4th Cir. 1993), which addressed the notice required to a secured creditor when confirmation of a bankruptcy plan requires a valuation under 11 USC 506(a) of the bankruptcy code. In this case, Piedmont owned a security interest in a mobile home and a vehicle and was due balances of roughly $18,000.00 on the mobile home and $4,000.00 on the vehicle. The Chapter 13 plan proposed by Linkous treated only $6,000 of the mobile home loan as secured and $1,000.00 of the car loan as secured. The Plan treated the remaining balances as unsecured. Piedmont was given a summary of the Chapter 13 plan but was not otherwise notified of the ‘506(a) valuation. The Chapter 13 Plan was confirmed and two weeks later Piedmont filed its claims which treated the full balance of the claims as secured.…Read More
Fiduciary Obligation of Debtor’s Business Nondischargeable as to Debtor
In re Hernandez; Case No. 07-11413-RGM; March 3rd, 2008 The simple non-delivery of funds does not necessarily equate to embezzlement, larceny, or a willful and malicious injury. However, where there is an applicable trust agreement with a corporate entity, the obligations of which are guaranteed by the debtor who is also an officer and person in control of the corporation’s operations in which the defalcation occurred, the debtor’s obligation under the guarantee agreement is not dischargeable under 11 USC § 523(a)(4).
Reaffirmation Agreement Failure and Creditor Identity
In re Rodriguez; Case No. 07-13577-RGM; March 3rd, 2008 This matter was before the court on a proposed reaffirmation agreement under §524 that was not fully completed. Therefore the court determined that the reaffirmation was not effective. This case also pointed to an interesting issue of the juridical person who is the creditor. The court noted that the reaffirmation identifies “Branch Banking & Trust Company or one of its affiliates (hereafter collectively BB&T)” and then the reaffirmation was signed by Pretice Faircloth, who identified himself as “Asst. Vice President” under the name “BB&T Bankruptcy,” which the court notes does not appear to be a juridic entity and there is nothing else to indicate that Mr. Faircloth is authorized to enter into a reaffirmation agreement on behalf of the specific creditor to whom the debtor is indebted.