Here is a summary of significant Colorado bankruptcy decisions within 12 months of this blog entry:

 

  • In re Graham (Musich v. Graham), Order entered July 11, 2011, Adversary Proceeding No. 11-01073-SBB; 11 U.S.C. Section 523(a)(6)
    Plaintiff filed an adversary proceeding to prevent the discharge of debt under 523(a)(6) for a “willful and malicious injury” arising out of an altercation during a baseball game.  After the fight, the Defendant was criminally charged with felony assault.  Defendant pled guilty to the felony assault.  Moreover, the Defendant was sued in state court by the Plaintiff for civil assault and battery.  Defendant agreed to settle the matter for $49,017.14.  Defendant then filed bankruptcy and he seeks to discharge the settlement obligation.The Plaintiff filed a Motion for Summary Judgment asserting that because the Defendant had pled guilty to felony assault and had agreed to settle the civil tort action, the obligation arising out of the settlement should be determined nondischargeable.  Defendant asserted in response to the Motion for Summary Judgment – and for the first time in this adversary proceeding, or the prior civil action and criminal action – that Defendant’s actions were in self-defense and therefore the settlement should be discharged.

    The Court determined that the claim of self-defense was of recent vintage and since it had not been raised previously would not be countenanced in this action.  Moreover, despite the Defendant’s seemingly surprise that hitting someone in the face would result in injury, the Court concluded that the use of a fist to hit another’s face was both willful and malicious.  The Court further found that despite the fact that the civil suit resulted in a settlement, under Archer v. Warner, 538 U.S. 314, 123 S.Ct. 1462, 123 S.Ct. 1462, 155 L.Ed.2d 454 (2003), it did not transform what would otherwise be a nondischargeable debt under 11 U.S.C. section 523(a)(6) into a dischargeable obligation.
    Posted: 8/4/2011 7:34:41 AM

  • In re McGough (Wadsworth v. The Word Of Life Christian Center), Order entered July 06, 2011, Adversary Proceeding No. 10-01910-SBB; 11 U.S.C. § 548(a)(2).
    This is an opinion of first impression involving a Trustee’s avoidance power of charitable contributions under 11 U.S.C. 548(a)(2).The Debtors made numerous prepetition charitable contributions to their church throughout 2008 and 2009.  The Debtors’ prepetition gross earned income was less than $10,000 each year, however, the Debtors also received over $20,000 in social security payments annually.  After filing for Chapter 7 relief, the Trustee filed an adversary proceeding against the Debtors’ church seeking to avoid and recover the charitable donations received from the Debtors pursuant to 11 U.S.C. § 548. The Trustee filed a Motion for Summary Judgment asserting that there were no material facts in dispute and that, as a matter of law, he should be awarded a judgement on the claims.  The church responded to the Trustee’s motion (deleted phrase) by filing its own motion for summary judgment claiming that it is entitled to keep the Debtors’ donations pursuant to 11 U.S.C. § 548(a)(2).  Section 548(a)(2) provides a possible defense against avoidance and recovery of fraudulent transfers to qualified religious or charitable organizations – contributions under 15% of gross annual income (“GAI”) are excepted from avoidance.

    The Court was presented with the following issues:  (a) for purposes of § 548(a)(2), are social security payments included in GAI?;  (b) for purposes of § 548(a)(2), is the 15% threshold applicable to transfers individually or transfers made in the aggregate on an annual basis?;  and (c) if the transfers exceed 15%, is the entire transfer voidable or just the amount of the transfer that exceeds 15%?

    The Bankruptcy Court concluded:  (a) for purposes of § 548(a)(2), Social Security payments are not included in GAI and, thus, the 15% limit does not include the social security income;  (b) for purposes of § (548)(a)(2)(A), the 15% threshold applies to transfers made in the aggregate on an annual basis; and (c) if the transfers exceed 15%, then only the transferred amount that exceeds 15% is avoided.  The Debtors’ contributions exceeded their 15% GAI in both 2008 and 2009.  The Trustee was entitled to an avoidance and recovery of $2,614.95.
    Posted: 8/2/2011 2:51:46 PM

  • In re Reeves (Rayner v. Reeves), Order entered June 21, 2011, Adversary Proceeding No. 09-01611-SBB; 11 U.S.C. Section 523(a)(2)(A).
    Plaintiffs settled a lawsuit in state court which, as part of the settlement, the Defendant assured the Plaintiff that: (a) he did not have total assets whose value exceeded the exemption statutes allowance; (b) he did not transfer assets outside the ordinary course of business; and (c) he did not transfer real estate to family. As part of the settlement, the Defendant agreed that if he was not telling the truth about these assertions and representations a judgment would enter against him for $100,000. After the Defendant failed to pay on the settlement, the state court concluded, after a trial on the merits, that Defendant was not telling the truth in entering into the stipulation and entered a judgment against him in the amount of $100,000.The Plaintiffs sought summary judgment in this dischargeability action seeking a determination that the state court’s ruling granting a judgment based on the stipulation in the amount of $100,000 should be granted issue preclusive effect. Defendant argued that because his statements were so obviously false there could have never been justifiable reliance.

    The Bankruptcy Court concluded that the stipulation was entered into only after careful requests for assurance that Defendant was telling the truth about his situation. The stipulation was crafted after deliberation and negotiation. The stipulation was crafted with provisions—or sanctions—in the event the Defendant was lying. Because of these safeguards, the Court concluded that the Plaintiffs did, indeed, justifiably rely on the false statements of the Defendant.
    Posted: 6/30/2011 9:52:25 AM

  • Summary of In re Shepard, Case No.10-41987 ABC, Docket #32, (June 8, 2011) 11 U.S.C. §524(c)(1) and (3); and §524(d); Fed.R.Bankr.P. 4004(c)(1) and (c)(2).
    Chapter 7 debtors and one of their secured creditors entered into a reaffirmation agreement. Debtors filed their case with the advice and assistance of an attorney. Debtors’ attorney did not sign the reaffirmation agreement. Creditor and debtors, on their own behalf, filed a joint motion to set a hearing to consider approval of the reaffirmation agreement, and debtors filed a motion to defer entry of the order of discharge to permit the court to hold a hearing on approval of the reaffirmation agreement prior to entry of the discharge.The Court denied both motions; the creditor appealed; and creditor filed a motion for stay pending appeal. Creditor sought to delay the entry of the order of discharge asserting that its appeal would be moot if the discharge order entered. Judge Campbell denied the creditor’s motion for stay pending appeal. The Court’s conclusion to deny stay of the entry of the order of discharge rests on the language of section 524(c)(1) which conditions enforceability of a reaffirmation agreement upon the agreement having been made (as opposed to filed or approved) before an order of discharge enters. The Court ruled that section 524(d), which requires the court to advise debtors who are not represented by an attorney in negotiating a reaffirmation agreement, does not apply to Chapter 7 cases where a debtor is represented by counsel.
    Posted: 6/27/2011 7:49:37 AM
  • In re Neil W. Elliot, Case No. 10-31663ABC; 11 U.S.C. § 522 (b)(1) and (3), C.R.S. § 38-41-207.
    Trustee objected to Debtor’s claim of “homestead proceeds” exemption for surplus funds from public trustee’s foreclosure sale of Debtor’s former residence which were held in a segregated bank account. Though Colorado’s exemption statute for homestead proceeds explicitly refers only to proceeds from sale by owner or sale following levy and execution, the Court predicted that the Colorado Supreme Court would liberally construe the statute to apply to proceeds from public trustee sale. Debtor’s exemption was upheld.
    Posted: 5/12/2011 9:31:37 AM
  • Corona Sierra Colorado, Inc. v. Scott W. Brennan and Norma Louise Brennan, Adv. Pro No. 10-1486 ABC; 11 U.S.C. 523(a)(4); Colo. Rev. Stat. § 38-22-127; Colo. Rev. Stat. § 18-4-405
    In its motion for summary judgment, Plaintiff sought to establish that a debt owed by Defendant pursuant to the Colorado Mechanics Lien Trust Fund Statute, Colo. Rev. Stat. § 38-22-127, was nondischargeable pursuant to 11 U.S.C. 523(a)(4). Plaintiff also sought treble damages, plus interest and attorneys’ fees, pursuant to Colorado’s Rights in Stolen Property Statute, Colo. Rev. Stat. § 18-4-405, along with a summary judgment that such award was nondischargeable.The Court determined that – notwithstanding the statutory language limited to subcontractors, laborers, and suppliers – Plaintiff, a general contractor, had standing under the particular circumstances of this case to assert a claim under the Mechanics Lien Trust Fund Statute. The Court went on to determine that Defendant had committed defalcation while acting in a fiduciary capacity, rendering the debt owed by Defendant’s company to Plaintiff nondischargeable pursuant to 11 U.S.C. 523(a)(4).

    The Court also determined that, because Plaintiff had failed to provide evidence of a specific violation of Colorado’s Civil Theft Statute, Colo. Rev. Stat. § 18-4-401, arising from Defendant’s use of trust funds, Plaintiff had failed on summary judgment to establish a right to treble damages and attorneys’s fees under Colo. Rev. Stat. § 18-4-405.
    Posted: 4/18/2011 7:40:32 AM

  • In re Waterman, Bankruptcy Case No. 10-35794-SBB, issued March 23, 2011 — determination of secured status pursuant to 11 U.S.C. Section 506; Chapter 13 plan confirmation; discharge in Chapter 13 (11 U.S.C. Section 1328(f))
    Judge Brooks considered the question of whether a Chapter 13 debtor may “strip” a wholly unsecured second lien against his residence under 11 U.S.C. section 506 after he has received a discharge of the debt in a prior Chapter 7 bankruptcy case filed less than four (4) years prior to a subsequent Chapter 13 bankruptcy case.Courts are split on the issue of whether the bar to entry of a discharge for a Chapter 13 debtor under 11 USC 1328 (f)(1) precludes the debtor from stripping a wholly unsecured lien on the debtor’s residence. Here, the court ruled contrary to a recent decision, In re Mendoza, 2010 WL 736834 (Bankr. D.Colo. Jan. 21, 2010), wherein that court held that it was impermissible to allow a Chapter 13 debtor to “strip” a wholly unsecured lien against his residence under section 506 in a case where he was not eligible for a discharge. In effect, to do so would be to grant a second discharge to the debtor despite the statutory bar to a discharge.

    Judge Brooks relied on cases subsequent to Mendoza, including In re Hill,440 B.R. 176 (Bankr. S.D.Cal. 2010); In re Tran, 431 B.R. 230 (Bankr. N.D. Cal. 2010); and In re Grignon, 2010 WL 5067440 (Bankr. D.Or. December 7, 2010), which each hold that the Bankruptcy Code does not condition a Chapter 13 debtor’s right to “strip off” a wholly unsecured junior lien on the debtor’s eligibility for a discharge. The Court agreed with those cases and held that the right to “strip off” a lien is conditioned only on the debtor’s “good faith,” obtaining confirmation of, and fully performing under, a Chapter 13 plan, which plan meets all of the statutory requirements.

    • In re Jared Lyle Beaudin; Case No. 09-35557 EEB; Order entered August 25, 2010.
      The Chapter 7 Trustee (“Trustee”) objected to an exemption claimed by the debtor for his interest in an individual retirement (“IRA”) that he funded in the hours before filing his bankruptcy from a non-exempt tax refund. The Trustee argued that the debtor’s conversion of a non-exempt asset into an exempt IRA on the eve of bankruptcy should be disallowed as an attempt to defraud creditors. The court held that the debtor’s pre-petition conversion of nonexempt assets into an exempt form was not motivated by an intent to evade creditors, but instead constituted legitimate pre-bankruptcy planning. In so holding, the court gave great weight to the modest amount of the asset in question, the debtor’s full disclosure of the conversion transaction, and the complete absence of evidence that the debtor sought to evade creditors.
      Posted: 9/22/2010 8:34:55 AM
    • In re Grein, Bankruptcy Case No. 07-12568-SBB; Order entered August 9, 2010
      [11 U.S.C. §§ 348(f)(1)(A), 521(a)(4), 541(a)(1), and 541(a)(6)].
      The Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code and thereafter, agreed to surrender to the Chapter 7 Trustee the sum of $4,217.71 so that the Chapter 7 Trustee could make payments to the Debtors’ unsecured creditors. The $4,217.71 represented the non-exempt portion of the accounts receivable of a business owned by one of the Debtors and the non-exempt equity in one of the Debtors’ automobiles. The Debtors never surrendered the $4,217.71 to the Chapter 7 Trustee because the Debtors voluntarily converted their Chapter 7 case to a Chapter 13 case. While the Chapter 13 case was pending, the Debtors sold the automobile and disposed of the accounts receivable in order to generate additional revenues and pay certain expenses. Nevertheless, in accordance with their confirmed Chapter 13 plan, the Debtors made payments in the amount of $16,025.02 to their unsecured creditors. After experiencing a change in their financial and personal circumstances, the Debtors voluntarily reconverted their Chapter 13 case to a Chapter 7 case.In the reconverted Chapter 7 case, the Trustee filed a Motion to Compel Turnover pursuant to 11 U.S.C. § 521(a)(4). In his motion, the Trustee demanded that the Debtors surrender the sum of $4,217.71 in accordance with the initial agreement entered into between the Chapter 7 Trustee and the Debtors. Relying on 11 U.S.C. § 348(f)(1)(A), the Debtors argued that the non-exempt portions of their accounts receivable and the equity in their automobile were not property of the Chapter 7 estate because the Debtors did not possess these assets on the date the Chapter 13 case was reconverted to a Chapter 7 case.The Court held that the non-exempt portions of the Debtors’ accounts receivable and the equity in the Debtors’ automobile were property of the reconverted Chapter 7 estate because 11 U.S.C. § 541(a)(1) provides that a bankruptcy estate is comprised of all legal or equitable interests of the debtor in property as of the commencement of the bankruptcy case (in this case, the commencement of the original Chapter 7 case). Moreover, the Court held that the non-exempt proceeds generated from the sale of the automobile were property of the reconverted Chapter 7 estate because 11 U.S.C. § 541(a)(6) provides that a bankruptcy estate is comprised of proceeds from property held by a debtor at the commencement of the bankruptcy case (in this case, the commencement of the original Chapter 7 case). Further, even though the Debtors did not possess or control the accounts receivable, the automobile, or the proceeds from the sale of the automobile at the time of reconversion, the Court held that these assets were property of the reconverted Chapter 7 estate because a statutory interpretation of 11 U.S.C. § 348(f)(1)(A) would produce absurd results and open the door to potential fraud.Although the Court recognized that 11 U.S.C. § 521(a)(4) requires a debtor to surrender all property of the estate to a trustee if a trustee is administering the bankruptcy case, the Court held that the Debtors did not have to surrender the value of the non-exempt portions of the Debtors’ accounts receivable and the equity in the Debtors’ automobile to the Chapter 7 Trustee because the Debtors’ unsecured creditors had already received more than they would have received had the Debtors never converted their original Chapter 7 case to a Chapter 13 case.

      Consequently, the Court denied the Trustee’s Motion to Compel Turnover.
      Posted: 9/13/2010 1:44:49 PM

    • In re: Theodore Joseph Wing and Joanne Wing. Bankruptcy case 10-18171-MER
      Above-median-income debtors whose Form 22C showed negative disposable income sought confirmation of a Chapter 13 plan lasting 36 months, without providing for full repayment of their unsecured creditors. Debtors argued that 11 U.S.C. § 1325(b)(1)(B) provides a multiplier for determining their obligation to unsecured creditors during the applicable commitment period (“ACP”), and that since they had negative disposable income, they were not required to make any payment to their unsecured creditors. The Trustee objected, arguing § 1325(b)(4) requires the Debtors to propose a five-year plan.Noting a split in authority, the Court concluded § 1325(b)(1) sets forth a multiplier determining the amount a debtor must pay into a Chapter 13 plan over the applicable commitment period, while § 1325(b)(4) establishes the duration of a debtor’s Chapter 13 plan without reference to the amount of projected disposable income (PDI) that a debtor is required to commit to the plan. The Court concluded the only way an above-median-income debtor can provide for a plan lasting less than five years is if the plan provides for payment in full of all allowed unsecured claims.
      Posted: 9/9/2010 3:13:27 PM
    • In re Wilcox; Case No. 09-35891 HRT; Order entered September 7, 2010 (11 U.S.C. § 1322(b)(2).
      In conjunction with Debtors’ chapter 13 plan, Debtors filed a motion under § 506(a) seeking a determination that a junior mortgage on their homestead was wholly unsecured. Prior to a hearing on the § 506 motion, the parties entered into a settlement that allowed the mortgage creditor to retain its lien but also substantially reduced the amount of the secured debt. The loan modification was made contingent upon the Debtors completing their chapter 13 plan. The Debtors amended their plan to reflect this negotiated modification. Trustee objected to confirmation of Debtors’ plan on the basis that the plan violated the prohibition against modification of a homestead mortgage contained in § 1322(b)(2). The Court found that § 1322(b)(2) was not violated because the plan did not propose to modify the creditor’s rights. The plan merely reflected a negotiated modification entered into outside of the plan. Moreover, even if § 1322(b)(2) could be said to apply under the circumstances of this case, the creditor’s consensual modification of its mortgage debt would constitute a voluntary and knowing waiver of the protections afforded to the creditor by § 1322(b)(2).
      Posted: 9/9/2010 7:41:43 AM
    • Jeffrey Weinman, as Liquidating Trustee of the Centrix Liquidating Trust v. Allison Payment Systems LLC.; Case No. 08-1576 EEB; Order entered June 15, 2010.
      The liquidating trustee filed an adversary proceeding to recover payments made on the Debtor’s contract to the Defendant both pre- and post-petition. The Defendant requested summary judgment on its affirmative defense that the payments in question were made pursuant to an executory contract that the Debtor had assumed and assigned during the Chapter 11 case (“the Contract Assumption Defense”). Noting the absence of any controlling authority within the Tenth Circuit, the court joined the majority view that the Contract Assumption Defense operates as a complete bar to the exercise of a trustee’s avoidance powers. The court held that assumption under § 365 is fundamentally inconsistent with recovery of payments under avoidance powers. Furthermore, in the case of preference claims, the Trustee is unable to establish the hypothetical liquidation element of § 547(b)(5).
      Posted: 8/9/2010 4:07:10 PM
    • In re Jenkins (Ward Hardwood Floor Service, Inc. et al. v. Jenkins), Adversary No. 09-01802-SBB
      In a matter of first impression in this District, the Court considered the question of whether a debtor who had failed to timely list and provide notice to a creditor of his bankruptcy case, but who remedies the problem, in part, by amending his schedules and giving later notice to the creditor, can invoke laches as a defense in defense of creditor’s nondischargeability litigation under 11 U.S.C. section 523(a)(3). Debtor filed for relief under Chapter 7. He did not list one creditor until after the deadline to object to discharge had passed and he did not mail the notice to another creditor’s correct address and, thus, did not provide proper notice to that second creditor. Both creditors had common ownership. The creditors asserted that because they were not timely given notice of the bankruptcy case, section 523(a)(3)(B) of the Bankruptcy Code allowed for the filing of a nondischargeability complaint without, effectively, any time limitation. Debtor acknowledged that, while section 523(a)(3)(B) did provide for the filing of an action after the dischargeability deadline by a creditor who did not receive notice of the case, it did not provide for an unlimited right or period of time to bring an action and that laches prevented the present action from being brought. As an initial conclusion, the Bankruptcy Court found that laches may be brought as a defense where the creditor’s delay in bringing a nondischargeability proceeding is deemed undue delay and is prejudicial to the debtor. The Bankruptcy Court concluded that the defense of laches required proof of the following two elements: (1) lack of diligence by the party against whom the defense is asserted and (2) prejudice to the party asserting the defense. The Bankruptcy Court concluded that here, Creditors’ delay was, in fact, unreasonable. Creditors had relied on advice of a servicing agent and also counsel located in New York who had been unresponsive to Creditors’ inquiries. It was not until after local counsel had been contacted that the 523(a)(3) adversary proceeding was filed – almost seven months after the creditor had been given notice of the bankruptcy. The Court concluded that this was not reasonable. However, the Court concluded that debtor, who had also been tardy and not diligent in this case had not made a particularized or substantial showing of prejudice. Consequently, because the debtor had not demonstrated a particularized or substantial prejudice, the Bankruptcy Court did not dismiss the adversary proceeding.
      Posted: 8/3/2010 11:42:17 AM
    • New Radio Ventures, Inc. v. Susquehanna Radio Corp. / Susquehanna Radio Corp. v. Centennial Investment & Mgmt. Co., Inc.; Case No. 09-1080 HRT; Order entered March 12, 2010.
      Creditor Susquehanna Radio Corp. perfected a security interest in the Debtor’s assets within 90 days before the Debtor’s bankruptcy petition. When the Debtor brought a preference action against Susquehanna, Susquehanna brought a third-party complaint against the Debtor’s other secured creditor, Centennial Investment & Management Co., seeking equitable subordination. Susquehanna then argued that its equitable subordination action provided a defense to the Debtor’s preference action because, if Centennial’s claim were subordinated to Susquehanna’s, then the transfer (the perfection of Susquehanna’s security interest) would not have enabled Susquehanna to receive more than it otherwise would have received if the Debtor’s case had been a Chapter 7 case, the transfer had not been made, and Susquehanna had received payment of its debt to the extent provided by the Bankruptcy Code.On the Debtor’s motion for summary judgment, the Court held that Susquehanna could not assert equitable subordination, an inter-creditor remedy, as a defense to a preference action. The Court further held that the undisputed material facts showed that the transfer did allow Susquehanna to receive more than it otherwise would have received. The Court therefore granted summary judgment to the Debtor.On Centennial’s motion for summary judgment, considering the heightened standards applicable to equitable subordination claims against non-insider creditors, the Court held that Susquehanna had failed to present sufficient facts upon which a reasonable fact-finder could find in its favor. The Court therefore granted summary judgment to Centennial.
      Posted: 7/13/2010 8:48:24 AM
    • In Re: ********** ; Case No. 05-16624 HRT; Order entered June 24, 2010.
      Debtor requested that his bankruptcy case be reopened nearly five years after his discharge was entered. He wanted his discharge to be set aside so that he could complete the process of paying off the creditors whose debts had been discharged by his case. Debtor had been unable to negotiate with some creditors who felt constrained by the discharge order and he was unhappy that state courts were unwilling to modify judgments entered against him to note that they were ‘Satisfied’ rather than ‘Discharged’ even after he paid them.Debtor’s request was denied for several reasons. Title 11 U.S.C. § 727(d) does not allow debtors to request opening of their own cases, nor does it include any provisions which allow for the reopening cases to reward ‘successful’ debtors. Instead its provisions allow for reopening cases in which debtors are no longer entitled to a discharge because of improper behavior. The purpose behind a reopening of this case would be to set aside the Debtor’s discharge after allowing him to enjoy its benefits. The statute does not allow that and in addition, Debtor’s motion was filed well past the time limit included in § 727(e).Debtor also made his request pursuant to Fed.R.Civ.P. 60(b)(5). While he argued that application of the discharge to him was no longer equitable, the discharge had actually worked exactly as it had been designed to work. Debtor’s real complaint was not that he could not pay off his discharged debts but that he could not negotiate with his creditors to pay off his debts with a smaller amount than was actually due. Debtor was not entitled to have his discharge set aside for this purpose and indeed, the Court had no power to do so.
      Posted: 7/13/2010 8:00:54 AM
    • J. Hunter Banbury v. Bowen W. Banbury (In re Bowen W. Banbury), Adv. Pro. No. 10-1125 ABC; 28 U.S.C. §§ 157 and 1334.
      In dischargeability litigation, Plaintiff sought to compel joinder of Debtor’s wife and trustee of trust of which Debtor was beneficiary so that all claims raised in Debtor’s answer and counter-claims could be resolved. The purely state-law claims between Plaintiff, the Debtor, and the parties sought to be joined were raised or could be raised by the parties in a state court lawsuit that was pending at the time Debtor filed bankruptcy. Because of the uncertainty regarding the extent of the Bankruptcy Court’s jurisdiction over all claims sought to be litigated in the dischargeability proceeding, the Bankruptcy Court’s inability to conduct a jury trial, and in the interest of judicial economy, the Court abstained from hearing the state law claims and granted relief from the automatic stay to allow these claims to be determined and liquidated by the state court. The Court reserved its concurrent jurisdiction to determine the dischargeability of any debt found to be owed by the Debtor to Plaintiff at the conclusion of the state court proceedings.
      Posted: 5/27/2010 7:12:31 AM
    • In re Olguin, Bankr. Case No. 09-31245-HRT (Chapter 13)
      The Chapter 13 Trustee objected to Debtors’ failure to include in their calculation of current monthly income in Form B22C income regularly received from the Co-Debtor’s grandparents as a regular household contribution. The Debtors’ disputed that they had to include the contribution in their income calculation, contending that it was excluded from the definition of “current monthly income” set forth in 11 U.S.C. § 101(10A). Siding with the Trustee, the Court held that the phrase “benefits received under the Social Security Act” applies only to a debtor’s benefits under that Act, whether or not expressly stated. The Court further held that when Social Security recipients give funds derived from their benefits to third parties, the funds have ceased to be in the nature of “benefits” and are more in the nature of currency that has been used by the recipients to save or spend as they choose. Thus, when the Co-Debtor’s grandparents make a contribution toward the Debtors’ household expenses, the Debtors are receiving funds from the grandparents, not benefits from the government. Such contribution must be included in the calculation of Debtors’ income.
      Posted: 5/25/2010 7:53:49 AM
    • Peters v. Bryan, et al. (In re Bryan), Adversary Proceeding No. 08-01102-SBB
      A defaulting co-defendant in an adversary sought reconsideration of a default judgment entered 1 and 1/2 years earlier because of a subsequent ruling in favor of its co-defendants 6 months later. The defaulting co-defendant sought reconsideration of the default judgment almost 1 year after the ruling in favor of the co-defendants. The defaulting co-defendant exclusively relied on Fed.R.Bankr.P. 60(b)(4) and (6) in its written motion for reconsideration. However, during the hearing on the motion to reconsider (held 3 and 1/2 months after the filing of the motion to reconsider) the defaulting party shifted its focus to the Frow Doctrine as established by Frow v. De La Vega, 82 U.S. 552 (1872). The Frow doctrine essentially holds that when one of several defendants who is alleged to be jointly liable defaults, the judgment should not be entered against him until the matter has been fully adjudicated against all of the defendants.The Court concluded that Rule 60(b) and (c) may be superseded the Frow doctrine and that there were no bases for relief under Rule 60(b)(1)-(6). The Court further held that the delays of the defaulting co-defendant were not reasonable and the defaulting co-defendant did not even provide any explanation or reason for the delay. In its conclusion, the Court noted:Bankruptcy case administration and dispute resolution decisions must usually be made rapidly, and with some certainty and reliable finality. The effect of being able to undo orders through unusual doctrinal usage – such as applying an ancient rule like Frow to undo a default judgment upon which the parties have significantly relied and upon which they have relied for an appreciable length of time – would be considerably damaging to the orderly process of preserving the estate and the debtor’s and other creditors’ rights. Moreover, common allowance of rules like Frow in bankruptcy proceedings would promote questionable tactics such as allowing a creditor in multi-defendant adversarial proceedings who does not wish to bear litigation expenses to allow a default judgment to enter, to then lie in the reeds to see if other parties are able to successfully fend off the same claims, and if those parties are successful, then invoking Frow or another similar rule to reverse the default judgment.Consequently, the Court denied the motion for reconsideration.
      Posted: 5/13/2010 11:18:10 AM
    • In re Pearson, Bankr. Case No. 08-24291-SBB
      Upon reviewing the trend in the law and the majority view on whether a debtor can avoid a judicial lien in its entirety when only part of the lien actually impairs the debtor’s exemption, the Court concluded that its decision in In re Saal, 338 B.R. 501 (Bankr. D.Colo. 2006) should be re-examined. The Court concluded that (a) considering more recent 10th Circuit case law, and (b) the “plain meaning” of the language “to the extent that such lien impairs an exemption,” led to the conclusion that a debtor can only avoid a judicial lien to the extent the lien exceeds a debtor’s equity in the property subject to such lien.