During a Chapter 12 bankruptcy proceeding, debtors petitioned the court to use cash collateral to pay for the post-petition expenses they had incurred. They also requested to use the cash for ongoing farm expenses and family bills until a bankruptcy plan was implemented. A court must consider whether allowing a debtor to use cash collateral creates inadequate protection for the creditors. 11 U.S.C. § 363(e). A substantial equity cushion between the value of the collateral and the total amount of the liens can demonstrate that adequate protection exists. The creditors in this case had a $196,830 equity cushion or 5.69% of the total debt.
In the petition, the debtor claimed to have over $382,000 of cash collateral. However, the debtor’s Chapter 12 plan claimed that the debtors had $457,000 in cash collateral. The debtors could not explain this discrepancy or why they could not use the missing $75,000. Additionally, the debtors did not apply for 2021 financing for the farming operation. They would continue to need to use the cash collateral which would further erode the equity cushion. Therefore, because the proposed use of the cash collateral created substantial risk for the creditors, the court denied the motion. However, the court was willing to consider a two-month use of cash collateral if the debtors could show certain prerequisites.
A debtor filed a Chapter 13 bankruptcy proceeding. His sister filed a claim asserting that she had a $42,433 lien under Montana law against the debtor’s brand and branded livestock. The claim arose from a state district court order against the debtor for breaching a settlement agreement after he allegedly misappropriated cattle sale proceeds from the siblings’ ranching operating. The bankruptcy court, finding that the sister had a general unsecured lien, affirmed the debtor’s Chapter 13 plan which omitted the sister as a secured creditor. The sister appealed claiming the bankruptcy court erred in finding she lacked a secured lien.
A bankruptcy court will determine whether a creditor has a secured claim based on applicable state law. Bankruptcy laws will then determine the treatment of secured claims. See 11 U.S.C. § 506(a). Under Montana law, a judgment lien is not created in personal property until the debtor either seizes the property or leaves notice of attachment with the debtor. The sister did neither of these. She did, however, obtain a writ of execution from the state district court which directed the Montana Department of Livestock to satisfy the judgment using brands owned or maintained by the debtor. However, there is no Montana law that creates a lien on a brand or on livestock by doing so. Because the sister lacked a secured claim, the court affirmed the debtor’s Chapter 13 plan.
In a Chapter 12 reorganization, dairy farmers filed a plan proposing the re-amortization of a Farm Service Agency (FSA) mortgage on their homestead with payments made directly to FSA. The trustee objected, claiming that the payments must be made through the trustee because FSA was an impaired creditor. If a debtor directly pays a creditor, the trustee does not collect fees on the payments.
The court noted that the plain language of the statute allows the debtor or the trustee to make payments to creditors under a Chapter 12 plan. The court recognized, however, that the courts have been split as to when and if a debtor can make direct payments to an impaired creditor. The court noted three approaches: (1) debtors cannot make direct payments to impaired creditors; (2) debtors can pay secured creditors directly regardless of impairment; or (3) whether direct payments should be allowed must be determined case-by-case.
The court opted to follow number three, the majority approach, and based its determination on the factors set forth in In re Pianowski, 92 B.R. 225 (Bankr. W.D. Mich. 1988). The court found that while the debtors had not supplied various financial reports, they still had time to provide the paperwork because the plan was not yet confirmed. Additionally, the following factors weighed in favor of the debtors: the debtors’ good faith to reorganize; FSA’s legal sophistication as a creditor to monitor payments and consent to the plan; the money saved on behalf of the debtors by making direct payments and avoiding trustee fees; and the small risk of abuse of the bankruptcy system. Based upon this analysis, the court affirmed that the debtors could make direct mortgage payments to FSA.
in_Re_Spindler, 2020 WL 7765808 (Bankr. W.D. Wis. Dec. 28, 2020)
The defendant was an order buyer of cattle (broker) that the plaintiff bought cattle from. The parties entered into multiple contracts for the defendant to deliver 644 head of cattle to the plaintiff. While written contracts were not produced, the bankruptcy trustee identified two separate contracts accounting for 572 of the delivered cattle - one executed on Aug. 26, 2010 and one executed on Sept. 17, 2010. The defendant was paid by check three days after delivery (in mid-October), which were then voided and replaced by a single wire transfer on October 20, 2010. The plaintiff filed bankruptcy on Dec. 6, 2010, and the bankruptcy trustee sought to set aside the payment under 11 U.S.C. Sec. 547(b). The defendant, however, claimed that the payment amounted to a contemporaneous exchange for value and that the payment was made in the ordinary course of business - both exceptions to 11 U.S.C. Sec. 547(b) contained in 11 U.S.C. 547(c). On the ordinary course of business exception, the court noted that the defendant had not established a pattern of behavior and that the court could not conclude that the wire transfer was made in the ordinary course of business. On the issue of substantially contemporaneous exchange for value, the court noted that the plaintiff's checks had not been dishonored, had not been presented to a bank for payment, and that the plaintiff had changed the form of payment by replacing them with the wire transfer. As such, the parties intended the exchange to be contemporaneous, and it was, in fact, contemporaneous. The court granted the defendant's motion for summary judgment. In re Eastern Livestock Co., LLC v. Krantz, No. 10-93904-BHL-11, 2015 Bankr. LEXIS 3656 (Bankr. S.D. Ind. Oct. 28, 2015).
The debtors defaulted on two loans secured by mortgages on their 144-acre farm. The farm was divided by a public road, with bare farmland on one side of the road and the other side containing the residence and farm buildings. Ultimately, the debtors filed Chapter 12 to stave off the sale of the farm at auction. The debtors filed multiple amended plans so that the farmland could be sold to partially satisfy a secured loan and obtain plan confirmation. The bankruptcy court approved a plan allowing the private sale of the farmland or the entire farm, but there was no provision that allowed the trustee (or debtor) to divide the farm into multiple tracts. While the debtor did find a buyer for the farmland, the sale didn’t close before the auction which resulted in a sale to the highest buyer at over $12,000/acre (total selling price of $1.75 million). However, the debtors claimed that their appraisers valued the property at twice that amount. The bankruptcy court did not allow for a plan modification that would have given the debtors more time before the sale because there was insufficient time before the scheduled sale remaining when the petition for an amended plan was filed. On appeal, the court affirmed. The court determined that bankruptcy rule 90006(c) barred plan modifications without at least 21 days’ notice. The court also determined that the debtor did not establish that the trustee had a duty to divide the farm into multiple tracts. Thus, the debtor had the duty to take the necessary steps to get the property divided before the auction. The court also held that it was not error for the bankruptcy court to conclude that any error that the auctioneer made by indicating that the property could not subdivided except for one or two homes did not drive away prospective buyers. It was up to prospective buyers, the court held, to undertake their own due diligence as to how the land could be utilized. The deed to the farm will not be transferred to the buyer because the debtors filed an appeal with the U.S. Court of Appeals for the Third Circuit. In re Thorpe, No. 15-5239, 2015 U.S. Dist. LEXIS 137997 (E.D. Pa. Oct. 9, 2015).
The creditors sought summary judgment on their claim that the debtor’s obligation to them should not be discharged in his Chapter 7 bankruptcy proceeding. The court granted the creditors’ motion, finding that the $135,000 debt was excepted from discharge under 11 U.S.C. § 523(a)(2)(A). The court had already ruled in a December 17, 2013, decision, that the debtor’s bankruptcy should be converted from a Chapter 12 to a Chapter 7 case on the grounds of fraud. The court found that the debtor did not tell the creditors he had filed bankruptcy when he contracted with them for the sale of hay. As a result, the law of the case applied to establish 11 U.S.C. §523(a)(2)(A)’s required elements: (1) fraudulent omission by the debtor; (2) knowledge of the deceptiveness of his conduct; (3) an intent to deceive; (4) justifiable reliance by the creditor; and (5) damage to the creditor). In re Clark, No. 12-00649, 2014 Bankr. LEXIS 97 (Bankr. D. Idaho Jan. 10, 2014). In a later decision, the court noted that during the pendency of the Chapter 12 case, the debtor had also sold a tractor to unrelated persons and deposited the funds into the bank account of a limited liability company (LLC) that he managed (but of which he was not a member or owner). The trustee claimed that various against various defendants that the trustee claimed had received transfers from the LLC before the case was converted to Chapter 7. The trustee later filed an avoidance action against the buyers of the tractor on the grounds that the transfer was avoidable. The buyers claimed that the transfer of the tractor to them was not avoidable because of the two-year statute of limitations contained in 11 U.S.C. Sec. 549. The court agreed that the transfer was avoidable because the trustee knew of the potentially avoidable transfer at the time the case was converted to Chapter 7 and the trustee obtained the LLC records, but never identified the purchasers. Thus, the transfer was avoidable because the buyers had no notice that an avoidance action was contemplated until more than two years after the sale of the tractor. In re Clark, No. 12-00649-TLM, 2015 Bankr. LEXIS 3167 (Bankr. D. Idaho Sept. 18, 2015).
Before filing bankruptcy, the debtor created a self-directed IRA and upon later filing bankruptcy the debtor listed the IRA as an exempt asset under 11 U.S.C. Sec. 522(d)(12) and valued it at $180,000. Before filing bankruptcy, the debtor and his wife created a partnership in which they each owned a 50 percent interest. The partnership was created for real estate development purposes and complemented the debtor's construction business. The partnership agreement provided that the IRA would contribute capital and a cash contribution to the partnership. Ultimately, the IRA funded the purchase price of properties the partnership acquired and a deed conveyed a tract to the IRA. The IRA later paid for development of a tract. The debtor and the partnership filed bankruptcy, and the partnership listed both the debtor and the IRA as unsecured creditors. The trustee and a bank objected to the claimed exemption for the IRA on the basis that the IRA had engaged in a prohibited transaction that caused it to lose its tax exempt status. The bankruptcy court agreed that the IRA was not exempt, and the court affirmed on appeal. The IRA engaged in prohibited transactions with disqualified persons by loaning funds to the partnership. In re Kellerman, No. 4:15CV00347 JLH, 2015 U.S. Dist. LEXIS 122046 (E.D. Ark. Sept. 14, 2015).
Confirmation in this Chapter 12 case was delayed until the U.S. Supreme Court ruled in Hall, et ux. v. United States, 132 S. Ct. 1882 (2012) on whether post-petition taxes are dischargeable. The court later determined that they were not estate obligations that could be treated as unsecured claims. The debtors reorganization plan was then submitted that proposed paying post-petition taxes through the plan with estate assets. Confirmation was denied and the case converted to Chapter 7. The debtors' real estate and equipment were sold and a Chapter 7 discharge was received. A junior secured creditor filed a motion for marshaling of assets. The bank held a first mortgage on land, a first priority lien on equipment and a first priority lien on crop proceeds and the creditor held a second priority lien on equipment and crop proceeds and no junior mortgage on the real estate. There were insufficient funds in the debtors' bankruptcy estate to pay all claims and the IRS asserted a claim for priority taxes. If marshaling were denied, it would allow more non-tax debt to be paid and the debtors claimed that allowing marshaling would inhibit the debtors' fresh start. The court noted that the “inequity” of another creditor receiving less or nothing is not a valid reason to deny marshaling. Accordingly, the requirements for marshaling were satisfied. The motion to marshal assets was granted because the real estate had been sold and, the court held that the fact that a creditor’s receipt of a portion of the sale proceeds would prevent the IRS debt from being reduced was not grounds to deny marshaling which, the court noted, prefers interests of the junior lienholder. The court ordered that a hearing was to be held to address the issues of distribution, including trustee compensation. In re Ferguson, No. 10-81401, 2013 Bankr. LEXIS 3386 (Bankr. C.D. Ill. Aug. 20, 2013). On further review, the court reversed. The court determined that the bankruptcy court mistakenly looked to the conditions present at the time of the original marshaling request to determine whether to allow marshaling. Instead, the appellate court determined that the elements that permitted marshaling no longer existed because the crops and equipment had been sold with the proceeds of sale paying the priority lien. Ferguson v. West Central, FS, Inc., No. 14-1071, 2015 U.S. Dist. LEXIS 121096 (C.D. Ill. Sept. 11, 2015).
A debtor borrowed money from a lender and pledged dairy cattle as collateral. The lender secured an interest in the cattle. The debtor later borrowed additional money from the lender, pledging crops, farm products and livestock as collateral with lender's security interest containing a dragnet clause. The lender secured its interest. The debtor later entered into a "Dairy Cow Lease" with a third party to allow for expansion of the herd. The third party lessor perfected its interest in the leased cattle. The debtor filed Chapter 12 bankruptcy and the bankruptcy court determined that the lease arrangement actually created a security interest rather than being a true lease. The court noted that the "lease" was not terminable by the debtor and the lease term was for longer than the economic life of the dairy cows. The third party lessor also never provided any credible evidence of ownership of the cows, and the parties did not strictly adhere to the "lease" terms. The court noted that the lender filed first and had priority as to the proceeds from dairy cows. In addition, the bankruptcy court held that the lender's prior perfected security interest attached to all of the cows on the debtor's farm and to all milk produced post-petition and milk proceeds under 11 U.S.C. Sec. 552(b). In a later action in the district court, a different creditor failed to comply with court’s order requiring posting of bond as a condition to stay the effect of the court’s prior ruling. As a result, there was no stay in effect during pendency of the appeal and the lender was entitled to have the proceeds turned over to it. A feed supplier creditor did not have standing to seek surcharge of the bank’s collateral under 11 U.S.C. Sec. 506(c). The bankruptcy trustee did not file a motion for surcharge and court could not order the amount that the supplier paid for feed deliveries to be retained from funds turned over to the lender. The lender's motion for abandonment and turnover of proceeds was granted. On further review of the bankruptcy court's decision concerning the dairy cow lease, the appellate court reversed. The appellate court determined that under applicable law (AZ) as set forth in the "lease" agreement, a fact-based analysis governed the determination of the nature of the agreement. However, if the lease term is for longer than the economic life of the goods involved, the "lease" is a per se security agreement. The bankruptcy court focused on the debtor's testimony that he culled about 30 percent of the cattle annually which would cause the entire herd to turnover in 40 months. That turnover time of 40 months was less than the 50-month lease term. Thus, according to the bankruptcy court, the lease was a security agreement. The appellate court disagreed with this analysis, holding that the agreement required the focus to be on the life of the herd rather than individual cows in the herd because the debtor had a duty to return the same number of cattle originally leased rather than the same cattle. Thus, the agreement was not a per se security agreement. On the economics of the transaction, the appellate court held that the lender failed to carry its burden of establishing that the actual economics of the transaction indicated the lease was a disguised security agreement. There was no option for the debtor to buy the cows at any price, and there was no option at all. The court remanded the case to the bankruptcy court. The cattle owned outright by the debtor were sold at auction by the bankruptcy trustee subject to the security interest of the bank. The debtor had purchased the cattle with commingled funds from the bank's account which was sufficient for the bank's lien to attach and the court, on remand, determined that it was immaterial that the funds were later reimbursed by a third party under the lease. Thus, the proceeds of the auction were subject to the bank's security interest and were the bank's property. The leasing party's brand on the cows was not sufficient under state (KY) law to establish ownership of the cows because it was unregistered. After-acquired livestock were also subject to the bank's lien, as being proceeds of the pre-petitioner lien. In re Purdy, No. 12-11592(1)(12), 2015 Bankr. LEXIS 2938 (W.D. Ky. Sept. 2, 2015), on remand from, Sunshine Heifers, LLC v. Citizens First Bank (In re Purdy), No. 13-6412, 2014 U.S. App. LEXIS 15586 (6th Cir. Aug. 14, 2014), rev'g., 2013 Bankr. LEXIS 3813 (Bankr. W.D. Ky. Sept. 12, 2013).
The debtor filed Chapter 12 bankruptcy and a bank, as a creditor, held security interests in the debtor’s livestock, crops and equipment. The bank sought relief from the automatic stay, which was granted. The debtor, with the bank’s permission, sold the livestock and equipment to a third party with the sale proceeds paying off the secured debt. A similar arrangement was engaged in by another creditor with the sale being to the same buyer. The bankruptcy court did not grant prior approval of the sales. The debtor sought to avoid the sales under 11 U.S.C. Sec. 549, and the buyer motioned for summary judgment on the basis that the debtor lacked standing to sue for lack of injury insomuch as the debtor benefitted from the sales. The court allowed the debtor’s case to proceed on the basis that the buyer had not completely showed that the sales didn’t injure the debtor or the debtor’s bankruptcy estate. In re Johnsman Limited Partnership, No. 12-33368, 2015 Bankr. LEXIS 2702 (Bankr. N.D. Ohio Aug. 13, 2015).
The debtor filed a Chapter 12 plan and three amended plans. Two large creditors and the trustee objected to each plan, and none of the plans were confirmed. Finally, the creditors sought dismissal of the case, alleging unreasonable delay prejudicial to the creditors and the lack of a reasonable likelihood of rehabilitation. The debtor sought confirmation or, in the alternative, leave to amend to file a fifth plan. The court denied confirmation of the plan and leave to amend. Instead, the court dismissed the case, finding that a reorganization was objectively futile. The debtor could not afford to make his payments in the proposed plan, even though the terms were not commercially reasonable at the proposed interest rate. Any adjustment to the interest rate would make the payments even higher and the debtor even less able to make them. The proposed plan failed to meet the requirements of 11 U.S.C. §1225(a)(5) and (6). On appeal, the court affirmed. The appellate court upheld the denial of the debtor's third amended plan for failure the prove asset values and errors in financial projections and the statement of current conditions. The court also determined that the debtor should not be allowed to file a fourth amended plan for lack of support of current financial condition. The case was properly dismissed because a confirmable plan was not produced within a year of the petition. In re Keith's Tree Farms, No. 13-71316, 2014 Bankr. LEXIS 4243 (Bankr. W.D. Va. Oct. 3, 2014), aff'd. sub. nom., Keith's Tree Farms v. Grayson National Bank, et al., 535 B.r. 647 (W.D. Va. 2015).
The debtor filed Chapter 12 in October of 2014 and creditors immediately motioned for relief from the automatic stay largely on the point that the debtor could not successfully reorganize. At an evidentiary hearing two months later the court took the matter under advisement, and the debtor filed a reorganization plan in early 2015. The debtor had been involved in a cattle sale scam and also was subsequently pled guilty to two counts of livestock neglect. His attorney filed a motion to withdraw, which was approved. The plan confirmation hearing was scheduled and the debtor was informed that he needed legal counsel or had to file necessary documents himself. The debtor failed to appear at a status conference and the court later dismissed the case. The debtor retained new counsel and then filed another Chapter 12 petition. The trustee moved for dismissal based on 11 U.S.C. Sec. 109(g)(1) which bars re-filing within 180 days of the previous case if the previous case was dismissed for willful failure to follow a court order or otherwise prosecute a case. The court determined that 11 U.S.C. Sec. 109(g)(1) applied to bar the re-filing based on the debtor's willful failure to follow a court order and willful failure to appear before the court. In re Bryngelson, No. 15-00704, 2015 Bankr. LEXIS 2240 (Bankr. N.D. Iowa Jul. 8, 2015).
The debtors, a married couple, filed Chapter 12 bankruptcy on August 7, 2010 and submitted their reorganization plan on February 8, 2011. The plan was approved with some modifications on March 18, 2011. The confirmed plan contained a provision treating federal and state tax obligations attributable to the sale of farm assets occurring post-petition in 2010 and 2011 to be "classified, treated and discharged" as unsecured claims in accordance with 11 U.S.C. Sec. 1222(a)(2)(A) with the liability computed under the "marginal" method. The debtors received a tax refund for the 2010 tax year, and asserted a refund of almost $6,000 for the 2011 tax year attributable to the sale of farm property. The IRS claimed that the debtors owed over $66,000 of tax. For the 2012 tax year, the IRS did not issue a $5,706 refund, but rather applied it to the tax liability that IRS was asserting for the 2011 tax year. In May of 2013, the IRS demanded that the debtors pay the outstanding tax liability (including interest) of over $67,000. The debtors did not pay the tax claim, but then filed a 2013 return claiming a refund of almost $7,000. The IRS applied the amount of the refund to the outstanding tax liability and demanded payment in full of the outstanding tax liability of $65,431.85. The debtors sought to have the IRS held in contempt for violation of the debtors' reorganization plan on the basis that 11 U.S.C. Sec. 1222(a)(2)(A) made the IRS claim an unsecured claim not entitled to priority and subject to discharge. The court, after determining that it had jurisdiction, determined that the reorganization plan could not bind the IRS as to the post-petition tax claims. While the law in the Eighth Circuit at the time the tax was incurred was that taxes attributable to the sale of farm assets (and IRS did not challenge that the taxes at issue were attributable to farm assets) were unsecured, non-priority claims subject to discharge, the court held that a U.S. Supreme Court opinion decided in May of 2012 had abrogated the Eighth Circuit opinion. While the Eighth Circuit opinion was still applicable law at the time of plan confirmation and when the taxes at issue were incurred, the Court held that the U.S. Supreme Court opinion controlled. The court reached this conclusion by reasoning that the U.S. Supreme Court merely clarified what 11 U.S.C. Sec. 1222(a)(2)(A) had meant all along and, thus, had retroactive application. The court said this was the case "regardless of when the Plan was confirmed." The debtor then filed a motion asking the court to reverse its prior ruling because the court incorrectly retroactively applied the U.S. Supreme Court's holding in Hall to the debtors where the reorganization plan was confirmed before Hall was decided. The court agreed with the debtor and reversed its previous ruling. The court noted that the IRS need not be a "creditor" to be bound by a debtor's Chapter 12 plan in accordance with 11 U.S.C. Sec. 1222(a)(2)(A), and the debtor's plan contained a 11 U.S.C. Sec. 1222(a)(2)(A) provision. Thus, the IRS had violated the terms of the Chapter 12 plan. However, the court did not sanction the IRS. Thus, the IRS was bound the debtor's confirmed plan and any set-off or other action taken by IRS was reversed. In re Legassick, No. 10-02202, 22015 Bankr. 2239 (Bankr. N.D. Iowa Jul. 8, 2015, rev'g., 528 B.R. 777 (Bankr. N.D. Iowa 2015).
The debtor proposed a Chapter 12 reorganization plan under which he would avoid two secured debts. When the debtor was not able to avoid the debts, he initially wanted more time to appeal but neither appealed nor filed an amended reorganization plan. The bankruptcy trustee motioned to dismiss the case and the court agreed. The court noted that the goal of Chapter 12 was to move the case promptly through the confirmation process. The court noted that the debtor's failure to propose an amended plan after a year of Chapter 12 relief was grounds for dismissal under 11 U.S.C. Sec. 1208(c)(3). The court also noted that the debtor had unreasonably refused to cooperate with the trustee when he failed to appear for his deposition. The debtor had fired his legal counsel. In addition, the debtor had not timely filed monthly reports and the bankruptcy estate lost value during the times of delay. The court also believed that there was no reasonable likelihood of rehabilitation. In re Haffey, No. 14-50824, 2015 Bankr. LEXIS 1850 (Bankr. E.D. Ky. Jun. 5, 2015).
The debtor claimed his 1997 Peterbilt truck as exempt under the Colorado homestead statute on his Chapter 7 bankruptcy schedules. The trustee objected, and the court agreed with the trustee. The court determined that the homestead statute (C.R.S. Sec. 38-41-201(a)) didn’t apply because only two types of personal property are specifically exempt as a homestead – mobile homes and manufactured homes. In addition, those two types of personal property are attached to land. The debtor’s truck did not qualify as a homestead because it is not permanently or semi-permanently installed on real property and has no regular site and is not located in a residential area or mobile home park. Colorado case law required an association with real estate to support a homestead exemption for the debtor’s truck. In re Romero, No. 15-11254 TBM, 2015 Bankr. LEXIS 2065 (Bankr. D. Colo. Jun. 24, 2015).
The debtors filed Chapter 12 and had their reorganization plan confirmed, but defaulted on the payments they were required to pay under the plan. Two creditors had the automatic stay lifted with respect to them and the debtors did not request and receive their voluntary dismissal such that the refilling limitations of 11 U.S.C. Sec. 109(g)(2) were never triggered. Instead, the court determined that the filing by the creditors of affidavits of default that constituted the requests for relief. But, before the affidavits were filed, the debtors filed for a voluntary dismissal. The court granted the dismissal and lifted the stay. When the debtors re-filed Chapter 12 about a month later, the creditors claimed that the debtors were not eligible because of the 11 U.S.C. Sec. 109(g)(2) bar (180-day limitation). The court allowed the re-filed case because the debtors had filed their motion for voluntary dismissal before the creditor affidavits were filed. Thus, 11 U.S.C. Sec. 109(g)(2) was never triggered. In re Herremans, No. BG 15-01567, 2015 Bankr. LEXIS 2201 (Bankr. W.D. Mich. Jun. 23, 2015).
The debtor filed Chapter 12 bankruptcy and listed a bank debt in his schedules. The bank debt was secured by real estate. The bank was notified of the deadline to file claims and was also notified of the meeting of creditors. The bank filed a proof of claim more than a month after the deadline, but the bank's attorney did timely file a notice of appearance identifying the bank as a creditor. The debtor proposed a reorganization plan that provided for no payments on the bank's disallowed claim, but the plan did retain the bank's lien and did provide for post-bankruptcy payments on the bank debt. The bank objected and the debtor asserted that the bank's claim was untimely. The court disallowed the bank's claim as untimely because the bank had done nothing that could be treated as the equivalent of filing a proof of claim on a timely basis. An entry of appearance and request for notice were insufficient to qualify as an informal proof of claim. The court also determined that the debtor's motives for objecting to the late filed claim had no bearing on whether the late filed claim should be allowed. The court held that 11 U.S.C. Sec. 502(b)(9) required that the bank's claim be disallowed. In re Swenson, No. 14-40173-12, 2015 Bankr. LEXIS 1922 (Bankr. D. Kan. Jun. 12, 2015).
The debtor, an LLC, bought about four aces of real estate. The LLC was owned 50/50 by a husband and his wife, and the husband was a co-debtor on numerous LLC debts. The husband's self-directed IRA also participated in a partnership with the LLC. Pursuant to an agreement, the IRA made a cash contribution of just over $40,000 and a non-cash contribution of the real estate valued at $122,830. The LLC's sole obligation was a cash contribution of $163,354.49, the amount of the IRA's cash and non-cash contribution values, to be made at an unspecified construction date. The day after forming the partnership, the husband directed the IRA to sell off $123,000 of assets. The purchase of the four acres occurred simultaneously. Later, the partnership paid expenses of over $40,000 and the LLC filed bankruptcy claiming the IRA and the husband as unsecured parties. The partnership was not listed. The bankruptcy trustee objected to the IRA being treated as exempt, and the court agreed, finding that the IRA had engaged in numerous prohibited transactions, including serving as a lending source for the purchase and development of the real estate, which terminated the tax-exempt status of the IRA. In re Kellerman, No. 4:09-bk-13935, 2015 Bankr. LEXIS 1740 (Bankr. E.D. Ark. May 26, 2015).
The debtor filed Chapter 12 bankruptcy and listed the bulk of his crop sale proceeds on his bankruptcy schedules as exempt "farm earnings" in accordance with Minn. Stat. Sec. 550.37(13)(exemption for disposable earnings). The crop sales were evidenced by checks made jointly payable to the debtor and several secured creditors. A creditor and the bankruptcy trustee objected to the claimed exemption. Disallowing the claimed exemption would mean that more funds would be available to pay secured creditors. A creditor later claimed that because the checks had ultimately bee turned over to another creditor that the issue was moot because the debtor no longer had any interest in the funds. The court, reversing the bankruptcy court, disagreed. The court held that the turnover of the checks to a creditor did not constitute a determination of what amount would be paid to unsecured creditors. Thus, the issue of whether the state law exemption provision applied was not moot. In re Seifert, No. 14-6044, 2015 Bankr. LEXIS 1723 (B.A.P. 8th Cir. May 22, 2015).
The debtor filed Chapter 12, but defaulted on his plan payments to secured creditors when his crop yield and sales price projections were not met. The debtor's provided testimony that showed he was uncertain about revenue and expenses, and made "nonsensical" estimates of tillable acreage and planned tillable acreage. His financial information was inaccurate and he understated lease rates. The debtor then proposed an amended plan which called for the sale of his farm that would pay the creditors in full, but the buyer was not disclosed. A creditor who had invested heavily in a facility on the debtor's farm, proposed a competing plan that called for a higher selling price of the farm and additional funds to be provided to secured creditors. The court found the debtor's plan to be deficient and the trustee opposed the debtor's plan. The court held that the debtor did not proposed a feasible plan and the amended plan was not proposed in good faith. However, the court granted leave to the debtor to allow the debtor to file an amended plan by end of day on May 8, 2015, which the debtor did (and the creditor also filed an another amended plan which again raised the selling price of the farm and named the creditor as the buyer). The court, however, again determined that the debtor's amended plan was based on faulty financial information and did not reflect the inherent risk of farming. The debtor failed to meet his burden under 11 U.S.C. Sec. 1229(b) to propose a plan in good faith. The debtor's plan also did not meet the liquidation test of 11 U.S.C. Sec. 1225(a)(4). The court held that the creditor's modified plan which called for a sale of the farm to the creditor at a higher price than what the debtor proposed did satisfy all requirements and was confirmed. In re Daniels, No. 13-30010, 2015 Bankr. LEXIS 1609 (W.D. La. May. 11, 2015).
The debtor operated a land partnership with other partners and two of the partners filed an involuntary Chapter 11 bankruptcy against the debtor and the partnership. The primary asset of the partnership was two tracts of land that were verbally leased to a friend of the debtor. The lease was reduced to writing a few days before the involuntary bankruptcy filing. The bankruptcy trustee alleged that the written lease was actually executed after the bankruptcy filing, but had been backdated to a date before the filing. The written lease was for a three year term covering the 2011-2013 crop years. Under the terms of the lease, the tenant was to pay 20 percent of the gross proceeds with a minimum annual payment of $300,000. The first year’s rent of $311,464.55 was deposited into the trust account of the tenant’s lawyer near the end of 2011. The trustee attempted to sell the properties, but buyers did not want to buy the properties with the lease in place. The trustee, as a result, moved to avoid the lease as being entered into post-petition without authorization under 11 U.S.C. Sec. 549, or as a fraudulent transfer under 11 U.S.C. Sec. 548(a)(1) on the basis that the rent was less than fair market rent. During pendency of the adversary action, the bankruptcy was converted to Chapter 7. The bankruptcy court held that held that the lease was entered into pre-petition, but that the rent was below fair market rent and avoided the lease on that ground. The court held that the tenant was entitled to the growing crops, but had to pay the 2011 rent and a pro-rata share of the 2012 rent for the time the tenant occupied the property. The properties were then sold with the growing alfalfa crops, but not the growing wheat crops. The lease was terminated and the wheat crop harvested which netted $442,218.09 for the bankruptcy estate. The tenant claimed he was entitled to the wheat crop proceeds for the 2012 crop year. The bankruptcy court held that estate was entitled to the fair market rent for the entire time the tenant was in possession - $745,200 less the amount he previously paid for the 2011 rent, which came to $431,200. Then the court took that amount and deducted expenses the tenant incurred and determined that the tenant was entitled to a judgment of $147,377.95 as a claim against the bankruptcy estate. On further review, the court affirmed the bankruptcy court’s determination that the tenant owed the estate $431,200 in rent. However, the court reversed the bankruptcy court on the set-off amount, finding that the tenant was entitled to the wheat crop proceeds of $442,218.09 plus property taxes of $14,879.95 that the tenant had paid on the property during the time he possessed the property. The result was that the tenant was entitled to a judgment of $25,898.04 of a claim against the bankruptcy estate. The tenant was not entitled to compensation for the wheat he planted into the alfalfa that was sold with the land because it didn’t add any value to the property. In re Grabanski Land Partnership, Nos. 14-6037, 14-6042, 2015 Bankr. LEXIS 1642 (B.A.P. May 14, 2015).
The debtors, a married couple, filed Chapter 12 bankruptcy on August 7, 2010 and submitted their reorganization plan on February 8, 2011. The plan was approved with some modifications on March 18, 2011. The confirmed plan contained a provision treating federal and state tax obligations attributable to the sale of farm assets occurring post-petition in 2010 and 2011 to be "classified, treated and discharged" as unsecured claims in accordance with 11 U.S.C. Sec. 1222(a)(2)(A) with the liability computed under the "marginal" method. The debtors received a tax refund for the 2010 tax year, and asserted a refund of almost $6,000 for the 2011 tax year attributable to the sale of farm property. The IRS claimed that the debtors owed over $66,000 of tax. For the 2012 tax year, the IRS did not issue a $5,706 refund, but rather applied it to the tax liability that IRS was asserting for the 2011 tax year. In May of 2013, the IRS demanded that the debtors pay the outstanding tax liability (including interest) of over $67,000. The debtors did not pay the tax claim, but then filed a 2013 return claiming a refund of almost $7,000. The IRS applied the amount of the refund to the outstanding tax liability and demanded payment in full of the outstanding tax liability of $65,431.85. The debtors sought to have the IRS held in contempt for violation of the debtors' reorganization plan on the basis that 11 U.S.C. Sec. 1222(a)(2)(A) made the IRS claim an unsecured claim not entitled to priority and subject to discharge. The court, after determining that it had jurisdiction, determined that the reorganization plan could not bind the IRS as to the post-petition tax claims. While the law in the Eighth Circuit at the time the tax was incurred was that taxes attributable to the sale of farm assets (and IRS did not challenge that the taxes at issue were attributable to farm assets) were unsecured, non-priority claims subject to discharge, the court held that a U.S. Supreme Court opinion decided in May of 2012 had abrogated the Eighth Circuit opinion. While the Eighth Circuit opinion was still applicable law at the time of plan confirmation and when the taxes at issue were incurred, the Court held that the U.S. Supreme Court opinion controlled. The court reached this conclusion by reasoning that the U.S. Supreme Court merely clarified what 11 U.S.C. Sec. 1222(a)(2)(A) had meant all along and, thus, had retroactive application. The court said this was the case "regardless of when the Plan was confirmed." In re Legassick, No. 10-02202, 2015 Bankr. LEXIS 1260 (Bankr. N.D. Iowa Apr. 13, 2015).
In this Chapter 12 case, the debtor took over his father’s 3,000-acre crop and dairy farm upon the father’s retirement. The debtor got divorced and, as a result, only had 1,000 crop acres at the petition date. Because the row crop business suffered continual losses, the debtor sold some of the land to his son and began growing berries and raising pheasants for hunting. The debtor became licensed by the state to acquire and release pheasants. The pheasants were raised in a barn until fully grown. The incubation period of three weeks required the debtor to ensure that the birds were protected and remained disease-free. The pheasants were ultimately released for hunts by customers on the debtor's land that had been placed in the CRP. Upon filing Chapter 12, the creditors argued that debtor was not engaged in farming but in a recreational activity. The court determined that the debtor was engaged in farming under the totality of the circumstances citing the dissent in Armstrong v. Corn Belt Bank, 812 F.2d 1024 (7th Cir. 1987), cert. den., 484 U.S. 925 (1987) and In re Maike, 77 B.R. 832 (Bankr. D. Kan. 1987). However, the court determined that the amount of the debtor’s debt was not 50 percent or more related to a farming operation. This was the result because the court concluded that the debt related to the debtor’s personal residence did not arise out of the farming operation, and there was no evidence presented that the mortgage secured the farm debt. The court held that the case was to be dismissed or converted to a different chapter. On appeal, however, the appellate court held that the residence debt, as non-farm related, should be excluded from aggregate debt - both the numerator and the denominator in the calculation set forth in 11 U.S.C. Sec. 101(18)(A). However, the appellate court determined that the bankruptcy court correctly concluded that the residence debt was not farm-related debt. Upon recalculation, 93 percent of the aggregate debt arose from a farming operation and satisfied the farm debt test of Chapter 12. As for the corporation owning the CRP land on which the pheasant hunts were conducted, the court determined that simply having land in the CRP was insufficient to constitute a farming operation by itself without other income from farming. In re Acee, No. 6:14-CV-0259 (LEK), 2015 U.S. Dist. LEXIS 41055 (N.D. N.Y. Mar. 31, 2015), aff'g and rev'g., No. 12-61632, 2013 Bankr. LEXIS 4789 (Bankr. N.D. N.Y. Nov. 12, 2013).
A third party bought cattle and shipped them to a feedyard for feeding and care until they were sold on the third party's behalf to various buyers. The feedyard deposited the sale proceeds with a creditor for application against its line of credit. The feedyard would then pay the third party an amount equal to the sales proceeds less the feed cost. Several payments to the third party occurred during the year immediately preceding the feedyard's bankruptcy filing during which time the feedyard was insolvent. The bankruptcy trustee motioned to recover the payments made to the third party within a year of the bankruptcy filing, and the bankruptcy court ruled in the trustee's favor. On appeal, the third party claimed that the proceeds were not a "transfer of an interest of the debtor in property" as required by 11 U.S.C. Sec. 547(b) because the funds were not the debtor's property but were held in trust by the feedyard as bailee for the third party. In addition, the third party claimed that the proceeds were not traceable to the funds transferred to the third party because the feedyard used the proceeds to pay its debts and, as such, the state (NE) "swollen assets" doctrine imposed a constructive trust on the funds. On appeal, the court determined that the third party was purportedly a bailor whose bailment property was misused by the debtor-bailee which led to the inability of the third party to recover under the bailment agreement alone. Accordingly, the court determined that genuine issues of material fact remained with respect to the existence of a bailment under NE law that would extend to the proceeds of the cattle sales and, thus, whether the proceeds were the debtor's property. On remand, the bankruptcy court determined that the trustee was entitled to the proceeds as preferential transfers upon finding that the proceeds were the property of the feedlot. The court reached that conclusion based on the fact that the creditor had a security interest in any funds in any of the feedyard's deposit accounts and could apply the funds against any loans or other of the feedlot's obligations. The court also determined that neither the feedlot nor the creditor obtained the funds by fraud or misrepresentation and, thus, a constructive trust could not be imposed. Because there was no conversion, the "swollen assets" doctrine was inapplicable. The transactions also did not occur in the ordinary course of business. In re Big Drive Cattle, L.L.C. v. Overcash, No. BK11-42415, 2015 Bankr. LEXIS 991 (Bankr. D. Neb. Mar. 30, 2015), on remand from, No. 4:14CV3064, 2014 U.S. Dist. LEXIS 80853 (D. Neb. Jun. 13, 2014).
The debtors (a farming married couple) borrowed $150,000 from a bank in exchange for a security agreement and note. While the security agreement required the debtors to deposit all proceeds from the sale of collateral (crops, equipment, etc.) in their bank account, the bank did not strictly enforce the requirement. The debtor/husband was injured in a farming accident and relatives conducted the farming activity without depositing crop proceeds in the bank account. Instead, farm income was largely used to pay medical bills of the debtor/husband. The husband/debtor's son began his own farming operation in 2012 using his father's equipment and the son financially assisted his father. The debtors filed Chapter 7 in early 2013 and the bank claimed that almost $75,000 of debt should not be discharged due to the debtors' willful and malicious injury to the bank. The bank claimed that the debtors and son structured the farming operation to evade the deposit requirement. The court allowed the debt to be discharged in full. The court determined that the bank failed to prove that the farming operation, in 2012, was the debtors'. The bank also failed to prove injury, willfulness, and malice as required by 11 U.S.C. Sec. 523(a)(6). The court viewed the debtors' testimony as credible. In re Jacobson, 532 B.R. 742 (Bankr. N.D. Iowa 2015).
In this adversary action brought by a bank, the bank argued that the debtors’ obligations under a promissory note and an ag security agreement should be excepted from discharge in the Chapter 7 case under 11 U.S.C. Sec. 523(a)(6) due to the debtors’ willful and malicious injury to the property. The debtors had borrowed $150,000 from the bank to finance their farming operation. The security agreement required the debtors to make all proceeds from the sale of collateral available immediately to the bank by depositing the proceeds in the debtors’ account with the bank. The bank did not enforce that policy. The husband farmer was injured in a farming accident and his relatives took over the farming operation but did not deposit all proceeds from the farming operation into the bank account. Instead, the majority of funds used to pay medical bills. The husband’s son started his own farming operation with the use of his father’s equipment, with the son ultimately providing financial assistance to his father. The debtors filed Chapter 7 and the bank argued that the funds not deposited into the bank account should be excepted from discharge due to willful and malicious injury to the bank. The court, however, determined that the bank failed to prove willfulness, malice and injury as required by the statute. The debtors’ testimony was viewed as credible. In re Jacobsen, No. 13-00331, 2015 Bankr. LEXIS 94 (Mar. 27, 2015).
The debtors filed Chapter 7 in late 2009 and the creditor, a bank, filed four claims that were secured by the debtors' residence. The bank knew that the debtors received a discharge in early 2010. The debtors' Chapter 7 case was then converted to Chapter 12 and new payment terms were worked out resulting in a direct assignment of proceeds from the debtors' dairy farm (i.e., milk checks) to the bank along with new interest rates and maturity dates. The debtors made the required payments for about two months until the checks no longer met the amount required under the new payment terms. Almost two years later, the bank started foreclosure proceedings. The debtors filed a contempt motion, claiming that the bank's conduct violated the discharge injunction of 11 U.S.C. Sec. 524(a)(2). The debtors claimed that the milk payments were involuntary payments. The bankruptcy court ruled for the bank. On appeal, the court affirmed. The court noted that the bank's conduct was exempt from the discharge injunction because the agreement between the parties - (1) involved a situation where the bank retained a security interest in the debtors' principal residence; (2) was entered into in the ordinary course of business between the creditor and debtor; and (3) was limited to seeking or obtaining periodic payments associated the bank's security interest in the residence (11 U.S.C. Sec. 524(j)). In re Teal, No. 4:14-CV-15, 2015 U.S. Dist. LEXIS 32315 (E.D. Tenn. Mar. 17, 2015).
The debtor appealed the bankruptcy court’s determination that she was ineligible to be a Chapter 12 debtor. The debtor had filed a Chapter 7 "no-asset" bankruptcy in 2010 and was granted a discharge. The current action was filed four months after the debtor received a discharge in the Chapter 7 case. The total amount of debt on the debtor's ranch and other property exceeded the Chapter 12 debt limits by more than $4 million. The debtor argued that only the secured portion of the debt should be counted because her personal liability had been discharged in a Chapter 7 filing. The appellate court bankruptcy panel reviewed only whether the Chapter 12 debt limit counts secured debt only up to the value of collateral. The appellate court held that obligations that are enforceable against the debtor’s property but for which there is no personal liability are still “claims” and “debts” within bankruptcy. Thus, the debtor was not eligible to file Chapter 12 bankruptcy. In re Davis, No. 12-60069, 2015 U.S. App. LEXIS 2381 (9th Cir. Feb. 17, 2015), aff'g., In re Davis, No. CC-11-1692-MkDKi, 2012 Bankr. LEXIS 3631 (Bankr. 9th Cir. Aug. 3, 2012).
The debtor bought an individual retirement annuity in 2009 for $267,319.48 which he funded with a rollover from another one of his retirement accounts. The terms of the annuity specified that the debtor would receive eight annual payments of $40,497.95 beginning on April 12, 2010. The annuity contained a liquidity feature allowing the debtor to take a single, lump-sum withdrawal of up to 75 percent of the present value of the remaining payments. The debtor file bankruptcy on June 6, 2012, listing the annuity at a value of $263,370.23, but claiming it as an exempt asset. The trustee argued that the annuity was not exempt. The bankruptcy court held that the annuity was exempt, as did the Bankruptcy Appellate Panel. The trustee argued that the annuity had fixed premiums and did not require annual premiums that were under the limit for IRAs for the year, in violation of I.R.C. Sec. 408(b)(2). The court disagreed. Even though the contract barred any additional premiums after purchase, the purchase price was not fixed. On the IRA limit issue, the court held that I.R.C. Sec. 408(b)(2) did not require annual premiums, but if annual premiums were required, the contributions could not exceed the applicable IRA contribution limits. The court noted that rollover contributions are not subject to premium limitations. Thus, the annuity was exempt under 11 U.S.C. Sec. 522(b)(3)(C). In re Miller, No. 13-3682, 2015 U.S. App. LEXIS 2275 (8th Cir. Feb. 13, 2015), aff'g., 500 B.R. 578 (B.A.P. 8th Cir. 2013).
The debtors, a married couple, operate a photography business that sells digitally manipulated landscape photographs to the public. The husband was also employed at a separate photo business. The wife handled all of the accounting, some promotional work and most purchasing decisions for the couple's business. The debtors filed a joint case, and sought to exempt their digital images and website as a tool-of-the-trade under Kan. Stat. Ann. Sec. 60-2304(e). The trustee objected on the basis that the images and website were not tangible property as contemplated by the statute. The court disagreed with the trustee, noting many books, documents and "tools" in today's electronic era are digital and that only the specifically listed items in the statute need be tangible property. In addition, the court noted that the debtor's wife could exempt the digital images and website herself as tools of the trade of her primary occupation. The wife had a sufficient ownership interest in the couple's business. In re Macmillan, No. 14-40965, 2015 Bankr. LEXIS 61 (Bankr. D. Kan. Jan. 9, 2015).
In this case, the Chapter 12 debtor proposed a reorganization plan that the court determined could not be confirmed because it was based on an assumption that a creditor's claim was less than what it actually was by almost $300,000. The plan also did not have, as of the plan's effective date, a value on account of the creditor's allowed secured claim in an amount not less than the allowed amount of such claim. The plan also delayed payment of principal and interest to the creditor until the plan's fourth year which the court determined was impermissible. In addition, the plan made unrealistic assumptions concerning the debtor's ability to make payments. In re Tucker Brothers, L.L.C., No. 13-22462, 2014 Bankr. LEXIS 4725 (Nov. 13, 2014).
The debtors, including a farm company and two individuals, filed Chapter 12 bankruptcy petitions. A secured creditor filed an objection to the confirmation of their joint plan on the grounds that the debtors’ proposed treatment of the creditor’s personal property secured claim was not commercially reasonable. Although the secured creditor conceded that its claims were substantially undersecured and therefore subject to “cram down,” it objected to the specific terms. The parties reached an agreement under which the creditor’s secured claims would be collateralized by real property, but the plan was underfunded and the trustee agreed that it was not feasible. The court agreed that the debtors’ proposed repayment terms were well outside of the acceptable parameters that the court could approve. Even if the repayment terms were sufficient, the proposed interest rate was also unreasonable. The 6 % interest rate proposed by the debtors did not give the secured creditor the present value of its personal property secured claims. Consequently, the court denied confirmation of the joint plan. In re Howe Farms LLC, No. 13-61601, 2014 Bankr. LEXIS 4385 (Bankr. N.D. N.Y. Oct. 16, 2014).
The debtor filed a Chapter 12 plan and three amended plans. Two large creditors and the trustee objected to each plan, and none of the plans were confirmed. Finally, the creditors sought dismissal of the case, alleging unreasonable delay prejudicial to the creditors and the lack of a reasonable likelihood of rehabilitation. The debtor sought confirmation or, in the alternative, leave to amend to file a fifth plan. The court denied confirmation of the plan and leave to amend. Instead, the court dismissed the case, finding that a reorganization was objectively futile. The debtor could not afford to make his payments in the proposed plan, even though the terms were not commercially reasonable at the proposed interest rate. Any adjustment to the interest rate would make the payments even higher and the debtor even less able to make them. The proposed plan failed to meet the requirements of 11 U.S.C. §1225(a)(5) and (6). In re Keith's Tree Farms, No. 13-71316, 2014 Bankr. LEXIS 4243 (Bankr. W.D. Va. Oct. 3, 2014).
The debtor operated a small dairy farm in New York. In an attempt to keep the struggling farm operational, the debtor obtained three loans from the Farm Service Agency (FSA), granting the FSA a security interest in the debtor's real and personal property, including cattle. During a period in which FSA held first lienholder position and had an outstanding loan valued at $160,530.52, the debtor (without informing FSA) sold cattle and distributed the proceeds to other creditors. He also purchased $40,000 in cattle and gave the seller a lien on the cattle. When the debtor sought to obtain another loan from FSA, the agency discovered that over a two-year period, the debtor had sold 113 cattle, resulting in total sale proceeds of $84,605.66. FSA alleged that the debtor’s conduct constituted a conversion that was “willful and malicious.” It thus sought to have $64,325.35 of the debtor’s debt excepted from discharge pursuant to 11 U.S.C. § 523(a)(6). The debtor argued that the FSA had impliedly consented to the sales because of the nature of the supervised credit relationship between the debtor and FSA. The court sustained FSA’s request, finding that the debtor’s actions were deliberate and intentional. The court also found that the injurious acts were done "in knowing disregard" of FSA's rights because the loan documents were clear. The court held that although the debtor did not use the proceeds to reap a personal financial gain, he did use the proceeds to favor certain creditors and elevated such creditors' rights above those of FSA. This conduct led the court to infer malice. In re Shelmidine, No. 13-60354, 2014 Bankr. LEXIS 4154 (Bankr. N.D.N.Y. Sept. 30, 2014).
The debtor filed a Chapter 12 bankruptcy petition and his required schedules and statements. During extended confirmation hearings, facts emerged showing that the debtor had concealed his interest in real property and had made other numerous errors. The debtor contended that these errors were oversights. The trustee sought dismissal of the case pursuant to 11 U.S. C. §1208(c)(1). The court agreed, stating, “Considering the facts of this case, it appears to the Court that despite many months under the protections of the Bankruptcy Code, four failed attempts to propose a confirmable plan, and three attempts to file accurate and complete schedules and statements, [the debtor’s] case is getting more convoluted and perplexing with each passing hearing. Meanwhile his creditors are waiting in the wings without payment, as their interests are impaired and collateral is devalued. Accordingly, the Court finds [the debtor’s] repeated delays and failure to propose a confirmable plan unreasonable, without justification, and harmful to his creditors.” In re Dickenson, No. 13-71283, 2014 Bankr. LEXIS 4067 (Bankr. W.D. Va. Sept. 15, 2014).
The debtor founded a company which supplied computer entertainment software. The debtor lived a profligate lifestyle and, upon advice of CPAs, got involved in tax shelters which resulted in huge disallowed losses and ultimately resulted in his company's wholly-owned subsidiary filing Chapter 11 bankruptcy which was later converted to Chapter 7. Ultimately, by 2005, the debtor owed the IRS $25 million, the state of California over $15 million, had limited income and was insolvent. However, the debtor failed to change his lifestyle in any significant manner. In 2006, the debtor sold his home for $6.5 million (net) and the state of CA seized the bulk of the funds. A few days later, the debtor filed bankruptcy and sold a condominium for $3.5 million with the proceeds going to the IRS. The debtor's confirmed reorganization plan discharged pre-plan confirmation debts and the debtor claimed that the taxes were discharged. Both IRS and CA claimed that the tax debts were excluded from discharge by virtue of 11 U.S.C. Sec. 523(a)(1)(C) on the basis that the debtor continued to live lavishly in a manner that exceeded their income and that such behavior constituted a willful attempt to evade taxes. The bankruptcy court agreed that the taxes were not discharged. The federal district court affirmed. On appeal, the appellate court reversed on the basis that it could not be shown that the debtor was not shown to have the specific intent to evade the taxes. The mere fact that expenses exceeded income is insufficient, by itself, to establish a specific intent to evade tax. The appellate court remanded the case for an application of the specific intent standard to the facts. Hawkins v. California Franchise Tax Board, et al., No. 11-16276, 2014 U.S. App. LEXIS 17925 (9th Cir. Sept. 15, 2014).
Before filing Chapter 12, the debtor allowed the insurance on his combine and header to lapse. After filing bankruptcy the combine remained uninsured, with a creditor later obtaining forced-place insurance on the combine and header. Inadvertently, the creditor allowed its lien on all of its collateral to be released without being reimbursed for insurance expenses. The creditor sought reimbursement of administrative expenses and the court allowed it, with modification, because the cost of insuring the equipment postpetition is among "the actual, necessary costs and expenses of preserving the estate" within the meaning of 11 U.S.C. Sec. 503(b)(1)(A). In re Jarriel, No. 13-60070-EJC, 2014 Bankr. LEXIS 3938 (S.D. Ga. Sept. 11, 2014).
In the second year of their Chapter 12 bankruptcy plan, the debtors sold-off 396.47 acres of a 458-acre tract of land for $295,576. The debtors had been allowed to retain the land under the plan as a potential source of income to fund the plan. The sales price exceeded by more than $100,000 the value established for the entire 458-acre tract at the time the debtors’ Chapter 12 plan was approved by the court. After paying the costs of the sale, claims secured by the land, taxes, and other expenses, the debtors were left with $35,341.59 and the rest of the land. Unpaid creditors sought distribution of the windfall to them. The court denied their request, ruling that the provisions of the confirmed plan were binding on the debtors and their creditors. The court stated that estate property vests in the debtor—and thus leaves the bankruptcy estate—upon confirmation of the plan. Thus, it is "free and clear of any claim or interest of any creditor provided for by the plan." The court also found that the proceeds were not “disposable income” because post-petition disposable income does not include prepetition property or its proceeds. As such, the debtors had no obligation to pay the proceeds to the creditors. In re Smith, No. 10-50096-rlj-12, 2014 Bankr. LEXIS 3335 (Bankr. N.D. Tex. Aug. 6, 2014).
Before filing Chapter 13 bankruptcy, the debtors (married couple) withdrew funds from their IRA and deposited the funds in their sole proprietorship business account. The bankruptcy trustee objected to debtors' ability to claim the funds as exempt on the basis that the funds did not derive from an IRA or lost their character as IRA funds. The court disagreed, noting that the same amount was deposited as had been withdrawn and their character had not been destroyed. While the funds weren't rolled over with the 60-day period allowed under the I.R.C., that did not prevent the funds from being exempt under state (OH) law because the state law exemption was drafted broadly with the intent to protect retirement assets. In re Karn, No. 13-62446, 2-14 Bankr. LEXIS 3299 (Bankr. N.D. Ohio Aug. 4, 2014).
A third party bought cattle and shipped them to a feedyard for feeding and care until they were sold on the third party's behalf to various buyers. The feedyard deposited the sale proceeds with a creditor for application against its line of credit. The feedyard would then pay the third party an amount equal to the sales proceeds less the feed cost. Several payments to the third party occurred during the year immediately preceding the feedyard's bankruptcy filing during which time the feedyard was insolvent. The bankruptcy trustee motioned to recover the payments made to the third party within a year of the bankruptcy filing, and the bankruptcy court ruled in the trustee's favor. On appeal, the third party claimed that the proceeds were not a "transfer of an interest of the debtor in property" as required by 11 U.S.C. Sec. 547(b) because the funds were not the debtor's property but were held in trust by the feedyard as bailee for the third party. In addition, the third party claimed that the proceeds were not traceable to the funds transferred to the third party because the feedyard used the proceeds to pay its debts and, as such the state (NE) "swollen assets" doctrine imposed a constructive trust on the funds. On appeal, the court determined that the third party was purportedly a bailor whose bailment property was misused by the debtor-bailee which led to the inability of the third party to recover under the bailment agreement alone. Accordingly, the court determined that genuine issues of material fact remained with respect to the existence of a bailment under NE law that would extend to the proceeds of the cattle sales and, thus, whether the proceeds were the debtor's property. In re Big Drive Cattle, L.L.C. v. Overcash, No. 4:14CV3064, 2014 U.S. Dist. LEXIS 80853 (D. Neb. Jun. 13, 2014).
In this case, the debtor's mother established a traditional IRA and named her daughter (the debtor) as the sole beneficiary. About a year later, the mother died and the IRA account containing approximately $450,000 passed to the daughter as an inherited IRA which the daughter rolled into her own IRA. The daughter elected to take monthly distributions from the account before retiring. Approximately nine years later, the daughter (and her husband) filed Chapter 7 bankruptcy and claimed the IRA account (with a balance of approximately $300,000 at the time) as an exempt asset by virtue of 11 U.S.C. Sec. 522(b)(3)(C). The bankruptcy court (450 B.R. 858 (Bankr. W.D. Wis. 2011)) ruled that the IRA account was not exempt on the basis that inherited IRA funds are not "retirement funds" in the hands of the debtor and, therefore, are not exempt; on review, the district court (466 B.R. 135 (W.D. Wis. 2012)) determined that IRA account funds need not be “retirement” funds of the debtor to qualify for the exemption; the district court followed themajority view that direct transfers of retirement funds from a tax-exempt account qualify for exemption, and that it was immaterial that there are differences between traditional IRAs and inherited IRAs due to I.R.C. §408(e)(1). The court noted that the question of whether an inherited IRA should be exempt was up to the Congress to change the statute. On further review (In re Clark, 714 F.3d 559 (7th Cir. 2013)), the circuit court reversed on the basis that inherited IRAs represent an opportunity for current consumption in the hands of the debtor and are not a fund of retirement savings. The court analogized the situation to that of the debtor inheriting a home - the home is only exempt if the debtor lived in it, and is not exempt merely based on how the prior owner used the property. The appellate court's opinion is contrary to Fifth Circuit in In re Chilton, 674 F.3d 486 (5th Cir. 2012). The U.S. Supreme Court granted certiorari to clear-up the split among the circuit courts on the issue. On further review, the U.S. Supreme Court affirmed. The court reasoned that inherited IRAs are not "retirement funds" within the meaning of 11 U.S.C. Sec. 522(b)(3)(C), because the holder of the inherited IRA may never invest additional funds, the holder must withdraw funds irrespective of how many years remain until retirement, and the holder can withdraw the entire account balance on demand at any time without penalty. Clark v. Rameker, No. 13-299, 2014 U.S. LEXIS 4166 (U.S. Sup. Ct. Jun. 12, 2014).
The debtor filed a Chapter 12 bankruptcy petition and claimed that he had been a rice farmer from 1976 until 2010 when he became disabled. His sole income for 2011 and 2013 was social security, and he received $30,668.04 in 2012 as a settlement from Bayer CropScience for crop losses sustained in 2006, 2007, and 2008. The trustee filed a motion to dismiss or convert on the grounds that the debtor was ineligible for Chapter 12 relief under 11 U.S.C. § 109(f). The court granted the motion, finding that the debtor was not engaged in a farming operation, as was required to qualify for Chapter 12 relief. He did not satisfy the seven-factor “totality of the circumstances” test required to be “engaged in a farming operation.” None of the debtor’s family members resided on the farm, he was not involved in the process of growing or developing crops or livestock, he did not provide any service or product, and (most importantly) he was not subject to the inherent risks of farming. He expressed no interest in salvaging his rice farm operation or otherwise engaging in a farming operation in the future. His purpose in filing for bankruptcy protection was “to get out of debt.” As such, he was not eligible for Chapter 12 relief. In Re McLawchlin, No: 13-37887, 2014 Bankr. LEXIS 2455 (S.D. Tex. Bankr. June 5, 2014).
The debtors, a dairy operation, purchased their farm from lender one, which owned the property because of a prior foreclosure. The debtors executed a security agreement granting lender one a blanket security interest in the land, equipment, and livestock. The debtors defaulted because of milk production problems and filed for Chapter 12 bankruptcy protection. The debtors then filed a motion to incur secured debt from lender two to construct a waste storage facility and a rotational grazing facility. The bankruptcy court conditionally granted the motion under 11 U.S.C. §364(d), and the district court affirmed. The bankruptcy court did not err in determining that debtors were providing adequate protection to lender one by providing an “indubitable equivalent” of lender one’s interest in the property. The court also found that the bankruptcy court did not err in finding that the debtors would have sufficient revenue to pay the finance charges. First Sec. Bank & Trust Co. v. Vander Vegt, No. 12-02144, 2014 U.S. Dist. LEXIS 71781 (N.D. Iowa May 27, 2014), affirming, In re Vander Vegt, No. 12-02144, 2013 Bankr. LEXIS 4354 (Bankr. N.D. Iowa Oct. 16, 2013).
Before filing for Chapter 7, the debtors filed an action against their neighbors seeking to acquire a portion of their land through adverse possession. The debtors lost on summary judgment, and the trial court awarded the neighbors $45,000 in attorney fees. The debtors then obtained a Chapter 7 discharge, under which their 37.41-acre tract of real property was declared to be exempt homestead property. The neighbors objected, but the bankruptcy court overruled their objection. The court ruled that under Texas law, a claimant could establish homestead rights in his land by showing (i) overt acts of homestead usage and (ii) the intention on the part of the owner to claim the land as a homestead. An objecting party, argued the court, had the burden of demonstrating that the homestead rights had been terminated. Finally, the court ruled that a rural homestead could consist of "not more than 200 acres, which may be in one or more parcels, with the improvements thereon." Tex. Prop. Code Ann. § 41.002(b). The court ruled that the debtors showed that the parcels were contiguous and that they had used the parcels and the lot adjoining the house for the "comfort, convenience or support of the family." The court also ruled that the debtors did not abandon the homestead. In re Ling, No. 13-36967, 2014 Bankr. LEXIS 2367 (Bankr. S.D. Tex. May 30, 2014).
On July 18, 2013, the debtor filed Chapter 7 bankruptcy. Before filing, the debtor owned farm equipment, a remainder interest in his mother's property, two 40-acre parcels and a log home. Creditors held liens on the real estate. The debtor transferred the real estate, log home and farm equipment to his girlfriend for approximately $240,000, somewhat less than fair market value. The debtor was left with little assets, the remainder interest. The debtor's liabilities on his bankruptcy schedules exceeded his asset values. After the transfers, the debtor continued to use the equipment and land and turned over crop proceeds to his girlfriend. The girlfriend never reported the income on her returns while the debtor continued to claim farming expenses on his return along with farm income. The girlfriend also made payments to the lien holders. The bankruptcy trustee filed an adversary proceeding to recover the transfer of the farm equipment under 11 U.S.C. Secs. 548 and 550. Sec. 548 allows recovery if transfer was made within 2 years of bankruptcy filing. The court determined that the evidence established that the debtor's transfer occurred within the two-year timeframe and that the logical explanation for the debtor's payments is that they were intended to reimburse his girlfriend for making payments to the creditors. The court also determined that the transfers to the girlfriend were made with actual intent to defraud creditors insomuch as he was an "insider" with the transferee, was insolvent at the time of the transfer and continued to use the farm equipment. Thus, the transfer was avoidable under 11 U.S.C. Sec. 548(a)(1)(A) and 548(a)(1)(B). The court also determined that the property was recoverable under 11 U.S.C. Sec. 550 and that the good faith transferee defense of 11 U.S.C. Sec. 548(c) which could give the transferee a lien did not apply primarily because the girlfriend, as transferee, was paying many of the debtor's debts through her personal bank account. In re Schnoor, No. BKY 13-50630, 2014 Bankr. LEXIS 2204 (D. Minn. May 16, 2014).
When the debtor filed for Chapter 7 bankruptcy, he claimed several firearms, two boats, a camper, an ATV, a utility trailer, a two-horse trailer, and some fishing poles as exempt property used in the operation of his outfitters business. State law (Colo. Rev. Stat. § 13-54-102(1)(i)) allowed a $20,000 exemption for tools “used and kept for the purpose of carrying on any gainful occupation.” Although he held a full time job at a grocery store, the debtor intended to grow his outfitters business to a full-time occupation. The bankruptcy trustee objected to the exemption on the ground that it applied only to "gainful occupations," which he asserted meant a business that was "profitable" as of the petition date. The bankruptcy court found that "an occupation need not be profitable at the time of filing.” Rather, the bankruptcy court held that it need only be a “valid occupation,” not a hobby or pastime. On appeal, the court affirmed the bankruptcy court’s order, finding that the term "gainful," as used in the Colorado statute, was ambiguous. The court concluded after analysis that the term "gainful occupation" required at least some aspect of profitability. Considering the purpose of tools of trade exemptions, which was to permit debtors to retain items used in an occupation to aid them in providing support for themselves and their dependents, the court ruled that, in order to disqualify a debtor's claimed tools of trade exemption under the Colorado statute, the objecting party had to prove by a preponderance of the evidence that the debtor's occupation was unlikely to contribute to the support of the debtor and his family in any significant way within a reasonable period of time under the specific facts of each case. The court found that the trustee had failed to meet that burden. In re Sharp, No. CO-13-053, 2014 Bankr. LEXIS 1567 (B.A.P. 10th Cir. Apr. 11, 2014).
The debtors ran a feeding-to-finish pig operation. Two creditors held security interests in the debtor’s livestock and after acquired property. A farm service company provided feed for many of the debtors’ hogs. The creditors and the feed supplier had properly filed financing statements. Six months before the debtors filed for Chapter 12 bankruptcy protection, they sold hogs, and the $209,412.24 proceeds were placed into escrow. After the debtors filed their action, the creditors and the supplier all claimed first priority status in the proceeds. The creditors argued that an Iowa Code §570A.5.agricultural supply lien (which was what the feed suppler asserted) extended only to the livestock, not to the proceeds. As such, they argued that the supplier had no interest in the proceeds of the sale of the livestock. This pre-petition sale, they argued, was different from those cases where a court had ordered livestock sold and the proceeds distributed. Although it found the creditors’ arguments persuasive, the court ruled (in this case of first impression) that an agricultural lien does extend to proceeds. The court found that this position best supported the intent of the legislature to encourage a fluid feed market and remove an incentive to suppliers to race to the court house for repossession of livestock. The court also found consistently with In re Shulista, 451 B.R. 867 (Bankr. N.D. Iowa 2011) and In re Big Sky Farms, Inc., No. 12-01711, Adv. No. 13-09038, 2014 Bankr. LEXIS 1725 (Bankr. N.D. Iowa April 18, 2014) that agricultural supply liens are limited to the 31-day look back period prior to filing a financing statement. The court denied motions for summary judgment, finding that genuine issues of material fact existed as to whether the feed supplier had an agricultural lien on the proceeds of the hogs that were actually sold. The supplier could only claim a lien on the proceeds from those pigs fed by the supplier’s feed and for amounts not already reimbursed. In re Schley, No. 10-032522014, Bankr. LEXIS 1724 (Bankr. N.D. Iowa Apr. 18, 2014).
The debtor was a Canadian company operating part of its hog business in Iowa. The debtor filed for bankruptcy protection in Canada in 2012, and the Canadian court appointed a receiver, which filed a Chapter 15 petition. The receiver was authorized to liquidate the debtor’s hogs and distribute the $1.5 million in proceeds to creditors. A farmers cooperative that had supplied feed to the debtor (FCC) submitted a proof of claim for $120,444.51, and the receiver paid FCC only $74,045.15, arguing that the remainder of FCC’s claim was not perfected as a super-priority agricultural lien under Iowa Code §570A because FCC did not file its financing statement within 31 days of selling the feed to the debtor. FCC filed it adversarial action, alleging that In re Shulista, 451 B.R. 867 (Bankr. N.D. Iowa 2011), which established the 31-day rule, was overruled by the Iowa Supreme Court's decision in Oyens Feed & Supply, Inc. v. Primebank, 808 N.W.2d 186 (Iowa 2011). The court found that the Oyens decision was not dispositive because that case did not address the 31-day filing requirement, but the supplier’s failure to send a statutorily-required certified request. The court found that the plain language of the statute required a supplier to file the financing statement within 31 days of purchase. Oyens did not eliminate every requirement for establishing priority of an agricultural lien in favor of the policy of enhancing a fluid feed market. The court found that FCC had a perfected, super-priority agricultural supply lien for feed purchased during the 31 days preceding the filing of their financing statement ($20,404.03 of the outstanding balance). Farmers Coop. Co. v. Ernst & Young, Inc. (In re Big Sky Farms Inc.), No. 12-01711, 2014 Bankr. LEXIS 1725 (Bankr. N.D. Iowa Apr. 18, 2014).
The defendant, a dairy farm, filed for Chapter 11 bankruptcy protection. Thereafter, the plaintiff entered into a contract with defendant to lease 240 cows to defendant for $13,056 per month for 48 months. The plaintiff began delivering the cows to the defendant several weeks after the court confirmed the plan. The defendant made regular payments under the lease until a principal of the defendant was seriously injured in a farm accident and the defendant was forced to cease operation of the farm. The defendant then breached its lease and the plaintiff retrieved the cows. The plaintiff filed a breach of contract action against the defendant, and the defendant argued that court approval was necessary for the lease because the lease was not an unsecured transaction. In granting partial summary judgment in favor of the plaintiff, the court ruled that the lease was enforceable against the defendant as debtor-in-possession because this was a post-petition contract negotiated by the debtor-in-possession on behalf of the estate. Sunshine Heifers, LLC v. Moohaven Dairy, LLC, No. 13-10319, 2014 U.S. Dist. LEXIS 52294 (E.D. Mich. April 16, 2014).
The plaintiff owned and operated a horse farm, where she taught riding lessons and boarded horses. When she decided to leave the country, she entered into a contract to sell the property to defendants, who purchased the property under a land contract. Plaintiff agreed to enter into the contract on the condition that the mother of one of the defendants would sign a personal guarantee. After two years of making monthly payments, the defendants were unable to obtain the financing necessary to make the final balloon payment due under the contract. The property value had dropped, and the defendants abandoned the property. Plaintiff sought to mitigate her damages by selling the property to a neighbor at a reduced price (only after providing notice to the defendants). The trial court granted a directed verdict in the amount of $178,093.89 for the plaintiff in her breach of contract action against defendants. On appeal, the court affirmed. Plaintiff was entitled to seek contract damages and mitigate those damages by selling the property. She did not, through the sale of the property, exercise the different remedy of foreclosure. There was consideration for the mother’s personal guarantee because the plaintiff agreed to enter into the contract only because of that guarantee. Knox v. Briskin, No. 315003, 2014 Mich. App. LEXIS 465 (Mich. Ct. App. Mar. 18, 2014).