Case Summaries

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).    

The Farm Service Agency (FSA) filed an amended proof of claim in the debtor’s Chapter 12 bankruptcy action, seeking to add to its secured claim $31,732, an amount allegedly overpaid months earlier by the Commodity Credit Corporation (CCC) to the debtor under the Supplemental Revenue Assistance Payments (SURE) Program. The debtor objected to the amended claim, arguing that the FSA could not voluntarily refund prepetition overpayments to the SURE Program, without Court approval, and then seek a larger secured claim for itself based on the refund. The court agreed, sustaining the objection. The CCC, not the FSA, was the party with standing the file the claim. Neither the FSA nor the CCC timely fulfilled any of the requirements to assert a right to setoff as set forth in In re Britton, 83 B.R. 914 (Bankr. E.D.N.C. 1988). The court allowed CCC 30 days to file an unsecured claim in the amount of $31,732. In re Barefoot, 12-02160-8-DMW, 2014 Bankr. LEXIS 1062 (E.D. N.C. Mar. 18, 2014).

(debtor is in business of buying and selling livestock for slaughter and processing, and sold farmer's livestock to a buyer; before filing bankruptcy, debtor paid farmer about $900,000 for completed sales of livestock; after bankruptcy filing, bankruptcy trustee sought to recover funds paid to farmer as a preferential transfer in accordance with 11 U.S.C. Sec. 547(b); bankruptcy court and district court ruled against trustee; on appeal, court reversed; appellate court noted that further proceedings necessary to determine how much of $900,000 traceable to constructive trust in favor of farmer; debtor did not have ownership interest in farmer's cattle, but merely possessed cattle for purpose of sale and was in a bailment relationship with farmer; on remand, trial court to determine if any equitable defenses bar farmer from recovering on restitution claim; farmer did not show that all of funds paid to farmer were its property; case reversed and remanded).

(debtor appealed the bankruptcy court’s decision granting a customer’s motion to convert the debtor’s Chapter 12 to a Chapter 7 on the grounds of fraud; the bankruptcy court had found that the debtor committed fraud by entering into a contract for the sale of hay with the customer eight days after filing the Chapter 12 and without telling the creditor about the filing; in affirming the decision, the court ruled that the bankruptcy court properly applied 11 U.S.C. § 1208(d) in concluding that the debtor had committed fraud “in connection to the case”; the court also found that the bankruptcy court did not clearly err in making its factual findings; the record established that the debtor failed to inform the customer about material information).   

The debtors were forced to shut down their chicken farm and file for Chapter 12 bankruptcy after their contract with a meat processor was terminated. After their plan was confirmed, the debtors received a grant from the USDA for $100,000 (due to the shutdown of their farming operation) and settlement proceeds from the meat processing company in the amount of $105,000. The debtors did not amend their bankruptcy Schedule B or seek a modification of the confirmation order. Instead, they spent both amounts. The trustee filed a motion to modify, alleging that the grant was a prepetition asset that should have been included in the “best interest of creditors” calculation. The trustee also requested that the debtors turn over the settlement proceeds pursuant to the confirmation order. The court granted the motion, recognizing that the debtors did incur certain expenses beyond their control, such as loss due to a former employee’s theft. The court found that the debtors were thus required to turn over $43,978 of the USDA grant and any additional restitution they received from the former employee. The court found that the debtors were required to turn over $75,000 of the settlement payment because they were required to pay the balance in taxes.  In re Hudson, No. 3:09-bk-07857-JAF, 2014 Bankr. LEXIS 820 (Bankr. M.D. Fla. Feb. 28, 2014).

In one of several adversary proceedings stemming from the same bankruptcy action, a bank lender, a grain company, and the bankruptcy trustee all claimed an interest in the proceeds of the debtor’s 2010 crops, which were being held by the grain company. All parties filed motions for summary judgment, but the court denied the motions, finding that the parties failed to adequately address the effect of 810 ILCS 5/9-404 on the grain company’s right to set off the amount owed to the company by the debtor against the amount the company owed the debtor for his grain. The court found that 810 ILCS 5/9-404 did apply and framed the issue for the parties. Under the statute, the company was the account debtor, the debtor was the assignor, and the bank was the assignee. The court was not able to determine on summary judgment whether the bank’s notice of security interest to the company was sufficient to satisfy 810 ILCS 5/9-404(a)(2)’s requirement. If it is found sufficient, the company will not be allowed to offset the debtor’s liability.  In re Duckworth, No. 10-83603, 2014 Bankr. LEXIS 704 (Bankr. C.D. Ill. Feb. 21, 2014).


(bankruptcy trustee seeks to recover from the defendant over $836,000 as a preferential transfer relating to cattle sales; defendant claims that transfers to defendant were transfers of funds held in bailment for defendant as proceeds of cattle that defendant owned but were fed at a feedlot that the debtor operated and that debtor sold the cattle on defendant's behalf to third parties; the court determined that the proceeds that were contained in the debtor's account were not traceable to the defendant because they were commingled in that account with other funds and were spent for debts other than those owed to the defendant in the weeks immediately preceeding the bankruptcy filing; court also determined that the defendant was merely one of multiple creditors that sought payment from a limited asset source and that imposing a constructive trust would be unfair to other creditors; bankruptcy trustee satisfied the requirements for establishing a preferential transfer under 11 U.S.C. Sec. 547).

(Chapter 12 case; debtors (married couple) farmed hay and raised horses since 1999; debtors purchased land securing bank’s claim in 2007 and decided to build home on tract in 2008; home construction loan executed in 2008 and bank approved debtors for 30-year adjustable rate permanent loan; home completed in 2009 and parties engaged in dispute over bank’s commitment to permanent financing ultimately resulting in foreclosure of construction mortgage and pending sale of home which precipitated debtors’ Chapter 12 filing; debtors’ office and farm headquarters located in newly constructed home; issue was whether debtors qualified for Chapter 12; if bank’s principal and interest claim included in debtors’ farm debts, 50 percent test satisfied; court determined that construction portion of bank loan included in debtor’s “farm” debt because house was integral part of farm operation due to farm’s books and records maintained in office in home and home’s proximity to farming operation which allowed debtors to care for livestock and maintain irrigation system; debtors’ treatment of bank’s claim also satisfies 11 U.S.C. §1225(a)(5) – U.S. Supreme Court decision in Till v. SCS Credit Corp., 541 U.S. 465 (2004), overrules In re Hardzog, 901 F.2d 858 (10th Cir. 1990) and formula approach to determining cramdown interest rate applicable to Chapter 12 reorganization plan to be utilized rather than market rate for similar loan approach of Hardzog; interest rate is prime rate plus 2 percent; amended Chapter 12 plan feasible and confirmable; on further review by 10th Circuit, court reversed on issue of whether principal residence debt arises out of a farming operation; 10th Circuit held that debt "arises out of farming operation" under 11 U.S.C. Sec. 101(18)(A) if it is directly and substantially connected to any of the activities constituting a farming operation as defined by 11 U.S.C. Sec. 101(21); when loan debt is involved, objective "direct use" test to be used in determining when "direct-and-substantial-connection standard is satisfied" - loan proceeds must be used directly for or in farming operation for debt to "arise out of" farming operation; bankruptcy court used incorrect standard and is reversed). 

(Chapter 7 case in which debtor disclaimed his interest in his deceased father's estate five months before filing bankruptcy; court determined that such disclaimer was a "transfer" as defined by 11 U.S.C. Sec. 727(a)(2)(A), but that trial needed to determine whether debtor filed disclaimer with intent to hinder, delay or defraud creditors).


(debtors were a married couple that had entered into a joint venture and borrowed money in the name of the joint venture from a bank; the bank obtained a perfected security interest in rice grain and equipment of the debtors; when the debtors filed a Chapter 7 bankruptcy, the trustee sought to sell the rice and equipment, but the bank argued that it was entitled to liquidate the property because it was owned by a separate entity, the joint venture; the bankruptcy court and the district court ruled in favor of the trustee, and the appellate court affirmed; the court found that the lower court did not clearly err in finding that the joint venture created by the debtors was not a general partnership or other separate legal entity; thus, the rice and equipment listed in the name of the joint venture was owned by the debtors individually and should be included in the bankruptcy estate; the joint venture agreement had specifically stated that it did not create a partnership).    

(Chapter 12 case in which debtor's confirmed plan in which part of creditor's secured claim to be paid from proceeds obtained by avoiding landlord's lien on 2010 corn crop; debtor sought avoidance of lien under 11 U.S.C. Sec. 543(3) (statutory landlord's lien) and 11 U.S.C. Sec. 544(a)(1) (consensual lien); court noted that SEc. 543(3) allows debtor to avoid "fixing" of statutory lien to extent lien is for rent, and that lien was "fixed" to 2010 corn crop from time it was raised until seven months prepetition (which was after crop had been harvested, sold and rent paid) when it was extinguished in full by payment under the lease; thus, no statutory lien that could be "fixed" on anything as of date petition filed and, therefore, lien could not be avoided; rent amount paid in full before lease expired; thus, consensual lien not avoidable).

(Chapter 12 case where creditor claimed that debtor paid their attorney out of tobacco proceeds check which debtor claimed was cash collateral subject to debtor's lien; creditor objected to  confirmation of debtor's reorganization plan and sought dismissal of case  for cause under 11 U.S.C. Sec. 1208(c) on basis that debtor did not comply with Operating Order; at hearing, court noted that debtor's operating reports contained errors, inconsistencies and omissions and debtor was unable to account for cattle and had converted tobacco proceeds check; case dismissed for cause).  

(in an adversary proceeding in a Chapter 7 bankruptcy case, a question arose as to whether water shares belonged to the debtor’s bankruptcy estate or whether a creditor trust that had loaned money to the debtor’s family trust had a security interest in the water shares that superseded the Chapter 7 trustee’s interest; the trustee argued that the debtor had never transferred the water shares to his family trust and that, therefore, he could not have pledged them as security for a loan by the creditor trust to the family trust; the court found that because the shares had not been transferred to the family trust, they could not be considered part of the family trust; however, the court found that a genuine issue of material fact existed as to whether the water shares were appurtenant to the property that was transferred to the family trust and, therefore, transferred with the property to the family trust; the court also ruled that under Utah water law, the water shares remained real property and a security interest in them could be perfected by the shares’ inclusion in a recorded deed of trust; because a question remained as to whether the water shares were properly conveyed to the family trust and offered as collateral, the court could not make a finding as to whether the creditor trust had properly perfected its security interest in the water shares that had been included in a recorded deed of trust).

(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 had then found that the debtor did  not tell the creditors he had filed bankruptcy when he contracted with them for the sale of hay; the law of the case applied to establish § 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).

(the debtor, a dairy farm, filed a Chapter 11 reorganization plan under which it  sought to continue its dairy operation in a “modernized, more efficient manner”; a secured creditor’s representative objected to the second amended plan, and the court denied confirmation; the debtor had struggled during the reorganization period, failing to meet its projections and defaulting on regular adequate protection payments; in light of the debtor’s struggles during the case, its crushing debt load, and lack of capital or cushion of any sort, the court found that the plan was not feasible under 11 U.S.C. § 1129(a)(11); the court found that the plan failed the fair and equitable requirement of 11 U.S.C. §1129(b) as well because the plan capitalized any allowed interest in arriving at a new claim amount, but did  not do the same with allowed fees; any allowed fees would thus have been paid in an amount much less than their present value, resulting in inequitable treatment to the secured creditor).

(the trustee in a Chapter 7 bankruptcy sought to sell an entire parcel owned jointly by the debtor and a co-owner as tenants in common; the co-owner challenged the sale, alleging that the trustee failed to show that partition of the property was impracticable,  as was required to allow for the sale of an entire jointly-owned parcel under 11 U.S.C. §363(h); the court found that a small change in value stemming from a partition would not make such partition impracticable; furthermore, the Kentucky state law presumption of indivisibility did not apply in  a federal bankruptcy case; as such, the trustee failed to meet his burden to sell the parcel free of the co-owner’s interest pursuant to §363(h)).

(debtor entered into a contract with plaintiffs for the sale of hay shortly after filing a Chapter 12 bankruptcy petition; debtor did not tell plaintiffs that he had filed the bankruptcy petition or that a state court had just declared void his lease for the property on which he was growing the hay at issue in the contract;  plaintiffs filed a motion to the convert the Chapter 12 case to a Chapter 7 case on the grounds of fraud, and the debtor filed a motion to dismiss; the court granted the motion to convert the case, and the debtor filed counterclaims alleging “fraud on the court” by plaintiffs, alleging inter alia that plaintiffs had created a fictitious Facebook profile under which they found pictures to impeach debtor’s evidence supporting a continuance; finding no basis or support for any of the relief sought by the debtor, the court dismissed the counterclaims).

(district court had held that inherited IRA funds exempt from debtor’s bankruptcy estate under 11 U.S.C. Sec. 522(b)(3)(C) because they are “retirement funds” that are tax-exempt under I.R.C. §408; decedent died about a year after establishing account which named daughter as beneficiary; daughter had own IRA and had balance of decedent’s IRA rolled into hers and then took monthly distributions from it before retiring; over nine years later daughter and husband filed Chapter 7; bankruptcy court (450 B.R. 858 (Bankr. W.D. Wis. 2011)) ruled IRA not exempt on basis that inherited IRA funds were not "retirement funds" in the hands of the debtor and, therefore, not exempt; on review, 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 exemption; district court followed majority view that direct transfers of retirement funds from tax-exempt account qualify for exemption, and immaterial that there are differences between traditional IRAs and inherited IRAs due to I.R.C. §408(e)(1); question of whether inherited IRA should be exempt up to the Congress to change the statute; on further review, circuit court reversed on basis that inherited IRAs represent opportunity for current consumption in hands of debtor and are not a fund of retirement savings; court analogized situation to that of debtor inheriting home - home only exempt if debtor lived in it, and is not exempt merely based on how prior owner used the property; court's opinion contrary to Fifth Circuit in In re Chilton, 674 F.3d 486 (5th Cir. 2012); U.S. Supreme Court granted certiorari). 

(bankruptcy trustee seeks avoidance (as a fraudulent transfer) and recovery of two payments debtor made within two years before petition date; trustee claimed that payments made to crop dusting company for services performed for owner of debtor and, as a result, debtor received less than equivalent fair market value in return; competing motions for summary judgment denied on basis that fact issues remained as to whether payment obligation was joint obligation of owner of defendant and defendant or not). 

(creditor motions to dismiss debtor’s Chapter 12 case on basis that debtor is not an eligible Chapter 12 debtor; debtor listed assets of 10.5 acres of land valued at $150,000; debtor listed occupation as “nursery manager” and debtor’s wife was bookkeeper for different business; debtor admitted that did not engage in farming operations in commonly understood sense; while court noted that other activities not specifically mentioned in 11 U.S.C. §101(18) can qualify as a farming operation citing In re Watford, 898 F.2d 1525 (11 th Cir. 1990), debtor was not a “family farmer” engaged in farming operations for at least two years since growing pumpkins and watermelons; agritourism not farming operation within letter or spirit of 11 U.S.C. §101(18)); court noted that by debtor’s logic, Disneyland would be a farming operation because it was built on land that had formerly been an orange grove). 

(Chapter 12 case involving issue of plan confirmation; debtor’s amended plan not confirmable due to continued losses and no reasonable likelihood of rehabilitation). 

(Chapter 12 case; debtor took over father’s 3,000-acre crop and dairy farm upon father’s retirement; debtor got divorced and, as a result, only had 1,000 crop acres at petition date; because row crop business suffered continual losses, debtor sold some of the land to his son and began growing berries and raising pheasants for hunting; debtor became licensed by state to acquire and release pheasants; pheasants raised in barn until fully grown; incubation period of three weeks required debtor to ensure that birds protected and remain disease-free; pheasants ultimately released for hunts by customers; upon filing Chapter 12, creditors argued that debtor not engaged in farming but in a recreational activity; court determined that debtor engaged in farming under totality of circumstances citing 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, court determined that amount of debtor’s debt not 50 percent or more related to farming operation; most of debt related to personal residence and no evidence presented that mortgage secured farm debt; case to be dismissed or converted to different chapter). 

(Chapter 7 case involving IRA account balance of over $236,000 debtor claimed as exempt under 11 U.S.C. §522(b)(3)(C) and under state (MN) law; court’s opinion limited to federal exemption; debtor originally purchased annuity with funds rolled over from tax-qualified IRA that would have been exempt in bankruptcy; annuity complies with I.R.C. §408 and is exempt asset because it was purchased via direct rollover from another tax-exempt IRA).

(creditor objects to debtors’ amended Chapter 12 plan; debtors filed second amended plan and issue was whether debtors are eligible to file Chapter 12 and, if so, whether proposed reorganization plan is confirmable; husband-debtor is cattle farmer that grazes cattle on leased land and debtor’s wife is secretary/bookkeeper with local school district; court determined that debtors engaged in farming operations for purposes of Chapter 12 because debtor is responsible for cattle at issue and bears inherent risks associated with caring for and raising the cattle and is subject to potential loss and also owns other cattle; creditor also claimed that debtor did not derive at least 50 percent of income from farming operations in 2012 or in 2010 or 2011 as required by 11 U.S.C. §101(18)(A); as for 50 percent test, court followed “Tax Code” definition of gross income in determining whether 50 percent test satisfied; court determined that debtors derived at least 50 percent of gross income from farming in 2010 and 2011 was derived from farming operations, hence, debtors qualified as eligible to file Chapter 12; creditors argued that reorganization plan was not feasible; plan proposed to restructure loan obligation extending beyond length of plan and plan did not adequately provide present value to creditor; second amended plan also did not provide for appropriate interest rate due to lack of inclusion of sufficient risk factor required by Till v. SCS Credit Corporation, 541 U.S. 465 (2004); plan confirmation denied). 

(debtors sought Chapter 12 bankruptcy protection, and the bankruptcy court confirmed a plan calling for periodic payments through the trustee for the benefit of creditors; one year later, the trustee filed a motion to dismiss the debtors’ case for failure to make plan payments; the bankruptcy court found the debtors had failed to make payments totaling in excess of $17,000; the bankruptcy court gave the debtors 30 days to convert the case to a Chapter 7, but when the debtors failed to timely file a notice of conversion, the bankruptcy court dismissed the case; in affirming, the court ruled that the bankruptcy court had properly dismissed the case for failure to make payments; debtors failed to demonstrate any material link between their unusual assertions—including alleged government surveillance, tampering with electronic equipment, and missing emails—and the bankruptcy court’s decision).

(debtors operated a dairy farm they purchased directly from lender one, executing a security agreement granting lender one a blanket security interest in land, equipment, and livestock; debtors defaulted because of milk production problems; in resulting bankruptcy proceeding, debtors filed a motion to incur secured debt from lender two to construct a waste storage facility and a rotational grazing facility; In conditionally granting motion under 11 U.S.C. §364(d), the court ruled that debtors were providing adequate protection to lender one by providing an “indubitable equivalent” of lender one’s interest in the property; court relied on the facts that (1) new loan was short in duration, (2) projects financed by loan would likely increase the value of the collateral, and (3) grant payments would likely pay off the priming lien). 

(petitioner was real estate agent, broker and instructor of real estate licensing classes in addition to financial planner and insurance agent; petitioner failed to file income tax returns and didn't pay tax; petitioner filed Tax Court petition, but court upheld determinations of IRS including penalties; petitioner filed appeal and also filed bankruptcy during pendency of appeal; automatic stay inapplicable to case because Tax Court petition is independent judicial proceeding initiated by debtor; decision agrees with decisions of the 1st, 3rd, 5th and 11th Circuits, but is opposite to a decision of the 9th Circuit).

(debtors included a married couple and their tobacco company; debtors had been unable to operate their farm property profitably for more than two decades; in their second round of bankruptcies since 1985, the debtors sought to confirm their plans under Chapter 12; in denying confirmation, the court found that the proposed plans were not feasible because the debtors failed to show a “reasonable probability” of the success of the plans; the debtors lacked an adequate track record to make reliance upon projected income and expenses reasonable; the plans also sought to improperly eliminate the cross-collateralization of the creditor’s debt among the debtors’ residential property, farm property, farm equipment, and machinery; the proposed cross-collateralization violated 11 U.S.C. §1225(a)(5)(B)(i), which allows altering the repayment terms of the debt, over the objection of the creditor, only if the secured creditor both retains the lien securing the claim and is paid the present value of its claim).

(Chapter 7 case in which debtor seeks to hold bank (serving as trustee of family trust of which debtor is a beneficiary) in contempt for alleged violation of discharge injunction by offsetting 2010 trust distribution to debtor in order to satisfy debtor's obligation to trust for interest on a Nov. 7, 1985 note that debtor had failed to make payments on which hampered trustee's ability to make distributions to other beneficiaries; court holds that discharge injunction applies to note, but that the Doctrine of Recoupment applies to except note from discharge; offset authorized under trust law and state (KS) law; debtor's motion for summary judgment for contempt denied; summary judgment granted for other trust beneficiaries; on appeal, court affirmed). 

(debtor borrowed money from lender and pledged dairy cattle as collateral; lender secured interest in cattle; debtor borrowed additional money from lender pledging crops, farm products and livestock as collateral with security interest containing dragnet clause; lender secured interest; debtor later entered into "Dairy Cow Lease" with third party to allow for expansion of herd; lessor perfected its interest in the leased cattle; debtor filed bankruptcy and court determined that lease arrangement actually created a security interest rather than a true lease - lease not terminable by debtor and lease for longer than economic life of dairy cows, lessor never provided any credible evidence of ownership of cows, parties did not strictly adhere to lease terms; lender filed first and has priority to proceeds from dairy cows; lender's prior perfected security interest attaches to all cows on debtor's farm and to all milk produced post-petition and milk proceeds under 11 U.S.C. Sec. 552(b); in current action, different creditor failed to comply with court’s order requiring posting of bond as condition to stay effect of court’s prior ruling, there was no stay in effect during pendency of appeal and lender (bank) entitled to have proceeds turned over to it; feed supplier creditor did not have standing to seek surcharge of bank’s collateral under 11 U.S.C. Sec. 506(c); trustee did not file motion for surcharge and court could not order amount supplier paid for feed deliveries be retained from funds turned over to bank; bank’s motion for abandonment and turnover of proceeds granted).

(at issue was dismissal or conversion of debtor’s Chapter 11 reorganization plan for their tree farming operation; plan proposes to liquidate most of Christmas tree farm and sell off other tracts, and reduced planting schedule but robust harvest schedule so as to pay creditor’s fully secured claim and pay to creditor all proceeds of harvest to creditor; court determined that plan fair and equitable to second largest secured creditor because plan provided for surrender of creditor’s collateral; plan feasible because it contained realistic price and market projections).

(Chapter 12 case with confirmation delayed until U.S. Supreme Court ruling in Hall on whether post-petition taxes dischargeable which Court later determined were not estate obligations that could be treated as unsecured claims; reorganization plan then submitted that proposed paying post-petition taxes through plan with estate assets; confirmation denied and case converted to Chapter 7; real estate and equipment sold and Chapter 7 discharge received; creditor filed motion for marshaling of assets; bank held first mortgage on land, first priority lien on equipment and first priority lien on crop proceeds and creditor held second priority lien on equipment and crop proceeds and no junior mortgage on real estate; basic issue is that insufficient funds in bankruptcy estate to pay all claims and IRS has claim for priority taxes; denial of marshaling would allow more non-tax debt to be paid and debtor claims that allowing marshaling would inhibit fresh start; court noted that “inequity” of other creditor receiving less or nothing is not a valid reason to deny marshaling; requirements for marshaling satisfied; creditors restated motion to marshal assets granted as real estate has been sold and fact that creditor’s receipt of portion of sale proceeds will prevent IRS debt from being reduced not grounds to deny marshaling which prefers interests of junior lienholder; hearing to be held to address issues of distribution including trustee compensation).

(Chapter 13 case involving confirmation of reorganization plan; plan not confirmable because amount allowed to unsecured claims was not at least equal to what unsecured claimholders would have received had debtor filed liquidation bankruptcy and, thus, violated 11 U.S.C. Sec. 1325(a)(4); impermissible to condition distribution of net proceeds of preference action on trustee electing to bring optional litigation; on interest rate issue, court determined that use of rate less than what U.S. Supreme Court set forth in Till decision inappropriate). 

(attorneys representing debtor in Chapter 13 case not entitled to “no-look” (non-itemized) fees; but, to get no-look fees, legal services provided must be provided in competent and timely manner; no-look fees not awarded in this case because of attorneys wasted time and filed inadequate documents repeatedly and appeared on behalf of clients without preparation and with no knowledge of pending issues).

(Chapter 13 case involving question of whether bankruptcy trustee can be paid statutory percentage fee when no plan is confirmed; under 11 U.S.C. Sec. 568(e)(1)trustee can collect fee under confirmed plans from debtor’s plan payments; trustee claimed that 11 U.S.C. Sec. 568(e)(2) requires trustee to deduct trustee fee from all payments received from debtor regardless of whether plan confirmed and apply funds received for fee to pay percentage fee; court disagreed, noting that 11 U.S.C. Sec. 1326(a)(2) specifies that if no plan is confirmed, trustee to return all of debtor’s payments less allowed administrative claims; 11 U.S.C. Sec. 1326(a)(1)(A) specifies that debtor to make payments in the amount proposed by the plan, and court determined that such amount includes trustee’s fee; accordingly, trustee not entitled to retain fees in unconfirmed cases; thus, 11 U.S.C. Sec. 568(e)(2) directs trustee to collect and hold percentage fees pending plan confirmation and 11 U.S.C. Sec. 1326(a)(2) tells trustee how to disburse payments after confirmation or denial of confirmation, and 11 U.S.C. Sec. 1326(b)(2) requires trustee to return to debtor all funds received including trustee’s fee after paying administrative expenses when plan not confirmed).

(Chapter 12 plan confirmation case; debtor acquired property to grow trees for eventual harvest; initial question involved debtor’s eligibility for Chapter 12; while no question existed that family members owned all interests in debtor, creditor questioned whether debtor engaged in farming; court distinguished the two cases that have discussed whether a tree farm constitutes a farming operation; testimony about amount of plantings contradictory; no harvesting has yet occurred, and only slight tree farming activity had occurred; shortfall of creditor payments under plan to be made up from non-farm job; confirmation denied).

(Chapter 12 case; under 11 U.S.C. Sec. 1222(a)(2)(A), debtors' tax liability attributable to prepetition sale of farm assets reported on lines 13 and 14 of Form 1040 eligible for non-priority treatment (long-term capital gains derived from Schedule D (sale of land)and Part 1 of Form 4797 (sale of swather), and ordinary gains from Parts 2 and 3 of Form 4797 (sales of business property - breeding livestock, equipment, shed and land); prepetition sales of feeder cattle and crop sales do not qualify for non-priority treatment because, while farm assets, they were not used in the debtors' farming operation, but were end products of the operation (such items were reported as farm income on Schedule F); receipt of crop insurance proceeds and federal crop disaster payments are the same as income from the sale of farm products and are not entitled to priority; debtors propose to utilize off-farm employment income for post-confirmation income rather than using proceeds of sale of assets to support reorganized operation; amount of priority and non-priority taxes to be computed under marginal method rather than proportional method; due to graduated tax rates, proportional method would dramatically and artificially increase debtors' adjusted gross income and inflate debtors' priority tax obligation; priority tax amount to be computed by preparing return recognizing all of debtors' ordinary farm income and gain income and comparing it to hypothetical return recognizing only ordinary farm income; proportion method does not measure what income "causes" which portion of the tax claim).

(bank filed financing statement indicating lien on debtor’s crops, farm products and livestock; almost three years later, debtor filed Chapter 12 while loan still outstanding; at time petition filed, debtor did not have growing crops or grain on hand, but did have cash proceeds of checks  from sale of prior fall’s crops; debtor received permission to cash checks and use funds to plant next year’s crop; debtor used 2008 crop proceeds to pay living expenses, pay the Chapter 12 trustee and remodel house that was later sold with court permission; no further crops were funded with proceeds subject to bank’s lien; debtor filed motion for declaration that grain harvested from 2010 and all later crop years not subject to bank’s lien; motion granted; debtor sought financing from different bank to fund purchase of heifers, but bank refused; initial bank released security interest in cattle and debtor’s present and future crops; debtor then sought operating loan from the different bank to fund planting of 2011 crop; due to various snafus, amended financing statement filed late and weed control not effective for 2011 with result that 2011 and 2012 crops impacted; debtor claimed that bank failed to timely release lien in violation of court order and automatic stay; court determined that debtor’s evidence insufficient to establish willfulness or intentional disobedience of court order, only negligence; debtor’s motion for contempt and sanctions denied). 

(debtor’s case dismissed; plan incomplete and debtor’s would not be able to fund plan from their timber business).  [category – Bankruptcy – archives]

(Chapter 12 case involving issue of whether debtors qualified for Chapter 12 as a "family farmer" by having at least 50 percent of gross income from farming in the year before filing or the second and third year before filing;  debtors tried to include gross receipts from livestock sales as part of farm income without reducing it by their basis in the livestock; court disagreed with debtors - gross income for purposes of Chapter 12 is not the same as gross receipts; Schedule F defines gross income from farming means gross receipts less cost (or other) basis in farm items sold); debtors not qualified for Chapter 12). 

(IRA qualified for exemption from debtor’s bankruptcy estate under 11 U.S.C. §522(b)(3); trustee objected on basis that debtor had executed boilerplate lien provision in client services agreement which was required as condition of opening IRA account and pledging IRA as security for future debts constituted extension of credit that caused IRA to no longer be exempt; facts revealed, however, that debtor did not open any other account with or incurred any debt to firm so lien would not amount to anything; trustee’s position also contrary to presumption of exemption for IRAs). 

(Chapter 13 case in which debtor claimed exemption for inherited IRA; debtor's reorganization plan cannot be confirmed if IRA not exempt asset; exemption allowed on basis that statutes involving debtor's exemptions to be construed broadly in favor of debtor and exemption; court determines that inherited IRA is exempt asset and follows decisions of Eighth Circuit (In re Nessa, 426 B.R. 312 (8th Cir. BAP 2010) and Fifth Circuit (In re Chilton, 674 F.3d 486 (5th Cir. 2012)). 

(debtor, a farming partnership, filed Chapter 12; petition signed by one partner; creditor filed motion to dismiss case because it was not properly authorized because debtor, as partnership, unanimous consent was required to authorize bankruptcy filing of partnership under state (OR) law; while filing bankruptcy not in ordinary course of partnership business and unanimous consent would normally be required, unanimous consent not necessary if partnership agreement allows less than unanimous consent; partnership agreement did not so provide, so motion granted to dismiss Chapter 12 case). 

(Chapter 12 case; issue involves confirmation of debtor's modified reorganization plan and its feasibility; debtor's farm income and expense projections were consistent with historical figures for debtor's farm; bank objected to plan's repayment term and interest rate, and issue was whether debtor could stretch out repayment of short term obligation; court finds that debtor's proposed repayment term of 15 years was appropriate even though original loan was for one year - preservation of debtor's farming operation requires longer term; proposed interest rate approved - prime plus risk factor of 2.5 percent is consistent with U.S. Supreme Court opinion in Till v. SCS Credit Corp., 541 U.S. 465 (2004)). 

(Chapter 12 case; debtor argued qualification as “family farmer” ; as such, debt limit of $3,792,650 applied; debtor claimed that creditor had received amount from auction that needed to be applied to reduce debtor’s outstanding debt which would bring debtor within debt limit; evidence did not support debtor insomuch as funds held by receiver at time of petition and, as such, debt not deemed reduced until money distributed; case dismissed and, in the alternative, case dismissed for filing in bad faith). 

(Chapter 12 case in which creditor found to have willfully violated automatic stay and court awarded actual damages including attorney’s fees, lost milk proceeds, one cow and amount for lost milk production; creditor moved to vacate order; motion to vacate denied). 

(Chapter 11 case involving issue of whether non-debtor parent company's pre-petition abandonment of subchapter S tax status is void as a post-petition transfer of property of the bankruptcy estate or is avoidable; upon revocation of S election, debtor subsidiary converted to LLC from a qualified Sub-S subsidiary; bankruptcy court ordered reinstatement of S and QSUB statuses respectively; on appeal, court vacated bankruptcy court decision on basis that QSUB status not "property" of bankruptcy estate because such status not "property"; S and QSUB status is not property, and it can be revoked at will by S corporation shareholders; definition of "property" contained in 11 U.S.C. Sec. 541(a)(1) not satisfied; as a result, debtors lacked standing to initiate adversary proceeding seeking avoidance of "transfer" of debtor's QSUB status). 

(petitioner filed for Chapter 13 and listed certain tax refunds as debts owed to the debtor and claimed an exemption for such refunds; debtor subsequently filed tax return showing no tax liability and certain refundable credits comprising the federal and state refund owed debtor (which included a refundable child tax credit of I.R.C. Sec. 24); court determined that debtor's refund resulted from overpayment of tax rather than the child tax credit; trustee's objection to debtor's claim of 100 percent exemption in child tax credit, to extent not moot, is sustained because child tax credit not property of debtor's bankruptcy estate; additional child tax credit not exempt as "public assistance benefit"). 

(debtor was failed ethanol plant that filed Chapter 7 bankruptcy; bankruptcy trustee sought declaration against creditor that contracted corn deliveries were property of debtor's bankruptcy estate and that creditor's security interest in corn was unperfected; creditor claimed that corn was not delivered and that possession and title did not pass until corn actually weighed by debtor; creditor also claimed that it owned corn stored in bins at debtor's plant; court held that corn was property of bankruptcy estate because, under terms of contracts, delivery complete when corn physically changed hands from growers to debtor; under state (NC) law, creditor's reservation of title until corn weighed limited to security interest in corn; creditor did not perfect security interest in corn due to failure to file financing statement, and perfection did not occur via possession of corn in bins at debtor's plant that were leased to creditor; storage bins not marked so as to indicate creditor's collateral (as required by contract), hence no notice to third parties which could perfect security interest).

(debtor defaulted on bank loan and had CODI to extent forgiven debt exceeded value of mortgaged property; bank issued Form 1099-C to debtor and IRS; lender then sought to collect difference between amount due and value of mortgaged property against debtor (who was in bankruptcy); court determined that filing of Form 1099-C did not bar collection of difference in value between amount due and value of property; Form 1099-C is not admission by creditor that debt had been discharged; IRS regulations on matter not entitled to Chevron deference).