Tuesday, June 19, 2012

Recent Bankruptcy Decisions within the First Circuit: May 2012 (Part 4 of 4).

Chapter 13 debtor who confirms a 100% plan is only required to make monthly payments sufficient to fund the plan:

In re: Richall, 2012 BNH 3; 2012 Bankr. LEXIS 2093 (Bankr. D.N.H. 5/12/12)(J. Michael Deasy).
PROCEDURAL POSTURE: A chapter 13 trustee filed a motion to dismiss debtors’ case on the grounds that, notwithstanding their compliance with 11 U.S.C.S. § 1325(b), their plan was not filed in good faith under 11 U.S.C.S. § 1325(a)(3) because it did not provide plan payments as calculated pursuant to 11 U.S.C.S. § 1325(b)(2).
OVERVIEW: The proposed plan payments provided for full payment of unsecured claims; however, the plan payments were substantially lower than the debtors' monthly disposable income. The trustee believed that the plan should have provided for payment of all monthly disposable income until the allowed claims were paid in full, which would be sooner than the 60 months proposed in the plan. The trustee also argued that the debtors lacked good faith. The court concluded that the plan complied with 11 U.S.C.S. § 1325(b)(1)(A) because it provided for payment of all unsecured claims in full during a five year term through payments of one-half of their disposable income. They were not required to pay off their unsecured creditors in a shorter time by contributing all of their monthly disposable income to payments under the plain unambiguous language of the statute. The trustee failed to show that the debtors acted did not act in good faith under § 1325(a)(3) because Congress did not indicated that factors such as the time value of money and the risks to creditors in a stretched out plan were to be considered in a “good faith” analysis.
OUTCOME: The court denied the motion to dismiss.

Debtor was required to turnover settlement proceeds to pay creditors before dismissal of his Ch. 13 plan, but could keep undisbursed plan payments in excess of 20% where plan limited payment to 20% of allowed, unsecured claims:

In re FRANCES J. DARDEN, 2012 Bankr. LEXIS 2376 (Bankr. D. Mass. 5/25/12)(Frank J. Bailey, Bankruptcy Judge).
PROCEDURAL POSTURE: Chapter 13 trustee filed a motion for turnover of certain settlement funds and a motion to dismiss the debtor's Chapter 13 case. The debtor filed a motion to dismiss the Chapter 13 case pursuant to 11 U.S.C.S. § 1307(a).
OVERVIEW: The debtor's confirmed plan promised the general unsecured creditors dividends of 20 percent of their claims through plan payments and a balloon payment upon receipt of litigation proceeds for a pending state court lawsuit. Over time, the unsecured creditor received their 20 percent dividend. Also, the debtor settled with one of the defendants in the state court action. At the time that the debtor sought dismissal of her case, the trustee held undisbursed funds collected through plan payments that were in excess of the 20 percent dividend, and the debtor's counsel held the settlement funds. The court held that the debtor had the absolute right to a dismissal, but counsel had to turn over the settlement funds because the funds were property of the estate since the debtor acquired a legal and/or equitable interest in the proceeds during the course of her bankruptcy case. However, since the confirmed plan expressly limited the disbursement of plan payments to 20 percent of allowed claims filed by the general unsecured creditors, the trustee had no authority to distribute the undisbursed funds, and the value of those funds had to be returned to the debtor.
OUTCOME: The court granted the trustee's motion for turnover. The court granted the debtor's motion to dismiss and denied the trustee's motion to dismiss as moot.

Debtor could not claim homestead in home that was in the process of being constructed when she filed for bankruptcy because she did not live there; nor could she claim a homestead in her mother’s house where she lived but did not own it:

, 2012 Bankr. LEXIS 1962 (Bankr. D.P. R. 5/3/12)(Enrique S. Lamoutte, Bankruptcy Judge).
PROCEDURAL POSTURE: Chapter 13 debtor filed a motion for reconsideration of a court order granting Chapter 13 trustee's unopposed objection to the debtor's exemption under 11 U.S.C.S. § 522(d)(1).
OVERVIEW: The debtor sought to exempt property on which a home was being constructed. The debtor and her family did not live on the property. Instead, they lived at her mother's house, which was adjacent to the property. The debtor did not answer the trustee's objection. The court held that the failure to answer was due to excusable neglect under Fed. R. Civ. P. 60(b)(1), based on her personal circumstances, including her son's cerebral palsy. On reconsideration, the court held that, pursuant to the governing law in effect at the time, the PR Homestead Act of 1936, as amended, P.R. Laws Ann. tit. 32, §§ 1851-1857, her principal residence and place of dwelling was her mother's house, not her property. She could not extend a homestead exemption over property used in connection with the property where she primarily lived but did not own (i.e., her mother's property) and there was no dispute that the property over which she claimed the homestead was not currently livable and could not be used as a primary dwelling.
OUTCOME: The court granted the debtor's motion to the extent of determining the debtor's excusable neglect, but granted the trustee's objection to the claimed exemption.

Failure to preserve standing argument waived upon appeal; decision affirmed other than calculation of damages which was to be corrected upon remand:

PROCEDURAL POSTURE: Appellee debtor filed adversary proceedings in bankruptcy court against appellant Puerto Rico Highway and Transportation Authority, seeking amounts allegedly owed with respect to construction projects. The bankruptcy court entered judgment in favor of the debtor, and the United States District Court for the District of Puerto Rico affirmed. The Authority appealed.
OVERVIEW: The debtor, a construction company, entered into construction contracts with the Authority for three projects. The projects encountered unanticipated problems, and the debtor submitted claims for additional amounts under the contracts. The debtor subsequently filed for bankruptcy protection. The court of appeals held that the Authority failed to preserve a standing argument based on the Severin doctrine. The debtor did not waive its right to additional compensation by failing to provide written notice as required under the contracts, as the Authority was given timely actual notice of the problems and the debtor's intent to seek additional payment. The bankruptcy court erred, however, in its calculation of the debtor's extended overhead damages, as damages for project delays that were attributable to extra work for which the debtor was compensated should have been calculated as a percentage of the direct costs. It also was unclear whether an award of prejudgment interest was proper; 41 U.S.C.S. § 7109(a)(1) was inapplicable because the federal government was not a party, nor was there any indication that the parties' contracts incorporated the federal prejudgment interest statute.
OUTCOME: The judgment was vacated as to the calculation of extended overhead damages and the award of prejudgment interest. The judgment was otherwise affirmed, and the matter was remanded.

1 comment:

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    Bankruptcy Lawyer