Month: July 2012

Bankr. E.D.N.C.: BellSouth v. Halo Wireless- Removal and Remand of Matters from Regulatory Agency

Summary:

Halo entered into interconnection agreements (together referred to as the “ICA”) with BellSouth for the transmission of Halo’s wireless data over AT&T networks. A dispute arose between BellSouth and Halo regarding the ICA, with Halo first filing a complaint against BellSouth (among others) in federal District Court in the Eastern District of Texas seeking to limit BellSouth (and others) from having the ICA dispute in any other forum than the FCC. BellSouth subsequently brought suit against Halo before North Carolina Utilities Commission (“NCUC”) for breach of the ICA seeking monetary damages and injunctive relief. Halo then filed Chapter 11 in the Eastern District of Texas, eventually bringing an Adversary Proceeding containing allegations similar to positions asserted by Halo in the NCUC proceeding.… Read More

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Bankr. E.D.N.C.: Bircher v. Dudley- Denial of Discharge under 11 U.S.C. § 727(a)(4)(A) for failure to disclose assets

Summary:

The Trustee sought a denial of discharge, claiming the Debtor, with the intent to hinder, delay, or defraud, concealed property of the estate and knowingly and fraudulently, in connection with a case, made a false oath. At the §341 Meeting, in response to questions from the attorney for the his estranged spouse, the Debtor admitted that he owned a $2,000 horse trailer and a grease gun, wrenches, a pressure washer, a generator, an air compressor, and a tool chest filled with tools, worth approximately $800.00. (These assets were sold at auction for $2,917.50.)

The Debtor contended he did not disclose the horse trailer in his petition or initially at the §341 Meeting because it was not titled in his name.… Read More

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Bankr. E.D.N.C.: Crampton v. Kohler- Conversion of Non-exempt funds into an Exempt IRA was not a Fraudulent Conveyance

Summary:

After consulting with a bankruptcy attorney, the Debtors sold personal property at auction, receiving $14,000 in proceeds. Two days before filing Chapter 7, the Debtors used $12,000 to fund IRAs and the remainder for insurance and vehicle repairs. The Trustee sought to avoid the contributions to the IRAs as fraudulent conveyances.

Following, Ford v. Poston, 773 F.2d 52, 54 (4th Cir. 1985), the “[m]ere conversion of property from
non-exempt to exempt on the eve of bankruptcy-even though the purpose is to shield the asset from creditors-is not enough to show fraud.” The Trustee argued that converting non-exempt property to an IRA is fraudulent unless it is done for the purpose of contributing to the debtor’s overall retirement plan.… Read More

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Bankr. E.D.N.C.: In re Stephenson- Relief from Stay for Trial Court to Enter Final Judgment

Summary:

Camp Flintlock, Inc. filed an emergency Motion for Relief from Stay after the Debtors filed Chapter 7 one day prior to a state court hearing to enter a final judgment for damages, a permanent injunction against the Debtors, and a final order for contempt and discovery sanctions, in a case that had lasted for four years.

The bankruptcy court found that sufficient cause existed to the lift the automatic stay and allow the trial court “the largely ministerial task” of entering final judgment as it had expended substantial time and energy to bring these matters to a conclusion, and it was a day away from doing so.… Read More

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Bankr. E.D.N.C.: In re Newkirk- Adequate Information Necessary for Confirmation of Chapter 11 Plan

Summary:

The Debtors own and operate a feed mill. Following initiation of foreclosure proceedings against 442.92 acres of land (which had been in the Debtors’ family for centuries!), the Debtors filed Chapter 11. Multiple parties objected to the Plan and Disclosure Statement on the basis that the Disclosure Statement provides insufficient information for creditors to determine the source of income to fund the Debtor’s Plan and determine if the Plan is feasible.

The Disclosure Statement provided that the Debtors will “make payments under the Plan from income earned through continued operations”, but does not provide “adequate information”, as defined by 11 U.S.C.… Read More

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Bankr. M.D.N.C.: In re Beard- Attempted Negotiation of Reaffirmation terms is not Performance of Intention to Reaffirm under 11 U.S.C. § 521(a)(2)(B)

Summary:

Sixteen months after filing Chapter 13, the Debtor converted to Chapter 7. Capital One, the lienholder against the Debtor’s vehicle, sent the Debtor a reaffirmation agreement, which would have required immediate and full payment of the $16,149.46 balance. Debtor’s counsel requested Capital One negotiate payment terms, but received no response. No reaffirmation on the original contract terms was offered. Without seeking relief from the automatic stay, Capital One then repossessed the vehicle and the Debtor brought an action for damages and return of the vehicle.

11 U.S.C. § 521(a)(2)(A) requires that, within 30 days after the petition date, the debtor shall file a statement of intention with regard to debts secured by property of the estate indicating whether the debtor will surrender or retain the property, and if retaining property, whether the debtor intends to redeem such property or to reaffirm debts secured by such property.… Read More

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N.C. Court of Appeals: Manuel v. Gembala- Motion to Stay State Court Action pending Resolution of Substantially Similar Federal Court Case

Summary:

The Manuels fell behind on their mortgage and engaged the assistance of Secure Property Solutions (“SPS”) (which is not a party to this action) and Gembala, an attorney licensed in Pennsylvania and New Jersey, in what the Manuels eventually regarded as a “mortgage modification scam.”

The Manuels initially filed suit in federal district court alleging various RICO and North Carolina state law violations. The federal district court dismissed the action for lack of subject matter jurisdiction, finding that even though RICO would provide for federal subject matter jurisdiction, it would “not embark on an excursion to interpret [Manuels’] verbose, tortured amended complaint to extract a RICO claim that might, but might not, lie hidden or buried somewhere within it.” The Manuels sought leave to file another amended complaint, but prior to a ruling by the federal district court, the Manuels brought suit in Bladen County Superior Court with substantially similarly allegations.… Read More

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4th Circuit: In re Quigley- No Means Test Deduction in Chapter 13 for Surrendered Property

Summary:

The Debtor’s Chapter 13 plan proposed the surrender of an ATV, but she nonetheless took a deduction, pursuant to 11 U.S.C. § 707(b)(2)(A)(iii), for the payments due on this secured obligation. Finding that the Supreme Court’s reasoning in Hamilton v. Lanning, 130 S. Ct. 2464 (2010), allows a bankruptcy court to “ account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.” Id. at 2478 (Emphasis added), the 4th Circuit disallowed the deduction from the Debtor’s “projected disposable income” under 11 U.S.C. § 1325(b).

Commentary:

The result of this is that Debtors with borderline “projected disposable income” should not surrender property as they end up paying the same amount, whether they keep the property or not.… Read More

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Bankr. E.D.N.C.: Automotive Finance v. Ward.- Sale of Property without Consent of Lienholder

Summary:

Automotive Fiannce provided Ward’s car dealership with floor plan financing, which permitted the dealership to borrow funds to purchase cars for sale. The Automotive Finance would then hold a lien on such car, until the car, was sold and the dealership was required that it pay off the lien within 72 hours. Ward individually guarantied the obligations of the dealership under the floor plan agreement. At the time of filing the bankruptcy, the dealership had sold 4 car without paying of the liens. Automotive Finance brought an action to determine that guaranty nondischargable under 11 U.S.C. § 523(a)(6)

The bankruptcy court held that “the sale of property subject to a lien without the lienholder’s consent constitutes a “willful and malicious injury” for the purposes of § 523(a)(6).” United States v.… Read More

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Bankr. E.D.N.C.: Sparkman v. Johnson Concrete Company (In re Mainline Contracting, Inc.)- Indirect Transfer Theory as New Value Defense to Preference

Summary:

Trustee brought a preference action against Johnson Concrete Company (“JCC”) , a subcontractor of the Debtor on several construction projects. JCC argued that the “indirect transfer” theory of the “new value” defense to preferences in § 547(c)(1), as it would have filed a claim against the payment bonds in place for the projects.

Starting from Angell v. Pennington, Inc. (In re Partitions Plus of Wilmington, Inc.), No. 06-00148-8-JRL (Bankr. E.D.N.C. Mar. 20, 2008), the bankruptcy court held that to establish a new value defense using an “indirect transfer” theory, the Defendant must show that “(1) it would have timely filed a claim against the project’s payment bond and been paid in full had it not received payment from the debtor, and (2) at the time, the debtor was still owed funds by the general contractor on which the bonding company could have asserted a lien.”

Subsequently, the 4th Circuit addressed the issue of whether a supplier could assert a §547(c)(1) affirmative defense under the “indirect transfer theory” against the debtor-subcontractor, holding that the supplier must produce evidence that the transfers were intended by both parties to be part of a “contemporaneous exchange for new value.” See United Rentals v.… Read More

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