Published Court Decisions
In re Schroeder, AP 13-1026 CLB (WDNY, 4/2/2015)
The issue in the case was whether the Court could to determine the existence of a lien on property that the debtor acquired after the filing of a petition for relief under Chapter 13. In January of 2006, the debtor purchased his home and borrowed $67,925 from Delta Funding Corporation. Thereafter, Delta assigned the note and mortgage to HSBC Bank. After the debtor neglected to pay the real property taxes for the property in South Dayton, the County of Cattaraugus initiated a tax foreclosure proceeding in 2010. The debtor and HSBC did not oppose the foreclosure and made no attempt to cure any tax arrearage. A default judgment of foreclosure was then entered on March 23, 2011. The debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code on April 6, 2011. Although Cattaraugus County had already completed its tax foreclosure, Schroeder filed schedules which asserted an interest in the home. Then on or about April 29, 2011, the County accepted the sum of $10,015.99 as consideration for a reconveyance of the property to the debtor. The County’s deed to the debtor was executed on May 24, 2011, and was recorded on June 7, 2011.
Meanwhile, the debtor also proposed a plan under Chapter 13, which this Court confirmed by Order dated December 15, 2011. Although the Plan contemplated payment of any allowed claim for mortgage arrears, no proof of claim was ever filed on behalf of HSBC. Then on May 24, 2013, the debtor commenced an adversary proceeding in which he sought judgment declaring that the mortgage of HSBC has been extinguished and is no longer a valid lien. In response, HSBC moved to dismiss the complaint. HSBC contended that this court lacks subject matter jurisdiction to consider the present adversary proceeding. Specifically, it argued that because the tax 11-11145B; AP13-1026B 3 1 Cattaraugus County adjoins Erie County, where the Bar Association has adopted standards of title examination. These standards provide that “[i]nsurance of marketability of title may properly be required when less than ten(10) years have expired” since the recording of a Referee’s Deed in an in rem tax foreclosure. BAR ASS’N OF ERIE CNTY. N.Y. STANDARDS OF TITLE EXAMINATION, standard 24, at 13-14 (rev. Dec. 31, 2006). As to matters that are moot or otherwise resolved by state court, HSBC believes that the bankruptcy courts have no jurisdiction.
The Court sided with the debtor and allowed the adversary proceeding to continue. The Court rule that "the final judgment of tax foreclosure served only to determine the rights of the County, and not the interests of a subsequent purchaser. Although subsequent rights may flow from the prior foreclosure, no court has finally declared the competing rights of the prior mortgagee. Indeed, when he initiated the present action, the debtor had no basis to assume the absence of defenses to his claim of superior title. Cattaraugus County had conveyed its interest by quit claim deed, without any warranty of title. Further, the deed contained an affirmative covenant “to the effect that said Cattaraugus County shall in no event be or become liable for any defects in the title so conveyed for any cause whatsoever.” To the extent of any defect in the foreclosure process, Schroeder would endure the resulting consequences, including whatever claim HSBC might assert with regard to the preservation of its lien. Within the chain of title, a recent foreclosure in rem suggests a potential title objection that a party might appropriately cure through an action to quiet title.1 Essentially, the present adversary proceeding seeks this result. Accordingly, it addresses issues that remain outstanding and not moot. Jurisdiction with regard to this adversary proceeding is proper under 28 U.S.C. § 157."
In re Lang, 437 BR 70 (Bkrtcy, WDNY, 9/17/10)
When debtor filed for Chapter 13 bankruptcy, she owned her vehicle outright and estimated that it was worth $9,650.00. Debtor was allowed to “protect” or “keep” $2,400.00 of that value, leaving $7,250.00 “unprotected,” or the amount she would be required to pay to her unsecured creditors. After four years in Chapter 13, Debtor converted her case to Chapter 7. At the time of conversion the debtor had been in bankruptcy for a few years, so some money had been paid on other claims from her payments to the Chapter 13 Trustee, but the unsecured claims had not received any money yet. The Chapter 7 Trustee requested that the debtor turn over the $7,250.00 she had agreed to pay to her unsecured creditors at the beginning of her case. The debtor argued that the car had depreciated in value during her Chapter 13 case, and was worth even less than the $2,400.00 she was allowed to protect or keep in bankruptcy. The debtor argued that therefore, there was nothing to pay. The issue was whether the Court should allow the value of the vehicle at the time she filed her Chapter 13 case, or the value at the time she converted her case. The Court held that the value at the time of conversion would be allowed, so the debtor was not required to pay the $7,250.00 to the Trustee.
In re Johnson, 428 BR 22 (Bkrtcy, WDNY, 4/21/10)
Just ten (10) days prior to filing his Chapter 13 bankruptcy, debtor acquired from his landlord the apartment building where the debtor lived for a value of $1.00. For several years prior to this, the landlord was in bankruptcy and had not paid the taxes, sewer and water bills associated with the building, resulting in liens of over $70,000.00 against the building. The landlord’s bankruptcy case was dismissed and he was now facing a tax foreclosure. The landlord then conveyed the building to the debtor for $1.00, and ten (10) days later the debtor filed for Chapter 13 bankruptcy. In his Chapter 13 plan, the debtor proposed to pay these liens a total of $32,000.00 through the bankruptcy plan, and have the balance of the $70,000.00 of liens discharged or otherwise modified. The City of Buffalo objected to this proposal, claiming that the debtor had not filed his bankruptcy case in good faith. The Court agreed, and stated that if the debtor had been trying to work out deals or pay on the debts associated with the building for a while before filing for bankruptcy, the result would have been different. However, because the debtor had acquired the building just ten (10) days before the filing, the Court held that the plan could not be approved and the City could proceed with a tax foreclosure. Due to the timing of the case, it appeared that the debtor was not using the bankruptcy as it was intended – in good faith for debts he was unable to pay. The Court stated that “[g]ood faith requires a sound and proper motive for seeking the protection of Chapter 13. For example, a debtor may appropriately use Chapter 13 as a means to resolve financial problems arising from calamity or caused by the debtor’s own oversight or error. In contrast, the present petition seeks not to address personal liabilities of the debtor, but to resolve long-standing obligations of a prior owner of real property.”
In re Daniel-Sanders, 420 BR 102 (Bkrtcy, WDNY, 12/30/09)
Debtor was a divorced mother of three young children when she filed for Chapter 13 bankruptcy. Because she earned more than her ex-husband, she had previously agreed to pay for a second vehicle for him to use for the transport of their children when she was at work. Normally in bankruptcy, a debtor is allowed to deduct for the expense of one vehicle on the “means test,” a calculation of a debtor’s income and expenses, which determines how much a debtor is required to pay to her unsecured creditors. As a result, the Trustee objected to the allowance of the two vehicles on her means test. However, due to the family’s circumstances, the Court found that under the expense of second vehicle was warranted. An additional concern for the Trustee was that the second car had a lien of over $27,000.00, which could be classified as a “luxury” vehicle because of the amount of the loan. The Court stated that “the issue of concern is whether the cost of satisfying the outstanding car loans will exceed the limits of reasonableness, to the effect of compromising a good faith distribution to unsecured creditors.” The Trustee requested that in addition to the car, she pay more money to her unsecured creditors to make up for the fact that the $27,000.00 was considered a “luxury” vehicle, which in that district was anything that cost over $16,000.00. The Court allowed the debtor the deduction on the means test for the second vehicle, but left unresolved the issue of how much more money, if any, the debtor needed to pay to her unsecured creditors.
In re Ober, 390 BR 60 (Bkrtcy WDNY, 6/27/08)
When filing for bankruptcy, be it Chapter 13 or Chapter 7, a debtor is required to file with the court payment advices for the sixty (60) days before the filing of the case. If this is not done, the debtor may face dismissal of his case. Here, the debtor originally filed for Chapter 13 but did not file the payment advices as required. Thereafter, his Chapter 13 plan was confirmed by the court. Typically, confirmation (or approval) of a plan binds all of the parties, including the debtor, the Chapter 13 Trustee, and all creditors, to the terms therein. After the plan was confirmed, the debtor converted to Chapter 7, and the Chapter 7 Trustee noticed that the payment advices had not been filed. Thereafter, the Chapter 7 Trustee made a motion in court to dismiss the case, and the debtor objected to the motion. The court held that due to the binding effect of the confirmation of the plan, the motion was denied. The court reasoned that res judicata, or issue preclusion, prohibits the parties “from relitigating issues that were or could have been raised” in the prior action (in this case, the Chapter 13 case). The court went on to say that because the Chapter 13 Trustee serves in the same capacity as the Chapter 7 Trustee – representing the interests of creditors – and did not object to the fact that the payment advices had not been filed, that the Chapter 7 Trustee was precluded from making the motion to dismiss.
In re Martiny, 378 BR 52 (Bkrtcy WDNY, 10/31/07)
In bankruptcy, a New York debtor may protect (“exempt”) $50,000.00 of equity in his or her homestead, as long as the debtor resided there on the date that the bankruptcy was filed. In this case, a husband and wife resided in their home as of the date of filing, and had signed a contract for sale. Shortly before their case was filed the debtors paid $36,000.00 toward their mortgage balance, and in the bankruptcy each debtor took the $50,000.00 exemption so that they could keep up to $100,000.00 of equity after the sale. The Chapter 7 Trustee objected to this exemption, claiming that 1) the debtors intended to sell the house and therefore could not take the exemption; and 2) the $36,000.00 that they paid towards the mortgage just before filing should be carved out from the exemption, or the amount the debtors could keep. The house was sold and the surplus of approximately $67,000.00 was held in escrow while the bankruptcy court considered the Trustee’s motion. The court ruled that the debtors could keep the $67,000.00 because 1) the law did not state that a pending sale had any effect on a debtor’s ability to claim the $50,000.00 exemption; and 2) the payment of $36,000.00 prior to the bankruptcy filing, was merely smart bankruptcy planning done under the advice of a bankruptcy attorney.
In re Burch, 2006 WL 3922511 (Bkrtcy NDNY, 10/23/06)
Under the new bankruptcy law implemented in 2005, a debtor is required to complete a credit counseling course by an approved agency prior to the filing of the bankruptcy petition. If this is not possible, a debtor may seek to have this requirement waived or the time to take the course extended. In this case, the debtor was urged by his bankruptcy attorney and his staff to complete the course before the Chapter 7 bankruptcy petition was filed, but the debtor failed to do so. As a result, the United States Trustee filed a motion to dismiss the case. The debtor objected to this motion because under the new bankruptcy laws, having a prior case dismissed has an impact on future bankruptcy filings. Therefore, to avoid having a dismissal of a prior case in his history, the debtor requested that the case be stricken instead. The debtor argued that the statute states that only an “eligible” debtor (that is, one who took the credit counseling course prior to the filing, or who had the requirement extended or waived) actually “commences” a case when a bankruptcy petition is filed. Therefore, because the debtor failed to fulfill his requirement of taking the course, there was no “case” to dismiss. The court weighed this against the fact that the statute clearly states that the filing of a bankruptcy petition triggers a bankruptcy stay (which stops foreclosure proceedings, as was the case here), and determined that a “case” that is commenced by an ineligible debtor, like the one here, does not create a “case” as defined by bankruptcy laws. Instead, because of the contradicting issues (that a “case” was not truly created, but that the filing of the petition did trigger the bankruptcy stay) the court concluded that the proper way to dispose of the matter before it was to dismiss the case.
In re Burgio, 2010 WL 5565243 (Bkrtcy WDNY 12/23/10)
Debtor owned a 2005 Hyundai Sonata with no lien when she filed for Chapter 7 bankruptcy. She believed her vehicle had a value between $2,000.00 and $2,500.00 based on a value she obtained from a dealer, in addition to the fact that the car had been in two accidents. The Chapter 7 Trustee, who reviews Chapter 7 bankruptcy petitions for assets, believed that the vehicle had a value between $3,675.00 and $8,505.00 based on NADA and Kelly Blue Book values at the time the case was filed. Although the debtor was allowed to protect $2,400.00 of the value of the car, any value that exceeded that amount was subject to sale by the Trustee (however, the debtor can always “re-purchase” her vehicle from the Trustee). The Trustee filed a motion for turnover, requesting that the debtor give him her car so he could sell it (to the debtor, via public auction, or private sale), which the court granted. In order to keep the car and not have to “repurchase” it, the debtor had to prove to the court that the money the Trustee would get from the sale of the car, beyond the $2,400.00 she was entitled to keep, would be minimal and therefore not worth selling. However, the court found that “so long as some method of sale holds a reasonable prospect of a meaningful recovery” above and beyond the $2,400.00 the debtor is entitled to keep from the sale, the car has value to the Trustee and the bankruptcy case and therefore could be sold by the Trustee. Therefore, the debtor was required to give the Trustee her car so it could be sold. The debtor was allowed to purchase it from the Trustee if she chose to, or he could sell it at auction or to a private party. If he sold it to someone besides the debtor or at auction, he would have to give her the $2,400.00 she was entitled to keep. The balance would go to her creditors. As far as determining the value of the car, the court stated that as long as the negotiations between the debtor and the Trustee were reasonable and the value fell somewhere between liquidation and retail, the value would be allowed. (NOTE: the amount of a vehicle that a debtor who files in New York may protect in bankruptcy has recently increased from $2,400.00).
In re Johnson, 331 BR 534 (Bkrtcy WDNY 10/7/05)
Bankruptcy lawyer for Chapter 13 debtors applied for additional fees above initial flat fee proposed to court. Fees were requested for unanticipated work performed by bankruptcy attorney at the outset of the case. Court denied the request for additional fees, stating that
“[e]ntitlement to an additional fee depends not only upon the performance of an unexpected legal task, but also upon the totality of all services rendered. Thus, the mere delivery of extra services will not necessarily justify additional fees, where the total compensation package is otherwise reasonable. The court appreciates that when counsel customarily charges a fixed fee, some particular cases may demand less work than other particular cases. In as much as frequent practitioners expect to retain a greater return in the easier cases, they should not expect extraordinary compensation in any but the truly extraordinary case.”
In re Hitzel, 312 BR 727 (Bkrtcy WDNY 7/20/04) – adversary proceeding
Purchasers at foreclosure sale of debtor’s home brought motion in bankruptcy court for relief from the automatic bankruptcy stay to allow them to proceed with debtor’s eviction. Debtor attempted to stop eviction by claiming that the sale was a fraudulent conveyance under New York law. Court held that under New York law, which governs foreclosures, this remedy could only be sought by a creditor in bankruptcy, not a debtor. Secondly, the court held that New York law would only prevent a collusive foreclosure, where the parties involved acted in secret toward a fraudulent or illegal end, not as here, where the purchasers were a disinterested third party.
In re Korniczky, 308 BR 153 (Bkrtcy WDNY 4/20/04) – adversary proceeding
Well before filing for Chapter 7 bankruptcy, the debtor borrowed $5,000.00 from his brother. Although he made several payments towards this debt, he was unable to fully pay him back. In the meantime, the debtor’s grandmother conveyed her interest in a parcel of land to the debtor, his brother, and three other siblings. By agreement, the debtor’s brother who loaned him the $5,000.00 also advanced the money to pay for the utilities and taxes on the property for all of the siblings, who were to pay him back. Unable to pay this debt back, and still owing on the $5,000.00 borrowed, the debtor agreed to convey his one-fifth interest in the property to the brother. This was written on paper, but not notarized and not recorded. The brother obtained a power of attorney from the debtor, and then the property was sold and the brother took his two-fifths and distributed the other three-fifths to the three other siblings. About one week after the sale, the debtor filed for Chapter 7 bankruptcy. Normally under the bankruptcy law, payments made to creditors within 90 days of the bankruptcy filing are considered “preferences” and can be recovered by the bankruptcy trustee. In this case, the trustee argued that the payment of the debtor’s one-fifth interest ($8,439.47) paid to the brother fell within the 90 days and constituted a preferential payment, and could therefore be recovered by the trustee. The court ruled that the payment on the $5,000.00 debt to the brother did constitute a preferential payment and could be recovered by the trustee, but that monies paid by the brother after the unrecorded transfer of the property were his responsibility because he the debtor was no longer an owner and after the transfer and was therefore not responsible for any taxes due after the transfer to the brother. Therefore, the court ruled that the brother should pay $4,000.00 plus interest to the trustee, representing the balance of the $5,000.00 loan.