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    Layng v. Mims (In re Mims), Case No. 23-23979, Adv. No. 23-2131 (Bankr. E.D. Wis. Sept. 30, 2024) (September 2024) -- Judge K.M. Perhach
    The United States Trustee filed a complaint to deny the debtor’s discharge (1) based on an unjustified failure to keep records from which the debtor’s financial condition or business transactions could be ascertained under § 727(a)(3); (2) based on false oaths or accounts in the debtor’s bankruptcy case under § 727(a)(4)(A); and (3) based on the debtor’s failure to satisfactorily explain a loss of assets under § 727(a)(5). The debtor’s receipt and disposition of loan proceeds from the Small Business Administration’s Paycheck Protection Program, and the debtor’s statements made under oath on her bankruptcy schedules, on her Statement of Financial Affairs, and at the meeting of creditors formed the basis for the claims. The court denied the debtor’s motion to dismiss for failure to state a claim upon which relief could be granted.

    The complaint alleged that the debtor received a PPP loan of $20,833 for the operation of a sole proprietorship in the “Nursing Care Facilities” industry. According to the complaint, within five days after receiving the loan proceeds, the debtor withdrew $20,000 to an account she did not own. The debtor testified at the § 341 meeting of creditors that the loan was used for her nonfiling spouse’s trucking business. She provided a receipt showing the trucking business paid a $9,900 cash deposit towards the purchase of a truck but did not provide any other receipts or invoices. The complaint plausibly alleged that the debtor failed to keep records regarding the disposition of the PPP loan proceeds or records substantiating the use of the PPP loan proceeds. It also plausibly alleged that the debtor only offered vague, indefinite, and uncorroborated statements about the use of the PPP loan proceeds.

    The complaint also plausibly alleged that the debtor (1) omitted income from a business from her Statement of Financial Affairs in light of business bank statements showing deposits of at least $45,052 in 2021; (2) falsely stated that she received the PPP loan on behalf of an LLC; (3) failed to disclose a sole proprietorship; and (4) failed to disclose that she had given a financial statement about her business since the complaint alleged that the PPP loan forgiveness application required the debtor to make financial statements about her business.

    In re Goff, No. 23-21549 (Bankr. E.D. Wis. Sept. 24, 2024) (September 2024) -- Judge K.M. Perhach
    The Chapter 7 trustee identified an asset that was potentially available for creditors, the interest of one of the debtors in a self-settled spendthrift trust. The debtors filed a motion to convert the case to Chapter 13 and the court granted the motion over the Chapter 7 trustee’s objection. After the conversion of the case, the court awarded the former Chapter 7 trustee reasonable compensation for “actual, necessary services” under 11 U.S.C. § 330(a)(1) for the services he performed in the Chapter 7 case but disallowed compensation for services that were not reasonably likely to benefit the debtors’ estate or necessary to the administration of the case as provided in § 330(a)(4)(A).

    In re Goff, No. 23-21549 (Bankr. E.D. Wis. Sept. 10, 2024) (September 2024) -- Judge K.M. Perhach
    The court determined that a debtor’s interest in a self-settled spendthrift trust was property of the debtor’s bankruptcy estate. Well before filing his bankruptcy case, the debtor created a trust that would pay him a percentage of the net fair market value of the trust assets each year for his lifetime. He appointed a relative as the trustee. The trust provided that on the debtor’s death, the trustee would distribute the trust principal to a charity. It contained a “spendthrift provision” restraining the transfer of the debtor’s interest. The court concluded that the spendthrift provision in this self-settled trust was not enforceable under Michigan law. Section 541(c)(2) of the Bankruptcy Code did not exclude the debtor’s interest in the trust from the bankruptcy estate. Accordingly, the best-interests-of-creditors test of § 1325(a)(4) required the Chapter 13 debtors to pay holders of allowed unsecured claims as much as they would receive if the asset were liquidated under Chapter 7. The court did not have sufficient evidence to determine the value of the debtor’s interest that was included as property of the estate, so the court scheduled a status conference to determine whether to set an evidentiary hearing to determine the value of the 76-year-old debtor’s interest in the trust or how to otherwise establish an actuarially derived valuation of the interest in future trust disbursements.

    Uecker v. Benishek (In re Benishek), Case No. 23-24120, Adv. No. 23-2142 (Bankr. E.D. Wis. Aug. 2, 2024) (August 2024) -- Judge K.M. Perhach
    A creditor filed an adversary complaint seeking a determination that a state court judgment was non-dischargeable. The complaint was filed one day after the deadline established in Fed. R. Bankr. P. 4007(c). The court granted the defendant’s motion to dismiss the adversary proceeding. The complaint was untimely, the plaintiff did not move to extend the time to file the complaint before the deadline expired as required by Fed. R. Bankr. P. 4007(c), and Fed. R. Bankr. P. 9006 precluded the court from extending the deadline stated in Fed. R. Bankr. P. 4007(c) based upon “excusable neglect.”

    Souran v. Motel 6 et al., Case No. 21-25247, Adv. No. 23-2082 (Bankr. E.D. Wis. July 26, 2024) (July 2024) -- Judge K.M. Perhach
    A pro se debtor asserted claims against Kia America, Inc. based on the theft of a Kia vehicle from a motel parking lot. The court dismissed the debtor’s negligence claim based on lack of subject matter jurisdiction. The court did not have “related to” jurisdiction over the negligence claim. The claim was not property of the estate under 11 U.S.C. § 348(f) because it arose between the date the debtor filed his Chapter 13 bankruptcy case and the date he converted the case to Chapter 7. It could not have had any effect on the estate because any recovery on the claim would not be available to satisfy the claims of creditors in the bankruptcy case. The court also dismissed the debtor’s claim for violation of the automatic stay for failure to state a claim upon which relief could be granted. The only facts pled in support of that claim were that an unknown third party stole a vehicle from a parking lot. The debtor failed to plead sufficient facts that permitted the court to draw the reasonable inference that the manufacturer of the vehicle violated the automatic stay when an unknown third party stole the vehicle.

    Jaklin Reyes v. Baxter Credit Union, Case No. 20-27843, Adv. No. 23-2038 (Bankr. E.D. Wis. March 29, 2024) (March 2024) -- Judge K.M. Perhach
    A credit union filed two proofs of claim in a Chapter 13 case seeking payment on the debtor’s two car loans through the bankruptcy case. The debtor filed a putative class action complaint asserting that the proofs of claim filed by the credit union, as an allegedly unlicensed sales finance company and an allegedly unapproved credit union, sought collection of debts and fees barred by the Wisconsin Consumer Act. The court held that the debtor’s state law claims, alleging that the credit union violated the Wisconsin Consumer Act by filing proofs of claim in the bankruptcy case, were preempted by the Bankruptcy Code. The debtor’s unjust enrichment claim also failed as a matter of law due to the contracts between the debtor and the credit union. The court granted the credit union’s motion to dismiss the debtor’s complaint for failure to state a claim upon which relief could be granted.

    Souran v. EZ Pawn Iowa, Inc. et al., Case No. 21-25247, Adv. No. 23-2053 (Bankr. E.D. Wis. March 25, 2024) (March 2024) -- Judge K.M. Perhach
    A pro se debtor asserted that a pawn shop and its employees violated the automatic stay. The court rejected the pawn shop’s argument that it did not have subject matter jurisdiction to adjudicate an alleged violation of the automatic stay, but granted the pawn shop’s motion to dismiss due to the debtor’s failure to state a claim upon which relief could be granted. The thrust of the complaint was that the pawn shop violated the automatic stay by refusing to allow the debtor the opportunity to redeem his property. The complaint assumed that the debtor had a right to redeem the pawned property but did not plead any facts to support that assumption. There were no allegations about when the debtor pawned any of the property, what the original maturity dates were for any of the pawns, or when the statutory redemption periods expired. The complaint simply listed pawn ticket numbers and corresponding loan amounts without any dates. In granting the motion to dismiss, the court noted that if the debtor no longer possessed the right to redeem the pawned property at the time that the pawn shop allegedly refused to permit him to redeem it, then the pawn shop could not have violated the automatic stay when it allegedly refused to permit him to redeem the pawned property and would have been within its rights to dispose of or sell the pawned property.

    In re Rios, Case No. 22-21161, 2023 WL 4055909, 2023 Bankr. LEXIS 1589 (Bankr. E.D. Wis. June 16, 2023) (June 2023) -- Judge K.M. Perhach
    The debtors moved to stay the court’s order modifying the automatic stay to permit the Internal Revenue Service to enforce its tax lien on the debtors’ right to Social Security benefits while they pursued an appeal of the court’s order to the district court. The court denied the debtor’s motion for a stay pending appeal. Granting a stay pending appeal would not cause the debtors to begin receiving their Social Security benefits, so the debtors did not show that they would suffer irreparable harm in the absence of a stay. The debtors also did not demonstrate that they had a likelihood of success on the merits of their appeal. The debtors intended to argue on appeal that (1) they did not acquire a “right to property” in their Social Security benefits until they survived until the end of the month and actually received funds; (2) at the time the bankruptcy case was filed, the IRS only had a lien on the Social Security benefits the debtors had actually received pre-petition; (3) during the debtors’ bankruptcy case, the automatic stay prevented the IRS’s statutory tax lien from attaching to the Social Security benefits that the debtors received post-petition; and (4) a discharge would prevent the IRS’s statutory lien from attaching to the Social Security benefits received by the debtors after their discharge. However, the IRS’s statutory lien attached to all of the debtors’ property and rights to property, including their right to receive future Social Security benefits. The lien on the right to receive future payment of Social Security benefits arose pre-petition and would survive a discharge under § 1328(a). The debtors proposed to use the Social Security benefits to make their Chapter 13 plan payments without proposing adequate protection of the IRS’s interest in the benefits, so the IRS was entitled to relief from the automatic stay.

    Dubis v. BMO Harris Bank (In re Cruz), Ch. 7 Case No. 21-26297, Adv. No. 22-2030, 2023 Bankr. LEXIS 755 (Bankr. E.D. Wis. March 20, 2023) (March 2023) -- Judge K.M. Perhach
    The Chapter 7 trustee could avoid a home mortgage recorded within the 90-day preference period as part of a refinancing transaction. The earmarking doctrine did not save the bank from the tardy perfection of the mortgage during the preference period. The doctrine of equitable subrogation also did not provide a defense to the trustee’s preference action. Finally, the court rejected any contention that equity would shield the creditor from preference liability even if the COVID-19 pandemic caused the delay in the recording of the mortgage.

    In re Rios, No. 22-21161, 649 B.R. 30 (Bankr. E.D. Wis. March 3, 2023) (appeal pending, No. 23-cv-00358-PP) (March 2023) -- Judge K.M. Perhach
    Chapter 13 debtors proposed to use their Social Security benefits to cover their expenses and make their plan payments. The debtors’ plan proposed to pay the arrears owed on the debtors’ first and second mortgages, a loan secured by a vehicle, a tax claim filed by the Wisconsin Department of Revenue, the trustee’s fees, and the debtors’ attorney’s fees. The debtors’ plan further proposed to pay the IRS’s $31,000 priority claim, but did not propose to pay anything to the IRS on its $220,000 secured claim. The IRS requested that the court modify the automatic stay to allow the United States to levy from the debtors’ combined monthly Social Security payments “to implement its right of setoff and/or to enforce its statutory liens to the extent the Debtors have ‘rights to property’” under 26 U.S.C. § 6321. The court found that the IRS demonstrated an interest in the debtors’ property, a pre-petition federal tax lien on the debtors’ Social Security benefits, and this interest was entitled to adequate protection. Because the debtors did not propose adequate protection of the IRS’s interest in that property, the court held that the IRS was entitled to relief from the automatic stay. The court modified the stay to permit the IRS to enforce its federal tax liens on the debtors’ right to Social Security benefits in accordance with applicable nonbankruptcy law. The debtors have appealed this decision.