OpinionsBefore the debtor filed its chapter 11 petition, one of its equity security holders commenced an arbitration against the debtor and other non-debtor entities for, among other things, rescission and securities fraud under Wis. Stat. §551.509. The debtor and non-debtor entities settled the arbitration with the equity security holder by agreeing to pay him $14 million or, if that payment was not made, transferring $15 million in assets to him. The parties did not pay the $14 million or transfer the assets. Before the equity holder could enforce the settlement agreement, the debtor filed bankruptcy and then rejected the agreement. The arbitration proceeded against the non-debtor respondents, and the arbitrator awarded the equity holder $13,625,000 in damages against the non-debtors for breaching the settlement agreement. The equity holder filed proofs of interests in the debtor's case and filed a claim against the debtor for breach of the settlement agreement. The court subordinated the equity holder's claim under §510(b). After the equity holder obtained the $13 million award against the non-debtor entities, the debtor objected to the equity holder's proofs of interest. The debtor argued that the equity holder's request for rescission, settlement, and award of damages for non-performance of the settlement agreement defeated his ability to enforce his equity interests under nonbankruptcy law. The court rejected this argument. It also rejected the debtor's alternative argument that the equity interests were unenforceable under the doctrine of election of remedies. In re Syverson, Case No. 21-26184-beh, 2022 WL 318221 (February 2022) -- Judge B.E. Hanan The court granted a mortgage creditor’s motion for in rem relief from the automatic stay under 11 U.S.C. § 362(d)(4), based on the debtor’s history of unsuccessful bankruptcy filings and lack of apparent effort to pay or to adequately address her mortgage debt. The debtor had filed six Chapter 13 cases in fewer than six years. All five of her prior cases were dismissed without a confirmed plan, and the fifth was dismissed with a 180-day bar to future bankruptcy filings. During her prior cases, the debtor neglected basic obligations under the Bankruptcy Code--including the duty to timely file her schedules and plan and to attend the § 341 meeting of creditors--and repeatedly failed to comply with court orders requiring her to timely file amended feasible plans (or successfully participate in mortgage modification mediation) and to resume payments to her mortgage creditor. When she filed her sixth case, the debtor was entering her eighth consecutive year of mortgage default. Based on this record, the court concluded that the debtor’s conduct demonstrated a scheme to delay or hinder the mortgage creditor’s efforts to protect its interest in the property, warranting in rem relief under § 362(d)(4). In re Kleynerman, Case No. 18-26659-BEH, 638 B.R. 111, aff’d sub nom. Smith v. Kleynerman, 647 B.R. 196 (E.D. Wis. 2022), aff'd sub nom. Matter of Kleynerman, No. 22-2947, 2024 WL 804103 (7th Cir. Feb. 27, 2024) (January 2022) -- Judge B.E. Hanan The court granted the debtor’s motion to reopen his case and to avoid a judicial lien where the case had been closed only two months prior and the motion was a response to a recent state court ruling construing a 2018 charging order as outside the reach of a bankruptcy discharge under applicable state law. The court found that the debtor met the criteria to avoid the lien under 11 U.S.C. § 522(f) and the relatively short passage of time did not prejudice the creditor, particularly where the creditor did not dispute the valuation of the asset while the case was open and had not previously asserted its rights under the charging order. To ameliorate potential prejudice, the court ordered the debtor to pay those fees and costs of the creditor attributable to the recent collection effort. In re Pagan, Case No. 19-20047-BEH, 2022 WL 209612 (January 2022) -- Judge B.E. Hanan The Chapter 13 debtor’s special plan provision in section 8.1 providing that secured creditors would retain their liens until the earlier of payment in full of the secured portion of the creditor’s proof of claim or discharge was ambiguous when compared with the model plan language in section 3.3 mirroring lien retention rights in 11 U.S.C. § 1325(a)(5)(B)(i)(I). Section 3.3 provided that the named car creditor would retain its lien until discharge or the payment of the underlying debt under nonbankruptcy law. The creditor did not object to plan confirmation. After an accident that totaled her car, the debtor proposed a plan modification to keep the balance of the insurance proceeds that exceeded the remainder of her plan payments on this claim. The creditor objected, arguing that it was entitled to retain the lien on the entirety of the proceeds because they were less than the amount the debtor owed on the claim under applicable nonbankruptcy law. The creditor also sought to be paid at the contractual interest rate instead of the lower rate prescribed in the confirmed plan. The court found the special provision language ambiguous and construed it against the drafter. The interest rate language was not ambiguous. Accordingly, the creditor could retain its lien on the entirety of the proceeds during the term of the plan, with the disputed balance held in trust to allow the debtor an opportunity to obtain a discharge and retain the excess proceeds. The creditor’s objection as to the interest rate was overruled. In re Randell, Case No. 21-25175-BEH, and In re Sellers, Case No. 21-25284, 2022 WL 174210 (January 2022) -- Judge B.E. Hanan On motions for reconsideration of orders sustaining an objection to confirmation and requiring equal monthly payments to a secured creditor, the court did not accept the debtors’ argument that cure-and-maintain mortgage claims paid “within a reasonable time” in accordance with 11 U.S.C. § 1322(b)(5) were exempt from § 1325(a)(5)(B)(iii)(I)’s mandate that property be distributed “in equal monthly payments,” relying in part on Rake v. Wade, 508 U.S. 464 (1993). The fact that the debtors’ plans proposed to pay only prepetition mortgage arrearages through the plans did not alter the conclusion that the enactment of § 1322(e) (which partially abrogated Rake v. Wade) did not remove cure payments from coverage under § 1325(a)(5). The court also reminded that an order denying plan confirmation is not a final, appealable order subject to reconsideration under Fed. R. Civ. P. 60(b) or 59(e), but instead exercised its discretion to reconsider its interlocutory order. In re Gregory, No. 21-20607 (Bankr. E.D. Wis. Dec. 23, 2021) (December 2021) -- Judge K.M. Perhach A mortgage creditor objected that its claim was secured only by a security interest in real property that was the Chapter 13 debtors’ principal residence and 11 U.S.C. § 1322(b)(2)’s anti-modification provision prohibited the debtors’ proposed modification of its claim. After conducting an evidentiary hearing, the Court sustained the objection to confirmation. Based on the testimony and evidence presented at the hearing, the Court found that at the time the petition was filed, the debtors were living in the property at issue as their principal residence. Section 1322(b)(2) prohibited the debtors’ proposed cramdown of the mortgage creditor’s claim. In re Urgent Care Physicians, Ltd., Case No. 21-24000-BEH, 2021 WL 6090985 (December 2021) -- Judge B.E. Hanan The U.S. Trustee objected to confirmation of a nonconsensual Chapter 11, Subchapter V, plan of reorganization, asserting that the debtor should be required to extend the plan’s three-year term to five years to satisfy the “fair and equitable” test of 11 U.S.C. § 1191(c)(2)). Finding the text of the Code silent as to how bankruptcy courts should “fix” the term of a Subchapter V plan under § 1191(c)(2), the court considered analogous Code provisions applicable to Chapter 12 plans, as well as the legislative history of Subchapter V, to conclude that the debtor’s proposed three-year plan term was fair and equitable in the circumstances, as it properly balanced the risks and rewards for all stakeholders. In re Eatertainment Milwaukee, LLC, No. 21-25733 (Bankr. E.D. Wis. Nov. 19, 2021) (November 2021) -- Judge K.M. Perhach The Chapter 11 debtor was the successor to a former tenant of the Punch Bowl Social bar and restaurant in downtown Milwaukee. The new tenant of the Punch Bowl Social location filed an “Emergency Motion for Relief from the Automatic Stay, to the Extent it May Apply,” asking the Court to determine whether the debtor had abandoned property at the leased premises and, if not, what property was property of the bankruptcy estate. The new tenant argued that much of the property was a fixture, the stay did not apply to those fixtures, and the fixtures should remain at the premises. The debtor argued that almost none of the property was a fixture and that the property was property of the estate and could easily be removed. After conducting an evidentiary hearing, the Court concluded that the debtor had not abandoned any of the property at issue at the premises. The Court determined that certain property was a fixture and therefore not property of the debtor/bankruptcy estate, determined that certain other property was property of the debtor/bankruptcy estate, and found that it could not determine the status of the remaining property at issue given the evidence presented at the evidentiary hearing. In re Terrell, Case No. 18-28674 (November 2021) -- Chief Judge G.M. Halfenger The debtors’ confirmed plan required them to make payments to the trustee for five years. The debtors named the Wisconsin Department of Children and Families as a creditor in the section of the model plan designed for listing domestic support obligations owed to governmental entities that are entitled to priority under 11 U.S.C. §507(a)(1)(B). After the plan was confirmed, two events occurred: (1) the debtors modified their plan to surrender collateral and reduce the plan’s payments to secured creditors and (2) the Seventh Circuit Court of Appeals determined that claims for benefit overpayments (like the one the Wisconsin Department of Children and Families asserted in the Terrells’ case) were not domestic support obligations entitled to priority under 11 U.S.C. §507(a)(1)(B). As a result of these events, the debtors moved to modify their chapter 13 plan under 11 U.S.C. §1329(a) to reduce the time within which they had to make payments to the trustee from five years to three, and the debtors objected to the priority of the Department’s claim. In In re Terrell, Case No. 18-28674-gmh, 2021 WL 4304839 (Bankr. E.D. Wis. Sept. 21, 2021), this court sustained the debtors’ objection and determined that the Department’s claim was not entitled to priority. The Department objected to the debtors’ motion to modify their confirmed plan to reduce the plan term from five years to three. The court overruled the Department’s objection, concluding that §1329(a) permits the requested modifications. Meadows v. Ledesma (In re Ledesma), Ch. 7 Case No. 20-22941-kmp, Adv. No. 20-2129, 2021 WL 4514678, 2021 Bankr. LEXIS 2712 (Bankr. E.D. Wis. Oct. 1, 2021) (October 2021) -- Judge K.M. Perhach The plaintiff filed a motion for summary judgment on his claims to deny the debtor’s discharge pursuant to 11 U.S.C. § 727(a)(3) based on the debtor’s failure to keep records about his financial condition and business transactions and pursuant to § 727(a)(4) based on knowing and fraudulent false oaths made by the debtor. The plaintiff established that the debtor failed to keep records from which his financial condition might be ascertained, and the debtor did not offer any compelling argument or evidence that this failure was justified. Most problematically, the Debtor failed to provide any record accounting for almost $35,000 that he received through services like Cash App and Venmo. The plaintiff also established that the debtor “knowingly and fraudulently, in or in connection with the case made a false oath or account.” Although determinations about a person’s intent are often ill-suited for summary judgment, the plaintiff demonstrated a pattern of omissions and conflicting statements that led to the conclusion that the debtor acted with an intent to defraud. At the summary judgment stage, a “put up or shut up moment,” the debtor failed to file affidavits or exhibits to assert that facts were genuinely disputed as contemplated by Fed. R. Civ. P. 56(c)(1), instead relying on unsupported representations in counsel’s brief. The representations did not constitute evidence and could not defeat summary judgment. |