All items from Georgia Bankruptcy Blog

In a case appealed from the Eleventh Circuit Court of Appeals, the United States Supreme Court ruled on a case involving the definition of "defalcation" in 11 U.S.C. § 523(a)(4).  The case, decided yesterday, May 13, 2013, is Randy Bullock v. BankChampaign NA, 2013 U.S. LEXIS 3521 (U.S. May 13, 2013) (click here for .pdf of opinion). The issue before the Court was the definition and meaning of the term "defalcation," which is not defined in the Code.  The Court held that  “defalcation” in the Bankruptcy Code includes a culpable state of mind requirement involving knowledge of, or gross recklessness in respect to, the improper nature of the fiduciary behavior.
 Section 523(a)(4) provides that:
(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt— (4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.



Posted 1 week 16 hours ago

In In re Malone, Ch. 7 Case No. 12-61289, 2013 Bankr. LEXIS 1282 (Bankr. N.D. Ga. March 28, 2013) (click here for .pdf), the Debtor filed a  Motion to Determine Status of Wholly Unsecured Second Mortgage on Real Property when Debtor's case was pending as a Chapter 13, but the court heard the matter only after conversion to Chapter 7.  The Motion raised the issue of whether a debtor may strip a wholly unsecured lien from real property pursuant to § 506 of the Bankruptcy Code.
The relevant facts were undisputed:

Debtor owns real property .. which is subject to two security deeds. JPMorgan Chase Bank, NA purportedly holds or services the first priority security deed. The outstanding balance on its corresponding note is approximately $153,088.37. Citibank holds a valid second priority security deed on the Property and the balance on the corresponding note is approximately $32,197.36. The parties agree that the value of Property was $62,100.00.



Posted 5 weeks 4 days ago

In May 2012 the Eleventh Circuit entered its opinion in  In re McNeal and seemingly approved the stripping of wholly unsecured second liens in Chapter 7 cases.  Since this was an unpublished opinion of a panel (and non-binding), and contrary to authority in other Circuits, lawyers have been watching to see what Bankruptcy Courts would do until the issue was decided by the full Circuit or the Supreme Court.  Many Courts in the Circuit, including the Northern District of Georgia, have entered orders allowing the stripping.
In Williams v. Internal Revenue Service (In re Williams), Adv. Proc. No. 12-1027, 2013 Bankr. LEXIS 1107 (Bankr. M.D. Ga. March 15, 2013) (click here for .pdf), the debtors home was worth $210,000.00 and subject to a first-priority lien in the amount of $237,564.00.  The IRS held a second-priority tax lien on the property in the amount of $$77,588.51.  The debtors filed a proceeding to strip the wholly unsecured lien of the IRS.
On summary judgment, Judge Walker ruled in favor of the debtors based on the McNeal case, although he believes it was wrongly decided by the Eleventh Circuit.



Posted 8 weeks 2 days ago

In United Community Bank v. Harper (In re Harper), Adv. Proc. No. 12-1080, 2013 Bankr. LEXIS 1080 (Bankr. N.D. Ga. January 29, 2013 (Judge Drake) (click here for .pdf of order), the issue was whether Federal Rule of Bankruptcy Procedure 4007(c)  created a strict deadline for filing adversary complaints to determine dischargeability of debts under §523(c). Judge Drake held that 11th Circuit precedent controlled the issue, and Rule 4007(c) was intended to create a hard and fast deadline.  



Posted 8 weeks 4 days ago

In a key decision in the Northern District of Georgia, Judge Hagenau has ruled that a secured creditor is only entitled to a secured claim, pursuant to § 506(b), to the extent of its actual and reasonable fees rather than contractual and statutory fees after a foreclosure sale where the property has not been abandoned.  Most Promissory Notes and Security Deeds call for contractual attorneys fees and expenses upon default.  The contractual and statutory attorneys fees are up to 15% of the loan amount and may or may not be close to the actual fees incurred by the lender. 
In Trauner v. State Bank and Trust Company (In re Solid Rock Development Corp., Inc.), Ch. 7 Case No. 10-72777, Adv. Proc. No. 12-5238, 481 B.R. 221, 2012 Bankr. LEXIS 4845 (September 27, 2012) (click here for .pdf),  SB&T received relief from the automatic stay to foreclose on the Debtor's real property.  The Order lifting the stay stated the following:



Posted 9 weeks 4 days ago

Many debtors arrive in Bankruptcy Court having committed missteps, or even misconduct, in their financial affairs and dealings with others.  Even for these debtors, Bankruptcy is often an opportunity for them to get a "fresh start."  However, one of the requirements of this fresh start is that a debtor must be completely honest in documents and pleadings filed in their Bankruptcy case.  This is a continuing obligation throughout the case, and debtors have a duty to make amendments as needed.  The consequences of not doing so may include the dismissal of the case, a ban on re-filing for a certain period of time, or the denial or revocation of the discharge.  Worse yet, as schedules are filed under oath and penalty of perjury, the failure to properly disclose information on the schedules can lead to criminal prosecution.



Posted 12 weeks 2 days ago

On February 18, 2013, the Georgia Supreme Court issued its opinion in Wells Fargo Bank. N.A. v. Gordon, No. S12Q2067, 2013 Ga. LEXIS 158 (Feb 18, 2013).  The case was certified to the Georgia Supreme Court by the Eleventh Circuit Court of Appeals in In re Codrington, 691 F3d 1336 (11th Cir. 2012) (click here for order).
The Court, in short, held that deeds that are not signed by an unofficial witness are not eligible for recording and, if recorded, do not constitute proper notice to put a hypothetical bona fide purchaser (such as a Bankruptcy Trustee) on inquiry notice of the deed.  The effect of this opinion (and the U.S. Bank opinion discussed below) is unclear at this point, but the Georgia Supreme Court has made it clear that the rules regarding deeds are subject to a strict compliance standard and deeds not in compliance are not eligible for recording.  There is little doubt that many Bankruptcy Trustees in Georgia will begin to closely inspect deeds filed with respect to property of bankruptcy estates.  If a security deed is defective, the lien may be avoided and the property sold for the benefit of all creditors.



Posted 12 weeks 5 days ago

In an interesting opinion, Chief Judge Laney of the Middle District of Georgia held that a tort claim that "arose" well before a Chapter 7 filing but was not discovered by the debtor until well after discharge was property of the Chapter 7 case. The case is interesting in that it was before the Court on a motion for reconsideration filed by the Trustee, the Court reversed its prior position on authority not argued by either of the parties, and Judge Laney  criticized the Eleventh Circuit opinion on which he ultimately based his decision.
In In re Webb, 484 B.R. 5012012 Bankr. LEXIS 5736 (Bankr. M.D. Ga. Dec. 12, 2012), the Debtor was diagnosed with congestive heart failure in July 2007.  He subsequently filed a Chapter 7 case in January 2009 and was subsequently discharged in June 2009.  The Debtor later became aware of a class action lawsuit from a television commercial over medication he took from 2006-2008, and entered into a confidential settlement.  The Trustee moved to reopen the Chapter 7 case to administer the settlement proceeds as property of the Chapter 7 estate.



Posted 13 weeks 1 day ago

According to a new study by Robert Lawless and Jennifer Robbennolt (summarized in the Wall Street Journal), Judges are more likely to approve a Chapter 13 plan that includes an apology.  From the Wall Street Journal article:

In the 29-page study, Lawless and colleague Jennifer Robbennolt said they told participating judges about the Millers, a fictional family of four with a $180,000 home, $25,500 in credit card debt and a $26,000 Ford Explorer SUV. Their credit card debt ranged from $9,000 for the husband’s medical expenses to $270 per month spent on their two daughters, ages 10 and 13, for gymnastics.

At the end of their Chapter 13 payment plan, which paid unsecured creditors 18% of their debt over three years, the Millers wrote, “We have no way of keeping up with our bills and repaying everything. It is all we can do to pay the mortgage and keep food on the table. We know that we are responsible for the mess we are in. We are truly sorry.”



Posted 13 weeks 3 days ago

In In re Stanley, 2012 Bankr. LEXIS 6031 (Bankr. N.D. Ga. Nov. 8, 2012), the debtors certified that they tried to obtain credit counseling but were unable to complete it because they needed to file their Chapter 13 petition to stop a foreclosure the same day.  Debtors requested a waiver and deferment of the counseling requirement under Section 109(h)(3)(A), which provides the following:
(A) Subject to subparagraph (B), the requirements of paragraph (1) shall not apply with respect to a debtor who submits to the court a certification that—
(i) describes exigent circumstances that merit a waiver of the requirements of paragraph (1);
(ii) states that the debtor requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in paragraph (1) during the 7-day period beginning on the date on which the debtor made that request; and
(iii) is satisfactory to the court.
Judge Diehl held that the imminent foreclosure scheduled for the same day constituted exigent circumstances that merited the waiver.



Posted 14 weeks 4 days ago