Pro se creditor filed an adversary proceeding objecting to the dischargeability of a debt owed by the Debtor and alleging that the Debtor made false oaths on his bankruptcy schedules and tax returns. At issue is whether damages arising from an alleged breach of contract and costs of repair of damages to property are excepted from discharge under 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(6) and whether the Debtor made false statements pursuant to 11 U.S.C. 727(a)(4)(A) thereby justifying a denial of discharge. The Court held that the creditor failed to show by a preponderance of the evidence that any of the Debtor’s actions justify denial of discharge related to the allegations that the debt was “obtained by false pretenses, a false representation, or actual fraud.” The Court also denied the creditor’s claim that the debts were “for willful and malicious injury by the debtor to another entity or to the property of another entity.” The Court found that the Debtor acted neither maliciously nor with willful intent to damage structures and items in the residence. Minor damages were a result of mere wear and tear or negligent upkeep and other damage did not meet the test to be declared non-dischargeable. Finally, the Court held that the Debtor’s failure to disclose certain income on his schedules was an inadvertent omission of non-material issues that did not meet the standard to deny the Debtor a discharge under Section 727(a)(4)(A).
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The summaries on this website are summaries of the opinions issued by the judges of the Bankruptcy Court for the Western District of Virginia from October 2004 to date. The opinions may be searched by year, judge, category and chapter. For a more detailed search, enter a keyword in the search box above. This opinion bank, however, is not an exhaustive list of opinions issued by the judges of the Western District. These summaries are not intended to replace other research methods, but may be used as a starting point for your research. These summaries do not contain information as to whether an opinion has been published, appealed or the disposition of any such appeal, or otherwise overruled or affected by subsequent case law or statute. These summaries have been prepared for the convenience of the researcher and in no way constitute an interpretation by the Court of the opinion summarized. Please rely on the opinion not the summary. Please contact Judge Connelly's chambers or Judge Black's chambers regarding any questions or errors.
The Debtor claimed as exempt on Schedule C garnished funds as an avoidable preference pursuant to Virginia Code § 34-4 and then filed a complaint seeking to avoid and recover what he claimed was a preferential transfer to the judgment creditor under 11 U.S.C. §§ 542 and 547. The creditor argued that the transfer of funds occurred outside the 90-day preference period. Following In re Wilkinson, 196 B.R. 311 (Bankr. E.D. Va. 1996), the Court found that the relevant transfer date for the purpose of § 547(b) was the date that the garnishment lien attached to the Debtor’s wages under Virginia law. In this case, the petition was filed on September 24, 2018; therefore the 90-day preference period began on June 26, 2018. The creditor filed the garnishment summons on February 27, 2018, pursuant to which the creditor’s lien attached to the Debtor’s wages paid between March 26, 2018 and May 11, 2018. The Debtor thus earned his wages and his employer paid those withheld funds to the General District Court, all prior to the start of the 90-day preference period. Therefore, the Court denied the Debtor’s request to recover the funds under § 547(b).
Chapter 7 Debtor claimed an exemption in real property owned as tenants by the entireties with his non-filing spouse, to which the Chapter 7 Trustee objected. In response to that objection, the Debtor sought an order compelling the Trustee to abandon the property as burdensome or of inconsequential value to the estate. The property was subject to at least two IRS tax liens, so the Trustee sought to sell the property for the benefit of the IRS citing United States v. Craft, 535 U.S. 274 (2002), after negotiating a “carve out” of a portion of the sale proceeds for the benefit of the Debtor’s unsecured creditors under 11 U.S.C. § 363(h). The Court held that the Debtor may exempt the property held as tenants by the entireties under 11 U.S.C. § 522 where a tax lien has attached to the property for liabilities owed only by the individual debtor and overruled the Trustee’s objection. The Court then ordered the Trustee to abandon the property as any proposed sale of the property – which was over-encumbered by a deed of trust and IRS tax liens – would not benefit general unsecured creditors and would instead create significant harm to the co-owner of the property.
The Debtor filed an adversary proceeding against Capital Bank alleging the Bank violated the Equal Credit Opportunity Act when it required her then husband to execute a deed of trust on their principal residence. The Debtor, as president of a company, executed a Note and commercial guaranty for the benefit of the Bank. Without making any inquiry as to the Debtor’s individual creditworthiness, the Debtor alleges the Bank violated the anti-discrimination provisions of the Act by requiring her husband to execute the deed of trust as collateral securing the loan for which she applied on behalf of her company. The Court held that the deed of trust at issue was not a "credit instrument" within the scope of the regulations implementing the Act and dismissed the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).
Following receipt of a discharge and closing of her chapter 13 case, the debtor obtained a disability discharge of her student loans. The unsecured, student loan creditors then refunded funds that had been disbursed to the student loan creditors by the chapter 13 trustee pursuant to the debtor’s chapter 13 plan. The chapter 13 trustee moved to reopen the case to redistribute these funds to the other general unsecured creditors. The debtor objected to the proposed distribution and requested that the funds be returned to her. The debtor also moved to file an amended plan to decrease the base gross and to provide for the funds to be returned to her. The Court granted the motion to reopen. The Court ruled that the trustee had to disburse the funds to the other general unsecured creditors and that the debtor could not modify her plan pursuant to section 1329.
Before the debtor filed a chapter 7 petition, CLMG Corporation filed an unlawful detainer action against the debtor as to a property it had purchased at a foreclosure sale. Later, after the debtor had filed his chapter 7 petition, CLMG, which was not in any way noticed of the bankruptcy case, obtained a judgement for possession. Once CLMG discovered the pending case, it filed a motion to annul the automatic stay so that the judgment for possession would not be void. Based on the facts of the case, the Court granted the motion.
The chapter 7 trustee filed a complaint against SunTrust Bank, N.A. to avoid and recover certain transfers by the debtor into accounts held by the bank. SunTrust moved to dismiss the complaint as failing to state a claim on which relief can be granted and for failing to plead fraud with specificity pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), respectively. The Court denied the motion to dismiss.
The Court found that an assault claim was properly excepted from discharge because the Virginia elements for the tort of assault lined up with the elements for the exception to discharge under 11 U.S.C. § 523(a)(6).
This adversary proceeding arose from a state law claim in circuit court based on a longstanding dispute between two neighbors, Ms. Pat Hanson and Mr. Steven Cassidy, in Madison County, Virginia. Ms. Hanson filed suit against Mr. Cassidy in circuit court in June 2008 seeking $100,000 in damages based on assault, insulting and abusive words, and intentional infliction of emotional distress (IIED). The litigation lasted several years and ultimately, Ms. Hanson was granted partial summary judgment on two of her claims: assault and intentional infliction of emotional distress. The judgment was memorialized in a Circuit Court Consent Order that established liability on behalf of Mr. Cassidy for the two claims. The damage issue was tried before a jury in November of 2017. Because the jury’s award of $500,000 exceeded the amount demanded in the complaint, the Circuit Court judge remitted the award to either $100,000 or $200,000. Before the Circuit Court could enter an award on damages, Mr. Cassidy filed for chapter 7.
Ms. Hanson filed a complaint to determine the dischargeability of her debt through an adversary proceeding, and then filed a motion for summary judgment. Ms. Hanson based her complaint on the assertion that the debt is excepted from discharge because the elements under 11 U.S.C. § 523(a)(6) mirror the elements of a cause of action for assault and IIED in Virginia, which were incorporated in the Circuit Court Consent Order. Because the parties agreed to liability in the Circuit Court Consent Order, Ms. Hanson argued that collateral estoppel prevented Mr. Cassidy from now denying liability. On the other hand, Mr. Cassidy argued that the state court did not issue a final order because the amount of damages was not finalized so the matter was not fully litigated. Thus, Mr. Cassidy proffered that collateral estoppel did not apply. Moreover, Mr. Cassidy argued that the state court did not address whether his action was “malicious” and therefore the question of whether the debt arose from “malicious conduct intended to cause injury” could not have been litigated.
The Court found that collateral estoppel indeed applied because the five elements were met. The parties to the proceedings were the same because the plaintiff from the state court action was the same in this action, Ms. Hanson, and likewise Mr. Cassidy was the same defendant. The prior proceeding resulted in a final judgment because liability was already finalized and Mr. Cassidy did not show how he could have disputed the Circuit Court Consent Order merely because the judge had not yet ruled on the amount of damages. For the third element, the factual issue to be precluded must actually have been litigated in the prior action. The Court found that because a long line of cases interpreted “willful and malicious” for the purposes of section 523(a)(6) to refer to actions that cause injury without just cause or excuse, then the Circuit Court Consent order that faulted Mr. Cassidy for the tort of assault indeed met this element because the Virginia law of assault merely requires an overt act committed with the intent to place the victim in fear or apprehension of harm (similar to the case law definition of willful and malicious). Further, just because the order is a consent order does not preclude the fact that it was actually litigated. Fourth, the factual issue to be precluded must have been essential to the prior judgment. In this case, the intent of placing a victim in fear or apprehension of bodily harm was essential to the state court judgment. Lastly, mutuality was present because the party invoking estoppel, Mr. Cassidy, would have been bound had the prior litigation reached the opposite result. Accordingly, the Court granted Ms. Hanson’s motion for summary judgment to except her debt from Mr. Cassidy’s discharge because the elements of 523(a)(6) closely lined up with the Virginia law elements of assault. Moreover, collateral estoppel prevented Mr. Cassidy from challenging the dischargeability of the debt owed to Ms. Hanson.
The Court denied confirmation the Debtors’ Fourth Amended Chapter 12 plan and dismissed this family farmer’s case finding that the Debtor’s plan was not feasible under 11 U.S.C. § 1225(a). The Court found it improbable that the Debtor would have sufficient income to make all his required payments under the plan, noting the Debtor’s mistake-laden record keeping and financial projections. As the records and projected revenue and expenses were so inaccurate and unpersuasive, they did not demonstrate the Debtor’s probable compliance with the plan terms. Therefore, the Court held that the Debtor failed to carry his burden on the feasibility prong of Section 1225. The Court also denied leave to amend the plan under 11 U.S.C. § 1221 as the Debtor failed to show any reasonable likelihood of reorganization. As the Debtor had multiple opportunities to present a confirmable plan and had been unable to do so, the Court dismissed the case.
The Court dismissed the Debtor's single-asset Chapter 11 case on motion of creditor under Section 1112(b) for cause as the Debtor's case was both filed in bad faith and was objectively futile. Based upon the lack of assets, equity and cash flow, and considering the structure of the ownership as a tenant-in-common ("TIC") investment vehicle with only one of multiple TICs filing for relief, the Court held that the Debtor could not propose an objectively reasonable plan of reorganization. Further, the Court found that the Debtor did not file the case in good faith as it did so to delay its largest secured creditor when its controlling member knew there was no reasonable possibility of reorganization.