DECISIONS - 1994

Irvin N. Hoyt, Chief Bankruptcy Judge

Alphabetical Listing

1994 DECISION SUMMARIES

Irvin N. Hoyt, Chief Bankruptcy Judge

1. January 7, 1994, BERGER, ARTHUR ADOLPH & CHERYL JEAN. Case No. 87-10289,Chapter 12.    ISSUES:(1)Whether Debtors' plan should be modified to recognize equity Debtors acquired post-confirmation in some real property when a mortgage was forgiven and in some non exempt personal property purchased with exempt assets? (2)Whether Debtors are entitled to claim as exempt life insurance benefits received post-confirmation from a fraternal benefit society and the property purchased with the benefits? (3)Whether Debtors have paid all disposable income to unsecured creditors?    RULING:(1)Debtors' plan should be modified to reflect any increase in equity in non exempt real or personal property acquired post-confirmation by recalculating the best interest of creditors test under § 1225(a)(4). (2)Debtors' may only claim the life insurance benefits as exempt property. Once the funds were spent on non exempt estate property, they are no longer protected by the unlimited life insurance exemption for benefits from fraternal benefit societies provided by S.D.C.L. § 58-37-68. (3)Debtors have not paid all disposable income to unsecured creditors.

APPEAL RECORD

BERGER, ARTHUR ADOLPH & CHERYL JEAN, January 14, 1994: : Case No. 87-10289. Notice of Appeal to District Court filed by Debtors from the final judgment and order re: Debtors' Discharge, Trustee's Motion to Modify Confirmed Plan, and Trustee's Objection to Exemption entered January 7, 1994.    APPEAL STATUS: Judgment affirming bankruptcy court decision entered by Judge Piersol on 8-31-94 (Civ. 94-1006).

APPEAL RECORD

September 14, 1994: BERGER, ARTHUR ADOLPH & CHERYL JEAN: Notice of Appeal to 8th Circuit Court of Appeals filed by Debtors from judgment entered by Judge Piersol on 8-31-94.    APPEAL STATUS: Affirmed in part and reversed in part.    Affirmed the bankruptcy court's decision to deny discharge on the ground that disposable income remains to be paid to unsecured creditors.    Reversed its holding that any equity in the tractor purchased with exempt proceeds should be available to creditors.

2. January 26, 1994, LAKE REGION DEVELOPMENT, INC. - Case No. 93-10192 & MARSHALL MANOR, INC., - Case No. 93-10191, Chapter 11 - (TWO SEPARATE DECISIONS):    ISSUE: Whether both cases should be dismissed as bad faith, successive filings?    RULING: Both cases were dismissed. The Court found each Debtor's second Chapter 11 petition was not filed in good faith. Debtors had abused their first chance to reorganize and had not attempted to resolve claims of major creditors, despite having sufficient income to make payments on the claims. There had not been sufficient changes in Debtors' financial circumstances since the last cases were dismissed to warrant another reorganization attempt. Further, the second petitions were filed in bad faith because insiders and principals had removed substantial cash from the corporations over the past year but had not paid anything to the corporations' two major creditors. Finally, there were no unsecured claim holders that would benefit from a reorganization.

APPEAL RECORD

February 4, 1994: LAKE REGION DEVELOPMENT, INC. - CASE NO. 93-10192 AND MARSHALL MANOR, INC.- CASE NO. 93-10191. Notice of Appeal to District Court filed by debtors from Orders Dismissing Case entered January 26, 1994.    APPEAL STATUS:     DISMISSED. Order dismissing appeal filed August 11, 1994 by Judge Piersol (Civ. #94-1011).

February 14, 1994: LAKE REGION DEVELOPMENT, INC. -  CASE NO. 93-10192 AND MARSHALL MANOR, INC.- CASE NO. 93-10191. Notice of Appeal (Cross Appeal) to District Court filed by Resolution Trust Corporation from Orders Dismissing Case entered January 26, 1994.    APPEAL STATUS: DISMISSED. Order dismissing cross appeal filed August 26, 1994 by Judge Piersol (Civ. #94-1012).

3. February 11, 1994, VAN ZEE, DESMOND V. AND PATRICIA E. - Case No. 87-30128, Chapter 12.   ISSUES: Whether a county's tax liens survive a Chapter 12 discharge where Debtors' plan did not provide full payment of pre-petition taxes but where county did not object to plan?    RULING: The county's tax liens will survive discharge. Debtors' plan recognized the county's tax liens but did not provide for treatment of the liens in the plan. In the absence of § 506(a) litigation, the liens will survive, although the county may not seek additional payments from Debtors' personally.

APPEAL RECORD

February 22, 1994: DESMOND V. & PATRICIA VAN ZEE. Case No. 87-30128. Notice of Appeal filed by Debtors from Order Dismissing Case entered 2-11-94.    APPEAL STATUS: Order Affirming Dismissal by Bankruptcy Court entered by Judge Jones 6-29-94 (CIV. 94-3009).

July 13, 1994: DESMOND V. & PATRICIA VAN ZEE, Case No. 87-30128. Notice of Appeal filed by Debtor to 8th Circuit Court of Appeals.    APPEAL STATUS: Judgment entered 4-3-95 affirming District Court's decision.

4. February 22, 1994, STEEN'S FEEDS, INC. Case No. 91-50339 Chapter 11.    ISSUE: Whether movant's interest in certain money was sufficiently clear and undisputed so as to justify relief from the automatic stay and a compelled abandonment from the estate?     RULING: Movant's request for relief from the automatic stay and for an order compelling the trustee to abandon certain money was denied. Trustee argued movant's interest in the money was subject to a preference action. Another creditor argued it should have a constructive trust on the money because Debtor had obtained it from the creditor fraudulently. The Court ruled the preference and constructive trust issues should be litigated before relief or abandonment were granted to movant.

5. March 24, 1994, HARTER, PATRICK CHRIS. Case No. 92-30070. Chapter 12.    ISSUES: Whether Debtor's proposed modification of his confirmed plan could be approved?    RULING: Debtor's proposed modification of his confirmed plan could not be approved because Debtor did not show that the modification met the best interest of creditors test. The modification also could not be approved because Debtor had not proposed it in good faith. Lack of good faith was shown by Debtor's decision to offer unsecured creditors nothing more than disposable income despite possible excess sale proceeds and because Debtor had liquidated his farm and would not reorganize.

6. April 11, 1994, BUNKE, EDWIN ROBERT. Case No. 93-10166. Chapter 12.    ISSUE: Whether foreclosure sale of real property to be conducted by sheriff under South Dakota law was stayed by § 362(a)?    RULING: Sheriff's foreclosure was stayed by § 362(a) because it is an act or proceeding that would alter a debtor's interest in or title to the property. Court held a debtor is not divested of all interests in the mortgaged property when a foreclosure judgment is obtained under South Dakota's laws governing foreclosure by action.

7. May 11, 1994: HAMMRICH, JUNIOR SEBASTIAN AND JOYCE MARIE, Case No. 87-10032, Chapter 12.    ISSUE: Whether Debtors had made all plan payments and were entitled to a discharge?    RULING: Discharge was denied because Debtors had failed to show that they had paid all available disposable income to the Trustee for the unsecured claim holders. Debtors' post-confirmation expenses had exceeded projected expenses greatly and they had expanded their cattle feeding operation. Therefore, the Court concluded that Debtors had failed to show that all post-confirmation expenses were necessary. The Court concluded that a continued hearing would be held to allow Debtors to show that all post-confirmation expenses were necessary and to show what carryover funds were needed post-discharge to continue a feasible operation.

8. June 10, 1994: VAN DYKE, JOHN W., Case No. L-88-01173S, Chapter 11.    ISSUES: Parties requested that the Court determine: (1) how interest on an unsecured creditor's claim should be calculated and (2) whether the creditor was entitled to payment of attorney's fees as an administrative expense.    RULING: The Court concluded that the co-trustees that managed the bankruptcy estate's trust could, in their discretion, pay simple interest on all unsecured claims. The Court also allowed a creditor an administrative expense for attorney's fees the creditor incurred in moving the case forward.

9. June 10, 1994: VAN DYKE, JOHN W., Case No. L-88-01173S, Chapter 11.    ISSUES: (1) Whether a real estate broker and its agent were entitled to an administrative expense for their commission when they presented a qualified buyer for estate property to the co-trustees of a bankruptcy estate's trust? (2) Whether potential buyer of real estate from bankruptcy estate's trust was entitled to an administrative expense for costs it incurred in clearing title but where property was sold to another party?    RULING: (1) The real estate broker and agent were entitled to their sales commission as an administrative expense. The co-trustees had full authority to employ the agents and the agents had fulfilled all terms of the listing agreement. (2) The potential buyer was entitled to his costs as an administrative expense. The title work that was done by the potential buyer's attorney benefited the estate and fostered the ultimate sale of estate property to another buyer.

10. June 20, 1994: BRINKMAN, GLEN J. Case No. 94-30004, Chapter 7. BRINKMAN, SUSAN M. Case No. 93-30040, Chapter 7.    ISSUE: Whether separate Chapter 7 cases filed a few months apart should be substantively consolidated where the first case filed was still pending and where problems with claimed exemptions arose?    RULING: Court substantively consolidated the two cases since debts and assets were common and since a joint claim of exemptions would clarify the trustee's ability to assess the validity of the exemptions claims.

11. June 20, 1994: TUBBS, EDWARD H., JR., Case No. 93-50246, Adversary Nos. 94-5001 and 94-5002, Chapter 7.    ISSUE: (1) Whether certain debts owed to former wife were non dischargeable as support debts and (2) whether the debtor should be denied a discharge of all debts due to known errors and omissions on his schedules.    RULING: Court dismissed case as a bad faith filing. The debtor was able to meet his financial obligations and only had filed in an attempt to avoid paying obligations to his wife imposed by the state divorce court.

12. July 8, 1994: HOFFMAN FARMS, Case No. 87-10275, Chapter 12.    ISSUE: Whether substantively consolidated Chapter 12 case should be dismissed or converted where post-confirmation the debtors used secured assets contrary to a creditor's authorization?    RULING: The case was converted to Chapter 7 for fraud.

APPEAL RECORD

July 18, 1994. HOFFMAN FARMS, Case No. 87-10275. Notice of Appeal to District Court filed by debtor from Order Converting Case to Chapter 7, and Memorandum of Decision Re: Motions to Dismiss or Convert dated July 8, 1994.    APPEAL STATUS:    AFFIRMED District Court Order affirming Bankruptcy Court entered 10-10-95.

13. July 28, 1994: DEAN, MICHAEL E. & ANNA J., Case No. 93-50257, Adv. No. 93-5017, Chapter 7.    ISSUES: Whether Debtor Anna J. Dean was entitled to a hardship discharge of her student loans where her husband was permanently and totally disabled, she was temporarily disabled, the family had to move across the nation, and her job skills would limit her future earnings?    RULING: Under § 523(a)(8)(B) and Education Resources Institute, Inc., v. Law (In re Law), No. 93-4196, slip op. (D.S.D. May 18, 1994), and cases cited therein, Debtor was not entitled to a hardship discharge because she had not shown that her present inability to repay the student loans would continue throughout the repayment period. The Court, however, concluded that Debtor may seek a determination of hardship in the future if circumstances change.

14. September 1, 1994: BUNKE, EDWIN ROBERT., Case No. 93-10166, Chapter 12.    ISSUES: Whether fully secured creditor is entitled to relief from stay for cause where creditor has foreclosure judgment but where debtor could pay secured claim only if it may be modified by paying over time?    RULING: Creditor was not entitled to relief for cause. Since a foreclosure sale had not taken place, the mortgage/contract relationship between the creditor and debtor still existed. Thus, the secured claim could be modified under §§ 1222(b)(2) and 1222(b)(9), and 1225(a)(5).

15. October 20, 1994: OLSON, RICHARD R., Case No. 93-50232, Adv. 93-5018.    ISSUE: Whether judgment debt against Debtor-Defendant should be declared non dischargeable as one obtained fraudulently where Debtor persuaded Plaintiff to invest in corporation that was unsuccessful and where Debtor's statements about the business's status and profit potential were overstated?    RULING: Debt was declared dischargeable. Debtor overcame Plaintiff's showing that debt was incurred fraudulently under § 523(a)(2)(A) by showing Debtor's efforts to manufacture and market products through the corporation, because Plaintiff had access to the business premises and records, and because Plaintiff and Debtor had a long-term business relationship. Plaintiff did not show that Debtor stood in a fiduciary relationship to Plaintiff to allow the debt to be declared non dischargeable under § 523(a)(4).

16. December 16, 1994: HOFFMAN FARMS, December 16, 1994. Case No. 87-10275, Chapter 12.    ISSUE: WHETHER conversion of Chapter 12 case to Chapter 7 after confirmation of a plan reinstates original debt of undersecured claim holder?    RULING: After conversion from Chapter 12 to Chapter 7, an undersecured creditor's claim may be revalued to reflect any change in the value of the secured property and the payments received under the plan. The creditor is not bound by the value of his secured claim as determined in the abandoned plan.    ISSUE: Whether a debtor may exercise state homestead purchase rights under S.D.C.L. § 21-19-29 after the property has been sold by the Chapter 7 trustee?    RULING: Any rights a Chapter 7 debtor may exercise under S.D.C.L. § 21-19-29 must be raised before the property is sold by the Chapter 7 trustee.

APPEAL RECORD

December 20, 1994. HOFFMAN FARMS, Case No. 87-10275. Notice of Appeal to District Court filed by debtor from Order Determining Post-Conversion Claim of FmHA, Denying Debtors' Claim Under SDCL § 21-19-29, and Requiring Second Hearing for Receipt of Upset Bids.    APPEAL STATUS:   AFFIRMED Order affirming Bankruptcy Court entered by Judge Piersol on 4-18-96 (Civ. #95-1008).

17. December 27, 1994:  HAMMRICH, JUNIOR SEBASTIAN AND JOYCE MARIE, Case No. 87-10032, Chapter 12.    ISSUE: What amount of disposable income do the debtors owe under § 1225(b)?    RULING: Based on the Eighth Circuit's formula set forth in Broken Bow Ranch, Inc., v. Farmers Home Administration (In re Broken Bow Ranch, Inc.), 33 F.3d 1005 (8th Cir. 1994), the Court calculated that the debtors owed $95,885.86 in disposable income.

APPEAL RECORD:

January 11,1995: Notice of Appeal to the U.S. District Court filed by Debtors from the Memorandum Decision and Order Determining Net Disposable Income filed January 6, 1995.    APPEAL STATUS:    Affirmed. Memorandum Decision, Order & Judgment affirming bankruptcy court's decision entered 12-11-95 by Judge Piersol.

APPEAL RECORD:

December 11,1995: Notice of Appeal to the U.S. 8th Circuit Court of Appeals from the District Court's Memorandum and Judgment entered 12-11-95 filed by Debtors.    APPEAL STATUS:    AFFIRMED Order entered by 8th Circuit Court of Appeals on 12-2-96 affirming Bankruptcy Court.