DECISIONS - 1995

Irvin N. Hoyt, Bankruptcy Judge

Alphabetical Listing

 1995 DECISION SUMMARIES

Irvin N. Hoyt, Chief Bankruptcy Judge

1. January 10, 1995: TRACY, THOMAS CARROLL AND THOMAS C. TRACY, INC., (Jointly Administered), Case Nos. 94-10099 and 94-10100, Chapter 11.      ISSUE: Whether bank account subject to a pre-petition IRS levy was estate property?    RULING: The bank accounts were estate property. Under 26 U.S.C. § 6332(c), the bank had to hold the funds twenty-one days before surrendering them to the IRS. Debtor filed its petition within the twenty-one days. Debtor did not lose ownership of the accounts during the twenty-one days because the IRS continued to consider as income to Debtor the interest earned during the twenty-one days. IRS as entitled to adequate protection if Debtor used the funds.

2. January 13, 1995: ALLEN, HERBERT WARREN, III AND DONNA MAE. Case No. 87-10052, Chapter 12.    ISSUE: Whether land inherited by the debtors post-confirmation is disposable income under § 1225(b)(2)?    RULING: Land inherited post-confirmation but before completion of plan payments should be recognized in a modified plan under the best interest of creditors test at § 1225(a)(4). In this case, the land was not disposable income because it was necessary for the continuation of the debtors' farm operation.

3. February 15, 1995: HUFFMAN, PAUL. Case No. 94-50106, Chapter 7.    ISSUE: Whether sanctions under F.R.Bankr.P. 9011 should be imposed against Debtor and his counsel for filing an objection to a creditor's relief from stay motion?   RULING: Sanctions of $400.00 were imposed against Debtor's counsel. The objection had little merit where the Chapter 7 trustee, not Debtor, was obligated to administer the estate. Concerns raised by Debtor in objection could have been resolved by a simple telephone call to creditor or Trustee. Hearing was not necessary. All costs sought by creditor were not imposed as a sanction because creditor's attorney also could have addressed the concerns raised by Debtor by telephoning Debtor's counsel prior to the hearing.

4. February 27, 1995: TORGERSON, RONALD OWEN AND CHARLENE RAE. Case No. 94-10095, Chapter 7.    ISSUE: Whether Debtors could claim annuity exempt where they obtained loans pre-petition from family members, gave security in vehicles, and used loan proceeds to purchase annuity?    RULING: Debtors could claim annuity exempt. While funds were borrowed to purchase the annuity and while the loans were from family members, the transactions appeared to be at arms' length, the amount purchased was reasonable, and selling their vehicles outright to obtain funds may have deprived Debtors of needed transportation. Their action constituted legitimate pre-bankruptcy planning based on the evidence presented.

5. March 3, 1995: WALETICH, DEWAIN FRANKLIN - aka BUZZY WALETICH - AND JOAN MARIE WALETICH. Case No. 94-10050, Chapter 12.    ISSUE: What is the reasonable amount of fees and costs to which a fully secured creditor is entitled under § 506(b)?    RULING: The Court held the fully secured creditor was entitled to $2,020.25 as reasonable fees and costs under § 506(b). The attorney's fees sought were reduced slightly since the creditor's attorney had used a minimum billing increment of .25 of an hour rather than listing the actual time spent on each service.

6. March 3, 1995: KAPPENMAN, TIMOTHY J. AND DEBBIE L. Case No. 94-10105, Chapter 7.    ISSUE: Whether trustee's proposed interim distribution properly calculated payments to secured creditors from proceeds of auction?    RULING: Trustee properly calculated the payments to secured creditors based on the order that set forth how the property would be sold and how sale costs and the Trustee's commission would be calculated and paid.

7. March 24, 1995: FRENCH, NORMAN EUGENE: Case No. 91-40408, Chapter 7.    ISSUE: Whether certain fees should be disgorged in a failed reorganization case where evidence showed the case was filed to thwart a divorce property settlement?    RULING: The case should never have been filed since it was an improper attempt to thwart the actions of a state divorce court. However, no party timely sought dismissal of the case on those grounds and no party objected to the debtor's counsel's fees on that ground or preserved that objection for later hearing. Accordingly, no fees were disgorged. However, no additional fees were awarded despite two additional fee applications from the debtor's counsel.

8. March 27, 1995: GRIDLEY, PATRICIA A.: Case No. 91-40439, Adversary No. 93-4049, Chapter 7.    ISSUE: Whether state court action that deprived the debtor of her interest in a trust was a voidable preference under § 547? RULING: The state court surcharge order against the debtor's interest in the trust was not a preference under § 547 because the debtor was not insolvent at the time of the transfer.

9. March 27, 1995: GRIDLEY, PATRICIA A.: Case No. 91-40439, Adversary No. 93-4046, Chapter 7.    ISSUE: Whether the debtor's pre-petition transfer of certain stock to her children was a fraudulent transfer under 11 U.S.C. § 157(b)(2)?    RULING: The debtor's transfer was not fraudulent under § 157(b)(2), which incorporates any South Dakota fraudulent conveyance law.

10. April 12, 1995: BROKEN BOW RANCH, INC.: Case No. 87-30137, Chapter 12. ISSUE: Whether the debtor was entitled to costs arising from an aborted hearing where the opposing creditor filed a witness and exhibit list late? RULING: The debtor was not entitled to costs arising from the aborted hearing. The debtor's counsel should have requested a continuance when the problem arose, rather than traveling to Pierre for the hearing and then making the request. The information disclosed was in the nature of rebuttal or was just a finer-tuned version of information previously disclosed or used at an earlier hearing. The fees sought would have been an excessive sanction where the creditor and its counsel had not caused similar problems in the past and would unlikely cause similar problems in the future.

11. April 12, 1995: DYWER, CHARLES GERARD: Case No. 94-50152, Chapter 7.    ISSUE: Whether creditor's judgment should be satisfied under 11 U.S.C. §§ 522(f) or 524(a)(1) and S.D.C.L. § 15-16-20?    RULING: Judgment should be satisfied since the debtor's personal liability for the debt had been discharged. Further, the creditor would not retain any right to enforce a judgment lien after bankruptcy because the debtor did not own any non exempt real property at the time of the petition to which a lien could attach.

12. April 12, 1995: TRAVERSIE, JERALD E. AND JOANN E.: Case No. 87-10110, Chapter 7.    ISSUE: Whether creditor's judgment should be satisfied under 11 U.S.C. §524(a)(1) and S.D.C.L. § 15-16-20?    RULING: Judgment should be satisfied since the debtor's personal liability for the debt had been discharged. Further, the creditor would not retain any right to enforce a judgment lien after bankruptcy because the debtor did not own any non exempt real property at the time of the petition to which a lien could attach.

13. May 3, 1995: MORRIS, MITCHEL E. Case No. 91-50242, Adversary No. 91-5010, Chapter 7.    ISSUE: Whether Debtor, as a general partner, was responsible for federal payroll taxes incurred on wages paid at a motel that the partnership tried to purchase?    RULING: Debtor was responsible for the federal payroll taxes only on wages paid while the partnership had managerial control of the motel.

14. May 3, 1995: ECKER, DANIEL BRUCE AND SUZANN ELIZABETH. Case No. 92-30013, Adversary No. 94-3008, Chapter 7.    ISSUE: Whether Debtors' discharge should be revoked because Debtors failed to pay the Trustee for excess exemptions as agreed by the parties and as ordered by the Court? RULING: Discharge was revoked under § 727(d)(3) because Debtors had failed to abide by the Court's order approving the settlement.

15. May 5, 1995: FRIDRICH, HARVEY G. AND ADELINE L. Case No. 94-40247, Chapter 7.    ISSUE: Whether lease payment that was due pre-petition but not paid pre-petition may be declared exempt post-petition?    RULING: If the Trustee recovers the lease payment from the hands of the custodian under §543(b)and if the debtor has not exhausted his exemptions under S.D.C.L. § 43-45-4, the debtor may declare the lease payment exempt post-petition under § 522(g).

16. May 22, 1995: GRAFF, DOREEN A., Case No. 94-40384, Chapter 7.    ISSUE: Whether judgment lien arising from a student loan debt should be removed?    RULING: The judgment survived bankruptcy because the student loan debt was non dischargeable. The student loan debt had not been due more than seven years on the petition date so it was non dischargeable under § 523(a)(8)(A). The student loan agency could retroactively grant the debtor a forbearance of payments. Two retroactive forbearance requested by the debtor moved forward the first date the loan was due. Consequently, the debt was non dischargeable under § 523(a)(8)(A).

17. June 7, 1995: RKF TRUCK LINES LIMITED, Case No. 92-40226, Chapter 11.    ISSUE: Whether the case should be dismissed where the debtor was no longer actively engaged in business and where the continuation of the case and related adversary proceedings would not likely recover any assets for unsecured creditors?    RULING: The case was converted to a Chapter 7 proceeding so that a trustee could assess whether the case and/or adversary proceedings should continue. The case was not dismissed because the Court wanted to retain jurisdiction over the adversary defendants until the Chapter 7 trustee completed his review.

18. May 30, 1995: HEIKES, JOANNE, Case No. 93-40002, Chapter 13.    ISSUE: Whether creditor was bound by a confirmed Chapter 13 whether neither the debtor nor creditor had filed a proof of claim for the creditor but where the creditor had received notice of the proposed plan but had not objected? RULING: The creditor was bound by the confirmed plan for all debts owed him by the debtor on the petition date.

19. June 9, 1995: FITZGERALD, GERALD L. AND GERALDINE, Case No. 94-40472, Chapter 12.    ISSUE: Whether case should be dismissed as a bad faith filing? RULING: The case and related adversary were dismissed. Debtors did not use their prior bankruptcy case or state mediation efforts wisely, Debtors' schedule and plan did not disclose all assets, and Debtors' plan showed no prospect for success.

20. June 19, 1995: BUXCEL, CLIFFORD AND ELAINE. Case No. 94-30036, Chapter 13.    ISSUE: 1. Whether the secured claim of SD's Conservation Reserve Enhancement Program should be valued at confirmation for plan purposes? 2. What is the value of the secured claim of Debtors' mother and mother-in-law where Debtors had reported to SBA pre-petition that the balance was less than now claim in the bankruptcy case? 3. Whether SBA has a perfected, secured interest in Debtors' life insurance policy? 4. What is the effect on Debtors of the settlement between SBA and First Fidelity Bank?    RULING: 1. The Reserve Enhancement Program's secured claim should be valued at confirmation for plan purposes. 2. SBA must commence an adversary proceeding if it wants to challenge the validity, priority, or extent of an insider's claim. 3. SBA has a perfected, secured interest in Debtors' life insurance policy with Aid Association for Lutherans. 4. The Court does not have sufficient information to determine the effect on Debtors of the settlement between SBA and First Fidelity Bank.

21. June 19, 1995: KAISER, BENJAMIN STANLEY d/b/a Ben's Custom Wood and Cabinetry. Case No. 95-50063, Chapter 13.    ISSUE: Whether Debtor's proposed plan appropriately provides for his ex-wife's claim?    RULING: Debtor's ex-wife holds a claim for $10,000.00 plus interest. The claim arises from a pre-petition divorce decree. The decree also gave her a judgment on Debtor's real property in which Debtor has substantial equity. Therefore, Debtor must treat her claim as fully secured. Since the plan did not so treat the ex-wife's claim as fully secured, confirmation was denied. Further, the ex-wife's claim is dischargeable in a Chapter 13 case because it arises from a property settlement and is not a support debt.

22. June 20, 1995: NEUHAUSER RANCH, INC. Case No. 87-50123, Chapter 12.    ISSUE: Whether Debtor's counsel should be compensated for services and reimbursed for costs associated with an unsuccessful adversary proceeding commenced by Debtor?    RULING: Debtor's counsel will not be compensated or reimbursed from the estate for services and costs arising from an unsuccessful adversary proceeding. The adversary was without merit from its inception and yielded no benefit to the estate. Those fees and costs must be paid by Debtor personally after any disposable income is paid.

23. June 26, 1995: BROKEN BOW RANCH, INC. Case No. 87-30137, Chapter 12.    ISSUE: Whether creditor could participate in distribution of disposable income where creditor had obtained post-petition funds from the co-makers on Debtor's note as part of a deal not to contest Debtor's disposable income but where the creditor had not applied those funds against the debt against Debtor?    RULING: The secured creditor was allowed to participate in the disposable income distribution. Its post-petition deals were with Debtor's co-makers, not Debtor, and both Debtor and the co-makers were represented by counsel. Further, all parties were bound by the confirmed plan although it did not accurately set forth this creditor's secured and unsecured claim.

24. July 21, 1995. ROSE RANCH OPERATING PARTNERSHIP. Case No. 90-30016, Chapter 12.    ISSUE: Whether Debtors owed disposable income?    RULING: Court determined Debtors owed $23,093.01 in disposable income.

25. July 21, 1995. ROSE RANCH OPERATING PARTNERSHIP. Case No. 90-30016, Chapter 12.    ISSUE: Whether Debtors' counsel was entitled to final compensation and reimbursement from the estate of $55,042.09?    RULING: Debtors' counsel was allowed $45,958.87 in compensation and reimbursement from the estate. Deductions were made for non professional services performed by the applicant attorney and his paralegal. Objections to compensation for services related to Debtors' liquidation analysis were denied. The applicant attorney agreed to meet several other objections. The Court did not find that the total fees sought were excessive because the attorney kept accurate records, non professional services had been deducted, the reorganization was successful, and no party in interest complained that litigation was unnecessary during the course of the case.

26. July 24, 1995. SMITH, WILBUR JOHN AND BETTY JEAN. Case No. 87-30162, Adversary No. 994-3010, Chapter 12.    ISSUE: Whether a § 1111(b) election made in a related corporate bankruptcy case prevented RE&CD from releasing a mortgage that Plaintiffs-Debtors had given to secure the corporation's debt? RULING: Defendant-RE&CD's motion for summary judgment was granted. Debtors did not have a cause of action against RE&CD for refusing to release the mortgage Debtors had given to secure the corporation's debt. Under the terms of the modified § 1111(b) election in the corporate bankruptcy, the parties contemplated that the mortgage given by Debtors to RE&CD to secure the corporation's debt would not be released within ten years if the property was sold unless the corporation's debt to RE&CD was paid in full.

27. July 25, 1995. HAGEMAN, LORI ANN. Case No. 95-40211, Chapter 13.       ISSUE: Whether Debtor's plan was confirmable where she proposed that no interest would accrue post-petition on her nondischargeable student loan debts and where she paid her other unsecured creditors in full before beginning payments on her student loans?    RULING: The plan was not confirmable. It erroneously stated interest would not accrue on the non dischargeable student loan debts. It discriminated without cause among classes of unsecured claim holders.

28. August 9, 1995. KURTZ, DARWIN H., Case No. 95-40192, Adversary No. 95-4017.    ISSUE: Whether Plaintiff's discharge and dischargeability complaint had to be dismissed because it was not filed timely under F.Rs.Bankr.P. 4004(a) and 4007(c)?    RULING: The complaint was not filed within 60 days after the date first set for the § 341 meeting of creditors and no extension was requested. Therefore, under F.Rs.Bankr.P. 4004(a) and 4007(c) the complaint had to be dismissed because it was not filed timely.

29. August 9, 1995. TIEDE, RICHARD H. AND DORIS K., Case No. 95-40038, Chapter 7.    ISSUES: (1) Whether the debtors could claim exempt as a homestead their interest in some contract for deed payments? (2) Whether the Trustee's failure to assume a contract for deed on some real property constituted an abandonment of the contract for deed to the debtors?    RULING: (1) Debtors could not claim exempt their interest in some contract for deed payments under South Dakota's homestead laws because they had never occupied the real property as their homestead before the property was sold on a contract for deed. (2) The trustee's failure to assume the contract for deed did not constitute an abandonment of the contract. While the contract was deemed rejected under § 365(d)(1), the purchaser had the option under §§ 365(i) and 365(j) to treat the contract as terminated and seek damages or continue in possession, make the payments, and receive title. Property is not deemed abandoned under § 554(c) until the case is closed.

30. August 10, 1995. EAGLE, JAMES W. AND PATRICIA L. Case No. 92-30072, Chapter 12.    ISSUE: Whether the debtors' second modified plan was confirmable?    RULING: The debtors' second modified plan was not confirmable because the liquidation analysis required under the best interest of creditors test, § 1225(a)(4), was not accurate.

31. August 10, 1995. GRAY, KENDALL L. AND LAURI A. Case No. 50133, Adversary No. 94-5016, Chapter 7.    ISSUE: Whether Defendant was entitled to summary judgment on claim regarding insurance commissions?    RULING: Summary judgment was denied. A material question of fact existed on whether the Plaintiff had breached his contract with Defendant by selling policies for a new company that replaced Defendant's policies.

32. August 10, 1995. RICE, TOMMY O. AND DIANE ELLEN. Case No. 93-40057, Chapter 7.    ISSUE: To what fees are the debtors' counsel entitled when a case is converted from Chapter 13 to Chapter 7?    RULING: The debtor's counsel will be awarded only for services that benefited the estate. Pre-conversion services that unnecessarily prolonged the Chapter 13 will be denied. Compensation for services related to a dischargeability action are the debtors' personal responsibility, not the estate's. Post-conversion, the debtor's attorney may be compensated for attending the Chapter 7 § 341 meeting.

33. August 15, 1995. BUCHHOLZ, ALFRED L. AND JOSEPHINE M. Case No. 94-40526, Chapter 12.    ISSUES: To what extent may a Chapter 12 debtors' counsel be compensated when he is replaced as counsel before a plan is confirmed? [Decision includes some other minor fee issues.]    RULING: The debtors' counsel who was replaced before a plan was confirmed will be compensated the amount was requested.

34. October 2, 1995. VAN DYKE, JOHN W. Case No. L-88-01173S, Chapter 11.    ISSUE: What fees should be allowed to the co-trustee's special counsel and to the Unsecured Creditors Committee's counsel?    RULING: Fees awarded were based on benefit to the estate. Some fees were reduced substantially because counsel had acted at the direction of and for the benefit of one co-trustee personally rather than for the estate's benefit. Other fees were reduced because the itemization of services was inadequate.

35. October 2,1995, VAN DYKE, JOHN W. Case No. L-88-01173S, Adversary No. 95-5010KS, Chapter 11.    ISSUE: Whether claims held by co-trustee personally and by a corporation he controlled should be subordinated to other claims under § 510(c)(1)?    RULING: The claims of the co-trustee and the corporation he controlled were subordinated to all other claims, including administrative expense claims. The co-trustee breached his fiduciary duty when he acted for his own or other's benefit and not for the estate's benefit when managing estate assets. He failed to abide by the terms and deadlines imposed by the confirmed plan and trust. Creditors were harmed by his actions because funds available to pay claims were reduced by increased administrative costs and attorneys' fees.

36. December 1 , 1995, O'MALLEY, SHANNON PATRICK & CARMELITA. Case No. 94-30016, Adversary No. 94-3007, Chapter 7.    ISSUES: (1) Whether the trustee was entitled to turnover of certain personalty from Debtors because it was non exempt estate property? (2) Whether the trustee was entitled to avoid as a preference Debtor's payment of $100,000.00 to the state for restitution on a criminal charge? (3) Whether the trustee was entitled to avoid as preferences Debtor's transfers to family members of stock in a closely held corporation?    RULING: Debtors had to turn over some guns, a coin collection, and a golf cart because they were non exempt estate property. The $100,000.00 restitution payment by Debtor to the state was a voidable preference. Debtor's transfer of stock to family members in February and December 1993 were not voidable preferences. Debtor's transfer of one-half his stock in the closely held corporation to his son was a voidable fraudulent transfer that occurred sometime within one year of Debtor's petition.

37. October 30, 1995, ALLEN, HERBERT W. & DONNA MAE. Case No. 87-10052, Chapter 12.   ISSUE: Whether certain creditors were entitled to participate in a disposable income distribution?    RULING: Two creditors were not entitled to participate in the disposable income distribution because they had waived their unsecured claims when they negotiated their plan treatment.

38. October 26, 1995, BLAKE, WARREN A. & PATRICIA K.. Case No. 95-50058, Adversary No. 95-5009, Chapter 7.    ISSUE: Whether res judicata barred re-litigation of dischargeability complaint when judgment had been entered in state court action but where timely appeal of judgment had been filed?    RULING: Appeal rendered state court judgment not final. Bankruptcy Court granted parties relief from the automatic stay to pursue final judgment in state court.

39. October 27, 1995, KRALL, CHARLES J. & CARMELA M.. Case No. 91-40225, Chapter 11.    ISSUE: Whether Debtors' attorney was entitled to compensation from the estate for services related to an adversary proceeding commenced by Debtors and where no plan had been confirmed in a several-year old case? RULING: Debtors' counsel was not entitled to additional compensation from the estate. Her services rendered in furtherance of the adversary proceeding did not benefit the estate because Debtors' adversary complaint was meritless. Further, confirmation of a plan was unlikely although the case had been pending for some time. Finally, Debtors' counsel previously had received substantial compensation from the estate.

40. October 30, 1995, LAFFEY, FRANCIS D.. Case NO. 93-40570, Chapter 7. ISSUE: Whether Debtor was entitled to have a lien of the IRS satisfied based on his discharge where Debtor claimed he did not owe the taxes?    RULING: Debtor was not entitled to have the IRS's lien deemed satisfied. The lien arose from taxes owed by Debtor, not a separate corporate entity, as claimed by Debtor. Pursuant to §§ 523(a)(1) and 507(a)(8)(C), the lien survived bankruptcy.

41. December 19, 1995: NEUHAUSER RANCH, INC. Case No. 87-50123, Chapter 12.    ISSUE: Whether Debtor had completed all plan payments?    RULING: Debtor owed $58,450.25 in disposable income so all plan payments were not complete.

42. December 19, 1995. RICE, TOMMY O. AND DIANE ELLEN. Case No. 93-40057, Chapter 7.    ISSUE: Whether Debtors' counsel was entitled to additional fees from the estate for services rendered after the case was converted to a Chapter 7?    RULING: The attorney was not entitled to additional fees from the estate for services rendered after the case was converted to a Chapter 7. The services related to a sale of real property by the trustee where the attorney found a potential buyer. The attorney was not employed by the estate, he was not disinterested and so could not be employed retroactively, and some of his gratuitous services should have been performed by the trustee.

43. December 21, 1995. GRAY, KENDALL L. & LAURI A. Case No. 91-50133, Adversary #94-5016, Chapter 7.    ISSUE: Whether Debtor and Trustee were entitled to certain insurance commissions earned by Debtor pre and post-petition?    RULING: Debtor and Trustee were entitled to the insurance sales commissions. There was insufficient evidence that Debtor had breached his contract with the insurance company.

44. December 20, 1995. PATTON, MELVIN L. & SYLVIA P. Case No. 95-40169, Chapter 13.    ISSUE: Whether Debtors' income from Social Security was included in gross income when determining whether they were farmers as defined by § 101(20) and whether their case could be converted from a Chapter 13 to a Chapter 7 under § 1307(e)?    RULING: Debtors' Social Security income was included in gross income when determining whether Debtors were farmers as defined by § 101(20). They did not qualify as farmers and their Chapter 13 case was converted to a Chapter 7.

45. December 20, 1995. VOLBERDING, LOREN E. Case No.93-40057, Chapter 7.      ISSUE: Whether under S.D.C.L. § 58-12-4 Debtor could claim as exempt his cash surrender value in a life insurance policy where his surviving mother was the beneficiary?    RULING: Under S.D.C.L. § 58-12-4, Debtor could claim up to $20,000.00 of the cash surrender value of a life insurance policy exempt. The statute did not require the beneficiary of the policy to be a spouse or child of the debtor.

46. December 22, 1995. SMITH, WILBUR J. AND BETTY J. Case No. 87-30162, Adversary No. 94-3010.    ISSUE: Whether Court's July 31, 1995 decision regarding effect of § 1111(b) election in a related case should be amended?    RULING: Court did not amend its decision. Court did clarify for counsel that it did not rule that § 1111(b) applied in this Chapter 12 case. Instead, the had ruled that Debtors had obligated themselves in the related Chapter 11 case and that those obligations affected their Chapter 12 real property.

APPEAL RECORD

January 2, 1996: WILBUR AND BETTY JEAN SMITH. Case No. 87-30162, Adversary No. 94-3010. Notice of Appeal to District Court filed by Plaintiffs Wilbur and Betty Jean Smith from Order Denying Plaintiffs' Motion to Reconsider and Motion to Amend Decision and Memorandum and Order dated December 22,1995.    APPEAL STATUS:  REVERSED AND REMANDED Judgment entered by District Court on 1-3-97 reversing and remanding Bankruptcy Court's decision.