2007 Decisions

Charles L. Nail, Jr.,  Chief Bankruptcy Judge

Numerical Listing

2007 DECISION SUMMARIES

Charles L. Nail, Jr., Chief Bankruptcy Judge

1.    March 23, 2007.  CLAUSSEN, PATRICIA M. and RONALD (Trustee Lovald v. Claussen), Case No. 05-41815, Adv. No. 06-4046, Chapter 7.  Issue: Whether Debtor and her former husband‛s temporary reallocation of equity in their marital home pursuant to a property settlement in their pre-petition divorce was subject to the case trustee‛s hypothetical lien under 11 U.S.C. § 544(a)(1) where the equity transfer was not recorded with the county register of deeds?   Ruling: The case trustee‛s hypothetical lien under § 544(a)(1) on the equity in the marital home was superior to the former husband‛s temporary interest received in the pre-petition divorce where the divorce decree and attendant property settlement were not recorded with the county register of deeds and where no provision of the divorce decree and attendant property settlement constituted a money judgment owed by Debtor to her former husband that became a statutory judgment lien on the marital home.
 

2.    CHESMORE, KELLY K. and MICHELLE M. (bench ruling - January 18, 2007), Case No. 06-10078, Chapter 7. Issue: Whether Debtors could claim accrued but unpaid wages owing on the date they filed their Chapter 7 petition exempt under S.D.C.L. § 21-18-53?  Ruling: No. S.D.C.L. § 21-18-53 provides “[t]he earnings of a debtor are exempt from process or levy only to the extent provided in §§ 21-18-51 and 21-18-52.” S.D.C.L. §§ 21-18-51 (“Maximum amount subject to garnishment”) and 21-18-52 (“Maximum garnishment allowed for support of any person”) deal only with garnishments, and Debtors’ wages had not been garnished. In addition, by its own terms S.D.C.L. § 21-18-51 does not apply with respect to “any order of any court of bankruptcy under Title 11 of the United States Code.”

3.    KRAFT, JASON N. and KELLY K. (bench ruling - March 15, 2007), Case No. 06-10113, Chapter 7.  Issue: Whether Debtors could claim accrued but unpaid wages not subject to garnishment exempt under S.D.C.L. § 43-45-4?   Ruling: Yes. S.D.C.L. §§ 21-18-53 and 43-45-14 are clear, certain, and unambiguous, and according to their terms, those sections would prevent a debtor from claiming his wages exempt under § 43-45-4 or any other statute other than S.D.C.L. §§ 21-18-51 and -52. However, a literal interpretation of §§ 21-18-53 and 43-45-14 would lead to absurd results. For example, a debtor who was being garnished could protect a specified portion of his accrued but unpaid wages – under §§ 21-18-51 or -52 – but a debtor who was not being garnished could not protect any portion of his accrued but unpaid wages. Similarly, a debtor who received his paycheck the day before filing a bankruptcy petition and deposited his paycheck in his checking account could – assuming he had not maxed out his exemptions under § 43-45-4 – claim those funds exempt, but a debtor who received his paycheck the day after filing a bankruptcy petition could not. The Court must presume the South Dakota legislature did not intend those results. In addition, notwithstanding §§ 21-18-53 and 43-45-14, a debtor may in fact protect his wages under at least two other statutes, S.D.C.L. §§ 15-20-12 and 21-19-17. Those sections – even more clearly than § 43-45-4 – appear to be in direct conflict with §§ 21-18-53 and 43-45-14. However, that conflict is readily resolved if §§ 21-18-53 and 43-45-14 are interpreted to apply only to wages subject to garnishment, so that a debtor may not use § 43-45-4 to exempt any wages he was not able to exempt under §§ 21-18-51 or -52. For these reasons, neither § 21-18-53 nor § 43-45-14 bars a debtor from exempting under § 43-45-4 accrued but unpaid wages not subject to garnishment, to the extent permitted by that section.

In issuing its ruling, the Court also noted the recent amendment to S.D.C.L. § 43-45-14 might well be unconstitutional, inasmuch as it appears to create different exemptions for nonbankruptcy and bankruptcy debtors, see In re Wallace, 347 B.R. 626 (Bankr. W.D. Mich. 2006), and suggested counsel might want to visit with the Bar’s Debtor/Creditor Committee about the propriety of that amendment before March 26, 2007, veto day for the 2007 legislature.

4.    BUCARO, PATRICIA A. (bench ruling - April 9, 2007).  Case No. 05-10326, Chapter 7.  Issue: Whether Debtor, who lived with her 16-year old daughter and an adult male who earned more than Debtor but was not related to either Debtor or her daughter by blood or marriage, was “the head of a family” for the purposes of S.D.C.L. § 43-45-4?  Ruling: Yes. The adult male who lived with Debtor and her daughter was a member of Debtor’s household, but he was not a member of her family. Debtor’s family consisted of Debtor and her 16-year old daughter. Debtor was the sole breadwinner for her family and was thus the head of her family for the purposes of S.D.C.L. § 43-45-4. 

5.    RIEDLINGER, DALE D. and SANDRA M. (bench ruling - April 9, 2007).  Case No. 06-40238, Chapter 7.  Issue: Whether Debtors were the owners of a motor vehicle titled in their name but allegedly owned by their son?  Ruling: Yes. Legal ownership of a vehicle does not pass unless and until title to the vehicle is issued in the owner’s name. Debtors were thus the owners of the motor vehicle.

6.    June 26, 2007.  HUMP, DAVID J. and KAREN L. (United States of America v. David J. Hump, et al.).  Case No. 05-30175, Adv. No. 05-3009, Chapter 12.  Issues: (1) Whether plaintiff was entitled to summary judgment permitting it to record a mortgage that was not recorded on the date debtors-defendants filed their chapter 12 petition? (2) Whether plaintiff was entitled to summary judgment granting it an equitable lien against the real property described in its unrecorded mortgage?   Rulings: (1) No. Plaintiff did not request, or demonstrate cause for, relief from the automatic stay. Plaintiff also did not identify a “generally applicable law” within the meaning of 11 U.S.C. § 546(b)(1) and (b)(1)(A), or demonstrate any such generally applicable law would permit perfection of its mortgage to be effective against an intervening creditor. (2) No. There is some question whether a court may recognize, much less grant, an equitable lien when a mortgage holder has not perfected its lien. Even if the Court were to grant plaintiff such a lien, debtors-defendants would be able to avoid it pursuant to 11 U.S.C. § 544. Granting plaintiff such a lien would therefore serve no legitimate purpose.

7.  September 28, 2007.  PORTER, JAMES WRIGHT (Nathan Johnson, et al. v. James Wright Porter).  Case No. 06-10119, Adv. No. 07-1004, Chapter 7.   Issue: Whether Plaintiffs were entitled to summary judgment with respect to their complaint to determine dischargeability under 11 U.S.C. § 523(a)(6)?   Ruling: Plaintiffs were entitled to summary judgment. Debtor-Defendant was collaterally estopped from relitigating the issue of whether his commencing a state court action against Plaintiffs – in which the jury returned a verdict for Plaintiffs on Plaintiffs’ counterclaim for barratry – fell within the parameters of 11 U.S.C. § 523(a)(6), which excepts from discharge any debt for willful and malicious injury.

Notice of Appeal to Eighth Circuit Court of Appeals filed by Platiniffs Nathan Johnson, Robert D. Johnson, and Northland Auto Center, Inc., on Judge Kornmann's above ruling.  Appeal Status:  Affirmed by Eighth Circuit Court of Appeals on July 28, 2009, (No. 08-1291).      

8.  October 3, 2007.  HORN, BILLY LEE (Habbo G. Fokkena V. Billy Lee Horn).  Case No. 07-50168, Adv. No. 07-5012, Chapter 7.  Issue: Whether the United States Trustee was entitled to judgment on the pleadings with respect to his complaint to determine dischargeability under 11 U.S.C. § 523(a)(10), which provides debts for which a discharge was denied in an earlier chapter 7 case cannot be discharged in a subsequent bankruptcy case?  Ruling: Debtor-Defendant admitted he was denied a discharge in a prior chapter 7 case under 11 U.S.C. §727(a)(4)(A). That was all the United States Trustee needed to establish to prevail under § 523(a)(10). The United States Trustee was therefore entitled to judgment as a matter of law.

9.  October 30, 2007.  MASUR, MICHAEL PAUL AND DEBORA KAE, Case No. 07-40213, Chapter 7.  Issues: (1) Whether a debtor may claim an ownership expense on Line 23 or Line 24 of Official Form B22A for a vehicle the debtor owns free and clear of liens? (2) Whether a debtor may claim an operation expense on Line 22 of Official Form B22A, or an ownership expense on Line 23 or Line 24 of Official Form B22A, for a vehicle the debtor has surrendered to a secured creditor, if the vehicle is still titled in the debtor’s name? (3) Whether a debtor may claim a deduction on Line 42 of Official Form B22A for regular payments on a secured debt, or a deduction on Line 43 of Official Form B22A for cure payments on a secured debt, when the debtor intends to surrender the collateral securing the debt? (4) Whether a debtor may claim a deduction on Line 42 of Official Form B22A for payments on a loan from a qualified retirement plan?   Rulings: (1) A debtor may not claim an ownership expense for a vehicle the debtor owns free and clear of liens. (2) A debtor may not claim either an operation expense or an ownership expense for a vehicle the debtor has surrendered to a secured creditor, even if the vehicle is still titled in the debtor’s name. (3) A debtor may not deduct payments on a secured debt if the debtor intends to surrender the collateral securing the debt. (4) A debtor may not deduct payments on a loan from a qualified retirement plan.

Appeal Record:

November 7, 2007, Michael Paul and Debora Kae Masur.  Case No. 07-40213.  Notice of Appeal filed by Debtors    from the Bankruptcy Court's Memorandum of Decision re: Order Granting Motion to Dismiss Case Under 707(b) entered on October 30, 2007.   Appeal Status:  Pending.

10.  November 27, 2007.  HUFFMAN, MARK PAUL AND KIM MARIE, Case No. 06-50069, Chapter 7.  Issue: Whether an objection to the chapter 7 trustee's final report and proposed distribution should be sustained where the objector argued some personal injury settlement funds the trustee proposed to distribute belonged to it, not the bankruptcy estate? Ruling: The objection was overruled as untimely. The objector had earlier, more appropriate opportunities to raise its ownership argument regarding the subject funds, but failed to do so.
 

11.  KUHNEL, STEPHEN E. and ANGELA G., (bench ruling, December 6, 2007), Bankr. No. 07-50232, Chapter 13 . Issue 1: Whether the Court could confirm a three-year plan when Debtors had above-median income and did not propose to pay their unsecured creditors in full?  Ruling: No. Pursuant to 11 U.S.C. § 1325(b)(4), the Court could not confirm a plan of less than five years.  Issue 2. Whether Debtors had committed their projected disposable income to making payments to their unsecured creditors? Ruling: No. A properly completed Form B22C determines a debtor’s disposable income. However, pursuant to 11 U.S.C. § 1325(b)(1)(B), Debtors were required to commit their projected disposable income. Under their plan, Debtors proposed to surrender a vehicle and their home. Thus, upon confirmation, Debtors would no longer be entitled to either an operation expense or an ownership expense for that vehicle, and they would not be making the monthly payments on either that vehicle or their home. Consequently, Debtors' projected disposable income was greater than both their disposable income and the amount Debtors proposed to pay their unsecured creditors under their plan.

12.  WILSEY, ROGER M., Bankr. No. 07-50230, Chapter 7 (bench ruling, December 13, 2007).  Issue: Whether Debtor, who lived with an adult female who was not related to him by blood or marriage, was "the head of a family" for the purposes of S.D.C.L. § 43-45-4?  Ruling: No. The adult female who lived with Debtor may have been a member of Debtor's household, but she was not a member of his family. Consequently, Debtor may have been the head of a household, but he was not the head of a family, and he was not entitled to claim the $6,000 head of family exemption under S.D.C.L. § 43-45-4. See In re Bucaro, Bankr. No. 05-10326, bench ruling (Bankr. D.S.D. Apr. 9, 2007).