In re Pizzi case brief (lottery winnings)

Case:  In re Pizzi (Bankr. SD Fla. 1993)

Subject: "Are lottery winnings exempt assets in bankruptcy law?"
 

Facts: The debtor won the lottery. The winner filed bankruptcy but has 12 more annual payments due. 

 

Issue: Are the proceeds from lottery winnings exempt from creditor's claims under Florida law? Do they fall within the definition of annuity under Fla. Stat. §222.14?

Holding: No! Lottery winnings are nonexempt assets and must be liquidated to pay the creditors in a bankruptcy.

Analysis: Connecticut purchased an annuity for $1M to pay her $3M prize for the benefit of debtor. The state comptroller would then issue the lottery checks for 19 years. The state is listed as the owner and beneficiary of the contract. The lottery doesn’t refer to the winnings as proceeds of an annuity and the winner isn’t a beneficiary or payee of an annuity.
-If the winner is named as beneficiary to fund a state’s obligation, the winnings may be exempt though.

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In re Johnson case brief (motor vehicles)

Case:  In re Johnson (Bankr. WD Ky. 1981) 
  

Facts:
-The debtor was the owner of a bus. 
-KRS statute exempts one motor vehicle up to $2,500.
-The code uses the word “motor vehicle.” 
-The trustee argues "motor vehicle" is meant to mean automobile.

Issue: Is a bus a car for purposes of KRS exemption?

Holding: Yes. The court states that a bus is a motor vehicle.

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In re Shaw case brief (abuse of chapter 7)

In re Shaw (Bankr. MDNC 2003)   -->

Facts: 
-The Shaws, a married couple, filed for Chapter 7 on May 27, 2003. 
-The Shaws have two children over the age of 20. 
-Their house was valued at $415,000 but they testified it was actually worth less than $400,000. 
-They listed personal property worth $56k. Their AGI for 2001 was $138,000, with an increase in 2002 to $157,000.
-They listed combined total income of $7,800.
-Mrs. Shaw lost her job, but receives $2,700 monthly income as severance. Mr. Shaw just received a raise. 
-Their current Monthly Income is $7889. Their listed monthly expenses are only $7517. 
-They have 3 cars and pay their daughters tuition. 
-The Shaws have $469,000 in secured debt and $131,000 in unsecured credit card debt.
-They have 15 CC accounts!!!

 

Issue: Is dismissal appropriate for substantial abuse under §707(b)

Holding: Yes. This case shows substantial abuse. Delay the order for 10 days to allow them to convert to Chapter 13 if they choose. 

 

Analysis: §101(8) defines their debts as primarily consumer debts. The Fourth Circuit follows a “totality of the circumstances” test to decide substantial abuse. It involves 1) sudden illness, disability, unemployment, 2) the debtor’s schedules and statement of current income and expenses reasonably reflect their true financial condition, 3) whether the debtor incurred cash advances and made consumer purchase in excess of his ability to repay; 4) whether the proposed family budget is excessive or unreasonable; and 5) whether the petition was filed in good faith.

• Debtor can repay a meaningful portion of their unsecured debt over 36 month period based on their income and future expenses.
• If debtor remains in Chapter 7, it will be a no asset case and unsecured receive nothing
• Their family budge is excessive and unreasonable. They ought to reduce their expenses significantly.
• Their son is a deadbeat and they should move to a smaller home. Reduce their phones, cars, and college expenses and it frees up $2k in monthly payments in a Chapter 13 plan.
• A discharge of their debt would be at the expense of the creditors

Author's Note:  This case was crazy!

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Nissan Motor Acceptance Corp. v. Baker case brief (violation of automatic stay)

Nissan Motor Acceptance Corp. v. Baker (ND Tex. 1999)    

Subject:  Violation of the automatic stay
 

Facts: Bankr. Court held that the actions of Nissan, appellant, violated automatic stay of 362. BC entered actual and punitive damages for Appellees Debtors in amount of $23k and reasonable attorney fees and expenses totaling $5k. 
BC gave Appellant option of satisfying actual/puni’s by deliviering a new truck, free and clear of any liens. Court affirms. Debtor filed Chapter 7 on Dec. 30, 1993. They listed their 1991 truck and stated their intent to reaffirm the debt. 
On Jan. 4, 1994, Nissan, without knowledge repo’d the truck. Debtor’s counsel contacted Nissan following the repo to inform them of the debtor’s bankruptcy. On Feb. 23, 1994, Nissan filed for relief from stay, or in the alternative, adequate protection. Nissan sold the truck on March 16, 1994. BC did not know of the sale, granted the motion on June 1, 1994. On Nov. 1994, debtor filed this to seek damages for violating the automatic stay.

Issue: Is the repossession and retention of debtor’s property a violation of the automatic stay? Were there actions willful to merit sanctions? Were actual Damages merited by sufficient evidence?

Holding: Yes and Yes and Yes.

Analysis: §362(a)(3) prohibits “any act to obtain possession of property of the estate or of property from the estate or to exercise control over the property of the estate.” Case law holds that continued retention of property of the estate after notice of the bankruptcy filing is an “exercise of control” over property of the estate in violation of the automatic stay. Nowhere in §363 grants a creditor the authority to self-help to retain property as adequate protection, which is exactly what the creditor did. §542(a) provides that a creditor “shall deliver to the trustee, and account for, estate property or the value of such property.” Appellee testified that their daughter-in-law drove them when necessary, the vehicle was their only transportation, debtor had to drive 90 miles to work, couldn’t secure reliable transportation, and they had to purchase and finance a used car in May to replace their vehicle. 

 

* The court was willing to lift the stay and Nissan could have had the car. BUT when it acted on its own without approval, it had to pay nearly $30k in damages. Lesson learned.

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In re Burgess case brief (licenses in bankruptcy)

In re Burgess (Bankr. D. Nev. 1999)   -->

Facts: Since 1983 debtor ran a legal brothel. On July 30, 1997, debtor filed under Chapter 11. On June 2, 1998, the county revoked the debtor’s brothel license for associating with the Hell’s Angels. Bankruptcy court denied the request to undo the revocation of the license and debtor appealed. 

 

Issue: Under §362 was the debtor entitled to a reversal of the revocation of his license and damages? Was the license property or personal privilege?

Holding: Brothel license is more like a liquor license than a license to practice law.

Analysis: §541 creates the estate w/ all property of the debtor. While state law creates the right, federal law determines whether it is property for purposes of the federal bankruptcy laws, tax laws, etc. Similar licenses issued by state agencies are property for bankruptcy purposes. Most courts hold that liquor licenses are property under bankruptcy laws. Licenses to operate a track or casino are property of the estate. Some courts consider licenses to sell lottery tickets, airport slips, and driver’s licenses as not property. Attorney license to practice is not property.

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In re Orkin case brief (retirement plan and bankruptcy)

 In re Orkin (Bankr. D. Mass 1994)

Facts: Debtor was sole proprietor of R/E biz. On June 22, 1992, he established the Orkin Retirement Plan. He transferred $270k into the plan, representing the proceeds of an IRA. Debtor was employer, sole employee, and sole participant. He then filed under Chapter 7 on February 24, 1994. Plan was valued at $295k. He claims its not property of the estate under §541(c)(2) as a spendthrift trust. Trustee disagrees.

Issue: Is the debtor’s retirement plan excused as property of the estate?

Holding: No. It is property of the estate b/c he has control over it and it is not ERISA qualified.

Analysis: Is the debtor’s plan “ERISA qualified?” ERISA mandates that a plan not be assignable or alienable. It also requires compliance w/ the IRC. Trustee argues that Orkin is not an employee under ERISA. Also he argues that the plan’s anti-alienation clause is unenforceable under IRC §401(a)(13).

1. Trustee is correct in that an employer can not be an employee as well for ERISA benefits.
2. State Law issues: Debtor can exclude a pension plan from the estate if he can show a restriction on transfer enforceable under applicable state law. Here, the debtor has the sole discretion to terminate the trust w/ 60 day’s notice so it must be included in property of the estate.

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Sharp v. Dery case brief (employee bonus in bankruptcy)

Sharp v. Dery (ED MICH. 2000)

Subject:  How to deal with a post-petition employee bonus in bankruptcy.

Facts: Debtor filed on Dec. 21, 1998. At that time, through Feb. 1999, he was employed. On Feb 22. Debtor received an employee bonus of $11k. The bonus was for FY Jan. 1 to Dec. 31. To receive the bonus he had to be employed and in good standing when they were issued. The employer had the right to terminate the bonus plan at any time. The timing was also under their discretion. 

 

Issue: Was the post-petition bonus property of the state? Bankruptcy court said yes. Trustee is holding the funds in escrow pending the outcome on appeal.

Holding: Did the debtor have an enforceable right to receive the bonus check when he filed on December 21, 1998? Whether a bonus plan under which Debtor had no contractual right to payment as of Dec. 21 gave debtor an enforceable right to the bonus check he would eventually receive in Feb. 1998?The bonus check was “dependent upon the continued services o the debtor subsequent to the petition, and does not constitute property of the estate.”

Analysis: §541(a) creates the estate. It includes “all legal or equitable interests of the Debtor in property as of the commencement of the case,” subject to limited exceptions. Court must look to state law to decide when the debtor had a legal right or equitable interest in the property when he filed for bankruptcy. Michigan law embraces that an employee who ends his employment before the closing date of a bonus period, thereby failing to establish a contractually mandated condition for receipt of the bonus, forfeits eligibility for the bonus dividend. As of December 21, the debtor had no legally enforceable interest in the check he later received on Feb. 22. 

 

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In re Bay Plastics, Inc. case brief (leveraged buyout/fraudulent transfer)

In re Bay Plastics, Inc. (Bankr. CD Cal. 1995)   

Subject:  Leveraged buyout and Fradulent Transfers.

Facts: Shareholders formed debtor Bay Plastic in 1979. They filed for bankruptcy on January 25, 1990. 
-Shareholders sold their stock to Milhous for $3.5 M in cash plus $1.8 M in deferred payments. Milhous didn’t acquire the stock directly. 
-Its subsidiary Nicole Plactics formed its own subsidiary, BPI Acquisition Corp.(“BPI”), to take ownership of the BP stock. Formally, the parties to the transaction were BPI and the selling shareholders. Milhous put no money into the purchase. 
-Bay Plastics borrowed approximately $3.95 M from defendant BT Comm. Corp. and then caused Bay Plastics to direct that $3.5 M of the loan to be disbursed to BPI. BPI then paid the selling shareholders for their stock. Thus at closing, $3.5 M of the funds paid into escrow by BT went directly to the selling shareholders. BT received a first priority security interest in all the assets of Bay Plastics. 
-BT received it all and nothing is left for the unsecureds. All of the debt except for $500k owed to BT was a result of the LBO. The shareholders knew about the financing. 

 

Issue: Is the leveraged buyout that took place in this case a fraudulent transfer?

Holding: Yes.  The transaction may be avoided as a constructive fraudulent transfer under the Cal. UFTA on which the debtor relies pursuant to B.R. Code §544(b), and the debtor is entitled to recover against the selling shareholders.

Under UFTA §5 for a constructive fraudulent transfer rendering the debtor insolvent. Elements of a cause of action under this statute are as follows: the debtor 1) made a transfer or incurred an obligation, 2) without receiving a reasonably equivalent value in exchange, 3) which rendered the debtor insolvent (or debtor already insolvent), and 4) which is attacked by a pre-transaction creditor.

Analysis: Should the court collapse the transaction into one integrated transaction? Is it a straight sale without an LBO? If there is evidence that the parties knew or should have known that the transaction would deplete the assets of the company, the Court should look beyond the formal structure and collapse the transaction. Also, goodwill cannot be retained in Bankruptcy. Therefore, debtor is insolvent.

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Twyne's Case (Star Chamber, 1601) case brief

TWYNE’S CASE (Star Chamber, 1601)  

Facts: Pierce was indebted to Twyne and C. C brought an action of debt against Pierce, and pending the writ, Pierce being possessed of goods and chattels of the value of 300 pounds, in secret made a general deed of gift of all his goods and chattels real and personal whatsoever to Twyne, in satisfaction of his debt; notwithstanding that Pierce continued in possession of the said goods, and some of them he sold; and he shore the sheep, and marked them w/ his own mark: and after C had judgment against Pierce, and had a fi. Fa. Directed to he Sheriff who executed of the said goods. Twyne said they were gifts.

Issue: Were the gifts fraudulent transfers?

Holding: Yes. Gifts were not for fair consideration. Donor continued in possession and used them. Made in secret. It was made pending the writ. There was a trust between the parties.

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Network Solutions, Inc. v. Umbro International, Inc. case brief (garnishment of contractual rights/domain name)

Network Solutions, Inc. v. Umbro International, Inc. (Va. Sup. Ct. 2000)  

Subject:  Garnishment of contractural rights.

Facts: 
-Umbro got default and permanent injunction against Canada corp. (judgment debtor). 
-Involved the judgment debtor’s registration of the internet domain name “umbro.com.” Enjoined the debtor from use of the domain name and awarded Umbro $23k for fees and expenses. 
-Umbro named Network solutions as the garnishee and sought to garnish 38 internet domain names that the judgment debtor registered w/ NSI. 
-Umbro asked NSI to place them on hold and to deposit control of them into the registry of the court so the names could be advertised and sold. 
-NSI objected that the sites were standardized, executory service contracts or domain name registration agreements. 

 

Issue: Whether a contractual right to use an Internet domain can be garnished?

Holding: Such a contractual right is the product of a contract for services and hence is not subject to garnishment. 

 

Analysis: NSI assigns domain names for a fee. NSI compares apps w/ a database of existing domain names to prevent the registration of identical domain names. They then match the domain name to the corresponding IP address. Because the contracts contain mutual obligations and liabilities one party cannot assign it without consent of the other party. However, may still garnish money due under a contract, but not the services.

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Commonwealth Edison v. Denson case brief

Commonwealth Edison v. Denson (Ill. App. 1986)  

Facts: Employer-Caterpillar- appeals from two separate judgments of circuit court of the county. First action brought by plaintiff-appellee, Com Ed to collect monies due by Denson. On June 1984, court entered judgment against Denson for $600 plus costs. Summons was issued for a wage deduction order in the amount of the judgment and Com Ed served interrogatories on Caterpillar, Denson’s current employer. Caterpillar responded and forwarded a check to Com Ed for $140. It declined to deduct the full amount because it already deducted $60 per week for a support order. The second action was brought by plaintiff-appellee, Newsome PT to collect monies due and owing by Dwight Morgan. On October 1984, the court entered judgment for Newsome against Morgan for $748. Summons was issued and Newsome served interrogatories on Caterpillar, Morgan’s current employer. Cat contends that under Illinois law, no garnishment is allowed that would exceed the lesser of 15% of gross earnings, or the amount by which the weekly disposable earnings exceed 30 times the Federal minimum hourly wage, which was 3.35 at the time. The garnishment restrictions of the Consumer Credit Protection Act preempts state laws insofar as state laws would permit recovery in excess of 25% of an individual’s disposable earnings. 15 USC §1673.

Issue: Are support orders and creditor garnishment to be calculated separately? 

 

Holding: No combine the two. If the support order is 25%, and the support garnishment has priority in accordance w/ state law, the CCPA does not permit the withholding of any additional amounts pursuant to an ordinary garnishment, which is subject to the restrictions of 1673.

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Webb v. Erickson case brief (reversal of garnishment)

Webb v. Erickson (1982)

Subject: Reverse of garnishment.

Facts: Webb obtained default judgment against Erickson’s in amount of $5000 plus interest and $1500 in attorney’s fees based on two promissory notes and a check for insufficient funds executed by Erickson. 
-Erickson earned commissions as a real estate agent. Webb caused several writs of garnishment to be served on houses sold by Erickson. 
-One of these parties was Bates. Process designated Bates as a garnishee-defendant in an action based on the Webb/Erickson judgment. 
-Bates stated that in November 1975 he had been released from a hospital after 7-week stay. Bates stated that he did not understand the service on him. Bates never answered the writ b/c he believed the whole thing was in escrow. 
- Feb. 27 1976, Webb obtained a default on Bates for the whole judgment on Erickson. No copy of the judgment was mailed to Bates. 
-Three years passed, and in March 1979, Webb’s attorney notified Bates. 
-August 1979, Webb served a writ of garnishment on Bates’ employer, garnishing his wages for the full amount. 

Procedural History:  Aug. 1979 Bates filed a motion to vacate and to stay the execution of judgment. The trial court granted it. Webb appealed and the court reversed. Granted review and vacated and affirm the judgment of the trial court.

Issue: Was it proper for the court to reverse the garnishment on Bates?

Holding: Yes.  More liberal in allowing the belated garnishee to answer after default than in granting the privilege to an ordinary suitor defaulter, since he is a disinterested party in the proceedings, so far as any prospect of being benefitted is concerned, yet an interested third person so far as the danger of being injured is concerned. Excusable neglect by Bates. Reasons for Bates’ failure to understand and answer relate to excusable neglect.

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Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 2

 Problem Set #2

2.1. Rollins sued by 3 suppliers for $100k each

1)A – Judgment = November 1^st

2)B – Judgment = November 10^th Writ of Execution = November 15^th

3)C – Judgment = November 20^th Writ of Execution = November 22^nd = Sheriff executed = November 25^th (all appliances)

We Represent B: Appliances will bring $150k at the sheriff’s sale. Who gets the proceeds from the sale? Can we Change that?

• Depends on the rules of the state. Most states require levy to perfect a judgment. Most likely C will get $100k, our client will need to levy on the property to get his $50k. Some states allow for the relates-back doctrine, so our client could have a priority over C if, and only if, we levy on the appliances before sale.

2.2. 5 creditors w/ judgments against SBC, but only Harry executed. Nov. 25^th the Sheriff announced he was seizing all the shoes in the store, but SBC’s lawyer convinced Harry to come to a meeting the next day and not seize the shoes. Our client consented to the meeting and a workout plan. Then, on December 1^st, SBC granted a security interest in the entire inventory to Bank for $200k operating capital. It was properly perfected on December 5^th. Store closed on January 5^th. Sale of all the shoes will bring $200k. How will it be divided? How could you have better protected your client while still going along w/ the workout plan?

• Harry probably waived the perfection of his judgment. Bank will get the full value of its outstanding loan, b/c it was the first to perfect its interest. Harry will get what is left so long as he levies on the property again.
• Should have gotten a security interest on workout day, or a written K guaranteeing their loan by the principal, or

2.3. Omar (client) has judgment for breach of K against Forman Handler. Handler has a LOC for $350k in his name upon a presentation of an engineer’s certificate that a design job has been satisfactorily completed. It is assignable. How do we collect? What will we need to show in court and how can we get the evidence to make the showing?

• FRCP 69 and state laws allow discovery concerning the debtor’s assets.
• Seek a turnover order from the Court – Will need to show that 1) not readily be attached or levied on by normal legal process, and 2) is not exempt from attachment, execution, or seizure. See Gerdes.
• Evidence showing that the LOC is in Forman’s name, the document, etc. Also will need a certificate showing satisfactory completion.

5. Garnishment
   1. Used to attach debts owed to the debtor for the benefit of the debtor’s judgment creditor. A creditor may garnish a debtor’s wages by obtaining a writ directing the employer to pay the wages to the employee’s creditor rather than to the employee. Can also garnish a bank account or obtain an order to turn over the contents of a safety deposit box.
   2. 2 parts: 1) questions designed to determine whether the party served w/ the writ “garnishee” owes any money to the debtor or has any property belonging to the debtor, and 2) a command to the garnishee to withhold payment or return of the debtor’s property pending further order of the court. If garnishee answers falsely or disobeys the command to withhold payment it may be liable to the judgment creditor. It also goes for a bank that honors the debtor’s checks after service of the writ.
   3. IT is an ancillary lawsuit against the third party garnishee.
   4. Most states the garnishing creditor gets a temporal “net” the time b/t service of the garnishment writ and the garnishee’s answer—during which the creditor can hope to “catch” obligations arising in favor of the debtor. Thus the garnishment of a bank account will “catch” not only the amount on deposit on the service date but also funds deposited thereafter prior to the answer. The creditor’s net may even extend to the time of the garnishment trial.

 Problem Sets: Table of Contents

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Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 1

 PROBLEM SET #1

1. List of potential debts and assets for both consumer and business clients?

Asset. Anything of value that you own, car, stock, house, a claim against someone, insurance policy, some are contingent assets, i.e., the right to receive alimony. Debt. Debt is any money, property, or legal right that you owe to someone either currently or in the future.

1.2. Security Bank sees others being paid, but not it. Debtor’s expenses exceed income. Their options:

(1) Threaten to report her to a credit-reporting agency;

(2) Threaten to forgive the debt and report it as income to the IRS;

(3) Refinance and make the payments more manageable.;

(4) Ask Debtor for a security interest in her property; a security interest provides:

(a) Leverage—if the item is important to the borrower, then you won’t have to repossess, they will borrow from friends and family,

(b) Collateral control—if they need further credit, and the other creditors ask for collateral, they won’t have anything to offer as collateral,

(c) Loss reduction.  Somewhere down the line the bank make actually want to file suit.

1.4. FDCPA §§803-808. §803 defines who a debt collector is. If you are collecting your own debts you aren’t a debt collector and don’t need to follow the rules. §807 makes certain practices illegal, including misrepresentation that you plan to apply for a warrant for an arrest, because private citizens can’t do this. Marquette v. First Omaha allows banks to charge any interest rate that is legal in their chartered location.

1.6. Attorney sent out demand letter on client’s behalf stating that he would take immediate action, including a lawsuit, if the outstanding amount isn’t paid. ∆ seeks to settle if client will drop all claims b/c you violated the FDCPA.

• The act defines debt collector as “those who regularly collect or attempt to collect, consumer debts owed…” 1692a(6). Attorneys are not exempted from the reaches of the FDCPA. See Heintz.
• Must look at the statute to see if 1) the attorney is a debt collector (Does he regularly collect consumer debts owed?), and 2) did he actually violate any provision of the FDCPA?
• Attorney has good arguments that he is not a debt collector and didn’t violate any provision. Must inform your client of the letter and then get her informed consent to take action.

 Problem Sets: Table of Contents

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Estancias Dallas Corp v. Schultz case brief

 Estancias Dallas Corp v. Schultz (TX 1973, DK646)

• Facts: homeowners brought suit against apartment complex for noise nuisance: massive air conditioning unit for the 115-unit apartment complex. Ps had suffered $10k damages up to date of trial. Before granting injunction in Texas, the courts have to balance the equalities (is the benefit of relief to P greater than negative effect of relief to D). 
   
• Rule: Even though a jury finds facts constituting a nuisance, court must balance the equities to determine if an injunction should be granted.
  
  
• Holding: Property rule protection for neighbors (fairness)
  • landowners were entitled to injunction against operation of air-conditioning equipment despite failure of jury to give affirmative answer to proximate cause issues related to damages.
  • there is no major public benefit at stake, but the sharp decrease in property values after installation of the air conditioning unit indicates the nuisance level
  • better justification: were real harms suffered by Schultzes that were difficult to monetize (public values at stake?)…intangible harms?
  • it is not possible for Schultzes to buy out the apartment complex to arrive at “dollars and cents” efficient solution

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Morgan v. High Penn Oil case brief

Morgan v. High Penn Oil (NC 1953, DK639)

• Facts: P lived and worked on some land, starting in 1945 (dwelling house and trailer park)…∆ oil refinery opened in 1950, emitted noxious fumes and soot; sickened Ps and other nearby landowners. Ps notified Ds about problems and demanded that they stop. 
  D continued to operate. 
  TC said: Refinery was a nuisance…Box II Liability rule. NC Sup. Ct. affirmed and granted injunctive relief. 
   
• Rule: Lawful conduct which is non-negligent may constitute a nuisance if it is intentional and unreasonable under the circumstances.
  
  
• Holding: D is a nuisance per accidens and is thereby enjoined
  • Threshold test of substantiality: Does it cross the threshold to substantial harm? If so, then injunction
  • Restatement: 2 possible interpretations

1. Ordinary person test
2. How abnormal the use is (if everyone is doing it, probably not a nuisance)

• Rationale:
  • D intentionally and unreasonably released gases and odors to substantially impact the air quality and negatively harm P’s ability to enjoy his private land.
  • the injunction was not unreasonable to prevent further continuing harm to the plaintiffs
  • “Intentionally…caused noxious gases and odors to escape onto the nine acres of the Ps to such a degree as to impair in a substantial manner the Ps use and enjoyment of their land.”
    
    
• Court doesn’t consider whether the costs of shutting down D outweigh the benefits

In re Burgess case brief (brothel license revocation in bankruptcy)

 In re Burgess, (Bankr. D. NV 1999)

• Issue:  Under §362, whether the debtor was entitled to a reversal of the revocation of his brothel license and damages depended upon whether the license was property of the debtor.
  
  
• Holding: This court reversed the trial court’s decision that the brothel license is not property, but rather a “personal privilege.” Brothel license is property.
  
  
• Reason:

• It does not matter for the state law to name a right as “privilege.” The dispositive standard is it is treated as property for purpose of the federal bankruptcy law. It seems whether something is property is under de novo consideration for the bankruptcy courts, the state right seems irrelevant.
• In this case, the brothel license has enormous value for the estate-otherwise no business left to reorganize under chapter 11.
• If it is not the property, it will be against the goal of the Congress to encourage the reorganization.

• §541(c). If the state law says that it is a property and is not transferable. Does the state law preclude the transfer of the property from the debtor to the estate? NO.
• Underlying Sticks Defined by State Law

• Pottow's take: State law defines the outlines of property. Whether they call it property or not is not determinative. However, if the state grants licenses for this, allows it to be transferable, etc., those are factors that the bankruptcy court considers. State law defines the bundle of sticks of the property contention.

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Sharp v. Dery case brief

Sharp v. Dery
253 B.R. 204 (E.D. Mich. 2000)

Facts: Debtor filed a Chapter 7 petition on Dec 21, 1998. On Feb.22, 1999, he received a bonus check from his employer for $11,331.63.

Issues: Was the post-petition bonus the property of estate? Did Debtor have an enforceable right to receive the bonus check when he filed his petition?

Procedural History: The bankruptcy court held that it was the property of estate, because the employer had no discretion as to the amount and timing of any bonus, since the bonus was based on a percentage of the employer’s salary. This court thought that though the employer had no discretion on amount and timing, it could decide not to give any bonus.

Holding: No, the Debtor had no enforceable right to the bonus when he filed a petition. The employer, as of the date the debtor filed for bankruptcy, could have decided not to pay any bonus at all under the terms of the bonus plan itself.

How to argue the future bonus is the property of estate? It is for the service rendered. But the courts may think the debtor has not been vested these benefits.

Principle: When post-petition income is dependent upon the continued services of the debtor subsequent to the petition, the amounts do not constitute property o the estate.


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Webb v. Erickson case brief

Webb v. Erickson 

134 Ariz. 182, 655 P.2d 6 (1982)

• Judgment creditor is superior because secured creditor did not perfect before truck was levied upon.

Garnishing creditor’s temporal net:

• The time between service of the garnishment writ and the garnishee’s answer, during which the creditor can hope to catch obligations arising in favor of the creditor.
• The garnishment of a bank account will catch not only the amount on deposit on the service date but also funds deposited thereafter prior to the answer.
• If a garnishment is contested and a trial is to be held, the creditor’s net may even extend to the time of the garnishment trial.
• Service: the official delivery of legal documents ("service of process") such as a summons, subpoena, complaint, order to show cause (order to appear to show reasons why a judge should not make a particular order), writ (court order), or notice to quit the premises, as well as delivery by mail or in person of documents to opposing attorneys or parties, such as answers, motions, points and authorities, demands and responses.

What is the garnishment different from the execution?

• Writ of Garnishment is different from Writ of Execution in that the Execution is directed at the debtor; the Garnishment is directed at the debtor of the debtor. He is the creditor’s friend.
• Same: legally enforceable document

Restriction on wage garnishment

• Generally the federal restricts the garnishment of wages.

Garnish the contractual rights

• The property in bankruptcy includes the valuable contractual rights
• Some contractual rights can be garnished; some not.
• Network solutions v. UMBRO International, 2000, p.69

Holding: A contractual right to use the internet domain name is not garnishable because of the privity of the contract. A K for services is not a liability and hence is not subject to a garnishment.

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Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 22

 Problem Set 22, p.476

22.1

• 9-317(e) PMSI security interest has a look-back window with a priority over the lien creditor arising between the time the security interest attaches and the time of filing. Here the problem is that the security interest is not timely perfected; so screwed
• §544(a) it is likely to be avoided by the TIB.

22.2

• Perfecting the security interest after learning about the bankruptcy filing would usually violate the automatic stay; but
• According to §362(b)(3) the automatic stay does not prohibit the perfection of the security interest under §546 (b) or the extent that such perfection is accomplished within the period in §547(e)(2)(A)
• §546(b): The rights and powers of a trustee under §544 (the strong arm clause), §545, and §549 are subject to the generally applicable law that permit perfection.

• Generally applicable law means 9-317(e) PMSI 20-day look-back window.
• Perfection under 9-317(e) also gets the priority of PMSI.

• §547(e)(2)(A) has a 30-day grace period to perfect a security interest in the transfer of real property. It is superior to a BFP. We do not care about the 20 days any more.

22.3

• BFP gets the land free of mortgage or not? Get the land free of mortgage unless it is recorded; mortgage is a serious thing, so lack of the signature may not beat the BFP; so TIB or DIP may have a power to avoid the defective mortgage.

 Problem Sets: Table of Contents

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Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 18

 Problem Set 18, p.383

18.1

• As an attorney, how can you find that the debtor also missed other bills? How to make the debtor to tell you?

• UCC search for the personal credit; hire a private detective, credit firms.
• Maintain the relationship with the clients: through the personal approach.
• Lure the debtor: if you can prove it cannot pay the bill, we would negotiate with this debt.
• Pre-Contract it.

• Pottow: Just sue it; discovery procedure.
• The risk is that if the involuntary petition is dismissed, the creditor may have to pay the fees and costs and the debtor, and also possible punitive damages if he is regarded as in bad faith.

18.2

• I would like to ask

• how many creditors he has;
• how much debt he owes;
• whether he can expect how many creditors would join in SSB’s suit.

• Alternative methods?

• Grace period to pay: but it may be found by other creditors and force it to go bankrupt
• Why not give SSB a lien silently? Fraudulent conveyance.

• Equity insolvency; balance insolvency; I am not persuaded that he is insolvent from the balance sheet §303(h).

• But §303(h) is a “generally not paying standard”, right?

18.5

• Can Universal file the petition under §303(b)? How to calculate the number of creditors?

• Insider? See §101(31).
• A case in the textbook: You cannot mechanically calculate the number of the debtor, and we should care the policy behind the number.
• Universal cannot count its subsidiaries; they may be regarded as one person.

• §303(h) generally not paying?
• §303(i) - Shifting the expense; if you sue others wrongfully, you shoulder the expense.
• Is the debtor in bad faith? Laughing.

• Fraudulent conveyance?

18.6

• §303(a) – the debtor should be a person or an incorporated corporation. But the committee is not incorporated.
• Mon-commercial corporation
• What is a moneyed corporation?
• Pottow: I am afraid that they may not file against the committee?

18.7

• §303(a) – the concern here is whether he is a farmer that is an exception. But here he is not a farmer
• Is it bad faith for AFF to transfer his assets to his friends?

18.8

• Good faith requirement
• Bad faith – punitive damages?
  
  

 Problem Sets: Table of Contents

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Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 14

 Problem Set 14, p.306

1. First there is an automatic stay for any repossession, so IC cannot take it at will.

Second, IC should bring a petition to lift the stay under §362(d), and he has two choices.

• IC can rely on §362(d)(1) for the cause of lack of adequate protection under §361.

• What can be the argument for lack of adequate protection? Like market drop, depreciation, tear and wear, etc.; but IC cannot get the opportunity cost and therefore ask for post-petition interest,
• What can the debtor do for the adequate protection? See §361: cash payment, replacement lien, additional insurance, and others.

• IC can also rely on §362(d)(2): the debtor has no equity in the property and the property is not necessary for the effective reorganization.

• We calculate the equity following the petition valuation.
• Under §1325, the secured creditors must be paid in full for the confirmation of plan; the debtors can pay the creditor lump-sum cash or installment with a market interest.

(Notes about the interest: Pre-bankruptcy, creditors get the interest; from bankruptcy to confirmation: no interest; from confirmation, post-confirmation over three years: you have interest)

2. First, what is LL’s allowed claim? $39980 (principal) + $12300 (pre-petition interest) = about $52K (Note: if it is oversecured claim, the creditor can be entitled to post-petition interest with the K rate)

Second, we bifurcate the claims: 41K secured claims to the extent of the value of the collateral; $11K unsecured claims

Third, for the secured claim, George had to pay back in full with the interest.

• What kind of interest should be paid? Prime interest rate + adjustment

3. First, it should be the replacement value without deduction of the costs of sale or marketing under §506(a)(2).

• Replacement value: the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined.

Second, how much should the debtor pay? Under §1325(a)(9), she should pay the purchase money loan for the car within 910 days before the petition in full. Can't bifurcate claim into allowed secured and unsecured claim.

• Disputing point: §1325(a)(9) requires the car for personal use; but here it may be argued that it is for the use of business

Notes: No modification for houses: §1322(b) (2).

4. §1322(b) (2) you cannot modify the rights of holders of secured claims if the claim is only secured by the debtor’s principal residence. So the debtor has to pay the full mortgage of $182k and the market interest

§1322(b)(5) the debtor has to reinstate the mortgage and cure the defaults

This is pretty tough for the debtor, so why does the Congress do this? Good lobby from the mortgage capital.

5. How about the filing in bad faith? Does it still get the automatic stay? Yes, until it is dismissed.

• §109(h). §521(b). Credit counseling service? §521 certificate for credit counseling and the repayment plan. What is this for? Modification of the automatic stay. When you file for bankruptcy, the clerk will require the certificates; if not, the filing still gets the automatic stay until it is dismissed. Without the credit counseling certificate, it will be dismissed. So you cannot use the bankruptcy filing as an instant strategic tool any more.
•  Do they have a previous remedy under bankruptcy? §362(c)(3) limit the stay. The stay will terminate on the 30^th day after the filing if the debtor has a pending case within the proceeding 1 year but was dismissed. (c)(3)(B) requires good faith.
• §362(b)(22) stay on eviction between the lessor and lessee.

6. They can file for CH 13 and they can modify the claims in their repayment plan, including secured or unsecured; but they cannot modify the claims secured by their principal residence.

But the question is whether you advise them to file for CH 13 or Ch 7? What is the downside of CH 13?

• They cannot modify the home mortgage.
• The repayment is 3-5 years; very long.

For the CH 7, they can get rid of all the debts, but they cannot keep their equity. If they want to, they have to reaffirm the claims with the creditors, in which the creditors have more bargaining power.

The baseline to take CH 7 or CH 13 is

• If the mortgage is high, CH 7 is more favorable to the debtors? If the mortgage is low, CH 13 is better.
• File for Chapter 7 to get rid of unsecured debt. Try to get reaffirmation on mortgage. Bank can repossess but will likely negotiate a deal.

Problem Sets: Table of Contents
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