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This page is a compilation of some of the recent developments in our firm’s Practice Areas. To check for updates in your area of interest, simply click on the Practice Area to your left.

Bankruptcy

In re Spence, 541 F.3d 538 (4th Cir. 2008).
Docket No. 06-2114, decided July 30, 2008.

A debtor filed filed bankruptcy and sought to discharge her government-backed student loan debt pursuant to 11 U.S.C. § 523(a)(8), which permits the bankruptcy court to discharge student loan debt if repayment of those loans would constitute “an undue hardship on the debtor and the debtor’s dependents.” Under the Brunner test adopted by the Fourth Circuit, debtors must show that: (1) they cannot maintain, based on current income and expenses, a minimal standard of living for themselves and their dependents if forced to repay the loans; (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of their student loans; and (3) they have made good-faith efforts to repay their student loans. The bankruptcy court found that the debtor satisfied the Brunner test and discharged the debt, but the district court reversed. On appeal, the United States Court of Appeals for the Fourth Circuit affirmed the district court’s judgment on the basis that the debtor had not demonstrated a good-faith effort to obtain higher-paying employment for which she was well-qualified. Therefore, the court found that she had not made good-faith efforts to repay her loans and that the circumstances did not indicate that her inability to maintain a minimal standard of living was likely to persist.

Tidewater Finance Co. v. Kenney, 531 F.3d 312 (4th Cir. 2008).
Docket No. 07-1664, decided June 25, 2008.

A debtor financed the purchase of a vehicle and gave the finance company a purchase money security interest in the vehicle to secure the debt. A few months later, the debtor filed bankruptcy. The finance company repossessed the vehicle and filed a proof of claim listing an unsecured debt representing the portion of the total debt not covered by the sale of the vehicle. The Bankruptcy Court held that the “hanging paragraph” in 11 U.S.C. § 1325(a), added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, prevents “910 creditors” such as the finance company from asserting an unsecured deficiency claim for any portion of the debt not covered by the sale of the vehicle. However, the United States Court of Appeals for the Fourth Circuit vacated the Bankruptcy Court’s order, holding that because the Bankruptcy Code is silent on the issue, once a “910 vehicle” is surrendered by the debtor, the parties are left to their contractual rights and obligations pursuant to the principle that state law determines the rights and obligations of the parties when the Bankruptcy Code fails to supply a federal rule. Thus, the finance company was entitled to pursue an unsecured deficiency claim under state law.

In re Meredith, 527 F.3d 372 (4th Cir. 2008).
Docket No. 07-1509, decided June 3, 2008.

A judgment was entered and involuntary bankruptcy proceedings were initiated against a professional corporation through which the debtor operated an accounting practice. Around the same time, the debtor transferred the practice to another corporate entity, of which the debtor’s wife was the president and sole shareholder. Shortly thereafter, the debtor again transferred the practice to yet another entity. The bankruptcy trustee brought an action against the debtor’s wife, arguing that the transfers of the accounting practice were made for her benefit. The bankruptcy and district courts denied recovery against the debtor’s wife, and the United States Court of Appeals for the Fourth Circuit affirmed. The court found that the debtor’s wife had merely been, for a brief period of time, the nominal owner of a business effectively controlled by her husband, a fact which did not demonstrate that she received any benefit from that ownership. Thus, the court concluded that she was not “the entity for whose benefit” the transfers were made under 11 U.S.C. § 550(a)(1).

In re Jordan, 521 F.3d 430 (4th Cir. 2008).
Docket No. 06-2154, decided April 3, 2008.

A debtor filed a Chapter 7 bankruptcy petition, and the Bankruptcy Court issued an administrative order directing the debtor not to “sell, transfer, remove, destroy, mutilate or conceal any of [her] property[.]” One week after she was discharged from bankruptcy, the debtor refinanced her home. The bankruptcy moved to revoke her discharge on the grounds that she had violated the administrative order by “transferring” her property. The Bankruptcy Court found that the debtor’s noncompliance was not “willful” but that her intent was a non-issue under 11 U.S.C. § 727(a)(6)(A), and therefore the court revoked the discharge. On appeal, the United States Court of Appeals for the Fourth Circuit held that because the statute requires that for a discharge to be revoked, the debtor must be shown to have “refused” to comply with an order. A finding that she “failed” to comply is insufficient. Thus, the debtor’s noncompliance must have been willful and intentional in order to support revocation of her discharge. The court found that because the administrative order did not clearly prohibit refinancing, and because the debtor could not have been expected to know that a refinancing was technically a “transfer,” the debtor’s failure to comply was not willful. Thus, the court reversed the revocation of discharge.

In re Mosko, 515 F.3d 319 (4th Cir. 2008).
Docket No. 06-2076, decided February 12, 2008.

The debtors, a married couple, filed bankruptcy and sought to discharge their government-backed student loan debt pursuant to 11 U.S.C. § 523(a)(8), which permits the bankruptcy court to discharge student loan debt if repayment of those loans would constitute “an undue hardship on the debtor and the debtor’s dependents.” Under the Brunner test adopted by the Fourth Circuit, debtors must show that: (1) they cannot maintain, based on current income and expenses, a minimal standard of living for themselves and their dependents if forced to repay the loans; (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of their student loans; and (3) they have made good-faith efforts to repay their student loans. The bankruptcy court found that the debtors satisfied the Brunner test and discharged the debt, but the United States Court of Appeals for the Fourth Circuit reversed on the basis that the debtors had not demonstrated a good-faith effort to obtain employment and maximize income, and therefore had not made good-faith efforts to repay their loans.

In re Rountree, 478 F.3d 215 (4th Cir. 2007).
Docket No. 05-1123, decided February 27, 2007.

A personal injury defendant hired a private investigator to assess the validity of the plaintiff’s injuries. The investigator befriended the plaintiff and induced her to attempt activities in which she was reluctant to participate because of her injuries. The defendant used videotapes of the plaintiff participating in the activities in its defense. The plaintiff subsequently sued the private investigator and obtained a $1,000,000 judgment for fraud and emotional distress. The private investigator filed for bankruptcy and the plaintiff petitioned the Bankruptcy Court to determine the dischargeability of the judgment. The United States Court of Appeals for the Fourth Circuit held that 11 U.S.C. § 523(a)(2)(A) did not apply as an exception to discharge in this case because the private investigator did not actually obtain anything from the plaintiff through fraud.

Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007).
Docket No. 05-996, decided February 21, 2007.

In this case, the United States Supreme Court held that 11 U.S.C. § 706 does not confer upon bankruptcy debtors an unqualified right to convert a case from a Chapter 7 proceeding to a Chapter 13 proceeding. Rather, the right to convert is absolute only in the absence of extreme circumstances, such as when, as in this case, the debtor is found to have concealed property from creditors in bad faith.

In re Murphy, 474 F.3d 143 (4th Cir. 2007).
Docket No. 05-1637, decided January 18, 2007.

Several Chapter 13 debtors sought the permission of the bankruptcy court to sell or refinance real property. When these requests were approved, the bankruptcy trustees moved to modify the debtors’ repayment plans for the benefit of unsecured creditors. The United States Court of Appeals for the Fourth Circuit held that when faced with a motion to modify a confirmed plan under 11 U.S.C. § 1329(a)(1) or (a)(2), the court must determine if the debtor experienced a substantial and unanticipated change in his post-confirmation financial condition sufficient to overcome the doctrine of res judicata. Here, one debtor’s refinancing of his home was not a substantial and unanticipated change in condition where the debtor incurred debt equal to the amount of equity cashed out of the home and the purpose of the refinancing was to offset the debtor’s fifty-percent pay reduction. However, the other debtor did experience a substantial and unanticipated change in condition where he sold his condominium for a substantial profit, thereby receiving a substantial amount of readily available cash without incurring any corresponding debt.



 

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