Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

Under 28 U.S.C. 1930(a)(6), quarterly fees paid by a chapter 11 debtor to the bankruptcy Trustee are based on the debtor’s disbursements. The Bankruptcy Court determined that certain payments made by the customers of CranGrow to its lender should not be considered “disbursements” for purposes of that calculation. The payments covered a post-petition revolving line of credit that was used both to pay operating expenses and reduce the balance of CranGrow’s pre-petition debt to the same lender. CranGrow’s customers made payments to the lender directly. The Seventh Circuit reversed, holding that the language of the fee statute requires that payments made by CranGrow’s customers to CranGrow’s lender be considered disbursements. The term “disbursements” has been interpreted broadly to mean all payments by or on behalf of the debtor. The payments by CranGrow’s customers to CoBank were payments made on behalf of CranGrow and resulted in the reduction of CranGrow’s prepetition debt. The customer payments, therefore, are disbursements under section 1930(a)(6). The court found no authority for a waiver and declined “CranGrow’s belated invitation to consider the constitutionality of the fee statute. View "Cranberry Growers Cooperative v. Layng" on Justia Law

Novak was the sole shareholder of CMCG. By 2008, CMCG’s solvency was questionable. In 2012 Novak committed suicide, leaving CMCG to Comess, who filed a voluntary Chapter 7 petition weeks later. For four years before the bankruptcy filing, Comess and Hathaway, another friend of Novak’s, had received significant payments from CMCG, though they were not employees. Hathaway received $45,400.81; she runs a small yoga studio and her email correspondence indicated that the payments were personal gifts. The trustee brought an avoidance action and sought discovery sanctions against Hathaway. The bankruptcy judge determined that the women had received money from CMCG while it was insolvent, that Novak typically failed to record the transactions, that CMCG did not receive reasonably equivalent value in exchange, and that the transfers were voidable under 11 U.S.C. 548 and the Illinois Uniform Fraudulent Transfer Act (IUFTA), which applied under section 544(b)(1) because CMCG had unsecured creditors at the time of the conveyances, the IRS and a credit-card company. The judge declined to impose sanctions for Hathaway’s failure to respond to interrogatories and produce tax returns but imposed sanctions ($11,187.25) for Hathaway’s delay and failure to comply with court orders concerning emails causing the Trustee to expend additional time and resources. The district judge and Seventh Circuit affirmed, rejecting arguments concerning trial exhibits for evaluating CMCG's financial health; challenging the finding that CMCG did not receive reasonably equivalent value; and that CMCG did not have IUFTA “creditors.” The court noted Hathaway's violations of appellate procedure. View "Fox v. Hathaway" on Justia Law

The Debtors each owed debts to the Illinois Department of Human Services (DHS). Dennis owed $7,962.25 for overpayments made to her under the Illinois Child Care Assistance Program; Halbert owed for overpayments made to her under the Supplemental Nutrition Assistance Program. The Debtors each filed for bankruptcy. The bankruptcy court in each case held that the overpayment debts were not priority domestic support obligations, 11 U.S.C. 547(c)(7). The Seventh Circuit affirmed. Debtors do not owe DHS money for support payments; they owe DHS because they received money they were not statutorily entitled to. Because such a payment is not in the nature of alimony, maintenance, or support, this is merely an overpayment of benefits and the debt is subject to avoidance in bankruptcy. View "Halbert v. Dimas" on Justia Law

Chicago's Code permits the city to immobilize and impound a vehicle if its owner has three or more “final determinations of liability,” or two final determinations that are over a year old, “for parking, standing, compliance, automated traffic law enforcement system, or automated speed enforcement system violation[s].” Fines range from $25 to $500. Failure to pay the fine within 25 days automatically doubles the penalty. After a vehicle is impounded, the owner is further subjected to towing and storage fees and to the city’s costs and attorney’s fees. A 2016 amendment created a possessory lien in favor of the city in the amount required to obtain the vehicle's release. Chicago began refusing to release impounded vehicles to debtors who had filed Chapter 13 petitions. In each of four consolidated cases, the bankruptcy courts each held that Chicago violated the automatic stay by “exercising control” over bankruptcy estate property and that none of the exceptions to the stay applied. The courts ordered the city to return debtors’ vehicles and imposed sanctions for violating the stay. The Seventh Circuit affirmed, noting that it addressed the issue in 2009 and held that a creditor must comply with the automatic stay and return a debtor’s vehicle upon her filing of a bankruptcy petition. View "City of Chicago v. Fulton" on Justia Law

Debtors sought sanctions against Kreisler, alleging that the law firm violated the automatic stay arising from their bankruptcy petition by filing a lien against Lorraine’s home. The couple had voluntarily dismissed a prior bankruptcy petition just a few months earlier, so the bankruptcy judge denied their motion based on 11 U.S.C. 362(c)(3), which lifts the automatic stay after 30 days in the case of a successive petition. Bankruptcy courts are divided over the proper interpretation of section 362(c)(3), so the judge certified her order for direct appeal but the Debtors never filed a petition for permission to appeal as required by Rule 8006(g) of the Federal Rules of Bankruptcy Procedure. The Seventh Circuit dismissed the appeal. Rule 8006(g) is a mandatory claim-processing rule, and if properly invoked, it must be enforced. Because Kreisler properly objected, the appeal must be dismissed. View "Wade v. Kreisler Law, P.C." on Justia Law

In 2013 Chlad and her husband, Vehovc, filed a joint Chapter 7 bankruptcy petition seeking to discharge about $5 million of debt. After Chlad and Vehovc filed financial disclosures, two creditors brought an adversary proceeding objecting to the discharge, alleging that the filings omitted information material to the debtors’ financial condition, 11 U.S.C. 727(a)(4). Chlad and Vehovc failed to disclose the existence of particular real estate, a significant creditor, bank accounts, a shareholder loan, certain sources of income, and an alternate first name used by Chlad. The bankruptcy court denied the discharge, finding that the omissions reflected material false statements made with fraudulent intent. The district court and the Seventh Circuit affirmed. The omissions and misstatements were material and reflected false statements made under oath that the debtors knew or should have known to be false; taken together, the omissions and misstatements demonstrated a reckless disregard for the truth, which was sufficient to support a finding of fraudulent intent necessary to deny discharge under section 727(a)(4). View "Chlad v. Chapman" on Justia Law

HSBC obtained a foreclosure judgment against the Lisses. To extend the time for appeal of that judgment, attorney Nora filed two bankruptcy petitions and multiple appeals, accusing HSBC and its attorney of federal crimes and seeking sanctions. The district court ultimately ordered Nora and her client to pay damages and costs related to the bankruptcy litigation and suspended her from the practice of law in the Western District of Wisconsin. The Seventh Circuit affirmed, noting that this was not Nora’s first encounter with attorney discipline. Nora’s attempt to relitigate HSBC’s foreclosure judgment in bankruptcy court was frivolous; her stall tactics were “blatant.” Such litigation behavior—even assuming pure motives—constitutes objective bad faith warranting sanctions under 28 U.S.C. 1927. The court noted “her serial dilatory, vexatious, and unprofessional litigation practices” and frivolous motion practice and legal arguments in her appeals. Flippant, unfounded accusations of misconduct and fraud by opposing counsel and court officials demean the profession and impair the orderly operation of the judicial system. View "Nora v. HSBC Bank USA, N.A." on Justia Law

Hernandez filed a voluntary Chapter 7 bankruptcy petition in December 2016, reporting one sizable asset: a pending workers’ compensation claim valued at $31,000. To place that claim beyond the reach of creditors, she listed it as exempt under section 21 of the Illinois Workers’ Compensation Act, 820 ILCS 305/21, applicable via 11 U.S.C. 522(b). Two days after filing for bankruptcy, Hernandez settled the claim. Hernandez owed significant sums to three healthcare providers who treated her work-related injuries. The providers objected to her claimed exemption, arguing that 2005 amendments to the Illinois Act enable unpaid healthcare providers to reach workers’ compensation awards and settlements. The bankruptcy court denied the exemption and the district judge affirmed. The Seventh Circuit certified to the Illinois Supreme Court the question: Whether the Illinois Workers’ Compensation Act, as amended, allows care-provider creditors to reach the proceeds of workers’ compensation claims. The court noted that Section 21 has been interpreted by bankruptcy courts to create an exemption for these assets; 2005 amendments imposed a new fee schedule and billing procedure for care providers seeking remuneration. The Illinois Supreme Court has not addressed the interplay between these competing components of state workers’ compensation law. View "Hernandez v. Marque Medicos Fullerton, LLC" on Justia Law

Chicago makes a car’s owner, rather than its driver, liable for many fines, including those for speeding, running a red light, and illegal parking. After their Chapter 13 bankruptcy payment plans were confirmed, the seven debtors incurred, and failed to pay, at least 72 fines aggregating almost $12,000. The debtors argued that a Chapter 13 plan does not provide for the payment of post-petition fines and that the automatic stay of 11 U.S.C. 362 prevented their cars from being towed or booted. The bankruptcy court ordered that the vehicles were the property of the estate for the duration of the payment plan. Reversing the order, the Seventh Circuit noted that the holding could be seen as permission to violate traffic laws with the fines never to be paid. The court noted that, while a Chapter 13 petition transfers most of the debtor’s assets to the bankruptcy estate, upon the confirmation of a payment plan, 11 U.S.C. 1327(b) presumptively returns that property to the debtor, who becomes personally responsible for the expenses of maintaining the property. The bankruptcy court gave no explanation for departing from that scheme. View "City of Chicago v. Marshall" on Justia Law

In 2006 Trinity borrowed about $2 million from a bank, secured by a mortgage. The bank sold the note and mortgage to ColFin, which relied on Midland to collect the payments. In 2013, Midland recorded a “satisfaction,” stating that the loan had been paid and the mortgage released. The loan was actually still outstanding. Trinity continued paying. In 2015, ColFin realized Midland’s mistake and recorded a document canceling the satisfaction. Trinity stopped paying. ColFin filed a state court foreclosure action. Trinity commenced a bankruptcy proceeding, which stayed the foreclosure, then filed an adversary action against ColFin, contending that the release extinguished the debt and security interest. The bankruptcy court, district court, and Seventh Circuit rejected that argument and an argument that the matter was moot because the property had been sold under the bankruptcy court’s auspices. There is a live controversy about who should get the sale proceeds; 11 U.S.C. 363(m), which protects the validity of the sale, does not address the disposition of the proceeds. Under Illinois law, Trinity did not obtain rights from the 2013 filing, which was unilateral and without consideration; no one (including Trinity) detrimentally relied on the release, so ColFin could rescind it. ColFin caught the problem before Trinity filed its bankruptcy petition, so a hypothetical lien perfected on the date of the bankruptcy would have been junior to ColFin’s interest. View "Trinity 83 Development LLC v. Colfin Midwest Funding LLC" on Justia Law