Commercial Banking, Collections, and Bankruptcy

Dist. Ct. did not err in granting creditor’s motion seeking to have defendants (wife and businesses controlled by debtor) deemed alter egos of debtor for purposes of having defendants’ assets turned over to debtor’s bankruptcy estate for purpose of distribution to debtor’s creditors. While defendants argued that Bankruptcy Ct. lacked authority to enter subsequent asset turnover order under 28 USC section 157(c)(1) because turnover issue was not “core proceeding,” and thus only Dist. Ct. could enter instant turnover order, Ct. of Appeals found that Bankruptcy Ct. could enter instant turnover order, because turnover of defendants’ assets to debtor’s estate and liquidation of assets for benefit of debtor’s creditors was “core proceeding” that could be considered by Bankruptcy Ct.

Dist. Courts did not err in granting defendants-debt collectors’ motions to dismiss plaintiff-debtors’ actions alleging that defendants’ actions in filing stale debts in their Chapter 13 bankruptcy proceedings violated sections 1692e and 1692f of Fair Debt Collective Practices Act (FDCPA). Record showed that plaintiffs successfully had said debts disallowed, and that said debts otherwise contained accurate information as to origin of debt and dates of last payment and last transaction. As such, Dist. Courts could properly conclude that act of filing stale claim in Chapter 13 bankruptcy proceeding did not violate FDCPA since instant proofs of claims were not false or misleading. Ct. rejected plaintiffs’ argument that filing stale debts falsely cloaks underlying obligation with air of legitimacy, or that filing of stale debt was deceptive practice because debtors at times fail to object to said claims. Result would be different had defendants filed stale debts that contained inaccurate information about said debts. (Dissent filed.)

Dist. Ct. erred in granting defendants’ motion for summary judgment in plaintiffs’ action alleging that defendants violated Fair Debt Collection Practices Act (FDCPA), when they sent collection letters demanding $46.50 in payment when plaintiffs failed to pay $1.50 parking fee, as well as $45 nonpayment penalty arising out of plaintiff’s use of defendant’s parking lot. While Dist. Ct. believed that instant unpaid parking fees and nonpayment penalties were not “debts” as contemplated under section 1692a(5) of FDCPA, Ct. of Appeals found that plaintiffs’ obligations arose out of contract law, and thus were debts covered by FDCPA. As such, Dist. Ct.’s analogy that instant fees were sufficiently akin to “fines” assessed for nonpayment at municipal parking meters was inapt since neither instant fees nor penalties arose from municipal ordinance.

Dist. Ct. erred in denying trustee’s request to avoid under sections 544, 548(a)(1)(b) and 550 of Bankruptcy Code $16.5 million payment that debtor made to defendant for purchase of stock, even though defendant argued that said transfer was protected from being undone by safe harbor provisions in section 546(e) of Bankruptcy Code, because: (1) instant transfers of money passed through financial institutions from debtor to defendant; and (2) section 546(e) precludes trustee from avoiding transfer that is margin payment or settlement payment made “by or to” financial institution. Ct. found that safe harbor provisions contained in section 546(e) applied only if transfer was made by debtor to financial institution to pay off debt owed to financial institution, and not where financial institution was merely passing money from debtor to third-party.

Dist. Ct. did not err in affirming Bankruptcy Ct.’s order in Chapter 7 proceeding, finding that debtor’s transfer of her 40-acre farm to father of her children constituted fraudulent transfer, where debtor was insolvent at time of transfer, and where debtor had failed to receive reasonable equivalent value in exchange for said property. Record showed that: (1) debtor and father of her children were involved in litigation over ownership of said farm at time of transfer; (2) debtor received no cash for transferring property, but received promise from father of her children to drop his lawsuit against her and to assume $149,000 in farm-related liabilities; and (3) farm had fair market value of $300,000 at time of transfer. As such Bankruptcy Ct. could properly find that debtor had not received reasonably equivalent value for her farm, where: (1) value of litigation was next to nothing where father of her children had lost his case against debtor at trial court level; and (2) debtor did not receive anything for her $151,000 in net equity in farm. Moreover, any benefit in avoiding further family conflict over ownership of farm was too nebulous to constitute reasonable equivalent value, where said transfer would put debtor’s property beyond reach of creditors.

Bankruptcy Ct. did not err in denying Trustee’s challenge to $292,185.97 in annuity exemptions claimed by debtor under Wisc. Statute in instant Chapter 7 bankruptcy petition. Wisconsin statute (Wisc. Stat. section 815.18(3)(j)) fully exempts certain annuity contracts that comply with provisions of Internal Revenue Code, and instant annuity contracts qualified for said exemption since they paid benefits by reason of age and death and otherwise qualified for tax-deferred status under 26 USC section 72. Ct. rejected Trustee’s argument that instant annuity contracts could qualify for said exemption only if they complied with 26 USC sections 401-09, which generally concerns tax-deferred, “qualified” retirement plans.