Bankruptcy Provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES Act)
CARES Act, effective March 27, 2020
United States Bankruptcy Court, District of Rhode Island
In re Lally 02/28/2020
In re Lally, 2020 BNH 001, issued February 28, 2020 (holding that under 11 U.S.C. § 330(a)(7), the graduated percentage commission of § 326 is presumptively reasonable compensation for the chapter 7 trustee; commission base does not include distributions of property that is not property of the estate; in reviewing fee applications for counsel to trustees, court will take particular care to ensure that counsel does not seek reimbursement for non-delegable tasks of the chapter 7 trustee.
Kriss v. U. S. (IRS) (In re Kriss) 10/01/2019
Kriss v. U. S. (IRS) (In re Kriss), 2019 BNH 003, issued Sept. 27, 2019, amended Oct. 1, 2019 (unpublished) (granting in part and denying in part defendant United States of America’s Motion for Judgment on the Pleadings, as follows: (1) debts arising from untimely filed federal income tax returns were excepted from discharge pursuant to 11 U.S.C. § 523(a)(1)(B); (2) debts consisting of unpaid post-petition interest on priority claims that were paid in full through debtor’s chapter 13 plan were excepted from discharge pursuant to 11 U.S.C. § 1328(a)(2) and 507(a)(8)(C); (3) genuine issue of material fact existed as to whether post-discharge notices sent by IRS to the debtor relating to tax years 2008-2011 violated discharge injunction of 11 U.S.C. § 524(a)(2), precluding judgment on the pleadings; (4) IRS had not waived sovereign immunity with respect to emotional distress damage claim, entitling the defendant to judgment on the pleadings, and (5) debtor stated plausible claim for attorney’s fees, costs, and sanctions, precluding judgment on the pleadings).
Morris v. Massachusetts Educ. Fin. Auth. (In re Morris) 03/27/2019
Morris v. Massachusetts Educ. Fin. Auth. (In re Morris), 2019 BNH 002 (holding that the repayment of the debtor’s student loan debt would not impose an undue hardship within the meaning of 11 U.S.C. § 523(a)(8) where the debtor’s household income would be sufficient to cover his student loans payments if the debtor were able to obtain another restaurant job making roughly the same money he made before he voluntarily left his last position).
Rissala v. New Hampshire Higher Educ. Assistance Found. (In re Rissala) 01/11/2019
Rissala v. New Hampshire Higher Educ. Assistance Found. (In re Rissala), 2019 BNH 001 (holding that the repayment of the debtor’s student loan debt would not impose an undue hardship within the meaning of 11 U.S.C. § 523(a)(8) where in the near future his retirement benefits would be sufficient to cover the payment and leave him with a material surplus each month, and debtor was eligible for a zero monthly payment program in the interim).
In re Babineau 12/18/2018
In re Babineau, 2018 BNH 012, issued Dec. 18, 2018 (unpublished) (overruling chapter 13 debtor's objection to creditor-spouse's proof of claim, finding that attorney's fees awarded to creditor-spouse in divorce proceeding and incurred proving that debtor misrepresented his income to avoid paying creditor-spouse additional alimony is a “domestic support obligation” within the meaning of 11 U.S.C. § 101 (14A), entitled to priority and payment in full pursuant to 11 U.S.C. §§ 507 (a)(1) and 1322(a)(2)).
In re Evarts 12/12/2018
In re Evarts, 2018 BNH 011 (overruling the debtor’s objection to the mortgagee’s proof of claim, which challenged escrow and hazard insurance charges and the amount of the principal balance under the loan modification agreement, as the debtor failed to present substantial evidence that would permit the Court to disallow these components of the claim in accordance with 11 U.S.C. § 502(b)).
In re Burrows 12/12/2018
In re Burrows, 2018 BNH 010 (overruling the trustee’s objection to the debtor’s claim of homestead exemption under NH RSA 480:1 in debtor’s abutting parcel of land as the debtor actually used the adjoining lot in order to enjoy his home).
In re Vertullo 10/01/2018
In re Vertullo, 2018 BNH 009 (holding that chapter 13 debtors may cure defaults under a mortgage and maintain payments pursuant to 11 U.S.C. § 1322(c)(1), where a mortgagee has conducted a foreclosure auction prepetition but has failed to complete the foreclosure sale by recording a deed before the debtor files chapter 13 bankruptcy, continuing to follow Judge Deasy’s decision in In re Beeman, 235 B.R. 519 (Bankr. D.N.H. 1999), and declining to follow the BAP’s decision in TD Bank, N.A. v. LaPointe (In re LaPointe), 505 B.R. 589 (B.A.P. 1st Cir. 2014)).
Browne v. Lombard (In re Lombard) 08/31/2018
Browne v. Lombard (In re Lombard), 2018 BNH 008 (after a trial on the merits on the plaintiff's 11 U.S.C. § 727(a)(4)(A) claims determining that (1) claim preclusion barred the relitigation of certain aspects of the claims, (2) that the plaintiff's claims lacked merit on substantive grounds, and (3) that the plaintiff's post-trial motion to conform the pleadings to the evidence presented at trial had to be denied because the defendant had not implicitly consented to the litigation of an unpleaded claim, pursuant to Fed. R. Civ. P. 15(b)(2)).
Browne v. Lombard (In re Lombard) 08/31/2018
Browne v. Lombard (In re Lombard), 2018 BNH 007 (finding that the plaintiffs lacked standing pursuant to 11 U.S.C. § 727(c) to maintain their claims to deny the debtor's discharge per 11 U.S.C. § 727(a)(4)(A), and, alternatively, finding the § 727(a)(4)(A) claims were without merit).
Emotions were running high at the Plaistow town hall this past Wednesday evening when partner of the firm, Matthew Braucher Esq. spoke at a site plan review hearing on behalf of his client, the Little River Village Association. Over 50 residents from the association attended the hearing in protest of a plan to develop a large, industrial facility directly abutting the residential community.
Click the link below to read the full story published by Eagle Tribune: https://www.eagletribune.com/news/residents-voice-opinions-on-proposed-project-at-sanborn-s-candies/article_3ff7fc1c-29e2-5dbf-9a82-be5d198488b9.html
The next public hearing on the ProQuip issue is scheduled to take place on Wednesday, April 17th.
Shelzi v. Foistner (In re Foistner), 2018 BNH 006 (granting in part and denying in part the defendant’s motion to dismiss pursuant to FRBP 12(b)(6), dismissing the plaintiff’s counts under 11 U.S.C. §§ 523(a)(2)(B) and (a)(4) for failure to state a claim where plaintiff merely alleged that the defendant obtained money from her by use of a materially false statement of financial condition without any detail of what the statement was or how it was false, and did not allege a basis for technical trust sufficient to establish that the defendant, as manager of a limited liability company, was acting in a fiduciary capacity with respect to the members of the limited liability company).
A. OVERVIEW OF BANKRUPTCY PROCESS
The filing of a bankruptcy petition, whether by an individual or a business, is usually a major event to that person or business. Upon the filing of a bankruptcy petition, all non-exempt legal and equitable interests of the debtor, including property rights, become part of the so-called “bankruptcy estate” under 11 U.S.C. § 541. Property of the estate also includes other property interests that the debtor acquires post petition (see § 541 (a)(5) and (7)) as well as proceeds, profits and other similar property. However, as § 541 (a)(6) indicates, an individual debtor’s future earnings are not ordinarily property of the estate. Also, § 541 also provides that certain beneficial interests in trusts, like ERISA qualified pension plans and spendthrift trusts, are not part of the estate.
Unless a particular federal interest requires a different result, property interests are created and defined by state law. SeeButner v. United States, 440 U.S. 48, 55 (1979).
Upon the filing of a petition under any chapter of the Code, a stay arises automatically pursuant to 11 U.S.C. § 362(a). The stay is an injunction against the commencement or continuation of actions against the debtor and its property. Foreclosure, collections and certain set-off rights are enjoined and actions in violation of the automatic stay are generally void and of no effect. SeeIn re Soares, 107 F.3d 969 (1stCir. 1997). Seealso, In re A& J Auto Sales, Inc., 223 B.R. 839 (D.N.H. 1998)(post petition towing of cars seized by the IRS pre-petition violated stay). The basic idea of the stay is to give the debtor a temporary break from their creditors so that they can both formulate and propose a reorganization plan or time for the orderly administration and liquidation of assets.
There are over twenty-five exceptions to the stay. See11 U.S.C § 362(b). Among these exceptions are actions taken to perfect or maintain the continuance of perfections of liens. See11 U.S.C. § 546(b), actions by lessors against debtors of non-residential real property when the lease term expires pre-petition or during the case to obtain possession, the commencement of any action by the Secretary of Housing and Urban Development to foreclose a mortgage or deed of trust in any case in which the mortgage or deed of trust held by the Secretary is insured or was formerly insured under the National Housing Act and covers property, or combinations thereof, of five or more living units. 11 U.S.C. § 362(b)(22) excepts from the stay, the continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involvingresidentialproperty in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained, before the filing of the bankruptcy petition, a judgment for possession against the debtor. However, a debtor-tenant may take steps to prevent the exception (thus preserving the automatic stay) by (1) filing and serving with the bankruptcy petition, a certification under the pains and penalties of perjury as to why, under non-bankruptcy law, the debtor is entitled to cure the monetary default AND the debtor files with the Bankruptcy Clerk, any rent that would become due within thirty (30) days after the petition date and (2) file within thirty (30) days of the petition, a certification to the Court that the debtor has in fact cured the monetary default. If the debtor meets these obligations, the lessor may file an objection and the Court will hold a hearing within ten (10) days.
11 U.S.C. § 362(b)(23) provides an exception for residential eviction actions based upon the endangerment of the property or when illegal, controlled substances are used on the property.
§ 365 provides specific time frames within which executory contracts and unexpired leases must either be assumed or rejected. It requires a debtor (or trustee) to perform under the contract or lease until it has been assumed or rejected and to cure past defaults prior to assumption.
§ 365 (d)(3) carves out an exception to the Automatic Stay discussed above. It states, in relevant part as follows: The trustee shall timely perform all the obligations of the debtor…arising from and after the order for relief under any unexpired lease ofnon-residentialreal property, until such lease is assumed or rejected… So, § 365 (d)(3) protects landlords by allowing them to enforce the lease post-petition without having to resort to the automatic stay process. However, the debtor is not without protection either. Under the 2005 Amendments to the Code (BAPCPA), a debtor-tenant is allowed to reject a lease and to limit the damages his landlord can claim and receive.
§ 365 (d)(3) requires that a debtor timely performs all of its obligations under a lease that occur from the time it files bankruptcy to the time it assumes or rejects. If real estate taxes are assessed during that period, then under the so-called “proration rule”, a debtor would only have to pay for amounts thataccruedpost-petition. SeeIn re Learningsmith, Inc., 253 B.R. 131 (Bankr. D. Mass. 2000).
Another school of thought, referred to as the “performance rule”, holds that § 365 (d)(3) requires a debtor to pay for all of its obligations that accrued up to the time it either assumes or rejects (including pre and post amounts). New Hampshire seems to follow the minority view’s performance rule, at least in one specific instance. SeeIn re Lakeshore Construction Co. of Wolfeboro, Inc., 390 B.R. 751 (Bkrtcy. D.N.H. 2008).
BAPCPA has left unaltered, the time a debtor has in which to assume or reject a residentialreal property lease or a lease of personal property-the trustee/debtor still has sixty (60) days from the petition date to assume or reject. Revised § 365 (d)(4) gives a maximum of two hundred and ten (210) days from the petition date, for the debtor to assume or reject a commercial (a/k/a nonresidential) lease. In order to extend that time, a debtor will need the consent of the landlord.
The legal standard a debtor must demonstrate in order to assume or reject a lease is the business judgment test. SeeGroup of Institutional Investors v. Chicago, Milwaukee, St. Paul, and Pacific R. Co.,318 U.S. 523 (1943); In re Trans World Airlines, Inc.,261 B.R. 103, 120-121 (Bankr.D.Del.2001); Wheeling-Pittsburgh Steel Corp. v. West Penn Power Co. (In re Wheeling-Pittsburgh Steel Corp.),72 B.R.845-846 (Bankr.W.D.Pa.1987).
A court is required to examine whether a reasonable business person would make a similar decision under similar circumstances. SeeIn re Exide Technologies, 340 B.R. 222 (Bkrtcy. D. Del. 2006). This is not a difficult standard to satisfy and requires only a showing that rejection will benefit the estate. SeeIn re Patterson,119 B.R. 59, 60 (E.D.Pa.1990); In re Blackstone Potato Chip Co., Inc., 109 B.R. 557 (D. R.I. 1990).
An assumed lease becomes a binding, post-petition obligation on the bankruptcy estate. Accordingly, debtors/trustees and creditors’ committees are usually hesitant to assume a lease too soon, without knowing the likely benefits and burdens to the bankruptcy estate. As discussed above, a debtor has a maximum of two hundred and ten (210) days to assume or reject under § 365(d)(4). If the debtor wants to seek an extension of time of the initial one hundred and twenty (120) day deadline imposed by the statute, it must do so within the one hundred and twenty (120) days. SeeIn re Tubular Technologies, LLC,362 B.R. 243 (Bankr. D. S.C. 2006).
If a lease is in default at the time of the petition, the debtor must cure all monetary defaults or provide adequate assurance that the monetary defaults will be promptly cured. 11 U.S.C. § 365(b)(1). However, non-monetary defaults (e.g. “going dark clauses or other non-monetary disputes or defaults) do not necessarily need to be cured prior to assumption. The First Circuit so held in In re BankVest Capital Corp., 360 F.3d 291 (1stCir. 2004). Congress redrafted § 365(b)(2)(D) and (b)(1)(A) to codify the essential holding of BankVestso that the debtor/trustee need not cure defaults that relate to a breach of a nonmonetary obligation on nonresidential leases if it is impossible to do so. Nonmonetary breaches of executory contracts and personal property leases still have to be cured before assumption.
If a debtor assumes the lease but then defaults, the landlord’s claim is treated as an administrative claim against the estate. See11 U.S.C. 503(b)(7). The administrative claim is limited (so as not to afford the landlord a super-priority to the detriment of other unsecureds). The statute caps a landlords’ claim at sums that would be due over a two (2) year period (instead of the entire remaining lease term).
Permitting debtors to shed disadvantageous contracts while keeping beneficial ones is one of the core purposes of the Code-to give worthy debtors a fresh start. In re Carp, 340 F.3d 15 (1stCir. 2003).
A landlord’s claim is potentially comprised of two parts, (1) a claim for pre-petition rent and a claim for damages for rejecting/breaching the lease. § 502(b)(6) provides a mechanism for a party to object to a landlord’s rejection claim. More specifically, § 502(b)(6)(A), limits a landlord’s rejection for future rent to the lesser of one years’ worth of rent or 15% of the rent over a three (3) year period.
§ 356 (h) addresses the situation where the lessor is the debtor. A tenant faced with this situation has two choices: (1) treat the lease as terminated and make a claim for damages or (2) continue in possession and pay rent in accordance with the lease. § 356 (h)(1)(B) allows the tenant to offset damages arising from its landlord’s rejection against future rent due under the lease. If the tenant chooses to treat the lease as terminated, it is released from its obligations, in addition to being able to make a claim for damages. SeeIn re Nickles Midway Pier, LLC, 372 B.R. 218 (D. N.J. 2007).
Whether you are a residential or commercial landlord, communication with your tenant and diligence about the marketplace is probably the best strategy to guard against a loss due to the rejection of a lease. It might be advisable in some circumstances to negotiate only triple net leases (where the tenant pays directly for all maintenance costs, utilities, taxes and insurance). Also, the Golden Rule seems to apply, treat your debtor as you would want to be treated. In other words, if the going lease rates in your market are much lower than what you are charging, don’t be surprised if the lease is rejected. Put yourself in the debtor’s shoes and try to negotiate in a way that meets either the monetary or nonmonetary needs of your tenant. Maybe a longer or shorter term or renegotiation of other terms would be attractive to the debtor and better for you than rejection. Also, with respect to security deposits, they become part of the bankruptcy estate upon filing. The best approach is not to apply security deposits to post-petition, pre assumption amounts that may come due; instead, hold the deposit so it can be applied to any potential rejection damages.
If you have decided that assuming the lease, even on different terms, is not feasible for you or the debtor then be diligent about how your rights may be affected by the bankruptcy case. There are a myriad of events in a case which can affect a debtor’s ability to reorganize and how assets and claims will be handled. Whether you are a tenant or a landlord, I strongly recommend that you seek legal advice at the earliest signs of financial distress.
Judgment, in this section, means a final, non appealable judgment. In,In re Alberts, the exception did not apply when the eviction judgment had been timely appealed for de novotrial on the merits. SeeHousing Authority of Beaver County v. Alberts, 381 B.R. 171 (Bankr. W.D. Pa. 2008).