Oct 9, 2022

Funds debtor embezzled are nondischargeable

Where the debtor failed to explain why he diverted a $133,000 check from his business to himself, he was liable for the embezzled funds, which were not dischargeable. Background Robert E. Dixon, individually and derivatively on behalf of DER LLC, filed a complaint against the debtor, Lewis E. Wilkerson, seeking a judgment on behalf of […]

Oct 9, 2022

Claims against former directors, officers narrowed

Where the court previously approved debtor-in-possession, or DIP, financing at the start of the bankruptcy proceeding, that decision forecloses the breach of fiduciary claim against the former officers and directors for their decision to take on DIP financing. Background TRU Creditor Litigation Trust commenced this suit against former directors and officers of Toys “R” Us, […]

Sep 24, 2022

Res judicata bars debtor’s fraud, forgery claims

Where the debtor previously claimed that her debt was obtained by fraud and forgery and the district court dismissed her claims in a final judgment, her claims were barred by res judicata. Background On June 5, 2017, Esther Mammie Yates filed a voluntarily petition in the bankruptcy court related to her home. She received a […]

Sep 15, 2022

Subchapter V case converted to Chapter 7

Where there was evidence of bad faith conduct by the debtor, a continuing loss to or diminution of the bankruptcy estate and the absence of a reasonable likelihood of rehabilitation, a conversion from Subchapter V to Chapter 7 was in the best interests of the creditors. Background This matter comes before the court on the […]

Aug 25, 2022

IRS’s release of lien makes its debt unsecured

Where the Internal Revenue Service voluntarily released a lien after receiving notice of the debtor’s discharge, and the trustee later sold the debtor’s real property for the benefit of creditors, no tax lien existed on the date of the closing of the sale of the real property, and no lien attached to the proceeds of […]

Aug 22, 2022

No discharge for ‘willful and malicious injury’

Where a jury previously found that debtors discriminated against a former employee on the basis of sex, gender and pregnancy, and retaliated against her and wrongfully terminated her employment in violation of public policy, the resulting judgment was for conduct that was inherently willful and thus non-dischargeable. Background Trina Bengtsson brings this action asserting that […]

Aug 22, 2022

Post-discharge collection effort violated injunction

Where the defendants sought to collect on a judgment lien, but there was no existing lien and the judgment had been voided by a discharge order, the defendants were held in contempt for violating the discharge injunction. Background The parties contest whether post-discharge collection action subjects the offending creditor to sanctions for contempt of the […]

Aug 9, 2022

Collateral estoppel doesn’t bar prior rejected argument

Where the debtor previously argued to a state court via a plea in bar that a claim was barred by the statute of limitations, and the state court denied that argument, collateral estoppel didn’t bar the debtor from raising the same statute of limitations argument in response to an adversary complaint filed by a creditor. […]

Aug 9, 2022

Fraud debt exempt from discharge

Where the debtor obtained $120,000 from the plaintiff by telling her that he was a licensed home improvement contractor, when he was not, he must disgorge those funds. Because those funds were obtained through fraud, that debt is not dischargeable. Background Prior to this bankruptcy proceeding, a dispute arose between the Hanan Khalil and Mohamed […]

Jul 25, 2022

Chapter 13 eligibility based on debts as of petition date

Where debtors argued their eligibility for Chapter 13 relief should be determined by total debt claimed in the unsecured proofs of claims filed as of the bar date, reduced by amounts determined after the debtors file objections to some of the filed claims and assuming those objections are sustained, that argument was denied. Chapter 13 […]

Jul 25, 2022

Debtor may claim funds were ‘earnings’

Where the debtor previously claimed that money in his personal bank account belonged to his company, the court rejected this argument and ordered the money to be turned over to the trustee, and the debtor then claimed that 75% of the funds were exempt as “earnings” under Virginia Code § 34-29, judicial estoppel did not […]

Jul 25, 2022

LeClairRyan trustee’s $21M settlement OK’d

Where a settlement between the LeClairRyan trustee and defendants will result in the payment of $21 million to the debtor’s estate, the probability of success on the merits was not certain, litigation would be lengthy, expensive and complex, and the settlement would benefit the creditors, it was approved. Background Lynn Tavenner, in her capacity as […]

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