Debtor filed a chapter 11 bankruptcy case as a single asset real estate case with the intention of selling its real property to pay creditors in full. The property, located near railway access, has contamination from a prior owner’s use of the property as an egg production farm. The construction of additional track and switches, which Debtor currently lacks funds to complete, would greatly increase the value of the property. Creditor filed a motion to appoint a chapter 11 trustee under §§ 104(a)(1) and (2), alleging that the appointment of a chapter 11 trustee is necessary based on the Debtor’s pre- and post-petition incompetence, gross mismanagement, and dishonesty, and because Debtor’s creditors have lost all faith in Debtor’s abilities. After a final evidentiary hearing, the Court denied creditor’s motion to appoint chapter 11 trustee, on certain conditions, finding that, although Debtor exercised poor business judgment and evidence of mismanagement existed, such conduct did not warrant the appointment of a chapter 11 trustee at this time. However, the Court fixed certain deadlines and requirements which, if not met, would result in the appointment of chapter 11 trustee, including deadlines for the Debtor to retain a realtor with Court approval to market and sell the property and to obtain confirmation of a plan within a certain time. The Court also specified required plan provisions, including a contract for a sale within six months at a minimum sales price that would pay creditors in full and a closing in 90 days, absent which there would be a sale by public auction. The order provided further that Court will appoint a chapter 11 trustee on motion of a party in interest if the Court denies Debtor’s motion to employ a broker or Debtor materially defaults in its obligations in a confirmed plan.

Debtor received a chapter 7 discharge of her personal liability under a note secured by a deed of trust on her personal residence and then filed a chapter 13 case. Debtor’s plan provided for the over-secured creditor to retain its lien until the note was paid in full after the conclusion of the plan term, while maintaining the regular monthly payments due under the terms of the original note. With respect to the secured claim, Debtor sought confirmation only under § 1325(a)(5). The Court found that the plan did not satisfy the confirmation requirements of § 1325(a)(5)(B), which requires payment in full of “not less than the allowed amount of such claim” over the plan term. The Court denied confirmation without prejudice to the debtor filing an amended plan.   

The Court held that a laches defense is not available to a bankruptcy trustee to bar an administrative claim of a taxing authority, relying on the interplay between 28 U.S.C. § 960 and Bankruptcy Code § 503(b)(1)(D). The Court held, in the alternative, that the chapter 11 liquidating trustee did not satisfy the elements of laches. Taxing authorities were not bound by the administrative claim bar date in the confirmed plan because it did not expressly apply to holders of tax claims of a type specified in § 503(b)(1)(B) and § 503(b)(1)(C). That is required because such a bar date contravenes § 503(b)(1)(D). The opinion has implications for administrative claim bar dates in chapter 7 and chapter 13 cases as well.

In short, it is tough to avoid the tax man, or woman, even in bankruptcy.

Debtor may seek to avoid a judicial lien as impairing debtor’s homestead exemption under § 522(f) even if debtor no longer holds an interest in the property when debtor files the motion to avoid lien, provided that debtor satisfies both Article III Constitutional and statutory standing requirements. In this case, Debtor sold the property before she reopened her bankruptcy case for the purpose of filing a motion to avoid judicial lien. The Court determined that Debtor had Constitutional standing because the proceeds from the sale of the property had not yet been disbursed; consequently, Debtor would suffer an injury in fact if not allowed to seek lien avoidance. Debtor also satisfied the requirements of statutory standing because 1) the purpose of the lien avoidance statute is not limited to providing the debtor with a homestead, but also furthers the Code’s fresh start policy; and 2) debtor held an interest in the property at the time the creditor’s lien affixed to the property and continued to hold that interest on the petition date. After applying § 522(f)(2)’s lien avoidance formula, the Court concluded that the creditor’s judicial lien was avoidable in its entirety.