New Mexico attorney general moved for an order that the automatic stay did not apply to state court action brought prepetition against one of the debtors for violation of the Unfair Practices Act. The court ruled that certain counts were excepted from the stay under the “police power” exception, while other counts were not. For the counts that were stayed, the court found that cause had not been demonstrated to modify the stay. Finally, the court found that the attorney general lacked standing to bring certain common law counts, and seek certain remedies, on behalf of customers alleged harmed by the unfair trade practices.

Judgment lien creditor sought determination that the chapter 7 Debtors’ real estate contract—pursuant to which they are purchasing their residence—was deemed rejected pursuant to 11 U.S.C. § 365(d)(1), and that the real estate contract was therefore terminated and not property of the estate. The Court held that it need not decide whether the real estate contract was an executory contract governed by § 365, because either way, the real estate contract is still in effect and is property of the estate. If the real estate contract is subject to § 365, it was automatically rejected pursuant to § 365(d)(1). The effect of the automatic rejection was a material breach, which the real estate contract seller waived by continuing to accept payments post-rejection. The real estate contract was modified by course of performance such that payments made by the Debtors directly to the seller’s mortgage lender constituted payments under the real estate contract.

The UST sought to dismiss or convert the debtors’ jointly administered chapter 11 cases based on the debtors’ failure to maintain insurance. The Court found that “cause” existed under § 1112(b)(4)(C) based on the Debtors’ failure to maintain appropriate insurance that poses a risk to the public or to the estate, but ultimately held that the “unusual circumstances” exception applied, and denied the motion. The Debtors committed to file a joint liquidating plan by a date certain committing to distribute the expected $3 million plus of surplus proceeds from the sale of one Debtor’s real property to the estate of the other Debtor to pay its creditors. This scenario is unusual. Debtors were justified in their failure to obtain both property and general liability insurance because of their inability to pay the premiums. The Court required the Debtors to cure the failure to maintain appropriate insurance within a reasonable time fixed by the Court as follows: 1) the Debtor with no real property and little personal property was required to abandon its personal property; and 2) the other Debtor was required to obtain general liability insurance on the real property. Creditors holding mortgage liens against the real property had or could obtain forced place insurance to protect their interests such that the Debtor’s failure to maintain property insurance, while not prudent, did not pose a material risk to the public or to the estate.

The UST sought to deny debtor’s discharge under § 727(a)(2) (transfer or concealment of property within a year of the petition or during the case with the intent to hinder, delay, or defraud a creditor), § 727(a)(4)(A) (false oath or account), and § 727(a)(7) (acts proscribed by § 727(a)(2), (4) committed within a  year of the petition date in connection with another case concerning an insider). The Court allowed the UST to present evidence of an alleged fraudulent scheme under the Paycheck Protection Program (“PPP”) to the extent such evidence was relevant to prove the intent requirements necessary to deny debtor’s discharge. Notwithstanding substantial evidence of PPP loan improprieties, the Court found that debtor’s testimony was credible and concluded that the UST did not meet her burden of proving, by a preponderance of the evidence, that debtor, in connection with another bankruptcy case in which debtor was an insider, fraudulently made a false oath or account at the meeting of creditors, or caused or permitted the transfer of approximately $352,000 with the intent to hinder, delay, or defraud a creditor.