Justia U.S. 4th Circuit Court of Appeals Opinion Summaries

Articles Posted in Bankruptcy
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After the Circuit City Trustee sought a ruling in 2019 on his liability for quarterly fees assessed under a 2017 Amendment to the bankruptcy fees provisions of the United States Code (28 U.S.C. 1930(a)(6)(B)), the Bankruptcy Court for the Eastern District of Virginia ruled that the fees aspect of the 2017 Amendment is unconstitutional. The U.S. Trustee appealed and the Circuit City Trustee cross-appealed, jointly certifying these appeals to the Fourth Circuit, which the court granted and consolidated.The Fourth Circuit ruled in favor of the U.S. Trustee in both appeals, reversing the Bankruptcy Opinion's uniformity decision challenged by the U.S. Trustee, and affirming the Opinion's retroactivity decision challenged by the Circuit City Trustee. The court concluded that the 2017 Amendment does not contravene the uniformity mandate of either the Uniformity Clause or the Bankruptcy Clause. The court also concluded that Congress clearly intended for the 2017 Amendment to apply to all disbursements made after its effective date, and it intended for the Amendment to be prospective. Accordingly, the court remanded to the bankruptcy court for further proceedings. View "Siegel v. Fitzgerald" on Justia Law

Posted in: Bankruptcy
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To finance the purchase of a home in 2008, Wood borrowed $39,739.44. About six years later, Wood defaulted, with an unpaid balance of $23,066.66. The Department of Housing and Urban Development (HUD), which had insured the loan, paid that amount and sent Wood a Notice of Intent to Collect by Treasury Offset, using income tax overpayments. In 2017, Treasury offset Wood's federal tax overpayment of $9,961 toward the debt. In 2018, Wood filed a Chapter 7 bankruptcy petition, opting to exempt any 2017 income tax overpayment. Treasury nonetheless offset a $6,086 overpayment.Wood requested that the bankruptcy court void HUD’s lien and order a return of the $6,086. The court concluded that a debtor’s tax overpayment becomes property of the estate, protected by the stay, and the debtor may exempt the overpayments and defeat a governmental creditor’s right to setoff. The district court agreed, stating that because Treasury had knowingly intercepted the overpayments after the Woods filed for bankruptcy, equity did not favor granting permission to seek relief from the automatic stay.The Fourth Circuit remanded. The protections typically accorded properly exempted property under 11 U.S.C. 522(c) do not prevail over the government’s 26 U.S.C. 6402(d) right to offset mutual debts. Although the government exercised that right before requesting relief from the automatic stay, there is no reason to abridge the government’s 11 U.S.C. 362(d) right to seek the stay’s annulment. View "Wood v. United States Department of Housing and Urban Development" on Justia Law

Posted in: Bankruptcy, Tax Law
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Under the federal tax offset program, the Secretary of the Treasury has the discretion to set-off "any" tax overpayment against a taxpayer's preexisting tax liabilities, and the bankruptcy code provides that exempt property cannot be used to satisfy "any" of the bankruptcy debtor's prepetition debts. At issue was which of these statutory directives controls when a bankruptcy debtor claims, as exempt property, a tax overpayment that the government seeks to set-off under the offset program.The Fourth Circuit agreed that debtors' interest in their tax overpayment became part of the bankruptcy estate. However, based on the plain language of the various statutes, particularly the plain language of 11 U.S.C. 553(a), the court held that the government's right to offset the debtors' tax overpayment under 26 U.S.C. 6402(a) cannot be subordinated or otherwise affected by debtors' attempts to claim the overpayment as exempt property. Accordingly, the court vacated the district court's judgment, remanding for further proceedings. View "Copley v. United States" on Justia Law

Posted in: Bankruptcy, Tax Law
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After entering a settlement that released certain tort claims, plaintiff filed for Chapter 7 bankruptcy. When her debts were discharged and the bankruptcy proceedings closed, she filed suit seeking to rescind her settlement agreement as fraudulently induced and to pursue a tort action. The district court entered judgment in favor of defendants.The Fourth Circuit held that the district court's standing determination conflates Article III requirements with the distinct real-party-in-interest analysis. Rather, plaintiff has both Article III standing and the legal entitlement to pursue tort claims on her own behalf. In regard to judicial estoppel, the court also held that the district court relied on an improper presumption of bad faith, and therefore reached its conclusion without fully engaging in the necessary inquiry. Therefore, the court remanded to the district court for it to evaluate the appropriateness of judicial estoppel in light of all facts and circumstances without recourse to a presumption of bad faith. View "Martineau v. Wier" on Justia Law

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The plain text of 11 U.S.C. 1322(c)(2) authorizes modification of covered homestead mortgage claims, not just payments, including bifurcation of undersecured homestead mortgages into secured and unsecured components. The Fifth Circuit overruled Witt v. United Cos. Lending Corp., 113 F.3d 508 (4th Cir. 1997), which held that Chapter 13 debtors may not bifurcate a narrow subset of undersecured home mortgage loans into separate secured and unsecured claims and cram down the unsecured portion of such loans. Accordingly, the court reversed and remanded for further proceedings. View "Hurlburt v. Black" on Justia Law

Posted in: Bankruptcy
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The Fourth Circuit reversed the district court's decision affirming the bankruptcy court's conclusion that Alaska's award of damages to TKCA necessarily meant that debtor willfully and maliciously injured TKCA for purposes of section 523(a)(6) of the Bankruptcy Code. The Supreme Court, in Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998), held that section 523(a)(6) requires "a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury."The court held that, because neither the Alaska district court, nor the bankruptcy court, determined the precise issue of whether debtor intended to injure TKCA, collateral estoppel and summary judgment were inappropriate. Therefore, the court remanded to the district court with instructions to remand to the bankruptcy court for further proceedings. View "TKC Aerospace Inc. v. Muhs" on Justia Law

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JJF appealed the district court's denial of its third party claim to funds in certain deposit accounts that plaintiff, owner of a Rent-a-Wreck (RAWA) franchise, sought to garnish in his effort to satisfy a contempt award against RAWA for engaging in a pattern of bad faith conduct. JJF argued that it had priority over plaintiff's claims to the accounts.The court affirmed and held that the district court did not err in concluding that Maryland law permitted a trial court to require a third party movant to establish a bona fide claim of ownership. Therefore, the court declined to grant preclusive effect to the debtor-in-possession order and gave effect to the district court's authority to ensure compliance with its contempt orders. View "Schwartz v. J.J.F. Management Services, Inc." on Justia Law

Posted in: Bankruptcy
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The Bankruptcy Code does not bar a creditor from asserting an unsecured claim for attorneys' fees, if those fees are incurred after the filing of a bankruptcy petition but guaranteed by a pre-petition contract. The Fourth Circuit reversed the district court's determination to the contrary and remanded for further proceedings. In this case, the court held that neither 11 U.S.C. 502(b) or 506(b) expressly disallows a creditor like SummitBridge from asserting an unsecured claim for post-petition attorneys' fees based on a valid pre-petition contract. View "SummitBridge National Investments III, LLC v. Faison" on Justia Law

Posted in: Bankruptcy
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The Fourth Circuit affirmed the district court's decision affirming the bankruptcy court's order requiring the bankruptcy trustee to return debtor's post-petition Chapter 13 payments to him. The court held that the plain language of 11 U.S.C. 1326(a)(2) required the trustee to return the post-petition payments to debtor. The court explained that section 1326(a)(2) prevents the Division from levying upon the trustee when he is in possession of the post-petition payments. In this case, once the trustee returned the funds to debtor, the Division or any other creditor was free to levy upon debtor or others who possess his property. View "Commonwealth of Virginia v. Webb" on Justia Law

Posted in: Bankruptcy
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The Fourth Circuit reversed and remanded the bankruptcy court's dismissal of debtor's case, holding that the plain language of 11 U.S.C. 1307 required a hearing. The court held that Local Bankruptcy Rule 3070-1(C)'s procedure for dismissal of a voluntary bankruptcy case conflicted with the notice and hearing requirement of section 1307. Therefore, Local Bankruptcy Rule 3070-1(C) was invalid to the extent that it was inconsistent with section 1307's hearing requirement. View "No v. Gorman" on Justia Law

Posted in: Bankruptcy