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

This case stemmed from debtors' voluntary petition for bankruptcy relief under Chapter 13 of the Bankruptcy Code. When the Chapter 13 trustee moved to dismiss the case or to convert it to a Chapter 7 case, debtors filed a motion to convert their case to a Chapter 7 case, which the bankruptcy court granted. Thereafter, the U.S. Trustee filed a motion to dismiss the Chapter 7 case. At issue was whether an order denying the U.S. Trustee's motion to dismiss a debtor's Chapter 7 bankruptcy case as abusive under 11 U.S.C. 707(b) was a final order appealable under 28 U.S.C. 158(a). The district court dismissed the trustee's appeal, ruling that the bankruptcy court's order was interlocutory and therefore not appealable to the district court. The court held that because of the particular effect that an order denying a motion to dismiss a Chapter 7 bankruptcy case as abusive had on the bankruptcy proceedings, a bankruptcy court's order denying such a motion was appealable to the district court. Accordingly, the court vacated the district court's order dismissing the trustee's appeal and remanded for further proceedings.

The trustee of a bankruptcy estate filed objections to the requested priority treatment under 11 U.S.C. 507 of a portion of severance compensation claims filed by the debtor's former employees (claimants). The bankruptcy court overruled the objections. The Fourth Circuit affirmed, reasoning that the claimants "earned" their severance compensation on the date they became participants in the debtor’s severance plan immediately after their termination from employment.

Plaintiff filed a motion to avoid defendant's judicial lien under 11 U.S.C.A. 522(f) after plaintiff filed a voluntary petition for Chapter 7 bankruptcy. At issue was whether the district court erred in ruling that the Bankruptcy Code did not require a debtor to claim an exemption in the property subject to the judicial lien sought to be avoided under section 522(f). The court affirmed the district court's reversal of the bankruptcy court's denial of plaintiff's motion to avoid defendant's judicial lien because the district court correctly concluded that a debtor was not required to list her property as exempt in order to avoid a judicial lien that was impairing that exemption.

Appellee, trustee for the Chapter 7 bankruptcy estate of debtor, brought suit against various defendants to avoid a series of transfers of an 11.8 acre parcel of real property in Maryland originally owned by the debtor. By consent orders, the trustee accomplished avoidance of the property's initial and second transfers but trial proceeded against the third transferee, appellant. The bankruptcy court entered judgment in favor of the trustee and avoided the transfer pursuant to 11 U.S.C. 550(b). At issue was whether appellant took in good faith and without knowledge of the voidability of the transfer, thereby satisfying the section 550(b)(1) defense. The court held that the bankruptcy court applied the correct legal standard of objective good faith and affirmed its findings that facts known to appellant would have lead a lender under the circumstances to inquire as to the public record. The court found that appellant did not have knowledge of the voidability of the transfer because it was willfully ignorant in the face of facts which cried out for investigation and such a transferee could not have taken in good faith. Accordingly, the bankruptcy court's order was affirmed.

Plaintiffs appealed the judgment of the district court affirming the bankruptcy court's decision to dismiss their petition for Chapter 7 bankruptcy on grounds of abuse. At issue was whether the bankruptcy court erred in its finding that plaintiffs were able to pay their creditors based on the totality of the circumstances of their financial situation. The court affirmed and held that the evidence amply supported the bankruptcy court's findings of abuse where the court need not depend on the additional amount in Social Security benefits to determine that plaintiffs' excessive budge and unjustifiable expenses were an abuse of Chapter 7.