Recent Court Decisions in Bankruptcy

Bankruptcy is an ever changing area of law. Day to day cases are being heard. Some case are then appealed and taken up to higher courts where there becomes case law on certain issues. Below are a few areas cases that have come up recently as summarized by Best Case.

Postpetition Appreciation in Value of Lease Was Estate Property

Facts: Debtor had an interest in a lease on land for oil and gas. At the time the bankruptcy was filed no wells had been constructed so the debtor assigned a proper fair market value of $1 to the lease. However, on the exemptions for Schedule C Debtor only exempted $1 as the value rather than exempting 100% of the lease. As such, Debtor was entitled to $1 rather than the appreciated value of the lease once wells were constructed, etc.

Holding: The Bankruptcy Court held that an potential appreciation in the value of the lease was retained by the bankruptcy estate less any exempt portion, which in this case was $1. The District Court affirmed that the Debtor had only exempted an interest in the lease and not the lease itself. The Court of Appeals affirmed that the lower courts have properly applied Schwab v. Reilly, 130 S. Ct. 2652 (U.S. 2010).

Sales Taxes Not Dischargeable

Facts: The proprietor of a restaurant filed bankruptcy. After the bankruptcy was a filed the state in which he operated the restaurant filed a claim for unpaid sales taxes. Debtor claimed these taxes as dischargeable excise taxes under the Bankruptcy Code.

Holding: The U.S. Court of Appeals ruled that sales taxes are not dischargeable. Sales taxes are “trust fund” taxes which are not dischargeable whereas excise tax is dischargeable if they are more than 3 years old as of the petition date.

Unjust Enrichment Claim

Facts: A Debtor inherited a ranch from his wife. Their children inherited the cattle. Debtor maintained and cared for the cattle on his property.

Holding: The trustee argued that the children owed Debtor rent for the cattle that were left on the ranch that Debtor inherited. The bankruptcy court found that the Debtor was adequately compensated for the pasturing and feeding of the cattle and therefore the heirs (children who inherited the cattle) were not indebted to the bankruptcy estate. The Bankruptcy Appellate Panel affirmed the decision on the more fundamental basis that the Bankruptcy Code does not recognize unjust enrichment as a basis for collecting debt.