Standing

by on

Second Circuit Holds Debtor Lacked Standing to Seek Preemptive Determination of Tax Dischargeability

Court Rules Bankruptcy Court Should Have Deferred to IRS’s Later-Filed—but First Jurisdictionally Proper—District Court Action

In In re Goebel, No. 25-103 (2d Cir. July 28, 2026), the Second Circuit held that a Chapter 7 debtor lacked Article III standing to obtain a determination of the dischargeability of federal income-tax debts where, at the time she filed her adversary complaint, the IRS had not taken any concrete action indicating that it intended to assert that the debts were nondischargeable.

[Read more…] about Second Circuit Holds Debtor Lacked Standing to Seek Preemptive Determination of Tax Dischargeability

by on

Sixth Circuit Questions “Person-Aggrieved” Standard for Appeal

The debtors’ claim against lenders for charging improper fees during their bankruptcy belonged to the bankruptcy estate, but the lenders’ appeal of the bankruptcy court’s order of abandonment was dismissed because they lacked a direct financial stake in the outcome of the bankruptcy court’s decision and, therefore were not “persons-aggrieved.” In so holding, the Sixth Circuit indicated that had the lenders challenged the “person-aggrieved” standard it would likely have been found to have been abrogated by subsequent Supreme Court precedent and congressional action. Schubert v. Litton Loan Servicing, No. 21-3969 (6th Cir. March 28, 2023).

The debtors alleged that from 2000 to 2004, while they were in bankruptcy, Litton Loan Servicing, L.P., JPMorgan Chase Bank, N.A., and Ocwen Financial Corporation (collectively, “the lenders”), breached their mortgage agreement by collecting fees to which they were not entitled. The debtors received their discharge in 2006 without having disclosed the claim against the lenders to the bankruptcy court, apparently because they only discovered the overcharges a decade later during foreclosure proceedings. Upon discovery, the debtors sued the lenders in state court for breach of contract. The lenders argued that the claim belonged to the bankruptcy estate. The debtors had the state court case stayed and they reopened their bankruptcy case, seeking abandonment of the claim. The lenders opposed abandonment and countersued for an injunction to prevent the debtors from pursuing the state action. The debtors moved to dismiss the lenders’ complaint.

After a hearing, the bankruptcy court denied the debtor’s motion to dismiss and ruled that the claim belonged to the estate. It ordered the trustee to abandon the claim and declined to issue an injunction. Upon appeals by both sides, the district court affirmed.

The case came before the Sixth Circuit on the lenders’ appeal of the abandonment order, and the debtor’s appeal of the denial of their motion to dismiss.

As an initial matter, the court found the lenders had standing to pursue the appeal. The prospect of state court litigation established the necessary “injury fairly traceable to the defendant’s conduct and likely redressable by a favorable decision.”

Another jurisdictional question was more troublesome. The court found the lenders did not pass the “person-aggrieved” test, which bars appeals in bankruptcy by a party “who lack[s] a direct financial stake in the appeal’s outcome.” The person-aggrieved test was included in section 158 of the Bankruptcy Code until Congress removed it in the 1978 amendments to the Code.

The court indicated that the test, which has been deemed to be jurisdictional, is a likely candidate for abrogation in light of the subsequent Supreme Court decision in Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125–27 (2014). Lexmark prohibited a court from limiting its jurisdiction for prudential or policy reasons. “[W]hen Congress creates a right to sue consistent with the Constitution, a court may not take it away.”

However, the lenders did not seek abrogation of the test, so the court rendered its decision based on the test’s continued viability. It found that the lenders did not have the requisite financial stake in the appeal’s outcome because they sought only to preclude state court litigation. “[U]nder our precedent, staving off the threat of litigation doesn’t count. In re LTV Steel Co., Inc., 560 F.3d 449, 452–53 (6th Cir. 2009).”

The court turned next to the debtors’ appeal of the bankruptcy court’s denial of their motion to dismiss the lenders’ adversary complaint. The circuit court stated that the lenders had standing to bring the adversary complaint for the same reason they had standing to appeal. The court also rejected the debtor’s argument that the bankruptcy court lacked the power to determine which claims belong in the estate, finding that that determination is well within the bankruptcy court’s administrative powers under section 157(b)(2)(A).

Finally, the court disagreed with the debtors’ contention that the lenders were not parties in interest. On the contrary, the lenders had “a practical stake in maintaining the settlement of claims the bankruptcy produced.” Had the claim against them been raised during the bankruptcy proceedings, they could have addressed it at that time.

The court dismissed the lenders’ appeal and affirmed the ruling that was the subject of the debtors’ appeal.

In a concurring opinion, Judge Moore stated that the person-aggrieved standard, rather than being at odds with more recent law, “reflects a zone-of-interests analysis that is consistent with Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014).” Judge Moore observed that the person-aggrieved standard, while most often requiring a financial stake in the proceedings, may also be met when there is a public interest in the outcome of an appeal. In her opinion, when properly applied, the person-aggrieved standard “directs the courts to perform a zone-of-interest analysis in line with Lexmark.”

She agreed with the majority, however, that the lenders’ appeal did not fall under the zone-of-interests the abandonment statute, section 554, was intended to address. That provision was designed to prevent trustees from pursuing the sale of property only to increase the trustee’s commission without benefit to the estate. In this case, the lenders’ appeal was solely intended to free them from state court litigation and would not benefit the bankruptcy estate. Therefore, the appeal was outside the zone of interest.

Schubert 6th Cir March 2023

by on

Debtor Lacked Standing to Appeal Order Approving Agreement between Trustee and Creditor

The debtor lacked standing to appeal the bankruptcy court’s order approving an agreement between the chapter 7 trustee and a creditor under which the creditor agreed to fund litigation on behalf of the bankruptcy estate, where the order would not have a direct, adverse, financial effect on the debtor. Dean v. Seigel (In re Dean), No. 21-10468 (5th Cir. Dec. 7, 2021).

Lacking funds to pursue litigation on behalf of the bankruptcy estate, the chapter 7 trustee entered into an agreement with one of the debtor’s creditors, Reticulum Management, LLC, under which Reticulum supplied the funds for the litigation in exchange for a percentage of any recovery the trustee might make. The debtor objected on the grounds that the arrangement unfairly altered distribution of the estate in favor of Reticulum to the detriment of other creditors. The bankruptcy court approved the agreement and the district court affirmed. The debtor appealed to the Fifth Circuit. [Read more…] about Debtor Lacked Standing to Appeal Order Approving Agreement between Trustee and Creditor

by on

Standing to Bring Claims in State Court Relating to Estate Property

The Bankruptcy Appellate Panel for the Tenth Circuit found that the bankruptcy court erred when it declined to exercise its exclusive jurisdiction to determine whether state causes of action raised by investors in the debtor’s pre-bankruptcy Ponzi scheme belonged to the Debtor’s bankruptcy estate: an issue which the panel found was “central to whether the investors had standing to pursue those claims and whether they violated the discharge injunction” by doing so. Hafen v. Adams (In re Hafen), No. 19-31 (B.A.P. 10th Cir. July 30, 2020). [Read more…] about Standing to Bring Claims in State Court Relating to Estate Property

by on

Great Decision on Judicial Estoppel

In a lengthy decision addressing a challenge to its order reopening the debtor’s Chapter 13 case, a Bankruptcy Court for the District of South Carolina found that the debtor had no duty under the Bankruptcy Code or Rules to disclose a lawsuit that accrued and was filed post-confirmation. In the face of a judicial estoppel defense raised by the Defendants in the debtor’s state personal injury lawsuit, the court stated, “[w]ithout such a duty or knowledge that one existed, Debtor cannot be found to have acted intentionally to mislead this Court.” In re Boyd, No. 13-2924 (Bankr. S.C. July 17, 2020). [Read more…] about Great Decision on Judicial Estoppel

by on

Ninth Circuit Finds No Standing for FCRA Claim Despite Reduced Credit Scores

In an unpublished opinion, the Ninth Circuit reached the alarming conclusion that plaintiffs alleging inaccuracies on credit reports that lowered their credit ratings, had no constitutional standing to sue the credit reporting agencies under the FCRA because they could not show “that they had tried to engage in or were imminently planning to engage in any transactions for which the alleged misstatements in their credit reports made or would make any material difference.” Jaras v. Equifax, No. 17-15201(9th Cir. March 25, 2019) (unpublished). [Read more…] about Ninth Circuit Finds No Standing for FCRA Claim Despite Reduced Credit Scores

by on

Bankruptcy Court Rejects Ditech’s Standing to file Mortgage Claim

A bankruptcy court recently expunged a claim of Ditech Financial LLC (Ditech) asserting that it was the creditor and the servicer of a note secured by an investment property (the “Property”) owned by the Debtors. Ditech filed a petition for bankruptcy in Case No. 19-10414 (Bankr. S.D.NY February 11, 2019). The order was entered in another proceeding before a different judge after Ditech’s bankruptcy was filed.

In this case, the Debtors filed a Chapter 11 and sought to sell the Property free and clear of all liens under 11 U.S.C. § 363. Ditech filed its claim. The Debtors successfully objected to Ditech’s claim because Ditech had not demonstrated it had standing. Ditech then filed a motion to reconsider which was granted. Meanwhile, the court granted the motion to sell the Property but kept the proceeds in escrow pending the new hearing on the standing issue.

Ominously, the court’s opinion began with “Throughout this case, Ditech Financial LLC (“Ditech”) has shown disdain for this Court and [the] debtors…”

To read more and get the opinion click here.

by on

Failure of Evidence Sinks Motion for Relief from Stay

Where the evidence showed assignment of the mortgage to U.S. Bank, but did not show that the underlying promissory note was likewise assigned, U.S. Bank was not a party-in-interest in the debtor’s chapter 7 bankruptcy, and its servicer was not entitled to relief from stay.  In re Garcia, No. 18-10229, 2018 Bankr. LEXIS 1352 (Bankr. S.D. N.Y. May 8, 2018).

In this case, Bankruptcy Judge Martin Glenn bemoaned the sloppy work of both Miguel Garcia’s chapter 7 counsel and the counsel for U.S. Bank’s servicer, Rushmore Loan Management Services (Rushmore). But it was Rushmore’s failure to include sufficient evidence in its motion that ruled the day. [Read more…] about Failure of Evidence Sinks Motion for Relief from Stay

by on

Debtors Have Standing to Seek Abandonment

The debtors were “parties in interest” for purposes of establishing standing to compel abandonment of their residential property. Jahn v. Burke (In re Burke), No. 16-6603 (6th Cir. July 14, 2017).

After Philip and Nekolia Burke filed Chapter 7 bankruptcy, the trustee sought to evict them from their residence and sell the property for the benefit of creditors. The trustee tendered a check to the Burkes representing their homestead exemption. The Burkes refused the money and moved to compel the trustee to abandon the property as being of inconsequential value to the bankruptcy estate. In the alternative, the Burkes moved to convert to chapter 13. At the evidentiary hearing, the parties offered competing valuations with the Burkes presenting testimony of two appraisers that the residence had a value of approximately $108,000 and was security for a mortgage for $91,581. The trustee countered with the testimony of a realtor, a home inspector, and himself that the value was approximately $200.000. The bankruptcy court resolved the valuation issue in favor of the Burkes and granted the motion to compel abandonment. The district court affirmed. [Read more…] about Debtors Have Standing to Seek Abandonment

by on

City Lacked Standing to Object to Plan’s Tax Redemption Provision

The City of Philadelphia lacked standing to object to the debtor’s plan provision under which he proposed to redeem over the life of the plan property sold in a tax sale. In re Wilson, No. 15-6385 (E.D. Pa. Dec. 28, 2016)

Earl Wilson failed to pay his city property tax. As a result, the property was sold at auction and sold again to a “subsequent purchaser” in accordance with Pennsylvania’s Municipal Claims and Tax Lien Act (“MCTLA”). That law permits a tax debtor to redeem property within nine months of sale. Mr. Wilson filed for chapter 13 bankruptcy in which his revised Fifth Amended Plan proposed to pay the redemption amount over the course of the plan. The bankruptcy court confirmed the plan over the City’s objection specifically finding that the City lacked standing to object to that portion of the plan providing for redemption of the property.

On appeal the district court looked first to the City’s standing to appeal the bankruptcy court’s confirmation order. It began with bankruptcy’s “person aggrieved” standard for appellant standing. Finding this standard more stringent than general Article III appellate standing, the court stated that the standard “is met only by persons whose rights or interests are directly and adversely affected pecuniarily by an order of the bankruptcy court.” Standing cannot be based on speculative or collateral injury.

The City argued that by permitting Mr. Wilson to redeem the property over the course of his plan instead of within the nine month redemption period proscribed by the MCTLA, the bankruptcy court’s confirmation order injured it in three ways. It 1) diminished the City’s ability to use tax sales as a means of generating revenue and keeping properties on productive tax rolls, 2) increased uncertainty of ownership upon Sheriff’s sale, and 3) put the property back into the hands of a debtor who has proven himself unable or unwilling to pay his tax obligations.

The court found these injuries to be “speculative” in part because they relied on assumptions that might never come to pass: that fewer investors would be inclined to purchase tax-indebted property and that the sale prices would therefore be reduced. The court found the assumption that Mr. Wilson would not pay future taxes and that the subsequent purchaser would pay them, was likewise a matter of speculation. The court, therefore, found that the City lacked standing to appeal the bankruptcy court’s confirmation order.

The court found, however, that the City had standing to appeal the bankruptcy court’s finding that it lacked standing to object to the plan. This inquiry required the district court to examine whether the City met the standard for objecting to a plan under section 1324(a) which gives standing to a “party in interest.” Unlike appellate standing, standing under section 1324(a) is coextensive with Article III standing. The party seeking standing must show injury in fact, which is traceable to an action of the debtor, and which is redressable by a favorable decision.

Even under the less stringent standing analysis, the City’s challenge to the bankruptcy court’s order failed for the same reasons its argument relating to appellate standing failed. Its alleged injury was too speculative to confer standing under section 1324(a). The City could not establish with any degree of certainty that Mr. Wilson would fail to pay future property taxes or that the City would be harmed by such failure. Increased “risk” of injury based on hypothetical future conduct by Mr. Wilson was not the concrete injury in fact required for standing to object to confirmation.

The court affirmed the bankruptcy court’s finding that the City lacked standing to challenge plan confirmation.

Wilson ED Pa opinion Dec 2016