All posts in Cases

San Fernando Valley Bar Program this Friday – March 22, 2019

Email from Steve Fox:

Dear All:

We practice law in a corner of the USA often without thinking about what the rest of the bankruptcy bar is doing.  They have a lot of good idea what we in the Valley, debtor and creditor attorneys, can use.

Judge Sandra Klein, Cassandra Richey and Roksana Moradi-Brovia will examine cases from other bankruptcy courts and appellate courts to give us some sense of what the rest of the country is doing in bankruptcy.  This is the type of program where you take notes because you get ideas which you can use in your own cases.  The cases are intended to make you think.

The panelists are well known and well respected.  Your time will be well spent.  Here are the program particulars: Read more…

Paying the mortgage in advance as prepetition exemption planning

I have asked bankruptcy attorneys many times over the years whether they think that it is okay to use non-exempt cash in the bank to prepay the mortgage before filing a petition.  It would only work of course if the mortgage payment created equity that was then exempt.  Every attorney I have ever asked has said something like, “Of course it’s okay.”  Some have looked at me strangely like “Why are you asking when the answer is obvious?”

I don’t see it as obvious.  It is a transfer to delay, hinder or defraud creditors.  “But it is exchanging non-exempt assets for exempt assets which is okay,” is the usual response.  The answer to that is “sort of.”

The BAP has recently affirmed Judge Robert Kwan in an unpublished opinion, In re Ellison, who denied this guy’s discharge based on a bunch of prepetition transfers, (“But it’s allowed exemption planning says the debtor’s atty.”)  The debtor paid six months worth of his first and second mortgages.  Why you ask?  The debtor’s words, “to assure that my wife and my daughter and myself had a home to live in through the end of the year . . . I did prepay [the mortgage in the past] but not to that degree, not six months, or four months, five months, whatever it was in advance, normally.”  According to Judge Kwan, “This out of the ordinary course transaction and Defendant’s admissions are additional evidence of his intent to hinder or delay his creditors by putting these funds out of their reach for his personal benefit.”   See In re Ellison, 2:15-ap-01001-RK.  Docket No. 30.

There were other transfers to be sure which had the effect of protecting about $250,000 of equity in the debtor’s home (after the homestead exemption).  Judge Kwan concluded that the debtor “crossed over the line’ of what is permissible behavior.  See In re Beverly, 374 B.R. at 244-246 (discussing the difficulty in drawing the line between legitimate bankruptcy planning and intent to hinder, delay or defraud creditors).”

Supreme Court Grants Cert in Taggart!

Last Friday, the Supreme Court granted cert in the Taggart case.  That is the discharge violation case that says

“the creditor’s good faith belief that the discharge injunction does not apply to the creditor’s claim precludes a finding of contempt, even if the creditor’s belief is unreasonable.” [emphasis added] 888 F.3d at 444

Lorenzen v. Taggart (In re Taggart), 888 F.3d 438, (9th Cir. April, 2018)

cdcbaa 9th Circuit Review Coming Up January 12, 2019

Saturday, January 12, 2019

11:00 a.m. to 1:00 p.m.

13th Annual Review of 9th Circuit Decisions on Bankruptcy in 2018

SPEAKERS:

Hon. Neil Bason, U.S. Bankruptcy Court – Central District of California
Hon. Christopher M. Klein, U.S. Bankruptcy Court – Eastern District of California
M. Jonathan Hayes, Resnik Hayes Moradi, LLP Read more…

Can the Court Avoid a Judgment Lien under 522(f) When the Debtor Owns no Real Property?

I have seen this issue come up on numerous listserves.  Judge Mund explains why the answer is no.

In re Kenney,  1:10-bk-11635-GM (Bkrtcy, C. D. Cal. Nov, 2018)

Issue:   Is a 522(f) appropriate to avoid a prepetition judgment lien when the debtor owned no real property on the petition date?

Holding:   No.  There is no lien to avoid.

Judge Mund

The debtors filed chapter 7 and got their discharge in 2010.  At the time a creditor had a judgment against them and had recorded an abstract of judgment.  They had no real property at the time.  In 2018, they are trying to buy a house.  They reopened their case and filed a Motion to Avoid Judgment Lien under 522(f).

Judge Mund denied the motion on the basis that there is/was no lien to avoid.

Because there is no valid lien to be avoided, Debtor is not entitled to the protections of 522(f).  The Court recognizes that Debtor is trying to ensure that no encumbrance results from a pre-petition recorded abstract of judgment; such a result would have the absurd consequence of creating an unenforceable lien on property acquired post-petition, but only in the specific counties which the creditor recorded the abstract of judgment.

Subtle Difference Between “Deemed Exempt” versus “Claimed Exempt” — Just Because Schedule C Lists the $100 in Bank Account Does Not Mean Debtor Can Immediately Use It

I tried to make the title as concise as possible — Ockham’s Razor failed.

Client comes to see you and they have $5,000 in their checking account.  You list it on Schedule B then exempt it on Schedule C and file the case.  The 341(a) is in 30 days.  Client goes to the bank the next day and withdraws all of the funds to pay rent and spend it on gambling.  You don’t think it is a problem because the funds have been fully exempt.

But is it?

In Section 70a of the former Bankruptcy Act, there was an automatic exclusion of exempt property such that by simply listing the asset on Schedule C — then that asset was automatically and immediately exempt.  That is not how it works under the current Code — it is not automatic.  I was reading the Mwangi case from the Ninth Circuit that clarifies a subtle distinction between an asset that has been “claimed exempt” versus one that is actually “deemed exempt.“   In the hypo above, it is a “no harm, no foul” situation but it’s still worth thinking about.

Read more…

Receivership and Bankruptcy

Imagine this, prepetition, Debtor owns and operates 50-unit Apartment upon which Wells Fargo holds a note and deed of trust.  Debtor defaults on the note and WF commences foreclosure.  The state court appoints you Receiver to take possession of and operate the Apartments.  The Apartment is mismanaged and you begin improving the Apartments and collect $100,000 in new rent and the bank, WF, gives you additional funds also in your capacity as Receiver.   As you are running the Apartments and holding onto a substantial amount of funds — debtor files Chapter 11 bankruptcy and orders you, as the Receiver, to turnover the funds to him since it is property of the estate now.

Will the court grant Debtor’s Motion for Turnover such that the funds you hold as Receiver have to be turned over to the scumbag Debtor who will likely dissipate the funds?  

Read more…

San Fernando Valley Bar Association Bankruptcy Section Meeting, Friday, November 9, 2018 at lunch

Email from Steve Fox

Dear All:

It is really nice when I can announce a program that will appeal to wide variety of bankruptcy attorneys.  This is one of those programs.  Jeff Hagen will be leading a discussion about several Ninth Circuit, Ninth Circuit BAP and Central District cases which address consumer debtor cases.  One opinion by the 9th Circuit, the Goudelock case, runs 100% counter to the position I advocated in a CDCBAA article some 10 years ago.  In another case, the Ninth Circuit considered whether the IRS could shield itself from liability from an alleged 362 violation.  The outcome may surprise you.  Jeff’s cases examine issues of importance to both creditors and debtors.

Judge Kaufman has picked a number of litigation cases for our consideration.  She will lead that discussion.  One case, Lamar, is problematic for all of us attorneys.  The judge will also lead a discussion about the Taggert case which, depending on one’s perspective as a creditor or as a debtor, has either evened the playing field or is a ruling rife with injustice.

Finally Andy Goodman also has some fun cases.  In one case, the secured creditor purchased unsecured claims to block plan confirmation in a chapter 11 case.  Can that creditor do this?  Come and find out.  In another case, the chairman had a salary of just under $800,000 annually.  He filed a claim for about $250,000 for unpaid monies during the case.  The optics look bad.  The result for the chairman?  Come and find out.

So the program is good.  Not only that, the materials are relatively hefty.  Here are the particulars: Read more…

SFVBA Program This Friday October 12, 2018

Email from Steve Fox:

Dear All:

The bankruptcy section is back for its 2018-2019 season.  The first program up is a really unique program.  It will exercise our brains and give us some good food for thought, and good stuff to use in our law practices.  Daniel J. Bussell of Klee, Tuchin (and a law professor at UCLA), Whitman Holt (a partner at Klee Tuchin) and Judge Barash will speak on a small number of selected appellate cases. Read more…

OCBA’s 5th Annual Consumer Bankruptcy Law Update – October 23, 2018

I have been given the honor of moderating the Orange County Bar Assn’s 5th Annual Consumer Bankruptcy Law Update on Tuesday, October 23, 2018 from 5:30 p.m. – 7:30 p.m. at Chapman University School of Law.   OCBA will be providing a summary of all published case law from the Bankruptcy Appellate Panel, District Court, 9th Circuit Court of Appeals, and US Supreme Court since April last year to now.

Judges Theodor C. Albert, Catherine A. Bauer, Mark D. Houle, Erithe A. Smith, and Mark S. Wallace and Michael J. Hauser of the Office of the US Trustee will be on the panel to discuss key cases.