All posts in Chapter 7

Attorney’s fees for enforcing judgments

Can a judgment creditor get attorneys fees for its efforts in collecting the judgment?  No – unless the fees are “authorized” by contract, statute or law.”  If there is a “contract, statute or law,” can the creditor get fees for fighting with the debtor in bankruptcy court?  Probably yes if “the underlying judgment includes an award of attorneys’ fees.”

CCP 685.040.  The judgment creditor is entitled to the reasonable and necessary costs of enforcing a judgment. Attorney’s fees incurred in enforcing a judgment are not included in costs collectible under this title unless otherwise provided by law.  Attorney’s fees incurred in enforcing a judgment are included as costs collectible under this title if the underlying judgment includes an award of attorney’s fees to the judgment creditor pursuant to subparagraph (A) of paragraph (10) of subdivision (a) of Section 1033.5.

CCP 1033.5. (a) The following items are allowable as costs under Section 1032:

(10) Attorney’s fees, when authorized by any of the following:

(A) Contract.

(B) Statute.

(C) Law.

So opposing the discharge, opposing claimed exemptions, motions for relief?  See BAP decision in In re Gilman – here.

BAP affirms award of attorneys fees to debtor after defense of 523(a)(2) action

This is pretty interesting and very surprising.  It seems to me to make the whole “is this an action on a contract” issue go away, as long at there is some relevant contract with an attorney’s fees provision.

Asphalt Professionals, Inc. v. Davis (In re Davis), (unpublished) 1:10-bk-17214-VK (9th Cir. BAP  July, 2019)

Issue:    Did the bankruptcy court properly award attorneys fees to the debtor after ruling in debtor’s favor in a 523(a)(2) action?

Holding:   Yes.  Even though the 523 action was not “on the contract,” fees are still appropriate under CCP 1021 which “permits recovery of attorney’s fees by agreement, for tort as well as contract actions.”   Further, CCP 1032(b) gives the prevailing party “costs” which include “Attorney’s fees, when authorized by . . . Contract.” CCP 1033.5(a)(10).

Judge Victoria Kaufman, Central District of California

Faris, Lafferty, Kurtz

The creditor here sued the debtor and certain of his corporations for breach of contract, alter ego and fraud.  The state court gave the creditor judgment against the corporate entities for breach of contract and against the debtor based on alter ego.  It did not rule (apparently) on the fraud.  Judgment was $3 million for breach of contract which included $1.5 million for fees.  During these proceedings, the debtor filed chapter 7.  The creditor filed a non-dischargeability complaint alleging fraud and also sought denial of the discharge.  After trial, the bankruptcy court ruled for the debtor which was affirmed by the BAP.  The bankruptcy court then awarded attorneys fees to the debtor for approximately $100,000.  The court ruled that CA CCP 1717 did not apply because the action in bankruptcy court was not “on the contract.”  She found however that CA CCP 1021 “permits recovery of attorney’s fees by agreement, for tort as well as contract actions.”   Further, CCP 1032(b) provides “a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.”  Finally, “Costs” include “Attorney’s fees, when authorized by . . . Contract.” CCP 1033.5(a)(10).

The BAP affirmed.  Citing the California Supreme Court: Read more…

Are funds seized prepetition by a creditor, and now in the possession of the Sheriff, Property of the Estate?

tentative from Judge Maureen Tighe re the issue of whether funds seized by a creditor but still in possession of the Sheriff are property of the estate.

1:18-13040 Eric Rodriguez Chapter 7

Motion By Debtor For Order Authorizing And Instructing the Riverside County Sheriff’s Office to Return Levied Funds to Debtor

On December 13, 2018, Eric Rodriguez (“Debtor”) received a notice from his bank (“Chase”) that it had received a bank levy in the amount of $14,301.57 from the Riverside County Sheriff’s Office (the “Sheriff”) on behalf of judgment creditor Freddy Harrison. Debtor filed this case as a chapter 13 on December 20, 2018.  The Sheriff then sent Debtor a notice acknowledging the bankruptcy filing, but indicating that if Debtor wanted the funds to be returned, he must seek an order from the Bankruptcy Court; otherwise, the funds would be turned over to the Trustee. The total being held by the Sheriff is $11,367.68 (the “Funds”). Read more…

Discharging Student Loans in Bankruptcy – Public Counsel program

Email from Christian Cooper:

You are invited to attend “Discharging Student Loans in Bankruptcy,” an MCLE program that will cover the fundamentals of litigating student loans in adversary proceedings.  It is approved for four (4) hours of general MCLE credit.

The program is presented by Public Counsel, and is cosponsored by the Central District Consumer Bankruptcy Attorney Association (cdcbaa) and the United States Bankruptcy Court for the Central District of California. Read more…

ABI Commission Report on Consumer Bk

The ABI Commission just released the report on consumer bankruptcy.  You can find the summary of findings by clicking here.

Some interesting recommendations:  allow for postpetition chapter 7 attorneys fees, get rid of both credit counseling courses for a chapter 7, and increase chapter 13 debt limit to $3 million and eliminate the secured / unsecured distinction.    Interesting stuff in the full report which can be retrieved by registering your email here.  Curious what they will do with your email….

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).”

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.

Suing Debtor for Specific Performance – Discharge Violation? Maybe not…

A discharge under 727 discharges a debtor from all prepetition debts (liability on a claim) and any liability on a claim (right to payment).   But what if the debtor is sued for something other than a “right to payment”.   Is that a discharge violation?  Hmmm….let’s take a look at an example.

Read more…

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. So someone is going to have to pull out their checking account to pay for the mess that was created.

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…