All posts in Chapter 7

Getting Priority (and Other Headaches) at the 341(a) Meetings Downtown

Information from one of the chapter 7 trustee administrators:

The OUST informed us that a trustee should not grant or give priority requests to an attorney, unless the requesting attorney has a good reason.  For example, having hearings in multiple rooms, having to go to Roybal for another matter, client with young child(ren), etc.  Reasons such as “I want to finish early” or “I parked at the meter and my time is finishing” should not be given priority.  And yes, some attorneys have actually requested priority for those reasons.

There is a new rule in place where LA trustees need to stop conducting the 341 meetings at 12pm (even if they are not done with the 11am calendar) and resume at 1:30pm.  Based on this, some attorneys have been requesting priority at the 11am hour so they do not get stuck coming back in the afternoon.  The 12pm cutoff time has something to do with labor laws relating to lunch breaks for the security guard.

Also, the OUST has instructed trustees to use the interpreter service, even if someone from the audience volunteers to interpret.  If the debtor hires and pays an interpreter to attend the 341 with him/her, then that is acceptable. But no “volunteers”.

More Fallout from Taggart

In my Amicus Brief supporting the Debtor’s request for a rehearing en banc in In re Taggart, 888 F.3d 438, 443 (9th Cir. 2018), I said:

In its opinion, the [Taggart] panel held,

“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

The statement is an incremental extension of a footnote in the Ninth Circuit case of ZiLog, Inc. v. Corning (In re ZiLog, Inc.), 450 F.3d 996 (9th Cir. 2006), a case easily distinguishable from Taggart on the facts. The statement disrupts the long-standing rule that a creditor who receives notice of the debtor’s discharge and still pursues the debtor for discharged debts may not plead ignorance of the discharge as a defense. The statement, if allowed to stand, will forever be treated by creditors as a blackletter rule which will quickly come to be known as the Taggart Rule. Creditors, using the above statement will respond to discharge violations by saying, “Taggart says we win!” “We weren’t sure about the discharge injunction and therefore we win because the Ninth Circuit said so!” There will be little reason to even have an evidentiary hearing regarding the creditor’s good faith belief because the Ninth Circuit said that even if the subjective good faith belief is unreasonable, there can be no consequences to violating the discharge.

My prediction is coming true.  The 9th Circuit BAP has even extended this to the automatic stay, reversing a ruling by Judge Sheri Bluebond who had awarded some $400,000 in fees for violating the automatic stay.  The BAP said in Ress Financial Corp v. Beaumont 1600, LLC (In re The Preserve, LLC), Adv. No. 2:13-ap-01406-BB, unpublished (9th BAP Sept 7, 2018), Read more…

Wife Files Bk But Title To House In Non-Debtor Husband’s Name – “Brace” Yourself!

“I’m not on title, only my husband is on title!” — wow, how many times a week do I hear this statement re: a house, a car, a boat, etc.

In last year’s BAP opinion of In re Brace by Judge Lafferty, the panel clarified an interesting fight:  who wins between Community Property Presumption (CFC 760) versus Record Title Presumption (CEC 662).  I enjoy reading Judge Lafferty’s opinions — it’s very tutorial and easy to follow.  In this opinion, the panel held that the community property presumption wins.  This means, to me, that it does not matter if debtor is “not on title” to the house — the house is still property of the estate due to debtor’s community interest in the house.   This case is on appeal to the Ninth.

Butner Principle From a Different Perspective – Simon Says May I?

I was reading this law review article on the Butner case and it provided a different view on the case that I wanted to share.  In essence,  Professor Adler questions why Butner  became so famous and a “guiding principle” when the underlying arguments and holdings are so obvious.   Butner says that since the Bankruptcy Code does not establish or define property rights, the parties must turn to nonapplicable law (state law) to answer it.  Well of course! Where else would you turn to!? That makes so much sense, why did we need nine Justices to clarify that?

This is akin to me telling you “in order to fix my plumbing problem, don’t look in the ‘House Operations Manual’ but instead look at the plumbing manual that will tell you how to fix my plumbing problem.“  We need a Supreme Court to tell us that?  The answer is so blatantly obvious let alone to become a “guiding principle!” Read more…

Client Purchased Rolex Before BK? How Courts View “Fraudulent Intent” For Credit Card Fraud

I was reading some case law on fraudulent purchases prior to bankruptcy.  At first I thought it was only “luxury” purchases (i.e. you purchase a Rolex on eve of bankruptcy) but it turns out that “luxury purchase” is just one of many factors.  If you go to McDonald’s everyday and rack up a debt there, that can be nondischargeable.

I read Dougherty and HashemiConsider these factors when advising your client: Read more…

Employment Law & BK — “Will Filing BK Affect My Chances of Getting Hired?”

Section 525 deals with protection of debtors against discrimination.  Section 525 is broken up into two main sections relating to two main standards:  one for governmental employers and one for private employers.   Let’s take a look…and note the big omission by Congress for private employers.

525(a) says a governmental unit may not:

  • Deny employment to
  • Terminate the employment of…
  • Discriminate re: employment against a person on basis of their bankruptcy filing.

525(b) says a private employer may not:

  • Terminate the employment of…
  • Discriminate re: employment against a person on basis of their bankruptcy filing.

Government cannot deny your employment because you filed bk but a private employer can!  This is also how rental companies can ask you “did you file bk in past” and deny your rental application.


Difference Between “False Pretense” and “False Representation” under 523(a)(2)

Section 523(a)(2)(A) excepts from discharge any debt for money obtained by false pretense, a false representation or actual fraud.   But how can you tell the difference?

False representation is an express representation.  “There are no leaks in the roof of my house.” 

False pretense is an implied representation or conduct intended to create a false impression.  “Whenever it rains, it is dry as a bone in this house, which is why I like it, I also got their decorated the right way with even an aquarium and glow in the dark fish ornaments I found online.”


Pay off Taxes on a Credit Card Then File Bankruptcy To Wipe Out the Credit Card…will it work?

I paid my car registration fee on my credit card tonight and it got me thinking.   A lot of government sites allow you to pay their debts with a credit card.  Can you charge these on a credit card and then file bankruptcy to discharge the debt?  What about taxes?   Of course not.  Conceptually it makes sense but do you know the two Code sections that say this?  See below.

Read more…

What did you spend $140,000 on? “Wine, Women, and Song”

Section 727(a)(5) says you can be denied a discharge if you (debtor) cannot explain how you lost your assets.  One court in Connecticut denied a 70+ year old debtor a discharge when he said he spent $140,000 on “wine, women and song” and carried all that money in rolled up one hundred dollar bills.  The court said that is dubious.  Regardless, I would like to meet this gigolo!

Is Fraud under California Law the Same as Fraud under 523(a)(2)? Yes says Judge Maureen Tighe.

In Moussighi v. Talasazan (In re Talasazan), 1:16-ap-01119-MT (Bkrcy June 2018, C.A. Cal Tighe J.), Judge Tighe said,

Fraud under California law and § 523(a)(2)(A) are identical for purposes of collateral estoppel. In re Younie, 211 B.R. 367, 373 (B.A.P. 9th Cir. 1997), aff’d, 163 F.3d 609 (9th Cir. 1998); In re Jung Sup Lee, 335 B.R. 130, 136 (B.A.P. 9th Cir. 2005).

This came up in an argument I had with someone recently re res judicata.  I stated that a state court judgment that says ONLY “Plaintiff wins $1 million based on the fraud of defendant,” is res judicata in bankruptcy court whether entered by default or not.   I was told I was mistaken in no uncertain terms because fraud under California law is not the same as fraud under 523(a)(2).  Wrong!

By the way, the judgment example above IS res judicata as to the amount owed in any event – at least for claims purposes.  The typical state court judgment says “Plaintiff wins $1 million” (nothing else).  Collateral estoppel in that case as to fraud still MIGHT apply depending on whether it was actually litigated etc.  Underlying documents, rulings etc are needed.  But the judgment ITSELF is res judicata as to how much defendant/debtor owes the creditor.  That statement does NOT mean that if there was fraud, the damages for fraud are $1 million.  But it does mean debtor owes creditor $1 million (which is discharged unless 523(a) applies).

The Talasazan matter has an interesting twist.  The debtor moved for summary judgment on the grounds that fraud was litigated in state court and the ruling was in the debtor’s favor and therefore could not be relitigated.  The problem is that the state court judge did not say that.   Judge Tighe wrote:

“[W]hile fraud was pled, argued, and briefed after trial, the Third Amended Judgment does not include fraud in the list of causes of action on which Plaintiffs prevailed.

It appears that the Superior Court ruled in Plaintiffs’ favor on the negligent misrepresentation cause of action rather than fraud.

For purposes of collateral estoppel, as detailed below, the Superior Court’s silence with respect to the fraud action, in the context of undisputed evidence from both sides that the issue was fully litigated, was a ruling in favor of the Debtor and not the Plaintiffs.”