Sacramento Bankruptcy and Divorce Attorneys Blog

December 24, 2022

California Court Discusses Grounds for Deeming a Debt Nondischargeable

One of the benefits of bankruptcy is that it allows parties to discharge their debts so that they can regain financial security and move forward with their lives. Certain debts cannot be discharged in bankruptcy, however, such as those that arise out of the malicious or willful injury to another party. Recently, a California court explained what conduct constitutes willful and malicious behavior so as to render a debt nondischargeable in a case in which it ultimately rejected the debtor’s appeal. If you have significant debts, you could qualify for relief via bankruptcy, and it is smart to talk to a California bankruptcy attorney about your options.

Procedural History of the Case

It is alleged that the debtor filed for Chapter 7 bankruptcy relief. One of the debts he sought to have discharged was a subrogation claim from an insurance company. The insurance company moved to have the debt deemed nondischargeable on the grounds that it arose out of the debtor’s willful and malicious acts. The bankruptcy court ruled in favor of the insurance company, deeming the debt nondischargeable, and the debtor appealed. The bankruptcy appellant panel affirmed the bankruptcy court’s decision, and the debtor filed an appeal to the Ninth Circuit Court of Appeals.

Grounds for Deeming a Debt Nondischargeable

Upon review, the court affirmed the bankruptcy court’s ruling. In doing so, it explained that the court did not make a clear mistake in finding that the debtor’s conduct was tortious as required for reversal. Specifically, the court explained that the defendant illegally converted another person’s vehicle without her permission, depriving her of her property and causing her to suffer damages.

November 26, 2022

California Court Discusses Debts Dischargeable in Bankruptcy

by Matthew D. Roy

Filing for bankruptcy is an option for many people struggling to pay their debts. While many debts are dischargeable via bankruptcy, not all are. For example, people cannot seek relief from certain tax obligations by filing bankruptcy actions, as clarified by a California court in a recent ruling issued in a bankruptcy matter. If you have debts that you are unable to pay, you may be eligible to file for bankruptcy, and you should speak to a California bankruptcy attorney as soon as possible.

Procedural Background of the Case

It is alleged that the debtor filed for Chapter 11 bankruptcy in November 2015. The action was converted to a Chapter 7 bankruptcy, and the court ultimately ordered a discharge. In August 2021, the debtor received a notice from the IRS informing him that he owed approximately $10,000 in taxes for the 2012 and 2013 fiscal years. He subsequently moved to open his bankruptcy case.

Reportedly, after the court granted his motion, he filed an adversary complaint against the IRS, asking the court to issue a declaratory judgment that his 2012 and 2013 tax obligations were discharged by his Chapter 7 bankruptcy proceeding. The IRS filed a motion to dismiss, which the court granted. The debtor then appealed.

October 30, 2022

California Court Discusses Proving a Creditor Violated an Automatic Stay in a Bankruptcy Case

by Matthew D. Roy

One of the many benefits of filing for bankruptcy is that a stay is automatically entered upon filing, preventing any creditors from taking legal action against the debtor. If an automatic stay is violated, a debtor can seek relief from the court. Issues can arise, however, when it is unclear when a bankruptcy action was filed. In such instances, the court may be unable to determine if a stay was violated and whether the debtor is entitled to the relief sought, as demonstrated in a recent California ruling issued in a bankruptcy action. If you are overwhelmed with debts, it is wise to talk to a California bankruptcy lawyer want to determine if bankruptcy is a suitable option for you.

Procedural and Factual History of the Case

It is alleged that the parties agreed that the debtor filed a chapter 13 bankruptcy petition in October 2017. The time the petition was filed is disputed, however, as it contains two timestamps that are 32 seconds apart, with the later time stamp indicating the petition was filed at 2:00 pm. At the same time that day, the creditor conducted a foreclosure sale of the debtor’s property. The debtor did not learn of the foreclosure sale until after it occurred.

It is reported that the debtor’s bankruptcy petition was dismissed for the failure to pay filing fees. He reinstituted the bankruptcy action, however, and filed a motion for summary judgment, asking the court to find that the creditor violated the automatic stay and to determine that the foreclosure sale and all actions related to it were void.

September 30, 2022

California Court Discusses Valuing Assets of Bankruptcy Estates

by Matthew D. Roy

It is not uncommon in Chapter 7 bankruptcy proceedings for the courts to permit the Trustee to sell the property of the bankruptcy estate. While it is within the courts’ authority to allow such sales to occur, they must ensure that any property is sold for its optimal value in consideration of the circumstances. Recently, a California court addressed the issue of how a property’s optimal value is determined in a matter in which a party with a lien against the debtor’s estate argued that an asset was sold for less than it was worth. If you have questions about how filing for bankruptcy may impact your property rights, it is wise to talk to a California bankruptcy lawyer promptly.

Facts of the Case

It is reported that the debtor and the claimant were business partners who engaged in a series of real estate investments in the late 1990s. Their relationship deteriorated over time, and the claimant divested himself of his interests in their joint assets. The debtor agreed to pay him for said interests but failed to do so, and the claimant ultimately obtained a $34 million judgment against him.

Allegedly, the debtor filed for Chapter 7 bankruptcy and an adversary proceeding seeking relief, including the mandatory subordination of the claimant’s judgment. The court granted the motion. At the same time, the Trustee filed a motion asking the court to authorize the sale of one of the debtor’s properties free and clear of liens for $18 million, even though the claimant assessed its value at $25 million. The property ultimately sold at auction for $20 million, and the claimant appealed the sale order.

August 29, 2022

California Court Dismisses Adversary Complaint as Untimely

by Matthew D. Roy

Bankruptcy trustees often handle multiple cases at one time and are expected to keep track of the unique facts and pleadings of each case. If a trustee hastily files a pleading in the wrong case, it may negatively affect their rights, as demonstrated in a recent ruling issued by a California court. If you need assistance managing your debts and are interested in learning more about bankruptcy, it is in your best interest to meet with a California bankruptcy lawyer as soon as possible.

Procedural Background of the Case

It is alleged that the debtor filed a chapter 7 bankruptcy petition in July 2019, and a chapter 7 trustee was appointed shortly after. Two years later, on the last day to institute section 108(a) and 546(a) actions, the trustee filed multiple complaints in which he set forth both bankruptcy and non-bankruptcy claims against third parties. One of the claims he filed was an adversary complaint against the appellant to avoid transfers and seek damages for breach of contract and unjust enrichment; however, he filed it under the wrong docket number,

Reportedly, the trustee did not take any action to remedy his mistake for three months. Specifically, he dismissed the incorrectly filed complaint and filed an amended complaint under the correct docket number. The appellant moved to dismiss the adversary proceeding on the grounds that it was time-barred. The court granted the appellant’s motion, and the trustee appealed.

July 22, 2022

California Court Discusses Factors Considered When Evaluating Whether to Convert a Chapter 7 Bankruptcy Case to Chapter 11

by Matthew D. Roy

There are key differences between Chapter 7 and Chapter 11 bankruptcy, and which one is appropriate depends on a debtor’s unique circumstances. While debtors must pass a means test in order to pursue Chapter 7 bankruptcy, that does not mean that their decision to seek debt relief under that Chapter cannot be challenged by their creditors. Recently, a California ruling discussed what factors the courts consider when weighing whether to grant a creditor’s motion to convert a Chapter 7 bankruptcy to Chapter 11. If you have debts that you are unable to pay, you may be able to obtain relief through bankruptcy, and you should speak to a California bankruptcy lawyer about your options.

History of the Case

It is reported that the debtor, who is a professional hockey player, filed a Chapter 7 petition for bankruptcy. One of his creditors subsequently filed a motion to convert his Chapter 7 case to Chapter 11 and asked the court to appoint a Chapter 11 trustee. The court noted that the creditors’ chances of recovering on their claims would be greatly improved if the case was transferred to Chapter 11, explaining that in Chapter 11, any income the debtor earns after filing the petition belongs to the estate, while in Chapter 7, the debtor retains any such income. The court nonetheless denied the creditor’s motion. The creditor subsequently appealed.

Factors Considered When Evaluating Whether to Convert a Chapter 7 Case to Chapter 11

The trial court’s decision was upheld on appeal. The court explained that section 706(b) of the Bankruptcy Code allows a court to convert a Chapter 7 bankruptcy case to Chapter 11 upon the request of a creditor, even if the debtor does not consent to the conversion. The court noted, though, that Section 706(b) does not offer any guidance as to what a court should or should not consider when evaluating whether to grant such a request.

June 26, 2022

California Court Discusses Sanctions for Violating the Automatic Stay in Bankruptcy Cases

by Matthew D. Roy

One of the many benefits of filing for bankruptcy is that an automatic stay is imposed that prevents parties from filing a lawsuit against the debtor. If a party ignores the stay and files a civil action against the debtor, the debtor may be able to recover sanctions. The courts will not impose sanctions unless the debtor can demonstrate actual harm, however, as shown in a recent California opinion issued in a bankruptcy case. If you are interested in learning more about the benefits of bankruptcy, it is prudent to meet with a trusted California bankruptcy lawyer to discuss your options.

The History of the Case

It is reported that the debtor filed a petition for Chapter 13 bankruptcy. Pursuant to the bankruptcy code, an automatic stay was entered after he filed his petition. Despite the stay, however, the defendant creditors continued to pursue payments from the debtor. He filed a motion for sanctions, asking the bankruptcy court to penalize the defendants for their violation of the automatic stay. The bankruptcy court denied his motion and his subsequent motion to vacate the order denying his motion. He appealed, and the bankruptcy appellate panel affirmed the bankruptcy court’s ruling. He then appealed to the United States Court of Appeals for the Ninth Circuit.

Sanctions for Violating Bankruptcy Stays

The Court of Appeals was not persuaded by the debtor’s reasoning and affirmed the lower court’s rulings. In doing so, it explained that the standard of review it applied to the bankruptcy appellate court’s ruling was the same as the standard the bankruptcy appellate court applied to the bankruptcy court’s ruling: abuse of discretion.

May 24, 2022

California Court Addresses the Failure to Include Claims in Bankruptcy Schedules

by Matthew D. Roy

In bankruptcy matters, the debtor must set forth schedules that include all of their property, assets, income, sources of money, and debts. Among other things, this includes any pending or potential claims or lawsuits. If they fail to properly disclose such information, they may be barred from pursuing such claims after they obtain a discharge from the bankruptcy courts. Recently, a California court discussed the measures available for a party that failed to disclose a potential lawsuit in a bankruptcy proceeding. If you have questions regarding the intersection of bankruptcy and civil claims, it is smart to speak to a skilled California bankruptcy lawyer as soon as possible.

Procedural History of the Case

It is reported that the debtor filed a civil lawsuit in the United States District Court for the Central District of California. After pleadings closed, the defendant moved for judgment on the pleadings arguing that the debtor could not proceed with his claims because he failed to disclose them in a recent bankruptcy proceeding. The debtor filed a response in opposition to the motion.

The Intersection of Bankruptcy and Civil Claims

The court ultimately denied the defendant’s motion without prejudice, granting it the right to renew its motion after the facts had been further developed. The court explained that, in the context of bankruptcy, the federal courts adhere to a basic default rule: if a debtor omits a lawsuit or potential claim from its bankruptcy schedules and obtains a plan confirmation or discharge, they will be barred from pursuing their lawsuit or claim via judicial estoppel.

April 29, 2022

California Court Discusses Unjust Enrichment in the Context of Creditor Claims in Bankruptcy Cases

by Matthew D. Roy

In most bankruptcy cases, creditors will submit proofs of claims. If parties object to such proofs, the courts will typically assess whether the objections are valid and, in some instances, may reduce a creditor’s claim. This was illustrated recently in a ruling issued in a California bankruptcy case in which the court reduced a claim by almost $30 million due to a finding that the debtor was not unjustly enriched in that amount as the creditor claimed. If you have questions about proofs of claims or unjust enrichment in a bankruptcy case, it is in your best interest to meet with a trusted California bankruptcy lawyer.

History of the Case

It is alleged that the debtor filed a Chapter 11 bankruptcy petition in 2016. The creditor filed four proofs of claim, one of which totaled close to $50 million. Other claimants moved to reduce the claim, and following a series of hearings, the court granted the motion, reducing the claim by close to $30 million on the grounds that the debtor was not unjustly enriched by that amount as claimed by the creditor. The creditor appealed, arguing that the bankruptcy court improperly applied the facts.

Unjust Enrichment and Proofs of Claims

The appellate court declined to adopt the creditor’s reasoning and affirmed the bankruptcy court’s ruling. The court explained that, under California law, if one party is unjustly enriched or receives a benefit at another party’s expense, they must make restitution. It noted, however, that simply because one person obtains benefits from another does not necessarily mean that restitution is required. Specifically, restitution is only necessary when the circumstances dictate that it would be unjust for the party to retain the benefit.

March 27, 2022

California Court Explains Equitable Mootness in Bankruptcy Cases

by Matthew D. Roy

In bankruptcy cases, creditors have the right to file appeals. If the court finds that they failed to adequately preserve their rights, though, it may dismiss the appeal as equitably moot. Specifically, if a creditor neglected to seek a stay of bankruptcy proceedings before filing an appeal, their appeal will most likely be dismissed. The grounds for dismissal due to equitable mootness were the topic of a recent ruling issued in a California bankruptcy case. If you have questions or concerns regarding creditor and debtor rights in bankruptcy proceedings, it is advisable to speak to a knowledgeable California bankruptcy lawyer as soon as possible.

History of the Case

It is reported that a number of creditors filed an appeal in a bankruptcy case. The district court dismissed their appeal as equitably moot. They subsequently filed an appeal from the dismissal of their appeal. After reviewing the evidence of record, the court of appeals found that the district court properly dismissed the underlying appeal as moot. Thus, it affirmed the trial court ruling.

Equitable Mootness in Bankruptcy Proceedings

The appellate courts will weigh four factors in assessing whether a bankruptcy appeal is moot. Specifically, the courts will look at whether the appealing party sought and received a stay, whether the plan in question has been substantially consummated, what impact, if any, a remedy could have on innocent third parties, and whether the bankruptcy court could devise equitable relief without totally undermining the plan.