Articles Posted in Bankruptcy Caselaw

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When a party files for bankruptcy, the party’s property and assets will typically be transferred to the bankruptcy estate. This includes not only tangible assets, like personal property, but also potential sources of recovery, like litigation claims. Recently, a California court discussed sales of litigation claims in the context of bankruptcy, in a matter in which the debtor filed an appeal challenging the validity of the sale of her claims. If you are overwhelmed by debts, you may be eligible to file for bankruptcy, and it is advisable to meet with a trusted California bankruptcy attorney to determine your rights.

The Debtor’s Claims

It is reported that the debtor filed for Chapter 7 bankruptcy. During the course of proceedings, the bankruptcy court approved the sale of her litigation claims pursuant to 11 U.S.C. section 363. The debtor then filed an appeal, challenging the validity of the sale. The Chapter 7 trustee assigned to the case argued that the sale was permitted, or alternatively, that the debtor’s appeal was moot. Upon review, the court agreed with the trustee’s latter assessment, dismissing the appeal as moot.

Appealing the Sale of Litigation Claims in Bankruptcy

Under the applicable case law, if a bankruptcy court applies section 363 for the sale of claims in accordance with a settlement agreement, all parties must comply with the requirement imposed by section 363 regarding seeking a stay. In cases in which a sale is not stayed pending appeal, as long as the sale was made in good faith and cannot be set aside under state law and is not otherwise subject to a right of redemption provided by a statute, the appeal will be deemed moot. Continue reading

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In many marriages, couples jointly own real estate. While couples may not consider the nature of the title of a property, in the context of bankruptcy, how a jointly owned property is characterized is a critical consideration for determining whether it will become part of the bankruptcy estate. The factors weighed in determining whether an asset is community property or is held in a joint tenancy was recently discussed by a California bankruptcy case in which the court disputed how two marital properties should be categorized. If you are married and wish to seek debt relief via bankruptcy, it is prudent to speak with a seasoned California bankruptcy attorney to discuss how the property you own with your spouse may be impacted.

Background of the Case

Allegedly, the debtor, who was married, filed for Chapter 7 bankruptcy. Prior to filing the petition, the debtor transferred properties he owned with his wife to a trust. A trustee filed an adversary proceeding, asking the court to avoid the transfer because it was a fraudulent conveyance. The court ruled in favor of the trustee and ruled that the entirety of both properties could be recovered for the bankruptcy estate, rather than just the debtor’s halves. The debtor then appealed, but the lower court ruling was affirmed. The debtor then appealed again.

Characterization of Marital Property in Bankruptcy

Under California law, if a debtor owns a property in a joint tenancy, only the debtor’s interest will become the property of the bankruptcy estate. Further, the bankruptcy code allows a trustee in a Chapter 7 bankruptcy to sell a jointly owned property and divide the proceeds between the non-debtor owners and the bankruptcy estate. If a property is considered community property, however, the entire property will become an asset of a bankruptcy estate. In such instances, the trustee can sell the property and distribute the entirety of the proceeds among the debtor’s creditors.

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Not all bankruptcy petitions that are filed are granted. Instead, in some cases, the court will deny a petition or dismiss a case. Fortunately, however, the law allows for appeals, and in many instances, a petitioner can persuade a court to reverse its ruling and allow a bankruptcy action to proceed. In a recent California bankruptcy case, a court discussed the process of reopening a bankruptcy proceeding, highlighting the importance of following the proper procedure.  If you live in California and wish to seek relief from your debts, you should speak to a trusted California bankruptcy attorney regarding your options.

Procedural History of the Case

It is reported that the petitioner filed a motion to reopen his bankruptcy case, which was filed in 2010. The bankruptcy court denied his motion, and he appealed. He had difficulties complying with the deadlines set forth under the scheduling order for the appellate process, and the bankruptcy court’s decision was affirmed without consideration of the petitioner’s brief. He then filed a motion to reinstate his appeal so that the court could consider his brief. The court granted his motion to reinstate the appeal but, upon reviewing the materials submitted by the petitioner, the court nonetheless denied his appeal.

Reopening a Bankruptcy Case

A bankruptcy court’s denial of a motion to reopen a bankruptcy case will be reviewed by an appellate court for abuse of discretion. In assessing whether an abuse of discretion has occurred, the appellate court will conduct a two-part inquiry. First, it will review whether the bankruptcy court applied the proper legal rule to the question presented. If so, the appellate court will then consider whether the bankruptcy court applied the legal standard in a manner that is illogical, implausible, or without support, based on inferences that can be drawn from the facts of record. Continue reading

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Many bankruptcy claims are complex and involve adversary proceedings filed by creditors who believe the debtor engaged in conduct that renders their debt non-dischargeable, such as fraud. In some instances, a party alleging bankruptcy and non-bankruptcy claims in a single pleading in a case that is before a bankruptcy court, may file a motion asking a bankruptcy matter to be heard before the district court, which is referred to as a withdrawal of reference. Recently, a California court discussed grounds for granting a withdrawal of reference, in a case in which the debtor was accused of violation of fiduciary duties. If you are a California resident or business owner and you wish to file for bankruptcy, you should consult a dedicated California bankruptcy attorney to discuss your rights.

Factual and Procedural History

It is reported that the debtor individual and the debtor company, which was solely owned by the individual, both filed petitions for bankruptcy. Subsequently, adversary proceedings were filed by trustees in both cases, asserting claims of violation of fiduciary duties under ERISA and violation of the RICO act. The debtor individual’s bankruptcy was dismissed. The debtor company did not file an answer to the adversary proceeding, and a default was entered.

Allegedly, the trustees then filed a lawsuit against the debtor individual in the district court, again setting forth claims of violation of fiduciary duties under ERISA and violation of the RICO act. The trustees then filed a motion to withdraw the reference of the adversary proceeding against the debtor company, arguing that it was mandatory as it required consideration of both non-bankruptcy and bankruptcy claims, and non-bankruptcy law was substantially involved in the case. Continue reading

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Typically, when people file for bankruptcy, the majority of the debts they owe will be discharged, subject to certain exceptions. In some instances, though, a party that is owed money from the debtor will file an adversary action arguing that a debt should not be discharged because it was incurred via fraudulent means. In a recent case, a California bankruptcy court analyzed whether a default judgment for fraud is sufficient to demonstrate that a debt should not be discharged as a matter of law. If you live in California and are overcome by debt, you may be able to seek relief under the bankruptcy code and should speak to a trusted California bankruptcy attorney as soon as possible.

Factual History

It is reported that the creditors made a set of loans to a company that was owned by the debtors. The company ultimately ran into financial trouble and was unable to make payments on the loans. The debtors then offered to transfer their inventory to the creditors as partial payment for the money owed and proposed a coordinated settlement. The creditors accepted the inventory but later determined it was worth over thirty thousand less than the debtors represented. Negotiations on the proposed settlement fell through, and the creditors filed a lawsuit against the debtors, alleging multiple claims, including fraud.

Allegedly, the debtors failed to file an answer, and a default judgment was entered against them. The debtors then filed a petition for bankruptcy, after which the creditors filed an adversary complaint, arguing that the default judgment should not be discharged. They filed a motion for summary judgment as well, arguing that the court was precluded from allowing the debtors to re-litigate the issue of whether they engaged in fraud. The court granted the motion, and the debtors appealed. Continue reading

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The bankruptcy code aims to provide relief to people unable to manage their debts. Thus, even if a trustee files a motion to dismiss a person’s bankruptcy petition and a court grants the petition and dismisses a bankruptcy action, the law provides a right to appeal the dismissal. While an appeal must generally be filed within the specified time frame, the court will excuse a delay in filing an appeal under certain circumstances. Recently, a California court discussed what a petitioner seeking relief from a dismissal must show in order to be granted leave to file an untimely appeal. If you live in California and are interested in seeking relief of your debts via bankruptcy, you should contact a skillful California bankruptcy attorney to discuss your case.

Facts of the Case

Allegedly, the petitioner filed a Chapter 13 bankruptcy petition. In response, the trustee filed a motion to dismiss and requested a one year bar to any refiling of a petition due to the deficiencies in the petitioner’s proposed Chapter 13 plan, and her failure to make ongoing payments to her debts. The notice for the motion was mailed to the petitioner but she did not file a response or appear at the hearing. Thus, the court granted the motion and dismissed the petition. Thirty-four days later, the petitioner filed a motion to reopen or extend the time to file an appeal, arguing that she did not receive notice of the dismissal, and her failure to file an appeal was based on excusable neglect. The court denied the motion, after which the petitioner appealed.

Demonstrating Excusable Neglect

After an order has been entered in a bankruptcy case, a party has fourteen days to appeal the order. If the party cannot meet that deadline, he or she can file a motion asking or an extension of the time to file an appeal; however, the deadline for seeking an extension is fourteen days from the entry of the order as well, unless the moving party can demonstrate that the delay in filing the motion was caused by excusable neglect.

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When a person files for bankruptcy, an automatic stay is entered, preventing creditors from taking further actions to collect debts from the person. Further, the law provides that if a creditor willfully violates a stay, anyone injured by the violation can recover actual damages, which includes attorneys’ fees and costs. As discussed in a recent bankruptcy case arising out of California, in some circumstances, however, a court may decline to grant a person an award of the true costs associated with seeking damages caused by the violation. If you are a resident of California seeking debt relief, it is advisable to speak with a trusted California bankruptcy attorney regarding your options.

Factual and Procedural History

Reportedly, the plaintiff filed for bankruptcy on October 1, 2018. At the same time, she filed a stay of proceedings in pending state court actions. Per the defendant’s admission, it became aware of the bankruptcy petition by October 2, 2018. Regardless, on October 2, 2018, the defendant sent the sheriff instructions to enforce the writ of execution. Although an attorney that worked for the defendant reportedly directed an assistant to advise the sheriff to terminate the levy on October 10, 2018, the sheriff never received notification of the termination and levied funds from the plaintiff’s bank accounts. The plaintiff attempted to withdraw funds following the levy and was charged an overdraft fee.

Allegedly, the plaintiff’s attorney then filed a motion for contempt against the defendant for violating the automatic stay. Following a hearing, the court found that the defendant clearly violated the stay and that its violation was willful. The court then ruled that the plaintiff was entitled to recover reasonable attorneys’ fees and costs, but not the full amount claimed. The plaintiff appealed. Continue reading

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The Federal Appellate Panel for the 8th Circuit Court of Appeal recently held if a Debtor makes payments toward home improvements in an attempt to defraud a creditor, that those payments may not be exempt.  The issue for decision in this case was whether a debtor can claim home improvement payments as being exempt from the bankruptcy estate in a Chapter 7 bankruptcy case?

The facts in this case were actually quite typical and could apply to a number of people. The Debtors (Wife and Husband) made improvements to their principal residence over a period of time before filing for Chapter 7 Bankruptcy. During that time their daughter opened a bank account whereby Debtors began to make large deposits amounting to approximately $60,000.00 into their daughter’s bank account who then made payments toward the home improvements as well – in addition to other family members.

Debtor’s eventually filed for protection under Chapter 7 of the bankruptcy code after having engaged in this course of conduct for some time. In their Petition they attempted to take advantage of the homestead exemption by claiming that they had roughly $60,000.00 of equity in their home. The “homestead exemption” prevents the court from seizing and distributing that property to any creditors or the Court which may exist as equity in a personal residence. Using Title 11 of United States Code section 522(o) the Bankruptcy Trustee objected to the debtors’ exemption claiming that the improvements did not qualify under the homestead exemption since the money had come through their daughter’s account and was being claimed by the debtors as exempt to delay, hinder, and/or defraud their creditors.

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Many people going through bankruptcy or divorce in the Sacramento area find that these two distinct legal fields can actually run hand in hand. Often times, financial problems can lead to the breakdown of a marriage, or conversely, the breakdown of a marriage and division of assets can lead to a need for filing Chapter 7 or Chapter 13.

Ideally, if Chapter 7 or Chapter 13 rests in a couple’s best financial interests it makes sense for the couple to file a joint bankruptcy petition. This, however, requires: (1) that the parties are able to continue to work together and cooperate in the bankruptcy; and (2) they have not received a judgment of dissolution restoring them to their status as single persons.

Since many couples going through divorce proceedings cannot work together the bankruptcy process can become very complicated. A recent case filed out of New Jersey typifies the problems created when a divorcing couple decides to file bankruptcy separately but before they have actually received their judgment of dissolution of marriage.

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As a Sacramento bankruptcy attorney I have previously written about student loans and filing a Chapter 7 or Chapter 13 bankruptcy. The general rule regarding student loans is that they are not dischargeable unless the individual can prove that paying the loans would create “undue hardship.” Undue hardship is a difficult standard to prove as it is indeed a vague concept. I would typically tell my clients that undue hardship exists when a person has zero ability to earn any income. As a result, there is a low chance at discharging student loans for most bankruptcy filers. This situation creates a vicious cycle for many recent graduates who have entered the uncertain job market of the last few years.

A recent case from the United States Ninth Circuit Court of Appeal, Hedlund v. The Educational Resources Institute, reminds us that there are still some situations where a person can get the debts discharged through bankruptcy.

The debtor in this case, Michael Hedlund, obtained student loans on his undergraduate and law school degrees. Mr. Hedlund received a business degree from the University of Oregon and a law degree from Willamette Law School. He failed the bar exam and took a job earning approximately $10.00 an hour. After requesting hardship forbearances and loan consolidations Mr. Hedlund wound up defaulting on the loans. He was not able to implement any successful attempt at a modified repayment plan although he made several payments from various bank accounts when he could. The student loan creditors eventually began to garnish his wages.

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