Chapter 11 Bankruptcy

May 30, 2023

California Court Discusses Claims Involving Partnership Interests in the Context of Bankruptcy Actions

In bankruptcy actions, debtors are typically protected from claims from creditors. The bankruptcy code only protects debtors from personal liability, however, not claims to property interests in a partnership, as demonstrated in a recent California ruling issued in a bankruptcy case. If you need assistance managing your debts, it is in your best interest to talk to a California bankruptcy lawyer to determine what relief may be available.

Factual and Procedural History of the Case

It is reported that the subject claim arises out of a dispute regarding ownership rights to a commercial property in Oceanside, California. The owners did not have a written partnership agreement. The debtor asserts an 85% interest in the property, based on the recorded title in 1996. The claimant asserted that there was an oral agreement in 1995 to reduce Keenan’s partnership interest to 55%.

Allegedly, the debtor filed for Chapter 11 bankruptcy. During his bankruptcy proceedings, he consistently treated his interest as 55%. After his Chapter 11 plan was confirmed, however, he filed an amended property schedule asserting the larger interest. The bankruptcy court rejected the debtor’s post-confirmation assertions. Subsequently, the claimant filed a state court action seeking to amend the recorded deed to reflect the adjusted interest. The state court ruled in favor of the claimant in 2017, and the debtor’s appeal was dismissed.

March 30, 2023

California Court Discusses Anti-SLAPP Law in the Context of Bankruptcy Claims

by Matthew D. Roy

Bankruptcy actions generally offer people relief from significant financial burdens, as most debts are discharged in bankruptcy. There are exceptions to the general discharge rule, however. For example, claims arising out of willful misconduct, such as fraud or intentional injury, will often be deemed non-dischargeable. Recently, a California court analyzed a debtor’s counterclaims to a creditor’s action to deem debts nondischargeable, in a case in which it was disputed whether California’s Anti-SLAPP law applied in bankruptcy matters. If you need help dealing with overwhelming debts, it is smart to confer with a California bankruptcy lawyer about your options.

Procedural History of the Case

It is alleged that the debtor filed a petition for Chapter 13 bankruptcy in February 2021; it was later converted into Chapter 7 petition. The creditor subsequently filed a complaint against the debtor in June 2021, asking the court to determine the creditor’s claims were nondischargeable because they arose out of the debtor’s willful and malicious conduct. The creditor then amended its complaint on July 1, 2021, to include an objection of discharge on the grounds the debtor made false oaths.

It is reported that, in response, the debtor filed an answer to the amended complaint and a cross-complaint that contained various claims for relief under California law. The creditor then filed a motion to strike the cross-complaint under California’s anti-SLAPP statute. The court granted the creditor’s motion to strike the debtor’s cross-complaint, and the debtor appealed.

January 30, 2023

California Court Discusses Grounds for Granting a Petition to Extend a Bankruptcy Stay

by Matthew D. Roy

One of the many benefits of filing a bankruptcy action is that it automatically stays any parties from pursuing civil claims against the debtor. Generally, a stay will last for the duration of the bankruptcy case. In some instances, though, the stay will expire after a much shorter time period. In such instances, the debtor may petition the court to extend the stay. Recently, a California court explained the grounds for granting a request to extend a stay in a matter in which a creditor objected to the bankruptcy court’s decision. If you are unable to manage your debts, you may be eligible to file for bankruptcy, and you should speak to a California bankruptcy lawyer regarding your rights.

The Background of the Case

It is reported that the debtor filed a Chapter 11 bankruptcy petition in May 2019. Two months later, the court dismissed his case on the grounds that the debtor’s attorney did not sufficiently represent or counsel him. The debtor filed a second Chapter 11 bankruptcy petition in January 2020. In the second case, he was not represented by an attorney. The debtor subsequently filed a motion to extend the automatic stay; while the stay granted in a bankruptcy case usually endures for the duration of the case, if a debtor had a pending Chapter 11 case dismissed within the preceding year, the stay only lasts 30 days.

Allegedly, the debtor also filed a declaration stating the served notice of the motion on all known creditors. The court granted the motion, extending the stay until terminated by operation of law or an order of the court. The creditor then learned of the bankruptcy proceeding and filed a claim against the debtor in civil court. The bankruptcy court dismissed the debtor’s case, pursuant to a motion by the trustee, and the state court dismissed the creditor’s case. The creditor moved to reopen the bankruptcy case for the limited matter of determining whether the stay was terminated as to them. The court granted the motion but found that the stay applied to the creditor. The creditor then appealed.

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.

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.

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.