Chapter 7

January 22, 2021

California Court Discusses Appealing the Sale of Litigation Claims in Bankruptcy

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

December 17, 2020

California Court Explains the Homestead Exemption in Bankruptcy Matters

by Matthew D. Roy

Many Californians struggling to pay debts are worried that they will lose their homes if they file for bankruptcy. Fortunately, California’s bankruptcy laws allow certain properties to remain exempt from being liquidated and used to pay creditors, such as homes. A debtor must have some interest in a dwelling for the homestead exemption to apply, though. This was demonstrated in a recent California ruling in which the court denied the debtor’s attempt to apply the homestead exemption to a property owned by his company. If you own property and wish to seek debt relief, it is prudent to speak with a knowledgeable California bankruptcy attorney to discuss your options for retaining your assets.

The Debtor’s Petition for Homestead Exemption

Reportedly, the plaintiff filed for bankruptcy via a Chapter 11 petition in July 2019. In December 2019, it was converted to Chapter 7. The defendant was listed as the plaintiff’s largest creditor due to a disputed judgment obtained against the plaintiff. The plaintiff alleged the judgment was obtained via abuse of process, witness tampering, fraud, and perjury, and listed a cause of action against the defendant for the same amount as the judgment as an asset. He also listed his 50% membership interest in an LLC as an asset but did not list any real property.

It is alleged that the defendant obtained relief from the automatic stay to include the LLC as an additional judgment debtor under the theory of reverse alter ego. The plaintiff then amended his exemptions to include a property owned by the LLC. He claimed he resided there, and therefore it qualified for a homestead exemption. The court disallowed the exemption because the plaintiff did not own the property, and the plaintiff appealed. Continue reading

November 17, 2020

California Court Discusses Characterization of Marital Property in Bankruptcy Cases

by Matthew D. Roy

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.

May 25, 2020

California Court Discusses the Award of Attorneys’ Fees For Prosecuting a Violation of a Stay

by Matthew D. Roy

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

April 26, 2020

California Court Discusses Requirements for Filing a State Court Action Against a Court Appointed Bankruptcy Officer

by Matthew D. Roy

In many bankruptcy actions, the court will appoint officers to oversee certain aspects of the case. Any officer appointed by a court must remain neutral, and if a conflict is revealed, the officer usually must recuse his or her self from the case. When a party in a bankruptcy proceeding believes that a bankruptcy officer unjustly affected the outcome of the case due to a conflict, the party may be able to seek damages from the officer via a civil lawsuit. There are requirements the party must comply with, however, and if the party fails to file the lawsuit properly, his or her claims may be dismissed, as demonstrated in a recent case arising out of California. If you live in California and are in need of assistance with a bankruptcy matter, it is prudent to consult a skillful California bankruptcy attorney to discuss your case.

Factual and Procedural Background of the Case

It is reported that a debtor filed for bankruptcy, seeking in part to discharge a judgment from a defamation lawsuit. Creditors subsequently filed an adversary complaint, arguing that the debt was not dischargeable due to the debtor’s willful and malicious acts. Subsequently, the court-appointed a special discovery master to assist with the proceeding. After several months had passed, the creditor informed the master of a conflict of interest, namely that the master’s firm previously represented another party in a case against the creditor. The master recused herself but refused to refund the fees paid by the creditor. The creditor then filed a motion for a declaration that leave was not required to file a lawsuit against the master in State court, or alternatively, seeking leave to sue the master. The court denied the motion, and the creditor appealed.

Filing a Lawsuit Against an Officer Appointed by the Bankruptcy Court

Pursuant to the Barton doctrine, a plaintiff who wishes to institute a lawsuit against a bankruptcy officer in another forum, for actions taken by the officer in his or her official capacity, must first obtain the authorization of the bankruptcy court. The main criterion of an inquiry under the Barton doctrine is whether the suit the party seeks to file challenges the acts taken by an officer were within his or her authority as an officer of the court and were undertaken in his or her official capacity. The doctrine arose out of the fact that bankruptcy law requires that all matters that affect the administration of a bankruptcy estate must either be filed in bankruptcy court or with leave from the bankruptcy court. Continue reading

March 15, 2017

CHAPTER 7 AND CHAPTER 13 BANKRUPTCY FILINGS IN SACRAMENTO AREA SEE NOTICEABLE SLOWDOWN

by Matthew D. Roy

According to the Eastern District of California that handles all Chapter 7 and Chapter 13 Bankruptcy cases in the Sacramento Metropolitan Area, data shows that filings in the region have fallen consistently over the last few years. As we all have probably noticed, the economy has improved significantly since the Great Recession of 2009. The bankruptcy filing statistics are proof that the economy is now stronger than it has been over the last several years. Sacramento saw a record number of filings in 2010 with a whopping 54,365 cases filed that year. Every year subsequent saw fewer cases filed than the previous year. Last year the Eastern district of California saw only 14,328 new cases filed and includes all Chapter 7, Chapter 13, and Chapter 11 bankruptcies. These numbers even predate filings before the Bankruptcy Laws were modified significantly in 2005 under the Bankruptcy Abuse and Consumer Protection Act (BAPCA).

Although the economy has improved substantially and the unemployment rate has dropped from 9% to less than 5% since 2010, there are still a significant number of people who need to consider taking advantage of the bankruptcy laws in order to confront and resolve the economic turbulence they face. Historically, the number one reason people needed to file for bankruptcy were unexpected medical bills. The recent filings during the height of the Great Recession were due to the mortgage and foreclosure situation many people faced with their homes. Fortunately, many people have already made great use of the bankruptcy code to shield themselves from the banks and to reorganize debts into a much more manageable situation and to stop the foreclosure process in its tracks.

The best use of the Bankruptcy laws are to get your debts discharged that enable a person to start over with a “clean slate” financially. The ultimate discharge of all debt is granted by a federal bankruptcy court that issues a stay to prevent a creditor from any further attempt to collect a debt from the individual. While most debts such as credit cards, medical bills, and other unsecured debts can be extinguished in bankruptcy, other types of debts cannot be discharged: these include child and spousal support, tax debts, and sadly most types of student loans.

January 8, 2015

Exploring Bankrupcty Myths and Misconceptions

by Matthew D. Roy

As a Sacramento Bankruptcy Attorney, my potential clients are often concerned with the ramifications of filing a Chapter 7 or Chapter 13 bankruptcy Petition. It is my job to help people understand and explain some of the myths that surround this process. Some potential filers may be concerned with the effect bankruptcy may have on any security clearance as a condition of his or her employment. My short answer is: Bankruptcy will have little impact on a security clearance.

The major reason that the Bankruptcy has no negative impact on a security clearance is because it makes a person less of a security risk. The United States Department of Defense states: “The purpose of a security clearance is to determine whether a person is willing and able to safeguard classified national security information, based on his or her loyalty, character, trustworthiness, and reliability.” The fact of the matter is that when a person files for Chapter 7 or Chapter 13 for a legitimate reason, it shows that this individual is making a responsible choice and confronting whatever economic situations are troubling them.

“All available, reliable information about a person, past and present, favorable and unfavorable, is considered in reaching a clearance determination. When an individual’s life history shows evidence of unreliability or untrustworthiness, questions arise whether the individual can be relied on and trusted to exercise the responsibility necessary for working in a secure environment where protection of classified information is paramount.

June 3, 2014

BANKRUPTCY COURT TO RAISE FILING FEES

by Matthew D. Roy

Sacramento area residents considering a Chapter 7 or Chapter 13 Bankruptcy should be aware the Eastern District of California has decided to raise the costs of filing a case effective June 01, 2014. The new Chapter 7 filing fee for the Sacramento jurisdiction is now $335.00. The Chapter 13 filing fee has also been raised to $310.00.

The Judicial Conference of the Administrative Office of the United States Courts approved the increase earlier this year. This fee increase reinforces the Federal Court’s continuing policy of shifting costs from the general population to the people who actually use the courts. In the context of a bankruptcy, this shift can be problematic, however, since the individuals seeking protection of the bankruptcy code have difficulty coming up with the filing fee to begin with, much less, paying the increased fees.

Every time the court Imposes a fee increase, we find less people being able to take advantage of the protection offered by the Bankruptcy Code. Supporters of the fee increase would argue that a debtor who cannot afford to pay the increased fees may apply for a fee waiver or alternatively request to make the fee in installments over the course of several months.

April 2, 2013

Chapter 7 and Chapter 13 Bankrupcy and Taxes

by Matthew D. Roy

As tax day approaches many of my clients often ask if they can discharge tax debt when filing Chapter 7 or Chapter 13 bankruptcy. The short answer to the question is: maybe. It is safe for an individual to presume that his or her tax debts will probably not be dischargeable in bankruptcy as a general rule. However, there are certain situations when the tax debt can be discharged through the bankruptcy process. An individual can eliminate his or her tax debt if and only if that person satisfies all of the following five rules:

(1) The due date for filing the tax specific year must be at least 3 years old.

(2) The return must have been filed at least two years before the filing of the bankruptcy petition.

February 20, 2013

SIGNIFICANT TAX REFUND COULD HAVE NEGATIVE IMPACT ON BANKRUPTCY FILING

by Matthew D. Roy

As tax season approaches, many Sacramento area residents look forward to getting their refund checks over the upcoming weeks. Whether filing for Chapter 7 or Chapter 13, however, local residents must keep in mind that any income received is taken into account when qualifying for bankruptcy.

Few people realize that by receiving a significant tax refund they may no longer qualify for the bankruptcy. In order to qualify for Chapter 7 the individual must pass one of 2 income requirements. The first is the median income test. This means in order to qualify for Chapter 7 a person must earn less than the “average household income” for the same family size in his or her geographic region for the 6 months before the month in which they file the bankruptcy. The tax refund comes into play in this case because the median income test must account for all sources of income in the time period. Thus, if a person receives a significant tax refund they may no longer satisfy the median income test.

The second way to qualify for Chapter 7 bankruptcy is under the means test. The means test is a complex equation and comparison of a person’s debt to income ratio. In this test a person who makes more than the average income for his geographic region may still qualify for the bankruptcy provided their debts and monthly expenses rise to a significant portion of their income. Again, the receipt of a significant tax refund could effect the numbers enough so that the individual does not qualify under the means test either.