Articles Posted in Chapter 7

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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.

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While bankruptcy grants many people relief from overwhelming debts, not all bankruptcy proceedings are resolved in a straightforward manner. Instead, in some cases, one or more parties will file an adversary proceeding objecting to the discharge of the debtor’s debts. While there are pleading and procedural rules that parties filing adversary proceedings must comply with, they are granting substantial leeway with regard to amendments. The right to amend an adversary complaint was the topic of a recent ruling issued in a California bankruptcy case. If you are interested in pursuing debt relief through bankruptcy, it is wise to contact a trusted California bankruptcy lawyer to assess your options.

The History of the Case

It is reported that the debtors filed a Chapter 7 bankruptcy petition. Subsequently, one of their creditors filed an adversarial complaint. The allegations in the adversarial complaint were not offered in the court’s opinion; however, the creditor later sought leave to amend the complaint. The bankruptcy court issued an order granting leave to amend, and the debtors appealed. On appeal, the bankruptcy appellate panel (BAP) affirmed the bankruptcy court ruling. The debtors then appealed to the United States Court of Appeals, Ninth Circuit.

Amendments of Bankruptcy Adversary Proceedings

The Court of Appeals explained that it reviews decisions de novo, using the same standard of review that the BAP applied to the ruling issued by the bankruptcy court. Similarly, the bankruptcy court’s conclusions of law are reviewed de novo, and its factual findings are examined for clear error. Continue reading

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Bankruptcy proceedings typically involve a substantial number of documents. Specifically, debtors must provide all available information that demonstrates their financial status and transactions. If a debtor fails to provide such information and does not have a valid reason for the lack of such documentation, their claim may be dismissed. This was demonstrated in a recent opinion issued in a California bankruptcy case, in which the court affirmed the dismissal of the debtor’s claim. If you have debts you are struggling to pay, you may be able to seek reprieve via bankruptcy, and it is smart to speak to a knowledgeable California bankruptcy lawyer regarding what measures you may be able to take to regain financial security.

Procedural History of the Case

It is reported that the debtor filed a bankruptcy petition. The bankruptcy court ultimately dismissed his petition on the grounds that he lacked adequate records demonstrating his business transactions or financial condition. Specifically, he neglected to provide documents through which the court could define his ownership interest in a cattle ranch and instead provided bank borrowing certificates that were rife with inconsistencies. Thus, the court barred his discharge.  The debtor appealed. Upon review, the district court affirmed the bankruptcy court decision. The debtor then filed a second appeal to the United States Court of Appeals, Ninth Circuit.

Dismissal of a Bankruptcy Case Due to Lack of Information

Section 11 U.S.C. 727(a)(3) of the bankruptcy code prohibits a debtor’s discharge if they have failed to preserve any recorded information from which their business dealings may be ascertained unless their actions or failure to act was justified under the circumstances. In other words, a debtor must prevent adequate written evidence to allow their creditors to reasonably determine their present financial condition and to trace their business transactions for a reasonable period in the past. Continue reading

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It is not uncommon for trustees to file adversarial pleadings in bankruptcy matters, arguing that debtors fraudulently transferred assets or funds in an attempt to avoid obligations. While federal law prohibits such transfers within the United States, the applicable statute does not operate to allow for the avoidance of transfers that occur in other countries. This was demonstrated in a recent opinion issued in a California bankruptcy case, in which the court dismissed the creditor’s complaint. If you have questions regarding your obligations to creditors after you seek debt relief, it is smart to meet with a knowledgeable California bankruptcy lawyer to determine your rights.

The Facts of the Case

Allegedly, involuntary Chapter 7 bankruptcy petitions were filed against the debtor company and the debtor principals, after which the court consolidated the debtor estates. The court then appointed a trustee, and proof of claims totaling more than $100 million were filed against the debtors, most of which involved money owed to investors.

Reportedly, the trustee filed an adversary pleading asking to set aside and recover transfers he alleged were fraudulent. The transfers, which were fees and commissions totaling close to $900,000, were paid by the debtors to a foreign exchange brokerage. The debtors moved to dismiss the trustee’s complaint, arguing in part that the fraudulent transfer law did not apply to extraterritorial transfers. Continue reading

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One of the many benefits of filing bankruptcy is that, once a petition is filed, an automatic stay is entered that prevents any creditors from pursuing claims against the debtor. While the courts have the authority to lift stays in certain circumstances, their right is not absolute, and if a stay is erroneously lifted, it may constitute an abuse of discretion. This was demonstrated in a recent California opinion in which the court reversed an order lifting an automatic stay. If you owe debts that you are unable to pay, it is advisable to speak to a skillful California bankruptcy lawyer to discuss whether you may be eligible for debt relief.

The Facts of the Case

It is reported that the debtor filed a petition for Chapter 7 bankruptcy relief, which accordingly resulted in an automatic stay of any pending claims. After he filed the petition, he created a company. The creditor then filed a motion to lift the automatic stay so that she could amend the state court judgment issued against the debtor to add the debtor’s company as an additional debtor and to enforce the judgment against the debtor.

Allegedly, the defendant opposed the motion, arguing that his company was not liable for his debts and that any claims against the company would be akin to seeking unlawful enforcement of the judgment against him and his post-petition assets. The court entered an order granting the debtor a Chapter 7 discharge and subsequently entered an order granting the creditor’s motion for relief from the stay. The debtor then appealed. Continue reading

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In many bankruptcy cases, there are insufficient funds to fulfill the debtor’s obligations. Thus, the creditors may enter into a stipulation regarding how any available money should be distributed. Such stipulations do not necessarily mean that a creditor cannot pursue any other claims against a debtor, however. The implication of a stipulation entered into by a creditor in a bankruptcy action on future claims was the topic of an opinion recently issued by a California court, in a case in which the debtor argued the IRS was barred from recovering taxes from the debtor. If you are unable to pay your debts, you could be eligible to file for bankruptcy, and you should meet with a trusted California bankruptcy attorney as soon as possible.

The Stipulation

It is reported that the plaintiff filed a Chapter 7 bankruptcy proceeding in May 2013 and received a discharge two years later. In March 2018, the IRS filed an amended proof of claim for unpaid taxes the plaintiff owed for 2007, 2008, 2009, and 2011. The franchise tax board (FTB) filed a proof of claim as well. The bankruptcy estate did not have enough funds to pay the IRS and FTB, and so they entered into a stipulation with the bankruptcy trustee regarding the division of the funds that were available.

Allegedly, the stipulation was approved by the bankruptcy court, and funds were distributed to the parties. The IRS then advised the plaintiff that he owed close to $500,000 for the 2009 tax year. The plaintiff filed an action with the bankruptcy court, arguing that the stipulation barred the IRS from recovering any additional funds from him for the 2009 tax year, and filed a motion for judgment on the pleadings. The bankruptcy court denied the motion, and the plaintiff appealed. Continue reading

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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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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

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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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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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