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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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It is not uncommon for a creditor to assign a debt or the right to collect money owed from a debtor to another party. In such instances, the assignee enjoys the same rights and privileges as the creditor did prior to assigning the debt. Thus, if a creditor’s debt was deemed non-dischargeable, it will likely remain so after it is assigned under the doctrine of issue preclusion. A California court recently explained issue preclusion in a case in which it affirmed the bankruptcy court’s ruling that the debt in question was non-dischargeable. If you wish to pursue legal relief from your debts, you should meet with a knowledgeable California bankruptcy lawyer to discuss your options.

History of the Case

It is reported that the plaintiff filed a bankruptcy action. During the course of proceedings, the bankruptcy court deemed a debt owed to the defendant non-dischargeable on the basis of issue preclusion. The debt was assigned to the defendant by the plaintiff’s former employer and represented a judgment in state court for punitive and compensatory damages. The plaintiff appealed, arguing that the court incorrectly applied issue preclusion to the judgment. The bankruptcy appellate panel affirmed the lower court’s ruling, and the plaintiff appealed to the Court of Appeals.

Issue Preclusion in Bankruptcy Matters

The doctrine of issue preclusion applies to matters in which a party seeks exceptions from discharge pursuant to the bankruptcy code. Issue preclusion, which is also referred to as collateral estoppel, bars a party from re-litigating factual issues that have been determined in a prior action. Pursuant to the full faith and credit act, the preclusive effect of a state court ruling in a subsequent bankruptcy matter is determined by the laws regarding preclusion in the state in which the judgment was granted. Continue reading

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Generally, individuals who file for bankruptcy will do so under either Chapter 7 or Chapter 13 of the bankruptcy code. Both Chapters impose eligibility requirements, and parties that do not meet the conditions set forth under the law may not be able to obtain relief for some or all of their debts. A key factor in establishing whether a person is eligible for chapter 13 bankruptcy is the type of debts they owe and how the debts are evaluated. Recently, a California court discussed debt calculations in chapter 13 bankruptcy matters in a case in which a creditor appealed the court’s approval of the debtor’s chapter 13 plan. If you have debts that you cannot pay, you may be eligible for relief, and it is in your best interest to speak with a seasoned California bankruptcy attorney regarding your rights.

The Underlying Facts

Reportedly, the debtor commenced a chapter 13 bankruptcy proceeding in February 2020. In her statement of financial affairs and schedules, she stated she was the principal of two companies. She listed approximately $48,000 in priority unsecured debt and $127,000 in non-priority unsecured debt, none of which was liquidated or contingent or owed to the creditor.  She listed the creditor in three different places in one of her schedules but did not indicate she owed them any specific debt amount but indicated the debts she owed the creditor was unknown.

Allegedly, she then filed her initial chapter 13 plan. The creditor filed a motion for relief of automatic stay, which the court granted, and filed a proof of claim. The chapter 13 trustee objected to the debtor’s plan, but it was confirmed. The creditor appealed, arguing that the debtor was not eligible for chapter 13 bankruptcy because the debt she owed the creditor put her over the statutory limit. 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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One of the many benefits of bankruptcy is that it stays parties from litigating claims against the debtor. The stay is not limited to actions involving creditors attempting to recover debts but also precludes any claim that may result in a judgment against the debtor. Notably, though, the stay only applies to causes of action that arise prior to the filing of a bankruptcy petition and does not bar post-petition proceedings. Recently, a California court issued an opinion discussing how courts determine when a cause of action accrues in a matter in which the debtor sought to vacate a judgment obtained by his landlord. If you can no longer manage your debts, you may be able to seek relief via bankruptcy, and it is in your best interest to speak to a knowledgeable California bankruptcy attorney regarding your options.

Facts of the Case

It is reported that in 1986, the debtor entered into a residential lease for an apartment. From 2005 through 2015, the apartment was owned by the landlord. The lease agreement permitted the debtor to approve or reject any improvements or repairs to the apartment. The debtor repeatedly exercised this option, which ultimately led to the landlord filing a lawsuit for declaratory relief against the debtor.

Allegedly, one year prior to the landlord’s lawsuit, the debtor had filed for Chapter 13 bankruptcy. He did not notify the landlord of the proceedings or seek a stay of the landlord’s claim, however, but merely requested that he wait until after the bankruptcy case had closed to seek any judgment. The debtor then filed a contempt action against the landlord for continuing to litigate the action for declaratory relief after learning of the bankruptcy matter. The court granted the request to hold the declaratory relief judgment void, but the debtor nonetheless appealed, arguing it should be vacated. 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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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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