All posts in Chapter 7

Social Media Passwords: Property of the Estate?

By | July 7, 2015 | Chapter 11, Chapter 13, Chapter 7, Courts | No comments

From ABI Newsroom:  Bankruptcy Gun Shop Ordered to Turn over Social Media Passwords

Debtor (a gun shop owner) had used social media to promote his gun store, but after he lost ownership of his store in bankruptcy, a judge declared the business’s Facebook and Twitter accounts property that belonged to the new owner and ordered the Debtor to turn over the passwords.   Debtor argued the accounts were personal, and refused.  He was held in contempt, and spent seven weeks in federal custody until he complied with the order.

The judge’s ruling charts new legal territory in awarding property in bankruptcy proceedings and points to the growing importance of social media accounts as business assets.   Legal experts say it also provides a lesson for all business owners active in social media about keeping separate accounts.

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Jailed in Puerto Rico: Does Bankruptcy Court have Personal Jurisdiction Over You?

By | July 1, 2015 | Chapter 7 | No comments

Don’t try to hide in a Puerto Rican jail.

Yes, all the Correctional facilities near me advised to us that bankruptcy court does have personal jurisdiction over you, even if you are in jail in Puerto Rico (or even more tropical locations like in Guam or the Virgin Islands).

Trustee filed an adversary seeking to recoup assets against a defendant who was incarcerated in Puerto Rico.   Defendant argued that since he was locked up in Puerto Rico, the bankruptcy court lacked personal jurisdiction over him because it is outside the boundaries of its district.

Ninth Circuit BAP Panel disagreed.   “Recognizing the reality that many interested parties may not be local, bankruptcy court’s jurisdiction extends nationwide.  Under FRBP 7004(d), the summons/complaint may be served anywhere in the United States.   Although “United States” is not defined in that section, the bankruptcy court is a unit of the district court under 28 U.S.C. §151, thus, “United States” would compromise every jurisdiction in which a district court is located, which includes Puerto Rico, Guam, and Virgin Islands.”

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Dear Congress: Please Scrap that Stupid Means Test

By | June 25, 2015 | Chapter 7 | No comments

I spent the morning at the Self-Help Desk at the bankruptcy court in Woodland Hills.  I had a group of ten people or so and I was helping them understand the forms that they must complete to file chapter 7.  None of these people owned a home; only one had a car payment; one said she was homeless, a few get social security.  None were anywhere near the median income.  I suspect all will qualify for the filing fee waiver.

The whole presentation came to a screaming halt when we got to the means test forms.  First of all, it is a form I could not fill out myself without a computer program helping me.  But I assumed that because they were all bellow median, we could get through the form quickly.  I suddenly found myself facing spending half the afternoon helping each one individually fill out the form, partially because I had to sit there and read through it myself, then try to figure out what the household size was for each (and hear each of the explanations), what income or receipts to include into current monthly income.  The form wants to know the actual income for the past six months which none of them had at hand.

For what?  A two second glance at the I and J shows they are barely scrapping by and could not possibly fund a chapter 13 plan.  Before the means test, the US Trustee used to check the I and J to decide if there was abuse.  Lets go back to that.  The form today serves no purpose other than to scare away people trying to do the forms themselves.

How to Recover Attorney’s Fees in Preference Action

By | June 19, 2015 | Cases, Chapter 11, Chapter 13, Chapter 7 | 1 Comment

Defending against a preference action is challenging, especially more so when your client is an innocent bystander to such a draconian rule.   Unfortunately too, recovering attorney’s fees from a successful defense is not in your favor either.

Attorney’s fees are generally not recoverable for successfully defending against the trustee’s preference action because a preference action is based wholly in bankruptcy law, is unique to bankruptcy and not an action under contract law (which gives effect to attorney’s fees clause in contract).   Alvarado v. Walsh (In re LCO Enters., Inc.), 180 B.R. 567, 570-71 (9th Cir. BAP 1995), aff’d, 105 F.3d 665 (9th Cir. 1997).

Attorneys CAN recover fees in defending a preference action IF:  (cue suspense music)

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June 18, 2015 – SFVBA – Settling with the Trustee

By | June 15, 2015 | Bankruptcy Data, Chapter 7, Community, Current Events, Programs | No comments

San Fernando Valley Bar Association – Bankruptcy Law Section
Settling with the Trustee

Panel: Stella Havkin; Michael Kogan; Wes Avery

Current and former Chapter 7 trustees and counsel discuss the do’s and don’ts of making deals in bankruptcies with Chapter 7 trustees.

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Nice Tentative From Judge Albert re Trustee’s Sale of Avoidance Actions

By | June 2, 2015 | Cases, Chapter 7, Judges Corner | No comments

United States Bankruptcy Court, Central District of California
Judge Theodor Albert, Presiding

Tuesday, June 02, 2015 Hearing Room 5B
11:00 AM

8:14-12049 Ergocraft, Inc. Chapter 7

#16.00 Motion for Order: (1) Approving Asset Purchase Agreement and Authorizing the Sale of the Estate’s Interest in Avoidance Actions Pursuant to 11 U.S.C. Section 363(b); and (2) Approving Overbid Procedures

The Chapter 7 trustee moves for an order approving the asset purchase he has negotiated with Jiangsu World Plant Protecting Machinery Co., Ltd. (“Jiangsu”). Jiangsu previously obtained a judgment against the debtor in the amount of $1,821,983.28. This claim is designated Claim No. 1 on the claims register (“Jiangsu Claim”). Trustee has negotiated with Jiangsu for the purchase of estate’s interest in avoidance actions which are reportedly the only realizable assets of the estate. Jiangsu will pay $52,500, release the Trustee and the estate from all claims, and subordinate the Jiangsu Claim to the payment of all other allowed claims. In addition, the Trustee seeks approval of overbid procedures, whereby qualified bidders may bid on the same assets at an auction to be held during the hearing for the motion. Bidders must bid a minimum of $67,500 (an initial overbid of $15,000), and each subsequent increase must be by an increment of $1,000.

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Prof Mark Scarberry Offers Nice Analysis of Caulkett (and Dewsnup)

By | June 2, 2015 | Chapter 7, Supreme Court | No comments

Today, in Bank of America v. Caulkett (and Bank of America v. Toledo-Cardona), the Supreme Court reversed the Eleventh Circuit and held that a debtor may not strip off a wholly underwater mortgage in a Chapter 7 case.  The Court noted that the respondents had not asked it to overrule Dewsnup. The meaning given by Dewsnup to the term “allowed secured claim” in section 506(d) is controlling; that meaning does not involve the existence of any value backing up the claim.  The opinion is here: http://www.supremecourt.gov/opinions/14pdf/13-1421_p8k0.pdf.

A few of us (maybe only a very few) think Dewsnup was correctly decided.  I think it was. It’s particularly difficult to understand how section 722 would retain meaning (and how its limits would be respected) if the Court had decided Dewsnup the other way. Justice Scalia’s attempted response to this point in his Dewsnup dissent is unpersuasive.

Justice Thomas’s opinion for the Court includes several rather obvious digs at the Court’s Dewsnup decision. (Note that Justice Thomas didn’t participate in Dewsnup; I think he would have joined Justice Scalia’s dissent if he had participated.)

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Coincidental Caption: PennySaver files Bankruptcy

By | June 1, 2015 | Chapter 7 | No comments

From the O.C. Register:

PennySaver has filed for Chapter 7 bankruptcy in Delaware, a week after it shut down and in the wake of lawsuits claiming nearly 700 workers were abruptly laid off without notice or final pay.

A Delaware bankruptcy judge on Friday granted a lawyer representing the company and several of its affiliates a 14-day extension to file a list of assets and liabilities.

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Secured Creditors Who Do Not File Continuation Statements Will Lose Their Secured Status, Despite a Bankruptcy

By | May 26, 2015 | Chapter 11, Chapter 13, Chapter 7 | 1 Comment

UCC-1 financing statements are effective for five years.  Before the five years has run, the creditor must renew the financing statement by filing what’s called a continuation statement.  This is essentially a UCC-1 with a check next to the box labeled “continuation statement.”  The only caveat is any continuation statement must be filed no sooner than six months before the five year period has expired.  Assuming a continuation statement is filed, the five year period is expanded by five years from when the original would have expired.  This can be done indefinitely.

What if the Debtor filed bankruptcy?

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Preemption and the Supremacy Clause

By | May 25, 2015 | Chapter 11, Chapter 13, Chapter 7, Community | 2 Comments

Twice in the last week I have had an attorney ask me a bankruptcy question and then comment that it seems to him that the answer is in the supremacy clause.  In other words, the federal law is bigger and better and more important and more powerful than state law so it wins.  This shows a lack of understanding of preemption and the supremacy clause.

It is constitutional law 101 that the federal government has the power to do only what the constitution gives it the power to do.  Everything else is reserved to the states.  Further, the states can do anything they want unless the constitution says they cannot or the federal government has passed a law, using a power given to it in the constitution, which is intended to preempt the field.  How do we know when congress “intended” to preempt the field?  When it says so right in the legislation or when the law it passed is so comprehensive that it leaves nothing left for the states to do.

In Sturges v. Crowninshield,  17 U.S. 122 (1819), the Supreme Court, Chief Justice John Marshall, ruled that states can pass bankruptcy laws!  At least until congress passes a law which it intends to preempt the field.  States cannot however grant a discharge of debts since the constitution says states cannot “impair the obligations of contracts.”

Most states including California have assignment for the benefit of creditors laws (“ABC”) which function very similar to bankruptcy laws.  Someone liquidates the assets for the debtor and distributes the proceeds to the creditors.   So obviously the bankruptcy act we have today, Title 11, is not a law which has preempted the field, at least completely.

States cannot however pass laws which “unreasonably” interfere with federal laws.  A state cannot pass a law for example that provides that persons who file bankruptcy must nevertheless pay their attorneys the amount owed prior to bankruptcy.  That would, in effect, amend the bankruptcy code.  Congress has decided who gets a discharge and for what.  States cannot interfere with that decision.  Congress could amend the code and say that each state can decide what debts will be discharged as it has done with exemptions.  But it has not so states must steer clear.  Why?  Because of the supremacy clause.

Two examples of this come to mind.  In Local Loan Co. v. Hunt,  292 U.S. 234 (1934), Illinois law provided that a lien could attach to future wages and we all know liens don’t go away in bankruptcy.  The Supreme Court struck down the law saying, “The … Illinois [law] is ‘precluded here by the clear and unmistakable policy of the Bankruptcy Act.’”   The effect of the law was to prevent discharges that congress intended to include.

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