BANKRUPTCY LAW: Relief From Pre-Petition Debts

BANKRUPTCY LAW: Relief From Pre-Petition Debts

BANKRUPTCY LAW (Discharge): A Chapter 7 Petition, and accompanying discharge, provide relief from pre-petition debts. The 9th Circuit Court of Appeal has stated: A Chapter 7 bankruptcy discharge releases the debtor from personal liability for her pre-bankruptcy debts. . . . A discharge is the “legal embodiment of the idea of the fresh start; it is the barrier that keeps the creditors of old from reaching the wages and other income of the new . . .” If the debtor receives a discharge, the creditor will receive only its pro-rata share of the distribution of the property of the bankruptcy estate . . . . [Para.] Specifically, § 727 of the Bankruptcy Code ;. . . “discharges the debtor from all debts that arose before the date of the order for relief.” 11 U.S.C. § 727(b). The Code defines “debt” as “liability on a claim.” § 101(12). “Claim” is defined as a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” § 101(5)(A). “This `broadest possible definition’ of `claim’ is designed to ensure that `all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case . . . .’” Boeing N. Am., Inc. v. Ybarra (In re Ybarra), 424 F.3d 1018, 1022 (2005).

BANKRUPTCY LAW (Attorney’s Fees)

BANKRUPTCY LAW (Attorney’s Fees)

BANKRUPTCY LAW (Attorney’s Fees): Where Trustee brought, and lost, a claim for fraudulent transfer against the debtor, the debtor could be reimbursed its attorney’s fees under state (Alaska) law. The Trustee would have to pay the fees out of the bankruptcy estate. The case was decided in the Ninth Circuit Court of Appeal, but looked for guidance to the state law and the US Supreme Court. In re Good Taste, Inc., 317 B.R 112 (Bankr. D. Alaska 2004). This case apparently continues to reflect the law in the Ninth Circuit.​

 

BANKRUPTCY LAW (Fraudulent Transfer)

BANKRUPTCY LAW (Fraudulent Transfer)

BANKRUPTCY LAW (Fraudulent Transfer): ​​In the Delaware Bankruptcy Court, the court limited the US Trustee’s attempt to recover a pre-petition transfer. ​The ​Chapter 7 trustee ​tried to recover the full amount of the property as a fraudulent transfer, but the court limited the Trustee to the amount of the creditor’s claim. The court reasoned that the creditor ​would not receive a benefit by obtaining an amount in excess of its claim; that would instead be a windfall. The Trustee is therefore limited to the amount of the claim. Court construed 11 USC Sec. 550(a) and 11 USC Sec. 726(a)(1)–(5).​ ​Giuliano v. Schnabel (In re DSI Renal Holdings, LLC), No. 14-50356, 2020 WL 550987 (Bankr. D. Del. Feb. 4, 2020) ​

 

Student Loans May Be Discharged In Full

Student Loans May Be Discharged In Full

BANKRUPTCY LAW (Student Loans): A former medical student was entitled to $440,000 in debt relief, because he was able to meet the following standards pursuant to Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395, 396 (2nd Cir. 1987).

“Under [11 U.S.C.] § 523(a)(8), [debtor]’s student loans may be discharged in full, in part, or not at all, based upon the extent to which the court finds the repayment of these loans would constitute an undue hardship. Craig, 579 F.3d at 1045-46. Both [debtor] and the [Department of Education] concede the court has authority to enter a partial discharge pursuant to its equitable authority under § 105(a). Saxman v. Educ. Credit Mgmt. BJR Corp. (In re Saxman), 325 F.3d 1168, 1174 (9th Cir. 2003) (holding that a debtor is entitled to a discharge of that portion of the student loan that meets the requirements of § 523(a)(8)); Educ. Credit. Mgmt. Corp. v. Jorgensen (In re Jorgensen), 479 B.R. 79, 86 (B.A.P. 9th Cir. 2012) (applying each element of the Brunner test to the partial discharge analysis).The Ninth Circuit in United Student Aid Funds v. Pena (In re Pena), 155 F.3d 1108, 1112 (9th Cir. 1998), adopted the three part test (“Brunner test”) for determining undue hardship articulated in Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395, 396 (2nd Cir. 1987):
>
(i) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans;

(ii) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

(iii) the debtor has made good faith efforts to repay the loans.”
> The debtor’s dire circumstances met this test.
>
> See the Court’s decision in In re Koeut, 622 B.R. 72 (2020)

 

The “Minority Rule,” Holds That “Residence” Includes A Non-Primary Residence

The “Minority Rule,” Holds That “Residence” Includes A Non-Primary Residence

BANKRUPTCY LAW (Homestead Exemption): In a recent case, the federal Second District Court of Appeal (NY, NJ, Connecticut) held that any “residence” in which the debtor has an interest is eligible for application of the homestead exemption. The court adopted the “minority rule,” which holds that “residence” includes a non-primary residence (e.g., a vacation home, or a property in which a spouse or child lives), and thus federal, controls the application of the homestead exemption.

As a result, a debtor may seek to have the homestead apply to her non-primary residence, if the federal courts in that state have taken a position on the application of the federal defeinitions of “homestead” and “residence.”
Notably, California law allows a debtor to assert a homestead exemption as to property in which the debtor’s spouse or former spouse lives. Calif. Code of Civil Procedure Sec. 704.720(d).

The Maresca court said:

“When a debtor files for bankruptcy, she may “exempt” certain interests from her “estate,” thus removing them from the pool of assets available to satisfy her creditors. 11 U.S.C. § 522(b)(1); see also id. § 541(a)(1) (defining property of the estate to include “all legal or equitable interests of the debtor in property as of the commencement of the [bankruptcy] case”). With some exceptions not relevant here, a debtor may also “avoid the fixing of” judicial liens on encumbered property that would otherwise be subject to an exemption. Id. § 522(f)(1)(A); see Owen v. Owen, 500 U.S. 305, 311-13, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991).

“[T]he bankruptcy court adopted what it called the “minority ‘plain meaning’ approach,” [under] which the term “residence” is interpreted, using traditional canons of construction, to include primary and non-primary residences. See, e.g., In re Demeter, 478 B.R. 281, 286-92 (Bankr. E.D. Mich. 2012).

“[Para.] When a debtor files for bankruptcy, she may “exempt” certain interests from her “estate,” thus removing them from the pool of assets available to satisfy her creditors. 11 U.S.C. § 522(b)(1); see also id. § 541(a)(1) (defining property of the estate to include “all legal or equitable interests of the debtor in property as of the commencement of the [bankruptcy] case”). With some exceptions not relevant here, a debtor may also “avoid the fixing of” judicial liens on encumbered property that would otherwise be subject to an exemption. Id. § 522(f)(1)(A); see Owen v. Owen, 500 U.S. 305, 311-13, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991).

“[Para.] The federal exemption at issue in this case, referred to as the “homestead” exemption, allows the debtor to exempt—and thereby avoid a judicial lien upon—her “aggregate interest, not to exceed [$23,675] in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence.” Id. § 522(d)(1) & (f)(1)(A); see 4 Collier on Bankruptcy ¶ 522.09[1].”

In re Melissa Maresca, 982 F.3d 859 (2020)

Argued: October 22, 2020.

Decided: December 14, 2020

A Former Medical Student Was Entitled To $440,000 In Debt Relief

A Former Medical Student Was Entitled To $440,000 In Debt Relief

BANKRUPTCY LAW (Student Loans): A former medical student was entitled to $440,000 in debt relief, because he was able to meet the following standards pursuant to Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395, 396 (2nd Cir. 1987).

“Under [11 U.S.C.] § 523(a)(8), [debtor]’s student loans may be discharged in full, in part, or not at all, based upon the extent to which the court finds the repayment of these loans would constitute an undue hardship. Craig, 579 F.3d at 1045-46. Both [debtor] and the [Department of Education] concede the court has authority to enter a partial discharge pursuant to its equitable authority under § 105(a). Saxman v. Educ. Credit Mgmt. BJR Corp. (In re Saxman), 325 F.3d 1168, 1174 (9th Cir. 2003) (holding that a debtor is entitled to a discharge of that portion of the student loan that meets the requirements of § 523(a)(8)); Educ. Credit. Mgmt. Corp. v. Jorgensen (In re Jorgensen), 479 B.R. 79, 86 (B.A.P. 9th Cir. 2012) (applying each element of the Brunner test to the partial discharge analysis).The Ninth Circuit in United Student Aid Funds v. Pena (In re Pena), 155 F.3d 1108, 1112 (9th Cir. 1998), adopted the three part test (“Brunner test”) for determining undue hardship articulated in Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395, 396 (2nd Cir. 1987):

(i) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans;

(ii) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

(iii) the debtor has made good faith efforts to repay the loans.”

The debtor’s dire circumstances met this test.

See the Court’s decision in In re Koeut, 622 B.R. 72 (2020)

BANKRUPTCY LAW (Homestead Exemption)

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