A debtor who seeks discharge, for himself or for a business, must maintain adequate financial books records to allow the bankruptcy Court to determine the debtor’s true financial condition. For example, pursuant to 11 USC §727(a)(3), the debtor is not entitled to a chapter 7 discharge if that debtor “has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case[.]” The statute has the consequence of making the discharge dependent on the debtor’s true presentation of his or her financial affairs, and complete disclosure is a condition precedent to the granting of the discharge.
Caneva v. Sun Cmtys. Operating Ltd. P’ship (In re Caneva), 550 F.3d 755, 761-62 (9th Cir. 2008), cited in In re: Frank Daniel Kresock, Appeal from the United States Bankruptcy Court for the District of Arizona, BAP No. AZ-20-1270-BSL (Filed December 22, 2021; Unpublished)
Where Debtor had a judgment entered against him by California state court for fraud and elder abuse, this judgment was not discharged (cancelled) by his Chapter 7 bankruptcy discharge. Debtor’s and Debtor’s counsel’s strategic absence from court at the time of the trials did not eliminate the legal effect of the judgment. The debt was non-dischargeable, pursuant to 11 USC §523(a)(2)(A).
In re: Robert Edward Zuckerman,
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT; BAP No. CC-19-1200-TaFS
Argued and Submitted on February 27, 2020, Pasadena, California [Published Opinion]
AUTOMATIC STAY: Corporate debtor was sued in class-action in New Mexico state court, prior to filing bankruptcy. As part of his bankruptcy, the corporate debtor asked to remove the class action to Bankruptcy Court. This removal was not barred by the automatic stay, which would have been an absurd result that could prevent even the filing of a Proof of Claim. In re Cashco, Inc. 598 B.R. 9 (2019), citing to, among others, In re North County Village 135 B.R. 641 (1992), and In re Miller, 397 F.3d 726 (2005).
As of January 2021, California’s Homestead Exemption increases from a minimum of $300,000, to a maximum of $600,000. This means that many more homeowners in liquidation, Chapter 7 bankruptcy proceedings can keep their homes.
The California Civil Code will be amended as follows:
Sec. 704.730. (a) The amount of the homestead exemption is the greater of the following:
(1) The countywide median sale price for a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption, not to exceed six hundred thousand dollars ($600,000).
(2) Three hundred thousand dollars ($300,000).
(b) The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.
The statute does not say whether this will apply in bankruptcy as the “automatic homestead,” or whether the debtor must file a Declaration of Homestead. Based thereon, the debtor should strongly consider filing the Declaration with the County Recorder.
The primary purpose of the bankruptcy stay [11 USC Sec. 362] is to protect the debtor. (In re Fuel Oil Supply and Terminaling, Inc., 30 BR 360, 362 (Bankr.N.D.Tex.1983), cited in In re Globe Investment & Loan Co., Inc., 867 F.2d 556 (1989)). By stopping all collection actions against the debtor, the bankruptcy stay acts 1) as an injunction to preserve the estate, and 2) to prevent the creditors from trying to go around the bankruptcy process to collect.
Once the debtor receive the discharge (11 USC Sec. 727), creditors are no longer able to collect the discharged debts. A creditor who, despite the discharge, seeks to collect a pre-bankruptcy debt, runs the risk of a contempt citation and punishment by the federal court.
And so it was held recently by the US Supreme Court which held that a business dispute with the debtor, that had begun prior to the debtor’s filing for bankruptcy, was discharged by the bankruptcy, and no further collection activity would be allowed.
Writing for a unanimous US Supreme Court, Associate Justice Breyer opined that the business creditors, who had initiated the lawsuit against the debtor (Mr. Taggart) had no reasonable basis to believe that the bankruptcy stay, and the subsequent discharge would not act to bar the continued litigation against the debtor. The debt was considered wiped away, and the creditors actions, seen objectively, were not only impermissible, but gave rise to contempt sanctions:
“Under the fair ground of doubt standard, civil contempt therefore may be appropriate when the creditor violates a discharge order based on an objectively unreasonable understanding of the discharge order or the statutes that govern its scope.”
Taggart v. Lorenzen, ___ U.S. ___, 139 S.Ct. 1795, 1801, 204 L.Ed.2d 129 (2019).
The facts showed that the creditors had a working knowledge of the effects of bankruptcy law, and objectively should have realized that the pre-bankruptcy debt was no longer collectible. Therefore, the Supreme Court remanded the matter back to the 9th Circuit, to impose appropriate sanctions:
“We conclude that the Court of Appeals erred in applying a subjective standard for civil contempt. Based on the traditional principles that govern civil contempt, the proper standard is an objective one. A court may hold a creditor in civil contempt for violating a discharge order where there is not a “fair ground of doubt” as to whether the creditor’s conduct might be lawful under the discharge order.”
The Takeaway: Creditors Who Know that a Debtor has Filed for Bankruptcy Should Take No Action Against the Discharged Debtor, without First Having a Very Detailed, Careful Conversation with an Attorney, Lest Those Creditors End Up Held in Contempt!!