Articles Posted in Chapter 7

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The Beverly Hills Bar Association’s Bankruptcy Section recently held a program discussing the three recent bankruptcy-related Supreme Court decisions: Law v. Siegel (a case regarding surcharge, which was discussed on this blog in a previous post by Courtney Pozmantier), Executive Benefits Insurance Agency v. Arkison (In re Bellingham) (redux of Stern v. Marshall), and Clark v. Rameker (regarding inherited IRAs and exemptions).  The program was presented by Ken Klee and Dan Bussel and moderated by Greenberg Glusker’s own Brian Davidoff.

While the three cases that were discussed address different issues, the cases were linked by common themes.  All three cases were decided unanimously by the Supreme Court — no split decisions or plurality decisions here!  Also, all three opinions made use of textual analysis.  The panelists at the program speculated that perhaps unanimity came at the cost of squarely addressing key issues.  The Supreme Court’s grant of certiorari in the Wellness International case[1], in order to resolve issues left open by the Bellingham, supports this contention.  The panel also discussed the possibility that the use of textual analysis, which is advocated by some conservative Justices, may have been necessary for unanimity.  This is supported by the fact that Justice Sotomayor incorporated textual analysis into her opinion in Clark v. Rameker.

The program went on to address how these three cases will impact the practice of bankruptcy, including how courts will deal with Stern v. Marshall-type claims in the future.  A DVD of the program is available from the Beverly Hills Bar Association’s website.  By purchasing and viewing the DVD, attorneys can earn 1 hour of MCLE credit.

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On March 4, 2014, the Supreme Court issued a unanimous opinion in Law v. Seigel, Case No. 12-5196, 571 U.S. ___ (2014) holding that the bankruptcy court used its equitable powers in contravention of Bankruptcy Code section 522 by ordering the $75,000 protected by the debtor’s homestead exemption to be made available to pay the chapter 7 trustee’s attorney’s fees in light of the egregious misconduct of the debtor.  A full copy of the opinion can be reviewed at:

The Debtor’s Fraud and Prolonged Litigation With Trustee

Stephen Law filed his chapter 7 bankruptcy petition in Los Angeles, California over 10 years ago, on January 5, 2004.  The case was assigned to the Honorable Thomas B. Donovan, United States Bankruptcy Judge.  The estate’s only significant asset was Law’s house in California, which Law valued at $363,348.  Law claimed a $75,000 homestead exemption in his bankruptcy schedules, and he listed two mortgages, totaling approximately $304,000, that exceeded the non-exempt value of the house.

Small Supreme Court Picture for Law v. Siegel ArticleAlfred H. Siegel, the chapter 7 Trustee, contended that one of the mortgages was a sham.  As detailed in the Supreme Court’s decision, the Trustee then spent almost five years proving that Law fabricated the second mortgage and deed of trust on the house – allegedly in favor of “Lili Lin” of China – to defraud his creditors and keep his equity in the house.  Ultimately, the Bankruptcy Court entered an order concluding that “no person named Lili Lin ever made a loan to [Law] in exchange for the disputed deed of trust,” and that the loan was a fiction meant to preserve [Law’s] equity in his residence beyond what he was entitled to exempt” by perpetrating “a fraud on his creditors and the court.”  In re Law, 401 B.R. 447, 453 (Bankr. C.D. Cal. 2009).  The Trustee apparently incurred more than $500,000 in attorney’s fees in the course of uncovering and litigating Law’s fraudulent misrepresentations. Continue reading