Source: https://occupyflintlegal.wordpress.com/2012/01/30/chapter-seven-bankruptcy-trustee-attempt-to-seize-property/
Timestamp: 2017-11-20 11:27:47
Document Index: 551764503

Matched Legal Cases: ['§ 542', '§ 541', '§ 541', '§ 542', '§ 541', '§ 541', '§ 727', '§ 541', '§ 541', '§ 541', '§ 542', '§ 541', '§ 541', '§ 541', '§ 541', '§ 362']

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POST DIVORCE MARITAL COMMUNITY PROPERTY CASH ADVANCES TO WIFE DO NOT HAVE TO BE RETURNED TO THE CHAPTER SEVEN BANKRUPTCY TRUSTEE.
IN THIS CASE THE BANKRUPTCUY THE TRUSTEE WAS ATTEMPTING TO RECOVER MARITAL FUNDS.
In this adversary proceeding, the Chapter 7 Trustee filed a complaint seeking to recover
$119,000.00 from Debtor’s ex-wife (“Defendant”) under 11 U.S.C. § 542.1 This amount
represents one-half of the $238,000.00 in total cash advances that Defendant obtained, before
Debtor’s bankruptcy, on a Comerica Bank line of credit.
Posted here by Flint Bankruptcy Lawyer, Attorney, Terry R. Bankert 235-1970. This article writen in SEO style.
A LINE OF CREDIT THAT SURVIVED A DIVORCE WAS USED TO BUY HOME, EX WIFE DEFENDANT WAS AWARDED IN THE DIVORCE
Debtor and Defendant were jointly liable on that line of credit, and it is secured by the home that Defendant was awarded under the 2004 judgment of divorce entered between Debtor and Defendant.
THE CHAPTER SEVEN BANKRUPTCY TRUSTEE SAID ½ LINE OF CREDIT IS PROPERTY OF THE BANKRUPTCY ESTATE.THE COURT DISAGREEDED.
The Trustee’s complaint alleges that the $119,000.00 is “property of the estate” either under the “community property” provisions of 11 U.S.C. § 541(a)(2), or under 11 U.S.C. § 541(a)(1), and thus recoverable under the turnover provisions of 11 U.S.C. § 542.2
THE BANKRUPTCY COURT SAYS THE LINE OF CREDIT NOT PART OF THE MARITAL ESTATE
The Court concludes that: (1) the Trustee’s “community property” theory under 11 U.S.C. § 541(a)(2) fails; and (2) the Debtor never had any legal or equitable interest under 11 U.S.C. § 541(a)(1) in any portion of the cash advance proceeds that Defendant obtained on the line of credit. As a result, no portion of the cash advance proceeds were ever property of the bankruptcy estate.
THE HUSBAND AND WIFE WHILE MARRIED RECEIVED A 2003 LINE OF CREDIT
The following facts are undisputed. In 2003, while Defendant and Debtor were still
married, they jointly obtained a line of credit from Comerica Bank with a limit of $238,000.00,
which was secured by a mortgage on the marital home.
2004 JUDGEMENT OF DIVORCE ENTERED, DEFENDANT GETS HOME HOLDS SPOUSE HARMLESS
On September 14, 2004, a default judgment of divorce (“Divorce Judgment”) was entered between Defendant and Debtor.
THE DIVORCE AWARDED THE WIFE DEFENDANT THE MARITAL HOME.
The Divorce Judgment awarded Defendant the marital home “as her sole property” and provided that Defendant was to “hold [Debtor] harmless for same.”
DIVORCE JUDGEMENT DID NOT MENTION LINE OF CREDIT
The Divorce Judgment said nothing about the Comerica Bank line of credit.
2009 DEFENDANT EX WIFE MAKES TWO DRAWS ON THE LINE OF CREDITAFTER THE DIVORCE.
The line of credit was not modified or terminated during the parties’ divorce. Almost five
years later, on March 11, 2009, Defendant made a $225,000.00 draw on the line of credit.6 Then
on June 3, 2009, Defendant made a $13,000.00 draw on the line of credit, bringing the total
amount of cash advances Defendant obtained up to the $238,000.00 limit. 7
THESE ADVANCES ENCUMBERED THE HOME WHICH HAD BEEN AWARDED THE WIFE DEFENDANT.
These advances encumbered Defendant’s home under Comerica Bank’s mortgage, which was the only mortgage or lien on Defendant’s home.
the EX HUSBAND DEBTOR NEVER DREW ON THE LINE OF CREDIT
Debtor, by contrast, never made any draws on the line of credit, and did not receive any of
the $238,000.00 in proceeds that Defendant borrowed.
DEBTOR EX HUSBAND FILED FOR CHAPTER 7
On February 25, 2010, Debtor filed a voluntary petition for relief under Chapter 7.
DEBTOR EX HUSBAND LISTED HIS OBLIGATION FOR THE LINE OF CREDIT IN HIS CHAPTER 7 BANKRUPTCY
On Schedule F, Debtor listed an unsecured claim of Comerica Bank in the amount of $238,138.00, based on Debtor’s joint liability with the Defendant on the line of credit.8 On the date Debtor filed his Chapter 7 petition, Defendant still had at least $225,127.55 of the $238,000.00 in cash advance proceeds.
DEBTOR EX HUSBAND OBLIGATION ON THE LINE OF CREDIT DISCHARGED IN BANKRUPTCY
On July 2, 2010, Debtor obtained a discharge of his debts under 11 U.S.C. § 727.
Debtor’s debt to Comerica Bank, based on the line of credit, was discharged.
THE TRUSTEE SAYS ½ OF THE LINE OF CREDIT IS AN ASSET OF THE ESTATE AND ARGUES UNJUST ENRICHMENT AT THE EXPENSE OF THE CREDITOR
The Trustee seeks summary judgment in the amount of $112,563.76.10 The Trustee
argues that “under Bankruptcy Code § 541, half of the $225,127.55 ($112,563.76) represents
property of the bankruptcy estate . . . as community property [under § 541(a)(2)]”; as an equitable right under § 541(a)(1); “or on equitable grounds.”11 The only alleged “equitable ground” the Trustee has asserted, as a basis for recovering half of the cash advance proceeds, is a theory of unjust enrichment.
TRUSTEE SAYS $112,563.76 IS PROPERTY OF THE ESTATE AND MUST BE RETURNED.
And, Trustee says, because the $112,563.76 is property of the bankruptcy
estate, Defendant must turn it over under § 542.13
TRUSTEE SAYS THE EX HUSBAND DEBTOR HAS AN UNUSED RIGHT TO DRAW ON THE LINE OF CREDIT.
The Trustee’s primary argument is that Debtor’s unused contractual right to draw on the
line of credit survived the divorce between Debtor and Defendant; that it was the Debtor’s
“property;” and that the draws Defendant took from the line of credit were proceeds of that
TRUSTEE SAYS ONE HALF OF THE PROCEEDS WERE PROPERTY OF THE BANKRUPTCY ESTATE
As a result, says the Trustee, one-half of the cash proceeds remaining as of the petition
date, from the Defendant’s draws on the line of credit, became property of the Debtor’s
EX WIFE ARGUES THE LINE OF CREDIT WAS NOT COMMUNITY PROPERTY
Defendant argues that the line of credit was not “community property,” within the
meaning of § 541(a)(2).14 Defendant argues further that the line of credit, and its proceeds, were
not property of the Debtor, so the proceeds of Defendant’s draws on the line of credit were not
property of the bankruptcy estate within the meaning of § 541(a)(1).15
THE COURT SAYS THE EX HUSBAND DEBTOR’S RIGHT TO THE LINE OF CREDIT WERE TERMINATED AT DIVORCE
And Defendant argues that “an application of the principle of unjust enrichment would imply an agreement between the [Defendant and Debtor] that, upon entry of the divorce, and upon [Defendant] receiving sole title and ownership to the home, any rights to the line of credit which [Debtor] may have had were terminated.”1
WHAT IS THE PROPERTY OF A BANKRUPTCY ESTATE
Section 541(a) of the Bankruptcy Code defines what is property of a debtor’s bankruptcy
estate. It provides, in relevant part:
following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section,
all legal or equitable interests of the debtor in property as of the
(2) All interests of the debtor and the debtor’s spouse in
community property as of the commencement of the case that is–
(B) liable for an allowable claim against the debtor, or for both an
allowable claim against the debtor and an allowable claim against
the debtor’s spouse, to the extent that such interest is so liable.
11 U.S.C. § 541(a) (emphasis added). To determine what Debtor’s property rights were in the
proceeds of the line of credit on the petition date, if any, the Court must look to Michigan law.
See Butner v. United States, 440 U.S. 48, 55 (1979) (“Property interests are created and defined
by State law.”).
Any property interest that Debtor had in the line of credit or its proceeds was
not community property.
THE TERM COMMUNITY PROPERTY NOT DEFINED IN THE BANKRUPTCY CODE
The Court agrees with Defendant that under Michigan law, any property interest that
Debtor had in the line of credit or its proceeds was not “community property” within the meaning
of § 541(a)(2). “The term ‘community property’ is not defined in the [Bankruptcy] Code but has
been interpreted as a term of art referring only to the means of holding marital property in those
states that have adopted a community property system.” 5 Collier on Bankruptcy ¶ 541.11[1], at
541-61 n.2 (Alan N. Resnick & Henry J. Sommer, ed., 16th ed. rev. 2011)(citing cases); see also
Anderson v. Conine (In re Robertson), 203 F.3d 855, 859 (5th Cir. 2000); In re Ward, 837 F.2d
124, 125 n.3 (3d Cir. 1988); Johnson v. Fisher (In re Fisher), 67 B.R. 666, 668 (Bankr. D. Colo.
DEFINITION OF MICHGIAN COMMUNITY PROPERTY
“Generally speaking, in community property jurisdictions, all property acquired by either
spouse before marriage, or after separation, and property acquired during marriage by gift,
bequest, devise or descent, is separate property, all other property, real or personal acquired by
either spouse during the marriage is community property.” 5 Collier ¶ 541.11[1], at 541-61; see
also In re Field, 440 B.R. 191, 194 (Bankr. D. Nev. 2009)(footnote and citation omitted)
(“Nevada is a community property state, which means that Nevada law presumes that all property not acquired by gift, bequest, or devise belongs to the ‘community’ created when two people marry.”); C.I.R. v. Chase Manhattan Bank, 259 F.2d 231, 239 (5th Cir. 1958) (applying Texas law) (“All property accumulated during marriage is community property, unless it is received by gift, devise, or inheritance.”).
EACH SPOUSE OWNS ONE HALF OF COMMUNITY ASSETS
Under community property law, “each spouse owns one-half of the [community] property
[and] each spouse can dispose of only one-half of the couple’s community property at death.” M.
Read Moore, Coming Soon to Your State: Community Property, A.L.I.-A.B.A. Continuing Legal
Education Course of Study (2004), available at Westlaw at SJ066 ALI-ABA 167, 171.
LIMITATIONS IN A COMMUNITY PROPERTY STATE
“Community property states usually also restrict one spouse’s ability to sell or give away
community property during lifetime without the other spouse’s consent.” Id. “[C]ommunity
property law . . . affects: a. Spousal rights to dispose and manage property during life, at divorce,
and at death; b. Creditor rights in property of spouses; and c. Estate, gift, and income taxes.” Id.
at 169-70.
ONLY AN OVERSIGHT IN THE DIVORCED JUDGEMENT LEFT THE EX HUSBAND DEBTOR WITH ANY RIGHT TO THE LINE OF CREDIT
At the time of their divorce in 2004, neither Debtor nor Defendant had exercised his or
her right to take any advances on the line of credit, and so there were no proceeds from the line of credit that became part of the marital estate to be divided into separate property of Defendant and Debtor.
EX HUSBAND DEBTOR COULD HAVE POSSIBLY USED THE LIBNE OF CREDIT AFTER THE DIVORCE AND DURING THE BANKRUPTCY.
However, because the Divorce Judgment did not say anything about the line of credit, it
is possible that after the divorce, Debtor retained the legal right to make draws on the line of
credit, even though it was secured by the home that was awarded to Defendant as her sole
THE COURT FELT HAD THE HUSBAND USED THE LIBNE OF CREDIT IT WOULD HAVE BEEN UNJUST BECAUSE THE COLLATERAL WAS THE MARITAL HOME AWARDED TO THE WIFE.
After Defendant and Debtor divorced, only Defendant exercised her right to draw on the
line of credit, by taking advances up to the contractual limit. Because the parties were divorced,
Debtor no longer had any interest in any of Defendant’s property, including the $238,000.00 in
cash advance proceeds Defendant obtained on the line of credit.
THE ONLY RIGHT THE EX HUSBAND DEBTOR HAD WAS AN UN EXERCISED RIGHT.
Assuming that after the divorce, Debtor still retained the right to make draws on the line of credit, on the date of filing the petition, the only interest Debtor had in the line of credit was an unexercised right to make a draw on the line of credit up to the contractual limit.
ON THE DATE OF THE PETITION EVEN THIS UN EXERCISED DEBT HAD NO VALUE
Because the contractual limit had already been reached, however, Debtor’s property interest in the line of credit, if any, was effectively worthless on the petition date. Any contractual right(s) of the Debtor under the Comerica Bank line of credit that the Trustee succeeded to, upon the filing of the bankruptcy petition, was worth $0.00. So there is nothing for the Trustee to recover from anyone, based on the line of credit.
THE TRUSTEE CANNOT SEIZE THIS ASSET
The Trustee cannot demonstrate the necessary elements of his unjust enrichment
THE TRUSTEe CANNOT SHOW UNJUST ENRICHMENT
The Trustee cannot show that Defendant was unjustly enriched, or that
Defendant was enriched at Debtor’s expense.
The only common law or equitable theory the Trustee has argued as a basis for recovering
half of the cash advance proceeds is, in substance, a theory of unjust enrichment.
fails, because the Trustee cannot establish the required elements of an unjust enrichment claim
“Unjust enrichment is defined as the unjust retention of money or benefits which in
justice and equity belong to another. No person is unjustly enriched unless the retention of the
benefit would be unjust.” Tkachik v. Mandeville, 790 N.W.2d 260, 266 (Mich. 2010) (internal
EX HUSBAND DEBTOR DID NOT RECEIVE ANY MONEY FROM THE LINE OF CREDIT AFTER THE DIVORCE
Arguably, at least, Defendant did receive a sort of benefit from Debtor, in being able to
draw on the line of credit. But such benefit cannot be measured by the amount of money
Defendant was able to borrow (or as one-half of that amount). This is because Defendant paid
her own price for this loan — namely, she saddled herself with a debt of $238,000, and
encumbered her own home with a mortgage debt of $238,000.
THE DEFENDANT USED AS COLLATERAL THE HOME SHE OWNED SOLELY AND THE EX HUSBAND DEBTOR WAS NOT HARMED.
Whatever the value of any “benefit” Defendant obtained from Debtor, however, the Court
must reject the Trustee’s argument that Defendant’s retention of such benefit is unjust. And it is
not unjust for Defendant to retain all of the cash advance proceeds. This is so for two reasons:
first, because Defendant’s draws on the line of credit were secured by property belonging only to
the Defendant (her home); and second, because Debtor ultimately suffered no quantifiable injury
as a result of Defendant’s drawing on the line of credit.
THERE WAS NOT AGREEMENT BETWEEN THE EX HUSBAND AND WIFE FOR THE USE OF THE LINE OF CREDIT.
As to the first of these points, the Court agrees with Defendant’s argument that:
an application of the principle of unjust enrichment would imply an
agreement between the parties that, upon entry of the divorce, and
upon [Defendant] receiving sole title and ownership to the home,
any rights to the line of credit which [Debtor] may have had were
terminated. To hold otherwise would allow [Debtor] to effectively
nullify [Defendant’s] property rights in the home by unilaterally
drawing on the line of credit and depleting the equity. In the
context of this case, requiring the Defendant to pay the Trustee half
of the line of credit proceeds would result in a significant payment
of Debtor’s debts at the expense of Defendant. She would still
have the entire mortgage to pay.
THE EX HUSBAND DEBTOR RECEIVED nO BENEFIT
The second point above, that Debtor did not suffer any quantifiable injury because of
Defendant’s draw on the line of credit, is established by the following: First, Comerica Bank
never sought recovery from Debtor of any amounts advanced under the line of credit. Second,
beginning when Debtor filed his bankruptcy petition, the automatic stay under 11 U.S.C. § 362(a)
prevented Comerica Bank from taking any collection action against Debtor. Third, on July 2,
2010, Debtor received a discharge of his debt to Comerica Bank, so the bank can no longer seek to collect from Debtor. Fourth, the Trustee cannot establish, and does not argue, that Debtor’s liability to Comerica Bank on the line of credit forced Debtor to file bankruptcy.
THE COURT RULED AGAINSE THE TRUSTEE
For these reasons, the Court concludes that the Trustee cannot prevail on his unjust
The “hold harmless” provision in the parties’ 2004 divorce judgment does not
support the Trustee’s position.
[]This article REDUCED AND MODIFIED Based on an Opinion Signed on January 27, 2012 /s/ Thomas J. Tucker Thomas J. Tucker, United States Bankruptcy Judge, UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION ,In re: Case No. 10-45599 ,I, Chapter 7 ,. Judge Thomas J. Tucker, MARK H. SHAPIRO, Trustee, . Adv. Pro. No. 11-4651.Do not rely on this posting without reading the entire opinion and/or seeking legal counsel.
Tags: bankruptcy trustee, CHAPTER SEVEN BANKRUPTCY, flint bankrutcy lawyer, marital property, terry Bankert
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