Source: http://www.fremont-bankruptcy-attorney.com/blog/category/chapter-7-trustee-powers-and-rights/
Timestamp: 2018-09-24 19:32:12
Document Index: 242037843

Matched Legal Cases: ['§ 3439', '§ 3439', '§ 3439', '§ 3439', '§ 3439', 'art 2', '§542', '§542']

Chapter 7 Trustee Powers and Rights | Fremont Bankruptcy Attorney Blog
Category Archives: Chapter 7 Trustee Powers and Rights
Transfers of Property and Why You Should Care When Filing Chapter 7 Bankruptcy
– The four years part is simple, but could reasonably have been discovered by the claimant is not. In theory a Chapter 7 trustee could argue 15 years after the transfer was made the claimant could not reasonably have discovered the transfer once the bankruptcy case is filed and then bring an action within one year of the filing of the bankruptcy case or discovery of the transfer in the bankruptcy case . . . . . . . .
Transfer was not for equivalent value while insolvent: 3439.04(a)(2) and 3439.05 within four years after the transfer was made or the obligation was incurred;
Cal. Civil Code § 3439.04 provides the basis for liability under the CUFTA. You can either be liable if actual intent to hinder, delay or defraud any creditor by the transfer of the asset can be proven or you transferred the asset for less than fair market value (equivalent value) while insolvent (balance sheet or cash flow?)
Under Cal. Civil Code § 3439.05, a transfer is constructively fraudulent if the debtor (person owing money) made the transfer without receiving reasonably equivalent value in exchange and the debtor was insolvent at that time or rendered insolvent as a result of the transfer. The chapter 7 trustee must prove both reasonably equivalent value and insolvency by a preponderance of evidence. In re GSM Wireless, Inc., 2013 WL 4017123, at *17 (Bankr. C.D. Cal. April 5, 2013) (citing Whitehouse v. Six Corp., 40 Cal. App. 4th 527, 533–34 (1995)). What is a preponderance of evidence. It is a lower standard than beyond reasonable doubt. Preponderance of evidence means the judge has to believe that the existence of a fact, or something you are trying to prove, is more probably than its nonexistence based upon the evidence presented. Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for So. Cal., 508 U.S. 602, 622 (1993).
What is the definition of insolvency? Balance Sheet Test vs. Cash Flow Test?
Cal. Civil Code § 3439.02(a) provides that “[a] debtor is insolvent if, at fair valuations, the sum of the debtor’s debts is greater than all of the debtor’s assets.” This is the balance sheet test for insolvency. Bay Plastics, Inc. v. BT Comm. Corp. (In re Bay Plastics, Inc.), 187 B.R. 315, 328 n.22 (Bankr. C.D. Cal. 1995). This should include retirement accounts that are completely exemptable under most state exemption laws.
Under Cal. Civil Code § 3439.02(c), “[a] debtor who is generally not paying his or her debts as they become due is presumed to be insolvent.” This is the cash flow test for insolvency. In re Bay Plastics, 187 B.R. at 328 n.22. As a general rule, solvency and not insolvency is presumed. Neumeyer v. Crown Funding Corp., 56 Cal. App. 3d 178, 186 (1976).
Actual intent to defeat, hinder or delay creditors must be proven.
Under the CUFTA, a transfer is intentionally fraudulent if it is made with the intent to defeat, hinder or delay creditors. Cal. Civil Code § 3439.04(a)(1) provides that transfers made with actual intent to delay, hinder, or defraud creditors are fraudulent and therefore voidable. Like many issues that involve the intent of the party actually proving intentional fraud with direct evidence is usually extremely difficult. Over time the courts have come up with badges of fraud that help to establish intent. The badges are listed in Cal. Civil Code Section 3439.04(b): (1) whether the transfer or obligation was to an insider; (2) whether the debtor retained possession or control of the property transferred after the transfer; (3) whether the transfer or obligation was disclosed or concealed; (4) whether before the transfer was made or the obligation was incurred, the debtor had been sued or threatened with suit; (5) whether the transfer was of substantially all the debtor’s assets; (6) whether the debtor absconded; (7) whether the debtor removed or concealed assets; (8) whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) whether the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) whether the debtor transferred the essential assets of the business to a lienholder who transferred the assets to an insider of the debtor.
The Chapter 7 Trustee has a duty to creditors.
Every jurisdiction has a panel of Chapter 7 trustees that are assigned to chapter 7 bankruptcy cases to administer the bankruptcy estate that is created when the petition is filed. First off let us get something straight right now. When you file Chapter 7 bankruptcy, or your file a Chapter 7 bankruptcy case for a client, you are choosing to put a plate in front of the Chapter 7 trustee to eat off of. So do not be displeased with the Chapter 7 trustee for fulfilling their obligation to creditors and doing their job properly. You invited them into your house, asked them to sit at the table and after that just because you do not like their behavior you think you have a right to kick them out of your house? No, you will most likely not be allowed to dismiss your Chapter 7 bankruptcy case. At best you will be allowed to convert to Chapter 13.
See 11 U.S.C. Section 704 Duties of Trustee: Chapter 7 trustees actually have broad discretion in how they administer a bankruptcy estate. The issue to focus on is do you, the bankruptcy filer, have the money to pay your bankruptcy attorney to litigate the statute of limitations, your intent, your solvency or whether you received equivalent value for the property you transferred prior to filing a chapter 7 bankruptcy case? I can tell you, and of course this is my opinion based upon being involved in well over 2,000+ bankruptcy cases in various capacities, you do not have stomach or the money to fight this battle. There absolutely could be a good faith question as to whether you made a fraudulent transfer and a bankruptcy judge needs to determine who is right and who is wrong. This will be an expensive process and there is no guarantee your attorney or you will get their attorneys’ fees and costs paid for by the over party even if they successfully defend you.
The moral to the story . . . . . . . . .
Just do yourself a favor if you are thinking about filing for bankruptcy protection and have transferred assets, or do your client a favor and just file a Chapter 13 case and not a Chapter 7 case.
This chapter may be cited as the Uniform Fraudulent Transfers Act.
(a) A debtor is insolvent if, at fair valuations, the sum of the debtor’s debts is greater than all of the debtor’s assets.
A cause of action with respect to a fraudulent transfer or obligation under this chapter is extinguished unless action is brought pursuant to subdivision (a) of Section 3439.07 or levy made as provided in subdivision (b) or (c) of Section 3439.07:
3439.11.
This chapter, and the other changes in the law made by Chapter 383 of the Statutes of 1986, apply only to transfers made or obligations incurred on or after January 1, 1987; and, as to transfers made or obligations incurred prior to that date, the law in effect at the time the transfer was made or the obligation was incurred shall apply. The provisions of this chapter, insofar as they are substantially the same as the provisions of Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4, which was repealed by Chapter 383 of the Statutes of 1986, shall be construed as restatements and continuations, and not as new enactments.
This entry was posted in California Fraudulent Transfer Act, Chapter 7 Trustee Powers and Rights and tagged California Uniform Fraudulent Transfers Act, Chapter 7 Bankruptcy, Chapter 7 Trustee, CUFTA, Fraudulent Transfers on December 20, 2015 by fremnt_admin.
Chapter 7 Trustees Can Demand Turnover of Property No Longer in a Party’s Possession
The Ninth Circuit Court of Appeals recently decided a case that has very troubling results for bankruptcy filers. In Shapiro v. Henson (In re Henson), No. 11-16019 (9th Cir. Jan. 9, 2014), the court held that bankruptcy trustees have the power to recover bankruptcy estate property and the trustee’s power is not restricted to just property of the bankruptcy estate at the time the motion for turnover is filed.
In the Henson case, Barbara Henson filed for Chapter 7 bankruptcy protection with $6,955.19 in her checking account. She also wrote several checks that had not cleared her checking account yet on the day she filed. The checks did not clear her bank account until sometime after her bankruptcy petition was filed. Brian Shapiro (the bankruptcy trustee in the case) demanded Ms. Henson turnover all the funds in her checking account to him except for the $800 that was exempted/protected. Ms. Henson refused to turn over the funds because she indicated the checks were now cleared and the funds were no longer in her possession for her to turnover. One of the checks was written out to her bankruptcy lawyer for fees related to her bankruptcy case. The trustee deducted that amount from the amount Ms. Henson owed and instead went after the bankruptcy attorney directly to get the funds back. The trustee filed a motion to turnover the remaining funds under §542(a) but the bankruptcy court denied the trustee’s motion because Ms. Henson did not have possession of the funds at the time the motion was filed. The trustee appealed this decision to the U.S. District Court, District of Nevada. The result was the same as the bankruptcy court’s decision so the trustee appealed that decision yet again to the Ninth Circuit Court of Appeals.
Under 11 U.S.C. §542(a), an entity that is in possession, custody, or control of the bankruptcy estate property or property that may be exempted, during the case, needs to deliver the property or value of the property to the trustee. The Ninth Circuit ruled in favor of the trustee, stating that the trustee may request for a turnover of the property against an entity that has or had possession of the property at any time during the bankruptcy case even if they no longer have possession of the property at the time the motion for turnover is filed. If the entity cannot turn over the property because it is no longer in the entity’s possession, the entity may turnover the value of such property. Therefore, Ms. Henson may need to turnover property that is not part of the bankruptcy estate (post-petition funds earned) to the trustee to satisfy the motion for turnover. This results in Ms. Henson having to pay twice for the same thing: once when she wrote checks for her bills prior to filing for bankruptcy but cleared out of her bank account after her filing and the second time is when she has to pay the trustee the amount that was in her checking account at the time she filed for bankruptcy even if she no longer has those funds.
At the end of the day the lesson to be learned from this is to be sure to let your bankruptcy attorney know what checks you have outstanding at the time you file your bankruptcy case. Failure to do so may result in you having to pay your bills twice.
This entry was posted in Chapter 7 Trustee Powers and Rights and tagged Bankruptcy Attorney, Chapter 7 Trustee, Motion to Demand Turnover of Property on February 4, 2014 by fremnt_admin.