[CLBS] Any issues with reinstating a mortgage right before filing Ch 7 or Ch 13?

Wed Feb 19 21:31:51 MST 2020

Carolyn,
It's interesting that you and Bart brought up this issue of turning
non-exempt funds into exempt property. Are you thinking 11 U.S.C. 522(o) is
the potential problem? The last Idaho case I remember reading on 522(o),
In re Halinga, made me think it was hard for a trustee to show the 3rd
element of 522(o) - that the debtor disposed of nonexempt property with the
intent to hinder, delay, or defraud a creditor. Trustee has to show actual
intent as opposed to constructive intent. I'm  by no means an expert on CA
exemptions, but I would imagine that at least some portion of the $28,000
in pre-petition wages that the debtor saved up has to be exempt under a
wage exemption statute. To that end, I would think that at least a portion
of the $28,000 is exempt property turned into different exempt property.
But the more important question is whether you've seen/read about a case
where the debtor's desire to cure a mortgage default was sufficient to
support a finding of actual intent to hinder, delay, or defraud a creditor
such the homestead exemption can be reduced by the amount of the payment
under 522(o)?

More generally, has anyone seen a 522(o) objection in the last few years?

Alex

On Wed, Feb 19, 2020 at 3:32 PM Wade Carolyn G <
carolyn.g.wade at doj.state.or.us> wrote:

> I’d say you have a problem. You’re moving nonexempt cash into an asset
> that you’re hoping will be treated as an exempt asset. You’re endangering a
> discharge.
>
> > On Feb 19, 2020, at 9:53 AM, Matthew Christensen <mtc at angstman.com>
> wrote:
> >
> > Good points.  That's why I included my caveat at the end.  :)
> >
> > MTC
> >
> > Matthew T. Christensen
> > (208) 384-8588
> > mtc at angstman.com
> >
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> > -----Original Message-----
> > From: Alexandra Caval <alex at cavallawoffice.com>
> > Sent: Tuesday, February 18, 2020 6:37 PM
> > To: Matthew Christensen <mtc at angstman.com>
> > Cc: holly at roarklawboise.com; Bankruptcy list <CLBS at admws.idaho.gov>
> > Subject: Re: [CLBS] Any issues with reinstating a mortgage right before
> filing Ch 7 or Ch 13?
> >
> > Not sure that it meets all the elements of a preference because this is
> a secured creditor with a lien on property. Holly says there is equity
> above the homestead so if this is a CA case there’s presumably $85,000 in
> equity. This mortgage is fully secured and none of the cure payment would
> be toward unsecured debt. I don’t think a trustee could avoid it if it’s
> fully secured because trustee couldn’t show that creditor is getting more
> than it would in a chapter 7 case.
> >
> > The closest thing I’ve done to this is have a debtor make a partial cure
> payment of 6,000 on a mortgage default within 90 days of filing a chapter
> 13 (it brought the mortgage arrears down but didn’t fully cure it). The
> partial cure payment wasn’t as issue in the chapter 13 case but my creditor
> was oversecured in that case. I think that’s what you have going on here.
> >
> > Sent from my iPhone
> >
> >> On Feb 18, 2020, at 6:06 PM, Matthew Christensen <mtc at angstman.com>
> wrote:
> >>
> >> Wouldn't it be a preference payment?  They're obviously behind, so
> it's not an "ordinary course" payment, and there's no new value being
> provided by the lender - the value was already paid.  I think there's a
> risk the Trustee pursues it as a preference (or the Ch. 13 Trustee wants
> that amount included in what has to be paid to creditors through the
> plan).
> >>
> >> Maybe I'm looking at it wrong.
> >>
> >> MTC
> >>
> >>
> >> Matthew T. Christensen
> >> (208) 384-8588
> >> mtc at angstman.com
> >>
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> >>
> >> -----Original Message-----
> >> From: CLBS <clbs-bounces at admws.idaho.gov> On Behalf Of Holly Roark
> >> Sent: Monday, February 17, 2020 6:40 PM
> >> To: CLBS at admws.idaho.gov
> >> Subject: [CLBS] Any issues with reinstating a mortgage right before
> filing Ch 7 or Ch 13?
> >>
> >> Debtor is in arrears $28K in mortgage and has saved up enough
> employment income to fully catch up. There may be excess equity in the
> property above the homestead by about $10K, according to Zillow, which is
> probably on the high end. Will reinstating the mortgage and paying the
> lender $28K prior to filing Ch 7 or Ch 13 cause an issue for the debtor in
> either chapter?  This is a CA case.
> >>
> >>
> >>
> >> Best regards,
> >>
> >> HOLLY ROARK
> >>
> >> Attorney at Law
> >>
> >> Certified Bankruptcy Specialist -
> >>
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