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

Thu Feb 20 06:55:26 MST 2020

I have defended a preference claim in a similar scenario from the perspective of the secured creditor.  My position was that the secured creditor could receive the funds without them being deemed a preference.  See In re LCO Enterprises, 12 F.3d 938, 941 (9th Cir. 1993):  “If a creditor is fully secured, a prepetition transfer to him is not preferential because the secured creditor is entitled to 100% of his claim.”  

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-----Original Message-----
From: CLBS <clbs-bounces at admws.idaho.gov> On Behalf Of Wade Carolyn G
Sent: Wednesday, February 19, 2020 9:59 PM
To: 'Alexandra Caval' <alex at cavallawoffice.com>
Cc: Bankruptcy list <CLBS at admws.idaho.gov>
Subject: Re: [CLBS] Any issues with reinstating a mortgage right before filing Ch 7 or Ch 13?

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I don’t know anything about California exemptions except what I’ve Googled in the last ten minutes, but it does not appear that there is any exemption for an accumulation of wages—just 75% of the wages paid in the 30 days before bankruptcy.

I haven’t seen any cases, I was just spitballing what I thought a trustee would think about seeing $28,000 in cash disappear into an asset that would not be available to creditors.  What kind of debtor has been able to set aside enough employment income to make a single $28K payment to fully catch up his mortgage arrears (but wasn’t able to stay current on his mortgage) and still needs to file a bankruptcy?  Something feels hinky.

From: Alexandra Caval <alex at cavallawoffice.com>
Sent: Wednesday, February 19, 2020 8:32 PM
To: Wade Carolyn G <carolyn.g.wade at doj.state.or.us>
Cc: Matthew Christensen <mtc at angstman.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?

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<mailto: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<mailto: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<mailto:mtc at angstman.com>
>
> NOTICE: This electronic transmission (and/or the documents accompanying it) may contain confidential information belonging to the sender that is protected by the Electronic Communications Privacy Act, 18 U.S.C. §§ 2510 and 2521 and may be legally privileged.  This message (and any associated files) is intended only for the use of the individual or entity to which it is addressed and may contain information that is confidential, subject to copyright or constitutes a trade secret.  If you are not the intended recipient you are hereby notified that any dissemination, copying or distribution of this message, or files associated with this message, is strictly prohibited.  If you have received this communication in error, please notify Angstman Johnson immediately by telephone (208-384-8588) and destroy the original message.  Messages sent to and from us may be monitored.  If you are the intended recipient, you acknowledge that the email address being utilized is secure and that there will not be a waiver of the attorney-client privilege or breach of any duty of confidentiality by the sender's correspondence to that email address.
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> -----Original Message-----
> From: Alexandra Caval <alex at cavallawoffice.com<mailto:alex at cavallawoffice.com>>
> Sent: Tuesday, February 18, 2020 6:37 PM
> To: Matthew Christensen <mtc at angstman.com<mailto:mtc at angstman.com>>
> Cc: holly at roarklawboise.com<mailto:holly at roarklawboise.com>; Bankruptcy list <CLBS at admws.idaho.gov<mailto: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<mailto: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<mailto:mtc at angstman.com>
>>
>> NOTICE: This electronic transmission (and/or the documents accompanying it) may contain confidential information belonging to the sender that is protected by the Electronic Communications Privacy Act, 18 U.S.C. §§ 2510 and 2521 and may be legally privileged.  This message (and any associated files) is intended only for the use of the individual or entity to which it is addressed and may contain information that is confidential, subject to copyright or constitutes a trade secret.  If you are not the intended recipient you are hereby notified that any dissemination, copying or distribution of this message, or files associated with this message, is strictly prohibited.  If you have received this communication in error, please notify Angstman Johnson immediately by telephone (208-384-8588) and destroy the original message.  Messages sent to and from us may be monitored.  If you are the intended recipient, you acknowledge that the email address being utilized is secure and that there will not be a waiver of the attorney-client privilege or breach of any duty of confidentiality by the sender's correspondence to that email address.
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>> -----Original Message-----
>> From: CLBS <clbs-bounces at admws.idaho.gov<mailto: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<mailto: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 -
>>
>> By the State Bar of California Board of Legal Specialization
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Alexandra O. Caval
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