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Bankruptcy in Brief              a service of the Moran Law Group

 

Idea Exchange

This page assembles tidbits, thoughts and news that non bankruptcy  professionals, such as attorneys and accountants, can add to their fund of knowledge when bankruptcy intrudes on other legal and professional realms.

• Co ownership and bankruptcy 

        In structuring co ownership situations between entities, consider the implications of Bankruptcy Code Section 363(h) which allows the trustee in bankruptcy to sell a property owned only in part by the debtor.  While the co-owner has what amounts to a right of first refusal, it puts the non bankrupt owner on the hot seat:  buy out the trustee or get cashed out.  Consider buy-sell agreements or incorporation, to put the property further from the trustee's grasp.

• Chapter 13 as an alternative to an offer in compromise 

Chapter 13 is a powerful tool for the individual with tax troubles, including unfiled returns and recorded liens.  Explore the treatment of taxes in our article on Taxes and Chapter 13.

• Deemed allowance of claims bars later suit

 
The long arm of res judicata got longer when the 9th Cir. held in Siegel  143 F.3d 525, that the Bankruptcy Code provision deeming allowed any claim filed in the case operated as a final judgment as to all facts and defenses that could have been raised in connection with the claim.   In Siegel, the creditor filed a proof of claim for its secured claim; neither the trustee nor the debtor objected.  In post bankruptcy litigation brought by the debtor against the secured creditor, the appeals court held the debtor's claims were barred by the allowance of the claim in bankruptcy. 

                Careful practitioners have to approach filed claims in bankruptcy with  caution and vigor, since the Siegel holding will treat the unchallenged claim as binding on all issues which could have been raised in a claims contest. This apparently applies whether or not the case is a no asset bankruptcy case (and thus there is no bankruptcy reason to examine claims) and whether or not the court has sought the filing of claims.

•    Family law and bankruptcy: owner or creditor?

        A spouse's right to reimbursement for a separate property contribution to the purchase of a house is a debt rather than an interest in property, according to the 9th Circuit .  The entire proceeds of the sale of the house purchased with a separate property contribution  were community property for the purposes of the bankruptcy court under 11 U.S. C. 541 and thus property of the bankruptcy estate.  The court rejected the argument of the non filing spouse that her right to reimbursement was separate property and thus escaped the reach of the bankruptcy  trustee.  Mantle,  98 C.D.O.S. 6982  9/4/98.

        This is definitely a "gotcha" for the non filing spouse whose right to reimbursement from the proceeds of sale  is reduced to simply the claim of another unsecured creditor upon the filing of bankruptcy by a spouse.  More on family law and bankruptcy.

•     Litigators beware the perils of settlement

       A settlement agreement resolving a dispute including fraud claims was held to be a novation which barred the creditor from bringing a non dischargeability action based on fraud when the defendant filed bankruptcy.  Fischer, 116 F.3d 388 (9th Cir. 1997).  But contra in the Sixth Cir.  Francis, 1998 WL 779195 (6th Cir. BAP).

    By contrast, a judgment in contract on a complaint that alleged fraud did not bar the maintenance of a non dischargeability action where fraud was pled in the complaint.  Gergely,  110 F.3d 1448.

    Then, a settlement agreement by which the creditor released a writ of attachment upon the debtor's agreement that the filing of a subsequent bankruptcy would be an admission that the release of the writ was obtained by fraud was held ineffective to make the underlying debt nondischargeable.  The Ninth Circuit held in Cole, 98 C.D.O.S. 8322 that the debtor could not contract away the future discharge of the debt.  The court seemed to leave undisturbed the principle that the bankruptcy court would apply collateral estoppel where the debtor admitted facts, existing as of the execution of the stipulation, which would entitle the creditor to a judgment of non dischargeability.

•    Preemptive bankruptcy

   When faced with litigation where

            * the outcome is not likely to be favorable to the client;  

            * the cost of defense is crippling;

            * the possibility of a judgment in excess of the  Chapter 13 debt  limits; or

            * findings of fraud are likely, counsel should consider advising the client to get bankruptcy advice.  Waiting until the end of the litigation may be too late to position the client for relief  in bankruptcy from adverse consequences.

LINKS TO  BANKRUPTCY SOURCES:

•     Internet Bankruptcy Law Library

•     Bankruptcy Law Finder

•     Findlaw:  Bankruptcy

•     The Bankruptcy Code

•     Federal Rules of Bankruptcy Procedure

•     Clerks of all U.S. Bankruptcy Courts

•     Websites for Bankruptcy Courts

•     Northern District of California Bankruptcy Courts website, including calendars, recent decisions by the judges of the district,   information on procedures and lots more of genuine use.

For consultation on issues facing you or your clients, contact the Moran Law Group by phone at 650-694-4700 or email.

  8/13/06