Brown v. Barclay

Case Type:
Case Status:
BAP No. SC-17-1068-AKuS (9th Circuit, May 21,2018) Not Published
BAP for 9th Circuit affirmed summary judgment entered by bankruptcy court (SD Cal.) in favor of plaintiff-chapter 7 trustee avoiding debtor's postpetition transfer of inheritance proceeds to his brothers. Because of debtor's bad faith, postpetition receipt of inheritance proceeds while in chapter 13 remained property of chapter 7 estate under 11 USC 348(f)(2). Because debtor's transfers were not ordinary and necessary expenses, 11 USC 348(f)(1) did not safe harbor transfers of inheritance proceeds from estate. Consequently, postpetition transfers of property of estate were avoidable.
Procedural context:
Bankruptcy court (SD Cal.) entered summary judgment in favor of plaintiff against three defendants. One defendant appealed to BAP for 9th Circuit.
In 2012, Herbert Brown, father of Jason, Kenneth, Christopher, and Curtis, died intestate. Kenneth, Christopher, and Curtis assigned their interests in inheritance to Jason, who was personal representative of father's probate estate. Sole asset was father's residence. Jason sold the property for $289,000 and filed personal bankruptcy under chapter 13 three days later. Jason scheduled an "anticipated inheritance" of $2,500, which he exempted in full under California exemption statute. His chapter 13 plan proposed repayment of three secured creditors and no distribution to non-priority unsecured creditors. Father's probate estate received net proceeds from sale of house of $64,267.97. Jason filed papers to close probate estate, asserting statutory attorney's fees of $,780, but no other claims. Jason requested that balance of proceeds be distributed to him, noting assignments from his brothers. Probate court approved request, and distributed $55,487.97 to Jason. Jason, without requesting bankruptcy court approval, distributed to his brothers each a quarter share of inheritance, i.e. , $12,372. After learning of transfers, the chapter 13 trustee sought conversion of Jason's bankruptcy case to chapter 7. At hearing, Jason admitted that he had either spent or transferred to his brother the entirety of the inheritance and was unable to give an accounting or a satisfactory explanation for his low valuation of the anticipated proceeds in his schedules. Jason requested that he be allowed to propose 100% plan or dismiss case. Bankruptcy court concluded that debtor had abused bankruptcy process and converted to chapter 7. Chapter 7 trustee brought adversary to avoid debtor's postpetition transfers of inheritance to his three brothers.
Alston, Kurtz, Spraker

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