Collect Access LLC v. Hernandez (In re Hernandez)

Citation:
BAP No. SC-12-1209 JuMkPa (consolidated with BAP No. SC-12-1217 JuMkPa (for publication)
Tag(s):
Ruling:
The Ninth Circuit BAP (Panel) affirmed (on other grounds) the Bankruptcy Court's order compelling a judgment lien creditor to turnover funds levied upon pre-petition to the chapter 7 debtor.
Procedural context:
After the chapter 7 trustee filed her "no asset" report, the debtor filed an ex parte motion requesting, pursuant to section 542, the Bankruptcy Court order the judgment lien creditor to return funds levied upon pre-petition. The creditor opposed such relief on the basis that the debtor's interest in the funds was terminated pre-petition when the funds were transferred to the levying officer. In his reply, the debtor asserted additional grounds for relief under sections 522(g) and (h) (among others). The bankruptcy court granted the debtor's motion, concluding that the judgment lien creditor merely had a lien on the levied funds, that the debtor, therefore, maintained in interest in the funds at the time the petition was filed and, under section 541, the funds constituted property of the debtor's estate. The creditor timely appealed to the Panel.
Facts:
Prior to filing bankruptcy, the judgment lien creditor levied on funds held in the debtor's bank account ($712.39). The debtor filed his petition twenty days later. The debtor scheduled his interest in the funds in Schedule B, and asserted such funds exempt in Schedule C. The chapter 7 trustee filed her report of no distribution, which the Panel equated to an abandonment of the funds and allowing the debtor to recover the funds from the creditor. Upon the debtor's ex parte motion, the Bankruptcy Court ordered the creditor to turnover the funds to the debtor relying on a "misplaced" statutory scheme (CCP §§ 697.710 and 724. 010(b)). On appeal, the Panel affirmed on different grounds relying on the "comprehensive" statutory scheme governing enforcement of money judgments (CCP §§ 700.010 – 700.200). The Panel noted that thought the statute suggests the debtor's interest in the levied funds is transferred when the funds are tendered to the levying officer, the statute fails to explicitly state such. Further reviewing the record, the Panel found that the debtor's bank account on the day of levy consisted almost entirely of social security benefits. Under California law, these government benefits are exempt, not subject to collection efforts, and thus no transfer of ownership in the funds could be effected by levy. Since the debtor held a legal or equitable interest in the funds on the petition date, the funds constituted property of the estate. As such, the debtor could preserve his exemption in the levied funds by invoking section 522(g) and/or (h). And the Panel concluded that the debtor's standing to seek the return of such funds was premised on an individual debtor's private right to seek redress for violations of the automatic stay under section 362(k)(1) and the debtor's right to claim exemptions under section 522. Accordingly, the Panel affirmed the Bankruptcy Court's order requiring the creditor to surrender the funds, ruling that the levied funds held by the levying officer on the petition date were property of the estate and subject to the debtor's exemption right.
Judge(s):
JURY, MARKELL, and PAPPAS, Bankruptcy Judges

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