In re Edwin Earl Elliott

Case Type:
Case Status:
Ninth Circuit Court of Appeals Case No. 18-17421 (9th Circuit, Aug 12,2020) Published
The Court provided that a Debtor must establish five conditions to shield a Debtor's property under 11 U.S.C. Sec. 522(h). The perfected lien on the Debtor's IRA funds was not voidable under 11 U.S.C. Sec. 522(f) because the lien did not impair an interest in Debtor's property on the date the Debtor filed his Chapter 7 petition. Without demonstrating that the lien is voidable under 11 U.S.C. Sec, 522(f), the Debtor cannot establish a claim under 11 U.S.C. Sec. 547 or state claim under 11 U.S.C. Sec. 522(h).
Procedural context:
After the closure of the administrative Chapter 7 case, the Debtor commenced an adversary proceeding. Thereafter, the Debtor sought to reopen the administrative case. The bankruptcy court granted the Bank's motion to dismiss the adversary. The bankruptcy court held that the Debtor failed to establish a preferential transfer, because the Bank did not receive more than it would have in the Chapter 7 case. Debtor appealed to the district court. The district court affirmed the bankruptcy court's ruling. Debtor then appealed to the Ninth Circuit Court of Appeals.
Debtor was the borrower or guarantor to certain obligations due and owing to Bank. The Bank declared default and obtained a judgment in state court due to nonpayment. After entry of the judgment in favor of the Bank, the Bank obtained a writ of restitution and instructed the sheriff to levy on the Debtor's IRA. During the course of litigation the Debtor and Bank agreed that the levy created an execution lien under California law. The sheriff levied liquid funs held in the IRA in the amount of $28,870.19. Prior to the sheriff releasing the funds, the Debtor filed a claim of exemption in state court asserting the funds levied fell within California's "needs-based" exemption protected the funds from money judgments. The state court denied Debtor's claim. Shortly thereafter the sheriff released the levied funds to Bank. The Bank does not assert any claim to the Debtor's illiquid assets remaining in the IRA. Approximately one month after the funds were released the Debtor commenced a Chapter 7 case. The Debtor asserted that the funds were exempt; however, the Bank did not object to the claimed exemption on the basis that the levy was completed prepetition. Therefore, the funds levied were not property of the Debtor or the Estate. Stated differently, upon the funds being released to the sheriff, the Bank's prior lien expired under California law thus terminating Debtor's rights to the funds. The Chapter 7 trustee did not pursue any claim in relation to the funds pursuant to 11 U.S.C. Sec. 547; rather, filed a no-distribution report and the administrative case was closed.
Honorable Richard A. Paez and Carlos T. Bea, Circuit Judges, and Lynn s. Adelman, District Judge

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