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Summarizing by Amir Shachmurove

In re Lisa Gay Mellem

Case Type:
Case Status:
CC-20-1174-KTG (9th Circuit, Feb 22,2021) Published
The bankruptcy discharge injunction does not prevent a testator or settlor of a family trust from requiring that an amount equal to the discharged debt be treated as an advancement on an inheritance.
Procedural context:
Appeal from the U.S. Bankruptcy Court for the Central District of California; reviewed de novo (with respect to the scope of the bankruptcy discharge injunction) and for abuse of discretion (with respect to the bankruptcy court's decision regarding contempt sanctions and with respect to the denial of a motion for relief under Civil Rules 59 and 60).
Appellant was a discharged chapter 7 debtor. Prior to appellant's bankruptcy, appellant's mother ("Mother") created a revocable family trust. The beneficiaries were Mother's three children. Also prior to appellant's bankruptcy, appellant executed a promissory note in connection with a loan of $75,000 from Mother. In 2009, appellant filed for chapter 7 bankruptcy but did not schedule the $75,000 debt. In 2012, Mother amended the trust, listing a lifetime transfer of $75,000 with respect to appellant that she wanted applied to appellant's share of Mother's final estate. After Mother died, appellant's brother, as successor trustee, sent appellant a status report projecting that her trust distribution would be her share minus $75,000. Appellant objected to the $75,000 reduction, first arguing that the note had been forgiven, then arguing that it was an unscheduled "debt" that was discharged in appellant's bankruptcy. The state probate court held that the $75,000 should be deducted from appellant's residual share of the trust based on Mother's intent. Appellant then reopened her chapter 7 case and requested an order of contempt for violation of the discharge injunction. The bankruptcy court observed that it could not overturn the probate court's decision, ruled that there was no "debt," and denied appellant's contempt motion and motion to reconsider; appellant then appealed to the Bankruptcy Appellate Panel.
Klein, Taylor, Gan

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