- Case Type:
- Case Status:
- 18-60029 (9th Circuit, Mar 23,2020) Published
- Looking to federal criminal cases for guidance as to what constitutes possession or control, property fraudulently transferred during a Chapter 13 case can be recovered by a Chapter 7 trustee after the case is converted. Section 348(a)(1) does not require that the debtor have actual possession or control of the property fraudulently transferred during the Chapter 13 case. Constructive control is sufficient and may be inferred where the debtor participated and directed the fraud.
- Procedural context:
- Following the conversion of the debtor's Chapter 13 bankruptcy case, the Chapter 7 trustee sued the debtor's brother to recover funds transferred from the debtor without the knowledge of the Chapter 13 trustee. (The case had been converted as a result of the unauthorized transfers.) The bankruptcy court ruled that the transferred funds were recoverable by the Chapter 7 trustee, notwithstanding 11 U.S.C. § 348(a)(1), and the BAP agreed. The debtor's brother appealed.
- The debtor has three brothers. Their father died on July 20, 2012, and left his estate to his four sons. In the state court probate proceeding in August 2013, each brother abandoned their interests in the estate to the brother who was soon to become a Chapter 13 debtor. The debtor filed his Chapter 13 petition in December 2013. He scheduled an anticipated inheritance of only $2,500. A few months after that, the state court distributed the net proceeds of the estate, $55,487.97, to the debtor. The debtor, without the approval of the Chapter 13 trustee, transferred $12,372 to each of his brothers. Upon learning of the unauthorized transfers, the Chapter13 trustee sought conversion pursuant to11 U.S.C. § 1307(c). At the hearing on the Chapter 13 trustee’s conversion motion, Jason offered no justification for either the lack of disclosure or the transfers. The debtor also acknowledged that he could not account for any of the money, including the funds he had retained after transferring equal shares to his brothers. The debtor moved for reconsideration. The bankruptcy court denied this motion, and concluded that the debtor’s transfers of the inheritance to his brothers were made to avoid payments to his brothers.
- Mary M. Schroeder, Michelle T. Friedland,and Ryan D. Nelson
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