Category Archives: Pre-Petition

An Equitable Argument by an Unperfected Secured Creditor

An Equitable Argument by an Unperfected Secured CreditorAn Equitable Argument by an Unperfected Secured Creditor.  Has the court ever heard an equitable argument made by an unperfected secured creditor? The answer is yes. Here’s the story.

In a case of very unfortunate timing, a creditor loaned a business $500,000.00 to keep its doors open, took a security interest in the Debtor’s assets to secure the loan, and filed a UCC financing statement five days later to perfect the lien. However, on the day after the loan, and four days prior to perfection of the lien, an involuntary petition was filed against the Debtor. In re Millivision, 474 F.3d 4 (lst Cir. 2007). In this case the creditor argued that the “strong-arm” pro visions of §544 “offended the underlying equitable principles of the Bankruptcy Code by conferring a “windfall” cash infusion…” Further, it was argued that the “relation-back” provision of §5 47(e) (which allows transferees a grace period to perfect a transfer) constitutes “any generally applicable law” under §546(b), which limits the rights of a Trustee to recover under §544. Affirming the lower Courts, the First Circuit rejected the § 547(e) argument, finding that a subsection applicable to prefer entail transfers is not “generally applicable law” for purposes of the strong-arm powers under § 544 (b). The Court then noted that the creditor could have perfected its lien prior to making the loan, and “under long-established principles. Therefore the court found that petitioner’s lack of diligence precludes equity’s operation”. So yes a court has heard an equitable argument by an unperfected secured creditor and lost the argument. If you have a question about your perfected interest, please see a bankruptcy attorney.

For more information about Bankruptcy and Disability Income  – contact Cynthia Remboldt, at the Remboldt Law Firm at 404-348-4081. FREE consultations can be scheduled by calling 404-348-4081.  Evening and Weekend hours are available to meet with an attorney.  If bankruptcy turns out to be the best way to move forward considering your alternatives, goals and financial challenges, payment plans are available if you need them.

Are Pre-petition checks delivered post-petition avoidable?

Are Pre-petition checks delivered post-petition avoidable?Are pre-petition checks delivered post-petition avoidable?   Here’s the story:  One day before filing for bankruptcy, a Debtor obtained a cashier’s check payable to his former personal injury attorney.  The check was sent express mail to the law firm’s post office box. The Trustee learned of the transaction, and established that the cashier’s check was not negotiated until five days after the debtor’s petition was filed. When the Trustee sought to avoid the payment under § 549,
the defendant (the personal injury attorney) argued that delivery of the check was before the petition was filed.  In re Scheu, 356 B.R. 751 (Bkrtcy. D. Idaho 2006 ).

Judge Pappas cited In re Mora, 199 F.3d i024 (9th Cir. 1999). which held that “the transfer of a cashier’s check for purposes of § 547(b) occurred at the time it was delivered rather than honored.” Applying Mora to § 549, the issue to be determined in this case was whether the transferee received the cashier’s check before the petition was filed. Based on the Trustee’s showing that the check was negotiated post-petition, the Court found the burden was on the transferee to prove it was delivered pre-petition. Refusing to take judicial notice that “express mail” is delivered on the day following mailing; the Court held for the Trustee, due to the defendant’s inability to prove when the check was actually received. Therefore, the check mailed before the debtor’s petition was presumed to be delivered post-petition and was avoidable under § 549.

Are Pre-petition checks delivered post-petition avoidable? For more information about Bankruptcy and the questions – are pre-petition checks delivered post petition avoidable – contact Cynthia Remboldt, at the Remboldt Law Firm at 404-348-4081. FREE consultations can be scheduled by calling 404-348-4081.  Evening and Weekend hours are available to meet with an attorney.  If bankruptcy turns out to be the best way to move forward considering your alternatives, goals and financial challenges, payment plans are available if you need them.

Trustee is Bona Fide Purchaser

Trustee is Bona Fide PurchaserTrustee is Bona Fide Purchaser – Is Trustee is bona fide purchaser despite simultaneous filing of debtor’s electronic petition and schedules. Here’s an example,

When debtor refinanced her condominium, she gave Chase a deed of trust to secure her note that was not recorded. Instead, all that was recorded was the deed of conveyance from the previous loan, which was paid off in full. Thus, it appeared from county records that the condo had been paid off.

Debtor later filed for Chapter 7 relief, electronically filing her petition and schedules simultaneously. The schedules listed Chase’s secured debt. Chase then commenced an adversary proceeding to quiet title to its lien. It actually prevailed in the bankruptcy court on the theory that, under In re Professional Investment Properties of America, 955 F.2d 623 (9′” Cir. i992), the schedules provided constructive notice to the trustee of the unrecorded lien. The SAP reversed.

Chase appealed to the Circuit Court, which affirmed. Chase Manhattan Bank, USA, N.A. v. Taxel (In re Deuel), 594 F.3d 1073 (9′” en.2010). The Circuit Court focused on the phrasing in § 544(a)(3) that the trustee has the status of a bona fide purchaser of real property from the debtor “at the time of commencement of the case” without regard to any knowledge of the trustee “as of the commencement of the case .”

The court observed that when a Chapter 7 case is filed, only the petition commences the case, regardless of what else happens at the same time. “The trustee has not even been appointed when the petition is filed and could not possibly be a bona fide purchaser for value without notice upon the filing of the petition, but he is treated by the statute as though he were.” Moreover, because the strong-arm power exists without regard to any knowledge of the trustee it did not matter whether a hypothetical trustee who immediately read what was filed would have actual knowledge of the lien from the schedules. Finally, the Circuit Court distinguished Professional Investments limited to involuntary petitions that gave notice of an interest and further rejected Chase’s argument that its current lien should be treated as subrogated to its own previous lien, since it used the money from the most recent refinancing to payoff the loan from the prior refinancing.

If you have questions about whether the Trustee is bona fide purchaser in a chapter 7 case, you should contact an experienced bankruptcy attorney.

Trustee is Bona Fide Purchaser – for more information about Bankruptcy laws  – contact Cynthia Remboldt, at the Remboldt Law Firm at 404-348-4081. FREE consultations can be scheduled by calling 404-348-4081.  Evening and Weekend hours are available to meet with an attorney.  If bankruptcy turns out to be the best way to move forward considering your alternatives, goals and financial challenges, payment plans are available if you need them.

Determining the Initial Transferee in a Corporate Transaction

Determining the Initial Transferee in a Corporate TransactionDetermining the Initial Transferee in a Corporate Transaction – How does the bankruptcy court go about determining the initial transferee in a Corporate Transaction? Here is a recent court case example.

The principal of the corporate Debtor obtained a divorce from his wife pre-petition. Pursuant to the divorce decree he had a continuing support obligation to his ex-wife and their children.

During the applicable four-year fraudulent conveyance reach-back period. multiple checks totaling $68,684.25 were written to the ex-wife from the corporate Debtor’s bank accounts. The Trustee sought avoidance and recovery of these payments under §544(b), applicable state law. and §550.

The ex-wife asserted that her former husband, the Debtor’s principal was the initial transferee. She argued that though the corporate checks were made to her.  The “economic reality of the transactions” amounted to her ex-husband withdrawing corporate money to pay the support obligations. She also argued that the Debtor’s corporate financial records identified the payments as advances to its stockholder, or as a distribution of capital to him.

The Bankruptcy Court ruled for the Trustee, and appeal was taken to the First Circuit BAP. Antex, Inc., 397 B.R. 168 (1st Cir. BAP 2008). The Appellate Panel acknowledged that lower courts were split on the question of whether the principal of a debtor corporation was the initial transferee of corporate funds paid to satisfy a personal obligation.  However, the Court noted that all of the circuit courts addressing the issue (being the Fourth , Ninth, Tent h and Eleventh Circuits) had all concluded that the debtor principal was not the initial transferee. These courts found the principal lacked “legal domination and control” or , stated another way, the “right to put those funds to one’s own purpose.” The checks were direct transfers from the Debtor’s corporate account to the ex-wife and, once issued, the principal had no right to use the
money for any other purpose .  Furthermore, characterizing the payments as “advances to a stockholder” or as “distributions of capital” did nothing to establish the requisite “legal dominion and control” by the principal. If you have questions about how the courts go about determining the initial transferee in a corporate transaction – you should seek the advice of an attorney.

Determining the Initial Transferee in a Corporate Transaction – for more information about determining the initial transferee in a corporate transaction – contact Cynthia Remboldt, at the Remboldt Law Firm at 404-348-4081. FREE consultations can be scheduled by calling 404-348-4081.  Evening and Weekend hours are available to meet with an attorney.  If bankruptcy turns out to be the best way to move forward considering your alternatives, goals and financial challenges, payment plans are available if you need them.

Plea Agreement establish Ponzi debtors intent to defraud

Plea Agreement establish Ponzi debtors intent to defraudPlea Agreement establish Ponzi debtors intent to defraud – Does a plea agreement establish Ponzi debtors intent to defraud?

After filing for Chapter 7 relief, a Debtor was charged with crimes in connection with an alleged Ponzi scheme. Pursuant to a plea agreement, he subsequently pled guilty to the charges and was sentenced to prison . In the plea agreement, he admitted that he operated a Ponzi scheme over a lengthy period.

In a fraudulent transfer action , the Trustee sought to avoid transfers from the Debtor to investors, to the extent they exceeded the amount invested (“false profits”). The Bankruptcy Court granted summary judgment to the Trustee, finding that the Debtor’s guilty plea and plea agreement conclusively established that the Debtor had operated a Ponzi scheme from which the actual intent to defraud his creditors would be imputed. The District Court affirmed.

Further appeal was taken to the Ninth Circuit. In re Slatkin, 525 F.3d 805 (9th Cir. 2008). The Circuit Court also affirmed, finding that once the existence of a Ponzi scheme is established, payments received by investors as purported profits are deemed fraudulent transfers as a matter of law. The Circuit Court further noted that the Debtor was not a “stockbroker” under the Code and, therefore, the Trustee was not barred by §546(e). The Court also rejected the investors’ argument that the plea agreement should not have been admitted because it was hearsay. The Court found it to be admissible under Federal Rule of Evidence 807. The admissions in the plea agreement were more probative on issues of the Debtor’s intent to defraud than any other evidence the Trustee could procure. The interest of justice would be best served by its admission as evidence. Further. the plea agreement had the equivalent circumstantial guaranties of trustworthiness as a statement covered by Rules 803 or 804 . A plea agreement does establish a Ponzi debtor’s intent to defraud. If you have questions about a Ponzi scheme you should seek the advice of an attorney.

Plea Agreement establish Ponzi debtors intent to defraud – for more information about Bankruptcy and plea agreements establish a Ponzi debtor’s intent to defraud  – contact Cynthia Remboldt, at the Remboldt Law Firm at 404-348-4081. FREE consultations can be scheduled by calling 404-348-4081.  Evening and Weekend hours are available to meet with an attorney.  If bankruptcy turns out to be the best way to move forward considering your alternatives, goals and financial challenges, payment plans are available if you need them.

Pre Bankruptcy Petition Check Negotiated Post-Petition

Pre Bankruptcy Petition Check Negotiated Post-PetitionPre Bankruptcy Petition Check Negotiated Post-Petition – What happens when a pre bankruptcy petition check negotiated post-petition? Here’s an example from the bankruptcy court.

Pre Bankruptcy Petition check negotiated post petition.  A Chapter 13 Debtor wrote a pre-petition check that was cashed after the debtor filed bankruptcy.  The Debtor demanded return of the funds from the creditor (the person who had not cashed the check), but the creditor refused. The Debtor then filed a motion to have the creditor held in contempt for violating the stay by refusing to turn over the funds received from the check post petition. The creditor argued that the funds were obtained through presentment of the pre-petition check negotiated post-petition, which was exempt from the bankruptcy automatic stay under s362(b)(11). In re Meadows, 379 B.R. 737 (Bkrtcy. S.D. Ohio 2008).

Judge Humphry agreed that the post-petition presentment of the check (cashing the check) was not a stay violation under s362 (b)(11). However the funds were property of the estate because the check had not been honored when the petition was filed. Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1586 (1992). Thus, even through presentment was excepted from stay violaiton, the crediotr was holding estate property which it refused to turn over upon the Debtor’s deman. The refusal to turn over the funds, did consitutue a stay violation. While obtaining the funds through check presentation was not prohibited, retaining those funds was not allowed. Finally, the Court found tha the creditor’s actions were based on a misunderstanding of s362(b)(11), not an intentional violation of law and did not assess unitive damages.

For more information about Bankruptcy and pre bankruptcy petition check is negotiated post petition  – contact Cynthia Remboldt, at the Remboldt Law Firm at 404-348-4081. FREE consultations can be scheduled by calling 404-348-4081.  Evening and Weekend hours are available to meet with an attorney.  If bankruptcy turns out to be the best way to move forward considering your alternatives, goals and financial challenges, payment plans are available if you need them.