The bankruptcy court applied the proper standard for determining “reasonably equivalent value” in the tax sale of the debtor’s home where it used a hypothetical foreclosure sale as the comparator rather than the fair market value. The Rooker-Feldman doctrine prevented the bankruptcy court from nullifying the sale despite procedural irregularities. And even where the debtor won, she lost. The court limited her damages based on the tax buyer’s violation of state consumer protection laws to minor pecuniary loss where it found emotional distress damages are unavailable under state law. Marshall v. Abdoun (In re Marshall), No. 22-10 (E.D. Pa. March 20, 2023). Read More
Tag Archive: fraudulent transfer
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Tax Sale Survives Multiple Attacks
Posted by NCBRC - March 31st, 2023
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Debtor May Avoid Tax Sale under 548 but Loses Equity
Posted by NCBRC - May 19th, 2022
The debtor has standing to avoid a tax sale under section 548 but only to the extent of her exemption and allowed claims. She may not recover her equity in the property. Morawski v. Effect Lake, LLC., No. 20-1125 (Bankr. D.N.J. April 11, 2022).
On October 3, 2016, Effect Lake purchased a tax sale certificate encumbering the debtor’s home. In January, 2019, Effect Lake filed a tax sale foreclosure action in the state court and a lis pendens for the foreclosure action with the Essex County Register’s Office. The state court entered final judgment on September 30, 2019. The debtor filed her chapter 13 bankruptcy petition on February 7, 2020. Effect Lake filed a proof of claim for $141,947.88. At the time the debtor filed for bankruptcy, the redemption amount for the tax sale certificate was $90,323.88 and the property was valued at between $544,000 and $600,000.
The debtor filed an adversary proceeding seeking a finding that the tax sale was a fraudulent conveyance under section 548. The parties filed cross-motions for summary judgment. The bankruptcy court held a hearing and issued the following findings. Read More
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Fraudulent Transfer Claim Precluded by Discharge Injunction
Posted by NCBRC - April 8th, 2021
Because an action for fraudulent transfer is not merely a collection action, the creditors were precluded by the discharge injunction from pursuing their state court appeal of that action even though the predicate debt was found to be nondischargeable in the debtor’s bankruptcy. SuVicMon Dev. Inc. v. Morrison, No. 20-11681 (11th Cir. March 25, 2021). Read More
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Funds Fraudulently Transferred Pre-Conversion Are Recoverable by the Chapter 7 Trustee
Posted by NCBRC - September 17th, 2020
Funds fraudulently transferred during a chapter 13 case remain in the debtor’s “constructive possession” and become part of the chapter 7 estate upon conversion. Brown v. Barclay, No. 18-60029 (9th Cir. March 23, 2020).
The chapter 13 debtor received an inheritance while in bankruptcy which he divided between himself and his three brothers without notifying the chapter 13 trustee. When the trustee learned of the unauthorized transfer, he moved the court to convert the debtor’s case to chapter 7 as a sanction. Finding the debtor had acted in bad faith, the bankruptcy court ordered the conversion. The chapter 7 trustee sought turnover of the funds from all the brothers. One of the brothers, the appellant in this case, fought turnover on the basis that because the debtor was not in control of the funds at the time of conversion, they did not become part of the chapter 7 estate. The bankruptcy court disagreed, and the bankruptcy appellate panel affirmed. Read More
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Tuition Payments for Adult Daughter Subject to Claw Back
Posted by NCBRC - November 22nd, 2019
The chapter 7 trustee could use his strong-arm powers to “claw back” tuition payments the debtors had made for their adult daughter’s education. DeGiacomo v. Sacred Heart University, Inc. (In re Palladino), No. 17-1334 (1st Cir. Nov. 12, 2019).
Steven and Lori Palladino made college tuition payments for their adult daughter within two years of filing for chapter 7 bankruptcy. The bankruptcy trustee filed an adversary proceeding against Sacred Heart University seeking to recover almost $65,000 in tuition payments. Both the trustee and Sacred Heart filed motions for summary judgment and the bankruptcy court granted judgment to Sacred Heart. The First Circuit granted direct appeal. Read More
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Proceeds from Sale of Fraudulently Transferred Property May Be Recovered from Third Party
Posted by NCBRC - September 16th, 2019
The chapter 7 trustee may “recover money from the entity who received the proceeds from the sale of fraudulently transferred property, but to whom the property itself was never transferred.” Rajala v. Husch Blackwell LLP, No. 08-20957, Adv. Proc. No. 18-6016; Rajala v. Spencer Fane LLP, Adv. Proc. No. 18-6020 (Bankr. D. Kans. Aug. 14, 2019).
Three couples started GRHC, a company designed to explore the possibilities of wind-generated electricity. GRHC initiated a wind-energy project in Pennsylvania called Lookout Windpower. The three couples then created the Lookout Windpower Holding Company (LWHC) and transferred Lookout Windpower from GRHC to LWHC rendering GRHC insolvent. LWHC then sold Lookout Windpower to Edison Mission Energy for over $6.7 million, and GRHC filed for chapter 7 bankruptcy. From the Lookout Windpower sale proceeds, LWHC paid the law firms of Husch Blackwell over $1.3 million and Spencer Fane over $700,000. The trustee in GRHC’s bankruptcy case successfully avoided the transfer of Lookout Windpower from GRHC to LWHC and sought to recover the funds paid to the law firms out of the proceeds from LWHC’s subsequent sale of the property. The law firms moved to dismiss the adversary complaints.
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Tax Sale May Be Avoided as Constructively Fraudulent
Posted by NCBRC - July 24th, 2018
A tax sale was avoidable as constructively fraudulent where the state tax foreclosure sale procedures did not include notice and bidding procedures likely to result in the debtors’ receiving “reasonably equivalent value.” Hampton v. Ontario County, No. 17-6808, and Gunsalus v. Ontario County, No. 17-6810 (W.D. N.Y. July 18, 2018).
In two separate cases with substantially identical facts, the Western District of New York addressed whether the bankruptcy court improperly dismissed the debtors’ adversary proceeding seeking to avoid the transfers of the debtors’ homes in tax sales. Read More
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Loan Paid Directly from Dept. of Educ. to Penn State Not a Fraudulent Transfer
Posted by NCBRC - June 12th, 2017
A Parent Plus loan made directly from the Department of Education to Penn State University prior to the debtor’s bankruptcy filing is not a fraudulent transfer where the funds were never in the debtor’s possession and would not have been available to his creditors. Eisenberg v. Pennsylvania State Univ. (In re Lewis), No. 16-12372, Adv. Proc. Nos. 16-0282, 16-0284 (Bankr. E.D. Pa. April 7, 2017). Read More
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HAVEN Act Guide
The Honoring American Veterans in Extreme Need Act of 2019 (“HAVEN Act”) excludes certain benefits paid to veterans or their family members from the definition of current monthly income (“CMI”) found in the Bankruptcy Code. The HAVEN Act amends § 101(10A) of the Bankruptcy Code and supplements the 2005 amendments to the Code that excluded other government benefits, such as social security income.
This Guide provides an overview of the HAVEN Act identifies benefits that are excluded, and answers frequently asked questions.
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