Posts tagged "Bankruptcy Appellate"

No Part of Creditor's Claim Can Be Disputed In Order to File an Involuntary Bankruptcy Petition

In State of Montana Dept. of Revenue v. Blixseth, No. 18-15064, the Ninth Circuit Court of Appeals held that a creditor only has standing to file an involuntary petition against a debtor if the entirety of its debt is not subject to a bona fide dispute. If the amount of the claim is even partially disputed, the creditor cannot be a petitioning creditor. Pursuant to Section 303(b)(1), a petitioning creditor's claim must not be contingent or the subject of a bona fide dispute as to liability or amount. In Blixseth, the debtor's 2004 taxes were under audit. The debtor conceded that a deduction he took was improper but there were other adjustments and deductions that were unresolved and were in the process of being tried in front of the Montana State Tax Appeals Board. While the complaint was pending, plaintiff and other creditors filed an involuntary petition against the debtor. Plaintiff's claim in the involuntary petition consisted only of the taxes owed, which flowed from the deduction issue that was resolved. Plaintiff contended, however, that it had total claims against the debtor of much more than what was asserted and that most of the additional claims were disputed. The bankruptcy court acknowledged that a taxing authority "has but one claim for each calendar year of a taxpayer's life" and that plaintiff failed to show that it was allowed to create separate claims. The bankruptcy court held that since some of the debtor's liability to the plaintiff for the 2004 tax year was disputed, plaintiff's claim was subject to a bona fide dispute and plaintiff did not have standing to be a petitioning creditor. The district court agreed and the Ninth Circuit affirmed.

Actual Intent to Cause Injury is Not Required Under Bankruptcy Code Section 523(a)(6)

In In re Hamilton, BAP Nos. SC-17-1126 and SC-17-1123, the Ninth Circuit Bankruptcy Appellate Panel ("BAP") considered the intent requirement for non-dischargeability of a debt under Section 523(a)(6). The debtor argued that the Supreme Court case of Kawaauhau v. Geiger, 523 U.S. 57 (1998) required actual intent or specific intent to cause injury to meet the "willful" injury requirement of Section 523(a)(6). The BAP clarified that while Geiger held that an intent to cause harm was required, it did not elaborate as to "the precise state of mind required," as stated by the Ninth Circuit in Petralia v. Jerchich (In re Jercich), 238 F.3d 1202 (9th Cir. 2001). The BAP commented that the holding in Jercich that the debtor must intentionally commit the act with a substantial certainty that injury will occur is controlling and not at odds with Geiger. As such, the BAP confirmed that a specific intent to cause injury is not required to meet the "willful" standard under Section 523(a)(6) but rather, only a substantial certainty that injury will occur as found in Jercich.

Ninth Circuit Applies California Supreme Court's Holding in Carmack v. Reynolds, Holding That Spendthrift Trust Distributions Are Property of the Estate and Confirming the Types of Distributions Which Need to Be Turned Over

On August 16, 2017, the Ninth Circuit Court of Appeals, more than two years after it issued an order certifying a probate question to the California Supreme Court, held that a bankruptcy estate is entitled to the full amount of spendthrift trust distributions due to be paid as of the petition date. However, based on the California Supreme Court's opinion in Carmack v. Reynolds, 391 P.3d 625, 628 (Cal. 2017), the Ninth Circuit confirmed that the estate may not access any portion that the beneficiary needs for his/her support or education (so long as the trust specifies that is the purpose of the funds). See also Cal. Prob. Code § 15302. The Ninth Circuit further held that the bankruptcy estate may also reach 25 percent of expected future payments from the spendthrift trust, reduced by amounts needed by the beneficiary to support himself/herself and his/her dependents. Carmack v. Reynolds, 391 P.3d at 632; Cal. Prob. Code § 15306.5.

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