ILC E-Bulletin: 9th Cir. holds that disclaimer of inheritance is a=
Posted: Mon Jun 26, 2017 5:11 pm
Oh my, this opinionis potentially going toresult in a messy situation for some unfortunate debtor(s).
In Bensal, the 9th Circuit Court of Appeals reasons that FDCPA preempts state probate law and SBA had an interest in the disclaimed inheritance at the time of the disclaimer (under FDCPA - procedures not practices) where SBA hadbeen assigned a default judgment (no lien). Therefore,SBA could recover the disclaimed inheritance as a fraudulent transferunder FDCPA. Within the opinion, thecourt discussesDrye and Costas.
Drye involvedthe IRS havingan interestin (alien on) debtor's inheritance"within the meaning of thefederal tax lien statute"(which preempted state law) prior to the debtor's disclaimer of the interest in property, soSCOTUS allowed the IRSto unwind the disclaimer.
Costasinvolved abankruptcy trustee's attempt to recover,under 548, an inheritance which debtordisclaimed prepetition.ned that the estatedidn't acquire an interest inproperty on the petition date. However,there was no discussion of 544 in Costas.
Recall that 544 gives the chapter 7 trustee the right to recoverfraudulenttransfers under "applicable law" not just state law.
Recallthe recent bankruptcyopinion In re Kipnis, 2016 Westlaw 4543772 (Bankr. S.D. Fla.)(The IRSs 10 year statute of limitations period was used by the chapter 7 trustee to recover a fraudulent transfer where the IRS was an unsecured creditor in the case.)
FollowingBensal and Kipnis, what will prevent a chapter 7 trustee fromusing 544torecover disclaimed prepetition inheritancesat1) FDCPA governs collection of debts owed to Uncle Sam, 2)FDCPA preempts state law, and 3)Costas is distinguishable because it is limited to 548.
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On Mon Jun 26 2017 11:04:51 GMT-0700 (Pacific Daylight Time), mitnicklaw@aol.com [cdcbaa] wrote:
FYI ...
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Subject: ILC E-Bulletin: 9th Cir. holds that disclaimer of inheritance is avoidable by SBA despite state statute declaring disclaimers are not fraudulent transfers
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| June 26, 2017
Dear constituency list members of the Insolvency Law Committee,the following is a case update analyzing a recent case of interest:The following is a case update prepared by Professor Dan Schechter, Loyola Law School, Los Angeles, analyzing a recent decision of interest:SUMMARY: The Ninth Circuit has held that a guarantor's disclaimer of hisshare of an inheritance was avoidable by the SBA as a fraudulent transfer,despite a state statute declaring that disclaimers are not fraudulenttransfers. [United States Small Business Administration vs. Bensal,2017 Westlaw 1228572 (9th Cir).] FACTS: An individual issued a personal guaranteein favor of a lender, on behalf of his wholly-owned company. The loan wasguaranteed by the SBA. Following his default, the lender obtained a defaultjudgment and assigned it to the SBA. Several years later, the guarantor inherited a share in hisdeceased father's trust. Instead of accepting his inheritance, he signed adisclaimer, passing his share to his children and preventing his creditorsfrom accessing his trust share under California law. The SBA then sought to satisfy its default judgment and arguedthat the government was permitted to recover from his trust share, despitecontrary California law, on the theory that the disclaimer constituted afraudulent transfer. The district court ruled in favor of the SBA, and theNinth Circuit affirmed. REASONING: The court noted that under CaliforniaProbate Code 283, a disclaimer of an inheritance is not a fraudulenttransfer: "A disclaimer is not a voidable transfer by the beneficiaryunder the Uniform Voidable Transactions Act . . . ." However, the court held that under 28 U.S.C.A. 3003(d) of theFederal Debt Collection Procedures Act ("FDCPA"), state law is expresslypreempted: "This chapter shall preempt State law to the extent such lawis inconsistent with a provision of this chapter. Section 3304(a) ofthe FDCPA contains a provision stating that a transfer made by a debtor whileinsolvent is constructively fraudulent. The court noted that its ruling was consistent with the result inDrye vs. United States, 528 U.S. 49 (1999). The court alsodistinguished its own holding in In re Costas, 555 F.3d 790 (9th Cir.2009), on the ground that Costas involved a disclaimer executed priorto a bankruptcy filing, before the bankruptcy estate gained any interest inthe disclaimed assets. By contrast, the disclaimer in this case occurred longafter the guarantor incurred his debt to the SBA. AUTHOR'S COMMENT: It is hard to argue withexpress statutory preemption; this has to be the correct result. However, Iwonder if this decision arguably casts some doubt on the holding inCostas, at least in the context of a fraudulent transfer actionbrought under 548 of the Bankruptcy Code. Note that the language of thestate disclaimer statute, Probate Code 283, expressly addresses fraudulenttransfer actions brought under state law. That certainly would impair afraudulent transfer action brought by a trustee under 544(b).But the substantive portions of 548 do not contain any such provisionexempting inheritance disclaimers from the trustee's avoidance powers, and thelanguage of 548 tracks the language of the fraudulent transfer portions ofthe FDCPA. Admittedly, . But one would have to "borrow" the state statuteto insulate the disclaimer from attack under 548; yet 548 was designed to beindependent from the rules governing state law fraudulent transfer claims,unlike 544(b). One final grumble: it is very unfortunate that the Fair DebtCollection Practices Act and the Federal Debt Collection Procedures Act sharethe same acronym. The coincidence makes it somewhat more difficult to conductlegal research without obtaining a lot of irrelevant results. Mathematically,the chances that two distinct Congressional acts would randomly share the samefive letter acronym is 26 to the fifth power, since there are 26 possibleletters in the alphabet. (In other words, the odds are one in 11,881,376.)These materials were written by Professor Dan Schechter of Loyola LawSchool, Los Angeles, for his Commercial Finance Newsletter, published weeklyon Westlaw. Westlaw holds the copyright on these materials and has permittedthe Insolvency Law Committee to reprint them. Thank you for your continued support of the Committee. Best regards, Insolvency Law Committee Co-Chair Asa S. Hami SulmeyerKupetz, A Professional Corporation ahami@sulmeyerlaw.com Co-Chair Reno Fernandez Macdonald Fernandez LLP Reno@MacFern.com Co-Vice Chair Radmila A. Fulton Law Offices Radmila A. Fulton Radmila@RFultonLaw.com Co-Vice Chair John N. Tedford, IV Danning, Gill, Diamond & Kollitz, LLP JTedford@dgdk.com Want to connect?
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