Central District Consumer Bankruptcy Attorney's Association

Hello,
This is a tricky case.
In the Chapter 7 a creditor's $100,000 fraudulent lien against real
property was avoided by the chapter 7 trustee. The case has now been
converted to Chapter 13.
The "fraudulent transfer" was not voluntary on the part of the debtor and
she did disclose it in her bankruptcy papers, so under section 522(g)(1)
the Debtor should be entitled to her homestead exemption. (Under
522(g)(1), a debtor may claim an exemption where the trustee has recovered
property under 510(c)(2), 542, 543, 550, 551 or 553 only if (1) the
property was involuntarily transferred, and (2) the debtor did not conceal
the transfer or an interest in the property. *See* *Hitt v. Glass (In re
Glass)*, 164 B.R. 759, 761 (9th Cir. BAP 1994), *aff'd*, 60 F.3d 565 (9th
Cir. 1995).)
However, I need to confirm that being able to claim her homestead means
that her interest comes before that of the 551 recovered estate property,
and I am unclear whether that is the case. Normally, if the Debtor had
participated in the fraud and the trustee recovered the asset for the
estate under 551, the trustee's interest would jump ahead of the homestead.
(See In re Van de Kamp Dutch Bakeries, 908 F.2d 517 (1990). Here, we have a
converted case (no more chapter 7 trustee), and the debtor did not do
anything wrong.
If the debtor is entitled to her homestead under 522(g)(1), does it trump
the avoided fraudulent transfer, or do I need to make some equitable
subordination argument under 510(c) to subordinate the 551 recovery?
Your thoughts are appreciated!
Holly Roark
Certified Bankruptcy Specialist*
*and Sports Lawyer*
holly@roarklawoffices.com **primary email address**
www.roarklawoffices.com
Central District of California
Consumer Bankruptcy Attorney
1875 Century Park East, Suite 600
Los Angeles, CA 90067
T (310) 553-2600
F (310) 553-2601
*By State Bar of California Board of Legal Specialization
**For a quicker response, email me at holly@roarklawoffices.com.
I only use gmail for my listservs, and am likely to miss private emails
directed to my gmail account.**
Hello,This is a tricky case.In the Chapter 7 a creditor's $100,000 fraudulent lien against real property was avoided by the chapter 7 trustee. The case has now been converted to Chapter 13.
The "fraudulent transfer" was not voluntary on the part of the debtor and she did disclose it in her bankruptcy papers, so under section 522(g)(1) the Debtor should be entitled to her homestead exemption. (Under 522(g)(1), a debtor may claim an
exemption where the trustee has recovered property under 510(c)(2), 542,
543, 550, 551 or 553 only if (1) the
property was involuntarily transferred, and (2) the debtor did not conceal the
transfer or an interest in the property. See Hitt v. Glass (In re
Glass), 164 B.R. 759, 761 (9th Cir. BAP 1994), aff'd, 60 F.3d 565
(9th Cir. 1995).)However, I need to confirm that being able to claim her homestead means that her interest comes before that of the 551 recovered estate property, and I am unclear whether that is the case. Normally, if the Debtor had participated in the fraud and the trustee recovered the asset for the estate under 551, the trustee's interest would jump ahead of the homestead. (See In re Van de Kamp Dutch Bakeries, 908 F.2d 517 (1990). Here, we have a converted case (no more chapter 7 trustee), and the debtor did not do anything wrong.
If the debtor is entitled to her homestead under 522(g)(1), does it trump the avoided fraudulent transfer, or do I need to make some equitable subordination argument under 510(c) to subordinate the 551 recovery?
Your thoughts are appreciated!Holly RoarkCertified Bankruptcy Specialist*and Sports Lawyer
holly@roarklawoffices.com**primary email address**
www.roarklawoffices.com
Central District of California
Consumer Bankruptcy Attorney
1875 Century Park East, Suite 600
Los Angeles, CA 90067
T (310) 553-2600
F (310) 553-2601
*By State Bar of California Board of Legal
Specialization
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