The Law of Excessive Force and Police Shootings

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As much as we all want the world to fit into what our minds eye believes the world should be it will never happen. On the lighter side I cannot understand why people drive so fast into a red stop light. On the more distressing side I cannot understand why people are shot dead under certain circumstances. I am not going to get into specific situations other than the circumstances in the Ninth Circuit Court of Appeals decision discussed in this article. The question we should all be focusing on is “Was the police killing a case of excessive force under the law?” I am not trying to make a political statement or stir anything up. It is has been stirred up my entire life. I just get tired of people throwing around language about this issue without knowing the law about it (excessive force by police) in violation of the Fourth Amendment. That said, I cannot imagine being a police officer and trying to make split second decisions regarding life and death. The Ninth Circuit Court of Appeals held the shooting was not justified or reasonable. The Orange County District Attorney’s office did not file criminal charges against the shooting officer and held the shooting was justified and reasonable.

You can now be the judge.

A.K.H., a minor by and through her Guardian Ad Litem Elizabeth Landeros et. al. vs. City of Tustin et. al.; Case No. 14-55184; Date filed September 16, 2016

This appeal is about an officer involved shooting of an unarmed man in Tustin, California in 2011. After the shooting of Benny Herrera, the officer who shot Mr. Herrera tried to get summary judgment in his favor in a civil case against him and the City of Tustin by arguing he cannot be prosecuted based upon “qualified immunity.” Qualified immunity more or less is the doctrine saying I was just doing my job so I should not be held civilly liable for money damages to alleged victims. This civil lawsuit, for money, is by the relatives of Mr. Herrera under 42 U.S.C. Section 1983 (Civil Action for Deprivation of Rights). Section 1983 provides as follows:

“Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, except that in any action brought against a judicial officer for an act or omission taken in such officer’s judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated or declaratory relief was unavailable. For the purposes of this section, any Act of Congress applicable exclusively to the District of Columbia shall be considered to be a statute of the District of Columbia.”

The Circumstances and Facts of the Herrera Shooting

This unfortunate sequence of events is initiated because of an argument about a cellphone. It starts with a call from Mr. Herrera’s girlfriend who told police Mr. Herrera had “jacked” her phone. Initially the girlfriend said there was no physical contact, but later in the phone call said Mr. Herrera hit her in the head when they were arguing about the cellphone. The girlfriend said she was fine, her kids were fine and there was no need for medical attention. The girlfriend told dispatch that Mr. Herrera had no weapons, was not known to use weapons and had never been violent with her before. The girlfriend said Mr. Herrera was walking on El Camino towards Redhill to catch a bus. This information was reported by dispatch to responding officers along with Mr. Herrera was “shown in-house to be a member of the “Southside Gang“ and that there was possibly a $35,000 traffic warrant out for Herrera’s arrest. The dispatcher reported, further, that Herrera was on “parole for 11350,” a reference to a state drug possession crime. See Cal. Health & Safety Code § 11350.

When the first police officer on scene made contact with Mr. Herrera the officer turned on his patrol vehicle lights. Mr. Herrera responded by putting his right hand in his hoodie pocket and walking backwards into the middle of the road away from the patrol vehicle. Prior to the second officer boxing Mr. Herrera in the first officer told Mr. Herrera three times on the loud speaking to get down. Mr. Herrera did not comply and continued down the road. The second officer arrived on scene, the shooter, and used his patrol vehicle to box in Mr. Herrera to prevent escape. The first officer had his vehicle door open and weapon drawn since coming into contact with Mr. Herrera. Now the shooting officer had his door open and weapon drawn to the side of Mr. Herrera to box him in. As Mr. Herrera moved towards the shooting officer’s vehicle the shooting officer told Mr. Herrera to “get your hand out of your pocket.” Mr. Herrera complied and removed his right hand from his pocket in an arching motion and placed his hand over his head. Just as Mr. Herrera’s hand came out of his pocket the shooting officer fired two shots in rapid succession without any warning to Mr. Herrera. Both of the officers on scene stated they did not see anything in Mr. Herrera’s hands. The shooting officer testified he shot Mr. Herrera because he believed Mr. Herrera had a weapon and was going to use the weapon on the shooting officer. The dashboard camera from the shooting officer’s patrol car showed the command to get your hand out of your pocket and the two shots were almost simultaneous, separated by less than a second. The total time from when the first officer made contact with Mr. Herrera to when the shooting officer shot Mr. Herrera was less than one minute. The officer who shot Mr. Herrera did not claim he saw, or thought he saw Mr. Herrera with a weapon.

Fourth Amendment Law Regarding Excessive Force

In determining whether the shooting officer is entitle to qualified immunity to obtain a judgment in his favor and not against him for excessive force the Ninth Circuit Court of Appeals asked two questions:

(1) Did the shooting officer use excessive force in violation of the Fourth Amendment?

Bryan v. MacPherson, 630 F.3d 805, 823 (9th Cir. 2010)

(2) If the shooting officer uses excessive force, did he violate a clearly established right?

Bryan v. MacPherson, 630 F.3d 805, 823 (9th Cir. 2010)

Excessive force claims are analyzed under the Fourth Amendment of the United State Constitution.

Graham v. Connor, 490 U.S. 386, 388 (1989)
Tennessee v. Garner, 471 U.S. 1, 7 (1985)

The analysis of the shooting officer’s actions is, “are the actions ‘objectively reasonable’ in light of the facts and circumstances confronting them without taking into account the underlying intent or motivation?”

Graham v. Connor, 490 U.S. 386, 397 (1989)

To determine reasonableness of the shooting officer’s actions the court must balance the nature and quality of the intrusion on the individual’s Fourth Amendment interest against the importance of the governmental interest alleged to justify the intrusion.

Tennessee v. Garner, 471 U.S. 1, 8 (1985)
United States v. Place, 462 U.S. 696, 703 (1983)

The court must look at the totality of the circumstances paying close attention to the severity of the crime at issue, whether the suspect poses an immediate threat to the safety of the officers or others, whether he is actively resisting arrest or attempting to evade arrest by flight.

Tennessee v. Garner, 471 U.S. 1, 9 (1985)
Graham v. Connor, 490 U.S. 386, 396 (1989)

The most important factor is whether the suspect posed an immediate threat to the safety of the officers or others.

Mattos v. Agarano, 661 F.3d 433, 441(9th Cir. 2011) (en banc) (Quoting Smith v. City of Hemet, 394 F.3d 689,702(9th Cir. 2005) (en banc))

Deadly force is only allowed if a suspect threatens the officer with an actual weapon or there is probable cause to believe that the suspect committed a crime involving the infliction or threatened infliction of serious physical harm.

Tennessee v. Garner, 471 U.S. 1, 11 (1985)

Ninth Circuit Court of Appeals Analysis

In this case the court of appeals pulled no punches. The appeals court held the shooting officer’s intrusion on Mr. Herrera’s Fourth Amendment interest was extreme. In this case the government’s interest was not sufficient for use of deadly force. The crime at issue here was a domestic dispute the ended before the police became involved.

The Ninth Circuit Court of Appeals denied qualified immunity in the Smith case to officers who used pepper spray and a dog to subdue and arrest a suspect, even though the suspect was reported to have “hit” or become “physical” with his wife.

Smith v. City of Hemet, 394 F.3d 689,702-703 (9th Cir. 2005)

The use of force is especially difficult to justify when “the domestic dispute is seemingly over by the time the officers begin their investigation.” Denied qualified immunity in an excessive force case partly because the victim of the domestic disturbance “was unscathed and not in jeopardy when deputies arrived.”

George v. Morris, 736 F.3d 829, 839 (9th Cir.2013)

Officer denied qualified immunity partly because, by the time the officers arrived, the suspect was standing on his porch alone and separated from his wife.

Smith v. City of Hemet, 394 F.3d 689,702-703 (9th Cir. 2005)

The Ninth Circuit Court of Appeals held that the shooting officer came upon Mr. Herrera away from the scene of the alleged domestic dispute and Mr. Herrera did not pose an immediate threat to the safety of officers or others. It was clear that the alleged domestic dispute was over and Mr. Herrera posed no threat to his girlfriend. It is important to note that the law requires the Ninth Circuit Court of Appeals to view the evidence in a light most favorable to the plaintiffs and not the shooting officer or the City of Tustin. Again, you can be your own judge based upon the facts. So, now to the most important part of the Ninth Circuit Court of Appeals decision, they held that the shooting officer could not have reasonably believed Mr. Herrera posed a threat.

In addition, the dispatcher told the officers Mr. Herrera was not armed or known to use weapons. The Ninth Circuit Court of Appease noted Mr. Herrera had prior run-ins with the law, but those were minor incidents that did not involve violence or gun possession.

Even if Mr. Herrera was actively resisting or attempting to evade an investigatory stop, the Ninth Circuit Court of Appeals held this factor only slightly favors the government and shooting officer. Mr. Herrera did not stop upon being requested to or get on the ground as requested. At the same time Mr. Herrera never attempted to cross the road or flee. Mr. Herrera just stayed on his same course.

Deorle v. Rutherford, 272 F.3d 1272, 1278 (9thCir. 2001)

The most important factor was the fact that the shooting officer escalated to deadly force so quickly. The shooting officer commanded Mr. Herrera to remove his hand from his pocket almost immediately upon contact then shot Mr. Herrera just as Mr. Herrera was taking his hand out of his right pocket. The shooting officer did not wait to see if anything was actually in Mr. Herrera’s hand before shooting him twice. To summarize:

1. No serious crime reported;
2. No indication a weapon was involved;
3. Dispatch said suspect not known to carry weapons;
4. Mr. Herrera was sought to be detained and not arrested;
5. Mr. Herrera complied with the shooting officers command to remove his hand;
6. The removal of hand from pocket and shooting were virtually simultaneous;
7. The shooting officer gave no warning he was going to shoot;
8. Mr. Herrera never verbally threatened the officers.

But Was There An Established Right To Fourth Amendment Protection
At The Time of The Violation?

So after all of that analysis and a finding there was excessive force, there is still the issue of whether Mr. Herrera had a clearly established right to protection by the Fourth Amendment?

Espinosa v. City & Cty. of San Francisco, 598 F.3d 528, 532 (9th Cir. 2010) (citing Saucier v.Katz,533 U.S. 194, 201 (2001))

Just in case you did not know, just because you are in the United State of America does not mean you are entitle to all of the protections the U.S. Constitution provides you. You have almost no constitutional rights at airports (search and seizure), military bases and other places where national security is at issue.

The Ninth Circuit Court of Appeals held that Mr. Herrara did in fact have an established right to the Fourth Amendment at the time of the violation. To summarize, underlying call to the police did not involve the use of serious or deadly force. It was about a cellphone. Also, the shooting officer did not have any articulable basis to think Mr. Herrera was armed.

Conclusion

The Ninth Circuit Court of Appeals concluded that is has been a long standing principle that a police officer may not seize an unarmed, nondangerous suspect by shooting him dead.

Tennessee v. Garner, 471 U.S. 1, 11 (1985)

So next time you get into it with someone about a police shooting use the law and factors listed in this article to back up your argument whether the shooting by the police is justified under the circumstances.

How to Properly Request a Temporary Waiver or Exemption From the Credit Counseling Course Requirement

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If you are considering filing for bankruptcy protection and are researching how to request an exemption or waiver of the credit counseling course requirement for some exigent circumstance, just stop now. Making this request is a huge red flag on your bankruptcy case. Stop wasting your time and go on the internet and just do yourself a favor and complete the Credit Counseling course right now. Then come back and read the rest of this article. You will thank me later. 11 U.S.C. Section 521(b) requires debtors file with the court a certificate from the approved nonprofit budget and credit counseling agency that provided the debtor services under Section 109(h) describing the services provided to the debtor; a Credit Counseling Certificate of completion.

If you retained a bankruptcy attorney that is recommending that you not complete the credit counseling course and request an exemption or waiver please run away from that attorney as fast as you can. Our job is not to complicate the circumstances you are already dealing with. Not completing the credit counseling course is just asking for trouble. Look, yes, there are exceptions or circumstances where an exemption or waiver can be granted, but generally requesting an exemption or waiver of the credit counseling course requirement is not normal and rare. If I see a case that involves requesting any sort of exemption or waiver, without knowing any more information than that case, I already know the case has problems and the likelihood that the bankruptcy case will go smoothly is very little.

Incapacity or Disability Pursuant to Section 109(h)(4)

Please do not confuse Exigent Circumstances with actual Incapacity or Disability. 11 U.S.C. Section 109(h) waives the credit counseling course requirement for someone who is incapacitated due to incapacity, disability, or active military duty in a military combat zone. The credit counseling course can then be waived only after notice and a hearing though. You must file and serve a motion, declaration in support and notice of the hearing date and time. You are talking about anywhere from $500.00 to $1,200.00 in additional attorneys’ fees and costs. Incapacity means that the bankruptcy filer is impaired by reason of mental illness or mental deficiency so that he is incapable of realizing and making rational decisions with respect to his financial responsibilities. Disability means that the bankruptcy filer is so physically impaired as to be unable, after reasonable effort, to participate in an in person, telephone or internet briefing required under Section 109(h)(1).

Exigent Circumstances Pursuant to Section 109(h)(3)

So, for those of you who are not incapacitated, disabled or in an active military combat zone and do not follow my advice above, the following is how to actually request an exemption or temporary waiver regarding the credit counseling course requirement due to some exigent circumstance. I am not going to get into details about what an exigent circumstance is though. I truthfully do not know of any. Ms. Lin and I have filed over a thousand bankruptcy cases and every single one of our clients was able to fulfill the requirement to complete the credit counseling course prior to the case being filed.

The Three Part Test

All three parts of the test must be completed given the language of Section 109(h)(3) provides the three parts are conjunctive, not disjunctive.

1. The bankruptcy filer’s certification must describe the exigent circumstances meriting a waiver of the credit counseling requirement. 11 U.S.C. §109(h)(3)(A)(i)

2. The certification must provide the bankruptcy filer requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the service referred to in Section 109(h)(1) during the 7-day period beginning on the date on which the bankruptcy filer made that request. 11 U.S.C. §109(h)(3)(A)(ii)

3. Then the request must be satisfactory to the court. 11 U.S.C. §109(h)(3)(A)(iii)
Part 1 and 2 will be the most difficult parts of the test to satisfy. First you have to actually have some sort of exigent circumstance that prevents you from being able to complete the credit counseling course requirement. Then the court gets to evaluate whether the exigent circumstance and request for temporary exemption or waiver is satisfactory to the court.

Your home being subject to foreclosure sale should not usually be an exigent circumstance. Some other civil court lawsuit pending in another court should not usually be an exigent circumstance. Your vehicle about to be repossessed should not usually be an exigent circumstance. Facing eviction due to an unlawful detainer suit filed against you should not usually be an exigent circumstance. Again, I cannot really say what is an exigent circumstance warranting a temporary waiver of the credit counseling course requirement. I know the following list has been denied an exemption or temporary waiver in actual cases filed.

In re Davenport, 335 B.R. 218, 221 (Bankr.M.D.Fla.2005)
In re Watson, 332 B.R. 740, 745 (Bankr.E.D.Va.2005)
In re Hubbard, 332 B.R. 285, 289 (Bankr.S.D.Tex.2005)
In re Gee, 332 B.R. 602, 604 (Bankr.W.D.Mo.2005)
In re Wallert, 332 B.R. 884, 891 (
In re LaPorta, 332 B.R. 879, 883 (Bankr.N.D.Minn.2005)

The long and the short of it is just complete the credit counseling course requirement as soon as you start considering bankruptcy as an option. It does not take that long and you may learn something that is helpful. That was the entire point of the two required courses being created to begin with. You are provided information before you can file bankruptcy in the first course then additional information in the second course to obtain a discharge in your bankruptcy case.

What Should I Do If I Have Unfiled Tax Returns?

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You must file the late or unfiled tax return as soon as possible no matter how difficult and unpleasant going through that process is for you. I will be providing a number of reasons below for why it is so important to file tax returns on time, or as soon as humanly possible if you miss the deadline to file the tax return. Filing for an extension kicks the can down the road, but at least you will not miss the deadline or be considered to have an unfiled tax return.

As a bankruptcy attorney I have been part of thousands of bankruptcy cases in one shape or form at this point I am of the opinion that most people do not timely file returns because they will owe a significant amount of taxes. A little known fact is that most of our bankruptcy cases whether Chapter 7, Chapter 13 or Chapter 11 involve taxes that are owed to either the Internal Revenue Service or here in California the Franchise Tax Board. TAXES CAN BE DISCHARGED IN BANKRUPTCY. Almost every celebrity bankruptcy involves unpaid taxes. Read some of my other articles about celebrity bankruptcy cases like actress Teri Polo or actor Gary Busey and on and on. Just Google celebrity bankruptcy and Ryan C. Wood. Not filing a tax return for a year you owe taxes is the single worst thing you can do even if you know you are going to owe taxes that you cannot pay immediately. Even if you are going to owe so much you cannot possibly pay the taxes you still need to file your tax returns on time every time to get the best treatment for repayment. When you do not file a tax return on time it starts a chain of events that are designed to make it extremely difficult to get rid of the taxes owed. Please note there is a statute of limitations for taxes owed to the IRS, but that statute of limitations can be suspended or altered depending upon your circumstances and this article is not addressing issues related to the statute of limitations.

Do not wait to for the IRS to take action.  File your unfiled returns.

Do not wait to for the IRS to take action. File your unfiled returns.

Do Not Ignore Notices From The IRS

First off, yes, life is not easy and for whatever reason you did not file your tax return on time. The IRS will give you notice after notice to file your return on your own. If you ignore these notices this will be a big factor in what I will be wrapping this article up with about Substitute File Returns or an SFR. You will be given all kinds of chances to file a tax return even after the deadline to file the return and pay any taxes owed has long passed. Do not ignore the notices you receive in the mail. You will not get a phone call. You will get notices in the mail that you must read and respond to. I tell client after client that you do not want to be in the pile of files that is for people who are not communicating with the IRS. You want to be in the pile of files for people who are communicating with the IRS and working the problem. I know it is not easy. You have to address the problem sooner than later for someone like me to someday make it all go away forever.

So, Have You Ever Heard of a Substitute Filed Return?

I hope for your sake this is the first time you have heard of this. You do not want this period. A Substitute Filed Return (SFR) is what the IRS puts together as best they can with the information they have to file a tax return on your behalf for a tax year you did not file a tax return for. The IRS will only file a SFR when you have ignored them over and over again. The IRS even knows the numbers they use are not completely accurate. The IRS knows certain deductions will not be made and potentially income not counted. The result is a SFR filed by the IRS on your behalf that everyone knows is not completely accurate, but nonetheless you get assessed the amount of taxes they say you owe in the SFR. Once the taxes on the SFR have been assessed you will then be given more notices about your rights to object to the assessed taxes and correct any errors. Again, do not ignore notices in the mail you receive from the IRS. If you again do nothing you have more or less sealed your fate

Why Substitute Filed Returns Are So Dangerous

In my bankruptcy attorney world SFR’s are very dangerous given the current interpretation of the law and whether the taxes owed and assessed from a SFR are ever dischargeable when filing for bankruptcy protection. You have to understand that when all else fails, us bankruptcy attorneys ultimately clean up the mess once and for all, if the law allows. Long story short you should file a tax return for a year the IRS already filed a SFR on your behalf. You must correct their numbers, add income, add deductions and more or less make the return accurate and the amount of taxes you owe accurate. This could lead to the amount of taxes owed to decrease or increase. But what happens to the taxes owed and assessed from a SFR if you file bankruptcy? As mentioned before taxes absolutely can be discharged when filing bankruptcy if the taxes meet certain requirements. The problem right now is that the Ninth Circuit Court of Appeals agreed with the Internal Revenue Service’s interpretation of what the definition of a “return” is when you file your own return after the IRS files a SFR on your behalf. Let me back up a little. The Bankruptcy Code addresses late filed returns and this is part of the issue I am discussing. Taxes owed for a late filed return can in theory be discharged under the Bankruptcy Code, but the requirements are even more narrow or stringent than when a return is filed on time and there are taxes owed. That is the short of it. So, the definition of what constitutes a “return” under the Bankruptcy Code is the issue. The Ninth Circuit Court of Appeals held that the tax return you file with the correct income, correct deductions and therefore correct amount of taxes actually owed may not be a “return” for bankruptcy purposes given this filed return is not an honest and reasonable attempt to comply with the tax laws since the return was late filed . . . . . . Well, that is unfortunately one way to interpret the law and right now that is it. Let me back up again. So you did not file a return, the IRS filed a SFR on your behalf and assessed you some made up amount of taxes, then you file an accurate return to correct the numbers in the SFR and if and when you seek to discharge these taxes owed according to the accurate return you just filed you may not be able to because the fact that the return was late filed and filed after the SFR has been interpreted that your accurate filed return is not an honest and reasonable attempt to comply with applicable tax laws and therefore not a “return” under the bankruptcy code so the taxes owed for that year cannot be discharged. Did that make sense to you? Let me try again. To allow taxes owed for a late filed return to be discharged when filing bankruptcy there has to be a “return” filed. See Bankruptcy Code §523(a)(1)(B)(i).
All this mess of analysis will take place because you did not timely file your tax return. If you had timely filed that tax return the taxes could easily be discharged when filing for bankruptcy protection, assuming the taxes owed meet the normal requirements to be discharged. The IRS will argue that the SFR assessed taxes will not be part of the “return” you later file that actually has the accurate information. You will forever be in the category of a SFR was filed and now there is an issue as to whether your return filed after the SFR is an honest and reasonable attempt to comply with the applicable tax laws. So far convincing the appellate courts that the later filed return is a “return” under the bankruptcy code has not been very successful. It is truly a fact based analysis on a case by case basis. So, again, file your tax returns on time even if you will owe a lot of taxes and if you miss the deadline to file the return or extended deadline to file the return file your return as soon as you can. Do not let the IRS file a Substitute Filed Return on your behalf.

Did A Creditor Violate The Bankruptcy Discharge By Suing The Debtors After Discharge?

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Apparently it depends upon the terminology used in the lawsuit and a demand for attorney fees and costs. A recent Ninth Circuit Bankruptcy Appellate Panel published opinion discusses this issue. Desert Pine Villas Homeowners vs. Gil Kabiling; Linda Kabiling (BAP No. NV-15-1380-BDF) Discrimination happens for all kinds of reasons unfortunately. One reason discrimination is not supposed to happen is when you seek bankruptcy protection and obtain a discharge of eligible debts. There are a number of issues in this case, but the outcome of the case is creditors should not use language in lawsuits or other documents post-discharge that disparage a debtor or do not accurately communicate the legal relationship post-discharge. A creditor cannot try and obtain attorneys’ fees and costs post-discharge for a claim that arose before the bankruptcy petition was filed. In this case it all started when the Kabiling’s defaulted on paying their homeowner association assessments for a property located in Las Vegas, Nevada. The Kabilings’ obtained a discharge of their debts in Chapter 7 after the defaults and therefore their personal liability no longer exists for the defaulted homeowner association dues. Generally in most states a homeowner association can attach a lien for the unpaid homeowner association dues and then enforce that lien post-discharge since the lien is not discharged, just the personal liability for paying the pre-petition unpaid homeowner association dues. A homeowner association can also foreclose on the home under state law for unpaid homeowner association dues. Each state has different laws about homeowner association dues and the legal rights involved with collecting unpaid dues. The is not a huge issue in this case, but you need to know your state law in this area as it relates to Section 523(a)(16) of the Bankruptcy Code. Section 513(a)(16) makes post-discharge unpaid homeowner association dues not dischargeable.

The Desert Pine Villas Lawsuit Against Kabiling

On February 1, 2011, the Kabilings’ bankruptcy attorney filed a voluntary chapter 7 petition on their behalf along with a statement of intention asserting that they would abandon the Property. Notice of the Kabilings discharge was mailed to creditors on June 30, 2011. Desert Pines nonjudicially foreclosed on its homeowner association liens in 2013 and thereby acquired title to the Kabilings property. On December 15, 2014, in the District Court for Clark County Nevada, Desert Pines, through its counsel, Alessi & Koenig, filed a complaint against the Kabilings and three additional named defendants seeking to quiet title to the foreclosed property and confirm that Desert Pines held good title to the Kabiling property based on its nonjudicial foreclosure in 2013. Just to be clear, Desert Pine Villas already foreclosed on the Kabiling property under Nevada state law, so why did they need to file an additional lawsuit to quiet title to the already foreclosed property? There could be facts regarding the other named parties in the lawsuit that are not included in the record of this case.

The Kabilings were served with the lawsuit and then retained counsel to inform Desert Pine Villas they violated the discharge injunction by filing the lawsuit against them. Attorneys for Desert Pine Villas of course denied violating the discharge injunction so the Kabilings attorney reopened their Chapter 7 bankruptcy case and filed a motion for contempt against Desert Pine Villas. The bankruptcy court agreed with the Kabilings and found Desert Pine Villas in contempt of court and held Desert Pine Villas liable for the Kabilings’ compensatory damages in the amount of $8,928.00.

The Law In Desert Pine Villas Appeal

A violation of the discharge injunction is enforced through the court’s civil contempt authority under section 105(a). Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1069 (9th Cir. 2002). The debtor has the burden of proving, by clear and convincing evidence, that the offending creditor knowingly and willfully violated the discharge injunction. The offending creditor acts knowingly and willfully if (1) it knew the discharge injunction was applicable and (2) it intended the actions which violated the injunction. ZiLOG, Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 996, 1007 (9th Cir. 2006). Actual knowledge of the discharge injunction does not end the inquiry, however, as the creditor also must be aware that its claim against the debtor was subject to the discharge injunction. Emmert v. Taggart (In re Taggart), 548 B.R. 275, 288 (9th Cir. BAP 2016). The focus is on whether the creditor’s conduct violated the injunction and whether that conduct was intentional; it does not require a specific intent to violate the injunction. Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1191 (9th Cir. 2003) (citing Hardy v. United States (In re Hardy), 97 F.3d 1384, 1390 (11th Cir.1996); and Havelock v. Taxel (In re Pace), 67 F.3d 187, 191 (9th Cir. 1995)).

A chapter 7 discharge releases the debtor from personal liability for debts arising “before the date of the order for relief under this chapter.” § 727(b). A “debt” means a liability on a claim. § 101(12). Federal law determines whether such claim arose prepetition or postpetition. SNTL Corp. v. Centre Ins. Co. (In re SNTL Corp.), 571 F.3d 826, 839 (9th Cir. 2009); ZiLOG, 450 F.3d at 1000. The general rule in the Ninth Circuit is that “a claim arises, for purposes of discharge in bankruptcy, at the time of the events giving rise to the claim, not at the time the plaintiff is first able to file suit on the claim.” O’Loghlin v. Cty. of Orange, 229 F.3d 871, 874 (9th Cir. 2000).

9th Circuit Bankruptcy Appellant Panels Analysis

The Ninth Circuit BAP found the bankruptcy court applied and then held an evidentiary hearing to allow for testimony on the contempt motion properly. the bankruptcy court’s conclusion that The 9th Circuit BAP also found that Desert Pine Villas knew that the discharge order applied to its prepetition claims against the Kabilings is supported by the record and is neither illogical nor implausible. The Ninth Circuit BAP also found that during oral argument at the June 30, 2015 hearing on the motion for contempt, counsel for Desert Pines specifically admitted that Desert Pines filed the Complaint in the Quiet Title Action, that it named the Debtors as defendants, and that it sought recovery of attorneys’ fees and costs. Thus, the record supports the bankruptcy court’s conclusion that Desert Pine Villas intended to file the quiet title action and the only remaining question is whether the filing of the complaint violated the discharge order.

The mere filing of a complaint against a debtor by a prepetition creditor does not necessarily violate the discharge injunction. For example, pursuing a post-discharge lawsuit in which the debtor is named as a putative party to collect from a collateral source, such as an insurance policy or an uninsured employers’ fund, does not violate section 524 provided “the plaintiff makes it clear that it is not naming the debtor as a party for anything other than formal reasons.” Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546, 550 (9th Cir. BAP 2002) (citing Patronite v. Beeney (In re Beeney), 142 B.R. 360, 363 (9th Cir. BAP 1992)).

Ninth Circuit Bankruptcy Appellate Panels Findings

The complaint filed by Desert Pines Villas did not provide anything about how the Kabilings failed to pay pre-petition HOA dues and that this default was discharged in their chapter 7 bankruptcy case. The 9th Circuit BAP also noted the Kabilings were not listed as just putative parties in the lawsuit and that the Kabilings were not being looked to for amounts listed in the complaint, such as attorneys’ fees and costs for bringing the lawsuit to quite title. The Ninth Circuit BAP continues to lambast Desert Pines Villas, “To the contrary, the Complaint alleges that Desert Pines was required to incur attorneys’ fees to file the action and prays for a fee award against each of the named defendants, including the Debtors.”

Desert Pine Villas tried to argue that there is no bar to seeking attorneys’ fees and costs in a post-discharge lawsuit. While potentially true see the above law regarding claims and when a claim arises under 9th Circuit law. The Ninth Cir. BAP clearly held that Desert Pine Villas made no distinction in their complaint between prepetition or post-petition claims they have or had against the Kabilings. The complaint reads like Desert Pine Villas is seeking redress for prepetition events or prepetition claims. The Desert Pine Villas complaint also did not identify any post-petition conduct by the Kabilings, a post-petition default by the Kabilings or any post-petition contract between Desert Villa Pines and the Kabilings in Desert Pine Villas quite title complaint.

Exception to Creditors Right to Post-Petition Attorneys’ Fees and Costs On a Pre-Petition Claim

There are a number of cases on this issue. The argument goes if a debtor starts the fight post-petition and returns to the fray, then a creditor has a right to seek attorneys’ fees and costs defending itself of dealing with the issue even though the issue arose about a pre-petition claim. Boeing N. Am., Inc., v. Ybarra (In re Ybarra), 424 F.3d 1018, 1026 (9th Cir. 2005).

Conclusion

Bankruptcy attorneys beware. If a creditor files some sort of post-petition or post-discharge complaint against your client and the facts of the complaint only include facts that are from pre-petition events and claims there could be a violation of Section 524. More time spent in drafting the complaint to quiet title could have solved this problem. It sounds like from the provided correspondence the attorney for the Kabilings did reach out to the Desert Pine Villas attorney about this issue to no avail. Desert Pine Villas could have just amended the complaint and changed the prayer or facts listed in the complaint and did not.

Current Proof of Claim Procedures in Bankruptcy Need to be Improved

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Proofs of claims are how people or businesses prove in bankruptcy cases the amount they are owed to get paid money from the bankruptcy estate of the person or company that filed for bankruptcy protection. Federal Rule of Bankruptcy Procedure 3001 (Proof of Claim) provides the rules and procedure for filing a proof of claim. A claim can be secured, priority unsecured or a general unsecured claim. The type of claim determines what the creditor is paid, if anything, through the bankruptcy estate. Since proofs of claims are always filed in chapter 13 reorganization cases that is what this article will focus on.

FRBP 3001 Prima Facie Proof of Claim

How FRBP 3001 works is the rule lists the documentation or evidence necessary to prove the amount owed for different types of claims. If the claim includes the proper documentation then it is assumed that the filed claim is prima facie proof as to the validity of the claim. This means that the amount of the claim provided by the person or company owed in the filed claim is automatically allowed and deemed valid assuming the proper documentation is provided. This is part of the problem. The claim itself might not be allowable, there may not be proper documentation of the interest or additional fees included in the claim, the amount of the claim could be wrong and other potential documentation problems. See FRBP 3001(f): Evidentiary Effect. A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.

Okay, well, who determines that the documentation filed with the claim is in accordance with FRBP 3001? In the beginning when the claim is filed it is the creditor filing the claim. Creditors are not supposed to file claims if the claim is not properly supported by evidence. That is not how it is in the real world. In the real world creditors and third party collection agencies file invalid claims all the time by simple mistake or potentially to see if they can get away with it and be paid money they are not legally entitled to. So initially the creditor can file a claim and do whatever they want regarding the documentation. After the proof of claim is filed the burden shifts to the bankruptcy filer to object to the validity of the claim or documentation supporting the validity of the filed claim.

There is No Incentive For a Creditor to Not File an Invalid Claim

Unfortunately for bankruptcy lawyers the law in this area is far from favorable. The courts have more or less said that is the bankruptcy filer’s responsibility to object to invalid or fraudulent filed claims.For Example: In a Chapter 13 case the debtor owes American Express $7,500 and the statute of limitations under California law of four years has expired. Every debt or claim has a time limitation in which the debt must be enforced or the holder of the debt loses their right to enforce the debt. Not paying a credit card is a breach of contract with a statute of limitations of four years under California law. What happens is American Express sells the debt to a third party collector so AMEX can get some money out of the debt. In our example let us say the last payment was made by the bankruptcy filer on January 1, 2010, and the bankruptcy filer filed for Chapter 13 Bankruptcy on January 30, 2014, over four years after breach of the contract. So the statute of limitations has expired under California law and the debt is no longer legally enforceable. So what does the third party collection agency do? They file a proof of claim for the $7,500 even though the claim is no longer enforceable given the statute of limitations has expired. Now the bankruptcy filer must object to the claim wasting valuable time and money. In this example where the bankruptcy attorney should receive their attorneys’ fees and costs for successfully objecting to and disallowing the fraudulent claim. That is an uphill battle though in California anyway. See Cal. Civ. Code § 1717(a). The effect of section 1717 is to make reciprocal an otherwise unilateral contractual obligation to pay attorney’s fees. Santisas v. Goodin, 17 Cal. 4th 599, 610–11 (1998). Depending upon the circumstances just filing an objection to the claim and succeeding may not be enough to be award attorneys’ fees and costs under FRBP 3001(c)(2)(D)(i)or(ii).

What Must be Proven to be Awarded Attorneys’ Fees When Objecting to a Claim Under California Law?

The Ninth Circuit Court of Appeals recently discussed CCP 1717 and provided three conditions that must be met before CCP 1717 applies: (1) the action generating the fees must have been an action “on a contact” (2) the contract must provide that attorneys’ fees incurred to enforce it shall be awarded either to one of the parties or the prevailing party and (3) the party seeking fees must have prevailed in the underlying action. See In re Penrod, 802 F.3d 1084, 1087 (9th Cir. 2015). This is a lot of time and money wasted due to a creditor filing an invalid claim with no guarantee that the fees incurred will be paid by the creditor that filed the invalid claim. Then to try and get the creditor that filed the claim to pay for the attorneys’ fees and costs will cost even more time and money with no guarantee of recovery.

What Can be Changed to Help?

Procedurally FRBP 3001 provides for sanctions. The problem is the sanctions are not strong enough for prevent creditors from filing invalid proofs of claims or proofs of claims for unenforceable debts. It happens far too often. When a claim is objected to it should be for a dispute as to the calculation or the amount of the claim or if anything is owed to the creditor at all. Not that the claim meets the requirements to be a valid prima facie claim.

Rule 3001. Proof of Claim

(a) Form and Content. A proof of claim is a written statement setting forth a creditor’s claim. A proof of claim shall conform substantially to the appropriate Official Form.

(b) Who May Execute. A proof of claim shall be executed by the creditor or the creditor’s authorized agent except as provided in Rules 3004 and 3005.

(c) Supporting Information.
(1) Claim Based on a Writing. Except for a claim governed by paragraph (3) of this subdivision, when a claim, or an interest in property of the debtor securing the claim, is based on a writing, a copy of the writing shall be filed with the proof of claim. If the writing has been lost or destroyed, a statement of the circumstances of the loss or destruction shall be filed with the claim.
(2) Additional Requirements in an Individual Debtor Case; Sanctions for Failure to Comply. In a case in which the debtor is an individual:
(A) If, in addition to its principal amount, a claim includes interest, fees, expenses, or other charges incurred before the petition was filed, an itemized statement of the interest, fees, expenses, or charges shall be filed with the proof of claim.
(B) If a security interest is claimed in the debtor’s property, a statement of the amount necessary to cure any default as of the date of the petition shall be filed with the proof of claim.
(C) If a security interest is claimed in property that is the debtor’s principal residence, the attachment prescribed by the appropriate Official Form shall be filed with the proof of claim. If an escrow account has been established in connection with the claim, an escrow account statement prepared as of the date the petition was filed and in a form consistent with applicable nonbankruptcy law shall be filed with the attachment to the proof of claim.
(D) If the holder of a claim fails to provide any information required by this subdivision (c), the court may, after notice and hearing, take either or both of the following actions:
(i) preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or
(ii) award other appropriate relief, including reasonable expenses and attorney’s fees caused by the failure.
(3) Claim Based on an Open-End or Revolving Consumer Credit Agreement.
(A) When a claim is based on an open-end or revolving consumer credit agreement — except one for which a security interest is claimed in the debtor’s real property — a statement shall be filed with the proof of claim, including all of the following information that applies to the account:
(i) the name of the entity from whom the creditor purchased the account;
(ii) the name of the entity to whom the debt was owed at the time of an account holder’s last transaction on the account;
(iii) the date of an account holder’s last transaction;
(iv) the date of the last payment on the account; and
(v) the date on which the account was charged to profit and loss.
(B) On written request by a party in interest, the holder of a claim based on an open-end or revolving consumer credit agreement shall, within 30 days after the request is sent, provide the requesting party a copy of the writing specified in paragraph (1) of this subdivision.

(d) Evidence of Perfection of Security Interest. If a security interest in property of the debtor is claimed, the proof of claim shall be accompanied by evidence that the security interest has been perfected.

(e) Transferred Claim.
(1) Transfer of Claim Other Than for Security Before Proof Filed. If a claim has been transferred other than for security before proof of the claim has been filed, the proof of claim may be filed only by the transferee or an indenture trustee.
(2) Transfer of Claim Other than for Security after Proof Filed. If a claim other than one based on a publicly traded note, bond, or debenture has been transferred other than for security after the proof of claim has been filed, evidence of the transfer shall be filed by the transferee. The clerk shall immediately notify the alleged transferor by mail of the filing of the evidence of transfer and that objection thereto, if any, must be filed within 21 days of the mailing of the notice or within any additional time allowed by the court. If the alleged transferor files a timely objection and the court finds, after notice and a hearing, that the claim has been transferred other than for security, it shall enter an order substituting the transferee for the transferor. If a timely objection is not filed by the alleged transferor, the transferee shall be substituted for the transferor.
(3) Transfer of Claim for Security Before Proof Filed. If a claim other than one based on a publicly traded note, bond, or debenture has been transferred for security before proof of the claim has been filed, the transferor or transferee or both may file a proof of claim for the full amount. The proof shall be supported by a statement setting forth the terms of the transfer. If either the transferor or the transferee files a proof of claim, the clerk shall immediately notify the other by mail of the right to join in the filed claim. If both transferor and transferee file proofs of the same claim, the proofs shall be consolidated. If the transferor or transferee does not file an agreement regarding its relative rights respecting voting of the claim, payment of dividends thereon, or participation in the administration of the estate, on motion by a party in interest and after notice and a hearing, the court shall enter such orders respecting these matters as may be appropriate.
(4) Transfer of Claim for Security after Proof Filed. If a claim other than one based on a publicly traded note, bond, or debenture has been transferred for security after the proof of claim has been filed, evidence of the terms of the transfer shall be filed by the transferee. The clerk shall immediately notify the alleged transferor by mail of the filing of the evidence of transfer and that objection thereto, if any, must be filed within 21 days of the mailing of the notice or within any additional time allowed by the court. If a timely objection is filed by the alleged transferor, the court, after notice and a hearing, shall determine whether the claim has been transferred for security. If the transferor or transferee does not file an agreement regarding its relative rights respecting voting of the claim, payment of dividends thereon, or participation in the administration of the estate, on motion by a party in interest and after notice and a hearing, the court shall enter such orders respecting these matters as may be appropriate.
(5) Service of Objection or Motion; Notice of Hearing. A copy of an objection filed pursuant to paragraph (2) or (4) or a motion filed pursuant to paragraph (3) or (4) of this subdivision together with a notice of a hearing shall be mailed or otherwise delivered to the transferor or transferee, whichever is appropriate, at least 30 days prior to the hearing.

(f) Evidentiary Effect. A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.

(g) To the extent not inconsistent with the United States Warehouse Act or applicable State law, a warehouse receipt, scale ticket, or similar document of the type routinely issued as evidence of title by a grain storage facility, as defined in section 557 of title 11, shall constitute prima facie evidence of the validity and amount of a claim of ownership of a quantity of grain.

How Can 1,000 Percent Interest Be Legal?

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Interest rates are capturing my attention more and more these days. One human being pays less than 3 percent interest to borrow money while another human being agrees to pay 1,000 percent interest. Loan sharking is perfectly legal again. Just look at payday loans, cash advances and the title loan lending industries. They are horribly expensive to borrow money from and I can tell you for a fact they will violate the Fair Debt Collections Practices Act when trying to collect for nonpayment. Our government is asleep at the wheel on this issue. Why are we allowing people to be charged unconscionably high interest rates to borrow money that were intended to be illegal? Society as a whole deemed charging such high interest rates bad for society and passed usury laws to limit how much interest can be charged. The theory is that those in financial stress need to be protected from themselves to a certain extent. They may not be thinking clearly given the stress they are under which makes them ripe to be taken advantage of. Unfortunately there are exceptions to exceptions in most states that allow this horrible interest rates.

What A 132 Percent Interest Loan Looks Like Other Than Just Horrible

The 132 percent interest loan was the result of a title loan. The borrower turns over to the lender their pink slip to their vehicle and the borrower is given a loan with the vehicle as collateral. This is a non-purchase money security interest loan for those keeping score out there that know what a PMSI loan is. If not, please Google “purchase money security interest” to find out why PMSI is a good thing for you and your finances, especially if you own real property (house or land) in California. Given the loan is secured by collateral you would think the loan is not a high risk loan and the interest rate would be reasonable. The 132 percent interest says otherwise though. So this 132 percent interest loan was for the principal balance of $18,000 and a term of three years or 36 months. The collateral was a vehicle worth good money still, a Toyota Sequoia. In addition to the 132 percent interest there was a prepaid finance charge to be paid upfront of $1,800. So this person actually only borrowed $16,200 since they had to pay $1,800 upfront. The kicker is they are paying interest on the full $18,000. Horrible.

The monthly loan payment is $2,046.19. What? That is a mortgage payment not a vehicle loan payment. Each year the borrower will pay $24,554.28 to the lender for the original borrowed $16,200. The total amount due on the loan if each payment were made during the three years is $73,662.84. I have no idea why the borrower needed $16,200 so bad they were willing to pay it back 4 times over and I did not ask. All I know is this loan should be illegal.

California Law And Title Loans

California is considered a loophole state. This borrower would end up paying back the original $16,200 borrowed 4 times over. This is criminal and illegal right? Wrong. There are limits or caps on interest for title loans in California for loans of $2,500 or less. So what do title loan lenders do in California? They only do title loans in amounts above $2,500 so that the California Usury Laws do not apply. Nice. So when the title loan company employee wants you to add $500 to your title loan to bring the amount borrowed over $2,500 it is to allow the title loan company to charge you a higher interest rate. They are not looking out for your best interest.

The 132 Percent Loan Is Not Much Different Than Carrying A Balance On A Credit Card

Almost every one of our clients expresses some sort of guilt at some point in the process of filing for bankruptcy protection. Most of the time there is absolutely no reason to feel guilty. There is actually no loss of money by those discharged in the bankruptcy case. How you can that be you ask? If someone is discharging $30,000 in debts then someone or a company out there lost money. Nope. Wrong. Not a true. Most of our clients have been making payments for years and years before there is a problem or seek bankruptcy protection to legally discharge their debts. All that interest accrues and gets paid. So the principal borrowed gets paid back and what is left to pay is the ongoing interest fees from carrying a balance on the card each month. For example let us say you purchased a TV at Costco, a 60’ Samsung for $2,500 on your Discover Card with an interest rate of 20%. To pay off the debt in 12 months you would have to make a minimum payment of $232 a month for 12 months, total payments of $2,784. The credit card company only gets $284 in profits. A more likely scenario is repayment will take three years or more. If the balance of $2,500 with 20% in paid off in 48 months or four years the monthly payment will be around $77 a month, total payments of $3,696. There is about $1,196 in interest profit to be made and the principal amount borrowed? It was paid off on month 32. So if this person retains a bankruptcy attorney and files for bankruptcy protection after 32 months or more of making payments Discover Card will only have lost gross profits from an interest rate that used to be illegal.

The Good News Is There Is Another Loophole To Help Title Loan Borrowers

This is kind of good news. That bad news is the loophole is in filing a Chapter 13 bankruptcy case. When reorganizing debts in Chapter 13 bankruptcy lawyers can have their clients only payback the fair market value of the vehicle collateral. Not what is owed according to the loan terms. So in the example above if the borrowers Toyota Sequoia is only worth $12,000 in the real world that is what the borrower will pay at around 4.75% interest. So not only can we reduce the principal amount owed, but we can reduce the percentage rate too. Filing Chapter 13 would allow the borrower in our example to pay back the loan and get the pink slip back at $210 a month for 60 months, the length of the Chapter 13 Plan. What a massive savings and the lender actually loses nothing. The lender just loses the gross profits resulting from what should be an illegal interest rate to begin with.

50 Cent’s Bankruptcy By The Numbers As Of January 2016

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There has been a lot of mass media attention regarding 50 Cent’s personal Chapter 11 bankruptcy case. First though, a company that 50 Cent owns, SMS Promotions, LLC, also filed for bankruptcy protection under Chapter 11. The mass media is for some reason incapable of understanding that when a corporation or LLC files for bankruptcy protection the individual owners have not filed for bankruptcy. Corporations and limited liability companies are separate legal entities from the owners. That is the whole point in forming the corporation or limited liability company. Unlike Donald Trump, 50 Cent in fact has filed a personal bankruptcy case under Chapter 11, Bankruptcy Case No. 15-21233, in the District of Connecticut, Hartford Division. Donald Trump has NEVER filed for personal bankruptcy protection. Second, as of January 29, 2016, the bank account set up for the bankruptcy case, the debtor-in-possession account, has $7,449,764.30 in cash. So if 50 Cent chooses to pose for a picture with around $50,000 in cash spelling the word broke that would be analogous to me or one of my clients posing for a picture of one dollar bills spelling the work broke. I will say it is a bad look, period.

The following is an analysis of 50 Cent’s disclosed income, expenses, assets and debts based upon court documents filed by 50 Cent’s bankruptcy lawyers and creditors in the bankruptcy case.

50 Cent’s INCOME and EXPENSES

In a Chapter 11 bankruptcy reorganization a debtor must commit their monthly disposable income for the benefit of those who are owed money for a term of a minimum of five years. 50 Cent’s current monthly income and future monthly income and expenses are very important then. In Chapter 11 cases the bankruptcy filer is required to file with the bankruptcy court monthly operating reports. The reports provide the income, expenses and assets of the debtor while the bankruptcy case is progressing. These reports help creditors and the United States Trustee determine if reorganization is possible and whether the bankruptcy filer is takings steps to “right the ship” by decreasing or eliminating unnecessary expenses.

50 Cent’s January 2016 operating report provides monthly income from wages of ($1,538.68), royalties ($26,531.06) and other miscellaneous income called other receipts of ($77,000) for a total monthly income of $105,069.74. 50 Cent’s expenses for the month of January 2016 exceeded his income by about $13,000. So arguably 50 Cent does not have any monthly disposable income to pay each month for the benefit of creditors in a Chapter 11 plan of reorganization. That is if Jan. 2016 is representative of 50 Cent’s future income and expenses. 50 Cent’s creditors believe 50 Cent’s income is more and his expenses should be reduced.

On the expense side there are some high numbers as compared to the rest of us who are not on TV or in the movies. 50 Cent lists the following expenses for the month of January 2016:

Mortgage Payments $17,354.44
Real Estate Taxes $8,419.11
Utilities $12,879.73
Insurance $33,215.49
Auto Expense $3,507.59
Lease Payments $5,744.75
Repairs and Maintenance $6,593.70
ALIMONY/CHILD SUPPORT $12,097.00
Fitness Expense $3,000.00
Security $11,369.00

TOTAL EXPENSES: $118,255.81
TOTAL INCOME: $105,069.74
($13,186.07)

For the month of January 2016 if 50 Cent had not transferred $77,000 in cash from his bank accounts he would not have been able to pay his monthly expenses with his monthly income. So arguably there are some issues with 50 Cent’s ability to reorganize his debts based upon his monthly income. 50 Cent’s creditors argue that 50 Cent is underreporting his income given he has not disclosed income from recent appearances and performances since filing for bankruptcy protection. We shall see.

50 Cent’s ASSETS

In a sophisticated Chapter 11 reorganization like 50 Cent’s there are assets that are extremely difficult to value. How much is a business entity worth? What someone will pay you for it? Or is the book value the proper valuation? 50 Cent owns or allegedly has an interest in over 32 corporations or limited liability companies defined as “Related Entities” by creditors. There are also about 10 businesses defined as “Additional Entities” by creditors. The values of these business interests are extremely difficult to evaluate and 50 Cent’s creditors argue that the values of these entities are more than what was provided/disclosed in 50 Cent’s bankruptcy petition and schedules. As of Jan. 29, 2016, 50 Cent provides his total assets are worth $16,411,498.64.

50 Cent owns three pieces of real property: (1) primary residence located at 30 Poplar Hills Drive Farmington, CT 06032 with an estimated value of $8.25 million and mortgage of about $1 million owed to Suntrust Bank; (2) investment property located at 8 Gale Drive Valley Stream, NY 11581 with an estimate value of $572,000 and no debt; and (3) an investment property located at 3286 Northside Pkwy, Unit 302 Atlanta, GA 30327 with an estimated value of $464,000 and no debt. 50 Cent’s real property is worth about $8,286,000.

50 Cent’s vehicles have a scheduled total value of $500,618.00 and are as follows:

1966 Chevrolet Coupe
2015 Chevrolet Suburban
2010 Rolls Royce Phantom Drophea
2005 Chevrolet Suburban
2008 Dodge Sprinter
2003 Chevrolet Suburban
2012 Suzuki Kizashi Sport

One of the personal assets creditors of 50 Cent point out is missing from the bankruptcy petition and schedules is the trademark “50 Cent” which 50 Cent owns. Creditors argue that the trademark is very valuable and should be listed as a personal asset of 50 Cent.

50 Cent’s DEBTS

As of January 29, 2016, 50 Cent provides his debts total $32,390,319.34. The debt is comprised of $987,070.53 in secured debts, $770,412.00 in unsecured priority debts and $30,390,319.34 in general unsecured debts. The largest debt is a general unsecured debt owed to Sleek Audio, LLC, totaling $18,131,668.65 resulting from a judgment in a lawsuit over the design and sales of headphones. The other largest general unsecured debt is owed to Lastonia Leviston totaling $7,000,000 resulting from a judgment in a lawsuit about the alleged release of narrated sext tape by 50 Cent.

The unsecured priority debts are for domestic support totaling about $856,000 and taxes owed to the Internal Revenue Service totaling $175,067.91 and the State of New York totaling $1,379,687.

Status of the Chapter 11 Bankruptcy Reorganization

Right now both 50 Cent and three creditors, Sleek Audio LLC, Lastonia Leviston and Suntrust Bank, have proposed a Chapter 11 Plan of Reorganization. Of course the creditors plan provides for repayment of all of 50 Cents debts during the plan based upon his current income, assets and future earning potential. I have not yet reviewed the plan filed by 50 Cent and his bankruptcy attorneys.

Chapter 13 Bankruptcy and Whether HOA Dues are Discharged Post-Petiton

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The Ninth Circuit Bankruptcy Appellate Panel issued an unpublished opinion that analyzes the Bankruptcy Code through history as it applies to homeowner’s association dues. See Batali v. Mira Owners Association; BAP No. WW-14-1557-KiFJu. Ms. Lin and I have both written articles about HOA dues and this article does not discuss pre-petition homeowners association dues and their dischargeability. But please note, bankruptcy attorneys need also to be aware of whether or not the HOA has recorded a lien for the pre-filing unpaid dues.

In the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act the treatment of HOA dues was forever changed in Homeowner Association’s favor. There is a lot of confusion with homeowners associations and their nonbankruptcy attorneys regarding this issue. Many please say if you stay you pay. If you do not stay you do not pay.

1994 Changes to Bankruptcy Code

The push to not be able to discharge homeowner’s association dues post-petition began really in 1994. In 1994 Congress added Section 523(a)(16) to the Code. In 1994 Section 523(a)(16) excepted from discharge under §§ 727, 1141, 1228(a), 1228(b) or 1328(b):

A fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a dwelling unit that has condominium ownership or in a share of a cooperative housing corporation, but only if such fee or assessment is payable for a period during which — (A) the debtor physically occupied a dwelling unit in the condominium or cooperative project; or (B) the debtor rented the dwelling unit to a tenant and received payments from the tenant for such period, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case.

2005 BAPCPA Changes to Section 523(a)(16)

Section 523(a)(16) was not changed again until the passage of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. Section 523(a)(16) was modified to include homeowners’ associations and delete the language that required debtors to actually physically reside in or collect rents rom the units.

There are a number of cases that discuss the post-petition treatment of HOA dues and whether they are discharged or not. A court in 1997 discussed whether HOA dues were a debt, and if so, did the Chapter 13 Plan provide for the debt? In that case since the time-share was surrendered through the plan the court reasoned the HOA dues were provided for and therefore discharged. The post-petition dues are a claim as defined by Section 101(5) of the Code. The Ninth Circuit Bankruptcy Appellate Panel addressed this issue in Foster v. Double R Ranch Ass’n (In re Foster), 435 B.R. 650 (9th Cir. BAP 2010). The 9th Circuit BAP concluded that concluded that the “ongoing ownership of property with a running covenant creates a postpetition claim even if the debtor does not use the property.”

The issue is whether post-petition homeowner’s associations are discharged upon completion of a Chapter 13 Plan?

To begin the discussion the binding effect of confirmation of a Chapter 13 Plan pursuant to Section 1327 needs to be addressed. Section 1327(a) provides: The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan. While this is true the language of the plan needs to be reviewed. The main problem here is that model Chapter 13 Plans are difference from jurisdiction to jurisdiction and what Chapter 13 Trustee will object to is different from jurisdiction to jurisdiction. Also, a debtor can add language to a Chapter 13 Plan that is not part of a model Chapter 13 Plan. In this case, Batali v. Mira Owners Association, Batali’s Chapter 13 Plan made no mention of discharging the post-petition dues owed to Mira Owners Association. So how can the binding effect of the Chapter 13 Plan discharge the dues owed if no mention of the dues is made? The 9th Cir. BAP concluded the Chapter 13 Plan cannot discharge post-petition dues if they are not mentioned in the Chapter 13 Plan pursuant to Section 1327. Also in the Batali case Mira Owner’s Association requested relief from stay to pursue Batali for the post-petition dues owed and was granted that relief without any opposition from Batali.
Going back to the In re Foster case decided by the 9th Cir. BAP the panel looked at Washington State Law and concluded that are recorded condominium declaration, like that of Mira Owner’s Association, runs with the land and is a property right that cannot be extinguished in a bankruptcy. As long as the debtor continues to have an interest in the property at issue, a debtor cannot discharge the post-petition assessments that arise from the covenant that runs with the property.

We are therefore back to “you stay you pay” argument many bankruptcy attorneys will recite. The argument goes that the debtor provided in the Chapter 13 Plan that they are surrendering the property pursuant to the terms of the confirmed Chapter 13 Plan. The Ninth Circuit Appellate Panel again refers to the reasoning in the Foster case they decided previously. A debtor cannot extinguish a homeowners association’s recorded declaration and may therefore not discharge the debtor’s post-petition assessments even if a debtor does not reside in the property. The 9th Cir. BAP does not believe Section 523(a)(16) provides generally that post-petition HOA dues are claims or debts that can be discharged pursuant to Section 1328(a) of the Code.

The Ninth Circuit Bankruptcy Appellate Panel holds that Section 523(a)(16) is not applicable to discharge under Section 1328(a) and that state law governs the substance of claims. So if the state you are in is different than Washington State Law or more specifically that the HOA declaration is not a covenant that runs with the land then the decision in this case may have been difference. The next issue is about what effect a debtor providing a piece of property is to be surrendered in a Chapter 13 Plan. Just because the Chapter 13 Plan says a property is to be surrendered that fact does not actually transfer the property out of the debtor’s name. The debtor still maintains their legal, equitable and possessory interest in the property until foreclosure or some other form of transfer of title out of the debtor’s name. Just giving up possession does not transfer title. Notice of intent to surrender only gives a creditor notice that a debtor will make the collateral available to the secured creditor to use their state law rights to take back the collateral securing the debt. Under most state laws the transfer of real property can only take place by deed.

In the Ninth Circuit and in the state of Washington, based upon Washington state law, homeowner’s association dues that come due after a Chapter 13 Bankruptcy case is filed and when the property titled is transferred out of the debtor’s name are not discharged. Like many things in law this analysis and conclusion may not be an absolute for other debtors in other states and with different Chapter 13 Plan language.

Why Did 50 Cent File Bankruptcy When He Is Rich and Famous Still?

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For the record many successful and rich people make the decision to file for bankruptcy protection under various chapters of the Bankruptcy Code. Curtis James Jackson, III, aka 50 Cent, is no different. Like many things in our society ignorance of the law rules the day. Hopefully this article and future articles about 50 Cent’s Chapter 11 bankruptcy case will help you understand bankruptcy law and why 50 Cent filed. That said, on July 13, 2015, 50 Cent filed a personal bankruptcy petition for protection under Chapter 11 of the Bankruptcy Code, Bankruptcy Case No. 15-21233, in the District of Connecticut, Hartford Division, to reorganize his debts.

Why Did 50 Cent File Bankruptcy?

The Merriam-Webster dictionary defines being insolvent as: (1) unable to pay debts as they fall due in the usual course of business; (2) having liabilities in excess of a reasonable market value of assets held. 50 Cent became unable to pay his debts as they came due in the usual course of business resulting from judgments entered against him and the cost of litigating with Sleek Audio and Lastonia Leviston lawsuits.

Sleek Audio, LLC Litigation

According to court documents back in 2011n 50 Cent entered into business with Sleek Audio, LLC to develop headphones and market the headphones under 50 Cent’s professional name. Sleek entered into a licensing brand agreement with G-Unit Brands, 50 Cent’s brand licensing company and allowed Sleek to use 50 Cent’s trademarks in the marketing of the headphones. For whatever reason Sleek did not follow through on making the headphone commercially viable by the February 15, 2011, deadline. As a result G-Unit Brands terminated the licensing agreement with Sleek and 50 Cent then created SMS Audio to develop his headphones on his own instead. Like most divorces Sleek did not go away quietly. Sometime in August 2011 Sleek filed an arbitration case against 50 Cent alleging he stole their designs for his new headphones and owed Sleek some money. Long story short Sleek won. Eventually a judgment was entered in Sleek’s favor totaling $17,247,426.11 plus post-judgment interest rate of 4.75%. 50 Cent’s list of 20 largest unsecured creditors provides the judgment has grown to $18,428,257.00 as of July 13, 2015.

Lastonia Leviston Sex Tape Litigation

Another reason for the personal Chapter 11 bankruptcy filing is a sex tape 50 Cent allegedly released of Lastonia Leviston without her consent. 50 Cent was in a rap war with William Leonard Roberts, aka Rick Ross. Ms. Leviston used to date Rick Ross and they have a child together. In 2008 Ms. Leviston was in a relationship with Maurice Murray. Leviston and Murray made a sex tape and Murray retained possession of the sex tape. At some point Murray gave the sex tape to 50 Cent and allegedly told 50 Cent he could do whatever he wanted with the sex tape. 50 Cent allegedly created a copy of the sex tape and then narrated the sex tape saying negative things about Ms. Leviston and mocking Rick Ross. 50 Cent alleged the edited version of the sex tape was leaked by someone other than himself and that he never released the edited sex tape on any of his websites. Ms. Leviston sued 50 Cent in state court and eventually she won a judgment for about $5 million (Leviston v Jackson, Index No. 102449-2010, pending before New York State Supreme Court, New York County).

July 13, 2015 Chapter 11 Bankruptcy Filing and Leviston Lawsuit

The jury in the Leviston lawsuit was then tasked with determining how much the punitive damages to punish 50 Cent for the alleged release of the edited sex tape should be. Before the punishment faze began 50 Cent filed for personal bankruptcy under Chapter 11 of the Bankruptcy Code. As soon as a bankruptcy petition is filed the automatic stay takes effect stopping any and all collection activity including lawsuits. So the day the punishment part of the state court lawsuit was supposed to start 50 Cent’s attorneys walked in with the notice of the bankruptcy filing and that ended the punishment faze for the time being. But, a creditor or party-in-interest, like Ms. Leviston, can request the bankruptcy court to allow a state court lawsuit to continue despite the filing of a bankruptcy case. This is what happened in 50 Cent’s bankruptcy case. Ms. Leviston’s Bankruptcy Attorneys filed what is called a motion for relief from the automatic stay on July 13, 2015, the exact same day 50 Cent filed for bankruptcy protection. Ms. Leviston asked the bankruptcy court to allow the state court punishment faze to continue despite the filing of the bankruptcy case. Ms. Leviston’s attorneys also requested and received an expedited hearing date to speed up the process.

Of course 50 Cent’s Bankruptcy Lawyers filed an opposition to the motion for relief from stay advocating why the stay should not be lifted. In my opinion the two most compelling reasons to not lift the automatic stay is that punitive or punishment damages are normally calculated based upon the wealth of the allegedly guilty party and that punitive damages claims are/can be subordinated or disallowed in bankruptcy pursuant to Section 510(c). When a person files for bankruptcy protection what the bankruptcy filer’s assets are worth is often a litigated issue because it matters a lot in the outcome of what creditors should receive through the Chapter 11 plan of reorganization. So how can a jury in the state court case determine the amount of punitive damages to award against 50 Cent if a determination of the value of his assets has not been made in the now pending bankruptcy case? Arguably punitive damages cannot be determined so why proceed? The other compelling argument in my opinion is how punitive damages are treated in bankruptcy. Generally punitive damages are disallowed or subordinated to other claims so that the other people who are owed money get paid more. The goal of bankruptcy is distribute the assets of the debtor to creditors fairly according to the Bankruptcy Code. The goal is not to punish the debtor like punitive damages seek to do. Therefore punitive damages are generally disallowed or paid after other types of claims are paid first. I will have more to day about this issue in future articles.

July 17, 2015, a hearing was held before the Honorable Ann M. Nevins regarding the motion for relief from stay and the motion was granted. As a result the punitive damages part of the Leviston lawsuit could continue. On July 20, 2015, the jury in the New York State Court lawsuit regarding the alleged release of the sex tape awarded an additional $2 million in punitive damages to Ms. Leviston for a total judgment against 50 Cent of $7 million. I am sure 50 Cent was not banking on the filing of his bankruptcy case to stop the punishment part of the lawsuit by Ms. Leviston. Nevertheless, there are still benefits to seeking bankruptcy protection and reorganizing his debts in Chapter 11.

So, 50 Cent found himself with a $17 million judgment against him owed to Sleek and then another judgment of $5 million owed to Ms. Leviston prior to filing for bankruptcy protection. Even if someone has significant assets and significant income can they write a $22 million check to satisfy their debts? That is why 50 Cent filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. What will result in 50 Cent’s Chapter 11 reorganization case is still to be determined. Additional articles will be posted to discuss 50 Cent’s current financial circumstances and current status of the case in the future.

The Ninth Circuit Court of Appeals Finally Provides Debtor’s the True Ability to Enforce Their Rights When the Automatic Stay is Violated

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The Ninth Circuit Court of Appeals held on October 14, 2015, see In re Schwartz-Tallard Case No. 12-60052, that debtors can recover attorneys’ fees and costs reasonably incurred when seeking sanctions and damages for the willful violation of the automatic stay pursuant to Section 362(k) of the Bankruptcy Code. This is a huge decision and was badly needed. How can anyone enforce their rights if they cannot afford to hire representation and that representation cannot even recover their fees for correctly and successfully prosecuting the award of damages? They cannot and it created vast injustices for those damaged by the willful violation of the automatic stay. This holding by the Ninth Circuit Court of Appeals properly makes the party, creditors; bare the cost of their bad behavior, willfully violating the automatic stay. I previously wrote way back in December 2010 about how the backbone of the bankruptcy process is the automatic stay.

Previously debtors could only recover attorneys’ fees and costs up to when the violation of the stay was remedied. Not attorneys’ fees and cost associated with seeking sanctions and damages when remedying the automatic stay violation. This structure of recovery of fees was a huge problem for debtors and their bankruptcy attorneys. For some reason the system time and time again has policies that do not allow attorneys for debtors to be paid for their time when advocating on behalf of their clients. Enforcing the violation of the automatic stay used to be a prime example. A client would come to us with evidence a creditor is violating the automatic stay even though they were served with notice of the bankruptcy case. Some violations of the automatic stay are innocent and can be remedied by sending an email or letter to the creditor or their counsel. The damages are not significant.

In other circumstances creditors actually sue debtors post-discharge for a discharged debt and then refuse to dismiss the state court lawsuit. If you have ever been sued for any reason it does not feel good. Under the prior fee structure if their bankruptcy lawyer filed a motion for sanctions in bankruptcy court for the willful violation of the automatic stay the creditor could then just seek dismissal of the state court lawsuit as soon as possible after the filing of the motion for sanctions. Then all the time and effort to seek damages for the creditor’s willful violation of the automatic could not awarded to the debtor’s attorney. That would include the time to appear at the hearing for sanctions and any time after the violation was cured when continuing to prove damages that in some cases are very significant. What a horrible structure. It encouraged violations of the automatic stay and discouraged debtors from enforcing their rights for the violation of the automatic stay and seeking damages. In my opinion it went against everything filing for bankruptcy PROTECTION is supposed to be about.

Now creditors will properly weigh the consequences of their willful choice to violate the automatic stay properly given they will have to pay for the debtors attorney’s fees and costs from day one to the end of the process of proving damages. There will therefore be less violations of the automatic stay and debtors can obtain the relief they originally sought when filing a petition for bankruptcy. It will also eliminate the need to litigate exactly when the violation of the automatic stay ended and how much time and money was spent by the debtor’s attorney up to when the violation of the automatic stay ended. The focus can now be on the willful violation of the automatic stay that should never have happened and the resulting damages. Attorneys for debtors will also no longer fear, at least in this area of representing debtors, that they will get left holding the bag financially for properly advocating on behalf of their clients. Now if we could only get this kind of treatment in other areas of bankruptcy practice regarding the time we spend advocating for our clients there would be even more justice to be had by debtors. After all, filing for bankruptcy protection is following the law.

In the Schwartz-Tallard case the facts are actually far worse. The debtor’s house was improperly foreclosed on and the debtor had to fight to get the house back. The debtor then sought sanctions and damages. The creditor in this case appealed the rulings of the lower bankruptcy court and lost. In this case the debtor’s attorney could not recover all the time and money spent defending the appeals? The Ninth Circuit Court of Appeals remedied the prior strange result in the Steinberg case limiting recovery of attorneys’ fees and cost to when the automatic stay violation ceased and now include recovery of attorneys’ fees and cost seeking damages, including any appeals.