April, 2014 www.astlelaw.com
Kansas Bankruptcy News
A monthly publication for the non-bankruptcy attorney prepared by the Law Office of
Donald C. Astle, Donald C. Astle and Sheila Maksimowicz Attorneys at Law.
345 Riverview Suite 730,Wichita, KS
316.262.7696
Law v. Seigel, 571 U.S.______(March 4, 2014)

On March 4, 2014, a unanimous opinion written by Justice Scalia, the United States Supreme Court, upheld the sanctity of the homestead exemption. The case involved the California homestead exemption of the debtor, Stephen Law, claimed in his Chapter 7 bankruptcy. The bankruptcy’s only significant asset was the debtor’s home located in California. The debtor scheduled the value of his home at $363,348 and claimed the home was subject to two liens: one of Washington Mutual Bank in the amount of $147,156 and a second lien by “Lin’s Mortgage and Associates” in the amount of $156,929 leaving a net equity of $59,263 -- conveniently well under the California homestead exemption of $75,000. The Chapter 7 trustee, Alfred Siegel, filed an adversary complaint alleging the lien of Lin’s Mortgage and Associates was fraudulent. The debt associated with this lien referred to a debt to a person named “Lili Lin” who lived in China. Convenient if you’re the debtor. Not so convenient if you’re the trustee. And, of course, Lili Lin did not speak English. In 2009, the bankruptcy court found that no person named Lili Lin ever made a loan to the debtor in exchange for a lien on the debtor’s home and that the loan was a fiction meant to preserve the equity in the debtor’s home by perpetrating a
OUR TAKE ON THIS:
If you lie and trick the trustee and cause a zillion dollars of expenses, the trustee can’t take your exempt stuff. But, you really won’t have much use for your exempt stuff at “Club Fed.”
fraud on his creditors and the court. The court found the trustee had incurred more than $500,000 in attorney fees because of the debtor’s fraudulent misrepresentations. The bankruptcy court then granted the trustee’s motion to surcharge the debtor’s $75,000 homestead exemption to reimburse the trustee. The Ninth Circuit affirmed holding that the bankruptcy court had not abused its discretion by surcharging the debtor’s homestead exemption. Fast forward about five years and who knows how many dollars later. The U.S. Supreme Court in its unanimous opinion pointed to 11 USC 522(k) of the Bankruptcy Code which states that exempt assets are “not liable for the payment of any administrative expense.” The Supreme Court concluded: “We acknowledge that our ruling forces Siegel to shoulder a heavy financial burden resulting from Law’s egregious misconduct, and that it may produce inequitable results for trustees and creditors in other cases. We have recognized, however, than in crafting the provisions of [the relevant section of the Bankruptcy Code], ‘Congress balanced the difficult choices that exemption limits impose on debtors with the economic harm that exemptions visit on creditors.’ The same can be said of the limits imposed on recovery of administrative expenses by trustees. For the reasons we have explained, it is not for courts to alter the balance struck by the statute.” So, the trustee cannot collect his fees from the debtor’s exempt property. But, it does not leave the courts powerless to respond to debtors’ fraud. A dishonest debtor can be denied discharge under 11USC727. Also, since the debtor’s conduct in this case occurred after the filing of his bankruptcy it is still enforceable through the normal procedures for collecting a judgment -- such as wage garnishment. Finally, fraudulent conduct in a bankruptcy could also subject the debtor to criminal prosecution under 18USC152 which can carry a penalty of up to five years in prison.
STATUTE OF THE MONTH
11 § 522
(k) Property that the debtor exempts under this section is not liable for payment of any administrative expense except--
(1) the aliquot share of the costs and expenses of avoiding a transfer of property that the debtor exempts under subsection (g) of this section, or of recovery of such property, that is attributable to the value of the portion of such property recovered; and
JP...The Legal Cartoon
Copyright David Carter used with permission.
(2) any costs and expenses of avoiding a transfer under subsection (f) or (h) of this section, or of recovery of property under subsection (i)(1) of this section, that the debtor has not paid.

California Homestead Exemption: Cal.
Civ. Proc. Code Secs 703.110,
704.710, .720 and .730
-Debtor who is a member of a family unit may exempt $100,000 if at least one other family unit member owns no interest in homestead or only a community property interest with debtor; debtors over 55 with an income under $15,000 (debtors without joint income) or $20,000 (married debtors’ joint income) may exempt $175,000; all others may exempt $75,000; spouses may not double the exemption; homestead may include but is not limited to: a house, a mobile home, a boat, or a condominium; proceeds exempt for six months.
ABOUT US...
Serving Kansas since 1984, The Law Offices of Donald C. Astle practices exclusively in consumer bankrupcy and collection law. No other cases are accepted.

Visit our website at www.astlelaw.com
Sheila C. Maksimowicz
University of Kansas, 1980
Donald C. Astle
Washburn University, 1984