[WSBARP] Off Topic Issue - Bankruptcy/Community Property Question

Sat Apr 9 12:17:22 PDT 2022

Sam
John's email is helpful.  I don’t find the information from upsolve useful.  Nor do I recommend relying upon it for any reason, but the case cited from Nebraska is very useful and his two cents is in fact worth every penny!!!!    Notably, the Smith case identifies “claim” under the Code and the impact of the automatic stay via 1301.    The definitioin of claim is still good and section 1301 cited remains unchanged today. However, bear in mind two things about that decision: first it didn’t involve a community property state such as Washington and the potential applicability of Washington law on the underlying personal liability and second, it was focused on the right of the creditor to get relief from the co-debtor stay to pursue the Husband/ signor on the contract.    The plan terms were not expressly referenced in the decision but it appears clear that the wife, in SMITH, filed chapter 13, crammed down the value of the secured claim to the lender to the value of the vehicle in the plan leaving the creditor partially secured (and partially unsecured)  and the plan filed and confirmed by debtor/ex wife did not plan to pay the entire unsecured claim.  Accordingly, the creditor filed for relief apparently to pursue the  claim against the ex husband on the remaining in personam claim.

Sam, Smith is neither binding nor instructive to the Bankrtuptcy courts here but the analysis identified by the Supreme Court case cited on "claim" is and the overall analysis is the same on a straightforward Code analysis.  W appears to have the right of sole possession in the vehicle from the divorce decree subject to the secured creditor.  The vehicle is therefore property of the estate under 541.  The creditor has a secured claim at the very least in W's bankrtuptcy.    W can treat the secured claim in her plan like what occurred in the Smith case cited.   H is similarly at risk to relief under 1301 as was the husband in Smith.  Ie. To the extent that W's plan does not provide for the entire claim (secured and unsecured) relief can be granted to secured creditor to pursue the inpersonam claim against H.  H likely had a right of indemnification under the divorce decree but that can be discharged in a chapter 13 case.  H has an unsecured claim against W to the extent she is obligated to make the payments on the contract pursuant to the divorce decree.  Because W did not sign the contract, she has no inpersonam liability to the creditor and none to H apart from a provision in the divorce decree establishing such an inpersonam claim in favor to H.   W can also provide for turn over of the vehicle to secured creditor raising issues for H as to what rights H has under state law to cure any arrearage or redeem the vehicle.  As suggested by someone else here, fthe divorce decree did not extinguish H's interest in the vehicle between H and the secured creditor.  It merely decided H's interest in the vehicle between H and W.

Chapter 13 is more complex than many appreciate.  When I see a firm website provide general legal information to people referring to "eliminating debt" through a bankruptcy I know that they have reduced some of the fundamentals of bankruptcy to phrases and terms that are inaccurate, but which convey a message to the uninformed.   The cite to Smith was useful.  There are some very good chapter 13 practitioners in both districts in Washington on both sides of the V.   My suggestion is that if there is a lot at issue, get some advice on the real ffacts of the case.  Get a copy of the schedules and Statement of Financial Affairs and the proposed chapter 13 plan.  Realize that there are very short deadlines for objections to the plan, exemptions, and deadlines for filing Proofs of claim.  Those deadlines are measured by days, not weeks or months.

Good Luck

Russ Garrett

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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> on behalf of John J. Sullivan, Esq. <sullaw at comcast.net>
Sent: Saturday, April 9, 2022 10:05 AM
To: 'WSBA Real Property Listserv' <wsbarp at lists.wsbarppt.com>; 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBARP] Off Topic Issue - Bankruptcy/Community Property Question

Sam:

This article may give you a start.

Chapter 13 While Getting a Divorce: Probably a Bad Idea (upsolve.org)<https://upsolve.org/learn/chapter-13-and-divorce/>

And this case may … may … touch on your issue. I just glanced at it, so you’ll have to parse it.

Lillie Smith, Ch. 13, BK97-80710 (uscourts.gov)<https://www.neb.uscourts.gov/sites/neb/files/opinions/Lillie_Smith%2C_Ch._13%2C_BK97-80710.pdf>

I’m no divorce attorney, that’s for darn sure. But did the decree that distributed the auto to the wife say anything about the debt secured by it? I’d have to check my own auto loan documentation, but I would be surprised to find a due on sale clause in it. The auto was certainly community property during the marriage. I would have thought that the H’s attorney would have made sure the debt went with the vehicle as between them. You’re right, of course, that this wouldn’t preempt the lender’s right to repo the auto in the first instance, or to proceed against the H for a deficiency. But I would be surprised if the decree didn’t have the effect of transferring ownership to the W, regardless of title.

My very, very limited experience with personal bankruptcy tells me that the W can probably stay collection on the auto loan through a Chap. 13 filing, but the lender would probably have an opportunity to seek relief from the stay from the court as a secured creditor. Also, H is still a borrower. Lender can almost certainly seek to collect from him. Whether H would have some sort of remedy against W would probably depend on the precise terms of the divorce decree.

My two cents and worth every penny.

John J. Sullivan

From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of samuel at meylerlegal.com
Sent: Thursday, April 7, 2022 12:48 PM
To: 'WSBA Real Property Listserv' <wsbarp at lists.wsbarppt.com>; 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: [WSBARP] Off Topic Issue - Bankruptcy/Community Property Question

Mates,

I have an off-topic bankruptcy/community property question and was hoping that one of you out there that practices bankruptcy law might be able to help.

H purchased a vehicle while H and W were married.  H was the only one on the loan and the only one on title.  H and W get divorced and the W is awarded the vehicle in the divorce.  Nobody makes payments on the vehicle for a period and lender attempts to repossess the vehicle.  W files Chapter 13 BK.

Generally, I don’t think that the divorce decree has any bearing on the lender’s rights, but does the divorce decree or even simply W’s possession of the vehicle give W the right to include the lender as a secured creditor in the bankruptcy?  Does filing bankruptcy protect W from having the vehicle repossessed given that she is not on the loan or title?

I appreciate any thoughts or legal authority on this and would love to chat with someone knowledgeable in these matters.  Thanks.

Sam

Samuel M. Meyler
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Seattle, Washington 98109
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