DuVall v. County of Ontario, No. 21-2917 (2d Cir. 2023)
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Plaintiff filed a Chapter 13 bankruptcy petition. In her bankruptcy schedules, Plaintiff disclosed that she was the beneficiary of an annuity and claimed the annuity as exempt from the bankruptcy estate. The County failed to object to the claimed exemption within the timeframe prescribed by Federal Rule of Bankruptcy Procedure 4003(b). Plaintiff filed an adversary proceeding against the County seeking to avoid the tax foreclosure as a constructively fraudulent conveyance under 11 U.S.C. Section 548. The Bankruptcy Court held that the foreclosure amounted to a constructively fraudulent transfer of property, and it avoided the transfer. The district court affirmed. The County argues that it was not subject to the deadline prescribed by Rule 4003(b).
The Second Circuit affirmed. The court concluded that the Bankruptcy Court correctly applied Rule 4003(b). The court also found no error in the Bankruptcy Court’s choice of remedy. The court explained the Bankruptcy Code permits a trustee to avoid a transfer that occurred within two years of the filing of a bankruptcy petition. Here, because the Property was transferred within two years of Plaintiff’s bankruptcy petition, that transfer may be avoided if Plaintiff did not receive reasonably equivalent value for it and was insolvent on the date of transfer or rendered insolvent by the transfer on March 7, 2017. The Bankruptcy Court was compelled to exclude from its calculation of Plaintiff’s assets “property that may be exempted from property of the estate under section 522.” The plain text of the Code thus contemplates that insolvency is determined based on the debts and properties of and exemptions from the bankruptcy estate.
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