SBA v. Bensal, No. 14-17404 (9th Cir. 2017)
Annotate this CaseThe SBA guaranteed a loan between a private bank and Michael Bensal's company, BCI. The private bank filed suit against BCI as the borrower and Bensal as a personal guarantor after BCI defaulted on the loan. The private bank recovered a default judgment and assigned that judgment to the SBA. Bensal later received an inheritance from his father's trust that he did not accept and, instead, disclaimed. Bensal's disclaimer of the inheritance legally passed his trust share to his two children and prevented creditors from accessing his trust share under California law. The SBA filed suit seeking to satisfy the default judgment. The court held that the Fair Debt Collection Practices Act (FDCPA), 28 U.S.C. 3301-3308, displaces California's disclaimer law. In this case, the court concluded that Bensal's disclaimer constitutes a transfer of property under the FDCPA, and California disclaimer law did not operate to prevent the SBA from reaching Bensal's trust share. The court also concluded that the portion of the default judgment based on the second loan, which was guaranteed by the SBA, was a debt within the meaning of the FDCPA. Accordingly, the court affirmed the judgment.
Court Description: Federal Debt Collection Procedures Act. The panel affirmed the district court’s judgment in favor of the United States Small Business Administration (“SBA”) in the SBA’s action seeking to satisfy a default judgment assigned to SBA, arising after the default on a loan that SBA guaranteed between a private bank and appellant Michael Bensal’s company. Michael Bensal did not accept an inheritance in his deceased father’s trust, and instead signed a disclaimer, which transferred his trust share to his children and prevented creditors from accessing his trust share under California law. The Federal Debt Collection Procedures Act (“FDCPA”)’s “fraudulent transfer” provision allows the federal government to void a fraudulent transfer by a debtor owing a debt to the United States. The SBA sought to void Bensal’s disclaimer under the FDCPA as a fraudulent transfer SMALL BUS. ADMIN. V. BENSAL 3 that prevented SBA from collecting the debt Bensal owed on the default judgment. The panel held that the FDCPA displaced California’s disclaimer law, California Probate Code § 283. The panel concluded that Bensal’s disclaimer constituted a transfer of property under the FDCPA, and California disclaimer law did not operate to prevent the SBA from reaching Bensal’s trust share. The panel held that Bensal owed a “debt” to the United States. The panel concluded that the portion of the default judgment based on a second loan, which was guaranteed by the SBA, was a “debt” within the meaning of the FDCPA.
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