Elliott v. Pacific Western Bank, No. 18-17421 (9th Cir. 2020)
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The Ninth Circuit affirmed the district court's judgment affirming the bankruptcy court's dismissal of a chapter 7 debtor's adversary proceeding seeking to exempt retirement funds from the bankruptcy estate. In dismissing the adversary complaint for failure to state a claim, the bankruptcy court held that debtor could not reclaim his retirement funds because he filed the bankruptcy petition after the execution lien had been satisfied.
The panel held that debtor failed to state a claim under 11 U.S.C. 522(h), which allows a debtor to step into the role of the bankruptcy trustee and avoid certain transfers of exempt property made before the filing of the bankruptcy petition. The panel also held that, because the judicial lien was satisfied prior to the petition date, it was not voidable under section 522(f). Therefore, because it was not voidable, debtor could not succeed on his separate section 522(f) claim nor establish that the transfer of his IRA funds was a preferential transfer under section 547. Having failed to allege the elements of a section 547 preferential transfer, the panel held that the bankruptcy court correctly concluded that debtor failed to state a claim under section 522(h).
Court Description: Bankruptcy The panel affirmed the district court’s judgment summarily affirming the bankruptcy court’s dismissal for failure to state a claim of a chapter 7 debtor’s adversary proceeding seeking to exempt retirement funds from the bankruptcy estate. Pacific Western Bank declared a default on a loan on which the debtor was either the borrower or guarantor. The Bank obtained a state court judgment against the debtor and a writ of execution, and it instructed the sheriff to levy on the debtor’s individual retirement account, creating an execution lien. After the sheriff levied on the debtor’s individual retirement account, he filed for bankruptcy. The debtor claimed all assets in his IRA were exempt from creditors under a California statute and 11 U.S.C. § 522(b)(3)(C), which exempt retirements funds from being used to satisfy a money judgment. He sought avoidance of the transfer of his levied IRA funds to the Bank under § 522(h) or (f). The panel held that the debtor failed to state a claim under § 522(h), which allows a debtor to step into the role of the bankruptcy trustee and avoid certain transfers of exempt property made before the filing of the bankruptcy petition. The panel concluded that because the judicial lien was satisfied prior to the petition date, it was not voidable under § 522(f). Because it was not voidable, the debtor could not IN RE ELLIOTT 3 succeed on his separate § 522(f) claim nor establish that the transfer of his IRA funds was a preferential transfer under 11 U.S.C. § 547. The debtor having failed to allege the elements of a preferential transfer, the bankruptcy court correctly concluded that he failed to state a claim under § 522(h).
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