Vincent Howard and our Claremont consumer bankruptcy lawyers were interested to see a bankruptcy case involving a debt whose ownership was passed along from a bank to an individual without being paid off. In Carter v. Estate of Leon J. Heimer, the Eighth U.S. Circuit Court of Appeals Bankruptcy Appellate Panel declined to allow Walter and Debra Carter to avoid a lien on their 2005 Cadillac Escalade held by the estate of Leon J. Heimer. The Carters, of Iowa, originally pledged the truck as collateral for two loans from a bank, but they later lost a lawsuit by the estate, to the tune of $30,230.74. Before a lien sale could take place, however, the Carters filed for Chapter 7 bankruptcy and sought to avoid the estate's lien. The BAP agreed with the bankruptcy court that they could not.
The opinion did not say why the Carters took out the loans or why they were sued by the estate. However, after judgment was entered on the lawsuit by the Iowa state court, the court issued a writ of execution allowing a sheriff's sale of the Escalade to satisfy the judgment. The Heimer estate paid off a loan balance of $21,299.79 to the bank, a requirement for a sheriff's sale. However, before it could hold the sale, the Carters filed for bankruptcy. In their filing, they listed as exempt an interest of $13,600 in the Escalade. They then moved to avoid the Heimer estate's lien, arguing that they were allowed under the bankruptcy code to avoid judicial liens that impair any exemptions.
The estate argued that the $21,299.79 it paid to the bank created a consensual lien that may not be avoided, though the underlying judicial lien may. The bankruptcy court ultimately agreed with the estate, and the BAP upheld the bankruptcy court, finding the $21,299.79 debt was a consensual lien. By paying off the Carters' debt, the BAP said, the estate stepped into the shoes of the bank and assumed its rights and legal status. Thus, the $21,299.79 lien is a consensual lien, because the Carters entered into that loan voluntarily. Indeed, the court noted, it is not disputed that they voluntarily took out the original loans for which they pledged the Escalade as collateral. They could not have avoided that lien when it was held by the bank, and they may not avoid it now that the estate stands in the bank's shoes.
Vincent Howard and our team of Orange County personal bankruptcy attorneys suspect that this bankruptcy was filed strategically, to avoid allowing the estate to sell off the vehicle. In that way, the case resembles other cases we've seen in our work defending clients against foreclosure of their homes. Those cases are often complicated by the special set of laws applying to real estate, but the principle is the same: a judicial lien can be avoided under the right circumstances. However, bankruptcy law generally does not permit debtors to avoid lawsuit judgments simply by filing for bankruptcy; this is not a favored public policy position. If you're in this situation and you'd like to explore bankruptcy, talk to the experienced Whittier individual bankruptcy lawyers at Howard Law, P.C., before taking action.
If you're considering bankruptcy as a way to control your debt, it pays to talk to Vincent Howard and the team at Howard Law about your legal options. For a consultation, send us an email or call 1-800-872-5925 today.