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Eighth Circuit Affirms Bankruptcy Court Order Giving House to Trustees - Alexander v. Jensen-Carter

April 8, 2013

Vincent Howard and our Moreno Valley consumer bankruptcy attorneys recently saw a case in bankruptcy complicated a division of property between divorcing spouses. In Alexander et al. v. Jensen-Carter et al., the Eighth U.S. Circuit Court of Appeals rejected an appeal from Georgina Stephens and Andrew Alexander, a mother and son. Stephens was married to Larry Alexander, who owned the Minnesota home where they lived together. Both former spouses filed for bankruptcy in 1998, with both claiming homestead exemptions at different times. Stephens used it as her homestead in a successful effort to defeat eviction by Alexander's bankruptcy trustee, but that trustee reopened Stephens's bankruptcy case to allege that the home had been fraudulently conveyed to her. In this appeal, the Eighth Circuit affirmed the resulting eviction and possession by the estates.

Alexander and Stephens married in 1990 and began living in a home Alexander already owned. In 1998, shortly before filing for bankruptcy, Alexander granted a quitclaim deed in favor of Stephens and Andrew. Stephens filed for bankruptcy a few months later. She did not initially claim a homestead exemption, but later did when Jensen-Carter, the trustee for Alexander, sought to possess the home and evict her. The state court ultimately decided that Stephens had a homestead interest. In 2004, however, Jensen-Carter reopened Stephens's bankruptcy case and sued Stephens, Alexander and Stephens's bankruptcy trustee, arguing that the quitclaim was fraudulent. The bankruptcy court in that case ultimately gave the home to Jensen-Carter, and the Eighth Circuit upheld it. As a settlement with the other trustee, Jensen-Carter agreed to divide the value of the home between the bankruptcy estates. This was again upheld and the bankruptcy court later evicted Stephens and Andrew, who now appeal that decision.

The Eighth Circuit, which was now seeing the case for the third time, upheld the bankruptcy court. It started by dismissing Andrew's appeal for standing reasons. It then rejected Stephens's argument that the state unlawful detainer decision should have foreclosed any further litigation over the home's ownership. The Eighth Circuit had already rejected these arguments in the case's previous trip to the appeals court; it now did so again, reaffirming its finding that the bankruptcy court had jurisdiction despite the previous remand to state court. It also rejected arguments based on res judicata, collateral estoppel and the law of the case. The first two had been rejected in the previous Eighth Circuit case, but the law of the case argument was rejected because that doctrine does not apply to interlocutory orders (or comments). Stephens's trustee does not lack standing, the court further ruled, and an argument based on a statute of limitations is irrelevant.

Vincent Howard and our Irvine personal bankruptcy lawyers would like to call attention to the quitclaim deed that Alexander used to sign over the house to Stephens and Andrew. This was called a "fraudulent conveyance," which is legalese for a dishonest attempt to remove property from a bankruptcy estate. If a bankruptcy court or a trustee believes you are involved in a fraudulent conveyance, it can mean reopening the bankruptcy and a variety of penalties. The property is likely to be brought back into the bankruptcy estate, as it was here. In serious cases, the debtor's discharge may be revoked, the case may be dismissed or the debtor may even be prosecuted criminally. That's why honesty is vitally important in bankruptcy filings, and why Vincent Howard and our Upland individual bankruptcy attorneys want our clients to be completely honest, so we can prevent a mistake that makes your situation worse instead of better.

If you're considering bankruptcy as a way to deal with your overwhelming debt, Howard Law, P.C., can help. For a consultation, send us a message online or call 1-800-872-5925.

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