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Ninth Circuit BAP Rules Debt From Failing to Pay Rent Is Not Dischargeable - In re Cha and Park

December 19, 2012

Vincent Howard and our Corona consumer bankruptcy attorneys were interested to see a decision on nondischargeability from our own Ninth U.S. Circuit Court of Appeals Bankruptcy Appellate Panel. Debts can be nondischargeable when they stem from certain bad actions defined by law, such as fraud. Having a debt declared not dischargeable in bankruptcy is a big deal, however, because that denies the debtor a chance to erase the debt and start over; it must be paid in or outside of bankruptcy. In In re Cha and Park, a Bay Area couple wanted to discharge a debt stemming from a state-court judgment against them, which was for failing to pay rent. The bankruptcy court determined that the debt was non-dischargeable, and the Ninth Circuit BAP affirmed.

The debtors, a married couple, leased property in the tony Marin County city of Tiburon in 2008. The landlord, Jeff Rappaport, testified that they paid rent once and only small amounts thereafter. Rappaport eventually went to court to reclaim the property and obtained a judgment for unpaid rent totaling a bit more than $46,000. When Cha and Park eventually filed for Chapter 7 bankruptcy, Rappaport filed an adversary proceeding saying that Cha, the husband, made false statements about his finances when he took out the lease; the false statements included claims that he was paid $14,000 a month and had $50,000 in the bank. After a trial, the bankruptcy court ruled that these statements were indeed false, and thus the state-court judgment was nondischargeable. The debtors did not offer evidence at trial that the statements were not false.

In fact, the BAP noted, the debtors also didn't argue on appeal that the statements were true. Rather, their appeal argued that Rappaport had no standing to file his adversary proceeding and that the judgment against Park, the wife, was improper. On standing, they argued that the landlord was not Rappaport, but his father's company, Western Liability Insurance Company. In fact, Western had assigned Rappaport the right to rent the property out, but he and his counsel had failed to bring the document to court, and the court declined to take judicial notice of it. Because there was no record of the assignment, the debtors argued, Rappaport had no standing. The BAP rejected this argument, saying other areas of the record, most importantly the state-court judgment, establish his standing. On Park, the BAP noted that the judgment against Park is only as to the marriage's community property and that the couple simply objected to the court's phrasing. Thus, it found no cause to overturn that ruling.

At Howard Law, P.C., our Tustin personal bankruptcy lawyers are always interested to see a nondischargeability case in our home circuit. Most nondischargeability cases involve a dispute over the alleged fraud or other bad acts leading to the adversary proceeding. It's unfortunate that Cha and Park had no arguments to make that the financial statement was not false. In addition to debts based on false or fraudulent acts, other reasons a debt may be declared non-dischargeable include a legal judgment based on willful and malicious acts; legal fines and citations; and any recent profligate spending. As a rule, a creditor must request that the debt be declared not dischargeable, leading to a trial - so it's vital that people facing this kind of adversary proceeding talk to Vincent Howard and our Ontario individual bankruptcy attorneys as early in the case as possible.

If you are considering bankruptcy as a way to deal with overwhelming personal debt, call Vincent Howard and the experienced attorneys at Howard Law today. You can reach us through our website or call 1-800-872-5925.

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