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Ninth Circuit BAP Rules Debtor Who Didn't Maintain Continuous Ownership Cannot Avoid Lien - In re Kuiken

January 16, 2013

Vincent Howard and our Riverside consumer bankruptcy lawyers were interested to see a ruling that could have bad implications for bankruptcy filers who have passed ownership of homes back and forth. In In re Kuiken, the Bankruptcy Appellate Panel of the Ninth Circuit held that bankruptcy filers cannot avoid a lien based on a California homestead exemption when they have not maintained a continuous interest in the property. Conrad Kuiken Jr. executed a grant deed conveying his home to Bayview Resources LLC, two years after Daniel T. McCoy won a judgment against him in San Diego Superior Court. Two months later, Bayview conveyed the home back to him. A month later, Kuiken filed for bankruptcy, claiming a homestead exemption in the property. He successfully avoided the lien in bankruptcy court, but McCoy appealed, and the Ninth U.S. Circuit Court of Appeals BAP ruled Kuiken had damaged his case by moving the property to Bayview and back.

Kuiken acquired the interest in the property in 2003. Six years later, McCoy obtained a judgment against him, and shortly thereafter, recorded a judgment lien for $16,838. In 2011, Kuiken granted title to the property to Bayview "for valuable consideration." But two months later, Bayview granted title back to Kuiken as a gift. Kuiken filed for bankruptcy the next month, listing the property as owned by Bayview. This was erroneous, but the panel believed it was an honest mistake. Kuiken's Schedule A said the property was worth $530,000, with a secured claim of $532,969. His Schedule C claimed $13,869 in the property as a homestead exemption. He also listed McCoy as a secured debtor with $16,838 in an abstract of judgment against the property. After he moved to avoid the lien, McCoy's objection argued that the lien became consensual when Kuiken transferred the home to a third party, and that California law gave the lien priority over Kuiken's interest when he transferred it back. The bankruptcy court rejected both of those arguments, finding that the transfers may affect Kuiken's interest in the property but did not affect his ability to avoid the lien.

McCoy appealed, in an appeal that did not involve Kuiken. Unfortunately for Kuiken, the Ninth Circuit BAP reversed the bankruptcy court. Bankruptcy law permits a debtor to avoid a judicial lien fixed on the debtor's interest in the property, when the lien impairs an otherwise valid exemption. McCoy argued that his lien is not judicial and that because of the transfers, Kuiken's current interest in the property did not fix until after McCoy's lien was fixed. After finding that the most relevant published opinions in the Ninth Circuit didn't quite fit the facts, the panel turned to a U.S. Supreme Court case, Farrey v. Sanderfoot. That decision ultimately concluded that a divorce lien had extinguished the parties' previous interests in the property and created a new one, making it impossible to avoid the lien. Similarly, the panel found that here, Kuiken's interest was extinguished by a transfer, and thus his current interest was younger than McCoy's lien. It disagreed that McCoy's lien was consensual, but nonetheless reversed the bankruptcy court and denied avoidance of the lien.

Vincent Howard and our Tustin personal bankruptcy attorneys are interested in the story behind the transfers of Kuiken's homestead. Sometimes, someone facing a legal judgment will attempt to transfer property around to keep it out of the hands of the judgment's owner. This might work, but as you can see here, it sets the stage for bad news in bankruptcy. In fact, in addition to changing the date of your interest in the property, the transfers may also convince a bankruptcy trustee, correctly or not, that you were attempting to hide your assets from the bankruptcy court. That can lead to having your bankruptcy dismissed without a discharge of debts, or in some cases even to criminal charges. That's a high price to pay for doing your own legal work, which is why we recommend that you talk to the experienced Upland individual bankruptcy lawyers at Howard Law, P.C., if you're thinking of using bankruptcy as a way to avoid a huge legal debt.

Led by partner Vincent Howard, Howard Law represents Californians from all backgrounds and walks of life who are ready to do the hard but rewarding work of bankruptcy in order to get a fresh start free of debt. If you;d like to tell us about your case and learn more about your options, call us today at 1-800-872-5925 or send us a message online.

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