The Hacienda court's refusal to dismiss this marijuana industry case - on two separate occasions - and instead to confirm the Chapter 11 plan, represents a departure from the vast majority of bankruptcy court decisions, which reached the opposite result: dismissing bankruptcy cases based on perceived violations of federal drug laws alone. Bason) denied a motion to dismiss the Chapter 11 bankruptcy case despite finding that the marijuana-industry debtor was engaged in an ongoing, post-petition violation of the federal Controlled Substances Act (CSA). Bankruptcy Court for the Central District of California (Judge Neil W. To schedule a free and confidential consultation to discuss your case, please contact us today online or at (310) 475-939.In re The Hacienda Company, LLC, No. at 4.ĭevin Sawdayi has represented people in the Los Angeles area in personal bankruptcy cases under Chapter 7 and Chapter 13 since 1997, helping them rebuild their finances with dignity and respect. It agreed with the trustee’s arguments that the debtor should have reported the equalization payment as an asset, and that she failed to investigate “her true financial picture” before filing for bankruptcy. The court held that the debtor did not meet her burden of proof, and that dismissal would be inequitable to the creditors. The debtor has the burden of proving that creditors would not be prejudiced. Under Ninth Circuit BAP precedent, a court cannot dismiss a Chapter 7 case on a debtor’s motion if it would prejudice a creditor. It noted that the lower court only considered the debtor’s medical expenses without making any mention of prejudice to the creditors. The bankruptcy court granted the motion over the trustee’s opposition, citing the debtor’s health condition as the reason for its ruling. She argued that she had severe chronic health problems, that she expected to continue to incur debts for health care, and that the loss of the income from the equalization payment would cause her to go further into debt. § 707(a), which states that the court may dismiss a case for cause. In June 2013, the debtor moved to dismiss the case under 11 U.S.C. After receiving a copy of the divorce decree, the trustee claimed that the equalization payment was an asset of the bankruptcy estate that could be sold to pay creditors. She reported $5,000 per month in spousal maintenance income in the Statement of Financial Affairs. She did not include the equalization payment in the Schedule B list of personal property, nor did she include a copy of her divorce decree. The debtor filed a Chapter 7 petition in April 2013. He sends her an additional $2,500 per month, which all parties in the bankruptcy agree is spousal maintenance. This is known as an “equalization payment.” The full amount should be paid by 2017. He paid her $30,000 upon signing the agreement and began making monthly payments of $2,500 on February 1, 2005. The settlement agreement between the debtor and her former spouse stated that she was entitled to $390,000 from the former spouse. The central issue for the debtor was whether $2,500 of the $5,000 payment she received every month from her former spouse was spousal maintenance, which is an exempt form of income under bankruptcy law, or part of her share of the marital estate, which is a non-exempt asset. The Bankruptcy Appellate Panel (BAP) reversed, finding that dismissal of the case would prejudice the creditors. The bankruptcy court granted the motion and dismissed the case. The trustee claimed that half of the monthly payment, which was the debtor’s only reported source of income, was actually an asset under the terms of the divorce decree and was therefore part of the bankruptcy estate. A debtor moved to dismiss her Chapter 7 bankruptcy case after the trustee sought to use half of a $5,000 monthly payment she received from her ex-spouse to pay creditors.
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