U.S. Supreme Court Will Hear Bankruptcy Case Involving Charge on Debtor’s Property

U.S. Supreme Court Will Hear Bankruptcy Case Involving Charge on Debtor’s Property

 WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on June 17 granted certiorari in a case involving the question of whether a bankruptcy court has the power to levy a financial charge against a Chapter 7 debtor's residential property, which he has claimed falls under the homestead exemption, despite the suggestion of the U.S. solicitor general that the high court deny hearing the case (Stephen Law v. Alfred Siegel, No. 12-5196, U.S. Sup.) (lexis.com subscribers may access Supreme Court briefs for this case)'.

Bankruptcy Filed

In 2004, Stephen Law filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Central District of California. He listed his home property value as $363,348 and sought a homestead exemption. 

The Chapter 7 trustee, Alfred Siegel, did not object to the homestead exemption, but two years later, the trustee moved to surcharge Law's homestead exemption $75,000.

Law argued that he was not properly served in the process. 

Lien

The trustee had argued that Law defrauded his creditors by filing a phony lien against his property to take value out of the property. 

The Bankruptcy Court granted the trustee's surcharge, and Law appealed to the U.S. Bankruptcy Appellate Panel (BAP) for the Ninth Circuit. The BAP reversed the surcharge order, concluding that it was "not warranted." 

The trustee appealed to the Ninth Circuit U.S. Court of Appeals, which reversed the BAP's ruling and determined that the surcharge was proper. Law appealed to the Supreme Court. 

Surcharge

Law argues that the Supreme Court should reverse the Ninth Circuit's ruling and order the trustee to pay him the $75,000 surcharge pertaining to the homestead exemption. 

Law maintains that the surcharge in question is not permitted against his property because it is protected by the homestead exemption. 

The solicitor general had contended that the case should not be granted certiorari because it did not present the question on which courts of appeals are divided. Specifically, the solicitor general said the equitable surcharge at issue in the case at hand was independently supported by the Bankruptcy Court's inherent authority to sanction fraudulent and abusive litigation conduct.

Law is represented by Matthew Hellman of Jenner & Block in Washington. The trustee is represented by David Seror of Ezra Brutzkus Gubner in Woodland Hills, Calif. The solicitor general is represented by Solicitor General Donald B. Verrilli Jr., Acting Assistant Attorney General Stuart F. Delery, Deputy Solicitor General Malcolm L. Stewart, Assistant to the Solicitor General Sarah E. Harrington, Michael S. Raab and Anne Murphy of the U.S. Department of Justice. All are in Washington.

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