by John J. Tollefsen | Sep 10, 2014 | Bankruptcy, Blog, Etities, Washingon State
Northwest Wholesale, Inc. v. Pac Organic Fruit, LLC,2014 Wash. App. LEXIS 2197 (Wash. Ct. App.Sept. 4, 2014) Case decision: 140904-Northwest-v-Pac-Organic This case provides an example of the application of Washington limited liability company law to derivative actions when a member files a petition in bankruptcy. One party wanted to bring a derivative action after filing a Chapter 11 petition. This is not allowed under Washington Law. RCW 25.15.370 reads: A member may bring an action in the superior courts in the right of a limited liability company to recover a judgment in its favor if managers or members with authority to do so have refused to bring the action or if an effort to cause those managers or members to bring the action is not likely to succeed. 39 RCW 25.15.375 provides: In a derivative action, the plaintiff must be a member at the time of bringing the action and: (1) At the time of the transaction of which the plaintiff complains; or (2) The plaintiff’s status as a member had devolved upon him or her by operation of law or pursuant to the terms of a limited liability company agreement from a person who was a member at the time of the transaction. Under RCW 25.15.130(1)(d)(ii), a member of a limited liability company loses his or her membership upon the filing of bankruptcy. The statute provides: (1) A person ceases to be a member of a limited liability company, and the person or its successor in interest attains the status of an assignee as set forth in RCW 25.15.250(2), upon the occurrence of one or more of the...
by John J. Tollefsen | Jun 27, 2012 | Bankruptcy, Blog, Business Torts WA, Federal Law, Fraud, Fraud WA, Washingon State
Fraudulent Transfers in Washington State Transfers without adequate consideration or gifts can be overturned as fraudulent in certain circumstances. This article discusses breaking asset protection trusts and other devices to avoid creditors Briefly transferring house to wife to obtain loan is fraudulent transfer Most Asset Protection Schemes Do Not Work The Internet is replete with websites touting asset protection schemes. What they do not reveal is that they are unlikely to work. Most states have statutes that protect creditors from asset protection schemes through a variety of tools. Unless the trust does not benefit the debtor, it is unlikely to serve its purpose. This article discusses the various applicable statutes in Washington State. Understanding trusts An asset protection trust is an entity created by and recognized by court-made law (common law). “Asset protection” is a label applied to a common law trust specifying its purpose but not describing a unique entity. Some trusts, like Massachusetts Business Trusts, are entities chartered by Washington’s Secretary of State in a process similar to the creation of a corporation or limited liability company. Asset protection trusts generally rely on the non-chartered and therefore more secret trusts created under common law. Modern trust law is primarily the product of centuries of decisions starting from the 13th century in the courts of equity (Court of the Chancery) of England. Trusts are now internationally recognized by the Hague Convention on the Law Applicable to Trusts and on their Recognition effective January 1, 1992. An intentionally established trust (“express” trust) involves at least three persons: 1) the settlor(s) or trustor(s) who transfers property in trust to the...
by Justin Tollefsen | Dec 25, 2011 | Bankruptcy, Blog, Federal Law
Mastro distribution delayed Seattle Times December 1, 2011 Mastro bankruptcy trustee warns penny on the dollar payout could be delayed The trustee in Michael R. Mastro’s massive bankruptcy says the fugitive real-estate magnate’s unsecured creditors could get about 1 percent of their money back early next year, though further litigation could put that off a year or two. By Eric Pryne Seattle Times business reporter The trustee in Michael R. astro’s massive bankruptcy says the fugitive real-estate magnate’s unsecured creditors could get about 1 percent of their money back early next year. But that distribution would be delayed if a Mastro business associate succeeds in keeping several million reserved while he appeals a court ruling against him, trustee James Rigby said in a report to creditors this week. And any payout beyond that penny on the dollar is several years away, he added. Mastro, 86, a longtime Seattle developer and lender, was pushed into one of Washington’s largest bankruptcies in July 2009 after the collapsing economy undercut his highly leveraged real-estate empire. Using financial information filed by Mastro, Rigby initially estimated the developer owed unsecured creditors $325 million. But the trustee said in his latest report that he now expects court-approved claims will total less than $250 million. Mastro and his wife, Linda, disappeared this summer after failing to comply with a court order to hand over two diamond rings valued at $1.4 million. Warrants were issued for their arrest, but their whereabouts remain unknown. Mark Eriks, U.S. Marshal for Western Washington, said Thursday there’s nothing new to report on the search for the couple. But Rigby said in...
by Justin Tollefsen | Sep 28, 2011 | Bankruptcy, Blog, Federal Law
Rigby v Mastro Deed of trust voided due to Mastro fraud. Appeal by TL delays distribution to unsecured creditors in Mastro bankruptcy. Mastro rings belong to creditors, judge rules Two giant diamond rings claimed by the wife of bankrupt developer Michael Mastro rightfully belong to his numerous creditors, not to her, a judge ruled Tuesday. By Eric Pryne Seattle Times business reporter – 9/27/2011 The Mastro diamonds — wherever they are — rightfully belong to the creditors of bankrupt former real-estate magnate Michael R. Mastro and not his wife, Linda, a federal bankruptcy judge ruled Tuesday. Backed by her husband, Linda Mastro had argued that the rings, valued at $1.4 million, were her separate property. But Judge Marc Barreca ruled they are community property, “more like investment assets than property that might be gifted from one spouse to another.” The whereabouts of the rings, sporting 27.8- and 15.93-carat diamonds, are unknown. So are the whereabouts of 86-year-old Michael and 61-year-old Linda Mastro, who disappeared this summer when Barreca ordered them to turn over the rings to a jeweler for safekeeping until the judge determined the rightful owner. Warrants for their arrest were issued July 29. It wasn’t immediately clear how Tuesday’s ruling might alter other legal proceedings. But Michael Mastro has been the subject of a federal criminal investigation for more than 18 months. And, under federal law, concealing assets that rightfully belong to creditors in a bankruptcy case is a crime punishable by up to five years in prison. Mastro, a longtime Seattle real-estate developer and lender, was pushed into what probably is Washington’s largest bankruptcy in July...
by John J. Tollefsen | Jul 31, 2011 | Bankruptcy, Blog, Federal Law
Secured claims in bankruptcy are claims that are “secured” under state law. For real estate that means a deed of trust or mortgage. For most personal property it means security that was perfected under the Uniform Commercial Code. Introduction to Secured Transactions A creditor’s primary goal under Article 9 (Secured Transactions) of the Uniform Commercial Code (“UCC”) is to become a secured creditor with first priority in assets of the debtor. Unless the security interest is a preference under the bankruptcy code (generally perfected within 90 days without new consideration), it is entitled to priority over unsecured claims. The UCC uses technical vocabulary to describe the law of secured transactions. The interest of the creditor in assets of the debtor generally applies to any interest (regardless of its form) created by contract in personal property and fixtures and which secures payment or other performance of an obligation.1UCC §9-109(a)(1) That interest is referred to as a security interest,2See UCC §1-201(b)(35) defining “security interest” and the property subject to the security interest is referred to as collateral.3See UCC §9-102(a)(12) defining “collateral” The debtor is the person who has a property interest in the collateral other than a security interest or other lien.4UCC §9-102(a)(28)(A) The term “debtor” also includes a seller of accounts, chattel paper, promissory notes or payment intangibles,5UCC §9-102(a)(28)(B) a person who has a property interest in collateral subject to an agricultural lien,6UCC §9-102(a)(28)(A); see §9-102(a)(5) defining “agricultural lien” and a consignee.7UCC §9-102(a)(28)(C); see §9-102(a)(20) defining “consignment” The person who owes the debt (the “secured obligation”) is not the debtor but is referred to as the “obligor”.8UCC §9-102(a)(59) In most secured transactions the person who...
by John J. Tollefsen | Jul 28, 2011 | Bankruptcy, Blog, Federal Law
Voidable Preferences under the Bankruptcy Code Overview Section 547 of the Bankruptcy Code allows a debtor in bankruptcy or the trustee to “avoid” transfers (i.e., require repayment) made within 90 days of a bankruptcy filing or within one year if the transferee was an insider (known as “preferences”). The transferee’s liability for a preferential transfer is enforced by an adversary proceeding filed in bankruptcy court. “Adversary proceeding” is the name for federal lawsuits filed in bankruptcy court. The procedure is similar to standard federal lawsuits including discovery and pretrial orders. Policy A financially challenged business tends to pay only certain of its creditors out of loyalty or necessity. The bankruptcy preference laws are designed to increase fairness by equality of distribution among those who are unsecured creditors, not only on the filing date, but in the immediately preceding period as well. Creditors who “race to the courthouse” in order to collect gain no advantage if the debtor files bankruptcy within the preference period. Proving a voidable preference An avoidable preference involves seven elements: 1) a transfer, 2) of property of the debtor, 3) to or for the benefit of a creditor, 4) on account of an antecedent debt, 5) while the debtor was insolvent, 6) within 90 days of bankruptcy or one year in the case of insiders, 7) which enables the creditor to receive more than if the bankruptcy estate was liquidated in a Chapter 7 case. The Bankruptcy Code provides certain defenses to preference actions. 1) Transfer. The Bankruptcy Code broadly defines a transfer as “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of...
by Justin Tollefsen | Jul 28, 2011 | Bankruptcy, Blog, Federal Law
Means Test – Exclusion from Chapter 7 Bankruptcy If a debtor’s income is greater than an amount that varies by the number of dependants and household members, the debtor may not file a Chapter 7 bankruptcy petition. This is known as the 707(b) exclusion. This was designed to force debtors to pay off debts over 5 years in Chapter 13. The means test is long and complicated. Because it is subject to various interpretations, lawyers cannot be certain that it will not be recalculated by the trustee or the bankruptcy court. What follows is an outline of the test. An important exception to this exclusion applies if the majority of debt is business debt. Calculation of Income for the Purposes of the Means Test A. CALCULATION OF INCOME: 1. Gross Wages, Salary, Tips, Bonuses, Overtime, Commissions. 2. Income from the operation of a business, profession or farm 3. Rent and other real property income. 4. Interest, dividends, and royalties 5. Pension and retirement income. 6. Any amounts paid by another person or entity, on a regular basis, for the household expenses of the debtor or the debtor’s dependents, including child or spousal support. 7. Unemployment compensation. 8. Income from all other sources. B. APPLICATION OF 707(b) Exclusion 1. Determine applicable median family income. C. CALCULATION OF Currently Monthly Income for 707(b)(2) 1. Determine Marital Adjustment D. CALCULATION OF Deductions Allowed under 707(b)(2) 1. National Standards: food, clothing, household supplies, personal care, and miscellaneous. 2. Local Standards: housing and utilities; non-mortgage expenses. 3. Local Standards: housing and utilities; mortgage/rent expense. 4. Local Standards: housing and utilities; adjustment. 5....
by Justin Tollefsen | Jul 28, 2011 | Bankruptcy, Blog, Civil Litigation WA, Federal Law
Exemptions from Execution in Washington State Washington’s State Legislature has provided numerous exemptions from execution of judgments. These also protect property in bankruptcy if the debtor elects state exemptions over the federal bankruptcy exemptions. What follows is a generalized summary of the most common exemptions. Several have important conditions and exceptions that are not discussed. If the value of an asset exceed the maximum exemption, the difference usually must be paid to creditors in order to keep the asset. If it is sold, the proceeds up to the maximum goes to the debtor. In bankruptcy, the debtor can chose either the Washington Exemptions or Federal Exemptions schedule. Homestead A homestead is real or personal property which is the debtor’s principal residence (RCW 6.13.010). The exemption is $125,000 for land, mobile homes, and improvements; $15,000 for other personal property used as homestead (RCW 6.13.030). The amount is not doubled for community property, a spouse or domestic partner. However, if the spouse or domestic partner files bankruptcy more than 6 months later than the other, both receive the full exemption (RCW 16.13.080 (3). If homestead property is sold, the proceeds are entitled to the same protection as homestead property (RCW 16.13.180). There is an exception for child support obligations. Retirement Funds All retirement accounts are protected from creditors (except child support obligations) including Keogh and IRAs (RCW 16.15.020 (4)). Clothing All wearing apparel is exempt except the exemption for furs, jewelry, and personal ornaments is limited to $3,500 (RCW 6.15.010 (1)(a)). Photos and Keepsakes All family photos and keepsakes are exempt (RCW 6.25.010 (1)(a)). Libraries Each individual is entitled to an...
by John J. Tollefsen | May 28, 2011 | Bankruptcy, Blog, Federal Law
Federal Exemptions Summary for Bankruptcy Debtors (not applicable to tax debt) As of 5/6/2011 The following is a summary of section § 522 of Title 11 of the United States Code which provides for exemptions. Each debtor is entitled to these exemptions so in a joint case (husband and wife) the exemptions are doubled. Property and support of a dependent can be included. In Washington and New York, the debtor in bankruptcy can elect either state exemptions or the federal exemptions. In Oregon, the debtor may only use the state exemptions. Washington State exemptions Federal Statute providing these exemptions (11 USC § 522) Alimony and Child Support: § 522(d)(10)(D) – Alimony and child support needed for your support. Crime Victim § 522(d)(11)(A) – Crime victim’s compensation Health Aids § 522(d)(9) – Professionally prescribed health aids. Homestead: § 522(d)(1) – Real property, including mobile homes and co-ops, or burial plots up to $21,625. Unused portion of homestead, up to $10,825, may be used for other property. See “Wildcard” below. Insurance: § 522(d)(7) – All unmatured life insurance policies. § 522(d)(8) – The loan value of an unmatured insurance policy up to $11,525. § 522(d)(10)( C ) – Disability, unemployment or illness benefits. § 522(d)(11)( C ) – Life insurance payments for a person you depended on for your support to the extent needed for your support. Lost Earnings §522(d)(11)(E) – Lost earnings payments. Pensions: § 522(b)(3)(C) – Tax exempt retirement accounts; IRAs and any other retirement that is exempt from federal taxation. Personal Injury §522(d)(11)(D) – Personal injury recovery up to $21,625 excluding recovery for pain and suffering or for pecuniary...
by Justin Tollefsen | May 28, 2011 | Bankruptcy, Blog, Federal Law
This page is the statute providing for federal exemptions from bankruptcy. The link below provides an easier to follow summary of federal bankruptcy exemptions. Federal Bankruptcy Exemptions Summary 11 U.S.C. 522. Exemptions as of 5/2011 (a) In this section– (1) “dependent” includes spouse, whether or not actually dependent; and (2) “value” means fair market value as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate. (b)(1) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. In joint cases filed under section 302 of this title and individual cases filed under section 301 or 303 of this title by or against debtors who are husband and wife, and whose estates are ordered to be jointly administered under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, one debtor may not elect to exempt property listed in paragraph (2) and the other debtor elect to exempt property listed in paragraph (3) of this subsection. If the parties cannot agree on the alternative to be elected, they shall be deemed to elect paragraph (2), where such election is permitted under the law of the jurisdiction where the case is filed. (2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize. (3)...
