by Hearthstone Legal Group | Feb 7, 2026 | bankruptcy, BANKRUPTCY LAW, creditors, debt relief, Real Estate
About 4 to 6 weeks after the debtor has submitted his / her / there / its Chapter 7 bankruptcy Petition, the debtor will appear in what is known as the 341 meeting. The 341 meeting is named for that section of the Bankruptcy Code, 11 USC section 341, which states, among other things, the following:
“(a)Within a reasonable time after the order for relief in a case under this title, the United States trustee shall convene and preside at a meeting of creditors.
“(b) The United States trustee may convene a meeting of any equity security holders.
“(c) The court may not preside at, and may not attend, any meeting under this section including any final meeting of creditors. . . . “
For most debtors, this is as close as they will ever get to a courtroom. It is also as close as they will get to the judge. Interestingly, the hearing does not take place in a courtroom, and the judge is not present.
The meeting is done in a conference room, with the debtor, the debtor’s attorney, if any, and the assistant United States Trustee. The debtor is under oath and the meeting is recorded on audiotape. There is no judge, no jury, and if the meeting goes well, the debtor will see none of these.
The Sec. 341 meeting is the debtor’s opportunity to confirm the accuracy of the information that she has submitted for consideration by the Bankruptcy Court, via the United States trustees office. The assistant United States trustee will ask if the bankruptcy forms, largely known as “schedules,” are complete and correct, whether there has been a change in the status of any asset or debt, whether any property has recently been transferred, and whether there are any pending lawsuits filed by or against the debtor, among other things. The trustee will ask about changes in title to any property within recent months. In other words, the trustee wants to know if there’s anything that would raise a red flag as property or debt that has not been disclosed, that has changed hands, or that has otherwise been wasted, destroyed, transferred, lost, or is not available for the bankruptcy trustee to seize or sell, if either is indicated by the bankruptcy petition and schedules.
The meeting, which is the culmination of many hours of compiling documents, usually lasts only 5 to 10 minutes. That is the best case scenario. If a debtor finds himself or herself coming back over and over again to give more information, that’s usually an indicator that the trustee feels that the documents are incomplete.
Creditors can also attend, to ask if property that they loaned to Plaintiff has gone missing, or to contest the amount of the debt disclosed by the debtor. It is very rare for creditors to appear at the garden variety Chapter 7 Sec. 341 meeting.
Assuming that the Section 341 meeting goes well, then the next steps are for the trustee to file a “report of no distribution”, stating that he or she did not find any assets to seize and sell, and then it will be up to the Clerk of the court to close the case. The whole process, from the 341 meeting ’til the closure of the case, could take a little as a week or so, or as long as a few months.
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by Hearthstone Legal Group | Nov 20, 2025 | Equal Credit Opportunity Act
In 2024, the Consumer Financial Protection Bureau entered into a settlement with Townstone Financial, Inc., a mortgage lender in the Chicago area. The settlement was based upon allegations made in a 2020 lawsuit by CFPB that Townstone had made multiple public comments (on radio and online) which discouraged African-Americans from applying for mortgage loans, and which disparaged African-American neighborhoods, such as Markham, in the Chicago area (which comments would suggest that Townstone would not offer a mortgage to borrowers from such neighborhoods).
Discouraging financial participation by neighborhood or zip code is known as “redlining.”
The CFPB argued that Townstone’s actions discouraged (discriminated against) potential borrowers of color. The District Court in Illinois rejected this argument and dismissed the lawsuit, on the ground that the 15 USC Sec. 1691, the Equal Credit Opportunity Act (“ECOA”) does not protect potential borrowers. The District (trial) Court relied on the explicit language of ECOA.
The 7th Circuit Court of Appeals reversed this ruling, noting that Regulation B (an enabling regulation of ECOA, in the Code of Federal Regulation), and the portion of ECOA itself, which protects a borrower in “any aspect of a credit transaction,” could logically include planning to submit a mortgage application (i.e., a potential borrower). Several Townstone radio broadcasts suggested that borrowers from Markham, in Cook County, Ill., would not receive a mortgage, and hence, need not apply.
After the Circuit Court’s reversal in 2024, the CFPB and Townstone entered into a settlement, in which Townstone would pay a fine, and commit itself to certain actions, to ensure that discrimination against protected classes, such as African Americans, would cease.
Enter a new Administration, and in 2025, a more conservative CFPB and Townstone filed a motion to vacate the settlement, on the grounds that CFPB no longer found Townstone’s actions in violation of ECOA. The CFPB and Townstone approached the District Court, who, by Judge Franklin Valderrama, refused to vacate the settlement:
“Now, current CFPB leadership [,] under the second Trump administration, in an act of legal hara-kiri that would make a samurai blush, falls on the proverbial sword and attests that the lawsuit lacked a legal or factual basis.”
The Court also said, among other things, that said claim by the current
CFPB was “breathtaking,” but the Court was not convinced. The judge went on to say that:
“(Vacating and dismissing the settlement) would set a precedent suggesting that a new administration could seek to vacate or otherwise nullify the voluntary resolution of a case between a prior administration (or the same administration, but under different agency leadership) and a private party merely because its leadership thought the original litigation unwise or improperly motivated.” [emphasis added].
Any and all settlements could be re-opened and then dismissed, and then re-filed, and then re-dismissed, and then re-filed, ad infinitum. Settlements and rulings need to be final, and the public must be able to rely on settled litigation.
The judge said, “That is a Pandora’s box the Court refuses to open.”
This is not to say that consent orders (settlements structured as court orders) can never be dissolved, such as, for example, where there is a showing of a change of facts on the ground. An order may not exist in perpetuity, if the factors that led to the entry of the order no longer exist. But that was simply not the case on the south side of Chicago in 2025.
The takeaway is that at least one US Circuit Court of Appeals has recently held that ECOA applies to prospective mortgage borrowers, a concept that is fully consistent with the statute, and a method to discourage redlining.
Consumer Financial Protection Bureau v. Townstone Fin., Inc., 2024 WL 3370023 (7th Cir. July 11, 2024.
The author also referred to Banking Dive, “Judge rejects CFPB’s bid to vacate Townstone settlement,” June 13, 2025, to present this commentary on an important legal issue and matter of public interest.
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by Hearthstone Legal Group | Oct 7, 2025 | Uncategorized
This is a Commentary on a Recent Published Opinion of the 9th Circuit Bankruptcy Appellate Panel
Around 2001, attorney Pamela Lacher contracted with a vendor, ECI, for services, which resulted in about $3,000 charge to the attorney. For reasons that are unstated in the appellate opinion, Lacher refused to pay.
Later, attorney Lacher and her mother sued the vendor, and placed a lis pendens on the home of the owner of ECI. ECI sued to have the Lis Pendens removed, and this removal was upheld against multiple appeals by Lacher.
By the time this activity was over, the debt was around $50,000.
Years went by, and the judgment increased with interest. By around 2020, Ms. Lacher owed over $200,000.
Additionally, by this time the California State Bar got involved. It began disbarment proceedings. Ms. Lacher filed for Ch.7 bankruptcy, and argued that the Chapter 7 should end the disbarment proceedings, and cancel the debt.
ECI filed an adversary proceeding, arguing that the debt was the result of fraud or malice, and thus not amenable to cancellation (“discharge”) in the bankruptcy court.
But the BAP opinion focused on 3 issues:
1) Did the 11th Amendment, which leaves the states sovereign over items that are not reserved to federal government power, preclude any ruling by the bankruptcy court that related to the State Bar’s disciplinary procedures? No, the bankruptcy court is not infringing on the State Bar’s power by issuing rulings that may incidentally affect Ms. Lacher’s professional status. By going through bankruptcy, the bankruptcy court did not effect any coerciver power over the State;
2) Did the judicial abstention doctrine require the bankruptcy court to abstain from ruling on the issue of whether bankruptcy proceedings are pre-empted by federal law? No, the judge had full authority to rule on whether the State Bar action was stayed by the bankruptcy case. The BAP relied on previous cases to rule that “Bankruptcy courts simply cannot provide a fresh start without interfering to some degree with state court proceedings.”
3) Did the bankruptcy case bar (as in, discharge) any disciplinary action against the attorney? No, because 1) the disciplinary action was not strictly based on monetary debt; and 2) the vendor’s action (“adversary proceeding”) based on fraud or malice was pending, and could eventually hold that the debt based on Ms. Lacher’s refusals to pay, and appeals, going back to 2001, were non-dischargeable. It would make little sense to hold that the debt was dischargeable, before the court could rule on whether the debt resulted from fraud or malice.
In re: PAMELA LACHER, Debtor. BAP No. SC-25-1020-FLC Bk. No. 24-03882-CL7 PAMELA LACHER, Appellant, v. STATE BAR OF CALIFORNIA, Appellee.
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by Hearthstone Legal Group | Aug 19, 2025 | Uncategorized
Read this blog to learn how bankruptcy law protects retirement for Lakewood residents based on a SCOTUS ruling. Although many bankruptcy practitioners would prefer not to see the words “bankruptcy” and “Supreme Court” in the same sentence, the Supreme Court recently made an important decision by simply staying out of a dispute that came from the Ninth Circuit Court of Appeals, which Ninth Circuit decision benefited Chapter 13 debtors.
Martha G. Bronitsky, Chapter 13 Trustee v. Jorden Marie Saldana, Case No. 23-15860.
The issue in Saldana was “whether voluntary contributions to employer-managed retirement plans constitute disposable income in a Chapter 13 bankruptcy.” In other words, is a debtor in Chapter 13 bankruptcy prevented from contributing to her employer-managed retirement plan during the 5 years of the Chapter 13 repayment period, and thus required to make every single penny of possible retirement contribution available to the Trustee, to pay back debts?
The bankruptcy court and US District Court had held that the contributions were part of Ms. Saldana’s bankruptcy estate, and thus available for debt repayment, as part of the debtor’s Chapter 13 plan.
However, the Ninth Circuit’s decision reversed this holding, and this reversal is consistent with most of the Circuit Courts in the US.
In June 2025, the US Supreme Court decided not to disturb this decision.
As part of the Court of Appeals decision, the US Trustee and the Ninth Circuit analyzed 11 USC Sec. 541(b), which states that contributions to an employer-managed retirement plan are not part of the bankruptcy estate. 541(b) specifically excludes from the bankruptcy estate earnings withheld by the debtor’s employer for 1) contributions to employer-managed retirement plans under Internal Revenue Sec. 414(d); or 2) part of a deferred compensation plan under IRC Sec. 457; and/or 3) a tax-deferred annuity under IRC Sec. 403(b).
The Ninth Circuit noted that there were at least four different formulae available to determine whether or not the contributions to the employer-managed retirement plan should instead be turned over to the Trustee for payment to creditors. The Ninth Circuit ruled that the contributions to Ms. Saldana’s employer-sponsored retirement plan did not qualify as “disposable income,” within the reach of the Trustee, under any of these formulae.
Moreover, in addition to the plain language of the 11 USC 541(b)(7), which explicitly excludes wages withheld for the employer-sponsored retirement plan, the Ninth Circuit could have based its holding on the basic theory of bankruptcy relief:
“The Bankruptcy Code is a public scheme for restructuring debtor-creditor relations, necessarily including “the exercise of exclusive jurisdiction over all of the debtor’s property, the equitable distribution of that property among the debtor’s creditors, and the ultimate discharge that gives the debtor a ‘fresh start’ by releasing him, her, or it from further liability for old debts.”
Cent. Va. Cmty. Coll. v. Katz, 546 U.S. 356, 363–64 (2006); N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71 (1982), cited in Grissel, “Stern v. Marshall – Digging for Gold and Shaking the Foundation of Bankruptcy Courts (or Not),” 72 Louisiana Law Rev. (2012), at 670.
Given the cuts to social services, and the ever-shrinking American social safety net, it would be inconsistent with the “fresh start” justification for bankruptcy, to further restrict the amount of funds that a debtor could save for retirement. Given the twin justification, that a bankrupt debtor should not become a “ward of the state,” it is completely reasonable for a bankruptcy court to vindicate the plain language of 11 USC Sec. 541(b)(7), and allow the debtor to continue to fund her retirement, during the 60 months of her Chapter 13 repayment plan.
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by Hearthstone Legal Group | Jun 17, 2025 | Uncategorized
It is apparently the rare case where a fraudster not only admits to the fraud, but seeks to get court relief, based upon the timing of the fraud.
However, when the object is to protect a residence, anything goes.
In the recent case involving debtor Diane Ida Uriostegui, BAP No. CC-24-1174-GFS, Defendant/debtor was sued in California Superior Court, for financial elder abuse among other things, for causing her patron to disinherit his family, and bequeath to her hundreds of thousands of dollars. Prior to Ms Uriostegui’s intervention, the money should have been distributed into a trust previously established by the deceased trustor and his late wife.
The heirs of the creator the trust (the trustor) successfully sued Ms. Uriostegui for financial elder abuse, and apparently won a verdict in the neighborhood of $1MM. Defendant subsequently filed for bankruptcy, and claimed an exemption for her home of $687,000.
The obvious purpose of Uriostegui’s exemption claim was to protect the home from sale, because if the sum of the mortgages and homestead exemption are greater than the value of the home, the home will not be sold in bankruptcy.
The heirs sought to force the sale of the home, claiming that 11 USC 522 (q) limited defendant/debtor to a homestead of $189,000. The heirs claimed that Defendant should have been limited in her a homestead exemption, because she had committed the elder abuse in her fiduciary capacity (as a trustee of fraudulently the manipulated trust). 11 USC 522 (q).
In the ironic twist, defendant claimed that her fraud occurred before she had any interest in the trust, and therefore prior to any fiduciary relationship attaching. The California court had not specifically found that she committed fraud while Defendant was a fiduciary. In fact, federal law is clear that there can be no fiduciary relationship prior to the establishment of a trust, in which the alleged wrongdoer is a trustee.
Because there was no fiduciary relationship between the defendant/debtor and the deceased at the time of his death, defendant/debtor’s actions were not committed in the capacity of a fiduciary, and therefore her homestead was not limited by 11 USC 522 (q).
If all of this a little odd in context, it is; the court does not discuss whether the debt to the heirs is dischargeable. That was not her argument. Apparently, the Superior Court judgment would still be collectible, as a non-dischargeable debt based on fraud, pursuant to 11 USC Sec. 523 and 524. All the underlying case was deciding was whether Debtor’s admitted fraud limited her homestead exemption.
Thus, the heirs could record the judgment, and enforce it to the lawful extent against any non-exempt asset. They simply could not force the sale of the home at this time (and the case does not say it, but query if the home was purchased by Defendant with the pilfered funds).
There is likewise no discussion of any criminal prosecution of the Defendant. That should have been a possibility, given her admission of the fraud; the fact that she took advantage of an elderly person; and the fact that she apparently took a very large sum of money.
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