by Hearthstone Legal Group | Jun 9, 2026 | bankruptcy, BANKRUPTCY LAW
According to the glossary maintained by the Administrative Offices of the United States Courts, the term “bankruptcy estate” is defined as:
“All legal or equitable interest of the debtor at the time of the bankruptcy filing. The estate includes all property which the debtor has an interest, even if it is owned or held by another person.”
In most chapter 7 cases, the bright line between the bankruptcy estate, which includes money in the bank, and wages earned prior to the bankruptcy filing, as well as lawsuits for or against the debtor, in existence at the time of the filing of the bankruptcy petition, as well as personal property and real property that the debtor owns, as opposed to for example, wages earned after the bankruptcy is filed, which wages are not part of the bankruptcy estate.
An equitable interest, such as an interest in a will, that vests after the bankruptcy is filed, may still be considered part of the bankruptcy estate, because the equitable interest existed before the bankruptcy was filed.
The debtor is required to list all assets and all debts, which would be part of his or her bankruptcy estate, in the bankruptcy petition, at the beginning of the bankruptcy proceeding.
But what about something that was neither expected nor known at the time of filing? Following the logic of the above definition, if a debtor were the victim in a traffic accident after he or she filed his or her bankruptcy petition, and he or she in fact became the plaintiff in that auto accident case, would that lawsuit be part of the bankruptcy estate, or not? Indisputably, the accident had not occurred, and the lawsuit did not exist, at the time of filing of the bankruptcy petition. The accident lawsuit would not be part of the estate, period.
Not so fast, said the US Fifth Circuit Court of Appeal. That Court held that all of the debtor’s assets and liabilities had to be disclosed, even a personal injury lawsuit that came into existence after the bankruptcy petition was filed. The defendant in the auto accident case, being rather cagey, argued that the injury lawsuit should be barred, because the debtor, who was still in bankruptcy, had not disclosed the lawsuit in his multiple amendments to the bankruptcy petition. The Court of Appeals applied the doctrine of “judicial estoppel,” in other words, the debtor was prevented from pursuing this asset, because he had failed to disclose it to the bankruptcy court.
Again, what is the definition of the bankruptcy estate? The lawsuit did not exist at the time of filing. The matter would eventually work its way to the US Supreme court.
The Supreme Court will issue its decision in the summer of 2026. However, the judges apparently are considering the question of judicial estoppel, and whether it is fair to bar plaintiff, who had no control over when the auto accident occurred, from seeking to recover relief for his personal injuries. The Fifth Circuit’s rule, which is followed in some, but not all circuits, seeks to hold a debtor responsible for non-disclosure of the asset (the lawsuit).
Some commentators seem to mock the plaintiffs debtor’s bankruptcy attorney, for not including the lawsuit in subsequent amendments to the bankruptcy papers. And certainly, given the fact that papers were amended, the careful attorney would have certainly mentioned the lawsuit, and parenthetically said that this arose after the bankruptcy was filed, and let the US trustee and bankruptcy judge sort out whether it was really part of the bankruptcy estate or not.
Additionally, as in all contested litigation, there is no guarantee that the Plaintiff will receive a dime. Pending litigation is often given a value of $0 in bankruptcy proceedings, because no one knows how it will end up.
The mechanical, punitive approach of the Fifth Circuit seemed unconvincing to the US Supreme Court. According to commentators, the justices seemed skeptical of the idea that the debtor should bear the full brunt of his attorney’s apparent failure to include the subsequent lawsuit in the amendments.
In fairness to the attorney, however, the lawsuit was not part of the bankruptcy estate, under the strict definition of the term.
In bankruptcy, as in many things, issues of law are sometimes seen through a lens of fairness (“equity”). If someone received a $10 million inheritance a week after filing bankruptcy, the bankruptcy trustee would have a hard time ignoring that and considering whether that money should be part of the bankruptcy estate. But there may be valid arguments for the debtor, depending on the circumstances (including a motion to dismiss the bankruptcy).
But here, the Supreme Court seems to be leaning towards not holding the debtor/accident victim accountable for his lawyer’s arguable error, and not preventing him from recovering on his lawsuit.
It will also be interesting to see if the High Court even mentions “abandonment” of the claim (asset) by the Trustee, or whether the Trustee would be the real party in interest. My guess is that the issue won’t even come up.
The Supreme Courts decision should be an interesting read.
Keathley v. Buddy Ayers Construction, Incorporated.; Docket 25-6
Thanks to the Oyez Project, at Chicago Kent School of Law
FOR EDUCATIONAL PURPOSES ONLY; THIS POST DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. PLEASE CONSULT AN ATTORNEY
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.
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE, AND DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP; PLEASE CONSULT AN ATTORNEY!!!
by Hearthstone Legal Group | Feb 23, 2025 | bankruptcy, BANKRUPTCY LAW, constitution, creditors
Herbert N. Wiggins, Esq., HEARTHSTONE LEGAL GROUP, & Kyle Gurwell, Esq., LAW OFFICE OF KYLE GURWELL
As of January 1 and July 1, 2025, various parts of California Senate Bill 1286 go into effect. The bill includes a number of revisions to California’s consumer protection laws, broadly known as the Rosenthal Act.
Previously, this author noted how the updated law explicitly allows state government to penalize unfair behavior in a non-judicial foreclosure (for example, Civil Code Section 1788.1 and following, and Civil Code Sections 2923.5 and 2924f).
But the law does not stop there.
For example, the Rosenthal Act originally covered only consumer debts.
New Version: Recent amendments have expanded the Rosenthal Act to cover consumer debts that include court-ordered obligations in certain contexts. It also explicitly addresses predatory practices involving debts related to towing, parking citations, and repossession fees.
Commercial Transactions: A significant update under SB 1286 is the inclusion of certain covered commercial transactions. Specifically, this applies to debts related to small-business loans and commercial leases when the borrower is an individual or sole proprietor. These loans and leases must be primarily for business purposes but may fall under the act’s protections if the borrower faces abusive collection practices. This change reflects California’s recognition that some small business owners and sole proprietors may experience similar vulnerabilities to consumer debtors, particularly when they are personally liable for the debt.
In enforcing violations, the Rosenthal Act works to do the following:
California Rosenthal Act Violations:
Unfair Fees: Imposing unauthorized or excessive fees during repossession.
Credit Reporting Violations: Threatening to report false information to credit bureaus or withholding accurate credit reporting to coerce payment.
Medical Debt Violations: Pursuing collections despite insurance coverage disputes or failing to provide a breakdown of costs.
Housing-Related Collections: Using threats of eviction while demanding unjustified sums or failing to follow required legal procedures.
Service of Process Violations (SB 1286): Attempting to enforce a debt judgment after improper or deceptive service of legal documents.
Commercial Transaction Violations: Engaging in harassment, misrepresentation, or improper service related to small-business debts covered by the new provisions of SB 1286.
Penalties:
Statutory damages up to $1,000 per violation (similar to the FDCPA).
Actual damages, including emotional distress and financial harm.
Attorney’s fees and costs.
Class actions: California courts may apply the FDCPA guidelines for damages or create state-specific penalties depending on the case.
Furthermore, these penalties may be cumulative in particular cases.
CONCLUSION: Creditors are on notice to tread carefully in California.
These violations can cause significant emotional and financial distress for consumers and small business owners, which is why both federal and state laws provide strong recourse.
For example, including granting the Commissioner of California’s Department of Financial Protection and Innovation authority to regulate non-judicial foreclosure under the Rosenthal Act. (Civil Code section 1788.1 and following)
Additionally, changes to the California Homeowner’s Bill of Rights also added additional requirements for non-judicial foreclosures. Civil Code Sections 2923.5 and 2924f.
For those who do run afoul of California’s Rosenthal Act, the penalties can be severe. Damages are $1000 per violation, and potentially punitive damages. The Plaintiff can also seek costs and attorney’s fees from the offending party. Additionally, such behavior can be fined and enjoined under the Unfair Competition Law, Business & Professions Code §17200.
In light of California’s recent experience with wildfires and other disasters, it may be that, beginning in July 2025, debt collectors will have to much more carefully navigate how they seek to collect on mortgages, auto loans, auto leases, and other debts that impacted individuals owe as of that date.
by Hearthstone Legal Group | Dec 26, 2024 | bankruptcy, BANKRUPTCY LAW, constitution, creditors
The Florida Homestead, in the Spotlight
FAIR LENDING/MORTGAGES/BANKRUPTCY/TECHNOLOGY
December 10, 2024
Atlanta, GA election workers, Ruby Freeman and Wandrea ”Shaye” Moss won their $148 MM judgment against former Trump attorney Rudolph Giuliani in late 2023. Mr. Giuliani has been attempting to delay, deny, and frustrate payment of the judgment ever since.
First, he filed for bankruptcy. But when he did not honestly submit information, his case was thrown out. Just as somebody who learned about bankruptcy law from episodic television, he soon found out that bankruptcy requires full truthful disclosure of the debtor’s assets. Mr. Giuliani was not willing to do that, so eventually his bankruptcy was dismissed.
(He was not prosecuted for perjury, which is one penalty for false bankruptcy papers).
Then, Mr. Giuliani apparently removed valuables from his New York apartment, so that those items could not be seized.
Now, the Plaintiffs are looking to take Giuliani’s West Palm Beach, Florida condominium, and Giuliani seeks to assert “homestead” protection. (Palm Beach Daily News, October 29, 2024). A homestead is an exemption for a certain amount of value of a primary residence, protecting that value from a forced sale. Florida, however, has a very generous homestead law, protecting the full value of real estate, provided the property is less than half an acre in size, if it is located in a city. (Florida Constitution, Article X, §4; Chapter 732 and 733 of Florida Statutes)
But there are also filing requirements, as well as the declaration of primary residence. According to certain commentators, someone who wants to claim a Florida homestead must file that notice of intent by March 1st of a particular year (year 1). Then, beginning in the following year (year 2), the individual or individuals can claim a homestead going back to January 1st of the previous year (year 1).
Furthermore, a voters registration or driver’s license will help establish residency.
So, one line of inquiry for the Court will be to find out when Mr. Giuliani recorded his homestead declaration (and to be effective here, would that be March 1 of 2023, the year of the judgment, or by March 1, 2024, when the Plaintiffs are seeking to collect?), and what other steps has he taken to establish Florida as his primary residence.
According to some press reports, Mr. Giuliani has told other individuals, such as bankers, that his residence was New Hampshire. Mr. Giuliani will be grilled on his factual defenses by the Court.
THE ABOVE PHOTO IS FOR ILLUSTRATIVE PURPOSES, AND DOES NOT REPRESENT THE PROPERTY DISCUSSED IN THIS ARTICLE.
THIS POST IS COMMENTARY ON CURRENT EVENTS
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE
by Hearthstone Legal Group | Apr 9, 2024 | bankruptcy, BANKRUPTCY LAW, constitution, creditors
Much is being made of whether or not a bankruptcy will be filed, with regard to the recent large judgment issued by the Supreme Court of New York, the Hon. Arthur Engoron, against the former president and his company.
Much has also been made as to whether this will cause a certain amount of delay in the collection of the judgment.
The Complaint filed by Attorney General Letitia James against Donald Trump, his children and associates, and various corporate organizations associated with him, consisted of various allegations of fraud: Count 1- persistent and repeated fraud; Count 2- falsifying business records; Count 3- conspiracy to falsify business records; Count 4 – illegally issuing false financial statements; Count 5 – conspiracy to falsify false financial statements; Count 6 – insurance fraud; Count 7 – conspiracy to commit insurance fraud.
In other words, the Attorney General’s complaint, and the verdict rendered thereunder, are explicitly and overwhelmingly devoted to fraudulent actions against the defendants. Fraud is the gravamen of the case.
Furthermore, the Bankruptcy Code, 11 USC Section 523(a)(2)(A), explicitly states that there is no bankruptcy discharge for “money, property, services, or an extension, renewal, or refinancing credit, to the extent obtained by false pretenses, a false representation, or actual fraud . . . “
Because the New York Supreme Court has adjudicated the statements made by the defendants to be fraudulent, they would appear to be no question but that the discharge in bankruptcy would not apply to the attorney general’s judgment made against Trump and his co-defendants. The judgment would remain collectible after the bankruptcy proceedings conclude.
Therefore, a Chapter 7 or Chapter 11 bankruptcy filed by Trump or any of his co-defendants would appear doomed to ultimate failure: there would be no discharge for debts connected to fraud, and all of the debts in this case are connected to fraud.
Of course, the Bankruptcy Court is a federal court, and a separate jurisdiction. Theoretically, there could be a delay in enforcement of the judgment, while the Attorney General files and prosecutes what is known as an “adversary proceeding,” in the bankruptcy court, to seek a holding that the debts in question are based upon fraud, and non-dischargeable under the Bankruptcy Code.
The ultimate result would not appear in question, although no one can ever predict the outcome of litigation. However, given the factual and legal findings of the New York Supreme Court, it seems exceedingly unlikely that a bankruptcy court would find that the Attorney General’s judgment, and this collectible debt, is not connected to fraud.
Additionally, as Mr. Giuliani has found out in his bankruptcy proceedings, the debtor is required to submit truthful information regarding his/her/its holdings, and this has been something that Mr. Trump and his associates have found very difficult to do. Statements regarding assets are under penalty of perjury, and failure to make truthful statements could only further endanger the declarant with the Federal authorities.
Thus, even though there may be an upside for anyone filing bankruptcy related to this judgment, in causing a small amount of delay, the downside would be that any debtor who files bankruptcy with regard to debts that are already adjudicated as fraudulent will risk further prejudicing himself, herself, or itself, if any statements made to the bankruptcy court are anything but 100% true and accurate.
THIS ANALYSIS IS A COMMENTARY AND NOT LEGAL ADVICE
by Hearthstone Legal Group | Mar 5, 2024 | bankruptcy, BANKRUPTCY LAW
Public benefits are frequently a part of bankruptcy proceedings. A debtor may have received worker’s compensation payments, or unemployment benefits. In California, worker’s compensation or unemployment benefits paid before the bankruptcy can be discharged; they are not seen as a non-dischargeable tax. Notrica v. State Comp. Ins. Fund (1999) 70 Cal.App.4th 911, 924-925, 939-940
The recovery of other forms of public benefits, made before the debtor files the bankruptcy petition, is also barred by the bankruptcy discharge; even the US government, as a creditor, cannot seek repayment of the overpayment of such benefits after the debtor’s discharge. In re Madigan, 270 B.R. 749, 752-753 (B.A.P. 9th Cir. 2001); Cooper v. Soc. Sec. Admin. (In re Cooper), BAP WW-23-1098-CBS, 12 & fn. 6, 7, & 8 (B.A.P. 9th Cir. Jan. 16, 2024) [unpublished]
But sometimes, the situation is more complicated. For example, if the debtor is on Social Security Disability Income, without interruption, both before and after the filing of a chapter 7 bankruptcy, and if there is an overpayment, the government may be able to recover that overpayment through reducing benefits after the bankruptcy discharge, under the doctrine of equitable recoupment. All that is required is a “logical relationship” between the pre-petition benefits received by the debtor, and the post-petition payments to the debtor by the government. If there is such a logical relationship, the post-petition benefits may be reduced by the pre-petition overpaymnent, under the doctrine of “equitable recoupment.” This recoupment neither violates the automatic stay, nor the discharge injunction. In re Williamson, 795 Fed.Appx. at 538 (quoting In re TLC Hosps. Inc., 224 F.3d 1008, 1014 (9th Cir. 2000).
The logical relationship test States the following:
“[C]ourts have permitted a variety of obligations to be recouped against each other, requiring only that the obligations be sufficiently interconnected so that it would be unjust to insist that one party fulfill its obligation without requiring the same of the other party.” In re Madigan, 270 B.R. at 755; Cooper v. Soc. Sec. Admin. (In re Cooper), BAP WW-23-1098-CBS, 12 & fn. 6, 7, & 8 (B.A.P. 9th Cir. Jan. 16, 2024) [unpublished]
In Cooper, a former Boeing worker suffered an injury on the job and began receiving workers compensation. He was later determined to be totally disabled, and started to receive workers compensation benefits in addition to a pension. Eventually, he filed his Chapter 7 petition, while he continued to receive uninterrupted SSDI benefits. Through a paperwork glitch, the fact that he was receiving workers compensation was not communicated to the Social Security administration, and eventually SSDI came to the debtor with a $73,000 bill for payments that it would not have made, had it been aware of the workers’ compensation payments.
The court noted that the debtor was not responsible for the paperwork glitch; he had notified the Social Security Office in Washington State of the debtor’s workers compensation case, but that information was never communicated to the primary office in Richmond, California. Nevertheless, the court concluded that the disability both before and after the Chapter 7 petition was the same; that there was a “logical relationship” between the pre-petition overpayments and the post-petition paid benefits; and therefore, under that therefore, the doctrine of “logical recoupment,” the debtor’s post-petition could be reduced, to offset the pre-petition overpayments.
Cooper is an “unpublished” opinion, so it is not authority for the proposition that it cites, but it does cite to numerous published opinions that provide for “equitable recoupment.”
THIS ARTICLE DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT WITH AN ATTORNEY
