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The Bankruptcy Code prohibits the discharge of debt in Chapter 7 cases if the debtor transferred property out of his or her own name, with fraudulent intent, less than one year before filing a petition. 11 U.S.C. § 727(a)(2)(A). This is known as a “lookback period.” The Bankruptcy Appellate Panel (BAP) in Pasadena, California ruled earlier this year on the following question. Is this one-year lookback period a “statute of limitations,” which a court can adjust if a creditor shows good cause, or a “statute of repose” that bars claims after one year without exception? It ruled in the debtor’s favor, holding that a transfer of real property more than a year before filing a Chapter 7 petition does not prevent discharge. In re Neff, 505 B.R. 255 (BAP 9th Cir. 2014) (PDF file).

The case involves a total of three successive bankruptcy cases. The debtor filed a Chapter 13 petition in March 2010, but the court dismissed it one month later for failure to attend the creditors’ meeting. He filed a second Chapter 13 petition in June 2010. In March 2008, he had executed a revocable living trust and a quitclaim deed conveying a piece of real property (the “Property”) to the trust. The deed was not recorded, however, until April 7, 2010, while the first Chapter 13 case was still pending. The court noted this fact during the second Chapter 13 case, and the debtor signed a deed conveying the Property back into his name in August 2010.

The creditor was a patient of the debtor’s dental practice who had obtained a judgment for $310,000 in a malpractice lawsuit. He moved to dismiss the debtor’s second Chapter 13 case for bad faith in September 2010, based in part on the transfer of the Property to the trust. The debtor agreed not to oppose the motion to dismiss if he was not barred from filing a Chapter 7 case, so the court dismissed the Chapter 13 case.

The debtor filed a Chapter 7 petition in October 2011. The creditor filed a complaint under § 727(a)(2), based again on the transfer of the Property. The bankruptcy court granted summary judgment on the creditor’s complaint to the debtor, finding that the transfer occurred more than one year before the date he filed his Chapter 7 petition. The creditor had argued that the court should consider all three bankruptcy cases, beginning in March 2010.

The question for the BAP was whether the one-year lookback period was a strict one-year statute of repose, or if it was a statute of limitations that could be subject to adjustments by a court, known as “equitable tolling.” The only other reported case to consider this question with regard to § 727(a)(2) held that it is a statute of limitations, based on the three-year lookback period for tax debts in 11 U.S.C. §§ 507(a)(8)(A)(i), 523(a)(1)(A). Womble v. Pher Partners, 299 B.R. 810 (Bankr. N.D. Tex. 2003), citing Young v. United States, 535 U.S. 43 (2002). The BAP reached the opposite conclusion, noting that § 523 prevents discharge of certain specific debts, while § 727 prevents discharge of all debts. It held that the lookback period in § 727(a)(2) is a statute of repose, not subject to equitable tolling.

Bankruptcy attorney Devin Sawdayi represents individuals and families in the Los Angeles area in Chapter 7 and Chapter 13 bankruptcies. Contact us today online or at (310) 475-9399 to schedule a free and confidential consultation with an experienced and knowledgeable advocate.

More Blog Posts:

Pre-Bankruptcy Sale of Real Property Below Market Price Found to be Fraudulent by Bankruptcy Judge, Los Angeles Bankruptcy Lawyer Blawg, November 7, 2014

Court Converts Bankruptcy Case from Chapter 13 to Chapter 7 Based on Finding that Debtor Withheld Information, Los Angeles Bankruptcy Lawyer Blawg, January 27, 2014

Creditor Challenges Debtor’s Transfer of Business Assets to Himself Prior to Chapter 13 Bankruptcy Filing, Los Angeles Bankruptcy Lawyer Blawg, December 16, 2013