Author Archives: Ryan C. Wood

About Ryan C. Wood

Ryan C. Wood is a California attorney practicing primarily in the areas of Bankruptcy Law, Business Law and generally seeking justice for under represented clients in the Bay Area.

Ninth Circuit Court of Appeals Upholds In re Hatton Test Regarding Definition of Return in Martin Smith Appeal

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The issue in these cases is the effect of the Internal Revenue Service or other taxing authorities filing a Substitute Filed Return (“SFR”) and then the taxpayer voluntarily files their own tax return after that. Does the subsequent honest, accurate and voluntary filed tax return by the tax payer satisfy the definition of a “return” under the Bankruptcy Code and Section 523(a)(1)(B)(i)? A SFR is filed by a taxing authority (Internal Revenue Service or Franchise Tax Board) when a taxpayer fails to timely file their tax return on their own. A SFR is created and filed by the taxing authority. If a taxpayer has a SFR for a tax year and owes taxes for that year, and then files for bankruptcy protection the taxes owed for the SFR year, if normally dischargeable, are exempt from discharge (not discharged) given any debt for a tax with respect to which a return was not filed is nondischargeable pursuant to § 523(a)(1)(B)(i). But this is the bankruptcy world and not the real world. The Bankruptcy Code changes creditors rights to try and treat all parties fairly when the debtor has limited resources or no resources to pay their debts as the come due or at all.

Like many laws Congress passes certain terms that are extremely important are not defined within the law. I wish this was not so common and the undefined terms regularly are extremely important to interpreting the law. The Bankruptcy Code is no different. A “return” was not defined sufficiently and still is not even though Congress in the 2005 BAPCPA reforms amended Section 523(a) to include [For purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements)]. Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law.] So the argument is a return filed after the SFR is a tax return that satisfies the requirements of applicable nonbankrutpcy law and the taxes for that year should therefore be dischargable.

As background, and you probably know this, any time a return is filed a form is used like 1040EZ or 1040a. So after a SFR is filed by a taxing authority the person that did not file their return uses the pre-printed form provide by the taxing authority. So for bankruptcy purposes and after the 2005 BAPCPA amended Section 523(a) to include for purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable nonbankruptcy law the use of a preprinted form provided by the taxing authority meets this requirement. It apparently does not.

In the Martin Smith v. United States Internal Revenue Service [https://cdn.ca9.uscourts.gov/datastore/opinions/2016/07/13/14-15857.pdf] case Mr. Smith and his Bankruptcy Attorneys attacked the fourth prong of the Hatton test and tried to argue Mr. Smith’s voluntary filed tax return filed after the SFR is a “return,” therefore the underlying taxes owed are dischargeable and not governed by § 523(a)(1)(B)(i). While the original bankruptcy court agreed, unfortunately the District Court and now the Ninth Circuit Court of Appeals disagreed.

In Hatton in 2000, pre-2005 BACPA, the Ninth Circuit Court of Appeals developed a four prong analysis as to what a “return” is pursuant to § 523(a)(1)(B)(i) and the Bankruptcy Code. See In re Hatton, 220 F.3d 1070 (9th Cir. 2000) The test for a “return” under Hatton is: (1) it must purport to be a return; (2) it must be executed under penalty of perjury; (3) it must contain sufficient data to allow calculation of tax; and (4) it must represent an honest and reasonable attempt to satisfy the requirements of the tax law. The 9th Circuit Court of Appeals noted that a number of sister circuits have agreed with the Hatton case. See In re Ciotti, 638 F.3d 276,280 (4th Cir. 2011); In re Justice, 817 F.3d 738, 740–41 (11th Cir.2016) The Ninth Circuit Court of Appeals also noted that the Tax Court has not wavered. See Estate of Sanders v. Comm’r of Internal Revenue, 144 T.C. 63 (2015) Wait, Congress changed Section 523 and added: for purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). So is this non-hanging parentheses language why there was no analysis of the Section 523 language change in 2005? Was Mr. Smith’s late filed return not in compliance with applicable filing requirements?

From my perspective a SFR does not meet the Hatton test. The taxing authority more or less makes up the numbers based upon what they have and not real world numbers. So while requirements 1-3 are met in the Hatton test, again we are left with prong 4. Does a SFR represent an honest and reasonable attempt to satisfy the requirements of the tax law? Subjectively yes. The Internal Revenue Service takes 1099’s or other documents provided by employers and does its best to put together a return on behalf of the tax payer who does not timely file their return. At the same time the tax payer subjectively believes when they do file their return after a SFR is filed they also make an honest and reasonable attempt to satisfy the requirements of the tax law. It would seem both parties are making a an honest and reasonable attempt to satisfy the requirements of the tax law. The courts have analyzed this issue objectively though.

Mr. Martin’s Bankruptcy Attorneys argued that the Smith facts were different then the Hatton facts and therefore distinguishable and I have to agree. I have not read all of the pleadings, but Mr. Martin filed his 2001 tax return seven years after it was due. Mr. Smith reported a higher income than the IRS used in their SFR which increased his tax liability. One issue that is not up for argument is whether the increased tax liability above the amount due on the SFR is dischargeable. The increased tax liability evidenced by Mr. Smith’s actual late filed return is dischargeable. So the late filed return is a partially recognized “return” under the Bankruptcy Code then? Just not the entire return? In Smith, Mr. Smith unfortunately falls prey to the holding in Hatton that belated acceptance of responsibility was not an honest and reasonable attempt to comply with the tax code. I have to disagree with this analysis in Smith. Not only did Mr. Smith file a return, but he honestly listed his income and deductions so that his tax liability increased and subjectively made an honest and reasonable attempt to satisfy the requirements of the tax law. So what if it was seven years after the actual taxes were due. Where is there any temporal requirement in the Hatton test or the new language in Section 523(a) resulting from the 2005 BAPCPA? The Hatton test is not even the law, but another appellate case and a created test prior to the statutory change in Section 523(a) to help define the term “return.” Statutory interpretation/construction requires a court take the plain meaning of the words used within their context. The court must focus on the language of the statute. Must give each word its ordinary meaning unless the statute or the context requires otherwise, and must interpret not only the individual words, but also the provision as a whole along with related provisions. See Lamie v. U.S. Tr., 540 U.S. 526, 534 (2004); Friedman v. P+P, LLC (In re Friedman), 466 B.R. 471, 479 (9th Cir. BAP 2012); Foxgord v. Hischemoeller, 820 F.2d 1030, 1032 (9th Cir. 1987) The court must interpret not only the individual words, but also the provision as a whole along with related provisions. United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371 (1988) Where is the analysis of how Mr. Smith’s accurate, honest, reasonable, partially relied on and tax liability increasing return does not meet the requirements of applicable nonbankruptcy law (including applicable filing requirements)? The Hatton case was decided in 2000 and before the 2005 BACPA which became effective in 2005.

Unlike Mr. Smith, Hatton merely met with the IRS and capitulated into an installment agreement with the IRS without making any affirmative action to honestly and reasonably comply with the tax code. Mr. Smith clearly did honestly and reasonably not only make the effort, but did comply with the tax code and then filed a return that met the requirements of applicable nonbankruptcy law (including applicable filing requirements) by increasing his tax liability. Mr. Smith should have been rewarded for filing his tax return upon seeking bankruptcy protection under the Bankruptcy Code. An honest debtor deserves a discharge under the Bankruptcy Code. I believe this and believe the holding in the Smith case sends the wrong incentive and message to debtors and their attorneys.

So, somehow the Internal Revenue Service is allowed recognize the validity of a late filed return regarding the increased taxes owed while at the same time arguing the late filed return is not actually a “return” for purposes of §523(a)(1)(B)(i) as the late filed return does not meet the requirements of applicable nonbankruptcy law. I suppose the only reason to file a return after a SFR is to decrease the alleged tax liability in the SFR, but the return is still not a “return” for bankruptcy purposes. The Hatton case and now Smith decision more or less provide a penalty for not voluntarily filing a tax return within a certain amount of time. Well, then what is a reasonable time frame in which the fourth prong of the Hatton Test can be satisfied? One year? Two years or days after the SFR is filed? Some arbitrary time limit after the SFR is filed that if you are a day over you cannot discharge the taxes when filing bankruptcy? I still want to know how a return filed after a SFR does not satisfy the requirements of applicable nonbankruptcy law (including applicable filing requirements). I am going to have to dig deeper into these two cases……….

The Oral Arguments Before the Ninth Circuit Court of Appeals

Wow, what a pressure cooker. After listening to the oral arguments before the three judge panel I still believe the decision here is wrong as the law and Bankruptcy Code are written. It is about interpretation though and past decisions. The Ninth Circuit Court of Appeals just could not get over that the debtor filed the 1040 tax return so late after the IRS had given him so many chances to file his own return. The debtor in this case did not actually file his own return until after the IRS spent the time to file the Substitute Filed Return. I will assume the application of the Hatton test was the correct choice even with the addition to Section 523(a) of a definition of a “return” under the Bankruptcy Code. So we are stuck with the IRS and Ninth Circuit Court of Appeals somehow telling us the tax return filed by a debtor after a Substitute Filed Return is a “return” as to the amount the debtor filed return increases the assessed taxes from what the Substitute File Return assessed, but that same “return” is not a “return” as to the previously assessed taxes owed from the Substitute Filed Return. The Smith case did not nothing to explain how a portion of a “return” can be an honest and reasonable attempt to satisfy the requirements of the tax law and part of a “return” not be at the same time.

The Smith case really just ignores the issue of what the definition of what a “return” is under the Bankruptcy Code or what an honest and reasonable attempt to satisfy the requirements of the tax law (including applicable filing requirements). The Court just took the IRS position that since the IRS filed the SFR then a debtor in this case, Martin Smith, under the circumstances in his case could never subsequently file a return and have the portion of the taxes owed according to the SFR discharged in a bankruptcy case. Mr. Smith just waited far too long to file his “return” that by every measure was complete and accurate. In theory there can still be a set of facts in which a court can determine a return filed by the debtor after a SFR is in fact a “return” and discharge all of the taxes assessed for that year. This case was just not it. What is troubling is the Hatton case represented a debtor that made no good faith effort to file a “return” unlike in the Smith case. Mr. Hatton filed a late return in which he provided true and accurate information resulting in his tax obligation given his tax liability increased from the Substitute Filed Return the taxing authority created. That is by definition a honest and reasonable attempt to satisfy the requirements of the tax law (including applicable filing requirements). What does “including applicable filing requirements” even mean? We still do not know. It would have been nice for the Smith case to have gone this direction and helped to define how to apply the actual words of the Section 523(a) of the Bankruptcy Code.

So, the moral of the story really is to timely and honestly file your tax returns and not let a taxing authority file a return on your behalf. Do not ignore the letters a taxing authority sends in the mail to file your returns and this will never be a problem.

If You Are Having A Problem With Your Home Loan Payment Call a Bankruptcy Attorney

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One of the most frustrating parts of my job is over and over again talking to people that file Chapter 13 bankruptcy cases to stop a foreclosure or eviction without proper legal advice from an actual bankruptcy attorney. By the time they speak to me there is usually too much water under the bridge for me to get involved and actually obtain them relief under the Bankruptcy Code they are entitled to. I say entitled to because the Bankruptcy Code is the law. You just have to follow it and get relief. Most skeleton Chapter 13 bankruptcy petitions should never have been filed to begin with.

Five Steps To Help Prevent Getting Scammed

These five steps cannot guarantee you will not get scammed, but they will limit your risk to getting scammed, losing your house and paying too much for the services provided to you.

1. Never ever wait until the last minute to start getting information; the problem did not come up overnight, so the solution will not come overnight either….
2. Make sure the person helping you signs the documents filed with the court; not you;
3. Only do business with someone that is local in your area and not hundreds of miles away;
4. Only do business with someone you have actually met in person and they have an office you can walk into if you want;
5. Google the phone number, fax number, email address, name of person or business name you are dealing with … basically Google each and every bit of identifying information you are given . . . most likely someone has already complained about them and Google will find it for you.

The Automatic Stay is a Jewel to be Coveted, Not Abused

The automatic stay is the backbone of the bankruptcy process and is the single most important and precious jewel to be coveted, not abused. Section 362 of the Bankruptcy Code provides the very lengthy law of how the automatic stay is implemented. A general description is the automatic stay stops almost all collection activity by creditors to give the bankruptcy filer breathing room to figure things out and reorganize or discharge their debts according to the Bankruptcy Code. That includes lawsuits, repossession, foreclosure, wage garnishment, levies, phone calls, letter and on and on. The automatic stay is the most powerful tool for a Bankruptcy Attorney to help people or businesses in financial distress. There are many limits in the automatic stay and for purposes of this article I will focus on the people filing their own cases with advice from the wrong people. What I find is multiple bankruptcy petitions filed by people trying to save a house more often than not. The first petition filed for relief they receive an unlimited automatic stay. There are no timing restrictions as long as the case remains open and not dismissed. This is what everyone should want, the bankruptcy case, whether Chapter 13, Chapter 7 or some other chapter of the Bankruptcy Code, to progress properly and the bankruptcy filer is not in jeopardy of the automatic stay not being in place. The single best way to ensure this is retaining an experienced bankruptcy attorney to file your case. If your home is in jeopardy do not trust a realtor or some other non-bankruptcy professional to help you.

Danger of Multiple Bankruptcy Filings

What I see over and over again with bankruptcy filers getting bad information is there case is just dismissed for not filing the proper documents in the beginning or not timely filing the proper documents after the case is filed. What the unscrupulous realtor, attorney or company will do is tell you or give you the basic forms to file a skeleton bankruptcy petition to obtain the automatic stay. That includes the voluntary petition, statement of social security number, creditor matrix and most likely an application to pay the $310 court filing fee in payments. The really horrible people will not even tell you about the application to pay the court filing fee in payments and make you waste the entire $310 even though they know the case will just be dismissed. They know the case will be dismissed because the forms described above are all they are going to help you with. That is it. You will have 14 days from when the court enters an order for you to file the rest of the documents to actually complete the petition. So the bankruptcy filer is now representing themselves and has only filed the basic forms to get the case started and does not know what to do next…… The bankruptcy filer will have paid whatever the unscrupulous person charge, usually well over a thousand dollars or more, plus the court filing fee of $310 and the Chapter 13 bankruptcy case is dismissed usually within three weeks.

If your first case is dismissed for some reason and you file a second case within a year you only get a 30 days automatic stay unless the stay is extended within that 30 days. There is no guarantee the court will extend the automatic stay and if a creditor objects to the extension it is even less likely the automatic stay will be extended. The third case filed within a year gets absolutely no automatic stay unless the automatic stay is imposed. Again, there is no guarantee the court will impose the automatic stay.

Required Credit Counseling Course Completion Prior to Filing a Bankruptcy Case

Another trap that realtors and unscrupulous people do not tell the bankruptcy filer is that they must complete the credit counseling course prior to filing for bankruptcy. The credit counseling only takes a few hours to complete and should cost less than $10.00 to complete. Skeleton Chapter 13 bankruptcy petition after skeleton bankruptcy petition is filed without the bankruptcy filer completing the credit counseling course prior to the filing of the case. I am a Bankruptcy Attorney that has either filed or been involved in literally thousands of bankruptcy cases and I only know of one or two circumstances in which the court allowed someone to take the credit counseling course after the bankruptcy case was filed or waived the requirement entirely. Since 2005 BACPA changes to the Bankruptcy Code, Section 109(h)(1) requires the completion of credit counseling within the 180-day period prior to the filing of the petition. Section 109(h)(3) provides a temporary exemption from that requirement if the bankruptcy filer submits a certification that: (i) describes exigent circumstances that merit a waiver of the requirements of [section 109(h)(1)]; (ii) states that the bankruptcy filer requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in [section 109(h)(1)] during the 7-day period beginning on the date on which the debtor made that request; and (iii) is satisfactory to the court. Section 109(h)(4) provides a total waiver if the Court determined, upon notice and hearing, that the debtor is unable to complete the credit counseling requirement due to incapacity, disability, or active military duty in a military combat zone. If you have in jeopardy of losing your home just complete the credit counseling course before filing the bankruptcy case and do not play around with attempting have the court give you more time or waive the requirement. It is just not worth it.

Do Not Fall For the Mortgage Litigation Scam

The mortgage litigation scam is only a ploy for criminals to get around the laws making it a criminal act to take money upfront to do a loan modification and a ploy to get around only charging you $150 as a bankruptcy petition preparer. I keep writing about this and it keeps happening. I do not know what the solution is. I try and educate people to enforce their rights and apparently they do not take my advice. Or there are just more and more of these unscrupulous people replacing the ones that go away. If you missed mortgage payments and owe thousands and thousands of dollars because you did not make the mortgage payments rarely are there issues for you to litigate. Especially if you are a consumer and this is regarding your home. We keep finding people in the Bay Area doing business with businesses in Southern California to litigate mortgage issues that appear to be purely scams. If you are litigating a mortgage problem that is legitimate you should not be directed to file a skeleton bankruptcy petition that you sign and file yourself. That makes no sense. When an attorney takes your money to do something they are supposed to sign and file the documents on your behalf because they are representing you and take on the liability for their work. That is how it is supposed to work. Also, why do business with someone that is hundreds of miles away that will most likely never give you your money back when you figure out it was a scam? Are you going to sue them for the $1,000 – $4,000 you gave them already? I seriously doubt it and I have yet to see it.

Was The Chapter 13 Petition and Plan Filed in Good Faith?

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In a Chapter 13 reorganization case there are a number of requirements that a Chapter 13 Plan must meet to be confirmed or approved by the bankruptcy court. Section 1325, Confirmation of Plan, of the Bankruptcy Code provides the requirements that must be met. Section 1325(a)(3) and 1325(a)(7) provide the bankruptcy petition and chapter 13 plan must be proposed in good faith. This issue has been framed as a petition or plan is in bad faith. What you are trying to prove though is lack of “good faith.” Prove that the petition or plan were not filed in good faith. The word bad faith does not appear anywhere. The term “good faith” is not defined by the Bankruptcy Code so case law is all we have to go on.

Good Faith Pursuant to Section 1325 of the Bankruptcy Code

Again, the debtor will argue the petition and plan were filed in good faith. Lack of good faith can be shown by considering: (1) whether the debtor misrepresented facts in his/her petition or plan, unfairly manipulated the Bankruptcy Code, or otherwise filed his/her chapter 13 petition or plan in an inequitable manner; (2) the debtor’s history of filings and dismissals; (3) whether the debtor only intended to defeat state court litigation; and (4) whether egregious behavior is present. See Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1224 (9th Cir. 1999) (internal quotation marks and citations omitted); see also Drummond v. Welsh (In re Welsh), 711 F.3d 1120, 1132 (9th Cir. 2013).

Mendez, Appellant v. Harwood, Appellee

In a recent decision by the Ninth Circuit Bankruptcy Appellate Panel the issue of good faith based upon an objection to confirmation filed by judgment creditor Ronald Mendez. According the court records, Mr. Mendez was a former client of the bankruptcy filer Sterling V. Harwood. Mr. Mendez paid Mr. Harwood a total of $18,000. At some point Mr. Mendez was dissatisfied with Mr. Harwood’s services and requested his money back. Mr. Harwood refused and from prison Mr. Mendez sued Mr. Harwood in Santa Clara Superior Court for breach of contract and fraud. Mr. Harwood did not respond to the lawsuit and a default judgment was entered against him for approximately $26,000. After five months Harwood tried to have the default judgment vacated for improper service of the summons and complaint. The Superior Court of California ruled Harwood’s motion to vacate the default judgment was not timely and that personal service of Harwood was proper. The default judgment stood.

Harwood’s Chapter 13 Bankruptcy Cases

Mr. Harwood filed a skeleton Chapter 13 bankruptcy petition to stop garnishment of his wages to satisfy the state court judgment of Mr. Mendez. A skeleton petition describes the filing of the basic documents to start a Chapter 13 bankruptcy case. The rest of the petition must be filed within 14 days or the case will be dismissed. There are almost no successful Chapter 13 reorganizations without the assistance of bankruptcy lawyers. Mr. Harwood’s first case was dismissed.

Harwood’s Second Chapter 13 Bankruptcy Filing

This first case was dismissed for failing to complete the credit counseling course or complete the bankruptcy petition. After retaining a bankruptcy attorney Mr. Harwood filed a second Chapter 13 bankruptcy case. To be fair Mr. Harwood has plenty of reasons to reorganize his debts. In addition to the Mendez judgment for $29,000, Mr. Harwood was behind on this mortgage payments and needs to obtain a loan modification to keep the his home, he is also behind on his property taxes, he has another judgment entered against him in San Mateo Superior Court totaling $5,837.90 owed to another attorney, Donald S. Tasto, Esq. Attorney Tasto unfortunately passed away while Mr. Harwood’s second bankruptcy filing was pending. Mr. Harwood also has $112,219.87 in general unsecured debts. Mr. Harwood listed his income from employment as a professor as $3,336 a month and business income of $25,362 a month in Schedule I (total monthly gross income after deductions is $26,452.84) and monthly expenses of $26,286 in Schedule J. With a gross income of over $26,000 a month there is only $166 to make the Chapter 13 Plan payment. Most of Mr. Harwood’s expenses are business related. Mr. Harwood’s wife does not work or have income.

The first filed Chapter 13 Plan proposed to pay $165 a month for 60 months. The only debt being paid through the Chapter 13 Plan are attorneys’ fees of $7,400 and the trustee fee to administer the plan. No actual creditors received any distribution through the first chapter 13 plan filed. There is authority to support an argument that filing a Chapter 13 Plan that pays nothing to creditors was not filed in good faith. This is a litigated issue though. An argument is how can someone reorganize their debts when they are not paying any of their debts back? What debts are reorganized? A Chapter 13 plan that pays nothing to creditors is more or less a Chapter 7 then, a complete discharge of eligible general unsecured debts. So the argument goes the actual reason a Chapter 13 plan like this is filed must be for some improper purpose or unfair manipulation of the Bankruptcy Code.

The First Amended Chapter 13 Plan proposed to pay $165 for 24 months then $365 for the remaining 36 months of the 60 month plan. Total plan payments would equal approximately $17,100 over the life of the plan. Mr. Harwood’s attorneys also increased their attorney fees to $8,800 or about half of the proposed plan payments. The second filed Chapter 13 Plan also proposed to reject an advertising contract with a radio station, avoid the judgment lien of deceased attorney Donald Tasto, Esq., and provide language about seeking modification of their first mortgage on his primary residence. Mr. Mendez objected to confirmation of this plan arguing it was not filed in good faith.

The Third Amended Chapter 13 Plan filed by Mr. Harwood proposed to reduce the plan payments to $165 for 24 months then $360 for the remaining 36 months. The Second Amended Chapter 13 Plan also included the following special provisions: “By April 30th of each year during the pendency of the case, the debtor shall provide the Trustee with a copy of all Federal income tax returns required to be filed; or, if an extension has been obtained, a copy of the extension and the tax return within ten (10) days of filing the return but no later than ten (10) days after the expiration of the extension date The debtor shall file a declaration on January fifteenth and July fifteenth of each calendar year, beginning July 15, 2014, which states what the status is of his law office in Vietnam and outlines the average monthly income and expenses for the business. The debtor shall file a declaration on January fifteenth and July fifteenth of each calendar year, beginning July 15, 2014, which states what the status is of the malpractice case against his spouse’s former bankruptcy attorney.”

Mr. Mendez’s Argument For Lack of Good Faith

Mr. Mendez argues the petition was not filed in good faith given Harwood misrepresented the nature of the debt owed to Mr. Mendez. Harwoods’s Amended Schedule F describes Mr. Mendez’s judgment claim as: “Incurred: 2013 Consideration: Alleged breach of contract Debtor disputes any liability to this individual. A default was taken based on improper service.” Mr. Mendez argues that the Santa Clara Superior Court ruled that service was proper and there is no alleged debt, Mr. Mendez obtained a valid judgment against Mr. Harwood. Whether true of not the description of the nature of a debt is a minor issue in the big scheme of things and does not really change the treatment of Mr. Mendez’s claim under the Bankruptcy Code. Minor discrepancies in the petition will not rise to the level of not having good faith. While the description of the claim owed to Mr. Mendez in Schedule F is arguably not correct, the bankruptcy court found that the description was adequate under the circumstances and the description is not evidence of trying to mislead the court or manipulate the Bankruptcy Code.

Mr. Mendez next argues the first filed case and Chapter 13 Plan were not filed in good faith given it was filed for the stated purpose of avoiding wage garnishment and frustrate the enforcement of the state court judgment of Mr. Mendez. This argument is not a good one absent some additional facts. A very high percentage of bankruptcy cases filed involve some sort of state court lawsuit. Filing bankruptcy to stop a wage garnishment, bank levy or foreclosure of a home is perfectly normal. If the state court case was at the eve of trial or some other additional circumstance this argument could work.

The bankruptcy court agreed and held that Mr. Harwood was well within his rights to file for bankruptcy protection under Chapter 13.

Mr. Mendez next argues that Mr. Harwood is seeking to discharge in Chapter 13 his judgment that would not be discharged in Chapter 7 and therefore Mr. Harwood has unclean hands. This is a tough argument given that Mr. Mendez’s judgment for fraud against Mr. Harwood is arguably not dischargeable in both Chapter 7 and Chapter 13 if proven pursuant to Section 523(a) of the Bankruptcy Code. The exceptions to discharge set forth in §523(a)(2), (4) and (6) of the Bankruptcy Code are not self-executing. See Mohsen v. Wu (In re Mohsen), 2010 WL 6259979 at *6 (9th Cir. BAP Dec. 21, 2010). Rather, § 523(c)(1) provides, with exceptions not applicable here, that a creditor must request and receive a judgment that the debt owed is not dischargeable. To have certain types of debts deemed not discharged pursuant to Sections 523(a)(2),(4) and (6) an adversary lawsuit must be filed and a judgment received. Then the debt can be enforced again under state law.

9th Circuit BAP Agrees With Bankruptcy Court

Mr. Mendez lost the appeal given the Ninth Circuit Bankruptcy Appellate Panel could not find error in the bankruptcy courts overruling of Mr. Mendez’s objection to confirmation of Harwood’s Chapter 13 Plan. Based upon these facts anyway the petition and plan were found to be filed in good faith.

Do Not Use A Bankruptcy Petition Preparer To File Bankruptcy

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Who are bankruptcy petition preparer’s? They are hired to prepare the documents necessary to file a bankruptcy petition. Bankruptcy petition preparers are prohibited from giving legal advice or practicing law in any way shape or form. I personally have not witnessed anything good coming from using a bankruptcy petition preparer. In theory the petition preparer just takes the documents from you and prepares a bankruptcy petition. The problem is they cannot discuss exemptions to protect your assets, timing of filing the case and pretty much everything you need to know to complete the process correctly and receive a discharge. Bankruptcy attorneys can provide legal advice to make sure your rights are protected properly. Most attorneys carry malpractice liability insurance also. So you can pay someone $150 who will undoubtedly screw up your bankruptcy case since they cannot do anything but put numbers and letters on paper, or you can pay an experienced attorney anywhere from $1,000 – $2,000 to make sure the process is completed properly. The extra cost is priceless. Just ask bankruptcy filer Edward P. Guidry. See below for what happened in Mr. Guidry’s case due to not using an experienced attorney.

Chapter 13 and Chapter 11 Bankruptcy Petition Preparers Are Not Really Possible Around Here

If you know of a case under Chapter 13 or Chapter 11 that was prepared by a bankruptcy petition preparer in which the case was filed, plan of reorganization approved/confirmed by the court, the plan was completed and the bankruptcy filer received a discharge of their debts please provide me with the bankruptcy case number. At least in the Northern District of California using a bankruptcy petition preparer and expecting to have any type of success in a Chapter 13 or Chapter 11 reorganization is not possible. While Chapter 13 reorganization is a streamlined process compared to a Chapter 11 bankruptcy reorganization, a bankruptcy petition preparer will not be able to guide you through the process. It is actually a legal impossibility in my opinion for a bankruptcy petition preparer to even draft a Chapter 13 or Chapter 11 plan of reorganization given they cannot provide legal advice. I suppose they can just put down numbers and information that the client tells them to. I do not know how that would ever work though. While the Chapter 13 Trustee assigned to the case has duty to all parties involved in the bankruptcy case it is not their job to guide someone through the process from day one. If you choose to file your own Chapter 13 or Chapter 11 reorganization case, please retain the services of an experienced bankruptcy lawyer.

Bankruptcy Petition Preparers Can Only Charge You $150

In the Northern District of California bankruptcy petition preparers can only charge $150 to prepare a bankruptcy petition. Many attorneys charge more than $150 to prepare a skeleton petition and the bankruptcy attorney does not sign the petition or represent the bankruptcy filer in the case. In my opinion attorneys violate Section 110 of the Bankruptcy Code if they do this and charge the bankruptcy filer more than $150. If an attorney takes money from a client to help them file bankruptcy you are either the attorney-of-record in the case or do not take the money. Let us think about this. Why would an attorney that files bankruptcy cases for a living not want to put their name on your petition and be your attorney? Is it because they charged more than $150 for drafting a skeleton bankruptcy petition? Is it because the filing of the case is in bad faith? An artist signs their work right? So can we safely assume that if an artist refuses or chooses not to sign their work that there is something wrong with the work, or they are not proud of the work, or they do not want anyone to know that the art is their work? You get the point. An attorney not signing documents they prepare and charge you for is a red flag. If you are going to file a bankruptcy case for the benefit of the automatic stay there is nothing wrong with that in and of itself. That is a benefit of seeking protection of the bankruptcy code.

Bankruptcy Petition Preparers Cannot Give Legal Advice

This is where I have a huge problem with even allowing bankruptcy petition preparers to exist at all. How can anyone prepare a bankruptcy petition under Chapter 7 or Chapter 13 of the bankruptcy code without asking certain LEGAL questions to the bankruptcy filer? They cannot provide any advice as to the benefits/detriments to filing bankruptcy, when to file, what chapter of the code to file under, what is necessary to complete the bankruptcy and obtain a discharge, advising regarding exemptions to protect assets, what the different types of debts are and how to treat or list them, discussing the effects of bankruptcy at all and more less all the other important issues that need to be addressed BEFORE filing for bankruptcy protection.

Horror Story Resulting From Use of Bankruptcy Petition Preparer

I personally have met with at least 50 people who should not have used a bankruptcy petition preparer. The main problems are usually related to listing assets properly and protection them, and the Chapter 7 statement of monthly disposable income. If you own a home you cannot mess around with filing a Chapter 7 bankruptcy case on your own or with a petition preparer. In the current market of rising home prices that is a good way to have your house sold through the bankruptcy estate for the benefit of those you owe money to. In 2005 Congress amended the Bankruptcy Code and created the Chapter 7 Statement of Monthly Disposable Income (“Means Test”). If your six-month average gross income is over the median income for the number of people in your household you do not automatically qualify to pass the means test. You have to know what allowable expenses can be included in the Means Test to try and pass the Means Test and file a Chapter 7 case.

Transfers of Property and Why You Should Care When Filing Chapter 7 Bankruptcy

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The California Uniform Fraudulent Transfers Act (CUFTA) is codified in California Civil Code Sections 3439-3439.12. At the end of this article is every word of the CUFTA. Simply put, the purpose of the CUFTA is to deter and prevent the transfer of assets with the intent to make the asset out of reach of creditors or the asset was transferred for less than equivalent value when insolvent. So the CUFTA says you cannot transfer your house that is paid in full, worth $400,000, to your brother for nothing when you are about to get sued for $120,000. If you lose the lawsuit you may have an issue under the CUFTA. If you later file bankruptcy within 4 to 10 years you may have problems too. How does the CUFTA apply to filing for bankruptcy protection? Well, Section 544(b) of the Bankruptcy Code gives bankruptcy trustees the power to avoid, or undo, any transfer of an interest of the debtor in property that is voidable under nonbankruptcy law by a creditor holding an allowable unsecured claim. So the bankruptcy trustee can step into the shoes of an unsecured creditor and use their right to undo a transfer of property by the bankruptcy filer by using the CUFTA.

What is the statute of limitations for the CUFTA? Section 3439.09

Bankruptcy attorneys far and wide need to know the intricacies of their state fraudulent transfer acts and the look back periods for different types of creditors. Where things get very tricky is the types of claims that are involved in the actual bankruptcy case. This is the part you need to read and remember forever. Each state has their own version and there are some differences from state to state. In California the CUFTA provides that a cause of action is extinguished under the CUFTA as follows:

Actual intent to hinder, delay, or defraud any creditor: 3439.04(a)(1) within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant;
– The four years part is simple, but could reasonably have been discovered by the claimant is not. In theory a Chapter 7 trustee could argue 15 years after the transfer was made the claimant could not reasonably have discovered the transfer once the bankruptcy case is filed and then bring an action within one year of the filing of the bankruptcy case or discovery of the transfer in the bankruptcy case . . . . . . . .

Transfer was not for equivalent value while insolvent: 3439.04(a)(2) and 3439.05 within four years after the transfer was made or the obligation was incurred;

Max Seven Years: The catch here is 3439.09(c) says notwithstanding any other provision of law (other laws could trump this then) obligation is extinguished if no action is brought or levy made within seven years after the transfer was made or the obligation was incurred.

So you think you are home free after seven years no matter what? Nope, it will really depend upon who the bankruptcy filers creditors. The IRS has a look back period of 10 years under the Federal Unemployment Tax Act. There are many other look back periods for other types of claims a Chapter 7 trustee may step into the shoes of. Again, the theme of this article is do you or does your client have the funds to litigate these issues? I also pointed out how the look back period could be more than 7 or ten years in regards to the “within one year after the transfer or obligation was or could reasonably have been discovered by the claimant” is potentially treacherous.

Liability under the CUFTA

Cal. Civil Code § 3439.04 provides the basis for liability under the CUFTA. You can either be liable if actual intent to hinder, delay or defraud any creditor by the transfer of the asset can be proven or you transferred the asset for less than fair market value (equivalent value) while insolvent (balance sheet or cash flow?)

Under Cal. Civil Code § 3439.05, a transfer is constructively fraudulent if the debtor (person owing money) made the transfer without receiving reasonably equivalent value in exchange and the debtor was insolvent at that time or rendered insolvent as a result of the transfer. The chapter 7 trustee must prove both reasonably equivalent value and insolvency by a preponderance of evidence. In re GSM Wireless, Inc., 2013 WL 4017123, at *17 (Bankr. C.D. Cal. April 5, 2013) (citing Whitehouse v. Six Corp., 40 Cal. App. 4th 527, 533–34 (1995)). What is a preponderance of evidence. It is a lower standard than beyond reasonable doubt. Preponderance of evidence means the judge has to believe that the existence of a fact, or something you are trying to prove, is more probably than its nonexistence based upon the evidence presented. Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for So. Cal., 508 U.S. 602, 622 (1993).

What is the definition of insolvency? Balance Sheet Test vs. Cash Flow Test?

Cal. Civil Code § 3439.02(a) provides that “[a] debtor is insolvent if, at fair valuations, the sum of the debtor’s debts is greater than all of the debtor’s assets.” This is the balance sheet test for insolvency. Bay Plastics, Inc. v. BT Comm. Corp. (In re Bay Plastics, Inc.), 187 B.R. 315, 328 n.22 (Bankr. C.D. Cal. 1995). This should include retirement accounts that are completely exemptable under most state exemption laws.

Under Cal. Civil Code § 3439.02(c), “[a] debtor who is generally not paying his or her debts as they become due is presumed to be insolvent.” This is the cash flow test for insolvency. In re Bay Plastics, 187 B.R. at 328 n.22. As a general rule, solvency and not insolvency is presumed. Neumeyer v. Crown Funding Corp., 56 Cal. App. 3d 178, 186 (1976).

Actual intent to defeat, hinder or delay creditors must be proven.

Under the CUFTA, a transfer is intentionally fraudulent if it is made with the intent to defeat, hinder or delay creditors. Cal. Civil Code § 3439.04(a)(1) provides that transfers made with actual intent to delay, hinder, or defraud creditors are fraudulent and therefore voidable. Like many issues that involve the intent of the party actually proving intentional fraud with direct evidence is usually extremely difficult. Over time the courts have come up with badges of fraud that help to establish intent. The badges are listed in Cal. Civil Code Section 3439.04(b): (1) whether the transfer or obligation was to an insider; (2) whether the debtor retained possession or control of the property transferred after the transfer; (3) whether the transfer or obligation was disclosed or concealed; (4) whether before the transfer was made or the obligation was incurred, the debtor had been sued or threatened with suit; (5) whether the transfer was of substantially all the debtor’s assets; (6) whether the debtor absconded; (7) whether the debtor removed or concealed assets; (8) whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) whether the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) whether the debtor transferred the essential assets of the business to a lienholder who transferred the assets to an insider of the debtor.

The Chapter 7 Trustee has a duty to creditors.

Every jurisdiction has a panel of Chapter 7 trustees that are assigned to chapter 7 bankruptcy cases to administer the bankruptcy estate that is created when the petition is filed. First off let us get something straight right now. When you file Chapter 7 bankruptcy, or your file a Chapter 7 bankruptcy case for a client, you are choosing to put a plate in front of the Chapter 7 trustee to eat off of. So do not be displeased with the Chapter 7 trustee for fulfilling their obligation to creditors and doing their job properly. You invited them into your house, asked them to sit at the table and after that just because you do not like their behavior you think you have a right to kick them out of your house? No, you will most likely not be allowed to dismiss your Chapter 7 bankruptcy case. At best you will be allowed to convert to Chapter 13.

See 11 U.S.C. Section 704 Duties of Trustee: Chapter 7 trustees actually have broad discretion in how they administer a bankruptcy estate. The issue to focus on is do you, the bankruptcy filer, have the money to pay your bankruptcy attorney to litigate the statute of limitations, your intent, your solvency or whether you received equivalent value for the property you transferred prior to filing a chapter 7 bankruptcy case? I can tell you, and of course this is my opinion based upon being involved in well over 2,000+ bankruptcy cases in various capacities, you do not have stomach or the money to fight this battle. There absolutely could be a good faith question as to whether you made a fraudulent transfer and a bankruptcy judge needs to determine who is right and who is wrong. This will be an expensive process and there is no guarantee your attorney or you will get their attorneys’ fees and costs paid for by the over party even if they successfully defend you.

The moral to the story . . . . . . . . .

Just do yourself a favor if you are thinking about filing for bankruptcy protection and have transferred assets, or do your client a favor and just file a Chapter 13 case and not a Chapter 7 case.

You can thank me later.

Complete Text of the California Uniform Fraudulent Transfers Act

3439.

This chapter may be cited as the Uniform Fraudulent Transfers Act.

3439.01.

As used in this chapter the following definitions are applicable:
(a) “Asset” means property of a debtor, but the term does not include, the following:
(1) Property to the extent it is encumbered by a valid lien.
(2) Property to the extent it is generally exempt under nonbankruptcy law.
(3) An interest in property held in tenancy by the entireties to the extent it is not subject
to process by a creditor holding a claim against only one tenant.
(b) “Claim” means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.
(c) “Creditor” means a person who has a claim, and includes an assignee of a general assignment for the benefit of creditors, as defined in Section 493.010 of the Code of Civil Procedure, of a debtor.
(d) “Debt” means liability on a claim.
(e) “Debtor” means a person who is liable on a claim.
(f) “Lien” means a charge against or an interest in property to secure payment of a debt or performance of an obligation, and includes a security interest created by agreement, a judicial lien obtained by legal or equitable process or proceedings, a common-law lien, or a statutory lien.
(g) “Person” means an individual, partnership, corporation, limited liability company, association, organization, government or governmental subdivision or agency, business trust, estate, trust, or any other legal or commercial entity.
(h) “Property” means anything that may be the subject of ownership.
(i) “Transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance.
(j) “Valid lien” means a lien that is effective against the holder of a judicial lien subsequently obtained by legal or equitable process or proceedings.

3439.02.

(a) A debtor is insolvent if, at fair valuations, the sum of the debtor’s debts is greater than all of the debtor’s assets.
(b) A debtor which is a partnership is insolvent if, at fair valuations, the sum of the partnership’s debts is greater than the aggregate of all of the partnership’s assets and the sum of the excess of the value of each general partner’s nonpartnership assets over the partner’s nonpartnership debts.
(c) A debtor who is generally not paying his or her debts as they become due is presumed to be insolvent.
(d) Assets under this section do not include property that has been transferred, concealed, or removed with intent to hinder, delay, or defraud creditors or that has been transferred in a manner making the transfer voidable under this chapter.
(e) Debts under this section do not include an obligation to the extent it is secured by a valid lien on property of the debtor not included as an asset.

3439.03.

Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person.

3439.04.

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation as follows:
(1) With actual intent to hinder, delay, or defraud any creditor of the debtor.
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either:
(A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.
(B) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.
(b) In determining actual intent under paragraph (1) of subdivision (a), consideration may be given, among other factors, to any or all of the following:
(1) Whether the transfer or obligation was to an insider.
(2) Whether the debtor retained possession or control of the property transferred after the transfer.
(3) Whether the transfer or obligation was disclosed or concealed.
(4) Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
(5) Whether the transfer was of substantially all the debtor’s assets.
(6) Whether the debtor absconded.
(7) Whether the debtor removed or concealed assets.
(8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
(9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
(10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred.
(11) Whether the debtor transferred the essential assets of the business to a lienholder who transferred the assets to an insider of the debtor.
(c) The amendment to this section made during the 2004 portion of the 2003-04 Regular Session of the Legislature, set forth in subdivision (b), does not constitute a change in, but is declaratory of, existing law, and is not intended to affect any judicial decisions that have interpreted this chapter.

3439.05.

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

3439.06.

For the purposes of this chapter:
(a) A transfer is made:
(1) With respect to an asset that is real property other than a fixture, but including the interest of a seller or purchaser under a contract for the sale of the asset, when the transfer is so far perfected that a good faith purchaser of the asset from the debtor against whom applicable law permits the transfer to be perfected cannot acquire an interest in the asset that is superior to the interest of the transferee; and
(2) With respect to an asset that is not real property or that is a fixture, when the transfer is so far perfected that a creditor on a simple contract cannot acquire a judicial lien otherwise than under this chapter that is superior to the interest of the transferee.
(b) If applicable law permits the transfer to be perfected as provided in subdivision (a) and the transfer is not so perfected before the commencement of an action for relief under this chapter, the transfer is deemed made immediately before the commencement of the action.
(c) If applicable law does not permit the transfer to be perfected as provided in subdivision (a), the transfer is made when it becomes effective between the debtor and the transferee.
(d) A transfer is not made until the debtor has acquired rights in the asset transferred.
(e) An obligation is incurred:
(1) If oral, when it becomes effective between the parties; or
(2) If evidenced by a writing, when the writing executed by the obligor is delivered to or for the benefit of the obligee.

3439.07.

(a) In an action for relief against a transfer or obligation under this chapter, a creditor, subject to the limitations in Section 3439.08, may obtain:
(1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim.
(2) An attachment or other provisional remedy against the asset transferred or its proceeds in accordance with the procedures described in Title 6.5 (commencing with Section 481.010) of Part 2 of the Code of Civil Procedure.
(3) Subject to applicable principles of equity and in accordance with applicable rules of civil procedure, the following:
(A) An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or its proceeds.
(B) Appointment of a receiver to take charge of the asset transferred or its proceeds.
(C) Any other relief the circumstances may require.
(b) If a creditor has commenced an action on a claim against the debtor, the creditor may attach the asset transferred or its proceeds if the remedy of attachment is available in the action under
applicable law and the property is subject to attachment in the hands of the transferee under applicable law.
(c) If a creditor has obtained a judgment on a claim against the debtor, the creditor may levy execution on the asset transferred or its proceeds.
(d) A creditor who is an assignee of a general assignment for the benefit of creditors, as defined in Section 493.010 of the Code of Civil Procedure, may exercise any and all of the rights and remedies specified in this section if they are available to any one or more creditors of the assignor who are beneficiaries of the assignment, and, in that event (1) only to the extent the rights or remedies are so available and (2) only for the benefit of those creditors whose rights are asserted by the assignee.

3439.08.

(a) A transfer or an obligation is not voidable under paragraph (1) of subdivision (a) of Section 3439.04, against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee.
(b) Except as otherwise provided in this section, to the extent a transfer is voidable in an action by a creditor under paragraph (1) of subdivision (a) of Section 3439.07, the creditor may recover judgment for the value of the asset transferred, as adjusted under subdivision (c), or the amount necessary to satisfy the creditor’s claim, whichever is less. The judgment may be entered against the following:
(1) The first transferee of the asset or the person for whose benefit the transfer was made.
(2) Any subsequent transferee other than a good faith transferee who took for value or from any subsequent transferee.
(c) If the judgment under subdivision (b) is based upon the value of the asset transferred, the judgment shall be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require.
(d) Notwithstanding voidability of a transfer or an obligation under this chapter, a good faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to the following:
(1) A lien on or a right to retain any interest in the asset transferred.
(2) Enforcement of any obligation incurred.
(3) A reduction in the amount of the liability on the judgment.
(e) A transfer is not voidable under paragraph (2) of subdivision (a) of Section 3439.04 or Section 3439.05 if the transfer results from the following:
(1) Termination of a lease upon default by the debtor when the termination is pursuant to the lease and applicable law.
(2) Enforcement of a lien in a noncollusive manner and in compliance with applicable law, including Division 9 (commencing with Section 9101) of the Commercial Code, other than a retention of collateral under Sections 9620 and 9621 of the Commercial Code and other than a voluntary transfer of the collateral by the debtor to the lien or in satisfaction of all or part of the secured obligation.

3439.09.

A cause of action with respect to a fraudulent transfer or obligation under this chapter is extinguished unless action is brought pursuant to subdivision (a) of Section 3439.07 or levy made as provided in subdivision (b) or (c) of Section 3439.07:
(a) Under paragraph (1) of subdivision (a) of Section 3439.04, within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.
(b) Under paragraph (2) of subdivision (a) of Section 3439.04 or Section 3439.05, within four years after the transfer was made or the obligation was incurred.
(c) Notwithstanding any other provision of law, a cause of action with respect to a fraudulent transfer or obligation is extinguished if no action is brought or levy made within seven years after the transfer was made or the obligation was incurred.

3439.10.

Unless displaced by the provisions of this chapter, the principles of law and equity, including the law merchant and the law relating to principal and agent, estoppel, laches, fraud, misrepresentation, duress, coercion, mistake, insolvency, or other validating or invalidating cause, supplement its provisions.

3439.11.

This chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it.

3439.12.

This chapter, and the other changes in the law made by Chapter 383 of the Statutes of 1986, apply only to transfers made or obligations incurred on or after January 1, 1987; and, as to transfers made or obligations incurred prior to that date, the law in effect at the time the transfer was made or the obligation was incurred shall apply. The provisions of this chapter, insofar as they are substantially the same as the provisions of Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4, which was repealed by Chapter 383 of the Statutes of 1986, shall be construed as restatements and continuations, and not as new enactments.