Opinion
Bankruptcy Case No. 12-11693-CL13
04-12-2013
In re: SAMUEL S. SOLORZANO, JR., Debtor
WRITTEN DECISION - NOT FOR PUBLICATION
Chapter 13
MEMORANDUM DECISION AND
ORDER DENYING EX PARTE MOTION
FOR TURNOVER
Judge: Christopher B. Latham
MEMORANDUM DECISION AND ORDER DENYING
EX PARTE MOTION FOR TURNOVER
Presently before the court is debtor Samual S. Solorzano, Jr.'s ("Debtor") ex parte "Motion for Order Authorizing Turnover of Funds" in the above-captioned Chapter 13 case. [ECF No. 27]. Debtor alleges that: (1) on July 16, 2012, the San Diego County Sheriff's Office (the "Sheriff) served an earnings withholding order ("EWO") on Debtor's employer; (2) Debtor's employer provided the Sheriff $1,127.70 under the EWO; (3) the Sheriff holds these funds pending a bankruptcy court order; and (4) the Chapter 13 Trustee does not object to the Sheriff's releasing the funds to the Debtor. Debtor requests an order instructing the Sheriff to do so. For the following reasons, the court denies the motion.
I
A turnover action may not be brought ex parte. See Local Bankruptcy Rule 9013-6(a). Rather, turnover requests require an adversary proceeding. See Fed. R. Bankr. P. 7001(1).
Further, Debtor fails to state under what authority he seeks turnover. Turnover of estate property is normally governed by § 542. In Collect Access LLC v. Hernandez (In re Hernandez), 483 B.R. 713, 725 (B.A.P. 9th Cir. 2012), the Ninth Circuit Bankruptcy Appellate Panel held that a Chapter 7 debtor has no standing to bring a § 542 action. The standing analysis for a Chapter 13 debtor is different, however. Section 542 provides that entities must deliver to the trustee "property that the trustee may use, sell, or lease under section 363 . . . ." But under § 1303, the Chapter 13 debtor has the power - exclusive of the trustee - to use, sell, or lease property under § 363. On this reasoning, it therefore appears likely that a Chapter 13 debtor has independent standing to bring a § 542 action.
II
Although Debtor's motion is procedurally insufficient for a turnover action, the court might interpret his request as one to avoid a lien under § 522(f). Like a turnover action, a lien avoidance motion may not be brought ex parte. See Local Bankruptcy Rule 9013-6(a). A § 522(f) lien avoidance motion is a contested matter requiring service in compliance with Rule 7004 of the Federal Rules of Bankruptcy Procedure. See Fed. R. Bankr. P. 4003(d) and 9014.
Debtor did not serve his motion on the EWO creditor. But even if he had, § 522(f) does not aid him. Section 522(f) allows a debtor to avoid a lien on property that impairs an exemption to which the debtor is entitled. Assuming arguendo the funds are estate property - and therefore subject to a bankruptcy exemption - in this case there exists no lien to avoid. California Code of Civil Procedure § 706.029 expressly provides that a lien created by a wage garnishment order expires when the witholdings amount is paid. Cal. Civ. Proc. Code § 706.029. Section 522(f) therefore does not entitle Debtor to the funds.
III
Moreover, the funds are not estate property. A bankruptcy court has authority to enter a § 105(a) order requiring surrender of exempt property. Hernandez, 483 B.R. at 726. But before Debtor may claim property as exempt, it must first come into the estate. Id. at 725; In re Varney, 449 B.R. 411, 417 (Bankr. D. Idaho 2011). Whether a prepetition levy or garnishment of funds transfers ownership must be determined on a case-by-case basis. Hernandez, 483 B.R. at 723. Debtor may only recover and exempt the funds if he could have challenged the garnishment in the state court, prepetition.
Here, Debtor has not claimed the funds as exempt. Depending on the nature of the funds and the manner of their garnishment, Debtor might be entitled to an automatic exemption allowing him a prepetition challenge to the levy. But, at present, he has not asserted such exemption. Thus, it does not appear the funds are estate property warranting a § 105(a) surrender order.
For example, in Hernandez, the creditor levied upon the debtor's social security benefits. And "[u]nder California law, government benefits such as social security are intended exclusively for the benefit and support of qualified recipients. These funds are exempt and cannot be subject to collection, [citation omitted]." Hernandez, 483 B.R. at 724.
IV
The court recognizes that Debtor may simply be seeking to preserve an exemption. Similarly, in Hernandez,
The ultimate relief that debtor sought was to preserve his exemption in the levied funds by invoking § 522(g) and/or by exercising the trustee's avoiding powers under § 522(h). . . . [And] [a]s an enforcement mechanism, a debtor is afforded a private right of action to seek redress [for violations of the automatic stay] under § 362(k)(l). "Section 522's right to claim exemptions in property of the estate bestows standing on debtors for purposes of § 362(k)(1)."Hernandez, 483 B.R. at 725-26 (quoting Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi), 432 B.R. 812, 822 (B.A.P. 9th Cir. 2010)).
But Debtor has not invoked §§ 522(g) or (h), or 362(k)(l). And it is unclear whether any of these sections avail him. Section 522(g) allows Debtor to claim an exemption in property a trustee recovers under certain Chapter 5 actions, and with certain conditions. In Debtor's case, however, the trustee has not moved to recover the funds. Section 522(h) allows a debtor to stand in a trustee's shoes to pursue certain Chapter 5 actions if the trustee does not bring the action himself. But again, the court is unaware of the circumstances surrounding the funds' garnishment, or whether Debtor has any meritorious action. Nor is it clear whether the trustee's non-opposition works to waive the action. And even if Debtor brings the action, he will have to do so by adversary proceeding - a potentially costly proposition given the amount in question. See Fed. R. Bankr. P. 7001(1) and (2). Finally, § 362(k)(1) allows a debtor to recover damages for a willful violation of the automatic stay. There is no stay violation, however, unless the funds were estate property. And, as concluded above, they are not.
V
Debtor's motion is legally, factually and procedurally insufficient for the court to grant his requested relief. The court therefore denies Debtor's ex parte motion for turnover without prejudice.
IT IS SO ORDERED.
________________________
CHRISTOPHER B. LATHAM, JUDGE
United States Bankruptcy Court