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Bankruptcy Court Denies Chapter 13 Debtor’s Request for Turnover of Garnished Wages

DarrenHester from morguefile.comA debtor unsuccessfully sought the court’s permission for turnover of funds withheld under a wage garnishment order. In re Solorzano, No. 12-11693-CL13, mem. decision and order (Bankr. S.D. Cal., Apr. 12, 2013). The court found the debtor’s motion deficient in multiple areas, but in ruling on the motion, it offered an overview of the requirements, under local and federal bankruptcy rules, for obtaining turnover of property to the bankruptcy estate during a pending case.

According to the court’s order, the San Diego County Sheriff’s Office served an “earnings withholding order” (EWO) on the debtor’s employer in July 2012, and that the employer sent the sum of $1,127.70 to the sheriff’s office as a result. The debtor filed for Chapter 13 bankruptcy in 2012. The court does not identify the purpose of the EWO, such as a domestic relations order for child support or spousal maintenance, or withholding for a judgment lien. The debtor filed an ex parte motion asking the bankruptcy court to authorize turnover of the funds in the sheriff’s possession to the bankruptcy estate. The trustee for the bankruptcy estate reportedly did not object to the turnover, but the court denied the motion.

The court first noted that a request for turnover of property to the bankruptcy estate requires an adversary hearing under both local and federal rules. The debtor’s ex parte motion was therefore not acceptable. The court nevertheless continued to review the motion, beginning with the debtor’s standing to seek turnover independent of the trustee.

A trustee in a bankruptcy case has authority to “use, sell, or lease” estate property in furtherance of the goals of the proceeding. 11 U.S.C. § 363. Property belonging to the debtor, but in the possession of someone else, may be exempt from sale in the bankruptcy under 11 U.S.C. § 522. The statute regarding turnover of property provides that an entity having “possession custody or control” of property covered by § 363, or that might be subject to a § 522 exemption, shall turn it over to the trustee. 11 U.S.C. § 542(a). Courts have generally held that a debtor does not have independent authority to move for turnover of property. In a Chapter 13 case, however, a debtor has some independent authority to use, sell, or lease property. 11 U.S.C. § 1303. The court therefore concluded that the debtor in this case could establish standing.

The court allowed the possibility that the debtor was seeking turnover of the funds in order to avoid a lien under § 522(f). This provision allows avoidance of a lien that would impair otherwise-exempt property. This requires notice and an adversarial hearing, however. Furthermore, the court held, the debtor had not factually established that the garnished funds were subject to an exemption, nor that they were actually part of the estate. The court denied the motion without prejudice, allowing the debtor the possibility of curing the defects that the court identified.

Bankruptcy attorney Devin Sawdayi has practiced in the Los Angeles area since 1997, helping countless people who find themselves without enough income to adequately service their debts. We represent clients in Chapter 7 and Chapter 13 bankruptcy cases, helping individuals create plans enabling them to pay debts on a manageable schedule, sell assets to pay off debts, and obtain a discharge of remaining debts at the conclusion of the bankruptcy process. Please contact us today online or at (310) 475-9399 to schedule a free and confidential consultation to discuss your case.

More Blog Posts:

How Does a Bankruptcy Filing by One Spouse Affect the Non-Filing Spouse? Los Angeles Bankruptcy Blog, August 19, 2013

Child Support and Spousal Maintenance Obligations Are Not Dischargeable in Bankruptcy, Los Angeles Bankruptcy Blog, August 12, 2013

Bankruptcy Courts Disagree on “Chapter 20″ Procedures Used to “Strip” Liens from Debtors’ Residences, Los Angeles Bankruptcy Blog, August 6, 2013

Photo credit: DarrenHester from morguefile.com.