{"id":1782,"date":"2019-02-06T12:27:34","date_gmt":"2019-02-06T17:27:34","guid":{"rendered":"https:\/\/www2.law.temple.edu\/10q\/?p=1782"},"modified":"2019-02-06T12:27:34","modified_gmt":"2019-02-06T17:27:34","slug":"threat-of-your-money-or-your-body-renders-payment-involuntary","status":"publish","type":"post","link":"https:\/\/law.temple.edu\/10q\/threat-of-your-money-or-your-body-renders-payment-involuntary\/","title":{"rendered":"Threat of &#8216;Your Money or Your Body&#8217; Renders Payment Involuntary"},"content":{"rendered":"<p>Today we report on a case where a Chapter 7 trustee took the position that a 74-year-old man suffering from various illnesses, who was thrown in jail on a bench warrant and was told by deputy sheriffs \u201cyour body or your money,\u201d voluntarily paid the bench warrant amount if the only other choice he was given was to remain in jail. In\u00a0<em>In re Schmitt<\/em>, Case No. 18-21755, Bankruptcy Judge Beth E. Hanan of the\u00a0U.S. Bankruptcy Court for the Eastern District of Wisconsin, in an 11-page decision, decided that position was wrong.<\/p>\n<h2>\u2018I\u2019m Stuck in Folsom Prison \u2026 And Time Keeps Draggin\u2019 On\u2019<\/h2>\n<p>The court began its opinion by noting \u201cWhat Wayne Schmitt faced was no Johnny Cash song.\u201d He paid a bench warrant rather than remain in jail. One day later, he filed a Chapter 7 bankruptcy petition, only to have the chapter 7 trustee object to the debtor\u2019s attempt to exempt the payment when avoided as a preference. The background is the stuff of country songs.<\/p>\n<p>Schmitt was sued in small claims court and a bench warrant was issued for his arrest on Oct. 2, 2017. The warrant provided that Schmitt could either pay the judgment in full ($3,713.38) or provide his 2015 and 2016 tax returns, bank account statements, property tax bills, and all corporate documents for entities in which he was a shareholder, partner, or member to the plaintiff\u2019s attorney. Schmitt alleged he attempted to send the documents, but apparently, they were not received. On Feb. 28, 2018, two county sheriff deputies arrived unannounced and took the 74-year-old man to jail. According to the opinion, at the jail, the deputies informed Schmitt \u201c\u2026 they wanted \u2018his body or his money,\u2019 and gave him no other alternatives to satisfy the warrant.\u201d<\/p>\n<p>Schmitt later testified that he borrowed the funds to pay the warrant from Alyce Head, a relative, and paid $4,016 (including jail ATM fees). The docket in the small claims court action reflects payment of the judgment on Feb. 28, 2018, and cancellation of the warrant.<\/p>\n<p>Schmitt filed his Chapter 7 bankruptcy petition the next day. The filing of a bankruptcy petition commencing a bankruptcy case creates a bankruptcy estate that includes the debtor\u2019s property. A Chapter 7 trustee is appointed to administer the estate for the benefit of the debtor\u2019s creditors. However, a debtor may claim certain property as exempt under Section 522 of the Bankruptcy Code.<\/p>\n<p>Schmitt listed the payment as a preference on his schedules of assets and claimed an exemption in the amount of the preferential payment, meaning if the payment was avoided, then Schmitt, not the bankruptcy estate, would receive the funds. The trustee objected to the exemption, arguing that the debtor could not avoid the payment because, among other things, the payment was made voluntarily.<\/p>\n<h2>\u2018Look What You Made Me Do \u2026 Look What You Just Made Me Do\u2019<\/h2>\n<p>A debtor can avoid a prepetition payment pursuant to Section 522(h) of the Bankruptcy Code if two conditions are met: the transfer would be avoidable by the trustee and the trustee does not attempt to avoid the transfer; and the debtor could have exempted the property under Section 522(g). Section 522(g), in turn, allows a debtor to exempt property recovered by the trustee only if the debtor did not transfer the property voluntarily.<\/p>\n<p>It appears the trustee did not dispute the payment was avoidable as a preference under Section 547 of the Bankruptcy Code. In fact, he sent a letter to the transferee demanding turnover of the payment it had received from the debtor. As to whether the trustee would not attempt to avoid the transfer, the court noted in a footnote that either the trustee or the debtor would pursue avoidance of the payment depending on the court\u2019s decision.<\/p>\n<p>The issue was whether the payment was voluntary. The trustee argued that the court should adopt a bright line definition of a \u201cvoluntary transfer\u201d as one made of the debtor\u2019s own volition and in the absence of fraud or other unlawful conduct by the creditor. The debtor argued that the payment was involuntary because it \u201cinvolved a heavy dose of coercion,\u201d since the only alternative was to remain in jail, and was not made of Schmitt\u2019s own free will.<\/p>\n<p>The court noted the Bankruptcy Code does not define the term \u201cvoluntary,\u201d and there is little legislative history. The court observed the general rule that \u201c\u2026 an involuntary transfer occurs when property is transferred by operation of law, such as by means of an execution of judgment, repossession, or garnishment.\u201d The court then reviewed cases it viewed as somewhat analogous to Schmitt\u2019s situation. First, in <em>Via v. Colonial American National Bank (In re Via)<\/em>, 107 B.R. 91 (Bankr. W.D. Va. 1989), the court found a payment to avoid wage garnishment was made involuntarily. In <em>In re Hill<\/em>, 566 B.R. 891 (Bankr. W.D. Mich. 2017), a \u201ccourt agent more like a bounty hunter\u201d sought to enforce a seizure order. The agent arrived unannounced to seize the debtor\u2019s property. The encounter began with the agent threatening to shoot the debtor\u2019s dog. As a result, Hill\u2019s family members gathered cash and paid several thousand dollars to the agent. Not surprisingly, the court found the payment was not voluntary. Finally, in a more conventional setting, in <em>In re<\/em> <em>Yarber<\/em>, 522 B.R. 328 (Bankr. D. Or. 2014), the court found that bail bond payments were not voluntary if they prevented incarceration.<\/p>\n<p>Here, the court concluded that Schmitt\u2019s payment was involuntary. Two deputies took Schmitt to jail and offered him no alternative but to pay. The court wrote, \u201cMr. Schmitt faced immediate severe consequences: loss of liberty or loss of funds.\u201d The court concluded that the payment was made by operation of law and an involuntary act under Section 522(g).<\/p>\n<h2>Conclusion<\/h2>\n<p>Bankruptcy courts are faced every day with applying provisions of the Bankruptcy Court to real world situations that were not contemplated by the drafters of the statute. That being said, it would be difficult to imagine that the drafters of these provisions of the Bankruptcy Code intended a payment by a 74-year-old man to get out of jail, made when told by sheriff\u2019s deputies \u201cyour money or your body,\u201d was voluntary. The co-authors have reviewed hundreds of case decisions over the past nine years, but this one clearly fell into the category of \u201cyou can\u2019t make this stuff up.\u201d<\/p>\n<p><strong>Reprinted with permission from the January 3, 2019 issue of <\/strong><strong><em><a href=\"https:\/\/www.law.com\/thelegalintelligencer\/2019\/01\/03\/threat-of-your-money-or-your-body-renders-payment-involuntary\/\">The Legal Intelligencer<\/a><\/em><\/strong><strong>. \u00a9 2019 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.<\/strong><\/p>\n<hr \/>\n<p><em>Andrew C. Kassner<\/em><em> is the chairman and chief executive officer of Drinker Biddle &amp; Reath. He chaired the corporate restructuring group for almost 20 years. <\/em><em>\u00a0<\/em><\/p>\n<p><em>Joseph N. Argentina Jr.<\/em><em> is an associate in the firm\u2019s corporate restructuring practice group in the Philadelphia and Wilmington, Delaware, offices<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Drinker Biddle &amp; Reath reports on recent Bankruptcy case, In re Schmitt. <\/p>\n","protected":false},"author":5,"featured_media":1783,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12,47,13],"tags":[970,77,971,972,973,670,974,975,976,977,978,979,980,981,982,983,984,985,986,987],"coauthors":[2,604,605],"class_list":["post-1782","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-alumni-authored","category-bankruptcy","category-business-law-practice","tag-bail-bonds","tag-bankruptcy","tag-bankruptcy-code","tag-bench-warrant","tag-bounty-hunter","tag-chapter-7","tag-coercion","tag-garnishment","tag-in-re-schmitt","tag-in-re-yarber","tag-involuntary-transfers","tag-jugement","tag-property","tag-repossession","tag-section-522g","tag-section-522h","tag-section-547","tag-trustees","tag-u-s-bankruptcy-court","tag-voluntary-transfers","masonry-post","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Threat of &#039;Your Money or Your Body&#039; Renders Payment Involuntary - The Temple 10-Q<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/law.temple.edu\/10q\/threat-of-your-money-or-your-body-renders-payment-involuntary\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Threat of &#039;Your Money or Your Body&#039; Renders Payment Involuntary - The Temple 10-Q\" \/>\n<meta property=\"og:description\" content=\"Drinker Biddle &amp; Reath reports on recent Bankruptcy case, In re Schmitt.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/law.temple.edu\/10q\/threat-of-your-money-or-your-body-renders-payment-involuntary\/\" \/>\n<meta property=\"og:site_name\" content=\"The Temple 10-Q\" \/>\n<meta property=\"article:published_time\" content=\"2019-02-06T17:27:34+00:00\" \/>\n<meta name=\"author\" content=\"Books Schatschneider, Andrew C. 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