No Wage Garnishment After Bankruptcy? Aw, Geez . . .

On April 11, 2007 Judge Montali discouraged an over-aggressive judgment creditor who wanted to garnish the debtor's wages over 13 years after her bankruptcy discharge was entered (!). The case, In re Kimmel, 2007 WL 1111248 (Bankr. N. D. Cal. 2007) gave me some food for thought.

The creditor sues husband and wife in 1991. Wife files chapter 7 in 1993 and receives her discharge. The suit continues against husband and in May, 1995 a judgment is obtained. In July, 1995, husband and wife enter into a postnuptial agreement under which husband transfers to wife all his community property interest in her future wages. More than 7 years later (that being the absolute maximum extension of the statute of limitations under the Uniform Fraudulent Transfer Act) creditor sues to avoid the post-nuptial agreement so that he can garnish wife's wages to recover husband's community property share. In the meantime, husband filed chapter 7 and receives a discharge.

First, its nice to see a case which assumes (too bad it couldn't simply and expressly hold) that a creditor holding a discharged claim can still sue post-discharge to reach property fraudulently transferred by the debtor. Although Kimmel doesn't need to discuss this (because the transfer was post-petition), there would still be an issue as to whether property fraudulently transferred pre-petition which was not referred to in the schedules remains property of the bankruptcy estate even after case closing. 11 USC section 554(c) states that only scheduled property is deemed abandoned at case closing, so query whether property recovered as the result of a creditor's post-petition avoidance of a concealed pre-petition transfer would be estate property. There is even a split of authority as to whether the UFTA lawsuit itself might be subject to the automatic stay because it is an effort to obtain control over estate property. See, Klingman v. Levinson, 158 B.R. 109 (N.D.Ill.1993).

It is also good to be reminded that the community property interest of a spouse in wages can be the subject of a fraudulent transfer. See, State Board of Equalization v. Woo, 82 Cal.App.4th 481 (2000). But there would seem to be no reason for non-filing spouses to take such a step, since 11 USC section 524(a)(3) enjoins future collection activity against the non-filing spouse's share of the community property. Judge Montali found that this creditor's actions violated the post-discharge injunction. Oh, yes, the action was barred by the seven year UFTA limitations, too.
No sanctions against the creditor were imposed, remarkably in my view since the import of section 524(a)(3) seems so clear.