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The intersection between Bankruptcy Law and Marijuana Law

In In re Patricia G. Olson, 3:17-bk-50081-BTB (Bankr. D. Nev. 2017), the debtor was 92 years old,  legally blind, and a resident of an assisted living facility.  She filed bankruptcy to stop foreclosure on a commercial property in Lake Tahoe, California, that provided her with income arising, in part, from a tenant that served as a  marijuana dispensary.    The Debtor’s plan called for her to sell the commercial real property to pay off all creditors, but the bankruptcy court on its own motion dismissed the case on the ground that Debtor’s postpetition acceptance of rents from the dispensary business was an ongoing criminal violation that disqualified her from bankruptcy relief.  according to the bankruptcy court the sale of marijuana was a crime under federal law (even though legal under state law): [I]f the debtor has committed a crime during the course of the bankruptcy and continued for several months to commit a crime during the course of the bankruptcy, I think that is a basis for not providing relief to the debtor.  Had the debtor, prior to filing bankruptcy or not during the bankruptcy had not committed the crime of taking money from a marijuana operation, I would feel differently.  But that’s not what happened here. Because you don’t, in my opinion, get to go through five or six months of a bankruptcy knowingly receiving illegal proceeds and then say, oh, I’m not going to take those anymore, I want to sell the property now, so I get to play here.  I don’t think that’s correct. On appeal, the Ninth Circuit Bankruptcy Appellate panel vacated the dismissal and remanded the case for additional findings.  The appellate court was particularly interested in further findings as to whether the dismissal was on bad faith grounds or something similar.  The appellate court specifically noted that other bankruptcy courts had dismissed cases on bad faith grounds when the debtor was engaged in an illegal activity, citing Arenas v.  U.S. Tr. (In re Arenas), 535 B.R. 845, 852 (10th Cir. BAP 2015) (a bankruptcy filing or a plan of reorganization proposed by a debtor who is involved in an illegal enterprise is not in good faith, even where the debtor does not have a subjective bad motive, is in legitimate need of bankruptcy relief, and there is otherwise no indicia of an attempt to abuse the bankruptcy process). Read More
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Caveat Emptor - National Consumer Bankruptcy Law Firm Sanctioned for Harming Financially Distressed Consumers and Auto Lenders

Consumers should be careful about who they hire for bankruptcy assistance.  According to the American Bankruptcy Institute: A national consumer bankruptcy law firm and its local partner attorneys were sanctioned and enjoined by the U.S. Bankruptcy Court for the Western District of Virginia for causing “unconscionable” harm to their clients, according to a DOJ press release. The court found that UpRight Law and its attorneys, among other things, systematically engaged in the unauthorized practice of law, provided inadequate representation to consumer debtor clients, and promoted and participated in a scheme to convert auto lenders’ collateral and then misrepresented the nature of that scheme, Executive Office for U.S. Trustees Director Cliff White of the announced yesterday. The court also revoked UpRight’s bankruptcy filing privileges in the Western District of Virginia for not less than five years, and those of its local partners for 12 and 18 months, respectively. The bankruptcy court also sanctioned Sperro LLC (Sperro), an Indiana towing company that did not respond to the U.S. Trustee Program’s complaints, and ordered the turnover of all funds it received in connection with bankruptcy cases in the district. Read more. Read More
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