Business Law

Elliott vs. Pacific Western Bank –Debtor Cannot Avoid Completed Pre-Petition Judgment Levy on IRA Account

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The following is a case summary written by Kathleen A. Cashman-Kramer analyzing Elliott vs. Pacific Western Bank, 969 F.3d 1006 (9th Cir. 2020).


The Ninth Circuit Court of Appeals affirmed the district court’s affirmance of the bankruptcy court’s dismissal of a Chapter 7 debtor’s adversary proceeding, where the bankruptcy court found that the debtor could not avoid a state court judgment creditor’s pre-petition levy on his IRA under 11 U.S.C. sections 522(h) or (f), and could not establish that the levy constituted a preferential transfer under 11 U.S.C. section 547.  The lien was not subject to being avoided because it was satisfied prior to the petition date, and the debtor had no interest in the property as of the petition date. 

To review the published opinion, click here.

Background Facts

Pacific Western Bank (“Bank”) obtained a state court judgment against the debtor, obtained a writ of execution, and had the sheriff levy on the debtor’s individual retirement account (“IRA”).  Debtor filed his state court exemption claim[1] and the sheriff held the funds until the state court denied the exemption claim, at which time it released the funds to the Bank, the judgment creditor.  The debtor then filed a chapter 7 case 26 days after the Bank received the funds.  In his schedule C, he asserted the IRA funds were exempt under C.C.P. section 703.140(b)(10)(E )  and 11 U.S.C. section 522(b)(3)(C). 

After the chapter 7 trustee closed the case as no-asset, the debtor commenced an adversary proceeding against the Bank, asserting that he could avoid the transfer of the levied funds to the Bank under either 11 U.S.C. sections 522(f) or (h).  The bank filed a motion to dismiss for failure to state a claim, which the bankruptcy court granted, dismissing the adversary proceeding.  The district court affirmed the dismissal.  Elliott vs. Pacific Western Bank, 969 F.3d at 1008-9.

Result and Reasoning

On appeal the Ninth Circuit noted that, in order to avoid a lien under 11 U.S.C. section 522(h), all five conditions must be met: (1) the transfer cannot have been a voluntary transfer of property by the debtor; (2) the debtor cannot have concealed the property; (3) the trustee cannot have attempted to avoid the transfer; (4) the debtor must exercise an avoidance power usually used by the trustee that is listed within § 522(h); and (5) the transferred property must be of a kind that the debtor would have been able to exempt from the estate if the trustee (as opposed to the debtor) had avoided the transfer pursuant to one of the statutory provisions in § 522(g). Id. at 1011.  The Ninth Circuit agreed that the debtor had established the first four conditions, but could not establish the fifth condition, because the debtor could not establish that the transfer was preferential under section 547(b)(5).  Specifically, the debtor argued that the transfer was preferential because it allowed the Bank to receive more than it would have under a chapter 7 liquidation. The debtor also argued that the lien was also avoidable under 11 U.S.C. Section 522(f).

In affirming the lower courts, the Ninth Circuit noted that, in order to avoid a lien under Section 522(f), the lien must impair an exemption as of the petition date, and that this required an inquiry whether the debtor had any property interest in the levied funds on the petition date.  This, in turn, required the court to look to applicable state law.  In doing so, the Ninth Circuit found that any interest the debtor had in the IRA funds terminated either when the funds were paid to the Sheriff under C.C.P. section 700.140(f)[2], or after the state court denied the debtor’s exemption claim.  The Ninth Circuit stated that, either way, since both of those dates occurred pre-petition, the debtor had no interest in the IRA funds as of the petition date.  And since the lien was satisfied by virtue of C.C.P. section 700.140(f), there was no lien to avoid.  As a result, the Ninth Circuit concluded that: (1) the debtor could not use Section 522(f) because the lien was satisfied; (2) the debtor could not establish a preferential transfer under section 547; and (3) the debtor could not state a claim under Section 522(h).  Id. at 1011-12. 

The Ninth Circuit specifically stated that it was not addressing the 90-day time limit found in Section 547(b)(4), nor was it addressing whether the debtor was estopped from the potential impact of Section 550(f), which states that an action or proceeding under section 522 “may not be commenced after the earlier of – (1) one year after the avoidance of the transfer on account of which recovery under this section is sought; or (2) the time the case is closed or dismissed.”  (Recall that the case was closed after the chapter 7 trustee’s no-asset report was filed.)  The debtor had moved to re-open the chapter 7 case, but the Ninth Circuit also refused to opine on whether that reopening re-starts the clock for purposes of the deadline imposed by section 550, since the bankruptcy court had fully resolved the motion to dismiss on substantive grounds.  Id. at 1012.

Author’s Comment

While, at first blush, a quick read of the case may cause chapter 7 trustees (and their attorneys) to blanche (since the levy seemed to occur less than ninety days before the petition date), the Ninth Circuit’s reasoning appears solid, given the specific facts of this case, the timing of the pre-petition events, and its review and application of the applicable state law.  Query whether the result would have been different if any of the pre-chapter 7 events had not been a factor in the proceeding. 

Also, this author is curious about the use of the word “satisfied” by the Ninth Circuit: C.C.P. section 700.140(f) states that the lien terminates when the amount levied upon is paid.  The Ninth Circuit, although referring to this section, repeatedly uses the word “satisfied”: “[t]he Bank has since abandoned any claim to assets other than the levied funds. Elliott cites no authority supporting the proposition that he can avoid a lien that was satisfied prior to the filing of his bankruptcy petition.”  It appears that part of the affirmance is based upon the fact that there was no more lien as of the petition date.  Perhaps this distinction – satisfaction versus termination – is of no significance in the bigger picture.    

These materials were authored by Kathleen A. Cashman-Kramer, Of Counsel at Sullivan Hill Rez & Engel (, with editorial contributions from ILC member Hon. Meredith Jury (ret.).

[1] In the state court the debtor argued that the IRA funds should be treated as exempt under C.C.P. section 704.115,  which shields from money judgments private retirement plans, profit-sharing plans designed for retirement purposes, and other forms of retirement assets and exempts them “only to the extent necessary to provide for the support of the judgment debtor when [he] retires . . . taking into account all resources that are likely to be available[.]”  When he commenced his Chapter 7 case, he changed the basis of his exemption to C.C.P. section 703.140(b)(10)(E), which provides that a debtor may exempt “[a] payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, . . .” subject to certain exceptions.

[2]Which provides: “(f)  When the amount levied upon pursuant to this section is paid to the levying officer, the execution lien on the deposit account levied upon terminates.”

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