{"id":37293,"date":"2016-03-31T19:25:11","date_gmt":"2016-04-01T00:25:11","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/ninth-circuit-bankruptcy-court-s-allowance-of-an-attachment-lien.html"},"modified":"2016-06-10T13:06:14","modified_gmt":"2016-06-10T18:06:14","slug":"ninth-circuit-bankruptcy-court-s-allowance-of-an-attachment-lien","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/litigation-disputes\/ninth-circuit-bankruptcy-court-s-allowance-of-an-attachment-lien.html","title":{"rendered":"Ninth Circuit: Bankruptcy Court’s Allowance of an Attachment Lien Claim is not equivalent to Perfection of Lien"},"content":{"rendered":"
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When a debtor is seeking bankruptcy their creditors must take action to assert their lawful claim to property used to secure the underlying debt. This claim is referred to as a lien, and the proper assertion of a lien is referred to as its "perfection." An attachment lien refers to a lien that arises at the order of the court pursuant to a judgment relating to the debt. Although similar, court decisions have established some critical differences between perfected liens and attachment liens.<\/p>\n

A creditor must obtain a state court judgment in order to perfect an attachment lien notwithstanding a post-attachment bankruptcy filing by the debtor and the bankruptcy court’s allowance of the attachment lien claim. Recently, in reversing the Bankruptcy Appellate Panel ("BAP"), the Ninth Circuit Court of Appeals ruled that claim allowance does not perfect the attachment lien because such a mechanism for perfection does not exist under state law. See<\/i> Diamant v. Kasparian (In re Southern California Plastics, Inc.)<\/a><\/i> (January 20, 1999).<\/p>\n

In the Southern California Plastics<\/i> case, the debtor failed to deliver equipment to a buyer who had already paid part of the purchase price. The buyer commenced a state court lawsuit and obtained a prejudgment writ of attachment which was properly filed pursuant to state law just prior to debtor’s Chapter 7 petition<\/a>. When the buyer timely filed a proof of secured claim (based on the attachment lien), the parties stipulated to allow the buyer’s secured claim even though the underlying state court action was now closed.<\/p>\n

The bankruptcy court ruled that the lien’s secured status did not depend on the buyer’s ability to proceed in state court, and the BAP agreed. Further, the BAP ruled that an attachment lien creditor need not obtain judgment from the state court to have a perfected lien; obtaining claim allowance was sufficient in lieu of the state court judgment.<\/p>\n

The Ninth Circuit found the lower courts’ analysis to be flawed. Unlike a holder of a perfected security interest<\/a>, an attachment lien creditor has no right to proceed against the debtor’s property unless and until the lien creditor obtains a judgment. Furthermore, the claims allowance procedures in bankruptcy court cannot substitute for state law requirements for obtaining a judgment. Quoting In re Copper King Inn, Inc<\/i>. (9th Cir. 1990), the Ninth Circuit articulated the general rule: "State law controls the validity and effect of liens in the bankruptcy context."<\/p>\n

The allowance of a claim in bankruptcy court<\/a> is not the equivalent of obtaining a judgment. Procedural differences, burdens of proof, and available defenses differ between the two processes. In the Southern California Plastics<\/i> case, the proper procedure may have been for the buyer to request stay relief to permit him to liquidate and perfect his attachment lien claim against the debtor in the state court. Conversely, the failure to seek stay relief, and allowing state court litigation involving attachment claims to be closed or dismissed prior to obtaining a judgment, will be fatal to the creditor’s efforts to obtain an allowed secured claim in the debtor’s subsequent bankruptcy.<\/p>\n","protected":false},"excerpt":{"rendered":"

A creditor must obtain a state court judgment in order to perfect an attachment lien notwithstanding a post-attachment bankruptcy filing by the debtor and the bankruptcy court’s allowance of the attachment lien claim. Recently, in reversing the …<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_categories":[6522,6525,6520],"class_list":["post-37293","corporate","type-corporate","status-publish","hentry","corporate_categories-litigation-disputes__civil-litigation","corporate_categories-litigation-disputes__civil-litigation__civil-remedies","corporate_categories-litigation-disputes"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate\/37293","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=37293"}],"wp:term":[{"taxonomy":"corporate_categories","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_categories?post=37293"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}