January 22, 2017

Background:

  • Attorney was a debtor’s business attorney.
  • There was a long-standing personal relationship between the debtor and the attorney.
  • Even though the debtor had no funds to pay the Attorney, the attorney continued to provide legal services for the debtor which resulted in $70,000.00 outstanding.
  • Debtor filed for Chapter 7.

Facts

  • 6 days before filing Chapter 7, Debtor gave the Attorney 2 vehicles, Ferrari and an MG.
  • Attorney was housing the vehicles for the Debtor for over 4 years.
  • There was nothing in writing and the lien was never perfected.
  • Trustee objected to the transfer of the vehicles to the Attorney and stated the value of the vehicles were property of the Estate.
  • Court ruled the Trustee was correct and the Debtor appealed; decision was upheld.

Bankruptcy Court Final Ruling

  • Attorney did not have a lien on the vehicles.
  • Attorney did not have a :
    • common law lien on the vehicles.
    • retaining lien (retaining lien attaches to the property, papers, documents and money that comes into the hands of the attorney during the course of the representation, and terminates when the debtor pays the attorney.
    • charging lien (charging lien attaches to the property is a passive lien and cannot be enforced –attaches to a judgment, money or property awarded to the client as a result of the attorney’s efforts.
    • contractual lien (there was no writings of this lien and the lien was not perfected since the title was not transferred until 6 days before filing of the Chapter 7 bankruptcy.
  • If mere possession of a vehicle indicates ownership, then any stolen car could become property of the “thief”.
  • Attorney had sold the cars and had to give money to the Trustee for the Chapter 7 estate.