In re Marcus Albert Romero and Natalia Victoria Romero

Summary

The United States District Court for the Central District of California affirmed the Bankruptcy Court’s May 2 and September 8, 2023 orders concerning the Chapter 7 bankruptcy of Marcus Albert Romero and Natalia Victoria Romero. The court upheld approval of a compromise and carve-out agreement between the trustee and a secured creditor, denied abandonment of the debtors’ over-encumbered residence, and held that the debtors’ homestead exemption did not attach to the secured creditor’s assigned carve-out proceeds. The court dismissed the consolidated appeals.

Holdings

1. The agreement between the Trustee and Financial Casualty and Surety was an actual compromise of the creditor's secured and unsecured claims, and the Bankruptcy Court did not abuse its discretion in approving it under Federal Rule of Bankruptcy Procedure 9019.
2. The debtors' California homestead exemption did not attach to the portion of Financial Casualty and Surety's secured-lien recovery that the creditor voluntarily assigned or carved out for the bankruptcy estate.
3. Czyzewski v. Jevic Holding Corp. did not prohibit the secured creditor from assigning part of its own recovery to the bankruptcy estate or prevent the approved distribution.
4. In re Tillman did not require reversal because it concerned avoidance and preservation of a federal tax lien under 11 U.S.C. §§ 551 and 724(a), provisions not at issue in these appeals.
5. The Bankruptcy Court did not abuse its discretion in denying the debtors' motion to compel abandonment.
6. The Trustee had authority to sell the residence under the Bankruptcy Code and the approved compromise, and the sale could proceed without first paying the debtors a homestead exemption from the carve-out proceeds.

Questions Presented

1. Whether the Trustee and Financial Casualty and Surety reached a compromise under Federal Rule of Bankruptcy Procedure 9019 and whether approval of that compromise was an abuse of discretion.
2. Whether the debtors' California homestead exemption attached to the portion of Financial Casualty and Surety's recovery that the creditor assigned or carved out for the bankruptcy estate.
3. Whether the over-encumbered residence should have been abandoned under 11 U.S.C. § 554(b).
4. Whether the Trustee had authority under the Bankruptcy Code and the approved compromise to sell the residence and distribute proceeds to the estate before paying the debtors' homestead exemption.

Disposition

affirmed