Bendon v. Reynolds (In Re Reynolds)
479 B.R. 67
9th Cir. BAP2012Background
- Debtor Rick Reynolds held beneficiaries’ interests in spendthrift Family and Survivor’s Trusts.
- Trustee seeks to treat up to 25% of the Debtor’s trust interests as property of the bankruptcy estate.
- Survivor’s Trust assets consist of undeveloped real property and payable distributions are from trust principal.
- Family Trust and Survivor’s Trust contain spendthrift provisions protecting distributions from creditors.
- Debtor filed a Chapter 7 petition; Trustee and trusts were parties to a declaratory judgment action on extent of estate’s interest.
- Bankruptcy court granted partial summary judgment limiting the estate to 25% of the Debtor’s interest; Trustee appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 15301/15304–15307 cap the estate at 25% of the Debtor’s trust interest. | Trustee argues 15301(b) and other sections allow reaching more than 25%. | Reynolds argues 25% cap under 15306.5 with deductions for support; 15307 does not authorize full reach. | Affirmative; 25% cap applies with permissible deductions for support. |
| Whether 15307 permits reaching amounts in excess of education/support or is limited to income distributions. | Trustee contends 15307 permits broader reach beyond 25%. | Debtor argues 15307 is ambiguous, but should limit to income and not exceed 25%. | Partially affirm; reading consistent with 15306.5 caps; 15307 not used to exceed 25% here. |
| Whether 15306.5 and 15307 interact to determine the estate’s recovery amount. | Trustee asserts both sections can be used to reach amounts beyond 25%. | Debtor contends 15306.5 already caps at 25% and 15307 does not apply here. | Affirmative for 25% cap; 15307 not applicable to increase beyond 25% in this case. |
Key Cases Cited
- In re Neuton, 922 F.2d 1383 (9th Cir. 1990) (25% cap under 15306.5 for bankruptcy estate, with support considerations)
- In re Moses, 167 F.3d 470 (9th Cir. 1999) (California spendthrift provisions and statutory construction)
- Ventura County Dept. of Child Support Services v. Brown, 117 Cal.App.4th 144 (Cal. Ct. App. 2004) (statutory interpretation of spendthrift provisions)
- Canfield v. Sec.-First Nat’l Bank of Los Angeles, 13 Cal.2d 1 (Cal. 1939) (historical context of spendthrift trusts)
- Estate of Johnston, 252 Cal.App.2d 923 (Cal. Ct. App. 1967) (early limitations on spendthrift distributions)