SBA v. Bensal (9th Cir. 2017) 853 F.3d 994: California Probate Code §283
SBA v. Bensal (9th Cir. 2017) 853 F.3d 994: California Probate Code §283 states that a disclaimer of an inheritance is not a fraudulent transfer: “A disclaimer is not a voidable transfer by the beneficiary under the Uniform Voidable Transactions Act…” Therefore, California state law allows a person to disclaim an inheritance, without the disclaimer of inheritance constituting a fraudulent transfer. Individuals quite often do disclaim inheritances, shortly before filing bankruptcy, so the inheritance will not become part of the individual’s “bankruptcy estate”, when the individual thereafter files bankruptcy. Purpose of the disclaimer of inheritance is to prevent the Chapter 7 bankruptcy trustee/creditors from being able to reach the inheritance to pay debtor’s bills owed to creditors. However, in SBA v. Bensal (9th Cir. 2017) 853 F.3d 994, the 9th Circuit held that a judgment debtor who owed a small business administration loan (SBA loan) committed a fraudulent transfer by disclaiming an inheritance the debtor was about to receive, to prevent the SBA from being able to satisfy the judgment that debtor owed the SBA, from the inheritance. Bensal cites California Probate Code 283, but refuses to follow it on theory of federal preemption. Bensal is very dangerous for a person who disclaims an inheritance, shortly before filing bankruptcy, because if a debtor disclaimed an inheritance less than 1 year before filing bankruptcy, and the disclaimer of inheritance was held to constitute a fraudulent transfer, per Bensal, the debtor would risk being denied a discharge, per 11 USC 727(a)(2). 11 USC 727(a)(2) states that a debtor making a transfer with intent to hinder, delay or defraud a creditor, within 1 year before filing bankruptcy, is grounds to deny the debtor a discharge, per 11 USC 727(a)(2). Additionally, the disclaimed inheritance, if a fraudulent transfer, could presumably be recovered by trustee, to become property of individual debtor’s bankruptcy estate.