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Bankruptcy Venue and Where Can you File
Bankruptcy venue is the concept that guides where, in which specific geographic location, someone can file a Chapter 7, Chapter 11 or other bankruptcy petition.
Where? In bankruptcy court, of course! Yes, but in which location? Must it be the exact federal circuit, state, or district in which someone lives? Or is having one asset in that district enough? And what if someone lives outside the United States… can they even file bankruptcy? Is having a bank account in a district sufficient contacts to establish proper venue?
The Bankruptcy Venue Statute: 28 USC 1408
Bankruptcy venue is determined by 28 USC 1408, which is different than you’d expect, since most bankruptcy laws are in Title 11 of the United States Code. That means they start with 11 USC. But not the bankruptcy venue statute.
Section 1408 of Title 28 says:
Except as provided in section 1410 of this title, a case under title 11 may be commenced in the district court for the district—
(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or
(2) in which there is pending a case under title 11 concerning such person’s affiliate, general partner, or partnership.
Right off the bat, we see that this describes “cases under Title 11,” which is the Bankruptcy Code.
Next, the bankruptcy venue law tells us the bankruptcy may (not must) be filed in the district: 1) where someone lives, or is the principal place of business, or where the principal assets are located. The time frame it talks about is the last 180 days.
Do I have to live in a place for six months or 180 days to file bankruptcy there?
No. Look how they phrased it. Congress specifically used the words “a longer portion” of the last 180 days. The longer portion of 180 days isn’t 90 days, since that would be two equal halves, but instead, it’s 91 days. The place where someone lives for 91 days of the last 180 is typically the location where they’d file their bankruptcy.
So I can file bankruptcy in, say, Los Angeles if I’m getting ready to move away?
Yes, if you’ve lived here for the last six months, you can file bankruptcy in Los Angeles then relocate, but beware the risk of losing the homestead exemption. Or even in the next month or two after you relocate. It may lead to issues with your 341(a) meeting of creditors. However, after the pandemic, the 341a meetings are typically done remotely by Zoom or telephone anyway, eliminating any need to travel.
What about the bankruptcy venue for harder things like businesses, bank accounts, or assets in more than place?
You’re right. Let’s get to the meaty stuff.
Some case law on bankruptcy venue
General venue discussion
A good discussion of venue of cases filed under Title 11 is in In re Newport Creamery, Inc., 265 BR 614 (Bankr. Ct, MDFL, 2001). Note that if it’s filed in the ‘wrong’ venue, the defect is waived if not challenged in time. In re Lebbos, 439 BR 154 (EDCA 2010). There’s also a 9th Cir BAP case on transferring cases which are filed in the wrong venue. In re Donald, 328 B.R. 192 (9th Cir BAP 2005)
Back to bank accounts and bankruptcy venue
In one case in our local Ninth Circuit a while back, Judge Pappas reviewed assets and saw, among other things, a bank account with $40. The debtor was in CO but now principal assets were now in ID. In re Custom Builders of Steamboat, 349 BR 39 (Bankr Ct, Idaho, 2005). In that case, a creditor wanted to change venue per 28 USC 1412 — which is the change of venue or transfer statute — but creditor has the burden to show that the transfer is merited. Id. at 42.
In the Eastern District of Calif, in a nonbankruptcy case reviewing venue, the court used a lack of a bank account as evidence of insufficient “minimum contacts” for venue. In re Finley, 2:13-cv-1132-GEB-EFB PS (EDCA, 2013).
In a footnote in one case, the court found only a bank account is in one district, but another district has the rest of assets and thus, that’s the principal location. In re BL of Miami, Inc., 294 BR 325 (Bankr. Ct, D. NV 2003)
However, in footnote 27 of an Alaskan case, the court notes: “The debtor’s schedules reflect that she owns no real property in Alaska, nor did she have a bank account located in Alaska.” In re Henry, (A16-00405-GS, D Alaska, 2017). So a bank account would seem to have some merit.
The Bankruptcy Venue Reform Act of 2021
The Bankruptcy Venue Reform Act of 2021 was a set of bills introduced both in the Senate and the House. The purpose would’ve been to reduce “forum-shopping” or “venue shop.” Instead, the Bankruptcy Venue Reform Act or BVRA would require corporations to file bankruptcy in the venue where the principal place of business or its principal assets are located. However, both HR 4193 and S2827 stalled in committee are are no more. Maybe the next effort to reform bankruptcy venue will be effective. Maybe.
In closing, if you’re thinking of filing for someone who’s out of state or even out of the country, ask: what contacts does debtor have to any district in the US, or your district, specifically? And if there is a bank account in your district, query whether there is another district to which a creditor may try to transfer instead which is more administratively appropriate, and could debtor’s facts survive such a motion to transfer or dismiss.
If you have assets in the Los Angeles area which are part of your far-flung global empire, or simply live here, don’t hesitate to reach out to me and let’s discuss your options.