Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Stephanie Cumings
Aug. 26 — If your income is derived from marijuana sales then you might not be entitled to bankruptcy protection, even in states where the sale of marijuana has been legalized (Arenas v. U.S. Tr. (In re Arenas), 2015 BL 270646, B.A.P. 10th Cir., No. CO-14-046, 8/21/15).
The U.S. Bankruptcy Appellate Panel for the Tenth Circuit has now become the highest court to weigh in on this issue, according to research conducted by Bloomberg BNA. The court said that debtors whose income stems from marijuana sales can't fund a bankruptcy plan without breaking federal law.
“In this case, the debtors are unfortunately caught between pursuing a business that the people of Colorado have declared to be legal and beneficial, but which the laws of the United States—laws that every United States Judge swears to uphold—proscribe and subject to criminal sanction,” the court said.
“Mr. and Mrs. Arenas operate and own marijuana-assets within the bounds of Colorado law, and the Department of Justice has determined that there is no reason to prosecute them under federal law,” Daniel J. Garfield of Foster Graham Milstein & Calisher, LLP, Denver, who represented the debtors, told Bloomberg BNA Aug. 25. “Yet, the DOJ, through the [U.S. Trustee], sees fit to oppose allowing the Arenas the protections of the Bankruptcy Code that any other person or business operating within the bounds of the law would unquestionably have.”
“We don't use notions of ‘justice' and ‘fairness' very often in the bankruptcy bar, but those notions are clearly lacking when people such as the Arenas cannot obtain the fresh start that anyone else would be entitled to,” Garfield added. “When it comes to marijuana, the War on Drugs continues in insidious ways.”
The Executive Office for U.S. Trustees declined to comment on this case.
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