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People, businesses involved in legal marijuana trade not entitled to bankruptcy protection

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Will I lose my property if I file for bankruptcy ?”


A Colorado couple say they have been unfairly penalized by a United States bankruptcy judge because they run a legal medical-marijuana business.

Medical Marijuana Charlotte Bankruptcy Lawyer North Carolina Chapter 7 AttorneyThe couple—Frank and Sarah Arenas—filed for bankruptcy in February of last year. A bankruptcy judge dismissed their bankruptcy petition in August because, the judge ruled, most of their income came from their medical marijuana business—an activity that is still illegal under federal law.

Through their attorneys, the couple appealed, arguing that the United States Justice Department created a “Catch 22” in which Frank and Sarah Arenas are ensnared by giving its tacit approval to the now-thriving medical and recreational marijuana industries in Colorado. Then-Attorney General Eric Holder announced in 2013 that federal law-enforcement officials would not prosecute federal pot crimes in the states of Colorado and Washington.

“Refusing to allow marijuana-derived assets to be protected in bankruptcy in the same way other assets are,” however, amounts to “passive prosecution” of crimes the federal government had pledged not to prosecute, attorneys for Frank and Sarah Arenas argued in an appeal of the bankruptcy judge’s ruling. The Arenas are seeking to overturn the judge’s ruling and have their bankruptcy petition reinstated.

Twenty-three states allow legal marijuana sales—mostly in the form of so-called “medical marijuana,” or marijuana that is prescribed by a doctor to treat a specific health condition. If the United States 10th Circuit Court of Appeals upholds the dismissal of the Arenas’ bankruptcy petition, then businesses and individuals who work in the marijuana industry could be denied bankruptcy protection. The ruling could affect thousands of businesses and individuals across nearly two dozen states.

The Arenas’ bankruptcy posed a number of vexatious issues for the bankruptcy trustee involved in the case. In a Chapter 7 bankruptcy—the chapter under which the Arenas filed—the trustee’s job is to marshal the assets of the debtor and sell them off to pay creditors. Since the Arenas’ largest assets included implements of their marijuana trade, the United States trustee’s office was placed “in a position of having to sell an illegal product for the benefit of creditors, or to sell assets derived from money that comes from the illegal product.”

United States Bankruptcy Judge Howard Tallman wrote that any bankruptcy plan involving the Arenas “would necessarily be executed by unlawful means.” In essence, Judge Tallman ruled, the Arenas’ bankruptcy was tainted by their “ongoing criminal violation of the Controlled Substances Act.” The Judge could not allow the trustee—and by extension the United States government—to become involved in an enterprise that would be illegal under existing federal law.

This is not the first time Judge Tallman has been asked to rule on a bankruptcy petition involving marijuana-related assets. In 2012, Thomas and Susan Wright—who ran a marijuana business out of a portion of a building they owned—had to dump marijuana-related assets including the building so that their bankruptcy case could continue.

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.








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