Articles Posted in Bankruptcy Case Law

A debtor, who had a bachelor’s degree in finance and an MBA degree and had worked in the financial industry for almost a decade, filed for Chapter 7 bankruptcy in 2013. While working as a financial advisor, he personally invested in a real estate venture, in which he contributed $65,0000 for a 49% interest in the company. When the man filed his bankruptcy petition, he estimated his real estate investment interest was worth $2,500. He also claimed he did not have any non-exempt assets that were worth distributing.

CourtroomIn a recent opinion, a federal appeals court considered whether the debtor’s estimation that the value of his interest in the real estate investment company was 4% of his initial capital contribution warranted a denial of a discharge of his bankruptcy case. After the trustee learned that the man had an interest in the company, the trustee told the creditors there would likely be assets available for distribution. The creditors then filed an adversary complaint against the man, alleging that he intentionally misrepresented the value of his interest in the land by more than 95 percent. They requested a denial of discharge under the false oath provision of 11 U.S.C. § 727(a)(4).

The debtor explained that he arrived at this number by taking the largest annual distribution he received, which was $483, rounding it up to $500, and multiplying it by a capitalization rate of five. He acknowledged that the manager of the company would have been able to better evaluate the company’s worth, and he never asked him for his evaluation. The man’s most recent tax return showed an individual capital account in the venture of $67,555. The man claimed he did not make a false statement in valuing his interest, and his method of calculation was reasonable.

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Filing a bankruptcy claim requires great attention to detail and a deep understanding of complicated issues. In a recent case, one woman was prevented from filing a personal injury claim because she failed to properly exempt the claim in her bankruptcy schedules.

PaperworkThe woman was injured in a car accident and subsequently had to undergo surgery for her injuries. She later filed a Chapter 7 bankruptcy claim, and about two years later, she filed a lawsuit against another individual alleging that he caused the car accident. The defendant then moved to dismiss the claim arguing that the woman could not bring the claim. He claimed that because the woman had filed a Chapter 7 bankruptcy petition two years earlier, only the bankruptcy trustee could file a claim, because she had not exempted it in her bankruptcy case.

When a person files bankruptcy,  she is required to list all of her assets in the bankruptcy schedules.  A personal injury claim is considered an asset that must be listed on Schedule B.  Assets which the debtor claims as exempt are then listed on Schedule C, along with a citation to the statute that provides for the exemption.  In this case, the debtor listed this claim on Schedules B and C under the heading: “other liquidated debts owed to debtor, as: “proceeds related to claims or causes of action that may be asserted by the debtor.” The woman argued her personal injury claim fell within the language she listed, and that she had properly exempted her claim from the bankruptcy estate.

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A federal bankruptcy appellate panel recently issued a decision addressing whether payments made toward improvements on a home were exempt in a chapter 7 bankruptcy claim. The appellate court determined the payments made toward improvements may have been non-exempt if they were intended to defraud creditors, and the debtors’ equity should be reduced accordingly.

ToolsDebtors Made Improvements on Home Paid Through Family Members’ Bank Accounts

A husband and wife made several improvements on their home over a period of time. Their daughter opened a checking account at a bank at the time, and her parents made large deposits into the account and paid for some improvements on the home, totaling almost $50,000. Improvements were also funded by other family members.

Soon afterward, the parents filed a petition for relief under chapter 7 of the bankruptcy code. They valued their home at $200,000 and listed that they had a remaining mortgage on the home of $133,725. Thus, the debtors argued the equity in their home was $66,275, and this amount was exempt under the state’s homestead exception. The trustee objected, claiming the money that had been transferred through their daughter’s account did not qualify under the homestead exemption under 11 U.S.C. Section 522(o) because the husband and wife had transferred the money into the property to hinder, delay, or defraud creditors.

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The United States Court of Appeals for the Fourth Circuit recently published a decision that affirmed a bankruptcy court’s ruling to deny a US Trustee’s motion to dismiss a Chapter 7 bankruptcy case as an abuse of the bankruptcy code. The trustee questioned the propriety of the standardized instructions for preparing a Chapter 7 bankruptcy as applied to debtors who incurred less than the “National and Local Standard Amount” for exemptible expenses but were specifically instructed by the form to use the standard amounts rather than their actual expenses.

FormsBy ruling that the plain language of the statute resulted in a fair and reasonable policy, the court found no merit to the bankruptcy administrator’s arguments in the motion. As a result of the most recent ruling, the debtor’s bankruptcy will not be reversed.

Bankruptcy Debtors Face an Objection After Following Clear Instructions on a Mandatory Form

The debtors in the case of Lynch v. Jackson are a married couple from North Carolina who filed a petition under Chapter 7 of the bankruptcy code in 2015 to seek relief from their debts. Since their family had an above-average income for the region, the debtors were required to submit a “means test” to the court to determine their eligibility for Chapter 7 bankruptcy relief.

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The United States Seventh Circuit Court of Appeals recently published an opinion affirming a district court’s interlocutory ruling on a Chapter 13 bankruptcy debtor’s claim that the defendant violated the co-debtor stay of the bankruptcy code by obtaining a judgment against the debtor’s non-filing husband for credit card debts incurred in his name. The debtor had initially received a favorable judgment on her claim at the bankruptcy court, but the federal district court’s reversal of that decision will become final with this latest opinion, and she will be unable to prevent the defendant from collecting on their judgment against her husband.

Ten Dollar BillsThe debtor in the case of Smith v. Capital One Bank was a married woman who filed for bankruptcy in 2011 without her husband. Her Chapter 13 repayment plan was approved in 2012 and was in repayment through 2014, when the respondent, a credit card company, sought to collect an unpaid debt incurred by the debtor’s husband. The debtor sued the respondent and alleged a violation of the co-debtor stay by the credit card company’s attempt to collect the debt while her bankruptcy was in repayment and the automatic stays were in effect. The bankruptcy court agreed with the debtor, entering judgment in her favor and causing Capital One to appeal the decision to the district court.

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A panel of the United States Court of Appeals for the Sixth Circuit recently published an opinion reversing a bankruptcy court’s decision to refuse a Chapter 7 debtor’s request to reopen his bankruptcy case nearly four years after he was granted a discharge. The debtor had asked the court to reopen his bankruptcy so that he could address judgment liens against his home that were not properly avoided during the bankruptcy, possibly by mistake.

dollarsAlthough the debtor could easily have removed the liens during the bankruptcy, none of his creditors objected to reopening the bankruptcy, and the code specifically allows for the reopening of a case to address the issue, the bankruptcy judge refused the debtor’s request, suggesting instead that the debtor could possibly obtain relief by suing his attorney for malpractice. The appellate panel acted more humanely and sympathetically than the bankruptcy judge, whom they reversed.

Ultimately allowing the case to be reopened, the panel remembered that bankruptcy laws exist to help debtors address their financial issues and move forward in life, while allowing creditors a fair chance to stake their claims if they choose. Since no creditors objected to the debtor’s request, the bankruptcy judge could not justify refusing the debtor’s request.

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A federal bankruptcy appellate panel recently released an opinion addressing an appeal filed by a pro se debtor who challenged the dismissal of his case. The appellate court found that it did not have jurisdiction to hear the man’s claims on appeal, but it addressed them anyway, holding that a federal bankruptcy judge did not abuse his discretion by dismissing the man’s bankruptcy case after his failure to submit the required accompanying documentation and schedules to the court after filing for bankruptcy.

Law BookThe Debtor Attempted To File for Bankruptcy Without the Help of an Attorney

The appellant in the case of In re Dan Lee was a man who filed a chapter 7 bankruptcy earlier this year, and he did so without hiring an attorney to prepare his bankruptcy petition. As a result, he filed the petition without ensuring that the required accompanying documentation was submitted with his filings.

After the initial filing, the court notified the man that he needed to file certain schedules and declarations with the court within a specified amount of time. The man did not comply with the request, and his case was dismissed after the deadline set by the court had expired.

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A panel of the U.S. Sixth Circuit Court of Appeals recently affirmed a bankruptcy court’s ruling to deny the discharge of a couple’s debts that had been requested as part of a Chapter 7 bankruptcy petition they filed in 2008 with the help of their attorney. The appeals court ruled that the decision by the bankruptcy court to deny the debtor’s requested discharge because of their failure to disclose their interests in several trusts, corporations, annuities, and other pieces of property owned by others was a legitimate response to the debtors’ apparent attempt to deceive the court as to the nature of their assets and liabilities. The attorney who prepared the initial petition had also been implicated in the ruling of the bankruptcy court and sanctioned for his role in concealing the debtors’ assets, although the debtors were held to their sworn statements and unable to pass full responsibility for the inaccuracies onto their former attorney.

Legal BooksDebtors Fail to Reveal Several Pieces of Property in 2008 Bankruptcy Petition

The debtors in the case of In re Blasingame are a married couple who sought the assistance of a bankruptcy attorney to file a Chapter 7 bankruptcy petition to address their debts in 2008. The attorney prepared a petition, the related schedules, and a Statement of Financial Affairs for the debtors, which were accompanied by affidavits signed and endorsed by the debtors under oath that swore to their knowledge and understanding of the information contained in the schedules, as well as their truthfulness. Throughout the bankruptcy process, the creditors challenged the statements and claims of the debtors, eventually demonstrating to the bankruptcy court that the debtors had knowingly made false statements on their petition.

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In a revised opinion recently released by the First Circuit U.S. Court of Appeals, the court affirmed a bankruptcy court’s decision to dismiss a man’s personal bankruptcy because he “committed a false oath” by failing to disclose a retirement account in his bankruptcy filings. Although the man did include the value of the account in other filings, the First Circuit accepted the district court’s conclusion that the omission was knowing, fraudulent, and material to the case. With the dismissal of his bankruptcy petition confirmed, the debtor will be unable to discharge any of his debts through a bankruptcy proceeding anytime soon.

CourtroomThe Debtor Supplies His Attorney with Information for All Accounts

The debtor in the case of Premiere v. Crawford is a man who petitioned the bankruptcy court for relief from his excessive debt. His attorney prepared a bankruptcy petition and the required schedules, which were affirmed as true by the debtor and submitted to the court. Upon reviewing the Petition and schedules, the appellee, a creditor who holds a judgment against the debtor for over $800,000, noticed that the debtor had failed to list the existence of a “Cash Balance Plan” under his retirement accounts. Although the value of the account was included under the total for “Retirement Accounts” in the debtor’s disclosures, the creditor alleged that he had intentionally and fraudulently excluded the name of the plan from his disclosures and requested that his case be dismissed as a result of the false oath.

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The United States First Circuit Court of Appeals recently published an opinion affirming a lower court’s ruling to dismiss a Chapter 11 bankruptcy petition filed by a man and his wife after confirming that the debtor knowingly made false statements under oath when petitioning for the bankruptcy. Since the bankruptcy code strictly requires debtors to be forthcoming with their assertions to the court, the debtor will be denied any bankruptcy relief because of his false statements, including for debts that he reasonably could have expected to be discharged had he been honest in his prior statements. As a result of this final appellate ruling, the debtor will not be able to seek the discharge of the debts that the bankruptcy initially attempted to address.

CrossiesDebtor Seeks Bankruptcy Protection With $6 Million in Assets and $10 Million in Debts

The debtor at issue in the case of Hannon v. ABCD Holdings, Inc. was the owner of ABCD Holdings, who sought bankruptcy protection for his wife and him in 2012, alleging that he owed over $10 million in debts and had less than $7 million in assets on hand. According to the facts discussed in the appellate opinion, during the course of the proceedings, a minority shareholder in ABCD Holdings exercised an option to purchase a controlling stake in the company, since he suspected that Hannon was mismanaging the company’s assets. After controlling ownership of ABCD Holdings switched to the new owner, Hannon continued to run the day-to-day operations of the company for several months, until the new owner obtained an order forbidding him from doing so.

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