Archive for the ‘Bankruptcy Litigation’ Category

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When Things Go Very Wrong

Monday, November 24th, 2008

Last week I received a phone call from someone who wanted to know about the status of a bankruptcy case. It was not their bankruptcy, rather the case of another person. Apparently, the caller was a creditor of the bankruptcy debtor. The caller had a case pending in state court and wanted to know if the claim was discharged in the bankruptcy. While we were chatting, I pulled up the case on PACER. As I started to get more information and I was reviewing the documents, I came to realize that not only was the claim discharged, but the attorney representing the caller in the state court matter committed malpractice. What happened here is a lesson for anyone finding themselves brought into a bankruptcy case.

In May of 2007, the debtor filed bankruptcy which put the automatic stay into effect. In August, the caller’s attorneys filed a Motion for Relief from Stay. By a look at the document, the attorneys did not have experience in bankruptcy matters: the motion was barely two pages long and presented nothing substantive for the court to consider. Their lack of experience was also evident by the fact that they did not file electronically (Bankruptcy Courts – like all federal courts – use electronic case filing). And finally, they also did not pay the requisite filing fee (a fact which is readily available from a number of sources, including the court’s website).

The Clerk issued a Notice of Filing Fee due, and ordered that the payment be made by 8-27-07. The Certificate of Service from the Clerk stated the Notice was mailed on August 19, 2007 to the local attorney. However, payment was not made until 9-5-07. As a result, the motion was denied.

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Debtor Can’t Reopen Case to Enforce Discharge. Yet.

Wednesday, October 15th, 2008

In an October 3 decision, a Massachusetts Bankruptcy Court ruled that a debtor could not reopen her chapter 7 bankruptcy to commence an adversary proceeding to enforce the discharge.

The debtor was involved in an auto accident in 2003 which resulted in the death of another person. Later in the year, the Administrator of the Estate accepted $100,000 from the debtor’s insurance company and signed a release. In December 2004, the debtor filed her chapter 7 bankruptcy petition and received a discharge in April 2005. In the petition, she did not list the Estate as a creditor. There were no assets to distribute to creditors.

Then, in January 2006 the debtor heard from the “successor” Administrator of the Estate.

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US Trustee and Capital One Reach Settlement

Thursday, October 2nd, 2008

From the US Trustee Program press office:

The U.S. Trustee Program (USTP or Program) announced today that it has entered into a settlement agreement with Capital One Bank (USA) N.A. (Capital One) that, if approved by the United States Bankruptcy Court for the District of Massachusetts, will resolve USTP allegations that Capital One sought to collect debts that had been discharged in prior bankruptcy cases.

Under the settlement, an independent auditor will examine approximately 650,000 Capital One customer accounts to ensure that any monies improperly received by Capital One have been or are immediately returned to debtors or their bankruptcy estates. The auditor will also approve reimbursement to debtors and trustees for actual out-of-pocket costs and expenses, including attorneys’ fees incurred to contest erroneous claims. Capital One filed approximately 5,600 proofs of claim seeking payment of debts that had been discharged in prior bankruptcy cases.

Though the agreement is binding on Capital One and offices of the United States Trustee across the country, it does not bind or prejudice the rights and claims of third parties.

For more information, go here.

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Posted in Bankruptcy Litigation | 2 Comments »

A Shakedown Backfires

Monday, July 21st, 2008

This week’s Newsweek has a great article on the abusive tactics debt collectors are increasingly using. The article is called “A New Shakedown” and it’s worth the read – especially in light of the shakedown a creditor recently pulled in a Nebraska bankruptcy case. The collector ended up violating the stay.

The debtors’ chapter 13 bankruptcy case was filed on February 13, 2008 and listed Geneva Roth Companies as a claim in the amount of $170. On May 21, a collector working on behalf of the creditor GRC (Sherman and Roman) called one of the debtors and started “to verbally abuse the debtor and coerced a payment from the debtor threatening criminal sanctions.”

According to a signed statement, despite being informed of the bankruptcy filing and the pending bankruptcy case the collector told the debtor that she “was a key element in an investigation of fraud and bank theft….that they will be forced to have me identified as a felon. [The debtor went on to tell her that [she] was not going to talk to her about this at work and that I would call her back. [It] was then I had to call her back within minutes or my husband and I would be identified at our work by cops if I didn’t and it would be embarrassing.” The debtor was ultimately compelled to use a debit card to pay $300. She was left shaken.

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Posted in Bankruptcy, Bankruptcy Litigation, Chapter 13, Fair Debt Collection Practices | 1 Comment »

Inaccurate Schedules Lead to Discharge Denial

Wednesday, July 2nd, 2008

There is any number of ways that a debtor can get a discharge denied, and certainly, I have blogged about them here. One of the big ones is the most obvious: lying. I came across a recent case out of the Southern District of New York that should serve as a warning to all debtors – and especially to those debtors who think they can file bankruptcy without an experienced bankruptcy attorney. This pro se debtor was a former attorney (his license was suspended). There’s nothing in the record that suggests he was experienced in bankruptcy…but he still should have known better.

The case was filed in August 2006. In his original schedules, the debtor listed his monthly net income as $2,144 and expenses of $2,427. Among the expenses was $500 per month in support for “additional dependants not living” with the debtor. He also did not indicate that he had any student loan obligations, and wrote “0” in the box that specifically asks if the debtor has student loans.

A few days after filing the petition, the debtor amended his schedules showing an increase in his monthly expenses. In this amendment, he claimed that his expenses had increased, and identified a monthly domestic support obligation of $600 (and he identified the creditor to whom he owed the child support). He also stated he spent $20 per month on recreation.

Only 9 days latter, the debtor amended his schedules to identify a new creditor: a phone company who had an unsecured non-priority claim of $190.

In March 2007, the schedules were amended again. This time, the debtor added additional creditors and showed that his income was $2,840 and his expenses were $2,829. His recreation expenses were now $140 per month.

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Fake Accident Claim Leads to Nondischargeable Debt

Thursday, June 12th, 2008

Bankruptcy is available for honest debtors who have found themselves in unfortunate circumstances. Not every debtor is honest, nor is every debtor in unfortunate circumstances is entitled to bankruptcy. Take the case of William Berrien: I presume he was in unfortunate circumstances because he found himself in need of money. I presume that is why he decided he needed bankruptcy…but that decision came only after the scheme to stage and collect from a bogus car accident claim did not go as he had originally hoped and planned. In a case with twists and turns, this debtor learned that dishonest debtors really do get that they deserve.

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Massachusetts Debt Collector Gets Sanctioned by Florida Bankruptcy Court

Tuesday, June 10th, 2008

A Massachusetts debt collector along with the creditor has been sanctioned by the bankruptcy court in Florida for violating the discharge injunction. On April 4, 2007 Olson filed a Chapter 7 petition in the US Bankruptcy Court for the Southern District of Florida. On his schedules, he listed a debt owed to Wells Fargo Financial in the amount of $976. Two separate addresses for Wells Fargo appeared on the creditor matrix. His creditor’s meeting was held on May 3 and on July 3 he received his discharge.

In a letter dated March 10, 2008, Nelson, Watson & Associates, LLC in Haverill sent a letter to the debtor demanding payment in the principal amount of $976.71 and with interest, a total balance of $1,353.65. The debt was now purportedly held by North Star Capital Acquisitions. Payment was demanding by the close of business on March 31, 2008. On March 18, 2008, the Debtor moved to report his bankruptcy case, and that motion was allowed on March 31.

On that same date, the Bankruptcy Court issued an Order to Show Cause. The order directed Nelson, Watson & Associates, LLC and North Star Capital Acquisition LLC to appear before the court through counsel on April 21, 2008 to show cause why they should not be held in contempt for making a demand for payment on the debtor. The order was mailed to the CEO of North Star at its New York address and at its agent’s address in St. Paul, Minnesota. It was mailed to Nelson, Watson & Associates LLC at its Merrimack Street address in Haverhill (the order reflects the same address that appears on Nelson’s website).

April 21, 2008 came, and no one appeared. This is a problem for two reasons: (1) it’s a court order and when the court orders you to appear before it, you do so and (2) no one got to hear their side of the story. No even a written statement was field. It was as if they played possum.

You can imagine that this displeased the court. On April 28, the court held Nelson, Watson & Associates, LLC along with North Stat in contempt of court because they failed to attend the hearing and they violated the discharge injunction. Both were ordered to pay fines in the amount of $2,500. If they did not pay their fines by May 30, the court stated that it would issue a separate order directing the US Marshal to APPREHEND David Paris, CEO of North Star and George Nelson, III, Manager of Nelson, Watson & Associates,LLC for the purpose of “bringing [them] before the Court to explain [their] contemptuous conduct and why further sanctions should not imposed.” They were also ordered to obey the discharge injunction.

On May 6 Nelson paid its find and North Star paid on May 13. The case remains open.

As an aside, it takes less than 30 seconds to determine if someone has filed bankruptcy. Debtor’s attorneys routinely do it as part of their due diligence in preparing bankruptcy petitions. Since there is no response from Nelson, we’re all left wondering: did you check and send the letter anyway? or were you just negligent? Without an explanation, we’ll never really know the truth (but I encourage them to chime in and comment if they get wind of this blog post).

In re Olson, US Bankruptcy Court, Southern District of Florida at Fort Lauderdale, 07-12387.

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8th Circuit: Failure to Stop Abuse is not a Willful Injury

Monday, June 9th, 2008

This recent bankruptcy court decision is not an easy one to discuss, and I’ll warn my readers up front, this may not be an easy read. The case posed this question: Can a mother who allowed her child to be abused to the point where it lead to his murder escape the penalties for his wrongful death in bankruptcy? I know what my heart said. I know what yours is probably thinking. And yet the US Court of Appeals for the 8th Circuit has said yes.

Denise was the mother of 3-year old Dillon and a 5-year old daughter. In March of 2001, she and Steven McBride began dating and soon thereafter, she, McBride and the kids moved into a two bedroom apartment. Denise worked at the same daycare center that both children attended, and Dillon also participated in speech therapy programs administered by the local school district.

At some point, McBride began physically abusing Dillon. Since Denise worked at a daycare center, she had received training in identifying and reporting child abuse. She knew that her boyfriend was physically abusing her son. Despite asking him to stop, the abuse persisted and she did nothing to stop it.

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Bankruptcy Court Teaches Boston University a Lesson

Monday, November 28th, 2005

In a November 17, 2005 decision, the US Bankruptcy Court in Boston found that Boston University violated the automatic stay of the Bankruptcy Code when it refused to permit a bankruptcy debtor to register for classes because the debtor owed money to BU.

The case involved a debtor who enrolled at BU in the autumn of 1999. While she received substantial financial aid during her first three years, she did not receive any aid for her senior year which was spent entirety in the African country of Niger. The costs of tuition and her air fare to Niger were paid for by BU. During that fall semester, BU sent three notices to debtor and her family but was nevertheless allowed to return to Niger in the spring because the tuition and costs had already been paid in full.

Upon her return, the debtor had one class to complete but as this class was offered only during the spring semester, she applied for and was permitted a leave of absence for the fall 2003 semester. When she attempted to register for the spring 2004 class, she was told she had to pay $38,195 then owing for her tuition and costs for the 2002-2003 academic year. Unable to come up with such a large amount of money, she applied for another leave of absence to the spring of 2005 when the course would be taught again. In the meantime, she tried to resolve the tuition issue with BU but was unsuccessful. On December 14, 2004, she filed bankruptcy under Chapter 7, listing the obligation to BU as an unsecured claim.

After filing the bankruptcy petition, she attempted to register again for her final course. BU refused. Even though she was refused, she made arrangements with the professor to attend classes, and complete tests and assignments during that Spring 2005 semester, with the hope of being allowed to register once she received her bankruptcy discharge. The discharge was received on March 28, 2005.

On March 30, 2005, the debtor filed a complaint seeking (1) a determination of whether the debt to BU was in fact dischargeable; (2) an injunction barring BU from taking any action to enforce the debt; and (3) damages, attorney’s fees and punitive damages for violating the Automatic Stay.

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