There are many reasons that people choose to represent themselves (what is referred to as pro se) rather than hire an attorney. Rarely are any of them good reasons. To a lay person, I realize that this sounds almost disingenuous coming from someone who is an attorney – but the law is serious business. A recent decision from the US Bankruptcy Court in Massachusetts should serve as a reminder to anyone considering the pro se option that do so may invite undesirable consequences. (more…)
Posts Tagged ‘Adversary Proceedings’
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.
“Stated Income” Loan Discharged Despite False Representations on Application
Friday, August 1st, 2008
One of the focuses of my bankruptcy practice is litigating Adversary Proceedings. I came across a case out of the Northern District of California. The first sentence under the heading of “Summary of Facts” read: “[t]his adversary proceeding is a poster child for some of the practices that have left to the current crisis in our housing market.” Clearly, this was something I had to read – and share with you.
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.
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.
Not Huge and Very Stupid: A Discharge is Denied
Tuesday, April 29th, 2008
I have been asked by clients if they can avoid having to list all of their credit cards on their bankruptcy schedules. The answer is simple: “no.” However, they must list all of their debts. And if you owe the credit card company money, you must list it on your bankruptcy schedules (open lines of credit are not debts, although no debtor should expect that an inactive line of credit will survive a bankruptcy filing). Not doing so is – legally speaking – stupid. And recently, a debtor in Massachusetts learned just how stupid it really was.
The debtor filed a chapter 7 case. In an Adversary Proceeding, a creditor alleged that the debtor made a false oath when she failed to list five separate credit card debtors on her petition. She also did not bother to amend her schedules at any time…even after the Adversary Proceeding was filed. When asked about it, the debtor replied:
I didn’t list [the credit cards] because I didn’t want to totally destroy my credit. That’s basically – I didn’t think I had to, you know, divulge these small little credit cards that didn’t mean anything. They weren’t huge.
The Insider View of Friendship
Friday, April 4th, 2008
When is a “friend” an insider and when is an “insider” a friend? That was a question that a Kansas Bankruptcy Court had to struggle with in the case of In re Tankersley.
The chapter 7 debtor’s friend (Anne) paid about $21,000 on the debtor’s mortgage. A little less than a year prior to filing the case, the debtor paid her back $5,000. About 6 months later, she paid her $4,000 and as of the date of the petition, she still owed her about $12,000. The debtor identified the payments to Anne on her statement of financial affairs, and identified her as an “insider.”
The chapter 7 trustee sued the friend (Anne) to avoid the preferential transfer and to recover the value of the property. The trustee alleged that he was entitled to a one-year look back period because Anne was an insider, and was disclosed as such on the debtor’s statement of financial affairs.
The court found that they did not appear to be especially close friends. The debtor had never been to Anne’s home, and they spoke on the phone every few weeks, and saw each other sporadically.
Annie also did not fall under the definition of per se insider, such as a family member, a business partner, or a corporation that the debtor has an interest in or controls. While the court acknowledged that the debtor identified Anne as an insider, that disclosure was not dispositive but was done “for the debtor’s own protection.” The trustee did not prove that Anne was an insider: Anne “did not cross the threshold from friend to insider….just as [the debtor] never crossed the threshold into [Anne’s] home.” Since Annie was not an insider, she does not need to turn over the payments she received from the debtor.
In re Tankersley, 382 BR 522 (Bankr.D.Kan February 13, 2008).
Related:
Preferences: What are they?
Housing Discrimination Judgment: Non Dischargeable
Friday, March 21st, 2008
The US Bankruptcy Court in Worcester was recently called upon to answer this question: may a landlord who discriminated against a prospective tenant because of the tenant’s Section 8 status discharge the judgment in bankruptcy? In a February 11, 2008 decision, the answer was a resounding “no.”
The landlord was sued in the Worcester County Housing Court for violations of Massachusetts Anti-Housing Discrimination laws. Under Massachusetts Law, a landlord may not discriminate against a prospective tenant on the basis that the tenant receives federal, state or local housing subsidies. The court found that the landlord violated the law, and awarded $1.00 in compensatory damages, and $5,000 in punitive damages in addition to attorneys fees and costs. Rather than simply pay the judgment for violating the tenant’s civil rights, the debtor filed bankruptcy.
The tenant brought an Adversary Proceeding claiming that the judgment was not dischargeable under Section 523(a)(6) of the Bankruptcy Code, which precludes dischargeability of debts that arise from a willful or malicious injury.
The debtor-landlord contended that the verdict slip did not reference the compensatory damages (which were a buck), that punitive damages were not allowed under Massachusetts law, and that the tenant was represented by Legal Assistance Corp. of Central Massachusetts, which did not charge the tenant for services. For reasons that were not clear from the decision, the landlord never appealed the decision of the housing court. Since the failure to appeal gives finality to the Housing Court judgment, the Bankruptcy Court was bound by the Housing Court’s judgment of punitive damages.
The Bankruptcy Court then turned to the issue of whether the discrimination itself was a willful or malicious injury as contemplated by Section 523(a)(6). The court pointed out that “a willful injury is one that is inflicted ‘either with the intent to cause the harm complained of, or in circumstances in which the harm was certain or almost certain to result from the debtor’s act. Non-dischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” Since discrimination itself contemplates a discriminatory intent, motive or state of mind under Massachusetts law, that was sufficient to constitute the willfulness component of 523(a)(6). “The discrimination per se constituted an intent to injure because the conduct could serve no other purpose.”
A malicious act is one that is committed “without just cause or excuse [and] in conscious disregard of one’s duty.” Punitive damages are justifiable in cases where the conduct is “outrageous because of the defendant’s evil motives or his reckless indifference to the rights of others.” Finding that the awarding of punitive damages sufficient for a finding of maliciousness, the debt was deemed nondischargeable.
The landlord-debtor’s final arguments that the attorney’s fees award were dischargeable was, in a word, wrong. The Anti-Housing Discrimination laws provide for attorneys fees to successful claimants, and if the underlying judgment is non-dischargeable, the attorneys fees incurred in obtaining that judgment is similarly non-dischargeable. The discriminating landlord will have to pay.
Honesty: Truly the best policy
Thursday, March 20th, 2008
If you think you can get away with not being honest with your bankruptcy lawyer, think again. In a January 31 decision out of the Southern District of Mississippi, a bankruptcy attorney has been required to turn over his complete file to his client’s adversary and testify.
The case involved a Chapter 7 debtor who was a defendant in an Adversary Proceeding brought by Liberty Mutual. During his deposition, the debtor was asked questions about his schedules and about his decision to convert his case from Chapter 13 to Chapter 7. The debtor effectively stated that he relied on the advice of his attorney.
Liberty Mutual sought to compel the debtor’s counsel to produce the documents used to prepare the petition and schedules, and to testify concerning information given to him by the debtors that was used to prepare the petition and schedules (such as income, expenses, assets and liabilities). The attorney and the debtors argued that the information and testimony was protected by the attorney-client privilege. But the insurer countered, reminding the court that it was the debtor who claimed reliance on his attorney’s advice as a defense. It argued that the debtor could not use the shield of the attorney-client privilege if he has already used it as a sword.
The bankruptcy court agreed. Relying on the Federal Rules of Evidence and the Massachusetts case of In re Eddy, 304 B.R. 591 (Bankr.D.Mass.2004) the court noted that “[t]he privilege serves the purpose of promoting full and frank communications.” The court stressed:
Open and honest communication is the foundation of the relationship between attorneys and their clients. Without the privilege, clients would not divulge important confidential information to their attorneys, and therefore, their attorneys would not be able to provide adequate advice or representation.
But the court noted that the ruling in In re Eddy was that the debtor has no reasonable expectation that information will be kept confidential if it must be disclosed in documents that are filed in a bankruptcy.
The Mississippi court also pointed out an exception to the attorney-client privilege: there is no exception to the privilege if the lawyer’s services were sought or obtained to further a crime or fraud. If this debtor used his attorney to commit bankruptcy fraud, there is no privilege.
The lesson here should be obvious: be honest in the process and be honest with your bankruptcy lawyer.
6th Circuit Orders Turnover of Tax Refund
Saturday, March 8th, 2008
The Bankruptcy Appellate Panel in the 6th Circuit affirmed an Ohio Bankruptcy Court order requiring the debtors to turn over their tax refunds to the chapter 7 trustee. The debtors filed their chapter 7 case in March 2005 and their meeting of creditors was approximately two months later. By the time of the meeting, the debtors had not yet filed their 2004 tax returns. The trustee advised the debtors that any refunds were to be turned over to the trustee upon receipt, and the debtors signed an acknowledgment of the instruction.
The tax returns were filed in July and the debtors received approximately $4,000 in refunds. The debtors claimed that their bankruptcy attorney advised them that they could exempt approximately $1,600 of the refund, and the debtors sent their counsel a check for the difference. Debtors also provided bankruptcy statements and tax returns to their attorney. Debtors were under the belief that their attorney would forward the check to the chapter 7 trustee.