My colleague, Florida bankruptcy lawyer Jonathan Alper, recently wrote a post on his Florida Bankruptcy Law blog about issues arising in the case of a debtor’s receipt of an inheritance within six (6) months of filing. Under the bankruptcy law, any inheritance received by the debtor within six months of filing becomes property of the estate and can be seized by the trustee and distributed like any other non-exempt asset.
Chapter 7 trustees typically question debtors about any expected inheritance at the 341 hearing. Jonathan posed the question of what might happen if a debtor, knowing that he was the beneficiary of a will, advised his a sick or dying relative about the bankruptcy and the relative thereupon decided to change the beneficiary so that the assets would not be seized.
Jonathan concludes that the debtor has no duty to advise the trustee about the "new" beneficiary’s inheritance. He reasons that the dying relative is not part of the bankruptcy and that the relative has the right under State law to change the beneficiary at any point.
I agree with Jonathan’s analysis….to a point. I think that if the numbers are big enough, an aggressive Chapter 7 trustee would go after the proceeds of the estate and argue that circumstantial evidence suggests fraud. I think it is unlikely that the original beneficiary or the new one would admit that there was a concerted effort to move assets out of the estate. However, just as in the case of a "fraudulent transfer" that would deny discharge under Section 727 of the Code, intent can be inferred from the action of the parties.
I think the bigger issue here may relate to the nature of advice that bankruptcy lawyers can give to their clients. As a zealous advocate, a bankruptcy lawyer can advise his client about the six month rule, and, if asked, about wills and estate rules that permit a testator to change his beneficiaries. I also think that that bankruptcy lawyer should advise his client about the potential risk of a claim by the trustee.
To a certain degree, therefore, the bankruptcy lawyer’s job is to help his client manage risk, while at the same time avoiding being backed into a situation where the lawyer has independent knowledge of a client’s plan to misrepresent statements on bankruptcy schedules. Jonathan Alper concludes that his hypothetical debtor has a "legitimate position." I think this is the right way to analyze this type of ethical dilemma.
As long as the debtor (and his lawyer) have a reasonable argument grounded in statute or case law, is there any reason why the lawyer ought not provide his client with information about a range of choices starting with the most aggressive position?
Technorati Tags: Chapter 7 and expected inheritance, inheritance as property of the estate, Jonathan Alper
Filed under Chapter 7 issues, Protected property issues by 
A divorce lawyer called me today with a question about the impact of bankruptcy on a debtor’s obligations under a divorce decree. The divorce lawyer represented a man who was the co-signer of a credit card along with his ex-wife. The divorce decree provided that the ex-wife would be responsible for payment of this credit card debt.
In December, 2006, the wife filed a Chapter 7 bankruptcy and included the credit card debt in her petition. She did not list the ex-husband as a creditor in the case and the ex-husband did not receive official notice of the filing. The husband’s divorce lawyer wanted to know what, if anything, could the ex-husband do to protect his interests.
I responded by noting that Bankruptcy Code Sections 523(a)(5) and (a)(15) apply here. 523(a)(5) makes debts in the nature of alimony and support non-dischargeable where as (a)(15) provides that debts to a former spouse not in the nature of alimony or support but incurred by the debtor in connection with a divorce decree are not dischargeable.
Therefore, in my view, the ex-husband is a creditor by virtue of financial liability that he would incur if the debtor fails to pay the credit card debt.
I further advised my attorney colleague that she should contact the debtor’s lawyer and inquire as to whether the debtor would consent to an Order holding the obligation to the ex-spouse as non-dischargeable in the Chapter 7. Arguably, 523(a)(15) and 727(b) make these debts non-dischargeable automatically, but I would feel safer with an Order from the bankruptcy judge formally holding that these debts are not discharged in bankruptcy.
I also ran this scenario by my colleague Shayna Steinfeld, a lawyer who practices in the area of bankruptcy and domestic relations law and she concurred with my analysis and added two additional points:
1) that this property division debt would be dischargeable in a Chapter 13 (pursuant to Section 1328(a)(2); and
2) that the automatic stay of Code Section 362 may not apply (per Section 362(b) if the credit card obligation was in the nature of alimony or support.
The bottom line – the debtor wife is not going to be able to stick her ex-husband with this credit card debt, although the ex-husband may need to protect his rights by filing an appropriate pleading in the bankruptcy court. The wording of the divorce decree here is also critical in determining how this credit card obligation will be treated.
Filed under Chapter 7 issues, Divorce and bankruptcy issues by
This past week the U.S. Supreme Court heard oral argument on an interesting Fair Credit Reporting Act issue. In the case of Geico vs. Edo, the Supreme Court will be deciding whether insurance companies can be liable for punitive damages if they fail to notify customers that the customer’s credit score has led to higher rates.
Regardless of what the Supreme Court does, I think that the bigger issue for consumers relates to how insurance companies use your credit history in setting the price that a consumer pays for auto or homeowner’s insurance.
According to the AJC, drivers with the worst credit histories will pay almost double the price paid by a driver with very good credit. However, Georgia law permits the insurance companies to keep secret the formulas they use to decide what credit factors impact insurance premiums.
All of this begs the question of what relevance bad credit has on a driver’s likelihood to be involved in an accident.
If you thought that a bad credit score only affected your ability to finance a house or a car, think again. Even if you are not using credit, your cost of insurance will be affected by a bad credit history.
This credit score/insurance cost link serves as yet another reason for you to check your credit reports at least once a year. Since most credit reports have some errors, there is a good chance that you can improve your score simply by challenging these errors and demanding that the credit reporting agency remove the mistakes from your report.
Finally, take a look at this interesting post I found on attorney Grant Griffith’s Kansas Creditor Harassment blog about specific steps you can take to remove an old bankruptcy from your credit report.
Technorati Tags: credit reports, bad credit and insurance costs, Geico v. Edo, Fair Credit Reporting Act, attorney Grant Griffiths
Although bankruptcy filing numbers are still down in Atlanta, I am starting to see more and more activity on my web site and in email inquiries from potential clients. Nevertheless, there is still a great deal of misinformation in the general public about bankruptcy.
Yesterday, I was speaking to a potential Social Security disability client who was telling me about the debt she had incurred after she stopped working. When I suggested that bankruptcy might be an option, she responded with the statement "I thought that they changed the bankruptcy law and made it illegal to file."
My colleague, Maryland bankruptcy attorney Brett Weiss, has written an excellent article for his firm’s web site entitled "Top 15 Myths About The New Bankruptcy Law," which you can read by clicking the link. In this article, Brett sets the record straight about all the false rumors about bankruptcy.
Now that we have a new Congress, it will be interesting to see if there are any efforts to modify some of the sillier provisions of the new law (such as credit counseling or the debt relief agency disclosure requirements). My experience over the past twenty years has been that very, very few bankruptcy debtors use the bankruptcy process to manipulate the system.
Hopefully as the myths about bankruptcy are dispelled over time, those "honest but unfortunate" debtors who truly need a fresh start will again realize that bankruptcy relief still exists.
Technorati Tags: myths about new bankruptcy law, Brett Weiss, illegal to file bankruptcy, BAPCPA
