If I loaned money to a friend who committed bank fraud (I had to wire the money within minutes of having received the call from the friend directly to the Bank’s fraud recovery department) and that friend subsequently files Chapter 13, is it safe to assume that I have no recourse but to wait in line with other unsecured creditors?
Of course, I did not want the person to go to jail and did not obtain any promissory note or security agreement at the time the funds were wired to the bank’s fraud recovery department.
I have not yet obtained a promissory note and mortgage as I assume it could now be disallowed by the trustee because the money was disbursed in mid-February and I’ll bet there’s a "consideration" issue now.
What do you recommend? Is it too late to get a note and/or secure the debt. The friend has yet to file Chapter XIII yet.
Would there be any priority in my payment becuase I kept the person out of jail?
–Michael
Jonathan Ginsberg responds: Michael, as you said in your email – "no good deed goes unpunished." I do not represent creditors so I would advise you to find a lawyer who regularly represents creditors in Chapter 13 claims. Typically lawyers who represent used car dealers or high risk vehicle finance companies would have a lot of experience regarding possible objections to Chapter 13 cases since they file objections all the time 
.
I have no doubt that creditor lawyers and Chapter 13 trustee attorneys read this blog – perhaps one of my colleagues at the bar could post a comment or email me with more insight.
Your predicament serves as an important lesson to anyone who ever considers loaning money to friends or family. If you make these loans, especially in an emergency situation, be prepared to lose the money, your friends or both.
Technorati Tags: treatment of personal loans in bankruptcy, objections to chapter 13 confirmation
Filed under Discharge issues, Proof of claim issues, Trustee objections in Chapter 13 by 
Illinois bankruptcy attorney Mazyar Hedayat reminds us in his DuPage County Bankruptcy blog that random bankruptcy case audits will start on October 17, 2006. October 17 is, of course, the one-year anniversary of the effective date of the BAPCA change to the nation's bankruptcy laws.
One out of every 250 cases will be audited. Debtors and their counsel will have 21 days to provide:
- six months of pay advices
- six to twelve months of bank statements
- a copy of your divorce decree (if applicable)
- two to four years of tax returns
- copies of titles or deeds to real estate
- other financial information
if this information is not provided or if it is incomplete, your discharge may be denied.
In my office I plan to ask my clients for this information at the time the case is filed.
Technorati Tags: random case audits in bankruptcy, denial of discharge, united states trustee, random audit
Filed under Chapter 13 issues, Chapter 7 issues, Discharge issues by
In a previous post, I had written about the harsh consequences (i.e. dismissal) for debtors who fail to obtain pre-bankruptcy credit counseling. In that post I had not really discussed the substance of or usefulness of credit counseling.
The general consensus among bankruptcy lawyers has been that the credit counseling requirement is pretty much a waste of time. Virginia Beach bankruptcy lawyer Tommy Smith writes about the credit counseling requirement in Blawg De Novo that requiring debtors to go to counseling before filing bankruptcy was a little like telling someone that was sick they could go to the doctor to get medicine, but before they go to the doctor, they have to take a health class for $50, and then a second health class for another $50 after receiving the diagnosis.
Similarly, Massachusetts bankruptcy lawyer Bill McLeod points out an inherent flaw in the credit counseling requirement – one which I see regularly – by the time an individual makes the decision to seek advice from a bankruptcy lawyer, it is far too late for credit counseling. In an ideal world, individuals would seek counseling before their small financial problems became insurmountable, but, unfortunately, that is not how human nature works.
If the goal of mandatory credit counseling is to prevent bankruptcy filings, it is not working. NACBA (National Association of Consumer Bankruptcy Attorneys) did a study earlier this year and only a tiny fraction of those receiving credit counseling ended up not filing bankruptcy.
I personally have less of an issue with the pre-discharge budget counseling than do my colleagues Tommy Smith or Bill McLeod. Pre-discharge counseling comes close to the end of the process when debtors are beginning to see some light at the end of the tunnel. I suspect that mentally and emotionally they may be more receptive to budget and credit counseling (although it would be interesting to see a long term study that looks into the impact of pre-discharge counseling).
For most of my clients, the $50 pre-filing cost and the $50 pre-discharge costs basically amount to a hidden "bankruptcy tax." Given that bankruptcy filers watch every penny, it seems unfair to burden them with credit education requirements that may be a complete waste of time.
Technorati Tags: credit counseling requirement, pre-discharge budget counseling, Tommy Smith, Bill McLeod, bankruptcy reform, United States Bankruptcy Code
The 11th Circuit (Federal Courts in Georgia must abide by 11th Circuit precedent) recently issued an interesting decision denying the appeal of a malpractice victim in a bankruptcy petition filed by a Florida doctor, Dr. Fernandez-Rocha. The case arose from a malpractice verdict won by a couple, the Guerras, whose newborn baby died under the care of Dr. Fernandez-Rocha. Although Florida law requires obstetricians to maintain a minimum of $250,000 of malpractice insurance, Dr. Fernandez-Rocha was not insured. After the judgment was issued, the doctor filed for bankruptcy in an effort to discharge the debt.
The Guerras objected to the discharge of this debt, claiming that the Florida malpractice law created a "fiduciary duty" in the doctor to maintain insurance. The bankruptcy court disagreed and the 11th Circuit Court of Appeals affirmed the decision of the bankruptcy court.
This 11th Circuit decision seems to run contrary to several hearing decisions I have seen over the years. For example, I have been involved in several cases where a "buy here/pay here" auto dealer objected to the discharge of damages arising from a auto accident when the debtor failed to maintain insurance. I remember specifically one such case with the judge specifically commented that the debtor's failure to adhere to the law requiring vehicle insurance was wrongful behavior that would support a creditor's objection to discharge (or an objection to confirmation in a Chapter 13).
Presumably, at some point, a debtor's negligent or reckless behavior in not maintaining insurance would rise to the level where the debt arising from that negligence/recklessness would not be discharged. I wonder if the debtor in the Fernandez-Rocha case pursued other grounds for non-dischargeability other than the fiduciary duty argument.
Thanks to attorney Scott Riddle of the well researched Georgia Bankruptcy Blog for discussing this case. Additional discussion and a copy of this decision is on Scott's blog.
Technorati Tags: non-dischargeability, fiduciary duty, Fernandez-Rocha, 11th Circuit bankruptcy decisions
Filed under Discharge issues, Georgia Bankruptcy by
