Sam Calvert has been practicing law in St. Cloud since 1978. He was formerly a member of the private panel of bankruptcy trustees for chapter 7 and a chapter 12 trustee. His bankruptcy practice now focuses on representing people in financial distress and individual or small businesses.
There are frequent types of litigation that come up in consumer bankruptcies.
The first is that the trustee sues someone who got money or property from the person who files bankruptcy. Usually the trustee will sue on account of a preference or a fraudulent convenance. A preference is where the person who files bankruptcy pays a creditor $600 or more on an unsecured debt within 90 days of filing (within a year if the creditor is a family member or “insider”). The trustee wants the money back from the recipient. A fraudulent conveyance is where the person who filed bankruptcy gives something away – usually to a family member or friend – without getting fair value in return. The trustee wants the asset, or its value, back.
If you are sued by a trustee you need to defend yourself. There are various defenses to a preference – two commons ones are called “new value” or “ordinary course The other frequent suit is a suit in which a creditor sues the person who files bankruptcy to have the judge rule that a particular debt is not discharged. The usual grounds for bringing that suit are that the debt was incurred by fraud or by willful and malicious injury. One type of fraud can be borrowing money using a false financial statement. Courts have held that A “malicious” injury involves “(1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.” (In re Jerich, 238 F3d 1202, 1207).
Since the reason to file bankruptcy is to discharge your debts, if the court rules that a particular debt is not discharged, that is a very serious problem. These can be hard cases.
A less frequent, but potentially catastrophic suit, is one in which the trustee tries to convince the court that you should not get a discharge at all, or that your discharge should be revoked. These are tough cases, because essentially you cannot settle them; you either convince the court that you deserve a discharge or you done.
I have defended a number of these types of cases over the years, and would be happy to talk to you about your situation. Call me at: (320) 252-4473