Exception to Discharge -- attacking bankruptcy filings in Federal Court

Source: https://www.americanbar.org/publications/blt/2016/10/02_maurice.html

I was recently asked to discuss how the heck you could challenge a person filing for bankruptcy. The most obvious answer is by showing they are hiding money. Nail them with that, and it's "game over." However, often, that is not so easily proven, nor necessarily the case. There are so many warrens in bankruptcy court, that it is much easier to hide than most people think. Enter the 523 exceptions!

How does it work?

If you are passed the filing deadline for exceptions to discharge, you will need to show good cause as to why the date was missed. Discharge is covered under 11 USC 523. There are six of them that matter most in commercial context:

• 523(a)(1): Taxes and duties exception


• 523(a)(2): obtaining loans, credit, or money by (a) false pretense as to financial position, or (b) through writing (applications)


• 523(a)(3): Failure to list creditor in a timely fashion in bankruptcy proceedings, such that the creditor could not contest


• 523(a)(4): fraud or defalcation of a fiduciary (or fiduciary duty)


• 523(a)(5): support (child/alimony) obligations


• 523(a)(6): willful or malicious injury

There are additional ones, but they get really obscure (home owner associations dues, and government obligations).

Generally, for corporate battles (partnerships, etc.), it ends up being under 523(a)(4). For debts incurred through fraud – 523(a)(2). For punitive damages or exemplary damages mandated by a Court – 523(a)(6).

I’ve won on 523(a)(6), and lost on 523(a)(2) and reached a draw (Settlement) as to 523(a)(4).

Here, however, because the filing is untimely, you would have to show good-cause to re-open the window. Service is popular, as is failure to notify the creditor at all. Also, manifest unjustice would be a good argument, but I don’t see it in your case.

Hanover Law, PC
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Bankruptcy, Chapter 13, and getting your stuff back....

I am in month 41 of a 60 month chapter 13 plan. The trustee has just paid off my car. I want to sell it but I am informed by my lawyer that I won't get the title till the 60 months is complete. He says I just have to leave it sit and continue to pay expenses for it? Really?

Ah ha! The perennial problem of "It's mine, dammit....but not really! It actually belongs to the trusty trustee!" See, during a bankruptcy, your assets (say, for instance, that pesky car) are actually controlled by the trustee, who's job it is to ensure everyone get's paid under your plan, and that any "value" in you estate is properly allocated to the creditors that own you until the end of the 5 year period. To wit: the car, while paid off, is still an asset of your estate, which makes it controlled by ye olde trustee. What your lawyer didn't tell you was that he can file a request with the trustee to abandon the asset (i.e. drop it out of that part of the estate that belongs to you) and give it back to you. You'll need to argue that it has limited to no value that the trustee could use to pay other debts with, but if you can do that, you have a chance to convince the trustee to abandon the property. See Rule 6007 which reads:

Rule 6007. Abandonment or Disposition of Property

(a) Notice of Proposed Abandonment or Disposition; Objections; Hearing. Unless otherwise directed by the court, the trustee or debtor in possession shall give notice of a proposed abandonment or disposition of property to the United States trustee, all creditors, indenture trustees, and committees elected pursuant to §705 or appointed pursuant to §1102 of the Code. A party in interest may file and serve an objection within 14 days of the mailing of the notice, or within the time fixed by the court. If a timely objection is made, the court shall set a hearing on notice to the United States trustee and to other entities as the court may direct.

To be fair, it is not likely the trustee will go to the effort to do this...but you could ask your lawyer to file a request, and you are certainly entitled to do so.

If you have a questions about bankruptcy or civil cases, give us a ring! We'll be glad to review your case or discuss how you may move forward. 703-402-2723 or 1-800-579-9864.

Hanover Law, PC
Offices in Fairfax, VA and Washington, DC
www.hanoverlawpc.com
2751 Prosperity Ave, Ste 150 Fairfax, VA 22031	Sean R. Hanover, Esq. Stephen Salwierak, Esq.	Lili O'connell, Esq. Charles Hatley, Esq.
1-800-579-9864	admin@hanoverlawpc.com