Troubleshooting Consumer Bankruptcy: Causes, Bad Faith, and Discharge Issues
Explore the complexities of consumer bankruptcy troubles, including causes for dismissal, bad faith filing considerations, denial and revocation of discharge, and associated court findings. Delve into the factors and tests involved in assessing bad faith scenarios and the potential consequences for debtors in bankruptcy cases.
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Presentation Transcript
THE CONSUMER IN THE CONSUMER IN TROUBLE: TROUBLE: TURN OUT THE LIGHTS TURN OUT THE LIGHTS PARTY S OVER PARTY S OVER Honorable John W. Kolwe, USBC, W.D. La. Deborah B. Langehennig, Chapter 13 Trustee (Austin, TX) Veronica D. Brown-Moseley, Financial Freedom Legal, PLC (Richmond, VA) THE THE
CONSUMER TROUBLES CONSUMER TROUBLES I. Dismissal for Cause & Bad Faith Under 707(a) II. Dismissal for Bad Faith Under 1307(c) III. Denial of Discharge Under 727 IV. Revocation of Discharge Under 727 V. Vexatious Litigation VI. Fifth Amendment Rights VII. Bankruptcy Crimes
DISMISSAL FOR CAUSE AND DISMISSAL FOR CAUSE AND BAD FAITH UNDER 707(A) Bankruptcy Courts are split regarding what constitutes cause for dismissal. BAD FAITH UNDER 707(A) The majority view recognizes that a debtor s bad faith in filing can constitute cause for dismissal. The minority view requires a finding of extreme misconduct falling outside of the purview of more specific Code provisions.
BAD FAITH AND TOTALITY OF CIRCUMSTANCES Eleven-Factor Bad-Faith Test established in McDow v. Smith. Six-Factor Test established in In re Griffieth. Fourteen-Factor Test established in In re Spagnolia.
DISMISSAL FOR BAD DISMISSAL FOR BAD FAITH UNDER FAITH UNDER 1307(C) 1307(C) Courts have found that bad faith can constitute cause to dismiss or convert a debtor s bankruptcy case.
DENIAL OF DISCHARGE DENIAL OF DISCHARGE UNDER UNDER 727 Courts have adopted various views regarding the conduct that would preclude a debtor from being granted a discharge. 727 What conduct rises to the level of an attempt to abuse the bankruptcy system? Can the harm be mitigated by an amendment?
REVOCATION OF DISCHARGE UNDER 727 Actions that can lead to revocation of discharge: Knowingly intending to defraud the trustee; Engaging in certain fraudulent behavior; or Failing to report to the trustee acquisition of property of the estate post-filing. Courts are split regarding whether the plaintiff must not have known of the debtor s fraud prior to the discharge when seeking revocation under 727(d)(2).
VEXATIOUS LITIGATION VEXATIOUS LITIGATION A history of litigation demonstrating: Vexation; Harassment; Needless expense to other parties; or An unnecessary burden on the court. Potential consequences: Case dismissal; Bar from refiling; or Other appropriate sanctions.
FIFTH AMENDMENT RIGHTS FIFTH AMENDMENT RIGHTS Shady Sherry contacts you because she needs to file a bankruptcy case in a hurry! There is a foreclosure sale of her primary residence pending, her vehicle was recently repossessed, and her wages are being garnished. At the free consultation, you discover that on Shady Sherry s 2022 tax return she failed to disclose $75,000 of income earned and claimed expenses for a business that did not exist. She is in desperate need of the automatic stay and wants you to assist her with filing a case under chapter 13 today.
FIFTH AMENDMENT RIGHTS FIFTH AMENDMENT RIGHTS Are there any issues with assisting Shady Sherry in filing bankruptcy? Could information disclosed on the Statement of Financial Affairs constitute a waiver of Shady Sherry s privilege against self-incrimination? At the 341 Meeting, can Shady Sherry assert privilege in response to questions from the Chapter 13 Trustee regarding discrepancies in the information on her tax returns and the Statement of Financial Affairs?
BANKRUPTCY CRIMES BANKRUPTCY CRIMES In some instances, a debtor should be advised to seek criminal counsel. Debtors counsel should be mindful of conduct by a debtor that may give rise to a criminal case against the debtor.
THANK YOU! THANK YOU!
