The Fortitude to Take it to Trial

Accused of fraud? When you get a notice in the mail from a creditor or the Office of the United States Trustee, act quickly. You have 30 days before you may suffer drastic consequences up to and including denial or revocation of your discharge. Simply put, your debts could stay with you for the rest of your life.

Most bankruptcy attorneys never set foot in a courtroom. But at Staggs Morris, we are trial attorneys with nearly three decades of litigation experience. We are used to dealing with aggressive bankruptcy trustees, creditors, and other adverse parties — they don’t scare us.

We have decades of experience in complex bankruptcy matters, including reorganization and debt collection, debt defense, lawsuits within bankruptcy (adversary proceedings).

Adversary proceedings are lawsuits filed against you in your bankruptcy by creditors, former spouses, or by the United States Trustee.

When someone challenges your bankruptcy, suddenly there is a whole other component to your bankruptcy filing:  A lawsuit, under the umbrella of your bankruptcy petition.

Sometimes it is a challenge to your case brought by the Office of the US Trustee. Sometimes a creditor argues that you fraudulently incurred a debt. Sometimes it is a disgruntled, angry, vengeful former spouse. Sometimes it is one or more of these problems

Often, an adversary proceeding is the  result of trying to file your bankruptcy case without an attorney or with a cheap, inexperienced attorney at a bankruptcy mill. Staggs Morris, P.C. has over 25 years of trial experience and winning track record. We’re ready to help you go to battle with the government (the U.S. Trustee) or your creditors to preserve your right to bankruptcy relief.

The US Trustee may file an adversary proceeding objecting to your discharge if you fail to fully disclose ALL assets, no matter how trivial the non-disclosure may be.  Any misrepresentation can put you in jeopardy. Sometimes, the inexperience of cheap bankruptcy attorneys or bankruptcy petition preparers can cause a serious objection to your bankruptcy discharge by the Trustee.

The Trustee might file an adversary proceeding objecting for other reasons including, but not limited to, “substantial abuse” of the bankruptcy laws or a disagreement over how your means test mathematical calculations were completed.  In some instances, case law is developing nationwide over the exact manner in which means tests deductions are taken.  For instance, are you entitled to deduct all of your secured debt (for instance, your mortgage payments) if you intend to surrender your house back to the creditor?  The issues are complex and vary widely across different bankruptcy cases.

Sometimes a creditor may file an adversary proceeding objecting to the discharge of the specific debt you owe to the creditor. Substantial use of credit cards in the 90 days prior to your bankruptcy filing may create a “presumption” of fraud – meaning you didn’t intend to repay the debt and were planning to file bankruptcy all along.  A creditor can file an adversary proceeding in your bankruptcy to have the charges ruled to be non-dischargeable – meaning you’d have to pay those charges despite filing bankruptcy.

A creditor can also object on any number of grounds under 11 U.S.C. 523 besides fraud.  For example, an objection might center on the filing of a false financial statement in order to get the credit account to begin with.  Other aggrieved parties may file an adversary proceeding alleging a breach of fiduciary duty. This is something that often happens to people managing money on behalf of other people.

Debts you are ordered to pay by a divorce judge are non-dischargeable in a Chapter 7 if your former spouse is jointly responsible for the debt. However, such debts usually are dischargeable in a Chapter 13 bankruptcy.  If you have substantial divorce related debt, this may be a compelling reason to file a Chapter 13 bankruptcy instead of opting for a Chapter 7 bankruptcy.  For a full discussion of this issue, click here.

These issues and more most be explored prior to your bankruptcy filing.  Whatever the reason for the objection to your case, your interests are not best served by an attorney who has never set foot in a courtroom.  Can your Denver bankruptcy attorney handle a challenge to your case, if necessary?  It’s a fair question.

Although personal, prompt, professional service is the reason our past clients refer their friends and families to us, over 20 years of trial experience protects you from unpredictable scenarios that can threaten the success of your bankruptcy.

Sometimes, a former spouse may call the U.S. Trustee’s fraud hotline and claim that you are committing bankruptcy fraud. Most of the time, it is nonsense but defense of a complaint by the U.S. Trustee is serious business. Consider this true-to-life example:

In 2008, for example, the Trustee filed an adversary proceeding to revoke the discharge of a single, divorced woman with limited income. The Trustee’s actions were based on nonsense from her abusive ex-husband, but the staff attorney for the U.S. Trustee’s Office refused to back off.  Following trial, the bankruptcy court entered judgment on behalf of the client and the firm prevailed. This client preserved her right to walk away from tens of thousands of dollars of debt.

What is bankruptcy fraud?

It is probably not what you think … it doesn’t necessarily mean that you willfully calculated to steal money or property and doesn’t mean you committed a crime. Bankruptcy fraud is a creation of the U.S. Congress and is defined by the United States Code at 11 U.S.C. 523.

But when a creditor sues you for fraud, it doesn’t sound good. The creditor may allege you gave a false financial statement or used your creditor intending not to repay as defined in 11 U.S.C. 523(a)(2)(B). Or, fraud alleged by the creditor might simply be that you used too much credit or cash advances before filing bankruptcy on “luxury goods” as defined in 11 U.S.C. 523(a)(2)(C). Business partners may allege a fraudulent breach of fiduciary duty under 11 U.S.C. 523(a)(4).

These are a few examples of bankruptcy fraud. But we find that nine times out of ten, they do not hold up in court. The creditor suing the bank debtor is often counting on you not to hire an attorney to properly defend yourself. And if you don’t, you are stuck with a debt for the rest of your life — which can never be discharged in another bankruptcy.

A good trial lawyer can save you from flimsy allegations of bankruptcy fraud.