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Is Failure to Report an Asset Bankrupcy Fraud, and What May Happen

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  • 04-09-2011, 04:38 AM
    will1
    Is Failure to Report an Asset Bankrupcy Fraud, and What May Happen
    My question involves bankruptcy in the state of: Michigan. My son filed for a bankruptcy about 1.5 yrs ago, when he was unable to make the payments on debts and overwhelmed by harassing letters and calls from creditors. He did not have enough money to hire an bankruptcy attourny so he filed on his own. He had been terminated from his employer of 12 years. A few months after he left his former job , some friends that still worked there called to inform him that there were other employees that had the same (policy violations) on at least two other occasions but were not let go, and that he should check into this as an discrimination toward him. So he called around just to try and see from a legal standpoint if he could get re-instated or backpay since he was unable to even collect unemployment while he was out of work. A lawyer that he called met with him and said he would look into it to see if he had any kind of case. Some time passed before the lawyer called him back to say that he had a 50/50 chance if he pursued it, however no suit had been filed yet. By August his bankruptcy was discharged, but it was not until December that he said they should file suit. Now shortly after that the company offered a 7500 settlement which his lawyer advised him not to accept.Upon refusal of the offer, the company then countered by claiming that this is a frivolous lawsuit. So a hearing was scheduled. However prior to the hearing information was gathered for the judge to review. As a result the judge noted that my son had a bankruptcy on file. So the lawyers secretary called him and said that the judge could dis-allow this case. When my son filed these bankruptcy papers he did not indicate he had any legal proceedings, because he had no clue that he would ever have one at that time, he was honestly just trying to make the best of a bad situation. So naturally after that phone call he now does not know what will happen. My question is , given that this truly was totally in-advertant and out of ignorance on his part ,not a blatant omission , from your experience what is likely to happen.
  • 04-09-2011, 06:46 AM
    despritfreya
    Re: Possible Un-Intentional Bankrupcy Fraud, What May Happen
    What your son did or did not do is not bankruptcy fraud. He innocently omitted listing a potential cause of action. This happens all the time and can be remedied.

    Having said the above, your son needs to understand the dynamic that has been created. His case was closed over a year ago. The closing of a case causes an “abandonment” of the assets listed that the bk Trustee did not administer. Once abandoned, the ownership of those assets was returned to your son. The problem your son has is that since he failed to list a “potential cause of action against a prior employer”, that asset was never abandoned. Since it was never abandoned your son has no interest in the cause of action and has no authority to pursue it. All is not lost, but he does have some work to do.

    1. He needs to immediately contact the Trustee. Since your son’s cause of action includes a “back pay” component, he would be entitled to claim an exemption for a good portion of the back pay under Mich. Comp. Laws. §600.5311. He needs to supply the Trustee with enough info so that the Trustee can determine if the bk should be reopened to administer the non-exempt component.

    2. The Trustee will do one of two things:

    a) Advise your son that the asset is of little or no value to the estate and give him the authority to continue pursuing the claim. If this happens, the State Court judge is going to want something in writing, as that Judge has recognized the issues.

    OR

    b) File a Motion to Reopen the bk to administer an omitted asset. If this happens your son needs to amend Schedule B to list the asset AND amend Schedule C to claim the allowed exemption. The Trustee will then proceed to administer the asset. The problem is that he will settle the claim for a lot less than what it is worth. Once settled, he will give your son the allowed exemption amount and use the balance to pay creditors. Your son’s State court attorney may or may not get paid.

    Lastly, your son needs to inform the State Court judge that he is in the process of correcting the problem and ask the judge to place the litigation on hold pending the correction. He does not want the case dismissed.

    Again, your son is not “in trouble”. He just needs to correct the honest mistake.

    Best regards.

    Des.
  • 04-09-2011, 09:42 AM
    will1
    Re: Possible Un-Intentional Bankrupcy Fraud, What May Happen
    Thank you Des for the timely answer. This will help us process our thoughts much better on what to do. You see, one of the main components to his being terminated from his employment stems from an anxiety disorder that he was under a doctors supervision and medications for, and I was concerned that this fear of going to jail and wrecking his plans of getting married would push him back into this. Also since he can not reach his lawyer over the weekend, he does not know what he intends to do if anything, if the judge throws the case out ,which seems to be a reasonable assumption, then can the lawyer then say that my son would be liable for compensation to him for his services because he also was unaware of the bankruptcy and its effect on the case. This will be a long weekend for him pondering what will happen next, going from thinking he may get something for his 12 years service, to wondering if in he honest efforts to right the ship, he would end up in jail, worse off than before this all took place. Obviously as a father I told him right off knowing his intent that it was unlikely that he would go to jail for his ignorant part in this situation, however I"m his dad, not the judge and I am just trying to help him any way I can. Again thanks for the answer you have given as it was some re-assurance that it may not be as bad as it seems to him right now. sincerely Will1
  • 04-09-2011, 10:35 AM
    despritfreya
    Re: Possible Un-Intentional Bankrupcy Fraud, What May Happen
    Tell your son to stop worrying. Let him read what I have written. I've been dealing with bk issues for some 23 years. Innocent mistakes, so long as they are corrected, are not a problem.

    It is imperative that he does not allow the State court proceeding to be dismissed. If it is dismissed and the Statute of Limitations for filing such a suit has passed he (and the bk Trustee) will be out of luck. The suit should remain pending - just on the "inactive calendar" - until these issues are worked out. The issue is whether or not your son is the correct “party-in-interest" to bring the suit. If he is not (and right now, without an abandonment, he "is not"), then the real party-in-interest (the Trustee) should be able to substitute in, thus preserving the "asset".

    As to his State court attorney, yes, if all falls apart he could be responsible for the fees. But this issue is not one for today so don't dwell on it.

    Des.
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