Bankruptcy Codes 523-727-341
I am not a lawyer, I am a judgment matchmaking specialist (Judgment Broker)
. This article is only my opinion, based on the laws I have read, and what I have learned. Nothing in any of my articles should ever be considered legal advice.
What if you have a judgment for about $26,000 against a judgment debtor that seems to do very well? What if you had previously paid for a court reporter at an Order to appear for EXamination (OEX) of the judgment debtor, and you recorded them lying about bank accounts, and saying he had no income at all, and that his wife paid all their bills.
What if the debtor then files for Chapter 7 bankruptcy protection 3 days after he discovers that you (as a next step for enforcement) had subpoenaed his corporate banking records? What if your expectations are that the bank records will prove the debtor perjured themselves. Can you use this information to thwart the judgment debtor's bankruptcy?
In California, personally serving a debtor for an OEX creates a silent one-year lien on their personal property. What if you also already recorded an abstract of judgment long before the bankruptcy?
To make our story even more interesting, what if the debtor also fraudulently transferred his car after your attempt to levy it? With your proof of fraud, does it make sense to challenge the debtor's bankruptcy (starting by attending the 341 creditor's meeting)?
Especially if the debtor files a "no asset" bankruptcy, it does not matter if they listed you as a creditor or not. In California, your OEX lien made you a secured creditor, as did your property lien, if the debtor has real property.
I am not an attorney lawyer, but I would file a proof of claim. Then, study the debtor's bankruptcy schedules, to see if that car they recently transferred is listed, or for anything else that might be suspicious.
Then, show up at the 341 Creditor's meeting. Then, consider the bankruptcy court's tendency to say "So What?" when you prove the judgment debtor's fraud.
At the 341 meeting, ask the debtor questions about their schedules. Either they will admit that their schedules are wrong, or they will lie. Either way may be good for you. The 341 meeting is recorded, and you can order (at a small cost) a CD of the recorded proceeding, and from there you can order a transcript, which may be a valuable tool.
When bankruptcy schedules are amended too often, some bankruptcy judges will deny a discharge, if the schedules were signed under penalty of perjury and there is no valid excuse for omitting an asset or lying about it, or if assets are transferred immediately before the BK petition was filed. Your questions at the 341 meeting should be to catch their lies, but not disclosing what you already know.
There are two kinds of adversarial bankruptcy motions that one (or more likely one's attorney) can start. One is a 523 action, where only a particular judgment or debt is rendered non-dischargeable. Stronger is a 727 action, where all debts and judgments may be declared non-dischargeable.
You have 2 choices, the first choice is you may challenge the debtor at the 341 meeting - and the trustee may say, "So what? Let's get this over with" and probably will let the judgment debtor change their petition to conform to the truth.
Another choice is you can file a Rule 523 or a 727 Action for 1) fraudulently transferring assets within one year of filing the petition or 2) for "untruthfulness" of their bankruptcy petition. Note that some bankruptcy judges will not allow pro-pers to appear in their court rooms.
That a judgment debtor previously lied in state court, is usually one of those "So what?" situations. Bringing a 523 or 727 action is expensive and difficult, so it makes sense only if you know you can win, and the judgment debtor really has some assets somewhere.
If you win your 727 action, this is sometimes named a "bankruptcy bomb", because all the debtor's listed debts are made forever non-dischargeable. This is a scary thing for a judgment debtor, and often they will drop out of bankruptcy as fast as they can. See http://doney.net/bkcode/11usc0727.htm
If you win your 727 motion, the debtor's bankruptcy estate still gets administered. This is a nightmare for the debtors. All of their assets are tied up and get liquidated, and none of their debts get discharged. In a 727 action, all creditors benefit from your effort and expense.
Even in a community property state, non-debtor spouses are not liable for the debts of their debtor-spouse. Instead, the community estate is subject to enforcement, if such an estate exists.
A discharge of the debtor-spouse's debt invokes the bankruptcy permanent injunction of the community estate. When the debtor receives a discharge, it effectively prevents you from enforcing against the non-debtor spouse's community estate.
by: Mark Shapiro
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