The discharge in bankruptcy has been described as “unquestionably the heart and soul of the ‘fresh start’ that Congress intended to provide the poor but honest debtor in bankruptcy.” In re Jones, 367 B.R. 564, 568 (E.D. Va. 2007).  Back in 1934 the US Supreme Court articulated the power of the fresh start by explaining that a bankruptcy discharge

gives to the honest but unfortunate debtor who surrenders for distribution the property which he owns at the time of bankruptcy, a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.

Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S. Ct. 695, 699, 78 L. Ed. 1230 (1934).

Certainly, there is a cost to this fresh start. Besides the filing fee (which can be waived for the neediest of debtors) there is the obligation of “good faith”. Among the 7,529 case results for “fresh start”, the phrase “good faith” appears 2,055 times. In testing whether a debtor has acted in good faith, bankruptcy courts look to a number of factors, including:

• whether the debtor has stated debts and expenses accurately;
• whether the debtor has made any fraudulent representation to mislead the bankruptcy court;
• whether the debtor has been forthcoming with the bankruptcy court and the creditors
• whether the debtor has attempted to unfairly manipulate the court, creditors and the bankruptcy code.

To earn their fresh start, debtors must do more than simply submit their names and social security numbers to the bankruptcy court. This is why the initiating document in bankruptcy court is called a “Petition”: debtors are petitioning the court to grant them a discharge of their debts. The petition is granted only after the debtor fairly, completely and accurately discloses their assets and debts, income and expenses under penalty of perjury. In this way, by engaging in honest and forthright conduct, a debtor will enjoy the powerful fresh start promised by the Bankruptcy Code in the American system of laws and government.

The post Bankruptcy: The Opportunity, But Not The Entitlement, To A Fresh Start appeared first on Baltimore Bankruptcy Lawyer.

Bankruptcy is a powerful device to allow honest debtors to shed their debt and enjoy a fresh start in life. The news is rampant about debtors who hide assets in their backyard, try to sell assets on ebay or, like Dykstra, secrete and sell valuables. Now discovered, Dykstra has plead guilty to bankruptcy fraud and will likely serve up to 51 months in federal prison.

What did Dykstra do? Prosecutors say he hid, sold or destroyed more than $400,000 worth of items without permission of the bankruptcy trustee. Court documents show Dykstra said he put an oven, sconces and chandeliers into a storage unit, but prosecutors said he actually sold the items for $8,500. He also hid baseball gloves, balls, bats and other memorabilia from the bankruptcy court and creditors and sold them last year for about $15,000. So, what did prosecutors prove? After a career of World Series glory and millions of dollars, Dykstra threw it all away for just over twenty thousand dollars.

Many debtors hide relatively minor assets from the trustee not so much out of greed, but more out of fear: fear of impoverishment, fear of losing their former elevated sense of themselves, fear of losing control. What they find is that the cost of this fear is usually far greater than the value of the assets they secretly keep.

Prosecution for bankruptcy fraud is rare, but losing a bankruptcy discharge is not.  Complete disclosure of assets and debts, income and expenses is the cornerstone of the bankruptcy world. As Lenny Dykstra has sadly learned, the meager profits of a fraudulent bankruptcy case rarely equal the complete relief enjoyed by the honest debtor.

Lenny is competing for the “World’s Greatest Celebrity Debtor” in March Madness: Bankruptcy Brackets.

The post Lenny Dykstra: A Cautionary Tale of Fraud and Fear appeared first on Baltimore Bankruptcy Lawyer.

Chapter 11 is an extremely powerful and flexible procedure that allows a debtor to remain in control of his assets while he attempts to reorganize. One of the critical philosophies behind Chapter 11 is the idea that assets retain their highest value in the hands of the person or company who bought or developed them. Maintaining this “going concern” value is thought to be in the best interest of the debtor and its creditors.

Like most  of the other powerful tools available under the bankruptcy laws, Chapter 11 is a privilege and not a right. Debtors operating under Chapter 11 have a fiduciary duty to protect their creditors. While debtors are permitted to operate normally with minimal court supervision, transactions outside of the ordinary course of business must be approved by the bankruptcy judge.

Schacter then must’ve known then that he was going to  self-destruct when, according to Blastr.com, he tried to sell the Metropolis poster on an auction site without permission from the bankruptcy court. His asking price? $850,000 (he had apparently listed the value of the poster at $250,000 on his bankruptcy schedules).  We can only guess what would have happened to this money had Schacter succeeded in this scheme.

As Blastr.com reports, the consequences for Schacter’s veiled subterfuge were predictable: he was swiftly removed from his Chapter 11 power and the case was converted to a liquidation under Chapter 7 of the bankruptcy code. Now, a trustee will attempt to sell the Metropolis poster which is expected to fetch over $1 million. The creditors will win, but Schacter may find himself scrambling to hang onto his discharge after his Chapter 11 meltdown.

The post Owner of World’s Most Valuable Poster Suffers Bankruptcy Meltdown appeared first on Baltimore Bankruptcy Lawyer.

Honesty is the lynchpin of the bankruptcy system. Discharge and protection from creditors are powerful privileges, made possible by a debtor’s complete and accurate disclosure of his assets and debts, income and expenses. When a debtor refuses to disclose assets there is a subversion of the process. When this vet lied on his schedules, he gave up any right he had to receive the benefits from the bankruptcy system.

In truth, this debtor should never have filed his case. In the first instance, he has a $250,000 homestead exemption under Montana law. Had he not committed perjury on his bankruptcy schedules he never would have had to lose his home. He could have lived out the rest of his life peacefully.

As far as the creditors who were hounding him for the $109,000 in credit card and medical bills? He could have settled with the loudest of them by liquidating small amounts of the $66,000 and paying them accordingly. I believe he could have transferred the money to a trusted relative and then in three years filed a bankruptcy case. This is the kind of careful planning that is essential any time a person is considering a bankruptcy case.

The post 89 Year Old Vet Forced From Home Because Of Poor Planning And Dishonesty appeared first on Baltimore Bankruptcy Lawyer.

(Note: much of the facts in this blog are quoted from the Wikipedia article on Elizabeth Warren)

I have long admired, and will probably always admire, Elizabeth Warren. Since before my career began in 1985 as an aspiring bankruptcy lawyer (I was in law school then, to graduate in 1986) Elizabeth Warren has been a strong supporter of consumers’ rights. Hers has always been one of the most prominent voices in support of families in our country. Ms. Warren is a professor of bankruptcy law at Harvard, certainly a deep well of legal pedigree in our country (don’t believe me? Watch the Pilot for the USA original series “Suits“: Top NY law firm Pearson Harden only hires out of Harvard Law School). Beginning in the late 1990’s Ms. Warren leapt to national prominence with her strong opposition to the changes the credit card cartel sought to impose on the U.S. bankruptcy laws through BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act). She and the rest of the commission appointed by Congress to review the proposed changes all agreed that BAPCPA is an abomination, but never mind: in 2005 at the beginning of GW Bush’s second term in office, BAPCPA became the law of the land.

Not long after BAPCPA became law our national economy began to suffer the meltdown we all know too well: crashing stock market prices, bottomless real estate values, rampant corporate layoffs. Elizabeth Warren stepped up and is running for office to become the US Senator for Massachusetts. She is involved in a hotly contested fight for the seat against Republican incumbent Scott Brown. She ran unopposed in the Democratic primary, receiving a record 95.77% of the delegates. Everything is set for Elizabeth Warren to speak truth to power on Capitol Hill, but now she has hit a roadblock.

Apparently Warren identified herself as a minority in a directory of law professors from 1986 to 1995, specifically a native american. She claims that “she had heard family stories about her Cherokee ancestors her entire life.” Indeed, according to Michael Dean of the Oklahoma Historical Society, as intermarriage had been common in the 1890s in Oklahoma (Warren’s home), many individuals refer to having some Native American ancestry. Unfortunately, the Boston Globe reported on May 25 of this year that “both Harvard’s guidelines and federal regulations for the statistics lay out a specific definition of Native American that Warren does not meet.” Even a Cherokee group has protested.

This controversy is a shame, as it drowns out the really important national discussion on how to help families and our economy. However, if the charges are true, Professor Warren should know better. Honesty is the lynchpin of our consumer bankruptcy system. Schedules of assets, debts, income and expenses are largely presented on the honor system: the bankruptcy process would become hopelessly clogged if each debtor’s sworn financial statements had to be independently verified. The penalty for lying on your schedules is denial of discharge, as explained in this video. This is true whether or not the omission is material. In every court in the country, bankruptcy judges will rule without fail that a discharge in bankruptcy is reserved for only honest debtors.

So it is with our political representatives. As a bankruptcy professor, Elizabeth Warren knows better than most the premium of honesty required to obtain the enormous privilege of a political office or a discharge of debts in bankruptcy.

The post Elizabeth Warren and the Transparent Debtor appeared first on Baltimore Bankruptcy Lawyer.