I am not a lawyer, I am a judgment broker. This article is only my opinion, about 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 around $30,000 against a judgment debtor that appears to live very well? What if you had previously paid for a court reporter at an Order to appear for EXamination (OEX) of the 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 judgment debtor then files for Chapter 7 bankruptcy protection three days after he discovers that you (as a next step for enforcement) had subpoenaed his corporate banking records? What if you expect that the bank records will prove the debtor perjured themselves. Can you use this information to unravel the debtor’s bankruptcy?
In California, personally serving a judgment debtor with an OEX (debtor examination) creates a silent 1-year lien on their personal property. This should survive bankruptcy as long as the lien unless it is determined to be a preferential transfer. See CCP 2872.
If your judgment debtor has assets and is hiding them, start your discovery early. Attend the 341(a) hearings, request additional documents which may let you continue the 341(a) hearing, file a rule 2004 exam on their spouse, to get their banking information and history. Do all your discovery early to see if there is a reason to file an adversary complaint for an adversarial proceeding. In chapter 7, and advisary complaint must be filed 60 days before the first 341 creditor’s meeting. The 341 meeting is a place to ask the debtor sensitive questions, which are recorded under oath. Do not argue, however if the debtor is lying, ask the trustee for the recording numbers for that 341 meeting, so you can use it as part of evidence in a 2004 debtor examination later. The trustee is not a friend of the creditor. Generally, one who concealed income in the year preceding his bankruptcy filing, should be denied a discharge under Bankruptcy Code 727(a).
The bar date for filing an adversary proceeding is always 60 days from the first date set for 341(a) hearing [Rule 4004], as long as the clerk gave 28 days notice for objections of discharge [Rule 2002] and 21 days notice before the first 341(A) hearing [Rule 2002]. Your proof of claim is always due 90 days from the first date set for the 341(a) hearing [Rule 3002]. Do not forget to file your proof of claim.
If you are going to file an adversary proceeding, make sure you have already done and completed all your discovery. A 523 action is for specific actions your debtor took prior to the filing of the petition and a 727 action is for specific actions your debtor took after the filing of the petition.
Attend the 341(a) hearing, talk to the trustee prior to the 341(a) hearing, inquire as to if he/she will allow you to ask questions at the 341(a) hearing. Keep in mind the trustee is coin operated, the more coins you stick in his hand the more likely he will make effort toward doing their job, but do not bank on it. The Trustees only job that they are held to, is keeping the appearance of protecting the unsecured creditors, not the secured creditors. You must do the work before you even get to the bar date of the objections to discharge. If you still have work to do, chances are you will not have the time to accumulate enough evidence to bury the debtor.
During 2004 exams (the place for creditors to fully question debtors), many professionals always notice a deposition for debtor and non-debtor witnesses during discovery in their adversaries and even possibly a request for admissions. Then they hit them with a ton of discovery, but be prepared if they have counsel, they too will hit you with discovery and possibly a deposition. When you do a 2004 exam, you have powerful subpoena powers and may demand all kinds of information such as credit card and banking statements.
What if you also already recorded a property lien long before the bankruptcy? To make this story even more interesting, what if the debtor also fraudulently transferred his vehicle 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 a lawyer, however I would file a proof of claim. Then, study the debtors’s bankruptcy schedules, to see if that vehicle they recently transferred is listed, or for anything else that may be suspicious.
Then, attend the 341 Creditor’s meeting. The deadline for filing any adversarial actions in bankruptcy court starts from the date of the first creditor’s meeting. Then, consider the bankruptcy court’s tendency to say “So What?” if you prove the debtor’s fraud. If the debtor does not show up at the 341 meeting twice, you could motion the court to dismiss the case for bad faith. It would be good to include anything else, like the debtor failing to produce tax returns. One could ask the court to make an order preventing the debtor from filing for bankruptcy for one year. Check the bankruptcy and local rules about whether you need a 14 or 28 day notice for this.
If you are not a lawyer, be sure to check whether the particular judge in your debtor’s bankruptcy case allows appearances by pro se assignee creditors, if not, it is best to hire an attorney to present your motion to dismiss the debtor’s BK. There is one case that muddies the water, that is Fink vs Shemtov. On PACER, look for the case of Heal, Larry T. Northern Dist. of CA, 09-13026. The tax returns must be requested before the creditors meeting. If they are not supplied, the code says the BK shall be dismissed. See 11 U.S.C. Section 521(e)(A)(ii).
Q:Is there authority easily accessible for subpoenaing tax returns in Bankruptcy court?
A:: If you are trying to request a copy of the Tax returns within the first couple of weeks of the petition filing, then yes you as a creditor/party in interest file a request with the court pursuant to section 521(e)(2)(A)(ii) and if they do not respond within 7 days prior to the 341(a) hearing you move the court to dismiss the bankruptcy, this is a powerful tool.
If you are filing a subpoena for a tax return, the only entity you; as a creditor can issue a subpoena to get is the debtor and/or his tax preparer. You cannot issue a subpoena to the IRS unless you have the authority to do so from the debtor.
You can issue a subpoena to the Trustee for the tax return he has, but you better have a court order to issue your subpoena in this instance. If your judgment debtor might be an public employee this website; transparentcalifornia.com may confirm it and provide you with information about their salaries and benefits.
A clever idea some experts working for the creditor’s benefit, might be able to use: Sit down with the trustee and show him reasons why you believe the debtor is filing fraudulent tax records, such as if mortgage payments they reveal on his petition add up to the income revealed on their petition, given the interest rate. When you actually do the math on this, the debtors typically are way off; then you ever so nicely ask the Trustee to request a transcript from the IRS which in essence is a break-down of all schedules and is as good as a tax return, because you get to see what they actually file with the IRS. The Trustee is typically very happy to do this, if you offer sound reasoning. Doing this can also make crooked debtors drop out of bankruptcy fast.
To save money, sometimes a casual letter to the trustee, with copies to the judge, the debtor, the debtor’s attorney, and the US bankruptcee trustee will do the trick. If there is fraud in the petition, and it can be proved as fraud, then a closed bankruptcy case can be reopened and an advesary proceeding can be started. To reopen a Chapter 7 bankruptcy the approximate filing fee is approximately $260, to reopen a Chapter 13 bankruptcy is approximately $235.
In bankruptcy, a single member LLC is considered property of the individual debtors BK estate. See: Ashley Albright, U.S. Bankruptcy Court for the District of Colorado 291 B.R. 538 (Bk.D.Co., 2003 – Decided April 4, 2003) and Modanlo, 412 B.R. 715 (Bk.D.Md., 2006)
At the 341 meeting, ask the debtor questions about their schedules. Either they will admit that their schedules are wrong, or they will lie. Both might be good for you. The 341 meeting is recorded, and you can order (for a small fee) a CD of the recorded proceeding, and then you can order a transcript, which may be valuable.
Some think 341 meetings are mostly a waste of time. If they want to ask the debtor questions under oath, then they will notice them for a 2004 examination, even if they are not really interested in asking the debtor questions. They follow the paper trail, figure out who has the needed records, and then have the clerk issue 2004 subpoenas. The 2004 subpoenas they deliver by certified mail, return receipt requested. Formal service by a process server is almost never required since third-party witnesses almost never argue service or fail to comply.
The 2004 exam is a JDX in Federal court, so it is national. See Rule 2004. What is especially nice about it, is that fishing expeditions are allowed. You can get just about anything. Third-party exams too. You can bring in a spouse, business partner, etc. See = “http://www.law.cornell.edu/rules/frbp/rule_2004”> target = “_blank” >www.law.cornell.edu/rules/frbp/rule_2004
No court orders are necessary to have federal subpoenas issued in a BK case. The one good part of a debtor going bankrupt is it provides the opportunity for a creditor to do dirt cheap discovery, though the court system, compared to post judgment discovery in a regular judgment recovery situation. See O’Connor’s Federal Rules * Civil Trials 2011.
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 soon before the BK petition was filed. Your questions at the 341 meeting should be aimed at catching their lies, but not exposing what you already know. A question to ask at the 341 hearing is “Do you anticipate any future payments, for contest or lottery winnings, inheritances, insurance payoffs, judgment payments, etc?” Often, any big money coming to the bankrupt debtor within 180 days of their BK filing could be part of their BK estate.
Do not overlook stock investments that the debtors may omit to declare. (A Rule 2004 examination can help unearth such accounts.) Sometimes, 2004 exams do not get scheduled. Of course, you cannot bid on those, but you can ask the trustee to sell them and have the broker deliver the proceeds to the bankruptcy estate. Even if the court lets them amend their financial schedules so they can keep them without being forced to sell them (perhaps at a loss), you can effectively “wipe out” the “wild-card” exemption by forcing the debtor to allocate that wild-card exemption to that investment portfolio, making the wild-card exemption unavailable to cover his other “stuff,” which stuff you can bid on, or, alternatively, ask the trustee to sell for the benefit of the bankruptcy estate.
There are two kinds of adversarial bankruptcy motions that one (or more likely one’s lawyer) can start. One is a 523 action, where only their particular judgment or debt may be rendered non-dischargeable. Note that divorce judgments, are generally not dischargeable in Chapter 7 BK. Stronger is a 727 action, where all debts and judgments can be declared non-dischargeable. Pro-per judgment assignees are almost never welcome to file adversary actions in Bankruptcy Courts. I recommend you hire a bankruptcy attorney to bring an adversary action in BK court.
You have 2 choices, the first choice is you can 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 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 their petition or 2) for “untruthfulness” of their bankruptcy petition. Note, some bankruptcy judges do 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 debtor actually has some assets somewhere.
If there is bankruptcy fraud: The panel trustee’s job is to shepherd assets and sell them to pay creditors. It is the responsibility of the U.S. Trustee’s office to prosecute fraud cases. Assuming the assets are substantial, report it to the U.S. Trustee’s office with a copy to the fraud division and a copy to the panel trustee. Send a detailed letter, and attach hard copy evidence in support of each allegation. The US Trustee’s office is busy, but they will prosecute fraud cases, particularly if you give them a clear roadmap and hard evidence to support it.
You could file your own 727 action and get the debtor’s discharge revoked, but any assets you are able to recover in state court would still be property of the bankruptcy estate. Consider letting the US Trustee file the 727 action and the panel trustee handle the fraudulent transfer litigation.
I do not believe there is a statute of limitations once the debtor has filed for bankruptcy protection. Do not confuse the statute that would affect a Fraudulent Transfer action and enforcing an abstract that attached prior to the transfer.
If the abstract is valid and it was recorded in the county where the property is located prior to the fraudulent transfer, then the only question is whether you can prove that the owner of the property (at the time the abstract was filed) is the same person as your debtor. If so, your abstract follows the property.
If the buyer took title subject to existing loans then whatever loans were filed against the property prior to yours would still exist.
The statute of limitations (4 yrs on California real property) is in regards to a fraudulent transfer action. If you have a filed abstract prior to the transfer then you probably do not need a fraudulent transfer suit.
The judgment debtor’s assets go to the trustee in a successful 727 case, if they are not liened beyond the preference rule timeline. It may be worth it to contact the judgment debtor’s BK attorney and discuss your proposed actions, and see if they might “prefer” a voluntary dismissal. If that leads nowhere, then maybe share your news with the trustee, letting them do the work, if they are interested. Maybe the trustee will abandon the assets with a discharge, which may not affect your 727. Of course the trustee can claim “surprise” when you prevail in the 727, and reopen the Chapter 7 BK and take everything away!
If you win your 727 action, this is sometimes known as a “bankruptcy bomb”, because all the debtor’s listed debts are made forever non-dischargeable. This is a scary thing for a debtor, and often they will quickly drop out of bankruptcy. 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 debtor. All of their assets are tied up and get liquidated, and none of their debts get discharged. In a 727 action, all BK creditors benefit from your efforts and expense.
In bankruptcy court, even in a community property state, non-debtor spouses are not always 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.
Generally if a debtor fails to include a creditor in your Chapter 13, the creditor will not be notified of the bankruptcy filing, and the debt will not be discharged at the conclusion of the debtor’s case. Note: The 9th circuit BK courts are usually very pro-debtor.