I am not a lawyer, I am a judgment broker. Every court has their own local rules. This article is my opinion about general bankruptcy (BK) courts and lien lookback times in federal bankruptcy courts. In my opinion, some judges seem to not care about every law. Sometimes, it is what the judge wearing the robe says, not what the laws say, that counts. Bankruptcy law changes often and proving fraud in BK court is not the same as in a state court. Default judgments for fraud must be re-proven in bankruptcy court at the creditor’s expense.
In theory, when one secures a UCC or another type of lien, on the judgment debtor’s assets long before the debtor files for bankruptcy protection, one expects they will be, and remain, a secured creditor. In general, secured creditors are much more likely to get some money (if any debtor assets are available) than unsecured creditors are likely to get. Taxes and family court equalization judgments are automatically non-dischargeable as per USC 523(a)(15).
One of the more confusing parts of the bankruptcy laws are the “look back” laws. Look back laws let the court take back money you got from the debtor, within a certain period of time (90 days for general creditors, 1 year for insiders) between when the debtor paid you, and when they later filed for bankruptcy protection. In some cases, you will be required to return the money to the bankruptcy court.
When one has a “cured” lien (perfected, recorded, and/or with any statutory time limits required for the lien to become secured have passed) one expects they would be exempt from bankruptcy court look back concerns.
Note that telephonic appearances are almost never allowed in bankruptcy courts. You can however, order the tape recording of the event through the OUST (Office of the United States Trustee). Typically, you send them a CD “unopened” with a letter requesting the taped event, with a pre-paid addressed envelope to mail back to you.
The only way look back assets are recovered, is by the trustee of the bankruptcy estate, if they file an Adversarial Proceeding (AP) lawsuit against any creditor (secured, or otherwise) or party, which could mean you. Trustees do this routinely and without hesitation.
There are several different (usually statutory Federal laws) look back periods that trustees can choose, when reviewing payments made to creditors prior to the filing of a debtor’s BK petition.
1) The 90-day look back is for general creditors that receive funds on open book accounts, and accounts payable (e.g. vendors and suppliers for raw goods or utilities). This usually does not include payments for payroll and taxes. Those who work on contract, or commissions (e.g. real estate agents) are not exempt, because their payments are viewed as being for services provided, and not as employee wage payments.
2) There is a one-year look back for any payments made to those considered insiders (officers, directors, majority shareholders, board of directors, family members, etc.)
In bankruptcy, sometimes the creditor is made to wait patiently while the debtor transfers all their assets out of the country and their friends and relatives while the creditor stands helplessly by and watches everything of value disappear as the debtor files their bogus schedules claiming that they have no financial interest in anything. The only way to try to prevent this is for the creditor to spend big money asking the bankruptcy court to intervene.
The bankruptcy court will often consider any action against a family member especially in the attempt to collection from the debtor against which actions the automatic stay applies, and so you must be careful to avoid violating the automatic stay and subjecting yourself to sanctions. If the the debtor concealed income in the year preceding his bankruptcy filing, then they should be denied a discharge under Bankruptcy Code 727(a).
In California, AB 929 (Wieckowski-D) increased the debtor exemptions in bankruptcy, it revised and expanded the set of specific asset exemptions available to bankruptcy debtors (the “703 exemptions”) to generally conform to the exemptions under existing law available to all debtors in California seeking to exempt specified property from enforcement of a monetary judgment (the “704 exemptions”). It is an Senate Inactive File, they are are trying to expand exemptions, and SB 308 is the latest attempt. (It is very similar to the failed attempt years ago with AB 198.)
3) There is generally a two-year limit from the date of the BK filing in which the trustee has to file any AP lookback filings against a party. If they fail to file within that time, they are generally barred from bringing suit later in the BK proceedings, for the recovery of any assets they allege are properly part of the BK estate.
4) The trustee can also choose State laws for a 4-year look back if they want to. For example, if a real estate brokerage files for BK, and had agents that have worked there for more than five years. The entirety of their paid commissions from the date of the BK, and spanning back four years can be recaptured from the agents through this process. If they were employees receiving wages or salaries, they would be immune.
This may seem unfair and confusing, however a goal of bankruptcy is “equitable distribution”. No one creditor is allowed to have an advantage over another creditor when being paid. The goal is that all creditors should be treated equally within their class (secured versus unsecured).
Sometimes, it seems almost as if one primary objective of the BK process is to benefit the attorneys, trustees, and their various advisers, experts, and accountants, to charge huge amounts of money from the estate for as long as possible. By law, they are first in line, ahead of all creditors, which guarantees they get paid first (and in whole), while the creditors and shareholders receive what (if anything) is left.
The deadline to start nondischargeability actions is usually 60 days after the 341 meeting of the creditors.
Another unfair thing, is even if a judgment debtor defrauds the court and does not list all of their assets, especially in a Chapter 7 bankruptcy, a creditor who later discovers them, cannot go after those assets without a risk of the bankruptcy court demanding them from the creditor, with possible sanctions, for the benefit of the entire bankruptcy estate.
Once the BK court gets ahold of the debtor’s assets, the legal cash registers start to ring, and the creditors must pay big money to play the game or lose their shirts. The objective of the bankruptcy “system” sometimes seems to be to maximize profits into the system’s pockets, instead of the creditors and victims pockets. They can do this several ways:
1) It can seem as if they take as long as possible, with as many people on the payroll as possible, at the highest rates of compensation as possible.
2) Turning secured creditors into unsecured creditors.
3) Forcing look back settlements with those that they sue in APs.
4) Sometimes disallowing legitimate claims through legal “bullying, intimidation and trickery”, to benefit certain other creditors, shareholders and victims. The moment the BK is filed, the debtor has an automatic stay. That stay is from the moment they file, not before they file.
Section 547 of the Bankruptcy Code, allows the trustee to sue creditors for payments of over $600 made to the creditor in the 90 days prior to the BK filing. Although, The trustee would have to file action against the creditor to reclaim those payments. If the payment to the creditor was not voluntary, and if the Trustee chose not to reclaim the funds, the debtor would have to file an adversary proceeding in their BK case to recover the funds, assuming the Trustee does not want to do it.
There is caselaw on the subject, although it does not seem to apply in the (debtor-friendly 9th Circuit BK courts). The debtor will probably win if they want to push it, however the creditor may wish to tell the debtor you are not doing anything, until told to do so by the Trustee or the judge.
In the average bankruptcy case, any leftover scraps of money are distributed as follows: Employee wages up to about $10K, secured debt and bond holders, secured creditors (e.g., banks that hold a deed of trust on a property), unsecured creditors, and finally to any shareholders.
Filing a UCC, or another kind of lien might make you a secured creditor in bankruptcy court, but that will not get you paid any time soon, and sometimes not at all.
If you have received funds from a debtor, even if you already have a secured lien, and are within the 90-day look back, you should be prepared for a possible AP suit to be filed against you.
It might take some time for the trustee and their accountants to go over the debtor’s records. If they discover any payments to you, they may file an Adversarial Proceeding, using one of the possible look back periods, to try to make you repatriate the funds.
If a debtor pays you, and then soon after, files for bankruptcy protection, understand there is a chance you might have to give the money back. Consult a bankruptcy attorney if you have any questions about this or any legal matter.
A trick some judgment creditors play is after their debtor goes BK, they try to get a judgment enforcer to recover the judgment, and “all they have to do is re-open the bankruptcy and prove fraud in BK court” – no inexperienced judgment enforcers can do this, because it is a complex expensive process.