Tag Archives: child support

Lawsuits, Bankruptcy and the Automatic Stay

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A bankruptcy filing automatically stays (or temporarily stops) all collection activity against the debtor or property of the debtor; and that includes virtually all lawsuits involving the debtor. That is the easy answer. Yes, a bankruptcy filing will stop that lawsuit against you! It just isn’t always the whole answer.

Most of the time when people call they are asking about a simple collection case – an old credit card, medical bills, maybe the balance due after a repossession. In those cases a bankruptcy filing stays the lawsuit; and when the discharge is entered a few months later, the lawsuit is stopped for good. That answer is accurate for the vast majority of callers. So, if you are worried about a simple collection case, a Bankruptcy will fix it.

The problem comes when whomever answers the phone in the law office doesn’t ask enough questions. If the lawsuit isn’t a simple collection case, for instance, if the person calling is being sued by a former employer for stealing or embezzling money. If the lawsuit is alleging any type of fraud. If the lawsuit is alleging intentional and willful injury to property. If the lawsuit is a paternity action or an attempt to collect past due child support or alimony. Those lawsuits won’t just go away, although the Bankruptcy filing will slow them down some. The worst scenario, though, is a case that looks look like a simple breach of contract case or maybe simple negligence, it may be between former business partners or friends; but the case has gotten emotional and angry and it has become more about a pound of flesh than recovering specific economic damages. In other words, the worst case scenario is a lawsuit that has started to look more like a divorce than normal litigation.

In those cases the answer is still correct that a Bankruptcy filing will stay the lawsuit – it just might not end it, and it really might not stop the fight.

The Bankruptcy Code includes a list of things that are excepted from the Debtor’s discharge. That means that even though the Automatic Stay might stay the problem, when the stay is replaced by the discharge, this type of problem will still be there – waiting. The most common of these are debts incurred shortly before the bankruptcy was filed (presumably with the intention of filing bankruptcy and not paying it), student loans, recent taxes, child support or alimony.

Some of these require that something called an Adversary Proceeding be filed within the bankruptcy. Some of them don’t; and some times the creditor may just cause other problems within the bankruptcy. Stay tuned for more on this subject. I will tag these posts as “persistent creditors” to make them easy to find.

Elaine

When a Collector Threatens You With Jail

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There are two scenarios that I have seen where purported debt collectors have threatened people with jail.  One of them is an out and out scam.  The other is just illegal.  The scam is the most common so let’s start there.

  • Collector calls and tells you that if you don’t pay a certain bill immediately, the Sheriff is going to come to your house and arrest you.  You have to pay this today.  You are going to be arrested tomorrow.  The only way you can pay this is by electronic funds transfer from your checking account over the phone RIGHT NOW.  You cannot mail in a check — even a certified check sent next day delivery.  Nope.  It must be over the phone, straight from your checking account RIGHT NOW.

When was the last time a legitimate debt collector wouldn’t take a cashier’s check by mail?  They are so interested in keeping you out of jail that they would rather not get their money?  Really?  Does this sound like any legitimate debt collector you have ever spoken with?  Any debt collector who won’t give you a mailing address and who won’t take a cashier’s check is not really a debt collector.  A colleague of mine traced one of these calls.  It was a voice over IP call, and somehow he was able to track the IP address of the originating computer.  It was in Pakistan.

The second scenario is just an overly aggressive collector who gets carried away.  My favorite example of this is the debt collector who told a woman that if she didn’t pay her credit card account, he was going to call DHS and have them take her children away, because she was obviously an unfit Mother.  That is what is known as a violation of the Fair Debt Collection Act.  It also violates a number of State laws.  That debt collector was sued by a friend of mine for that call, and the case settled for a not insubstantial amount of money.

These scenarios work, because the collector gets the debtor scared enough to stop thinking rationally.  Consider carefully, how many children would we have in foster care in this Country if not paying your credit cards made you an unfit parent?  Not only am I not sure I can count that high, but how many news stories about this would it take before the tax payers told our legislatures to find better ways to spend our tax dollars?  Have you ever seen a television news story about this?  If it happened, don’t you think you would?  What better television than a poor, weeping, hysterical woman who has lost her children because the ex didn’t pay child support, and she has been too ill to work?  Do you really think the local news stations have too much class to air this?

Now, here is where this whole issue gets sticky.  It is easy to say that you can’t go to jail for debt in this Country, and technically that is true.  You can, however, go to jail for violating a court order; and if that order is to pay a debt — most commonly child support, and you don’t do it, well, you can go to jail for willfully disobeying the Court’s order.  The standards for that are going to vary from State to State, but even though technically this is punishment for disobeying the Court, it is effectively imprisoning someone for not paying a debt.  It is very effective at getting recalcitrant parents to pay their child support, by the way.

Another variant on this is that if you are ordered to appear for a Hearing on Assets by a creditor who has a judgment against you, and you don’t appear; well, a bench warrant can issue for your arrest.  Again, the warrant is for disobeying an order of the court to appear and provide information; but it can be an effective collection tool nonetheless.

One thing to notice about both of these scenarios, they involve judgments, court orders and lawyers.  They don’t involve telephone calls, and before you can violate a court order, you have to have been given notice of that order.  That means you have to have been a party to a lawsuit.  Ask the guy who is calling you, threatening to put you in jail, for the case number of the lawsuit.  Odds are he will tell you that he didn’t have to sue you.  Those laws don’t apply to him.  Well, maybe they don’t — in Pakistan.

I will say, though, that these calls are only effective if the person receiving the call has problems with debt.  So, if this happens to you.  Don’t get so scared that you lose your grasp on reality.  After all, you don’t know ANYONE who has gone to jail for not paying a credit card.  Ask for a mailing address.  Real debt collectors will always take a cashier’s check by mail.  They really just want their money.  Ask what order you have violated, in what court case and ask for the case number.  Then hang up.

Oh, and after you hang up — call a lawyer.  If you are getting calls like that, and they are elevating your heart rate so much as one beat per minute; it is time to call for help.

Elaine

When Creditors Don’t Go Away — Part 1

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In most cases someone files for bankruptcy, he lists all of his creditors with their addresses, account numbers and at least an approximate amount owed; the creditors receive notice of the Bankruptcy, then they receive the discharge; and they go away.  The general rule is that the Debtor will not hear from any of his creditors again once the Bankruptcy is filed.  (This post only pertains to debts that may or may not be included in the discharge.  It does not apply to creditors who don’t comply with the Automatic Stay.)

There are exceptions.  First of all, there are certain debts that are automatically not included in a discharge.  That means that once the Bankruptcy is over the Debtor is still liable for the debt.  The most common examples are recent taxes, child support or alimony and student loans.  These, the debtor can expect to have to deal with once the discharge is entered and are not generally a surprise.

Then there are the others.  There are lots of reasons why a debt will be excepted from the discharge, and some of them aren’t as predictable as recent taxes.  The complete list included in the Bankruptcy Code (and there are a few other provisions elsewhere in Federal Statutes, but they are really rare) is found at 11 U.S.C. Section 523.

If you file for Bankruptcy and a creditor thinks that you have defrauded them, obtained money by embezzlement or false pretenses, or otherwise come within the scope of a Section 523 objection to discharge, then the creditor may decide to ask the Court to exclude this debt from your discharge.  The vehicle for doing this is what is called an Adversary Proceeding, which is essentially a separate lawsuit filed within the scope of the Bankruptcy filing.  Adversary Proceedings are actually quite rare, but they do happen.

This is what can happen when a creditor isn’t willing to go away and wants to try to establish that his debt should be excepted from the discharge.  First, the creditor may appear at your First Meeting of Creditors.  This is not required, but if the creditor is local or has local counsel, it is an easy way to start to feel out the case.  The First Meeting of Creditors exists for creditors and the Trustee to ask questions, and a creditor looking to build a case for an objection to discharge may use this as an opportunity to ask a few, basic questions.  If they want to ask very many questions, the Trustee will tell them to set a 2004 Examination.

A 2004 Exam is the next step, and again it is not mandatory.  A 2004 Examination is basically a deposition.  It is a meeting in a conference room that will be recorded one way or another, it will be under oath, and the creditor who requests the exam asks the Debtor (or other party) questions.  The debtor can be required to bring documents to the meeting, and it can generate a great deal of facts that the Creditor can use to build his case against the debtor.  A 2004 Exam must be authorized by the Court, and the Court has the authority to limit it in scope or duration.

Finally, the creditor must file an Adversary Proceeding (unless his debt is automatically excepted from discharge like child support or student loans).  An Adversary Proceeding is really just a lawsuit, but it is filed inside the Bankruptcy.  Once it is filed it will proceed like any other civil case, with discovery, motions, and it will finally culminate in a trial with witnesses and exhibits but no jury.  One of the important things to remember about an Adversary Proceeding is that it must be filed by a deadline that is set when the Bankruptcy is first filed.  That deadline can be extended, but it cannot be missed – unless the creditor didn’t get notice of the filing.  Yet one more reason why you must give your lawyer a complete list of everybody you owe money to with their addresses!

I cannot repeat strongly enough how rare most of these things really are.  Creditors are not going to spend good money to send someone to a First Meeting of Creditors just because they can.  Likewise, filing an Adversary Proceeding is a significant investment in time and money; and creditors don’t do that without good reason.  There are certain flags that your attorney will be watching for when he prepares your case that indicate an Adversary Proceeding may be likely.  If that is the case, he should go over that with you.  It is incredibly rare for an Adversary Proceeding to be filed that is a real surprise to the debtor and debtor’s counsel – assuming that the Debtor has been fully above board with his lawyer.  So talk openly and honestly with your lawyer, ask if there is a debt you are concerned about.  A big part of your attorney’s role is helping you to evaluate risk and putting you at ease when you are worrying about things that aren’t likely to be an issue.

Elaine

Divorce Debt and bankruptcy — everybody loses but the lawyer

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I’ve been getting a lot of calls lately from both prospective clients and other lawyers with questions about how divorce related debt is handled in a Bankruptcy.

Support debt — child support, alimony, anything that is intended in the actual nature of support, regardless of what it is called, is yours for life.  No Bankruptcy court can help you.

Non-support debt, i.e., the credit cards, the medical bills, your own divorce attorneys fees, possibly (but not necessarily) your ex-spouse’s divorce attorneys fees, anything other than support that you are ordered to pay in a divorce decree — this is different.  If you file a Chapter 7 Bankruptcy, you are stuck with this.  If you file a Chapter 13 — not so fast.

Typical scenario, prospective client calls following a nasty divorce.  Decree orders this person to pay tons of credit card debt, and he owes his lawyer a fortune.  (For purposes of this scenario it makes no difference to me how much the other spouse was ordered to pay, how much the other spouse makes, how much the other spouse has or has not suffered.  For one thing the other spouse is not my client.  For another thing, I’m just not that impressed by tales of other people’s poor judgment in things like choosing spouses.)

Here is what I tell the prospective client.  You can file a Chapter 13 Bankruptcy.  You will pay me several thousands in attorneys fees.  You will pay the Trustee a not inconsiderable amount to administer your case.  You will pay your mortgage, car, any recent taxes and any support debt that you owe over a period of five years.  You will pay some additional amount, probably a small amount and almost certainly a lot less than all, of the rest of your debt — what you were ordered to pay in the divorce decree and whatever else you’ve got lying around.  I can’t predict how much of that you will have to pay, but it is generally a lot less than all.  Oh, and it will be paid without interest.  At the end of the five years, you will get a discharge.  Your ex-spouse will not.  Any creditors to whom your ex-spouse is also liable will then be able to try to collect money from the ex-spouse.  Not only can they try to get the remainder of the principle balance, but the interest you didn’t have to pay during your Bankruptcy.

In other words, you two fought for years over this debt.  You paid attorneys thousands of dollars.  You are going to pay me thousands more — and you will both still get the bill.

Now, wouldn’t it just have been better to have both filed for Bankruptcy before the Decree?  Not had all that debt to argue about and then agreed to pay the money it would have taken to fund a Chapter 13 plan and added it to your kids’ college funds?

Elaine

First Meetings of Creditors — the Stories

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If you have a 341 hearing coming up, talk to your lawyer.  If your lawyer tells you that you have nothing to worry about, then take a book.  Otherwise, you will leave shaking your head over stories like this one:

Some time ago the first debtor on the docket (not my client THANK GOD) testified under oath that he owed mid 3 digits ($30,000 or MORE) in child support to each of three women (yep, that actually did add up to a total of 6 digits).  The Trustee, of course, needed the Mother’s names and addresses to send a kind of special notice to that goes to child support creditors.  The debtor didn’t know any of the Mothers’ addresses.  He wasn’t sure which city any of the three women lived in (with his children).  Although, he did know which Counties they each lived in, because DHS was collecting child support, or trying to, and they are organized into County offices.  Oh, did I mention that he wasn’t sure about one child’s name?  The really scary part was that his current girlfriend was there with him.

He didn’t have a good time.  My clients were in and out in about 3 minutes.  Well, three minutes after we sat through an hour plus long docket.  We were dead last.

Elaine