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Posted:
March 29, 2012
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Top Ten Bankruptcy Mistakes: Failure to Cooperate

TOP TEN BANKRUPTCY MISTAKES

 

#8

Failure to Cooperate

Under the Bankruptcy Code the debtor has significant duties to cooperate with the Trustee. At 11 USC 521 the Bankruptcy Code requires the debtor’s cooperation in assisting the appointed Trustee. The actual duties are set forth very broadly in 11 USC 704 and includes the debtor’s duties to assist the Trustee in litigation.

The debtor must also assist in turning over all books and records to the Trustee. The duty to assist further  extends to attending and cooperating at the Meeting of Creditors required by required by 11 USC 341. The scope of the examination is also quite broad and includes: “The acts, conduct, or property or to the financial condition and liabilities of the debtor, or to any matter which may affect the administration of the debtor’s estate, or the debtor’s right to a discharge.” Bankruptcy Rule 2004(b).

Under local practices in Michigan the Trustee may file a Motion to Dismiss for Failure to Attend the 341 Hearing. In addition, the Trustee or creditors may request more extensive hearings and examinations.

These matters are infrequent. However, it is important for the debtor to understand his or her responsibilities. A failure to meet them could result in a dismissal of their case for failure to cooperate. As always, bankruptcy is a matter of equity and fair treatment. A debtor expecting to receive equity must do equity in return.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Posted:
March 29, 2012
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Top Ten Bankruptcy Mistakes: Bankruptcy Misconduct

TOP TEN BANKRUPTCY MISTAKES

 

      #7

             Bankruptcy Misconduct

 

In earlier postings it has been discussed that bankruptcy relief is available to the honest debtor. In a recent unpublished case by the Sixth Circuit Court of Appeals this concept was illustrated. The debtor, a businessman obtained significant loans based upon personal financial statements which were untrue. The Bankruptcy Court denied discharge, as to the defrauded creditor, and the Court of Appeals affirmed (agreed with) that decision. The Court of Appeals analysis, in part, follows:

    The principal purpose of the Bankruptcy Code is to afford a “fresh start” to the “honest but unfortunate debtor.” Grogan v. Garner, 498 U.S. 279, 286-87 (1991). The discharge of prepetition debts provided under § 727(b) and the discharge injunction of § 524(a) effectuate the debtor’s fresh start. See Green v. Welsh, 956 F.2d 30, 33 (3d Cir. 1992).

    (“The protection afforded by the discharge injunction… furthers one of the primary purposes of the Bankruptcy Code – that the debtor have the opportunity to make a financial fresh start.”). Some debts, however, are “nondischargeable,” such that the debtor’s liability continues even after emerging  from bankruptcy protection. Section 523 of the Bankruptcy Code specifies these exceptions, which include, among others, debt obtained through fraud. Section 523(a)(2)(B) addresses debt obtained by certain false statements in writing.

    For a debt to be nondischargeable under § 523(a)(2)(B), four conditions must be met: the debtor must have sought “money, property, services, or an extension, renewal, or refinancing of credit” by use of a writing (1) “that is materially false;” (2) concerning “the debtor’s or an insider’s financial condition;” (3) “on which the creditor… reasonably relied; and” (4) “that the debtor caused to be made or published with intent to deceive…” 11 U.S.C. § 523(a)(2).

Make sure to discuss with your attorney candidly any skeletons which may be in your closet. In the attorney-client relationship all conversations are privileged and confidential. Your attorney can not effectively counsel or represent you when you are not forth coming with all information, pro and con. There are other kinds of misconduct that may also result in denial of a discharge for obtained debt.

 

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Posted:
March 27, 2012
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Top Ten Bankruptcy Mistakes: Transfers to Friends

TOP TEN BANKRUPTCY MISTAKES

 

#6
Transfers to Friends

In keeping with the Bankruptcy Code’s theme of statutory fairness a Trustee in bankruptcy can avoid fraudulent transfers made by a debtor within one year of when the bankruptcy case is commenced. Therefore, the debtor may not transfer for nothing at all or for less than reasonably equivalent or fair value, his property.

These situations generally arise in two contexts. In the first situation a debtor sometimes tries to keep property out of the reach of his creditors or the Trustee and make a transfer before filing the case. The second situation usually arises in the context of business bankruptcies where the transfer renders the debtor unable to pay bills or with unusually small working capital.

In either situation one can see how such transfers are unfair to other creditors who have advanced money in good faith. Thus, 11 USC 548 allows the Trustee go after and recover such transfers, if they are made within the actual fraudulent intent to hinder, delay or defraud creditors; or, are made with constructive or imputed fraudulent intent while the debtor is in financial distress.

In addition, in states like Michigan, which have their own Fraudulent Conveyance Act (MCL 566.11) the Trustee may use the state statute too as a recovery vehicle pursuant to 11 USC 544(b), if unsecured creditors of the debtor could have used the provision for recovery under state law.

Transfers that are unwound or recovered then benefit all administrative claims and creditors of the estate.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Posted:
March 27, 2012
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Top Ten Bankruptcy Mistakes: Payments to Friends

TOP TEN BANKRUPTCY MISTAKES

 

#5
Payments to Friends

As discussed in other postings, the Bankruptcy Code is a type of statutory equity. The concept of equity is basically to do what is right and fair to all of the interested parties to a proceeding in bankruptcy. The Bankruptcy Code has several enforcement mechanisms to make sure that everyone is treated fairly.

One of these mechanisms is the power afforded to the Trustee to set aside unfair payments or transfers. When a bankruptcy case is filed all of your property becomes a part of the bankruptcy estate. 11 USC 541. The estate is appointed a Trustee by the Court. It is the duty of the Trustee to investigate the financial affairs of each debtor and to represent the estate for the best interests of all creditors.

To operate effectively the Trustee is given certain tools under the Bankruptcy Code. Among these is the power to go after and recover from third-parties preferential transfers that the debtor made before the bankruptcy. Specifically, 11 USC 547(b) allows the Trustee to recover property for the benefit of the bankruptcy estate and all creditors from a creditor who received a payment, or amount of a past indebtedness, when the debtor was insolvent, within 90 days before the filing, which allowed that creditor to receive more than it would have received as a distribution from the estate.

Thus, the money received by a creditor, out of turn or in preference, to others can be ordered turned over to the Trustee by the Judge. This is done so that all administrative and creditor claims are treated fairly.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Posted:
March 21, 2012
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Oppression of Minority Shareholders: What are Shareholder Rights?

Oppression of Minority Shareholders:

What are Shareholder Rights?


    As discussed in previous posts, a minority shareholder can bring an action against the directors and/or others that are in control of a corporation for illegal, fraudulent or oppressive conduct, MCL 450.1489.  Willfully oppressive conduct is defined by the statute as a continuing course of conduct or a significant action, or series of actions, that substantially interferes with the interest of the shareholder “as a shareholder.”

 

The question then arises as to what the interests of a shareholder are. In other words, what are the rights incidental a shareholder’s interests? Generally, speaking a shareholder’s rights in a close corporation consists of: the right to inspect the books and records and for a reasonable accounting; the right to vote and participate in management of the corporation; and, the right to receive a share of the profits of the business. These rights are based upon statutes and the common law of Michigan.

 

More recently, by amendment of the Shareholder Oppression Statute, MCL 450.1489, the Legislature has added employment security in certain circumstances. It has been amended to add the following language: “Willfully unfair and oppressive conduct may include the termination of employment or limitations on employment benefits to the extent that the actions interfere with distributions or other shareholder interest disproportionately as to the affected shareholder.”

 

These are the types of rights which if violated in a significant way or on a continuous basis may form a minority shareholder oppression case pursuant to MCL 450. 1489. In blog postings to follow we will examine some of the cases when oppressive acts have been found and not found under the shareholder oppression statute.

 

In the meantime, it is interesting to note that Michigan has a long history prior to the Shareholder Oppression Statute protecting minority shareholders. One of the interesting cases is Dodge Brothers v. Ford Motor, Co., 204 Mich 459 (1919). In that case the minority shareholders requested and received a court order requiring Henry Ford (majority holder) to declare and pay a significant dividend to the minority shareholders. The Michigan Supreme Court noted that Ford’s refusal appeared to be arbitrary because the company had consistent profits and was at the time cash rich. Apparently, Mr. Ford’s reluctance may have had something to do with keeping his competitors from receiving money that they would use to compete against him. In any event, in equity, because the purpose of an investment is to make money, the Michigan Courts for over 90 years now, have ordered dividends paid in an appropriate case.

[Guy Vining, an attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the local communities and the tri-county area. If you or a family member of friend would like a no-obligation no cost consultation, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Posted:
March 5, 2012
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Top Ten Bankruptcy Mistakes: Continuing to use your Credit Card

TOP TEN BANKRUPTCY MISTAKES

#3
Continuing to use Credit Cards

The Bankruptcy Code is designed to give the honest debtor a second chance and to treat all creditors in a fair and uniform manner. One problem which arises is the situation where the debtor continues to use credit a short time before filing a bankruptcy. Under such circumstances it can be argued that this is abusive to a particular creditor.

Therefore, certain consumer debts and cash advances incurred at 90 and 70 days, respectively, before filing maybe deemed to non-dischargeable. The ultimate goal of bankruptcy is discharge of debts and so non-dischargability is to be avoided. In addition, to the non-dischargeable aspect of these items it can also create a great deal of additional legal expenses to you. That is because a creditor’s claim for non-dischargability will likely require a response from your legal counsel and additional charges will apply.

A Debtor does have a defense that if the goods and services acquired were “reasonably necessary for the support and maintenance of the debtor or a dependent of the debtor” that they are still dischargeable. However, all of this takes time and money to argue.

As a rule therefore, put those credit cards away at least 90 days before filing your case. Otherwise, you may be in for an objection to your discharge and a finding by a judge of non-dischargeability. Even if the survive these allegations you will be incurring a great deal of needless expense.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Posted:
February 23, 2012
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Top Ten Bankruptcy Mistakes: Borrowing from Friends

       TOP TEN BANKRUPTCY MISTAKES

   #2

 Borrowing From Friends

 

    If you are in serious financial difficulty it ordinarily results from credit card and other non-secured debt that you can not pay. In a consumer bankruptcy, whether Chapter 7 or Chapter 13, all of the unsecured debt can ordinarily be discharged or reduced and paid off over an extended time for a fraction of the debt

Borrowing from friends or family to keep from filing a bankruptcy will usually amount to throwing “good money after bad.” If you are unable to keep up with your credit card and other debt then how can you hope to repay the family member or your friend?

The Bankruptcy Code and Bankruptcy Rules set forth a complex set of requirements for the equitable treatment of all parties in a bankruptcy. Bankruptcy Rule 1007(a)(1) requires that you list all creditors in your bankruptcy case – even family and friends. All creditors must be treated equally with respect to distributions of property, if any.

Why burden a loved one with your financial situation and possibly lose a friend or create family tension? Moreover, if a loan might help then why not seek professional help to see if the loan can be secured to protect that lender?

Only analysis of your particular situation will be able to determine a prudent course of action. However, in most instances it is better not to put in jeopardy a friend or family member pre-petition. After your other debts are discharged it would be safer for them and more helpful to you to receive a loan.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

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