Bankruptcy fraud? Opinions please.

[rlcinjustice]

Hello, first post.

Without going into all details, a married couple filed jointly for chptr 7 protection in Eastern distric California court. Discharged approx. 1 year ago.

Wife failed to disclose existing court ordered child support income of $1,000 month.

She also failed to disclose:
$150,000 in back child support owed from non custodial parent.
$100,000 in interest recoverable on arrearages.

Documents/forms signed under penalty of perjury, etc..

Two months after discharge/case closed, wife filed a motion with child support agency for collection and enforcement of support/arrearages/interest and has started to collect.

A total of $275,000 in guaranteed receivables which would have disqualified them for chptr 7.

Blatant fraud? Codes, statutes this would fall under? Possible recourses by Trustee? Possible monetary sanctions and/or criminal charges?

Thanks for any insight or opinions offered.

RLCINJUSTICE-

[JRScott]

It depends.

If they used System 1 then yes it probably is fraud.

If they used System 2 then child support is an exempt asset.

If you are aware of such a case and believe fraud was involved contact the Trustee of the case and alert them, they'll then do their own determination of whether its fraud or not.

[backtoschool]

Hello, first post.

Without going into all details, a married couple filed jointly for chptr 7 protection in Eastern distric California court. Discharged approx. 1 year ago.

Wife failed to disclose existing court ordered child support income of $1,000 month.

She also failed to disclose:
$150,000 in back child support owed from non custodial parent.
$100,000 in interest recoverable on arrearages.

Documents/forms signed under penalty of perjury, etc..

Two months after discharge/case closed, wife filed a motion with child support agency for collection and enforcement of support/arrearages/interest and has started to collect.

A total of $275,000 in guaranteed receivables which would have disqualified them for chptr 7.

Blatant fraud? Codes, statutes this would fall under? Possible recourses by Trustee? Possible monetary sanctions and/or criminal charges?

Thanks for any insight or opinions offered.

RLCINJUSTICE-

This is serious. The trustee can reopen the case, and dismiss it, making all her discharged debt collectable. Child support is exempt under some districts, but not disclosing it on the schedule may be interpreted as fraudulent.

She also can go to prison for the perjury in regards to the receivables.

Also, this is very traceable by the trustee. There are databases and specialized search engines at the trustee's disposal that can find out about the child support.

[music12]

why did you wait a year? the trustee can reopen a case for fraud only within 1 year after closing. beyond that, if it's really perjury (for which i think somebody would also have to prove that they didn't tell their lawyer and follow the lawyer's advice) then i guess you'd have to convince the FBI to file charges.

also, that money is hardly guaranteed - the person who owes does not necessarily have the ability to pay.

[rlcinjustice]

I had just recently found out about the "potential" fraud, actually by accident.

The final decree was dated in early '09 so even if statute of limitations are one year (I thought it was two), there is still time to blow the whistle.

These people BK'd roughly 2 million dollars, including 29 credit card companies with balances of $250,000 just on the cards!

They leased two new vehicles just prior to filing and numerous other questionable transactions.

I'm amazed they actually were granted a discharge!

Thanks for all the replies, hopefully will get more soon.

[music12]

are you a creditor? if so, it may be worth it for you to speak up. i don't know if creditors can ask the court to reopen the case or if they have to go through the trustee (certainly it would be better if it's the trustee the asks to reopen). get documents from their motion to get the child support and documents showing they are now collecting, and give them to the trustee/court.

if you are not a creditor, what's your relationship to these debtors?

[justbroke]

If they used System 2 then child support is an exempt asset.

True... but...

A read of the California Code Of Civil Procedure Section 703.140(b)(10)(D), reads "Alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor."

If the actual money is $275,000... the Trustee would certainly argue that $275K is not "reasonably necessary". I'm just saying.

the trustee can reopen a case for fraud only within 1 year after closing

I think this would fall under 11 USC 727(d)(2) which is that the "debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property...".

I would say that this means that the Trustee, or creditor in interest, can move for a Motion to Revoke Discharge either one year after the granting of such discharge or the date the case is closed, whichever is later.

So, nice job music12... have you been studying fraud lately?

[mgmadara]

if you are not a creditor, what's your relationship to these debtors?

My guess would be ex-husband who is now paying back child support or friend/family of ex-husband.

[joh]

Wife of ex-husband/sour grapes

[lrprn]

Hehe! With a name like 'rlcinjustice' and asking for code and case citations, I'm betting we're helping a law student finish some homework

[music12]

i think since there was an order for that amount of child support, there must have been a determination by a family court that the amount is reasonable and necessary. just because it added up to a big lump sum doesn't mean it wasn't reasonable and necessary at the time. in fact, the lack of it could be what forced these debtors into bk (or so they would argue).

and thanx for the compliment, justbroke. i was just looking at the worst case scenarios for debtors - ended up with somebody having their case reopened for fraud. can't be much worse than that right? well, maybe it could - they could also sit in prison. LOL.

[justbroke]

i think since there was an order for that amount of child support, there must have been a determination by a family court that the amount is reasonable and necessary.

I think this is where I'm started to get the hang of the Bankruptcy Court's jurisdiction. The BK Court would say that nowhere in the Statute does it say that "reasonable and necessary" is determined by any lower court. The California legislature didn't need to add those words, if they thought that a family court's determination -- which is the amount of the support -- was to be taken. That would make the words surplusage. However, they are there.

At least, as Trustee, that would be my argument.

[music12]

fantastic justbroke! but, i would argue first that it's not the california legislature that wrote 11 usc but rather the federal legislature, and also that often the bk code needs to be interpreted in light of the law of the state, so i would argue that the only way to interpret "reasonable and necessary" is to look to the CA statute and see what that says. IF family law in CA says that a support order is based on what's "reasonable and necessary" then there is no leeway for a bk court to change that order - the issue is res judicata (has already been determined by a court). so in that sense it's not surplusage because if state law said otherwise, the bk court could make a new determination.

for example, if the interest rate leading to the $100K was not determined by a "reasonable and necessary" standard, then that money may not be exempt, but only a portion of it that is deemed reasonable and necessary by the bk court.

at the end of the day, often - and unfortunately - judges make decisions based on what result they would like to end up with rather than on an objective interpretation of the law. i think in most situations you can interpret - or twist - the law to fit any result you want. and when you can't, all you have to do is twist the facts.

[Chowder]

at the end of the day, often - and unfortunately - judges make decisions based on what result they would like to end up with rather than on an objective interpretation of the law. i think in most situations you can interpret - or twist - the law to fit any result you want. and when you can't, all you have to do is twist the facts.

I'm putting this on a T-shirt!

[justbroke]

IF family law in CA says that a support order is based on what's "reasonable and necessary" then there is no leeway for a bk court to change that order - the issue is res judicata (has already been determined by a court).

My argument was only that the CA law itself would be surplusage, not any Title 11 junk. This language comes from 703.140 which is the bankruptcy statutes. The truth is, "child support" is already by order, so adding "reasonable and necessary" was, well, unnecessary... unless the legislature intended to give BK Judges latitude in deciding whether the property (which is either accumulated in some deposit instrument or "owed") was all exempt in the BK context. Truthfully, I think CA should have just left the words off.

The wrong way to exempt debtor's dog's property: all property acquired by debtor's dog, to the extent that the dog is clean and furry.

The right way to exempt debtor's dog's property: all property acquired by debtor's dog.

i think in most situations you can interpret - or twist - the law to fit any result you want. and when you can't, all you have to do is twist the facts.

I haven't figured out how to do that yet, so probably why I'm not an attorney.

In the end, one Judge will think totally different than another Judge in the same District -- which I actually hate. There's a good argument either way.