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Uncooperative Debtor - any consequences

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    Question Uncooperative Debtor - any consequences

    What happens in Chapter 7 when the debtor is uncooperative, refuses to produce documents, isn't truthful at the 341 meeting or in their filings?

    In this specific case, the debtor isn't seeking [and doesn't care about] a discharge.

    The debtor sought Bankruptcy [Ch 11] protection to avoid the collection of a Court Judgment following divorce [dissolution of Marriage] and including Fraud. The debt is of the type which is ineligible for discharge - so the debtor is simply trying to avoid collection. One way for the debtor to avoid collection is to help the CH 7 Trustee burn up all the estate's assets in legal fees so there's nothing left for Creditors.

    If the Court gives the debtor a denial of discharge that is inconsequential since there was no discharge available anyway.
    If the Court were to give the debtor fines - that's inconsequential as it only reduces the size of the estate to be distributed to the Creditors.

    I'm wondering if there are any consequences for an un-cooperative debtor in a Chapter 7 case with significant assets and when most of the debts aren't eligible for discharge?

    In case it's not obvious I'm a creditor and the debtor defrauded me. I spent too much money to win a Judgment in State Court [Fraud, Malice, oppression, and Breach of Fiduciary Duty]. Now the Debtor is making me spend more money in Bankruptcy Court trying to collect. I'm starting to feel like Johnny Depp - but he has enough money to pay for a stellar legal team [and his judgment is much bigger than what I was awareded]. I'm running out of money as a result of this fraud and continuous delays by the debtor.

    #2
    Uncooperative to whom? The Chapter 7 Trustee doesn't care as they'll liquidate the entire estate, with or without cooperation. If a creditor needs cooperation then the creditor would (likely) have done a Rule 2004 Examination of the debtor, under oath.

    In bankruptcy, smart creditors don't chase ghosts.

    If the Office of the United States Trustee (OUST) doesn't see fraud and doesn't consult the Office of the Attorney General, then, perhaps, they don't think it's actionable. As you know, fraud is hard to prove. This is why many creditors just give up. The creditors that have a lot to lose may decide to weigh in on the matter, but they do so with knowing that it could eat up a lot of money in attorney fees. Money which they may not recover.

    If the debt is truly non-dischargeable then I think that most creditors would Rule 2004 (examine) the debtor, then decide on whether to file an AP to Determine Dischargeability. I don't know why the AP would require cooperation of the debtor. (You're honor, we're here and the debtor refused the Rule 2004 examination.)

    Of course this is my opinion, but I have personally found that when it comes to creditors that are insiders (friends, family, even neighbors), those creditors don't step back and look at the entire picture. If was an unsecured creditor, I would usually not get a distribution in a bankruptcy liquidation (Chapter 7). I have to weigh the likelihood of collection. Priority creditors to may not even be paid in a liquidation.

    In the end if it's non-dischargeable by operation of law, then it's not discharged; just like student debt. But you seem to be stuck on getting a distribution in the liquidation rather than the merely asking a question of dischargeability? You have to answer the former first.

    TL/DR: if you are a creditor in a Chapter 7 and are trying to determine if you want to file an adversary proceeding (complaint/AP), then the creditor would typically move for a Rule 2004 Examination of the debtor to get that information. If the creditor has a non-dischargeable debt (by operation of law) I personally don't see the need to fight in the bankruptcy court at all. It's either dischargeable or non-dischargeable.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog

    Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

    Comment


      #3
      Thanks for your insight ... a few clarifications...

      Fraud was already proven and ruled in State Court - nobody is currently chasing Fraud in BK court. It's my understanding a debt incurred by a judgment of Fraud is non-dischargeable.

      CH7 Trustee is seeking the debtor's cooperation to determine exactly WHAT is part of the estate - there are conflicting ownership claims for estate assets and unknown liabilities of the estate. I think determining WHAT is part of the estate may be required before the Trustee can liquidate the estate.

      CH7 Trustee filed multiple 2004 Exams to date - and obtained little information from the debtor - as the debtor just doesn't care or fear any consequences for lack of cooperation. Filing and fighting an A/P only incurs more fees for all parties. The debtor's goal is to delay and burn assets of the estate rather than let them go to the creditors.

      It seems as if now that the debtor is broke they don't want anyone else to have money either. It appears as long as this debtor is in the fight they think they're winning - being broke with the fight finished would probably be a clear loss which debtor is seeking to avoid. I think some folks just aren't rational and want to drag others down with them while sinking.

      My priority is getting prompt distribution from the estate - as even without a discharge - I expect there will be no payments after the BK is concluded as the debtor is likely to leave the country [has 3 passports] or operate in Cash or without assets in their name to avoid future enforcement or collections. With that said I already filed an A/P to determine non-dischargeability of the debt incurred by Court finding of Fraud.

      NOTE: To my knowledge, there are no secured creditors and I believe there may be no priority creditors other than perhaps the debtor's BK counsel.

      Comment

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