The reason why the bankruptcy laws exist as they do is to offer people who are in over their heads a fresh start. This can be a boon that those who have benefited from its use can understand and appreciate. One of the great benefits of the Bankruptcy Code is that protections exist to help those seeking relief from losing everything in a bankruptcy petition.
On the other side of the coin, however, are the reasons that a person should not use the Bankruptcy Code. For example, the law prohibits improper uses such as intentionally avoiding debts undertaken in anticipation of declaring bankruptcy. On the asset protection side of things, the Bankruptcy Code prohibits people from making fraudulent transfers of wealth or assets to avoid losing them in bankruptcy.
These are the issues that a bankruptcy court was asked to settle in a recently published bankruptcy case. The judge had to determine whether the petitioner asking for bankruptcy protections was taking improper advantage of the laws meant to protect debtors and offer them a fresh start.
What Happened in This Case
In this case, there was a U.S. diplomat who was involved with a company that was notoriously connected with financial fraud schemes. Once the diplomat discovered the impropriety at the bank he withdrew his connect with them, but not before he had been implicated and later sued to return some of the money and assets he had acquired with the firm. What ensued was a lengthy legal battle with a team focused on turning this case into an example of the ends they would go to in recovering funds on behalf of their clients.
The case went before a jury, and the diplomat lost. He was on the hook for a $1.25 million judgment obtained on behalf of those who were injured by the financial firm’s machinations. But it was just at this time that the man’s life was in a downward spiral. His attorney wife contracted a bacterial brain infection that left her unable to practice law, and he was left with just the few assets he had to continue living life. He made several offers to the judgement holder and liquidated assets to pay the judgment, but they wanted everything. He declared bankruptcy to protect things like his homestead and other protected assets.
In the view of his creditors, the man declared bankruptcy only because of the judgement, and was trying to escape its effects. In some circumstances a judge is granted the authority to deny a bankruptcy petition if he or she feels that it was made in anticipation of avoiding a judgment or other debt, and that is improper. But that was not the case here. Because the petitioner had made good faith efforts to settle the debts and pay the judgment, the judge ruled that he would be allowed to file bankruptcy and protect the few of his assets that were important to maintaining his family.
If you are facing the prospect of declaring bankruptcy in California, contact us. The counsel and guidance we can provide will help you make the right decision for you and your family. At the Bankruptcy Law Center our practice is focused on you, your needs, and how we can help you relieve the financial and other pressures that you face today.