CREDITORS have 60 days from the creditors’ meeting to object to dischargeability of debt by filing complaint in an adversarial proceeding. Debts not objected to by creditors are discharged. Debts subject to an adversarial case are set aside pending trial. To illustrate, debtor’s chapter 7 case lists $80,000 of unsecured debt. Chase objects to the discharge of $5,000 alleging debtor had no intention of repaying creditor. Debtor must timely answer the complaint saying that it was his intent to repay when he made the charge. At trial, creditor must prove by a preponderance of evidence that debtor had no intent to repay to prevail. Creditors normally refer to the bankruptcy income and expense schedules, which show that debtor’s income was insufficient to cover his monthly expenses; therefore debtor knew he had no money to repay. At trial, debtor may show evidence that he had intent to repay even though income was insufficient.
Client’s evidence of intent to repay was copy of father’s will leaving him $1.0 million 5 years ago. Father had a business in Taiwan. His will required debtor’s brother who was managing the business in Taiwan to buy debtor’s share of the business by paying him $1.0 million in cash upon father’s death. But debtor got greedy, excluded debtor from the business, and did not remit $1.0 million to debtor. Debtor could have sued his brother here but did not, letting the statute of limitations lapse on the fourth year but still expected his brother to pay him $1.0 million eventually. Anticipating the inheritance, debtor used $50,000 of credit cards to gamble. US Trustee objected to discharging debtor’s debts arguing that debtor had no intent to repay because when asked if he had ever won gambling, debtor replied that he had never won. When asked why he did not sue his brother within the statute of limitations, debtor replied that he did not want to sue his brother.
In Finnerty, debtor took cash advances of $6,900 in July and August 2008 but informed creditor in September that she could no longer afford minimum payments on the account. She sent $100 money order in July and August 2008 but informed creditor in September that she could no longer afford minimum payments on the account. She sent $100 money order with the letter as a "good faith" payment. Debtor also informed plaintiff that she had put her house up for sale and believed that she had enough equity in it to enable her to pay off the account from the sale proceeds. On September 17, a state court judgment was entered against her in a dispute with her neighbor over the placement of the debtor’s garage and patio. The court ordered the garage removed along with a portion of the patio. Because of the adverse judgment, debtor decided to file for bankruptcy. Plaintiff alleged that debtor did not intend to repay debt and asked the court to except the claim from discharge.
The rulings: In client’s case the court said that the debt was not dischargeable because it was not reasonable for client to assume that he could repay from gambling winnings because he testified he never won. Further, that it was not reasonable for client to expect that his brother would pay him $1.0 million for his share of the inheritance because his brother had not done so in 5 years and he did not sue brother to enforce his claim. In Finnerty, the court found that debtor legitimately believed that there was enough equity in her house to repay creditors and had a reasonable basis to believe that she would prevail in state court. Therefore, the court concluded that she had the intent to repay and ruled in her favor. Hence, it is reasonableness of debtor’s belief in ability to repay that determined if there was intent to repay. In client’s case, if he had actually won sometimes when he gambled, his testimony alone would have swayed the court to rule in his favor.
Alternatively, if he had filed a lawsuit against his brother within the statute of limitations, the court would have ruled in his favor.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published January 20, 2010 in Asian Journal Los Angeles p. B4 )
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