Bankruptcy Lawyer Bryan W. Stone answers the question: “Will I lose my property if I file for bankruptcy?”
Are Allegations of Bad Faith Enough to Dismiss a Bankruptcy Case?
Not necessarily, according to one cardiologist’s bankruptcy case in Florida this summer. Despite allegations by Branch, Banking & Trust (BB&T) that Dr. Eze Uche filed for Chapter 7 earlier this year solely in an attempt to dodge their almost $740,000 judgment against him, the U.S. Bankruptcy Court for the Middle District of Florida would not dismiss Uche’s bankruptcy case. There were no other facts indicating the doctor was trying to defraud the bank. Because of this, the bankruptcy court pointed out that filing bankruptcy to escape a debt, even a civil judgment set by a court, is kind of the point of filing for bankruptcy protection.
Uche’s Florida medical practice operated out of a building the doctor mortgaged with BB&T. After two years of making payments on time, the doctor defaulted on his loan with the bank. By the time the practice caught up with payments, BB&T had filed a foreclosure action on the property in state court. The court sold the building at a judicial foreclosure sale, after which the bank alleged Uche still owed them $739,062.
In admittedly somewhat suspicious timing, Uche then filed for Chapter 7 bankruptcy protection in the Eleventh Circuit. Chapter 7 bankruptcy operates by liquidating a debtor’s assets and distributing the proceeds to creditors (parties the debtor owes money). Secured creditors, or those with a security interest in an asset (such as a mortgagor), have priority over unsecured creditors when it comes to getting paid back in a bankruptcy. Certain assets, like your home up to a certain dollar amount, can also be claimed exempt from liquidation and creditors.
In his bankruptcy filing, Uche has asked the bankruptcy court to discharge over $1 million in debt, almost all of which was business-related. The court examined the doctor’s financial situation and filings and found nothing else indicative of bad faith or fraud: no evidence that he had attempted to hide assets, and no evidence that he had failed to make full and candid disclosure of his financial situation in his filing.
Because there was no other evidence of bad faith, the court ruled that the mere fact that BB&T had a judgment against the doctor right before he filed for bankruptcy was not enough to dismiss the case. The judge stated that to dismiss the case would essentially serve to favor BB&T over the doctor’s other secured creditors.
What if it had been bad faith?
To be clear, if the bankruptcy judge on the case had discovered that the doctor did indeed hide assets or otherwise behave fraudulently, the case would have been dismissed and Uche could have faced significant financial and/or criminal penalties. Hiding assets is one of the worst mistakes a party can make in a bankruptcy proceeding, and judges do not take kindly to the waste of judicial resources by individuals or companies seeking to escape accountability.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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