Court Case Demonstrates How Bankruptcy Can Be Used To Evade Creditors

Bankruptcy Lawyer Bryan W. Stone answers the question: “What are my alternatives to bankruptcy?”


We like to think that when someone takes the big step of filing for bankruptcy, they do so only when it’s absolutely necessary. The bankruptcy process was created to offer relief to individuals struggling with burdensome debt loads, not to be abused by those simply trying to stall creditors. Though the vast majority of those who file for bankruptcy protection do so as a last resort to avoid financial disaster, there are some who take advantage of aspects of the system for their own benefit.


Empty-pockets-Charlotte-Mooresville-Bankruptcy-Lawyer-300x258One such case appears to be making its way through the Kentucky legal system at the moment. It’s a inheritance case involving a mother and her daughter that went terribly wrong. The dispute begins with a woman named Roberta, who inherited millions when her husband, a successful businessman, passed away several years ago. Roberta is now believed to be worth more than $5 million, including vast sums in retirement accounts, real estate and personal property.


When Roberta’s husband passed away, her daughter Mollie claims that her mother worked with her brother to deprive her of her rightful inheritance. Mollie says that her mother was upset that Mollie had revealed a painful family secret, arguing that she was raped as a teenager by her brother. Roberta then conceived of a plan to keep this news from coming to light. She drafted an amendment to a family trust that said Mollie would receive an additional $1.5 million if she refrained from revealing any claims, whether true or not, that might damage the reputation of her brother or her brother’s wife (who was, at the time, running for elected office).


Roberta and her attorney disagree about the facts of the case, claiming that what really happened was that Mollie tried to shake down the family for a cash settlement following the death of her father. She says that Mollie threatened to make public certain damaging claims unless she received a large cash payout of her share of a lucrative family farm, thus justifying the seemingly strange amendment to the family trust.


The dispute made its way to a district court in Kentucky and the jury sided with Mollie, ordering Roberta to hand over more than $3 million to her daughter. According to the jury, Roberta owed the $1.5 million that had been promised and another $400,000 in punitive damages for making such a deal in the first place. Even more money was found owing due to other actions taken by Roberta to keep Mollie from receiving an inheritance.


What happens next then came as a surprise to many observers. Roberta, the multi-millionaire, filed for bankruptcy, specifically, requesting Chapter 11 protection. Why, you might be wondering, does someone worth $5 million deserve bankruptcy protection? According to Roberta and her attorney, the reason is that she needs to be shielded from claims by her one and only creditor, her daughter Mollie. Her argument is that if her daughter is allowed to collect the money now, she could spend it all before an appeals court is able to weigh in and decide the issue. If that happens, and if the appeals court sides with Roberta, it could mean that Roberta has no way to reclaim the millions. Her attorney says the bankruptcy petition is necessary to keep the money safe, stopping all collection attempts until an appeals court can hear their case.


Unfortunately for Roberta, many others disagree. One prominent critic is the U.S. Trustee for the Eastern District of Kentucky, the person responsible for overseeing the bankruptcy system in the region. The U.S. Trustee has come out and sided publicly with Mollie, stating that Roberta’s Chapter 11 petition was done in bad faith as Roberta is not actually bankrupt. The Trustee believes the point of the petition was simply to evade lawful collection attempts, not something that the bankruptcy process was designed for.


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.





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