A Massachusetts chapter 7 bankruptcy train wreck

trainwreckFrom the debtor’s point of view, what would be the worst possible experience to have in a chapter 7 bankruptcy case?

Well, how about having the trustee file a lawsuit against the debtor, move (successfully) for an injunction to prevent them from spending except for daily essentials, and then press the court to deny the debtor a discharge, effectively stripping them of any bankruptcy relief?

It happened recently in the Desai case, a chapter 7 case in the central division of the bankruptcy court in Massachusetts. In the waning days of 2012, the trustee’s motion for an “expedited” preliminary injunction was granted by US Bankruptcy Judge Melvin Hoffman. The issue concerning the debtor’s discharge is still before the court.

In a nutshell, the case involves a debtor who appears to have omitted her involvement in several business ventures (principally real estate trusts) on her initial schedules, but then testified to having been in business at the meeting of creditors. The trustee’s extremely aggressive action seems to have been triggered by the family nature of the businesses — the trusts involved several of the debtor’s relatives — and the potential for spending down assets.

For Massachusetts bankruptcy lawyers, the lesson from this case is to try to make sure that the debtor’s business operations (including closed ventures) are fully disclosed on the Statement of Financial Affairs. In the heat of battle, it’s easy to overlook the business questions (numbers 18 and beyond); I’ve done it several times, because bankruptcy filing software often hides them from view.

Better safe than sorry, though, as no attorney would relish trying to dig out from a “chapter 7 train wreck!”

 

By Doug Beaton

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