Bankruptcy

Your Property In Canada Is Not Exempt, Immune, or Invisible if You File A Bankruptcy in AZ

By Joseph McDaniel, Esq.

And almost as often, they get cranky with me when they hear what they don't want to hear.

And I am apparently a glutton for punishment, because I'm gonna keep telling 'em what they don't want to hear, just as I have for the last thirty years.

See, the statute that defines property of the estate is located at 11 USC 541. It was designed by the drafters to pick up everything that the debtor owns in any way, shape, manner or form. Including, for instance, mining claims on the Planet Neptune.

If you want to read the statute in it's undiluted form, here it is.

However, for ordinary people who have not been dipped in the magical protective coatings dispensed by law schools, reading statutes in their naked forms can be confusing, disorienting, scary, and confounding.

Kinda like letting somebody without a divinity degree read Revelations.

But here's what you need to take away from this discussion today: do not expect a lawyer to tell you that if you own real property (land; dirt; building; treehouse) in Canada, or real property in Mexico, or real property in Costa Rica, that you will a)not need to list that real property in your Chapter Whatever Bankruptcy in the United States, or that b)you will be able to keep it without paying for it.

Now, there are some possible outcomes that could make you happy.

One is that you list the property and the panel trustee who was appointed in your case doesn't want to bother with it because she's too busy and it's too much trouble for the apparent value of the dirt.

That could happen; don't count on it, but it could happen. A trustee is supposed to use the business judgment test to determine how best to deal with assets in a case, and they are seldom second-guessed.

On the other hand, another sorta decent result would be that you would buy back the property from the bankruptcy trustee at an auction held by the trustee, which auctions happen all the time. And about half the time, or more, the debtor who plugs in the first lowball bid walks away with the property, no matter whether it's a replica light saber with gold fittings valued at $4,723.93, or a piece of undeveloped land in Barcelona, Spain, valued at $16,345.92.

Now, here's a test to see whether you are sitting with the best bankruptcy lawyer in Arizona, or wherever you may be talking to a bankruptcy lawyer: if she says that you don't need to list real property that you own which is situated in Pakistan, he is not the best bankruptcy lawyer in Phoenix, or anyplace else.

Such advice will put you in stripes. Not pinstripes, not chalk stripes.

Prison pajamas. Get it?

And while I may sound relaxed about this (hey, I plan to sound relaxed when I'm telling the doc to crack my chest and gimmie another stent!), I am most certainly not relaxed on this topic.

Think about it: if you're going to get rid of a million dollars in debt, which is not at all unusual in Arizona these days, you will pay a price.

One of the most important prices you will pay is full disclosure on your schedules.

Back when the New Code and my ticket to practice law were new, there was a lot of weight given to the excuses, "I didn't understand. I was sick when I was filling out my schedules. I was dead at the time."

There is no sense of humor in the Arizona Bankruptcy Court these days in connection with failing to list a significant asset. And the U.S. Trustee's Office, a division of the U.S. Attorney's Office, has a zero-tolerance policy, and is at all times looking for poster children.

So if an instant bankruptcy expert, who was practicing personal injury law last week, tells you that you don't need to list an asset, ask him what he knows about 11 USC 541. Ask specifically with the numbers.

Be interesting to see if his head does that trick from The Exorcist.

p.s. it is not uncommon for an experienced, capable Arizona bankruptcy attorney to discuss the sale of a non-exempt asset and the use of the proceeds for living expenses and the purchase or paydown of a lien on exempt assets. The legislative history of the New Code said that without more, the conversion of non-exempt to exempt assets on the eve of filing was not fraudulent as to creditors.

And that sounds simple. In fact, there is a phrase that has some currency in the case law, which is "pigs get fat, hogs get slaughtered", in connection with pre-bankruptcy planning.

And, of course, in any area where lawyers work, nothing is simple.

And whether you are scraping off twenty million dollars in debt, or twenty thousand, there is always risk in any bankruptcy filing.

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NOTHING IN THIS BANKRUPTCY BLOG CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY ATTORNEY WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on September 03, 2010 (boomark / email).