Bankruptcy

Too Strange For Springer, Too Weird For Oprah: Debtors Try To Fix A Messed Up Transaction

By Jonathan Alper

Bankruptcy debtors do some strange things. A couple came to see me about a debt they forgot to put in their bankruptcy petition. The husband filed Chapter 7 bankruptcy in 2007 by himself without an attorney. The case is closed; discharge entered. Its in the archives. A year earlier, the husband had tried to sell his motor home to a third party. The husband could not deliver title to the motor home because there was a lien on the home. The agreed sales price was $40,000 but the lien was $60,000. The buyers must have wanted the motor home really badly because they gave the husband the $40,000 as long as he promised to pay off the lien as soon as he could.

The husband gave the entire $40,000 to the bank with the lien. He never could clear or pay off the lien with other money. In the meantime, the bank kept deducting the monthly lien payments from the $40,000 until, a few years later, there was no more money. The husband never spent any of the money on anything but the loan payments.

You can probably guess what happens next. When there was no more money left in the fund to make payments the bank repossessed the motor home from our surprised buyers. The buyers paid the agreed price and thought everything was taken care of. Now, the husband wants me to add the aggrieved buyers to his bankruptcy petition even though the case was closed. There are a couple interesting legal issues.

The first issue is whether the husband can add a creditor to his closed bankruptcy. The general rule is that debtors can reopen a case to add creditors so long as the creditor?s claim existed prior to the bankruptcy filing. There is an exception when the bankruptcy estate had non-exempt assets which were made distributed to the creditors of record because, in that event, there would be no way to reallocate the available assets. Fortunately, in this case, there were no assets in the estate available for distribution.

A second issue is whether the buyer had a claim, and whether the buyer was a creditor, when the husband filed bankruptcy. Or, did the buyer?s claim first accrue when the bank repossessed the motor home after the bankruptcy was filed and closed. The bankruptcy Code defines "claim" very broadly. When the buyers took possession of the motor home subject to the husbands promise to pay off the lien I think the husband incurred a debt and obligation to the buyers who in turn had a claim against future performance. I think there was a claim, broadly defined, when the petition was filed and that the husband can reopen the case. I expect that the buyer will contest the motion to reopen. It will be interesting to see what the court says.

Full post as published by Florida Bankruptcy Law on January 27, 2010 (boomark / email).