Real concerns re: potential Adversary Proceeding for Fraud

[pa333]

Hi all -

My husband and I just filed and I know we are facing an uphill battle.

We closed on our house in December '08, spent tens of thousands of dollars on our cards in Jan/Feb '09 (on renovations & balance transfers) and learned in April that my husband's firm was going to postpone $11,000 in bonus income that we planned to use to cover our increased CC payments.

We paid what we could throughout the spring and summer (not even close to the minimum payments) and kept in close contact with the credit card companies to let them know we expected this to be a temporary financial setback. My husband's firm kept stalling and stalling (they still claim they are going to pay out the bonus "any day now" - what BS, we're almost to 2010) on the bonus. My son was diagnosed with autism and the out-of-pocket expenses - it's going to be thousands of dollars - started rolling in.

AmEx filed a lawsuit against my husband, so we finally had to file last week.

So my question is - what can I reasonable expect as far as fraud charges from our creditors, the "Adversary Proceeding for Fraud" as I have heard it called here on the forum? Our transactions look incredibly fishy if you don't know our story, and even if you do know our story we are still idiots for living beyond our means. What is this process like? Is it the credit card companies who have to suggest fraud, or can the trustee? When in the process does this happen? Does anyone have any experience with handling this?

If it matters, our lawyer (who is respected in our area of Pennsylvania and has been practicing BK for 20 years) says he is not concerned. But from what I've read on these forums, it's definitely going to be an issue. Heck, it even "looks" bad to ME.

Any input would be greatly appreciated. I've just entered round 465 of getting an ulcer over this.

Thanks...

[rrockinggramma]

so you haven't used your cards since february and paid down as much as you could since last use? You have made a good faith effort to pay and did not intentionally run up these cards with luxury expenses and then turn around and file BK?

I think you are worrying over nothing. Fraud is up to the creditor to prove that you deliberately used your cc knowing that you were going to file.

Your situation is not that at all.

Relax.

[justbroke]

So my question is - what can I reasonable expect as far as fraud charges from our creditors, the "Adversary Proceeding for Fraud" as I have heard it called here on the forum? Our transactions look incredibly fishy if you don't know our story, and even if you do know our story we are still idiots for living beyond our means. What is this process like? Is it the credit card companies who have to suggest fraud, or can the trustee? When in the process does this happen? Does anyone have any experience with handling this?

I apologize for being lazy, but there is another thread here that I posted similar information. See the thread .

Basically, the lawyer will first depend on them not filing an AP just because the charges were more than 6 months agao, and you made an effort to pay. If they do file a complaint, they have a huge burden to prove actual fraud.

(FROM THE OTHER THREAD)

As the Judge wrote in In Re Manning 280 BR at 185... "[f]raudulent intent should not be implied solely based on the use of a credit card when there is no immediate ability to repay.". In other words, a finding of fraudulent intent should not depend solely on the Debtor's financial condition at the time that the credit was extended.

The general things the court will consider are as follows:

1. the length of time between the creation of the debt and the filing of the Bankruptcy
2. whether the debtor consulted a bankruptcy attorney before the debt was incurred.
3. the number and amount of the transactions.
4. the financial condition of the debtor at the time the debt was incurred.
5. whether the debt exceeded the debtor's credit limit.
6. whether multiple debt were incurred on the same day.
7. whether the debtor was employed, or if not, whether the debtor had meaningful prospects for employment.
8. the financial sophistication of the debtor.
9. whether the debtor's spending habits changed suddenly.
10. whether the debts were incurred for luxuries or necessities.

(In Re Manning 280 BR at 186)

Even though they may complain about you not having the money to pay... having a reasonable expectation of future income or a job, is sufficient to rebut their argument that you never intended to pay.

I hope that you have a lawyer who will fight for you, and won't charge you too much, as these adversary proceedings (APs) can and do get expensive to litigate.

[pa333]

Wow, thanks for these responses - they are actually much more optimistic than I expected! We stopped using almost all of our cards as soon as we realized we were not getting the bonus when promised - so that would have been March/April. We used our last card - Ikea - card once in April. But it has to be said that most of them were getting close to maxing out at that point.

So, this is not an issue that the trustee would bring up when they ask us questions? I'm envisioning getting tongue tied and more or less crying under harsh questioning from the trustee - that's the picture in my imagination.

[BigJohn]

pa333, I did some of the very same things you did.

No problem.

[justbroke]

So, this is not an issue that the trustee would bring up when they ask us questions? I'm envisioning getting tongue tied and more or less crying under harsh questioning from the trustee - that's the picture in my imagination.

While the Trustee may question you on these things -- just depends on the Trustee and their mood -- filing a complaint about it, is in the creditor's hands, not the Trustee's.

[rrockinggramma]

and with what is happening right now in this economy you are not alone, I am sure. Trustee's are not judgemental. They may ask questions but your answer is "our bonus never came in as we were promised" Well with all the stuff on Wall Street, how many there didn't get their big bonuses as promised (and still continuing) These trustee's have seen it all. You have nothing to worry about.

[JackBondLove]

Even though they may complain about you not having the money to pay... having a reasonable expectation of future income or a job, is sufficient to rebut their argument that you never intended to pay.

That is the money quote. Sure everyone who is unemployed or whose business is bad can see the brick wall of BK in the far distant future if the situation would not change, but it is certainly reasonable to think that someone could change it in enough time. I know that in my situation when I got loaded up with debt, I did so with the understanding that I had about 2 years to get my business back up in running (I had taken some time off as I was doing well in the stock market), and that my eventual "exit strategy" if I couldn't get the business back up was BK. Well, a year later, after taking some big losses in the stock market and not being able to restart my business, I began to think that I would not make it, and thus considered myself insolvent, and sought legal advice - and filed 1/2 year later.

[frogger]

If it matters, our lawyer (who is respected in our area of Pennsylvania and has been practicing BK for 20 years) says he is not concerned.

Thanks...

So why exactly are you concerned???

Justbroke gave you some excellent info, as has your lawyer.

[AngelinaCatHub]

I have personal knowledge as well as my observation of AP's are made for not reason of economy but reason of vindictiveness. They are usually made among family members, ex partners, or personal enemies as ours was. Pure fraud usually is pretty easy to see without AP and can be brought up with supporting paper at a 341, or a Motion for hearing it by the bk Judge. An AP is not only expensive for the Defendant, but also the Plaintiff. 'Hub