Adversary Proceeding, Section 523, Questions

[Bankruptcy20]

I have a few questions regarding Adversary Proceedings pursuant to 523. I saw a few threads on this a while ago and read them.

My situation: I have a large amount of unsecured and priority debt. Five months before filing Chapter 7, I took out some balance transfers and cash advances for casino gambling. The amounts involved in these balance transfers may seem large to this forum and to lawyers, but it is a small percentage of the total debt I am seeking to discharge. I used to have high income, but due to several compounding factors, I have had no income and passed the means test (I'm currently a No Asset, without Presumption of Abuse, as I head into my 341 meeting soon).

One law firm has written two separate letters, representing two separate credit cards. Both letters cite that as I have made no payments during the five months, and that as the credit limit was pretty much used up, they seek a stipulation amount or a one time cash payment. It looks like a form letter citing FDCPA disclaimer stuff at the end, and seems to be a threat to try to get me to settle.

The letter also suggests I may want to offer more explanation/ evidence behind my situation (which is bad to do, I know).

I have a retained solid lawyer, but seek additional thoughts. OK, my questions, as I saw in another thread, some people had similar threatening form letters.

1. Did anyone give these letters seeking settlement to their designated trustee at the 341 meeting? Apparently, there was a thread which suggested trustees did not appreciate lawyers seeking settlements for specific creditors during the BK process

2. Does anyone know whether one law firm can represent multiple creditors as this law firm is (it is even the same lawyer). In my case, it is two separate credit card companies

3. Did anyone receive these letters and what happened to you? Did they just send that letter and then stop? My letter read pretty much the same as the one posted in the other old thread.

4. Whether to volunteer "my evidence" upfront or wait? I am very comfortable with defending the use of cash. It is not squirreled away under the mattress, but rather went immediately to a wire transfer to a casino. I have learned my lesson about the irrationality of gambling, but it was an emotional, sobering road. So, my question is: does anyone have thoughts of proactively offering this explanation to the trustee at the initial 341 meeting or waiting for the round about question and data gathering? I strongly do not believe it was fraudulent, etc (stupid yes); I have paid numerous, numerous markers and balance transfers over the past 10 years (sad but true, so I can prove that this is a repeat history).

4. Do you agree or no? My reaction to these letters are that they are complete garbage and just seeking to scare me into a settlement, which I have no interest in. The burden of proof lies with them and I can prove where the money went. I had every intention of paying it back then, before my financial situation deterioriated further over the summer. And, I did not make minimum payments as my lawyer told me to not to, once I retained him.

5. Has anyone actually defended against an older than a 70/90 day cash advance/balance transfer AP process? Can you tell us how it went? I have 0% interest in settling, and would rather incur massive legal expense that I am confident that this law firm would need to reimburse my lawyer for.


My overall strategy is to (a) not offer them anything they can try to spin against me, (b) ignore them, (c) see if they show up at the 341 to see if they are really going to be a pain, and (d) as a last resort, have my lawyer call them and verbally tell them it was for gambling.

Can I ask for any advice if anyone else has received these letters threatening Adversarial Proceedings (I received these between filing and the 341 meeting)? I am a bit nervous that one law firm can represent multiple creditors, and they may be more willing to waste time which tends to deter most APs.

Thank you kindly.

[HHM]

1. Trustee doesn't care. He has nothing to do with it.
2. Yes, they can.
3. Since we are talking about gambling debt within 5 months of filing, you have an uphill battle.
4. Yep, the burden of proof lies with them, you will want them to at least file the AP, but this is something you need to discuss with your lawyer. IMHO, the risk of an AP is high as are the chances you would lose.
5. Without more facts, who can say if that is a wise strategy. Generally, an AP over gambling loses is a losing scenario for the debtor unless there are significant mitigating factors.

[OhioFiler]

If I understand correctly you owed a casino a lot of money so you took cash advances to pay off the casino five months ago. I'd say that's a preferential payment and the trustee will most likely try to recover that payment from the casino to spread equally to your creditors. I wouldn't be surprised to see one of those banks file an AP as well.

When did you file Chapter 7? I see you joined our community 6 months ago. Did you acquire those cash advances after you joined BKFORUM?

[AngelinaCatHub]

1. Did anyone give these letters seeking settlement to their designated trustee at the 341 meeting? Apparently, there was a thread which suggested trustees did not appreciate lawyers seeking settlements for specific creditors during the BK process Don't bother. He would not be interested unless they did something wrong. You are not filed and the letters are legal.

2. Does anyone know whether one law firm can represent multiple creditors as this law firm is (it is even the same lawyer). In my case, it is two separate credit card companies They can represent anyone. But each individual would be a different case and docket.

3. Did anyone receive these letters and what happened to you? Did they just send that letter and then stop? My letter read pretty much the same as the one posted in the other old thread. The letter is only a threat. Until a suit is initiated, it is a request for payment.

4. Whether to volunteer "my evidence" upfront or wait? I am very comfortable with defending the use of cash. It is not squirreled away under the mattress, but rather went immediately to a wire transfer to a casino. I have learned my lesson about the irrationality of gambling, but it was an emotional, sobering road. So, my question is: does anyone have thoughts of proactively offering this explanation to the trustee at the initial 341 meeting or waiting for the round about question and data gathering? I strongly do not believe it was fraudulent, etc (stupid yes); I have paid numerous, numerous markers and balance transfers over the past 10 years (sad but true, so I can prove that this is a repeat history). Say NOTHING! Only say what your lawyer tells you in a deposition (the truth but no more). If you keep your mouth shut, you won't hang yourself.

4. Do you agree or no? My reaction to these letters are that they are complete garbage and just seeking to scare me into a settlement, which I have no interest in. The burden of proof lies with them and I can prove where the money went. I had every intention of paying it back then, before my financial situation deterioriated further over the summer. And, I did not make minimum payments as my lawyer told me to not to, once I retained him. If you settle with one or even make a payment, you blow your bk.

5. Has anyone actually defended against an older than a 70/90 day cash advance/balance transfer AP process? Can you tell us how it went? I have 0% interest in settling, and would rather incur massive legal expense that I am confident that this law firm would need to reimburse my lawyer for. Gambling is a sickness if you cannot afford it. However, as far as Fraud if it was not done intentionally to damage, it is not fraud or abuse. Still if you have an AP, you will be seen by a Jury. Gambling is one of those difficult no, no's.


My overall strategy is to (a) not offer them anything they can try to spin against me, (b) ignore them, (c) see if they show up at the 341 to see if they are really going to be a pain, and (d) as a last resort, have my lawyer call them and verbally tell them it was for gambling. So far, good except for (d). Why would your lawyer tell them a thing?

Can I ask for any advice if anyone else has received these letters threatening Adversarial Proceedings (I received these between filing and the 341 meeting)? I am a bit nervous that one law firm can represent multiple creditors, and they may be more willing to waste time which tends to deter most APs. An AP can not stop your bk. It can however, exclude a single (or multiple AP) debt from discharge. You would then get a Judgment that can not be discharged, even in the future. However, if they cannot collect on it, why bother?

Thank you kindly.

To aid more. We need amounts. That kind of weighs reasons for actions. Also your previous (when you could afford to gamble) income and current income. 'Hub

[music12]

don't say ANYTHING and hope for the best. anything you say now can and will be used against you by the creditors if they file an AP. at the 341, say nothing except for short, succinct answers to the trustee's questions (just "yes" or "no" when possible).

[Bankruptcy20]

3. Since we are talking about gambling debt within 5 months of filing, you have an uphill battle.

5. Without more facts, who can say if that is a wise strategy. Generally, an AP over gambling loses is a losing scenario for the debtor unless there are significant mitigating factors.

HHM,

Can you explain further why you think gambling is an uphill battle? I have heard that while gambling is an unfortunate addiction at least the courts view it as you had a reasonable (though lower than 50%) chance of winning. It is not deemed fraudulent (like luxury purchases knowing you couldn't pay, etc)

[Bankruptcy20]

If I understand correctly you owed a casino a lot of money so you took cash advances to pay off the casino five months ago. I'd say that's a preferential payment and the trustee will most likely try to recover that payment from the casino to spread equally to your creditors. I wouldn't be surprised to see one of those banks file an AP as well.

When did you file Chapter 7? I see you joined our community 6 months ago. Did you acquire those cash advances after you joined BKFORUM?

No, the timing is: balance transfers, then casino trip, then lawyer, who told me to stop paying while figuring out a few issues. Things got worse, then filing.

[Bankruptcy20]

Angelina, I wont copy your entire quote, but thanks for the response, but I have filed, I am in the period between filing Chapter 7 and 341. The letters reference my petition, so the law firm knows of the filing

[HHM]

HHM,

Can you explain further why you think gambling is an uphill battle? I have heard that while gambling is an unfortunate addiction at least the courts view it as you had a reasonable (though lower than 50%) chance of winning. It is not deemed fraudulent (like luxury purchases knowing you couldn't pay, etc)

It's the combination of gambling and timing. Gambling debts can be discharged, it is the combo with it being within 5 months of BK. Granted, you are outside the 70/90 day rule, but gambling is the definition of a non-necessity and if you were technically insolvent at the time, that is all the creditor need prove. I have to disagree with AngilinaCat, actual intent to injure is NOT a requirement to win a BK AP.
Let me ask you this, did you make any payments? If no, you have lost. If yes, you have at least a chance.

[Bankruptcy20]

[hereforinfo]

OMG. Going to the hospital for life saving surgery is not the same as taking a cash advance to gamble at a casino. If you really believe the two are in any way comparable, then you have a big problem. You took a large cash advance and didn't make a single payment. That alone shows intent to defraud, whether or not in your mind there was. As to your original post, the amount of the cash advance in comparison to your overall debt is not a defense.

[justbroke]

Sorry to hear about your gambling addiction and its impact on your Bankruptcy.

I want you to be aware that 11 USC 523 isn't so easy to interpret. When you make a charge and sign the charge slip, you do so with the intent to pay. If you made no attempt to pay, then you made the charge under false pretenses. The rest of the case falls apart real quickly once that is proven. That is why time and time again, attorneys advise their clients to make token payments against those balance transfers and other large purchases, to stave off an AP.

In the end, you need to determine how much you want to fight and at what cost. The creditor's attorney may go away if you ignore them, but what if they don't. For some reason, they believe they have a case (probably because you made no attempt at paying at least one of the cash advances) and are at least toying with the idea of filing a complaint.

It's a gamble either way. (Pun intended.)

[Bankruptcy20]

OMG. Going to the hospital for life saving surgery is not the same as taking a cash advance to gamble at a casino. If you really believe the two are in any way comparable, then you have a big problem. You took a large cash advance and didn't make a single payment. That alone shows intent to defraud, whether or not in your mind there was. As to your original post, the amount of the cash advance in comparison to your overall debt is not a defense.

Hmmm, my post may have been unclear. I am not comparing those two as to morality or need, except to address the fraudulent intent legal issue. When you go to the hospital or make a large luxury purchase, etc., there is ZERO percent chance of making a profit to repay that expense. Perhaps, it is indirectly aiding your life so as to make future income. But, if you know that you are insolvent, or near insolvent, and still incur medical debt, isn't that fraudulent?

But the linkage between balance transfers to fuel an unfortunate gambling addiction can be shown to have a "rationale" and "plausible" intent to generate gambling winning so as to pay back that balance transfer. Said another way, there is about a 45-48% chance of winning at a casino so there is at least a plausible belief.

I think there are a lot of cases regarding the disease of delusional gambling, but my point was not to defend that unfortunate sickness, but rather to point out that the cash on cash dynamics of such an addiction could be a very useful (and honest) explanation why it was not fraudulent intent under 523.

Also, my comment regarding these transfers as % of total debt, as I wrote later, was more to point to the fact that these transfers were not the first of their kind, but rather the last of a long sequence of such transfers. There were many, many payments on time over the past ten years. The totality of circumstances should confirm that these rather small transfers (relative to historical income, and previous balance transfers) were not ill-intended.

It is interesting that no one here has taken any AP to court, and instead flinched from sword rattling (well at least, no one who has yet responded). As I did nothing dishonest or fraudulent (stupid, yes), I am comfortable taking this to court all the way. I think this AP threatening practice must be a lucrative business for some lawyers. Easier than debt collectors I would guess.

And on the overly simple "you made no payment, so you intended fraud!" that several have posted above, let me remind you that my experienced lawyer specifically told me not to. The timing: I incurred the balance transfer, then went gambling, then went to see a lawyer, who told me to stop all payments. He was fully apprised of the amounts and timing of those balance transfers.

Unless you have 25+ years of legal experience and are the head of your own relatively prestigious law firm (as he is), I will take his advice... No offense, and I am sorry if this is coming across as harsh, but non-lawyers should be a bit more careful of writing too strong of an advice here on these forums. Inexperienced and emotionally distraught readers may just take advice as gospel.

I am constantly berating myself for being in this situation, largely propelled by gambling and other factors (some within my control and some not). But, my heart is very, very clear that I did not intend any fraud. For that, I can sleep quite well during any long, extended AP process.

[Amy26]

If you're going to take your lawyers advice...why are you asking us questions? Taking the lawyers advice is always the best course...obviously you paid him for his advice.

You are starting to sound like swampwiz!

Again, if you think the people here are nonexperienced non-lawyers (which most of us aren't) ...then why ask us? I assume if everyone had agreed with everything you said then you would not be making those statements.

No one has taken AP's to court because they usually win. As many people have mentioned, having an AP filed against you generally means that they creditor has a good case. While you may think comparing your problem to incurring medical debts is a valid explaination my non lawyer inexperienced response is I doubt that will hold any weight.

Also, you may have made payments in the past on other balance transfers but I believe the creditors can question specific charges and withdrawls and they don't have to look at the entire situation as a whole. We do not flench at the sword rattling which is the letters that we get before an AP. Most advice here has been to ignore letters threatening AP or reaffirmation agreements etc... but an actual AP is not something to sneeze at.

[justbroke]

It is interesting that no one here has taken any AP to court, and instead flinched from sword rattling (well at least, no one who has yet responded).

I would if one were presented to me.

And on the overly simple "you made no payment, so you intended fraud!" that several have posted above, let me remind you that my experienced lawyer specifically told me not to.

As I wrote, yep, it's not that simple. Many things need to be looked at. The fact is that the creditor and the creditor's attorney will look to your ability and intent to pay.

Unless you have 25+ years of legal experience and are the head of your own relatively prestigious law firm (as he is), I will take his advice...

As you should. Unfortunately, you are now facing the defense of a potential complaint. The sage advice provided on this forum has shown that in order to reduce the chances of a complaint (adversary proceeding) being filed, time since charges and a pattern of intent to pay is always the best medicine.

Since you have an experienced attorney, he must be willing to fight for you, and not everyone has that luxury. Many debtors file without an attorney as well, and they must make more informed decisions. They don't get the luxury of consulting with an attorney or having one defend their actions. I always defer to a person's attorney.

As always, any advice provided is not legal advice. However, you came to this site to ask questions as to your chances of winning or avoiding an AP, and we provided you our collective experience.

Even having wrote all that, we are really interested in how you make out with your case. We learn from each other's experience and building good caselaw for defending APs is something that we could build upon.