Creditors Objection to Discharge

[confusedinfl]

Just a week shy of the cutoff for objections my main creditor has filed an objection to the discharge on several grounds.

1. They claim I did not report all the income from my tax return on the bankruptcy schedules for prior years. I think they may be referring to the business income that flowed through from the company I used to have. My attorney and I reported the gross income that I actually took in salary. Should the business net income or loss also have been reported? I submitted my tax returns so it is not as though I had anything to hide. In terms of this years income from the business it is actually a net loss of $10,000.00 so again I am not hiding anything.

2. I recently moved back to my home country in order to try to get a fresh start. Prior to moving I transferred all my funds to an account in that country. Because you have to be there in person to open an account I transferred them into an account belonging to my father and then when I got there I opened my own account and moved the funds into that account. The final account actually had an overdrawn balance by the time of filing and therefore was not reported on the schedules at the instruction of my attorney. The creditor is claiming the transfer should have been reported and the account should have been reported on the bankruptcy schedules. My attorney tells me that because I was moving that the transfer was in the "ordinary course of my financial affairs" and therefore did not need to be reported. In addition the funds were not transferred to another person permanently, only temporarily.

Does anyone have any thoughts on this? Their objection makes me look really bad and they are claiming that the transfer was with the intent to defraud them. In actual fact the funds were from the equity in my house which was an asset that was exempt from their judgment. All the funds have since been used to pay my mortgage, taxes and the remainder have funded my living expenses while I have been unable to work.

[lrprn]

Your case contains multiple potential problem areas that often raise a trustee's concerns about fraud - you have an out-of-the-country account, you have business costs mixed with personal costs, you transferred money to a close relative before declaring bankruptcy, and have suspicions of income tax fraud to boot.

You didn't mention where each of these potential problem areas fell on your filing timeline. The closer any of these were to the date of filing, the more problems they could cause for you.

It would be helpful if you could answer a few questions....Are you still living out of the country? What assets are you trying to keep after filing and where are they located? Is the creditor's objection related to a secured asset or to an unsecured debt? How much money is involved in this creditor's objection? Did this creditor have legal proceedings against you before you filed? Do you have solid documentation around each of the problem areas that can prove no fraud was intended on your part? What does your lawyer have to say about all of this now that the creditor objection has been filed?

You could have a tough road ahead of you, especially if the U.S. Trustee gets involved in your case. What will save you is if you kept excellent records around your business and financial accounts transactions going back at least 5-6 years - hope that's the case. You definitely will need the help of your lawyer to address this creditor's objection effectively - hope he/she is up to the task. Please keep us posted on what happens, ok?

[HHM]

On the one hand, I can see why the creditor is objecting, but I think its a weak objection. But without more background, its really hard to say one way or the other.

How much is this creditor owed?

Basically, the decision you have to make is, how much are you willing to spend to defend this (i.e., your attorney will require extra fees to defend you in this). Also, you can approach the creditor and see how much they are willing to settle for. If they are willing to settle for less than it would cost you to defend, then settle....if they wan't more and your attorney is confident that the creditors case is weak, then fight.

Also, you should ask your attorney if he has any experience defending these actions in court...the reason being is that most objections are settled or the client cannot afford the extra attorney fees, thus, very few of these cases actually ever see the inside of a court room, so even an experienced BK attorney may have never actually had to defend one of these cases. They will know the law and can research your situation (if your willing to pay) and can give you an idea of the likely outcome, but BK attorneys are not litigators. Just something to keep in mind.

[confusedinfl]

Response

The first transfer to the out of country account occured before the judgment that resulted in this individual being a creditor. The other transfer was after the final judgment in the amount of $4K but before the supplemental judgment of $45K. I would hope that my intent to move PRIOR to the final hearing and judgment would be sufficient to show my real intent was not to defraud anyone. Add to this the fact that those funds were all used to pay creditors and this should support my argument that my intent was not to defraud although I am sure they might argue preference but all the payments to creditors occured more than 90 days before filing.

Yes I am still living out of the country in temporary accomodation but keeping my options open as to whether to return to the States when all this is done.

Again, I didn't transfer money TO a relative...only through a relative's account due to not being able to open an account until I was physically there and able to manage my financial affairs. The amount transferred was approx $50K but again, that was paid to my mortgage company, IRS taxes and to repay a cash advance taken a couple of months earlier on a credit card.

I have kept a detailed accounting in Quickbooks of every penny and cent in every account that I have that 100% supports all the bankruptcy schedules filed.

To clarify...I did not mix any business and personal costs. On my individual tax return the net profit from my business has to be reported. These tax returns were provided to the trustee. The question is whether or not the profit from the business, that stayed in the business (we are talking about no more than $5K each year and actually a $10K loss this year) should have been reported as personal income.

I do have excellent business records. My business though was just me as an individual consultant and there is not much to it. I can account for every cent going back to when the company was first started.

The last answer to your question is that I am not trying to keep any assets. This is a Chapter 7 and I am surrendering everything I have. At the time of filing all the money that had been transferred had been used to settle my financial affairs and to live on.

What do you mean with regard to did this creditor have legal proceedings before I filed? Obviously they had a judgment against me but I am not sure what you mean beyond that?

[CindyLou]

It sound to me like you have a solid case except it they decide to question where every penney of the $50k went to see if there was preferential treatment. But in that case they would then go back to those creditors and try and recover that money and disperse appropriately. Also, if you don't mind sharing, who is this creditor that is objecting? Maybe one of us have dealt with them and can offer up some advice.

[lrprn]

What do you mean with regard to did this creditor have legal proceedings before I filed? Obviously they had a judgment against me but I am not sure what you mean beyond that?

Thanks for the answers, Confused - this helps us understand your situation a lot better. You hadn't mentioned a judgment in your first post so that's the reason I asked about it. Knowing if there was a judgment in place and the kind of judgment it was before you filed is important.

Great that you kept good financial records - that will be very helpful to your case. As HHM mentioned, finding out how experienced your attorney is in defending these kinds of creditor objections is important. Being outside the country yourself, having a top-flight, experienced attorney to see to your interests in this case is a must.

[confusedinfl]

Response

The creditor is a former business partner that I sued. I sued in small claims because I couldn't afford an attorney...she got a flashy lawyer and ran up $45K in legal bills. I lost...obviously....right over wrong doesn't prevail when you can't afford an attorney!

The objection is 100% personal. The entire countersuit and now the objection to this discharge is very much a personal vendetta. So...thank goodness that no one else has to worry about this creditor until she does the same thing to someone else.

[CindyLou]

So that puts a new spin on it. If she is acting mostly on emotions chances are she doesn't have a good case. If you were transparant with all of your information when you filed then you shouldn't have a problem as long as you are honest about your transactions. I would say that because it is not a credit card company suing you you have a much better chance of coming through this ok. If it is purely emotion with no basis then that will eventually come out. Please keep us posted.