Help needed - 2004 Examination and Adversary Proceeding

[thecrown]

I am an unsecured creditor in a C7 bankruptcy. Sold my housecleaning business to debtor on a promissory note repayable over 5 years, debtor stopped payments after 6 months and file bankruptcy. Debtor has lied under oath in two 341 hearings that business is no longer operating. I have affidavits from customers saying business is still operating with same housekeepers and have copies of their cleared checks made out to same business name. Debtor is using someone else to front the business and customers believe that person to be working for debtor. I have photographs showing business assets were removed from place of business and a letter from landlords saying debtor absconded and premises were virtually emptied of all useful assets. Debtor claimed business doors were closed end of Feb 2009 and left all the assets in the premises (another lie). Customer checks are being cashed by debtors' frontman's domestic partner who filed a fictitious business name with similar trading name to old business name 2 days after detors supposedly closed the business. Customers keys are being used to enter customers houses to clean them. We have followed and photographed and videotaped debtor's frontman and workers going to customers houses with cleaning equipment. Debtors' sister was attorney who drew up contract of sale of business and promissory note. Attorney represented both me (seller) and debtor in the transaction. In hindsight business purchase contract was weighted in favor of buyer (debtor) with no recourse to seller in the event of buyer defaulting. I only recently discovered that the attorney has 3 cases of disciplinary action with CA State Bar with a 3 year suspension for defrauding clients out of money (suspension was prior to time of drawing up contract and note). Evidence of debtors attempt to hide ongoing business has been shown to Trustee who advised me to file for 2004 examination of debtor. My hope would be to show in the 2004 examination a connection between debtor and the friend cashing checks either through phone records or bank transactions.

Questions: are there grounds for proving fraud either in the drawing up of one-sided contract by debtor and sister lawyer, and/or the fact that debtor is hiding an on-going business. The act of concealment suggests either debtor is continuing to receive income from business or sold the business but has not declared the sale/transfer in the schedules. Could the concealment alone warrant a dismissal under Section 727. My goal is to have judge deny debtor discharge of my debt so I can get a judgement and attach debtors future wages, bank accounts etc. Attorneys I have consulted to assist with 2004 examination and Adversary Proceeding seem to be uninterested indicating it could be very costly to file AP and 2004 exam and see it through to conclusion. I have read many comments in this forum that suggest filing pro se would be very difficult. The debtor owes and has defrauded me out of $65k and I feel very strongly that I should fight for justice.

[JRScott]

I wouldn't do the 2004 pro se, you'll need a lawyer most likely to secure your interests.

[DebtEnder]

It sounds like you have done alot of the legwork to prove he is still running the business. However you effectively "loaned" him the 65k to purchase the business and did not secure any of the loan to any assets of his. Proving fraud saying he never intended to repay the loan my be tough as you said he did pay for six months, this is something you really need to speak with an attorney about

You could very possibly nail him for perjury and possibly get the trustee to dismiss the debtor's whole bankruptcy, but again your going to have to find an attorney to take the case.

And yes it will be pricey, have you by chance contacted the US trustee for the district? Is the UST responsibility to verify the debtor should be allowed to do bankruptcy, hiding an active business accounts sounds like abuse to me. It may at least force him to a chapter 13 which means you may get some money back at least.

Good luck.

[thecrown]

Thanks JRScott and DebtEnder

Is the US Trustee different to the Trustee at the 341 Meeting of Creditors? As mentioned I did provide Trustee who held the 341 meeting with what evidence I had at that time. I have gathered more evidence since.

Another piece of information - visited person cashing checks at her place of work. While denying knowing the debtor (doubtful) she did say she was doing a favor for her domestic partner (person fronting the business and friend of debtor) by registering the FBN and opening bank account to cash customer checks.

Can I subpoena not only debtor but also these other parties? Is there a way to get copies of debtors and other parties' bank statements, phone records etc other than relying on them to produce full documentation under subpoena?

[DebtEnder]

The Trustee at the 341 only real interest is what assets the debtor has that can be sold and sent to creditors. So yes he sold like to know if there is company assets to be liquidated, but tbh that's not the best for you as I would think you would be on the last of the long list of people he probably owes money to get any money from the court.

The UST as I said before is the one who files for abuse of bankruptcy finding and can dismiss or convert cases based on info. I would think based on what you said he is the one you want to work with.

Regarding everything else tbh if you can get the UST involved he can probably do that for you. Other then that I can't say.

[thecrown]

That's good to know about UST ... thank you. I will definitely look into sending as much info to the UST. Presumably his contact info is on the Bankruptcy Notice form I initially received?

Note minor point of clarification: debtor loan was $70K (deeply discounted price for business) and she paid for 5 months on loan and 6 months rent, defaulting on final months rent (I held master lease on business premises). $65K is the approximate balance on loan + one months rent. She incorporated 2nd month but continued to pay rent/loan out of sole proprietor business account. I was unaware of incorporation till bankrupcty came up.

Yes debtor has listed several other secured and unsecured creditors and residence mortgage(s) is upside down. She was massively in debt when she took out the loan with me. Being a family friend I stupidly didn't credit check her and whilst understanding risk of promissory note assumed she would do the honorable thing and return the business if she ran into problems. Never anticipated she had it in her to stoop this low and attempt to run off with it.

[AngelinaCatHub]

Not being a lawyer, etc., etc., I also say get a lawyer. OK, that is said. An Adversary Procedure is in your best interest. It is a lawsuit against you becoming negated by an unsecured debt. First write a certified letter of demand for your name and all customer records to be returned to you. If equipment is gone, it is gone. Get the business back with customer base.

I see fraud here and I would show up at their 341 with a heavy hand and you may be courteous but make it heard, (loud but kind words affirming your belief). If you are pro se, then write an Information to Court letter to that case number in the form of pleadings. This just to put on the record. You wish to overturn her bk for fraud. If you get your business interest with customer list back, would this be a fair prize, or are you stuck otherwise. In any case, you may be stuck. I would fight it. ‘Hub

[thecrown]

Thanks Angelina. I already attended two 341 hearings and told the Trustee (and courtroom) in no uncertain terms that the debtor was lying and I believed she was committing fraud. I am going to do what DebtEnder suggested and provide my evidence to the US Trustee and see what he thinks. I am just not sure if I need to file anything with the court at the same time for the UST to consider my letter?

Meantime I got this quotation from a lawyer. Can anyone tell me if this quote is reasonable?

Prepare, file, and, if needed argue Motion for 2004 Exam and prepare proposed order $1,000.00. Full payment up front required.

Prepare for and Conduct 2004 exam if 2 hours preparation and 2 hour exam 4 hours x $300/hour for Senior Associate Attorney = $1,200.00 + court reporter fee that you would have to pay directly

Flat fee for preparation and prosecution of 523 action if it goes by default: $3,750.00

Flat fee for 523 action if it settles at least 45 days before the first date set for trial $7,500.00

Flat fee for 523 action if it settles after 45 days before the first date set for trial but prior to the start of trial: $10,000.00

Flat fee for 523 action if it settles after the first date set for trial or if it does not settle and needs to be prosecuted through trial : $12,500.00

Retainer of $5,000.00 required. Additional payment of $2,500.00 due if and when answer filed. Additional payment of $2,500.00 due 45 days before the first date set for trial if case has settled. Additional payment of $2,500.00 due 10 days before first date set for trial if case has not settled.

Or, in the alternative, a flat fee for Motion for 2004 exam and 523 action through trial regardless of whether or not it is decided by default or by trial; $10,000.00 all paid up front.

[AngelinaCatHub]

Thanks Angelina. I already attended two 341 hearings and told the Trustee (and courtroom) in no uncertain terms that the debtor was lying and I believed she was committing fraud. I am going to do what DebtEnder suggested and provide my evidence to the US Trustee and see what he thinks. I am just not sure if I need to file anything with the court at the same time for the UST to consider my letter?

Meantime I got this quotation from a lawyer. Can anyone tell me if this quote is reasonable?

If you can prove for sure, just one lie, it would break all credibility of the debtor. If you can get any check copy that is in or close to the filing and running of this business, and if a fraud could be proven, then her case would be dismissed. Then you can sue her. In small claims. If she files again later your Judgment could be removed so you would want to act upon it to get at least your name and records back as well as the customer base. As I said before, if she is hiding or sold equipment this would be hard to find and you may lose it. ‘Hub

[HHM]

The Trustee at the 341 only real interest is what assets the debtor has that can be sold and sent to creditors. So yes he sold like to know if there is company assets to be liquidated, but tbh that's not the best for you as I would think you would be on the last of the long list of people he probably owes money to get any money from the court.

The UST as I said before is the one who files for abuse of bankruptcy finding and can dismiss or convert cases based on info. I would think based on what you said he is the one you want to work with.

Regarding everything else tbh if you can get the UST involved he can probably do that for you. Other then that I can't say.

Actually, the UST could care less about disputes between creditor and debtor. Now, you may have some facts that bring the BK into question (falsified or misleading petition, still receiving unreported income, etc) which might bring in the UST to provide more scrutiny to the case, but the UST is not there to advocate on your behalf.

[DebtEnder]

Actually, the UST could care less about disputes between creditor and debtor. Now, you may have some facts that bring the BK into question (falsified or misleading petition, still receiving unreported income, etc) which might bring in the UST to provide more scrutiny to the case, but the UST is not there to advocate on your behalf.

That' what I was implying about the UST. Not that the UST would help him directly, but the UST would be interested to know of other income is coming in as that would affect if he should be a chapter 13, or if he falsified filing documents then as said before it could have the UST dismiss the whole thing. Helping the OP as he would then be able to pursue civil actions to recoup his loss.

[thecrown]

Do I have time?

So the last date to file for adversary proceeding is June 1, 2009. I am travelling tomorrow 5/26 to Europe on business and won't be back till 2nd week June. If I email the US Trustee all the evidence I have will the debtor still get discharged if I don't file for adversary proceeding before the deadline? The trustee at the 341 hearing wrote me and advised me to start a 2004 examination and the findings from that might lead him to sell the business back to me and if proven that debtor is financially benefiting from continued running of business, would be grounds for dismissal of bankruptcy. Many lawyers I have consulted have been discouraging and are quoting really high fees.

Question: am I out of time to file given that I fly out tomorrow 5/26? Could I have a lawyer file AP electronically on my behalf or do they have to mail forms to court. Can a motion be filed to extend time for AP or time to conduct 2004 Examination? Can I do any of this without a lawayer - at least the motion or AP filings to save time e.g. tomorrow morning be at the court early and file the forms.

Any assistance appreciated.

[DebtEnder]

You have 60days from the last 341 hearing to raise any objections. Trying to make a motion to allow you to file AFTER the 60 days you will have to show good reason why you waited so long

I have no idea how it can be filed, but alas your going to have to bear the risk to get it filed, but it could be very much worth your while.

[HHM]

Your originally asked your question on April 11, and only now you are getting around to it. As mentioned by DebtEnder, the 60 days is a hard deadline.

An attorney can file it a electronically, but unless you already have one, good luck trying to find one. I guess this just wasn't that important for you if you waited until the last minute.

[thecrown]

It was important to me but I had some health issues after a car accident where someone ran into the back of me. Despite this and work commitments I put in a lot of time talking to attorneys however many of them were discouraging in their opinions on the success an AP action based on there apparently not being many precedents. The passage of time is no reflection of my desire to seek justice. Please do not look for the negatives in an already stressful situation for me. I was hoping for helpful advice if anyone has any to offer. Thank you.