Surprise: Sometimes lying will get you in trouble!

Updated Dec. 3, 2020:   I am in Minnesota;  the guy I was talking about is in Pennsylvania.  To my astonishment he called me today and asked to take down this post. He said he had just gotten out of prison.  Because I have no reason to wish him ill, I have updated this entry to delete the guy's last name.  He did say that if I had a client who was contemplating lying he could talk to the client and tell them how badly it turned out!

I recently saw a news report about a man in Pennsylvania who got caught in some serious lies in his bankruptcy.

 XX was sued in the Court of Common Pleas in Philadelphia, along with a number of other entities.   He lost, and in April 2014 a judgment for about $2,400,000 was entered against him.  The bankruptcy case is xxxxx, the criminal case is xxxxx, and I believe the state court case is xxxxxx.

According to the criminal indictment:

On or about April 12,2014, defendant XX purchased a 2009 BMW X3 for approximately $26,085. On or about April 14,2014, defendant XX purchased a 2014 Porsche 911 for approximately $118,176.  On or about April 15,2014, defendant XX purchased a 2014 Porsche Cayman for approximately $68,267. Defendant XX charged all three cars to his American Express Centurion Card. 

( I don't know about you, but I don't know if American Express card would let me charge $212,000 worth of cars in one week!)

Mr. XX then filed Chapter 11 bankruptcy (a reorganization) on April 21, 2014.

He "forgot" to list the BMW and the two Porsches in his bankruptcy paperwork.  He "forgot" to list a lot of other stuff, too, including $214,000 of cash, a 21 foot ski boat, $30,000 of tax refunds, etc.

He was asked at his trustee meeting if he owned any vehicles (other than a $4,000 Harley and a leased Honda) and he flatly denied owning other vehicles.

I don't know who "turned him in", but someone did or somehow the justice system found out about it.  A grand jury issued an indictment dated April  20xx; and the case wound its way through the system for a while, and in August 20xx there was a plea hearing.  Mr. XX pled guilty to two counts, involving hiding the BMW and the two Porsches and making false oaths in his bankruptcy papers. 

He has now been sentenced to a year in jail, three years of supervised release, a $50,000 fine, and some other conditions.

In the meanwhile, American Express sued him in his bankruptcy, and he wound up agreeing that he would not get a discharge of his debts.  

It is probably true that some people lie in their bankruptcy paperwork.  (For that matter, it is probably true that some people lie in reporting political contributions, and about how many fish they caught last week, and lots of other things).  But this case shows that if you get caught lying in bankruptcy or hiding assets that there may be some serious repercussions.  Mr. XX got his bills back, even though he filed bankruptcy, and he gets to spend time in prison, and he gets to spend three years on supervised release, and he gets to pay a $50,000 fine.

There is a saying:  "Bulls make money, bears make money, pigs get slaughtered".  

Don't be a pig!!

As always, if you have questions about bankruptcy, feel free to contact me.

401(k) Contributions are Okay in a Chapter 13

Minnesota is in the Eight Circuit, which includes the Dakotas, Nebraska, Iowa, Missouri and Arkansas.  Nevertheless, cases from other circuits may be helpful in understanding the law.

A recent case out of the Sixth Circuit (Michigan, Ohio, Kentucky and Tennessee) dealt with a person who filed chapter 13 bankruptcy but wanted to deduct her voluntary 401(k) contributions from her bankruptcy budget.  She had been making the contributions for more than six months before filing bankruptcy.

The court formulated the issue as follows:

Davis proposed a bankruptcy plan that would pay her unsecured creditors a total of $19,380—equal to sixty monthly payments of $323. To obtain court approval, her plan needed to provide for payment of all her “projected disposable income” to her unsecured creditors.  Davis believed that $323 represented her monthly disposable income. Although she reported gross monthly income of $5,627, she claimed $5,304 in allowable monthly expenses. One of those claimed expenses was a monthly retirement contribution. Long before her bankruptcy, Davis had authorized her employer to withhold $220.66 from her monthly wages as contributions to a 401(k) retirement plan. Davis sought to continue those contributions during her bankruptcy. The Trustee objected to Davis’s plan. The Trustee contended that wages withheld as voluntary 401(k) contributions are considered disposable income under the Code; as a result, Davis’s proposed plan would not pay all her projected disposable income to her unsecured creditors. The bankruptcy court sustained the Trustee’s objection.

In other words, the bankruptcy court said that Davis should pay $543.66 per month to her creditors instead of $323.00.

The Sixth Circuit Court of Appeals, in a 2-1 decision, noted that there are "four competing views of whether voluntary retirement contributions constitute disposable income in a Chapter 13 bankruptcy." The court went on to rule that Davis could continue to make her 401(k) contributions, saying" 

"Here, Davis’s employer withheld $220.66 in 401(k) contributions each month from Davis’s wages for at least six months prior to her bankruptcy. We hold only that a debtor in like circumstances may deduct her monthly 401(k) contributions from her disposable income under § 1325(b)(2). See 11 U.S.C. § 541(b)(7)(A)."

It is important to note that this pertains to Chapter 13 cases, not Chapter 7 cases.  But this decision may give comfort to those who need to file a Chapter 13 case that they will not have to stop contributing to their retirement plans while in the Chapter 13.

The case in question is In Re Davis, 960 F.3d 346 (6th Cir., 2020)

As always, if you have bankruptcy questions, feel free to contact me.