Pre-Bankruptcy Planning Can Be a Slippery Slope
There is an art to managing your assets before filing for bankruptcy. Some pre-bankruptcy planning is permissible, but if you go too far, your debt won’t be discharged. Last month, the Court ruled on such a case.
Summary:
In the case of Rasmussen v. LaMantia, LaMantia was a contractor who was hired to renovate Rasmussen’s residence. LaMantia failed to complete the project but still collected payment.
Rasmussen was forced to hire a new contractor and discovered that the work performed by LaMantia and his crew needed to be demolished so the renovation could be finished properly.
Rasumssen initiated a lawsuit against LaMantia in state court to recover his losses on the renovation project. Upon learning of the lawsuit, LaMantia cleaned out over $30,000 from his bank accounts and prepaid his mortgage by 9 or 10 payments, paid his daughter’s private school tuition, made numerous car loan payments, filled his oil tanks, and filled his freezer with food.
LaMantia then filed Chapter 13.
During the course of the 13, it became clear that he had no recorded mortgage on his $82,000 home, but he had an unsecured debt to his uncle for $82,000. LaMantia testified at one hearing that he “thought” his uncle had a mortgage on his home.
The Chapter 13 was unsuccessful, so LaMantia asked that it be dismissed.
After the dismissal, LaMantia recorded a mortgage to his uncle on his home, with the mortgage dated 3 years earlier.
LaMantia then filed Chapter 7, but didn’t list the recently recorded mortgage as a transfer within the past 2 years.
Rasmussen filed a dischargeability lawsuit, asserting both 727 and 523 causes of action.
Court findings:
LaMantia’s conduct prior to filing Chapter 13 was circumstantial evidence of intent to hinder, delay or defraud a creditor by the transfer, removal and concealment of those assets, and warranted denial to LaMantia’s discharge.
The Court stated that “Emptying bank accounts and using the resulting cash to prepay living expenses may be permissible, but only up to a point. Here the Defendant went too far, forfeiting the ability to present himself as an honest but unfortunate debtor and instead demonstrating behavior consistent with a pattern of playing fast and loose with his assets and the reality of his financial affairs.”
Takeaways:
Bankruptcy laws are complicated and nuanced. The fastest and easiest route toward resolution is to enlist the help of an experienced legal team. Have questions about getting started? Call today!
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Case is Rasmussen v. LaMantia, (Bankr. D. Me. 10/9/20), Case No. 18-10632, Adv. Proc. No. 19-1002.
