What Does “Bad Faith” Mean in Bankruptcy?

Bankruptcy QuestionsAs it sounds, this is not a term you care to associate yourself with if you can help it.  Bad faith refers to certain actions and circumstances that cover fraudulent bankruptcy filings.  In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was legislated to define and outline situations associated with bad faith bankruptcy filing.

One of the roles of the bankruptcy court and bankruptcy Trustee is to protect creditors from debtors who are maliciously trying to defraud the system.  Most debtors are really struggling under the weight of their debt without much hope of ever breaking even, but unfortunately, there are people who are just trying to stall or manipulate creditors.  There are 5 situations in which a debtor is considered to act in bad faith.

First, if there is evidence that a debtor is trying to unfairly thwart a creditor’s efforts to collect on a debt, this is considered a bad faith filing.  For example, a client files bankruptcy in order to stall a foreclosure with no intention of ever completing the bankruptcy.  Bad faith is relevant when a client files bankruptcy to save a home, then does not make any of the required plan payments and is dismissed.  This of course can be a very fine line and cannot always be proved; especially if a client has a very tight budget and unforeseen circumstances arise.  Most Chapter 13 bankruptcy clients are in this position and have every intention of completing their bankruptcy.  This is why bankruptcy is a very involved process and should be taken seriously by all potential debtors.

Another bad faith filing revolves around a debtor filing a bankruptcy while already in an active one.  How does this happen?  Most commonly, a debtor is dismissed from a bankruptcy and files before they have received a Final Decree that officially releases them from the first bankruptcy.  Or, a Chapter 13 client cares to convert to a Chapter 7 bankruptcy and files a Chapter 7 while still in the Chapter 13 without permission from the court.  Or a debtor tries to file bankruptcy within the time limitations, such as with 8 years of previously filing a Chapter 7 bankruptcy or 4 years for a Chapter 13 bankruptcy.

The third example would be prevalent among the debtors who care to file pro se or without an attorney.  There are certain documents and motions that must be filed with the court.  Two very important documents are the financial management certification and the motion for discharge.  Don’t know what these are?  That is why an attorney comes in handy!  A bankruptcy case may be dismissed under bad faith if required documents are not filed or presented to the bankruptcy court or bankruptcy Trustee.

Fourth, if a debtor is continually filing and being dismissed from a Chapter 13 due to non-payment, the bankruptcy Trustee may reject the case due to bad faith.  If you are dismissed from a Chapter 13 you may turn around after the final decree and file again as long as the court has not placed some limitation on your ability to file again like dismissing your case with prejudice. The big question to determine bad faith is “why do you keep being dismissed?  And what is different about your situation from your previous filings?”  Usually, this is just a due diligence question, but it is very important.

Lastly, if you fail to make adequate protection payments, your bankruptcy is automatically noted as being filed in bad faith.  Adequate protection is rather loosely defined as the initial payments in a Chapter 13 bankruptcy.  On the other hand, in a Chapter 7 bankruptcy, unprotected equity must be compensated to the Trustee in order for the debtor to keep the non-exempted asset.  If this adequate protection payment is not made to the Trustee in the mandated time frame, your case can be dismissed.

Be sure to avoid a situation in which your case may be dismissed for “bad faith.” Contact an experienced bankruptcy lawyer who can help you navigate the, often times, tricky path through bankruptcy.

What Is Discovery In A Lawsuit?

A lawsuit is crafted of several different stages.  In the civil proceedings there are certain litigation paths that must be taken depending on the route of the case.  Discovery is in the pre-trail phase of a lawsuit and acts as the parties’ opportunity to gather information.

What is discovery in a lawsuit?

Upon the commencement of a civil action by filing a civil summons, the defendant is allowed to file an answer to the complaint, either admitting or denying allegations.

In response to the answer, the plaintiff’s lawyers then put together written questions known as “interrogatories,” which usually mark the beginning of the discovery phase in litigation.  These are a series of questions compiled by the plaintiff’s for the defendant to answer.  However, the defendant may also serve a set of interrogatories on the plaintiff(s).

In addition to interrogatories, the parties may request depositions. A deposition is an examination of a party or witness in a lawsuit. A deposition allow for each side to gather further information and allows opposing counsel the opportunity to know what a witness or party to a case may say at trial by allowing them to question or depose them.

Another tool in the discovery process are the requests for admissions. These are used to determine which issues or facts in a case are really in contention. If a party is willing to admit to something then it is not something that needs to be argued during a potential trial. Requests for admissions are done in writing.

This is just a brief synopsis of the different parts of discovery in a lawsuit. The important thing to remember is discovery is meant to gather or discover information so there are fewer surprises if a case does find its way to court.

What are Requests for Admissions?

Requests for admissions occur during the discovery process within a lawsuit.  When you are sued you are given a “complaint” which tells the court what the person(s)/company did legally wrong. Example: Sunny Side Up Nursing Home did not provide proper care to John Doe as required by the NC state guidelines for standard care.  The court requires a legal answer (No, we, Sunny Side Up Nursing Home, provided proper care to John Doe as required by the NC state guidelines for standard care). Answers are always legally binding, and must be filed with the court during the allotted timeframe.

Google Search for Request for Admissions

The complaint starts the discovery process in which the court wants to find “facts” regarding the case.  The plaintiff’s attorney, the plaintiff is the person(s)/company who files the lawsuit, will send out interrogatories (questions) in which the defendant is required to answer (responses on whether or not the allegations are true).  Once you respond with your answers, you must file them with the court for them to be valid.  .

Requests for admissions are statements of facts sent to one of the parties of the lawsuit. It is a part of the legal discovery process.  The responding party must either admit or deny the alleged facts sent in the request for admissions. If the responding party does not deny the alleged facts, they are deemed to be admitted after a certain amount of time and are considered a legal fact in the court proceedings.

Request for admissions are often seen in a wide array of legal cases. Whether it is in bankruptcy litigation, workers’ compensation litigation or any other type of civil litigation, request for admissions are a tool used to obtain more information and determine what facts are truly in dispute in a case. If all of the parties to a case can agree certain facts and contentions are true – then it ensures more efficient litigation.

All law can be confusing at times, especially in lawsuits where you have two entities/person(s) involved in a lawsuit. It is imperative that you seek proper legal advice from your attorney.

Is Post Traumatic Stress Disorder (PTSD) Covered by Workers’ Compensation?

Yes! Post traumatic stress disorder (PTSD) is considered an occupational disease which is covered under the North Carolina Workers’ Compensation Act.The North Carolina Supreme Court has required three elements in order to prove that a injury is an “occupational disease” including PTSD.  They are as follows:

(1)  The disease must be characteristic of and peculiar to the claimant’s particular trade, occupation or employment;

Father Injured at Work with Daughter

(2)  the disease must not be an ordinary disease of life to which the public is equally exposed outside of the employment; and

(3)  there must be proof of causation (proof of a causal connection between the disease and the employment). However, the worker must prove that the mental illness or injury was due to stresses or conditions different from those borne by the general public.

A good example of a post traumatic stress disorder (PTSD) claim is as follows. A worker at a factory is working beside their co-worker.  An explosion takes place in the factory.  A sheet of metal is torn from the ceiling by the explosion and is hurled through the air striking the co-worker in the neck, decapitating the co-worker. The worker watches the head of the co-worker fall to the floor, killing the co-worker. The worker is now terrified from PTSD any time she is in a factory with other co-workers and hears any loud noise similar to an explosion.  This psychological trauma has been verified and diagnosed by competent physicians. We would all agree this meets the criteria for PTSD.

Another example of PTSD in the work setting is a bank tellar who is held at gunpoint during a bank robbery and now suffers from PTSD due to her fear of being robbed and held at gunpoint again.

To qualify for workers’ compensation benefits for a post traumatic stress disorder (PTSD) claim the “three elements” listed earlier must be met. In this event, a worker should be entitled to workers’ compensation benefits in North Carolina.

What Is A Security Interest? A Debt Secured by Collateral

Family on bicycle rideWhen you obtain a loan, in most cases the lender does not want to just give you the money, they want to make sure that you have some sort of incentive to make sure you make your payments.  What better incentive is there than taking away your property if you do not pay?  Therefore, creditors normally want something as collateral to ensure you repay the money they lent you; they are taking a secured interest in your property and the debt you owe them is a secured debt.

There are many different cases of secured interest.  You can go to a dealership and purchase a vehicle, the lender then has a secured interest, the car that you just purchased.  If you decide to no longer keep making your car payment the lender can simply come and pick up or repossess the vehicle.  Put it up for auction and recoup their money.  You buy a home, for whatever reasons, you no longer make the payments, then the mortgage company is going to come and foreclose (take your home back) on your property.  If you go to Best Buy and get a new TV, even though you don’t sit in their office and sign a promissory note like you do on your vehicle; that credit card you used to make the purchase acts the same.  Best Buy still has a secured interest on their goods (the TV that you purchased). This is what’s called a purchase money security interest.

Most debts are unsecured debts. Meaning they do not have a security interest. Most credit cards, medical bills and personal loans are without you putting collateral up for the debt. However, you know a debt is secured if you have property the creditor can come and get if you do not pay the debt.

Companies have rights just as consumers do in order to protect themselves, when you purchase something whether it be a car, a home, jewelry or furniture, companies need to know they will recover the money due to them and, therefore, use collateral as a secured interest. If you cannot make the payments, they can recover the collateral and try to sell it to recover the amount they loaned you.

What Does It Mean If Debt is “Charged Off” On My Credit Report?

One of the most frequent calls we get at our office is, “What does it mean when it says, “charge off”? Do I need to list this in my list of creditor’s?”  The answer is always “yes”!

Credit Card Lying on White BackgroundAs you are perfectly aware, once you owe a debt, the creditor will relentlessly try to collect the money that you owe them.  Although certain laws govern how far they can go trying to collect a debt, we know they will call, send letters, then call again; day after day!  After a certain amount of time (this will depend on the company policy and practices) after being unable to collect the debt the creditor is going to “charge off” your debt.  This is done primarily for their tax purposes; they are telling the IRS that they have just chalked it up that you have no intention of paying off that debt.  It’s a loss in their books for accounting purposes.

Does that mean that you no longer owe the debt?  No!  Just because they charged the debt off doesn’t wipe away the fact that you still owe that company money.  They can charge your account off and still attempt to collect the debt.  More likely, they can transfer or sell the debt to a collection agency for pennies on the dollar and the collection agency will then try to collect on the debt. There are companies that actually make a living off of buying “bad debt” and then trying to ruthlessly collect on that debt to make money.

Remember, a charge off is really just used for “book keeping” purposes; it has nothing to do with the fact you still owe money.  If you are completing your bankruptcy, we strongly suggest you list all of your debts including those that state they have been “charged off”!