What happens if I conceal an asset in a bankruptcy?

30 August 2012

Answer: really bad ramifications, and now there is one more added to the mix for Massachusetts.

A federal appeals court has just issued a ruling that the law allows an additional remedy against bankruptcy debtors that conceal assets. This case is important because it establishes the law for Massachusetts and adds another really bad possible ramification for a debtor that is dishonest. The United States Court of Appeals for the First Circuit, with former Supreme Court Justice Souter sitting under designation authoring the opinion, just affirmed a ruling by a bankruptcy judge in Boston, Massachusetts that took the step of ordering a “surcharge” against a Debtor the judge believed concealed funds he received from a real estate transaction. The case is styled as Malley v. Agin (In re Malley), 2012 WL 3326629 (1st Cir., Aug 15, 2012) and a brief summary of the facts from the opinion is the following.

Mr. Malley and his ex-wife sold their marital home in accordance with their divorce agreement. Mr. Malley personally received $25K as his share from the sale. He then filed for bankruptcy and did not reveal his receipt of the $25K on his bankruptcy paperwork. When asked about the transaction by the trustee assigned to his case, he claimed under oath that he never received any funds from the transaction.  The trustee investigated and learned about the $25K that went to Mr. Malley.

The trustee sought sanctions against Mr. Malley and the bankruptcy court denied Mr. Malley a discharge of his debts because of Mr. Malley’s false representations. The court also ordered Mr. Malley to turnover the $25K, but he did not and did not explain where the funds went. The bankruptcy court also ordered, and this is what is important from the case, that the $25K that was unaccounted for, plus the cost to unravel the issue would be held against one of Mr. Malley’s exempt assets, a truck that he used in his business. You see, the general rule is in bankruptcy that debtors are entitled to keep exempt assets to ensure their fresh start and only have to turn over assets that are not exempt under the law. But this decision delved into that area to ensure the $25K plus was accounted for.

Although the portion of the case concerning the exempt property may be appealed to the US Supreme Court, as matters stand now, the case did not turn out well for Mr. Malley.  He will not get out of his debts, he will have to give up his only significant asset, and (if authorities believe he intentionally stated falsehoods under oath) the case may get the attention of the US Dept. of Justice for criminal prosecution.  The moral of the story is to disclose all of your assets in your bankruptcy.

If you are contemplating bankruptcy and plan to heed the moral of this story, then we encourage and invite you to contact this office.

How do I obtain documents from a third party to use in a law suit?

1 August 2012

People that have claims can find themselves in the situation of needing to obtain documents and records from a third party to use against the party they are suing or being sued by.  The best way to go about this usually is to utilize Rule 45 of the Massachusetts Rules of Civil Procedure.  This rule allows a party to a law suit to depose, and in conjunction with the deposition, to obtain documents from third parties. 

Initially, you must partly draft a Subpoena Duces Tecum and have it issued by the court clerk, justice of the peace, or notary.  Then you must choose a date and time for a deposition that is at least 30 days from the date the third party will be served.   (You must be ready to supply a stenographer to record the deposition, if indeed the deposition actually occurs.)  You must complete the rest of the rest of the Subpoena Duces Tecum.  You must pay attention to the limits on the miles the deponent is supposed to travel and provide sufficient funds in advance for the attendance and the travel costs.  Mass. R. Civ. P. 45(c) and (d)(1).  You must serve the third party with the Subpoena.  You will need to know what person or entity to make service upon and how to go about it.  You may be able to send the Subpoena by certified mail, return receipt requested, and you may want to use the sheriff of the county where the service will be made to make the service. 

The “Duces Tecum” language means “you shall bring with you.”  This added language makes a subpoena, which only requires the presence of the natural person (or natural person designated by a corporation), require the presence of the person plus the documents named.  (If you just want to depose someone, this language is not used.)

If you are really looking for the documents (and are not interested in bothering some poor third party to appear and answer questions under oath), which is typically the case, then you can inform the third party that you are inclined to cancel the deposition in the event that you are satisfied with the documents.  Upon receipt of the documents, be professional and inform the third party right away the deposition is cancelled.

In the event the documents concern information people other than the third party have an interest in.  The third party is likely to inform those people that they have been served with a Subpoena Duces Tecum and will be providing the information.  This allows those people to contest your Subpoena in court and to try and prevent the information from being released.

You also may be asked to pay the third party the reasonable costs to produce the documents.  Mass. R. Civ. P. 45(b).  This is especially so if the third party is a large corporation and it has procedures in place due to the abundance of Subpoenas it receives due to its size or particular business.  (Think Facebook, Microsoft, and YAHOO!)

This process can be daunting for one that has not been through it.  The response, or lack thereof, of third parties can vary greatly and makes it necessary for you to be nimble and react quickly to enforce your rights.  In the event you believe you have a claim but need documents or information from a third party, feel free to contact the office.