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Who Is Making Money Off My Bankruptcy?

A hidden multi-billion dollar industry surrounds the bankruptcy process, and it’s not the debtors who benefit.  Bankruptcy claims are sold between creditors hoping to ultimately realize a profit when or if those claims are ever paid out of assets of the debtor’s bankruptcy estate.  The transfer also allows the original entity holding the claim to be paid something now, rather than wait on the results of the case.  This transaction is known as a “Transfer of Claim” and can occur several times during the course of the case.

Each time a claim is transferred, bankruptcy court clerks must expend additional time and costs to update records and meet notification requirements.  On May 1, 2013 a new fee went into effect.  The fee of $25.00 per transfer will be paid by the creditor filing evidence of the transfer and will be used to offset the burden on court clerks.  Time will tell if this new fee will have a significant cooling effect on the claims transfer industry.

If you are currently in a bankruptcy, don’t worry: the person going through the bankruptcy will not be affected by the new fee.

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Epic Fail: Nails in Jail for Bankruptcy Fraud

Bankruptcy fraud can carry serious consequences, including prison time.  Just ask former Former Mets and Phillies outfielder Lenny “Nails” Dykstra.  Dykstra filed for bankruptcy three years ago, claiming he had only $50,000 in assets but owed more than $31 million to creditors.

Until just recently, Dykstra billed himself as a financial advisor.  In 2008, he began publishing the Players Club, a wealth management and investment banking advice magazine exclusively for pro athletes.  Included in his bankruptcy filing: a claim from the publisher of that magazine for $350,000.

Prosecutors allege that after filing, Dykstra hid, sold, or destroyed property in excess of $200,000 by stripping his mansion of high-end appliances, lighting fixtures, granite, and plumbing.  He also hid or sold baseball gloves, balls, bats and other memorabilia.

Dykstra faced a maximum sentence of 20 years after pleading guilty in July to bankruptcy fraud, concealment of assets, and money laundering.  On December 3, he was sentenced to 6½ months in prison, 500 hours of community service, and payment of restitution in the amount of $200,000.

Fraud under the Bankruptcy Code includes behavior such as transferring, destroying, or concealing property belonging to the bankruptcy estate.  Don’t do it!  Be upfront with your lawyer and the court.  The bankruptcy discharge is only for those who are willing to make an honest and full disclosure of their debts and assets.  Trying to cheat may land you in jail.

 

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