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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 37821
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I have a friend who was divorced a few years ago (in Michigan).

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I have a friend who was divorced a few years ago (in Michigan). The judgment awarded him the primary residence and his ex-wife a $50,000 lien. The wording is as follows: Defendant shall be awarded the 14 acres located on XXXX Rd, Michigan, Lapeer County and described below, free and clear of any claims of Plaintiff (wife), upon payment of $50,000.00 to Plaintiff. The husband was required to move to Texas due to work and could not maintain the property. It went into foreclosure. The wife since remarried, moved to Tennessee and filed bankruptcy Chapter 7 with no assets. She is now petitioning the courts in Michigan to force the $50,000 lien to be paid within 10 years. I was under the impression that if bankruptcy was filed with no assets that any action to acquire the funds from a lien like that would have to go to pay debtors otherwise would be considered federal fraud. Is this true? Can you provide the statutes or laws pertaining to this? My friend cannot afford legal assistance and because he lives in one state with the property and judgements filed in another, he cannot obtain any of the free services normally available.

There are two possibilities here. If the debtor did not schedule the $50,000 as an asset in the bankruptcy, then the failure to schedule the asset may be bankruptcy fraud, regardless of anything else. Were that true, and the trustee discovers the error, then the trustee could ask the court to reopen the case, and the court would likely to do so, so that the asset could be recovered. This assumes, however, that the debt is worth recovering. The trustee has the authority to decide not to try to recover the value of the asset, if he/she believes it will not be worth the effort.

The statutory authority to reopen the case is found in Bankr. Code 350(b).

Even if the trustee were to decide to request that the case be reopened, a bankruptcy court may decline to reopen a case to recover an asset that the trustee made a deliberate informed decision not to administer. In re Adair (9th Cir. BAP 2000) 253 BR 85, 91 (court refused to reopen Chapter 7 case in order to revoke trustee's technical abandonment of lawsuit that debtors had properly scheduled as having value in “unknown amount” (although case ultimately settled for about $430,000)).

The botXXXXX XXXXXne is that if the debtor didn't report the asset, then the trustee will try to determine if it's worth the money to go after the third-party debtor (ex-spouse) to recover the debt.

The last thing that would be considered would be a bankruptcy fraud investigation, because that doesn't make the trustee or the unsecured creditors of the bankruptcy debtor any money -- and it costs the federal government money to investigate and prosecute. Only if there were some sort of conspiracy to hide the asset, between the two ex-spouses, is it likely that a criminal investigation would occur.

Hope this helps and happy new year.
Customer: replied 3 years ago.
My friend's ex-wife has been notorious for lying to the courts to gain as much money as she can. Her bankruptcy was just filed and has not yet been discharged. It is more likely that she is asking the Michigan courts to re-open and reaffirm the divorce lien with a specific time frame to secure money for herself, rather than her attorney asking for it to be addressed as part of the assets. The Michigan hearing is scheduled for Jan 28 while the Bankruptcy Tennessee hearing is scheduled for Jan 8. The ex-wife had done things which caused the home to go into foreclosure to begin with. She has also "kidnapped" the children and removed them from the Michigan to Tennessee without court notice to my friend prior to the move. All that aside, if the bankruptcy hearing is held without the $50,000 lien disclosed to the trustee, would my friend be wise to bring it information to the courts in Michigan in order to alleviate the lien from his responsibility?
You can contact the bankruptcy court and get a copy of the bankruptcy petition. Then you will know for certain whether or not the $50,000 asset is listed on the schedules.

As for whether it's a good idea to bring up the issue -- if you want to play hardball, then once you know that the asset is not listed, then you could say nothing to the bankruptcy court, and then when it comes time for this debt to be litigated in state court, your friend could negotiate on the basis of something like, "If you don't drop this entire thing, then I'll report it to the bankruptcy trustee, and the trustee will end up with all of the money -- not you."

Ordinarily, that sort of negotiation could be considered criminal extortion -- but, as part of a litigation settlement, things are usually a little more gray. I wouldn't do any of this without hiring a lawyer to negotiate -- but, the botXXXXX XXXXXne is that I don't see any point in notifying the bankruptcy trustee now -- and until you know that the asset isn't scheduled in the bankruptcy filing, you can't actually make any decision about how to proceed.

Hope this helps. .
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