Monday, February 22, 2021

Nondischargeability of a Debt - Contractor Fraud

    In the case of Cox v. Morlang, Judge Kiser of the United States District Court at Roanoke, Virginia, affirmed a bankruptcy court nondischargeability order.  As a result, the plaintiff, a woman who had hired the debtor, an unlicensed contractor, to construct an addition to her house, and who relied on the debtor's representation that his county business license was sufficient to allow him to do the work, could collect from the debtor the $7,000 judgment she obtained for her costs in completing the addition after the contractor walked off the job.
    Judge Kiser ruled that the Bankruptcy Court did not err in concluding that the state court judgment was not dischargeable under Bankruptcy Code §523(a)(2)(A).  Judge Kiser found that the evidence clearly supported the Bankruptcy Court's findings that the debtor knowingly made a false representation with the intention of inducing the homeowner to enter into a construction contract.  The evidence also supported the Bankruptcy Court's finding that the homeowner relied upon the debtor's representations when she entered into the contract.  Judge Kiser stated that the only difficult issue for this appeal was whether or not there was a sufficient causal relationship between the fraudulent misrepresentation and the damages incurred by the homeowners.
    The District Court, in making its decision, cited relevant case law.  In Cohen v. de la Cruz, the United States Supreme Court held that nondischargeability should apply to "any debt" related to the fraud, even statutory treble damages and attorney's fees.  The unanimous Court held that Bankruptcy Court §523(a)(2)(A) prevents the discharge of all liability arising from fraud.  The Court went on to state that Bankruptcy Code §523(a)(2)(A) is best read to prohibit the discharge of any liability arising from a debtor's fraudulent acquisition of money, property, etc.  Judge Kiser concluded that Cohen supports a more expansive construction of the statute than have other cases.
    Judge Kiser ruled that in this case the debtor fraudulently coerced the homeowner to enter into a construction contract and to convey to him at least $6,000.  As a result of this fraudulent representation, the homeowner incurred $7,000 in costs to complete and repair the debtor's work.  This liability of the debtor arose as a result of his fraudulent misrepresentation.  Judge Kiser concluded that there was a significant causal relationship between the debtor's fraudulent misrepresentation and the damages suffered by the homeowner, and, therefore, the judgment of nondischargeability was affirmed.

Monday, February 15, 2021

Post Judgment Collection - A Focus on Debtor's Interrogatories

Once judgment is entered, what is next?  Although all creditors would like for the judgment amount to "fall from the sky", it does not.  Sometimes debtors will pay, either in full or in incremental payments.  Sometimes creditors can garnish wages or accounts, or issue a levy on property.  Sometimes creditors can bring a creditor's bill to sell real estate.  But what can be done when the above listed remedies are not, or at least are not yet, options, or when there is no information about the debtor from which to devise a post judgment collection plan?  Virginia Code §8.01-506 provides a good start - Debtor's Interrogatories.  For the price of a summons to answer interrogatories (usually $44.00 plus service charges) an attorney can summon the debtor to appear before the court granting the judgment (or other court should the matter be transferred by the judgment court) or a Commissioner in Chancery (a lawyer appointed by the court to serve in this capacity) to examine the debtor's personal estate, specifically, to answer questions about income, assets and the debtor's general ability to pay in order to attempt to satisfy the judgment.  The summons is enforceable by a capias (arrest warrant) which is issued through the court.
    The interrogatory procedure is summary in nature.  No pleadings are required.  No trial by jury is available.  Under recent amendment to Virginia Code §8.01-506, the creditor may, as part of the interrogatory system, require the production of account books or other writings that contain evidence of the judgment debtor's estate, provided that the creditor gives an affidavit stating that he believes the books exist and identifies them with reasonable certainty.
    Virginia Code §8.01-506 allows a debtor to request that the interrogatories be held at a court most convenient for the debtor.  Therefore, if the debtor moves far from the creditor's area, it may not be cost effective to pursue the interrogatories.
    It is important to note that a creditor cannot conduct debtor's interrogatories - only an attorney can.  This certainly can be frustrating for creditors who take their own uncontested judgments and file their own garnishments, but it is a reminder as to why creditors are better served by turning all accounts over to counsel for collection prior to seeking judgments so that counsel can assess the attorney's fee provided in the contract or note, and can keep the entire process moving.

Monday, February 8, 2021

Creditors, Let's Talk about Foreclosures!

     Foreclosures. This is not a topic that most creditors wish to discuss. After all, if you get to this point your loan is delinquent and you are not having success getting your borrower to pay. When to take action and what action to take – these are important matters to discuss. We can help! 
     At Lafayette, Ayers & Whitlock PLC we represent holders of deeds of trust and help our clients evaluate their order of priority and equity cushion, as well as explore bankruptcy implications and collection strategies. We do this for first, second and subsequent deeds of trust, as well as equity lines and judgment liens (the last of which can be enforced through a Creditor’s Bill). 
     We do foreclosures all across the Commonwealth of Virginia. 
     Even if we are not your specified trustee in your deed of trust, we can prepare and record a deed of appointment of substitute trustee and protect your interests. 
     I invite you to please call me so that we can discuss your questions. 

Monday, February 1, 2021

Creditors, Let’s Talk about Bankruptcy!

     Bankruptcy! This is not a topic that most creditors wish to discuss! However, with Judges still “reacting” to the economic downturn of the last few years, with bankruptcy filings on the rise, with the conversion of many Chapter 13 cases to Chapter 7, with the aggressive lawsuits filed by counsel for debtors for violations of consumer laws, with increasingly detrimental provisions in Chapter 13 plans, and, with the strict review of proofs of claim and the requirements for the same, we should talk! 
     In regard to proofs of claim, our local bankruptcy courts require that if you are alleging a security interest in the debtor’s principal residence, in addition to the proof of claim form, you must also file a completed form B 10 (Attachment A) setting out the principal due, interest due, late fees, returned check fees, attorney’s fees, escrow shortage, amount due to bring loan current, etc. In addition, each time the debtor becomes delinquent on their mortgage during the bankruptcy, you must file form B 10 (Supplement 2), setting out late charges and other expenses charged to the debt. In the event the debtor’s mortgage payment amount changes due to increase or decrease in interest rate, insurance premiums or real estate taxes, form B Supplement (1) will need to be filed. 
     Obviously, this is a more complex and detailed filing, and, certainly, will be closely scrutinized. While you can file your own proofs of claim, we can also do it for you. 
     Creditors must be very careful to fully redact ALL “identifying data” (this includes procedure codes and/or other identifying treatment references for healthcare providers) on court filings to help protect debtors’ vital information from identity theft. Failure to do so will result in a court award of sanctions and attorney’s fees. Several local bankruptcy attorneys are reviewing all proofs of claim in their cases to spot possible violations. I have already had clients who have filed their own proofs of claim and been sued for violations. This is a very expensive problem. 
     Accordingly, I am still offering a “flat rate” fee for filing your proofs of claim and ask that you consider taking advantage of the same. In the end, I think that this will be a less costly and better alternative for you. I will file your first proof of claim in a case for a charge of $250.00. Second and subsequent pleadings for the same case will be billed at one half hour, and one quarter hour respectively. 
     I invite you to please call me so that we can discuss your questions.