Presentation on theme: "Bankruptcy and Claims Investigation By Sandy Williams, Jennifer Seidler, and Tonda Lee SmithAmundsen, LLC."— Presentation transcript:
Bankruptcy and Claims Investigation By Sandy Williams, Jennifer Seidler, and Tonda Lee SmithAmundsen, LLC
What is Bankruptcy? ► A legal procedure provided by Federal Law (Title 11 US Code) to assist debtors who are unable to pay their debts ► Provides a “fresh financial start” ► Approx. 90 Federal Bankruptcy Courts ► Common Types of Bankruptcy: Chapter 7 – liquidation of debts Chapter 13 – reorganization of debts Difference: sell off all non-exempt assets to pay debts (Chapter 7), instead of paying debts over a number of years (Chapter 13)
Why File Bankruptcy? ► Three main reasons – living on the financial edge: Credit card debt (misconception that bankruptcy wipes out credit card debt – it does not) Medical bills (is it a one-time expense or recurring?) Housing costs (mortgage, real estate taxes, etc) ► Alternatives Credit counseling Allow debts to continue because debtor is judgment proof Consolidation loan
Changes in the Law ► Bankruptcy Abuse Prevention and Consumer Protection Act – 2005 More difficult to file Chapter 7 Debtor must obtain credit counseling first Un-filed tax returns must be filed Greater liability for bankruptcy lawyers Less dischargeable debts More presumptions of fraud
Who is Involved? ► Debtor ► Creditors (secured and unsecured) ► Bankruptcy Attorney ► Trustee ► Bankruptcy Judge
How Does It Work? ► Debtor obtains credit counseling – 180 days ► Debtor files petition in local bankruptcy court Pays a fee Lists assets and liabilities Determines exempt properties (excluded from bankruptcy) ► Clothes, household goods, tools of trade ► Homestead exemptions ► Automatic stay on collection activities ► Chapter 13 requires debt repayment plan
How Does It Work? Cont. ► Attend creditor’s meeting Questions about finances and assets Plans made for collection and sale Under Oath ► Discharge Not all debts are dischargeable Reaffirmation agreement
Limits on Bankruptcy ► Cannot be discharged from Chapter 7 if debtor filed a case less than 8 years ago. ► Cannot be discharged from Chapter 13 if debtor filed for Chapter 7 less than four years ago and was discharged.
Relevance to Claims Investigation ► General cash flow information If recently filed Lists assets ► Need for cash/motive Spending habits normally do not change, and the debtor may repeat the behavior even after discharge – this time with no recourse in bankruptcy! ► Material misrepresentation/concealment Income Personal property ► Debtors try to “hide” assets in bankruptcy; but will try to increase assets in claims investigation ► Can use assets list from bankruptcy to compare against PPIF.
Statements/EUO’s: What to Ask ► Focus on what the insured knows and believes Did the insured know about the new laws? Did the insured know about the time limitations? What did the insured know about exemptions? ► Why was the petition filed? ► Did insured seek Attorney’s counsel recently? ► Change in income since petition filed? ► Were all debts discharged? If not, what remained? ► Is information on petition true and correct? ► If assets liquidated, how did insured afford to purchase new, or to purchase items on PPIF?
Take Notice of These Facts. ► Debtors routinely underestimate their assets in bankruptcy ► Debtors do not know much about the law and rely heavily upon attorneys ► Be aware of disappointed expectations on the part of the debtor seeking bankruptcy ► Changes in circumstances ► Bankruptcy often leaves debtor unable to obtain credit – or credit has very high interest rates ► Bankruptcy can leave debtor with little depending upon aggressiveness of creditors
Where to Get Information. ► Recorded statement or examination under oath ► Document requests to the insured ► PACER (Bankruptcy court website/fee) ► Credit report (Bankruptcies may be reported for up to 12 years)