The United States Supreme Court currently has before it a bankruptcy case, Law v. Siegel. The case starts out like any other bankruptcy case: debtor files a Chapter 7 bankruptcy. However, the story strayed from the beaten path when the debtor tried to shield his money from creditors by creating a second fictitious mortgage on his home. The trustee, assigned to the debtor’s bankruptcy case, found out that the second mortgage was fictitious. The bankruptcy court, upon hearing of the fake lien, granted the individual a discharge of his debts, but the house was sold, and the money that he could have protected or exempted was paid to the trustee.
The reason this case is interesting is because the Bankruptcy Code does not expressly permit a Judge to take away a debtor’s exemptions. The Supreme Court has two choices in this case either allow a homestead exemption to be taken from a debtor for misconduct during a bankruptcy or not. Keep in mind that the Bankruptcy Court could have chosen another way to punish the debtor like the denial of his discharge or a Federal criminal charge for fraud. But think about this Virginians, what if this case happened in Virginia to a debtor who owned a house as tenants by the entirety? Well, the law in Virginia protects or exempts the entire equity in a home that is owned as tenants by the entirety from the individual debts of one of the owners, which could mean a bigger loss of money than the $75,000 in this case.
The moral of this bankruptcy story: if you don’t know what you’re doing in a bankruptcy, then get help because there can be dire consequences! Contact Hampton Roads Legal Services at 757-276-6555 for a free consultation on how bankruptcy can help you and allow you to keep your assets.