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Expert: - 12/8/2009


Question
Hello Leon and Thank you,

I signed a contract in 2007 with a home builder to build me a home, which due to the banking industry at the time (in conjunction with the housing market failure and bank bailout) could not be financed.  There was a clause in the contract stating that if no financing could be found the contract is void.

I pre-paid $100,000 in cash to the contractor prior to the economy problems. (MY BAD, NEVER EVER EVER DO THIS, EVEN WITH A CONTRACT)

He refused to refund the money and I started the process of litigation. After beating around the bush for a few months he is now filing for bankruptcy and I have been told by my lawyer that I will only be able to collect "pennies on the dollar" and that there is a strong probability that my current case may be dissolved.

My question is simple, was the contractors actions not considered fraud and is that not protected by the bankruptcy courts? My lawyer seems to think that his actions are legal, and I have a very limited course of action, but I can not understand how? Pretty black and white to me, but then again it's my money. Do I need a new lawyer or are they right?  

Answer
Dear Jim,

I am so sorry this happened to you.

To fight this, you will need to litigate in the bankruptcy court to prove fraud, (and there may be other issues you can rais that an experienced BK lawer will know about. Fraud is usually a very difficult thing to prove. Essentially, you may have to convince the court that when he collected the money he had already formed the intent to rip you off.

Did the advance payment violate the state contractors law in your state? I believe that many states limit the up front deposit that a contractor can legally take. in California, I believe it is no more than 3 % of the contract that can be collected up front.

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Los Angeles Bankruptcy Lawyer Leon D. Bayer

Expertise

Leon Bayer has successfully represented clients in bankruptcy for over 30 years. He is frequently called upon by the media, the California Bar and other associations to provide insight and help educate attorneys on bankruptcy issues. If you or other readers want to keep up with my blog postings about life in and out of bankruptcy, you can follow my blog at http://www.bankruptcyblogger.org/ and my personal web site at http://www.debt-relief-bankruptcy.com and A Human Guide to Bankruptcy at http://www.thebankruptcyguide.net/ Leon also writes about bankruptcy law for Nolo, see http://www.nolo.com/law-authors/leon-bayer.html and his "Ask Leon" bankruptcy law blog column at http://blog.nolo.com/bankruptcy/

Experience

Leon is a Certified Specialist in Bankruptcy Law by the State Bar of California, and has been a practicing bankruptcy lawyer in Los Angeles, California for 33 years.

Organizations
National Association of Consumer Bankruptcy Lawyers, California Bar Association, Los Angeles County Bar Association.

Publications
Author, ?The Essentials Of Chapter 13,? Daily Journal Report, December 18, 1987.
Contributing Editor, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993.
CEB Consultant, CEB-Personal and Small Business Bankruptcy Practice in California, 2003.


Education/Credentials
B.A., J.D.

Awards and Honors
President, 1995-1996-Los Angeles Bankruptcy Forum; Member - Los Angeles County Bar Association Committee on Commercial Law & Bankruptcy, 1988. Law Advisory
Commission-Personal & Small Business Bankruptcy Law of the State Bar of California, 1996-2000

MR. BAYER SAYS: The big banks and credit card companys have been working overtime for many years to undermine the Consitutional right of the American people to be able to claim bankruptcy protection. In 2005 the banking lobby successfully convinced Congress and the President to make the laws and proceedures more complicated, hopeing that it will stymie legitimate people from filing bankruptcy. They succeeded in gaining these complex new legal proceedures by greasing the legislative system with hundreds of millions of dollars in "campaign contributions." The good news for the American people is that while the new laws have made the proceedures needlessly complex to the point where inexperienced people can't help but trip over the maze of new rules and regulations, the process is still doable, especially with a lawyer who is well trained and experienced in this specialty.

Past/Present Clients
I have probably handled something on the order of about 15,000 bankruptcy cases thropughout my career.

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