Expert: Mark J. Markus- California Bankruptcy Attorney - 11/29/2007

Question
QUESTION: We hired a builder in the summer of 2006.  In
December of 2006, he began bankruptcy proceedings
without our knowledge.  Long story short, he ended
up stealing $40,000 of our money that was
supposed to be used for the building of our home. By
the time we figured out what he was doing, his
bankruptcy was discharged in April of 07, however, he
did not include us as a creditor so that was
another reason that we did not find out right away
that he had filed. Per our contract, we have to go
through mediation and arbitration to get not
only the money he took, but further damages.  So
here are my questions:

1.  Even though we provided him no services (like
the gas company would) and we did not loan him
any money (he just took it) is he still allowed
somehow to add us on as a creditor.  If so, how
long after his bankruptcy was discharged can he do
that.

2.  If we go through this process and win (which
we will) is he somehow protected from paying us
because he filed bankruptcy?

Thanks


ANSWER: You don't give enough information for me to answer, but I will make some assumptions.  Assuming he filed a Chapter 7 case, there were no assets distributed, and this was filed somewhere in the 9th Circuit (california, oregon, nevada, etc.) then the debt he owed to you was discharged regardless of whether he listed you as a creditor.

As such, you cannot take ANY action to collect on that debt, including the court proceedings you mentioned, without being held in contempt of court.

If you have a basis for having the debt declared to be nondischargeable, such as fraud, you would have to petition the bankruptcy court to reopen the case and allow you to late-file a complaint seeking to have the debt declared non-dischargeable (and you'd have to go through a trial on that issue).   It is highly unusual that courts allow the cases to be reopened for that, unless you can show for sure that you were not scheduled as a creditor AND that you did not receive any kind of knowledge of the bankruptcy case until just now.

---------- FOLLOW-UP ----------

QUESTION: My bad for not giving enough info. I am in Georgia and the builder filed Individual Chapter 7 with business debt.  He took the first draw and kept it either a day before or a day after he filed in December of 06.  In April when we found out that he had filed, I contacted the Trustee's office and turned him over for fraud.  They looked into the matter and the builder was supposed to turn over more detailed bank records. The trustee told us that he is not going to pursue fraud, but he still has a year to look into the matter. We did not know that he filed until 2 days before his case was discharged in April.

So basically you are saying that the money he took from us we cannot attempt to get that back because we will be held in contempt of court?  I guess I am confused because I see the debt he owes us as a separate matter from his bankruptcy since we were never listed (I have seen his list of creditors) as a creditor and we did not know about it.  So he is able to steal from us and we have no recourse?  What about suing him for faulty work (we had to pull up the foundation that he put down because it was so bad)

Is there anything we can do??

thanks again

Answer
I am in California, so I don't know exactly what the case law down in Georgia is, but if it was a no-asset Chapter 7 case, there is usually no consequence for failing to list a creditor.   However, as I said before, if you have a basis to prove fraud, you can seek to re-open the bankruptcy case to litigate that.  You need to consult with a bankruptcy attorney in Georgia regarding the efficacy of doing that.