Expert: Michael Fay - 6/26/2009

Question
Dear Sir:  I previously detailed my entire situation with
Ms. Janklow who was extremely gracious in her efforts to help me.  She indicated my last question required expertise in another field.  I will attempt to be as brief as possible in outlining my question so as to avoid the lenghty posts as previous.  It boils down to this scenario:
My husband's brother owns an LLC.  He is the sole employer of his two grown somewhat irresponsible sons who have 7 small children between the two of them.  They are my husband's nephews.  My husband retired after serving 30 years in the army.  We have been married 36 years and have two daughters who were fortunate enough to finish college and are now professionals living on their own.  My husband's brother has, from time to time, called upon him for financial help, and my husband has always been willing to help him.  The two brothers are the only two members of their original family, and my husband, recognizing his brothers less fortunate circumstances, has always been willing to help.  As time wore on, this brother began to ask for help that I felt had become quite problematic.  Most of his need stemmed from his irresponsibility, both of his son's irresponsbility, and his failure to hold each of them accountable as the adults they had become.  In 2006, this brother called my husband in dire need indicating to him that he had just been granted a big contract and needed to purchase certain equipment inorder to do the work required in the contract.  Business and been extremely slow, and this job was a great opportunity for him.  He expressed a need for my husband to co-sign a loan for him because he was not able to obtain it on his own.  He promised to pay the loan back upon completion of the job with some of the revenue from the "lucrative contract."
My husband agreed, and while he was at work (we both live in another state), the brother via Bank of America faxed him the "required" documents.  Exercising complete blind trust, my husband signed documents and faxed them back to the appropriate party.  He has subquently found out that the brother had been issued a credit card with a $50,000 line of credit, with my husband's name on it only, not the brothers or his businesses.  It also states that he is the "guarantor" or primary account holder.  My husband closed the account, but not before the damage was done.  We received a notice from their attorney just recently, informing us that he was filing for bankruptcy and my husband's name was listed as a creditor.  My husband has never used the card or had access to it.  We were able to obtain statements of charges, but yet unable to get from the Bank of America copies of the original terms of the loan agreement.  My husband did not know he was the primary account holder or that a credit card had been issued in his name.  We completed a "Proof of Claim" and sent it to the court relative to this loan.  We asked in a letter provided with the proof of claim, that the court include this loan and mandate the payment requirement until the loan is paid in full.  The brother's previous promises to make the payments have not prevented the loan from becoming 5 times over 90 days, and 4 times over 60 days, etc.  This report surfaced on my spouses credit report within the last 60 days and we have received notification from one of our account holders that our $2500 line of credit has been reduced to $500 pending concerns about our "credit."  Til that time, the score was well over 830, and that can be attributable to the extreme monitoring I did because of the requirement of his military rank and career.  Days ago, we received a copy of "An Objection to our Proof of Claim," and their petition of the court for any relief available.
We were told that the Bank of America has made no stipulations, whatsoever, because they had negotiated with the Bank of America for a lower monthly payment and interest rate.  The account reached $53,000 and of that, approximately $24,000 can be attributed to the Bank of America's predatory lending fees of an escalated interest rate of 29.99%.  This should have been illegal, but such practices I understand are legal in all but one state.  President Obama is making changes to put an end to this outrageous greed.  This bank is also the recipient of tax payer bail out monies.  A hearing has been scheduled regarding the "Objection of Proof of Claim," and my husband plans to attend.  He plans to simply tell the truth.  What does this hearing mean, and what if anything, should we do, especially since the Bank of America has opted to take no action.  The Bank of America will not even provide us with copies of the Original Terms of Agreement.  Please Help. I choose not to keep this private because Bank of America has victimized many innocent and otherwise responsible americans.  The story needs to be told about a bank that insists on calling itself Bank of AMERICA.

Answer
Caution:  You are asking questions about bankruptcy and while I have some experience on the creditor’s side in business bankruptcy cases, this is NOT my area of expertise and I suggest that you obtain legal representation and assistance.

I’m not sure if I have the facts straight.  If it is your brother-in-law’s LLC that is filing bankruptcy, then it would appear that listing your husband as a creditor is what is contributing to the problems with Bank of America and what is reinforcing their belief that your husband is not only the person with the most ability to pay, but also a party with responsibility to pay.  If his arrangement with the brother includes a guaranty, especially one in writing, then your approach to the situation will go down one path, and a harder one at that.

If it is an involuntary bankruptcy petition, whereby a creditor or creditors (in this case BofA) forces a party (your husband) into bankruptcy in order to force settlement – then we have a different situation.  

To keep it simple, there are two main criteria that would apply in that case:
 a)  If there are 12 or more creditors, then at least three need to agree and their total must exceed $10,775.  This is obviously not the case here, so we go to the second
 b)  If there are fewer than 12 creditors, the total must equal or exceed the same total.
If it is his bankruptcy, is it possible that your husband has 12 creditors?  Count the house, car, utilities and all the cards.  If there are 12 then Bank of America is seeking preferential treatment and their claim should be dismissed outright.  I suspect that BoA has a copy of his credit report and were confident that he did not meet the “dirty dozen” rule.  

Next we define “Claim” and “Objection to Proof of Claim”  
* The claim in a bankruptcy is an (assumed) right to payment or a right (again assumed) to an equitable remedy for breach of payment.    
* The proof of claim is an attempt to justify what the creditor is asking for.  This would either be your husband asking for something from the brother’s LLC or bank of America asking for something – either from your husband or his brother’s LLC.
* Your objection to proof of claim is just that – an objection.  It makes this a contested matter.  

This is important and where things get tricky, so bear with me.  The fact one party objects to a claim is insufficient by itself.  You MUST provide some evidence that dispute their claim.  If the court believes that you have provided enough evidence to call their claim into question – then the burden shifts from you having to prove that they don’t have a valid claim to them having to prove that they do.  

Now we come to the second part of your question:  “What should we do?”

Here C. Janklow was correct and I echo her advice:  you should get legal representation due to the size and severity of the action.   This is a very a tough one, but I have a few thoughts that might be helpful:

Each of these may or may not apply depending upon the circumstances of the bankruptcy.

1)  If the card was issued in your husband’s name, whose name was on the application and whose social security number was used?  If the application was signed by your brother-in-law this constitutes forgery and if he used your husband’s SSN on the application it also constitutes identity theft.

2)  Based on the above, it can be argued that Bank of America was a knowing and willing participant in the action since they provided this card to a person that they knew not to be the signatory.  

Here is a very important point:  Where did the fax (from the brother) originate from and to where did your husband return it?  You said that it came from a Bank of America office.  If this is true, then they are accomplices in the theft and have received their money through unjust enrichment.  As direct recipients and/or transmitters of the documents, it will be impossible for them to claim ignorance of the circumstances.  (It is also possible that this is why they have been reluctant to provide the documents).  It should also invalidate their claims against your husband and redirect them to the brother’s LLC.  The fly in this ointment is any documentation between your husband and his brother.

3) If the purchases were made by your brother in law on a credit card that was not in his name, whose signature is the application as authorized?  Again, this would be a case where BoA did not perform due diligence to verify that the purchases were authorized.  Each one of the credit card receipts should be a document that you request.  The fact that Bank of America has not provided ANY of them should be item one on your list of evidence to support “Objection to Proof of Claim.”  (In my opinion, this would be sufficient to shift the burden of proof, but I am not the judge hearing the bankruptcy proceeding.  ANYTHING can happen.)   If the CC receipts are for a card in his name but were signed in states where your husband can document he was elsewhere at the time and bear a signature which is not his; this should again way the burden of proof from you having to say that they don’t to BoA having to prove that they do.

4)  Your description of the total lack of cooperation from Bank of America is something that you should also be prepared to document in the legal proceedings.  The more they look like the bad guy, the more likely it is that the court will find that they did not act in good faith.

5)  When you talk to your attorney, ask if it makes sense for your husband to indicate that he does NOT have a valid claim.  That your brother is attempting to show him as a creditor when in fact he is not.  As I indicated previously, the fact the he is listed might be one source of the problem.

6)  This one is a double edged sword, so I list it last because it might work against you.  One final set of documents that I would request in your defense.  Request your brother in law’s business financials.  Subpoena them if you need to.  They should indicate the source and use of funds.  Based on the timeline that you outlined many of these transactions should appear on both the 2007 and 2008 corporate tax returns.  Besides validating that the purchases were for assets that his business has, these would also indicate that your husband is NOT a member of the LLC.  
However, remember the caution here – if he is not well organized, or if he has prepared “cooked books,” or if he has forged anything (or anything else as the case may be) – then you will be building more evidence against yourselves.

PLEASE NOTE:  If this is an involuntary bankruptcy petition filed by Bank of America and if the court finds such a bankruptcy petition was filed in bad faith, then not only is it dismissed but your husband is entitled to his legal fees, monetary damages, and a correction to all of his credit reports.  You might also ask that the judge indicate “dismissal with prejudice” which prevents the Bank of America from filing this action again and could even be used to bar them from obtaining a judgment, or selling this debt to a collection agency and having that agency attempt to do the same thing all over again – something that happens far too often.

Note that if Bank of America is claiming that they negotiated with your brother in law’s corporation for different terms, then this would sets a precedence in that they acknowledge that it is not your husband’s debt (or at least not primarily his).  
It sounds as though they are looking at him as a guarantor and I’m not sure how much help I or anyone will be in mitigating that.  Your best option might be negotiation of a special release.  You could agree to a partial payment of the debt in good faith, whereby they release your husband COMPLETELY from any and all claims, both current and future (meaning that they can’t sell this debt to a collection agency) yet they can retain FULL claim against the brother’s LLC for the complete debt.  This is a unique and seldom used option but one which might work well in your husband’s favor.

I hope that this was helpful and wish you both the best of luck.  Again, this is a large and complex legal situation for which I strongly advise you to seek qualified legal representation.

Michael

Personal opinion time:  I understand, sympathize with, and empathize with your view of Bank of America and am not all that surprised by their actions; in fact many of my peers have a similar opinion.  BofA recently lost two more members from their board of directors.  They have now lost a total of seven since the shareholders meeting in April.  I’m sure that this not the type of behavior many of those directors wanted to be associated with.