A 9th Circuit decision involving a doctor and his wife provides some important guidance on “what not to do” in terms of completing personal financial transactions shortly before filing bankruptcy. Because the couple engaged in business dealings that allowed a bankruptcy judge to find an intent to delay, defraud or hinder creditors, the couple lost the right to discharge a $3 million debt.
Erkan and Aylin Ereren’s financial situation took a dramatic downturn in 2008 when Erkan, a former surgeon who had become totally disabled after a skiing accident, racked up $3 million in debt during one 24-hour visit to a Las Vegas casino. The casino obtained a judgment against the doctor in 2010 for the debt. A week after the casino obtained its California judgment, the doctor traded the two Mercedes vehicles he and his wife owned for two leased Mercedes vehicles. During the casino’s collection efforts, the wife transferred nearly $180,000 to her brother living in Turkey, allegedly to repay a loan the brother had extended.
A few months later, the couple filed for Chapter 7 bankruptcy. They included the gambling debt among the debts they sought to discharge. The trustee concluded that the couple had improperly transferred funds (both the cash and the vehicles) in an attempt to defraud, delay or hinder their creditors, particularly the casino, in violation of the Bankruptcy Code. The bankruptcy court agreed with the trustee and ruled the casino debt non-dischargeable.
The 9th Circuit, while expressly noting that the bankruptcy principle of a “fresh start” generally means deciding dischargeability issues in favor of the debtor, nevertheless ruled against the Ererens. The court decided that the trustee’s evidence was more credible than the debtors’. It determined that the bankruptcy court had ample evidence to disbelieve the debtors when they claimed that they happened to replace their vehicles one week after the California judgment simply because it was within the normal timeframe during which they would acquire new cars, and it did not believe the full loan repayment was a neutral decision, either, pointing out that the note securing the loan was not set to expire.
The court also rejected the debtors’ argument that the payment to the brother was a preference payment. While a preference payment did not prove that the debtors intended to defraud, delay or hinder, it also did not prevent the lower court from finding that the debtors had such an improper intent, the court wrote. In short, the lower court found an intentional failure to disclose, and had adequate evidence to make such a finding.
The Ereren ruling provides a strong warning to debtors as they prepare for filing bankruptcy, as they should take great care, and seek skilled counsel, to ensure that the financial transactions they complete immediately before filing do not create an appearance of impropriety and result in a ruling of non-dischargeability. If you are considering filing bankruptcy, it is essential to obtain high quality legal advice, not only during but before your filing, in order to ensure that the law allows you to discharge your debts and obtain your fresh start. To get the finest in advice and representation in your bankruptcy, consult the Bay Area bankruptcy attorneys at the Law Offices of Melanie Tavare. Oakland bankruptcy attorney Melanie Tavare has helped many clients with Chapter 7 and Chapter 13 bankruptcies, and can help you put together your plan for navigating the bankruptcy system. Call (510) 255-4646 for your free consultation today.
The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code