The primary reason most individuals or companies seek bankruptcy protection is to rid themselves of debts which pose too great a burden on the debtor rendering the debtor unable to meet financial obligations. Debtors ask bankruptcy courts to discharge certain specific debts so that they no longer are legally required to pay such debts. A federal bankruptcy court involving a family dispute in New Mexico shows how such a discharge can be withheld where the debtor incurred the debt by some fraudulent or malicious means.
In the bankruptcy case, known as In Re Cordova , the debtor through a long line of legal instruments conveyed certain real property to herself and husband which belonged originally to her mother. The debtor’s mother had conveyed to her a Power of Attorney prior to her death giving her the legal authority to handle certain legal matters on her behalf. She did not inform her numerous siblings of the existence of the Power of Attorney. Although the mother, before she passed, signed a deed putting the real estate (her home) into a trust for the benefit of all of her children, the debtor never had the deed notarized or recorded. Despite orders telling the debtor to convey the property back in to her mother’s estate, the debtor re-conveyed the property back to herself using her power of attorney.
Eventually, because payments towards the mortgage, held by JP Morgan Chase, were not made, the bank foreclosed on the property. One of the family members paid the necessary reinstatement fee to remove the property from foreclosure. But this did not insulate the debtor, who was listed as the owner of the property, from responsibility for the balance due on the mortgage. When she sought to have that balance discharged via bankruptcy, siblings of hers who also asserted a claim on the property and previously procured an order in Probate Court demanding the debtor to convey the property back into the Trust that was intended to hold the property for the entire family, the bankruptcy court refused to discharge the debt on the home because it found she had acted willfully and maliciously.
The Court relied on U.S.C. Section 523(a)(2)(A) which ‘excepts from discharge “a debt for money, property, services . . . to the extent obtained by . . . false pretenses, a false representation, or actual fraud’. . . .” It also cited Section 523(a)(4) of the Federal Bankruptcy Code that an individual cannot obtain a bankruptcy discharge from a debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” As the debtor abused her fiduciary responsibility, she could not win discharge concerning a debt on real property which she never should have had title to on her own.
The attorneys at Giddens & Gatton Law, P.C. prepare wills and trusts for individuals in New Mexico and handle probate matters for estates and beneficiaries as well as bankruptcy cases. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com.