Unsubstantiated Incapacity of Compliance with Bankruptcy Court Orders: An Invalid Defense

  • Bankruptcy Court Orders

Unsubstantiated Incapacity of Compliance with Bankruptcy Court Orders: An Invalid Defense

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Dependency on asset-protection trusts and offshore accounts to safeguard one’s assets has been in vogue for the past several years, and a large number of people have put their faith in these trusts to protect their assets. In the beginning, it might seem like a sensible idea. However, hoodwinking a bankruptcy trustee can put you on a razor edge.

Many a time, the distribution of funds may not take place, as it can transpire only at an independent trustee’s liking and even a foreign bank may claim the same thing. Although a bankruptcy court can’t compel a bank or a legal entity to present the money, it can hold the debtor in contempt of court until the loan is paid. Under such circumstances, if a bank or a trustee decides to withhold the distribution, the debtor can find himself behind bars.

More often, bankruptcy courts have been facing an additional similar kind of issue. In re Caterers Ltd. of 1990, a debtor first agreed to have received the money from the auction of a property, which was indebted to the bankruptcy estate, and later refused to repay, since it was all spent. This had put the court in a tight spot, as it had to face the dilemma of whether it should relieve the debtor from civil contempt and imprisonment, on account of his incapability to repay the spent money, or not.

At last, the court decided not to relieve him off the civil contempt. The court adjudged that a debtor, who is already guilty of incapability to comply, cannot defend himself in a court by propounding an impossibility of compliance. Moreover, the debtor cannot make groundless claims about his or her inability to act in accordance with the court’s orders and must provide substantially detailed evidence to support the same.

The debtor often shows his inability to comply with the bankruptcy court, when his assets are safeguarded by the asset-protection trusts or other offshore accounts. As discussed above, if the court finds any of these asset-transfers to be deceptive, then it may nullify the transfer and solicit the hand-over of the assets to the bankruptcy estate, and the debtor is held in contempt.

The court does not have any authority over the trustees or managers of the third-party trusts, but it is required to have the legal hold over the assets in question. Since a bankruptcy court is federal, a jurisdictional defense is normally unavailable there. This means that federal law empowers a bankruptcy court to have countrywide legal authority over the assets. In order to know more about the ill-effects of trusts or third-part managers on bankruptcy, visit the website https://recoverylawgroup.com/ or contact 888-297-6203.