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There's no future in running a bankruptcy scam

Bankruptcy trustee has vast powers: protective and investigative

Regular readers here will become familiar with the great powers of protection provided by the U.S. bankruptcy code, regardless of which chapter the petitioner files under.

Severe penalties--including jail time

That being said, however, don't make the mistake of trying to "game the system" by hiding assets or "playing footsie" with the trustee assigned to your case. Every year schemers attempt to execute some form of bankruptcy fraud, and it's always a mistake because of the severe penalties and jail time that can result. Not only will the federal bankruptcy court system be involved but any investigation also may be joined by the Internal Revenue Service (IRS) and the Department of Justice (DOJ).

Accused of securities fraud, man 'defiant' to creditors

For example, we don't know whether Jeffrey A. Martinovich is attempting bankruptcy fraud, but the Financial Industry Regulatory Authority Inc. (FINRA) has accused him of securities fraud. Regardless of what can yet be proven, Martinovich certainly appears to be dragging his feet in his bankruptcy case. Datelined Norfolk (VA), May 19, this Daily Press article says, "Jeffrey A. Martinovich, the former CEO of the defunct financial services firm MICG Investment Management LLC, remained defiant in his second meeting with creditors on Thursday, refusing to offer any substantive information about the value of the three firms he still owns.

"Martinovich, who was banned from the securities industry in February and filed for personal bankruptcy protection days later, faced a series of pointed questions about his personal finances and the status of three companies he owns: MICG Investment Management, MICG Wealth Management LLC and Martinovich Investment Consulting Group LLC.

"About 200 investors and other creditors, many with local ties, are involved in Martinovich's bankruptcy case. Martinovich listed assets of $3.7 million and liabilities of $14.2 million, most of which are related to his three business ventures. All of the firms remain open entities but do not conduct any business."

Stall tactics may work, for a while

The article explains that one attorney who represents a group of four investors "repeatedly pressed" Matinovich for details of the three businesses but the answers were vague--and sometimes nonexistent in that Martinovich simply failed to respond. Ultimately, "Martinovich was ordered to submit several additional financial statements and other documents and is scheduled for another hearing in June."

If the man's hope was merely to stall and buy time, then he may have succeeded. But if he thinks he can continue such tactics indefinitely, Martinovich is living in some sort of fantasy land.

Duties of the trustee

True, the bankruptcy trustee has vast powers to protect the bankruptcy petitioner from overzealous creditors. However, the trustee also has a fiduciary duty to secured creditors, as set forth in section 704 of the code. Among those duties:

  1. collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest;

  2. be accountable for all property received;

  3. ensure that the debtor shall perform his intention as specified in section 521 (a)(2)(B) of this title;
    investigate the financial affairs of the debtor;

  4. if a purpose would be served, examine proofs of claims and object to the allowance of any claim that is improper;

  5. if advisable, oppose the discharge of the debtor;

  6. unless the court orders otherwise, furnish such information concerning the estate and the estate’s administration as is requested by a party in interest;

  7. if the business of the debtor is authorized to be operated, file with the court, with the United States trustee, and with any governmental unit charged with responsibility for collection or determination of any tax arising out of such operation, periodic reports and summaries of the operation of such business, including a statement of receipts and disbursements, and such other information as the United States trustee or the court requires;

  8. make a final report and file a final account of the administration of the estate with the court and with the United States trustee

Powers include dismissal of bankruptcy case

Perhaps more ominous for Mr. Martinovich--and others who would stall the bankruptcy court--"A trustee is vested with significant powers to aid in carrying out his or her fiduciary obligations to the bankruptcy estate. Among them is the ability to move to dismiss a bankruptcy case for cause, including unreasonable delay by the debtor that is prejudicial to creditors; non-payment of any fees or charges required under certain provisions of the Bankruptcy Code; and failure of the debtor to file certain information required under the Bankruptcy Code," according to this Web page.

In other words, in addition to the investigative powers backed by the federal government, the trustee could simply move to have the bankruptcy case dismissed, leaving Martinovich completely exposed to the costly and time-consuming expense of hundreds of lawsuits from hundreds of angry creditors.

So another reason to retain a trained, experienced bankruptcy attorney is to ensure that you do not afoul of any bankruptcy fraud laws. Remember, it's just not worth it to attempt to game the system, especially when the code provides so much protection for the U.S. consumer.

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