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Debtors Denied Pursuit Of Claim Against Creditor For Arrest

Posted By admin || 8-Oct-2009

Presenting Her Case To The Bankruptcy Court

In the bankruptcy case of Phillips, James T. and Shelly M.; In re (Whitney National Bank v. Phillips), the bankruptcy court ruled that the debtors could not pursue their claim against the lender because the claim arose before they filed for bankruptcy and had not been abandoned by the bankruptcy trustee.

The details of the bankruptcy case:

The plaintiff loaned the debtors $800,000 to make improvements to their real property. The debtors subsequently borrowed another $303,000 from the plaintiff. When the debtors sold the property, the balance owed on the first loan was satisfied, but no payment was made on the second loan. The plaintiff sued and won a judgment against the debtors to collect this debt. On Sept. 13, 2006, the debtors were arrested for failing to pay the debt. They were released the same day. On Nov. 2, 2006, they executed a consent judgment stating that they owed $313,117 on the second loan. When the debtors filed for Chapter 7 bankruptcy relief on Aug. 7, 2008, they scheduled the plaintiff as an unsecured creditor. And at the time they did not schedule any claims against the plaintiff.  But when the plaintiff filed a complaint saying that the debt should not be eligible for bankruptcy discharge, the debtors responded by saying that the debt was paid and that the consent judgment was coerced out of them.  The debtors also filed a counterclaim for damages cased by their arrest and incarceration.

This is what the bankruptcy court had to say:

"It is undisputed that the claims asserted in the counterclaim arose out of the debtors' arrest and incarceration on September 13, 2006, prior to the debtors' filing the petition. Accordingly, the debtors' claims became an asset of the estate on Aug. 7, 2008, the date on which they filed the petition. It is also undisputed that the debtor's claims are not scheduled. Thus, pursuant to Sections 323 and 541(a)(1), the debtors' claims are property of the estate and, as such, the trustee has exclusive standing to pursue the claims against PNB. Since the Trustee has not abandoned the claims, this court holds that the debtors have no standing to pursue the counterclaim against PNB."

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