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THE CONSUMER BANKRUPTCY LETTER
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In This Issue:
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Nov. 10, 2003
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BANKRUPTCY THIS WEEK . . .
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LEGISLATION & REFORM NEWS . . .
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During the week of November 3, 2003, the United States Supreme Court will hear oral arguments in the case summarized below.
ISSUE - Whether Time Limit for Filing Objection to Discharge is Jurisdictional or Subject to Equitable Defenses
Doctor Andrew Kontrick (Kontrick) filed for bankruptcy under Chapter 7 on April 4, 1997. One of his judgment creditors, Doctor Robert Ryan (Ryan), objected to Kontrick‚s discharge, and the bankruptcy court denied Kontrick‚s discharge under 11 U.S.C. Section 727(a)(2)(A) and granted summary judgment. Kontrick and Ryan were each 50% shareholders in a professional practice originally established by Ryan. After disagreements arose between the parties, a series of arbitrations resulted in a judgment for Ryan. Arbitrators questioned Kontrick‚s personal finances and assets. Kontrick stated that, in divesting himself of personal wealth, he was trying to protect himself from Ryan and former clients. This included removing his name from the family checking account into which he continued to deposit his paychecks. Kontrick then filed a Chapter 7 bankruptcy petition.
After several extensions, Ryan objected to discharge. Ryan‚s objection alleged that Kontrick had violated Section 727(a)(2)(A) by intentionally transferring funds within one year of bankruptcy. The bankruptcy court denied Kontrick‚s discharge on those grounds. Kontrick appealed, claiming, among other things, that the bankruptcy court erred in finding that he had waived his Rule 4004(a) objection, that the rule was jurisdictional and thus not subject to equitable doctrines such as waiver.
The United States District Court for the Northern District of Illinois affirmed the bankruptcy court decision, finding that Rule 4004(a) was not jurisdictional, but a statute of limitations, and therefore subject to waiver. Kontrick appealed to the United States Court of Appeals for the Seventh Circuit, who affirmed. On appeal to the United States Supreme Court, Kontrick argues that the time limit is jurisdictional in nature, that he did not waive such time limit, and that the time limit is not subject to equitable defenses. [Summarized by Misty Willits.]
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ROOKER FELDMAN WRITES . . .
Congress continues to talk about bankruptcy reform seemingly oblivious to the dramatic discovery, sometime during the '50s, of Einstein's Third Law of Insolvency; debt, like matter, cannot disappear, it merely manifests itself in some other form in the economy. If you take millions of dollars in debt every year and zap it with high-speed consumer bankruptcy, it dissolves as visible debt, but it never really leaves the life-cycle of the dollar. It becomes, so to speak, the dark matter of the credit system.
Scientists have been studying this phenomenon. In experiments conducted recently at Totally Busted University, scientists have detected a subtle ripple effect, apparently caused by the fact that a million consumers a year, once unable to buy anything due to maxed-out credit cards and hence existing as an inert element in the market, once freed of debt through bankruptcy are now able to go out and spend, spend, spend once again. This stimulates the market and produces an important side-product, Added Gross National Product, which itself is responsible for Profits. And, when you add the already recognized "multiplier effect" of the expenditure of a dollar, you can see that for each dollar of debt erased in bankruptcy, three more dollars are added to the marketplace, eventually resulting in greater revenue and profits, and more jobs. The increased profits for the credit industry provides surplus funds that they can pay to lobbyists pretending to pay Congressmen to pretend to work on bankruptcy reform.
Thinking about the ramifications of this is deeply moving. I think I need a martini.
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