The Claw: The Bankruptcy Provision That Can Take Back Money That Is Rightfully Yours

A claw arcade game plays a pivotal role in the classic Disney/Pixar film Toy Story. Toy aliens in the machine are in awe of the giant claw that chooses who will go and who will stay. If you have ever seen the movie, you can probably remember exactly how the aliens say “The clawwwwwwwww!” At Hanson & Payne, we have been involved in many Milwaukee area bankruptcy cases where our clients are also in awe of a claw — the clawback of funds following someone else’s bankruptcy filing. 

The Claw

If a debtor or someone you do business with declares bankruptcy, the court may order any assets the filer transferred to you within the last few months returned to the bankruptcy court so that they can be equitably distributed among all creditors. The court uses its power to claw back the money, even though it is rightfully yours. 

While this may seem unfair to you, clawback provisions were actually created with fairness in mind. They are meant to guard against the preferential treatment of certain creditors and ensure all of a bankruptcy filer’s creditors are treated fairly. 

Clawback Defenses 

If you are willing to put up a bit of a fight to keep the money or assets you have been paid from being clawed back, the Hanson & Payne team may be able to help you. There are exceptions to the clawback rule that you may be able to take advantage of. These are known as preference defenses. 

The three most common preference defenses are: (1) the contemporaneous exchange for new value, (2) the subsequent new value and (3) the ordinary course of business defenses. Hanson & Payne’s experienced bankruptcy attorneys can help you figure out if one of these exceptions, or another less common exception applies in your situation. 

1. Contemporaneous Exchange for New Value

The most common defense against a clawback is known as the contemporaneous exchange for new value defense. It applies when the payment sent to a creditor was intended by both the debtor and creditor to be a payment for some new good or service exchanged right when new assets were transferred to the creditor. 

2. Subsequent New Value

This defense is only slightly different from the previously discussed defense. In order to claim the subsequent new value defense, the creditor must have given something of value to the debtor after payment from the debtor was received.

3. Ordinary Course of Business

Most clawback actions are filed against businesses that were going about their business with no clue their customer was in financial distress. Fortunately, the ordinary course of business defense may protect businesses hit with a surprise clawback. 

The ordinary course of business defense applies when a payment subject to clawback was received in the ordinary course of business between the creditor and the debtor. To take advantage of this defense, the creditor must be able to show that its relationship with the debtor did not change in the time period leading up to the debtor’s bankruptcy filing.

Experienced Milwaukee Area Bankruptcy Attorneys You Can Trust

While the Toy Story aliens may worship the claw, the experienced bankruptcy attorneys at Hanson & Payne know the claw is something that can be controlled. We can work with you to defend against clawbacks by putting up a strong preference defense. 

Don’t hand money or other assets that are rightfully yours over to the courts without a fight. Contact Hanson & Payne to protect your interests and secure your assets. 

How Many Times Can I File For Bankruptcy?

They say the third time’s a charm, but if you are unfortunate enough to consider filing for bankruptcy multiple times, you know this is not always true. Filing for bankruptcy does not get easier each time. In fact, there are limits on your ability to file if you have done so in the past. 

You Can File For Bankruptcy As Many Times As You Need To… In Theory

There are no limits on the number of times you can file for bankruptcy. You may file as many times as you need to. 

However, the law does require you to wait a certain amount of time between filings. These waiting periods end up limiting the number of times many people can file for bankruptcy. The amount of time it takes to be eligible for another discharge of debt depends on the type of bankruptcy you filed previously, and the type of bankruptcy you wish to file this time.

The Two Main Types Of Personal Bankruptcies 

How long you will need to wait to file bankruptcy again depends on the type of bankruptcy you filed previously. Most people file under Chapter 7 or Chapter 13. 

Chapter 7 bankruptcies are traditional “fresh start” bankruptcies. In a Chapter 7 bankruptcy, your assets are turned over to your creditors or sold off, then your remaining unsecured debts such as credit cards and medical bills are discharged. 

Chapter 13 bankruptcies are court-supervised repayment plans. You get to hold on to assets you are able to afford by paying off your debts a little at a time. If you make all of your payments during the 3-5 year repayment period, your remaining debts can be discharged.

If You Previously Filed Under Chapter 7

If you previously filed for bankruptcy under Chapter 7, you must wait 8 years from the date of your previous filing to file another Chapter 7 bankruptcy.

If you want to file under Chapter 13 this time around, you are only required to wait 4 years 

If You Previously Filed Under Chapter 13 

If you previously discharged some debts through the Chapter 13 bankruptcy process, you must typically wait 6 years from the date of your filing to file again under Chapter 7. However, if you raid at least 70% of the claims in your Chapter 13 case, and you proposed the plan in good faith and used your best effort to repay creditors, you can file virtually immediately.

If you want to file under Chapter 13 again, you must wait 2 years to qualify for another discharge.

Help With More Than The Math 

Rather than trying to remember the details of your case, and do the math yourself to figure out if you can file for bankruptcy again, we recommend reaching out to the experienced Milwaukee bankruptcy attorneys on the Hanson & Payne team. A blog post like this can give you basic information, but it can’t tell you what options are actually available to you. Our team will listen to your side of the story, and help you figure out the best way to move forward. Contact us today to schedule a free consultation. 

Abusing The Bankruptcy System Keeps Man In Foreclosed Home For Over 20 Years

Filing for bankruptcy in order to pause a foreclosure action is a fairly common tactic. Hanson & Payne regularly assists Milwaukee area property owners and lenders in these cases

Repeatedly filing for bankruptcy and taking other legal actions that delay your eviction for over 20 years is not. That’s why it made headlines when news reports revealed some guy had been living in a home he only made one mortgage payment on for over two decades. 

Living Rent Free 

According to the New York Post, a man named Guramrit Hanspal “bought” a home on Long Island for $290,000 in 1998. He made just one mortgage payment to his lender, Washington Mutual, then defaulted on the loan. 

By May 2000, Washington Mutual successfully foreclosed on the home, and Hanspal was “forever barred” from any claim to the property, according to the judgment of foreclosure.

 

But Hanspal never left. By January 2001, he filed his first bankruptcy claim, records show. He went on to file another in November 2001, two in 2002 and one in 2003…

 

Meanwhile, in 2004, Hanspal transferred the deed of the home to a friend, Rajender Pal, even though he had no legal right to do so, according to court papers. Pal, using the Kenmore Street address, filed for bankruptcy in 2005, staving off eviction yet again…

 

By 2008, Washington Mutual had gone under, marking one of the largest bank collapses in American history, with its assets eventually taken over by JP Morgan Chase.

 

The new bank was also unable to boot Hanspal, and has been locked in litigation with him for years, with Hanspal filing at least three lawsuits against JP Morgan Chase in Nassau Supreme Court. The two sides are also in an ongoing legal battle in Brooklyn federal court.

 

Hanspal claims in court papers that Chase committed “blatant fraud” in 2010 by trying to evict him when it didn’t have proper title to the home, and accused the bank of withholding “surplus” funds from a previous auction of the property.

 

Chase slammed Hanspal for “clogging the court docket” with “patently frivolous” claims.

 

By May 2018, Chase unloaded the property to Diamond Ridge, which offered Hanspal $20,000 to leave. He didn’t take the deal, and instead, filed for bankruptcy again in 2019 and 2020. Another purported occupant of the house, Boss Chawla, filed bankruptcy four times in 2019, as did another resident — allegedly named John Smith — who filed once.

The Post estimates Hanspal has likely saved himself/defrauded his lenders of over $440,000 by not paying his bills for the past two decades. The Hanson & Payne team has seen a lot of crazy stuff during our careers, but nothing like this. 

Bankruptcy Is A Tool Not A Weapon

Filing for bankruptcy in order to stop a foreclosure is not uncommon, but in normal circumstances, the stop is a pause, not a complete halt. Filing for bankruptcy does not make a mortgage disappear, or free you from making mortgage payments while still living in your home.

If you want to stay in your home, you will need to keep making mortgage payments. It may, however, be possible to renegotiate the terms of your loan, and that is something our experienced team of bankruptcy attorneys can assist you with. 

If finding a new, more affordable place to live is an option you are willing to consider, the Hanson & Payne team can help you get rid of your current property and work towards getting out of debt. 

A Milwaukee Bankruptcy Attorney You Can Count On

Milwaukee area debtors who are considering filing bankruptcy just to avoid foreclosure should proceed with caution. Bankruptcy is meant to be used as a tool, not a weapon. Rather than making risky legal moves that could give you the kind of negative publicity Mr. Hanspal is getting, you should contact the Hanson & Payne team for some sound advice. We will listen to your side of the story, and work with you to find a path forward.