Sometimes it takes a lot of ‘do-gooders’ to make a village. With the help of an attentive social worker and some public-minded attorneys, a disabled woman in Minnesota was able to save her inheritance and get out of debt run up by an exploitive friend. Her trip through bankruptcy helped close the deal.
While the disabled woman suffers from mild retardation with a subnormal IQ (approx. equivalent to a 6-7 year old), she had a home in an assisted living facility partly funded by government benefits. In addition she was able to work through a government program to pay for some of her own needs. In 2004, the husband of a friend convinced her to run up approx. $40,000 in debt for him. Soon afterwards a social worker intervened and had an emergency guardian appointed to oversee her finances.
At roughly the same time, she became entitled to an inheritance from a grandmother. The grandmother’s estate paid off some debt the woman had incurred herself for her own needs. However the inheritance would have normally rendered her ineligible to continue receiving some of the public services which she relied upon to get by. She faced losing eligibility for benefits valued at over $40,000/year, for a net inheritance of $25,000 and would have been placed at the end of a multi-year wait list to re-qualify for benefits. So the inheritance was potentially a liability in reality.
But with the help of social workers and lawyers, the balance of the inheritance was transferred to a “special needs trust” which would provide for personal care and medical equipment and services not covered by public benefits. Thus the relatively small amount could be used to help her without throwing her out of the programs that kept her housed and supported.
Finally the social workers obtained the assistance of an attorney to file a bankruptcy for her so she could get out of the debt still left over from her earlier exploitation. At this point, the bankruptcy trustee was of course interested in the $25,000 that the debtor had inherited but then transferred into the trust instead of paying to the creditors who remained. And, although likely sympathetic to the debtor, the trustee had to seek return of the transferred funds.
If the trustee had been successful, the remainder of her inheritance would have been used to repay debts which rightfully ought to be collected from the sleaze who exploited a disabled woman to indirectly steal her inheritance.
Judge Dennis O’Brien concluded however that the trustee could not recover the transfer under bankruptcy law. The “avoidance” of the transfer was sought as a fraudulent conveyance because the debtor did not receive an equivalent value in goods or services in return for the payment into the trust. It merely sheltered the funds from creditors. Judge O’Brien pointed out that the overall transaction did provide far more value to the debtor — she kept her eligibility for, and immediate access to, extremely valuable government services which she would have otherwise lost as a result of retaining the inheritance with the ultimate risk being homelessness.
So sometimes the law, the judge, and the do-gooders are all on the side of the angels.
Case: In re Schultz, 05-3448 Adv. # 06-3330 (Bankr. D. Minn. May 14, 2007)
Latest posts by Wendell Sherk, Missouri Bankruptcy Attorney (see all)
- Harvey Miller: Brilliant Bankruptcy Lawyer, 1933-2015 - April 29, 2015
- Why Replace Chapter 7 Bankruptcy Trustees Now? - May 21, 2014
- How To Talk To A (Bankruptcy) Lawyer - January 25, 2014
- DIY Bankruptcy Means Test — You Always Pass! - October 25, 2013
- Can Chapter 13 Still Strip 2nd Mortgages? Yes! - September 18, 2013
Last modified: July 2, 2007