A recent opinion issued on June 6, 2014 from the Bankruptcy Court for the Eastern District of North Carolina found that a creditor had not violated the bankruptcy code based on the following facts:
- In March 2008 a creditor realized he would not be repaid $50,000.00 on a loan and began to investigate the matter.
- On August 9, 2011 the creditor’s attorney sent a letter to the District Attorney requesting a meeting to review evidence of a criminal case against the principal of the borrower.
- On October 24, 2011 the principal of the borrower filed for bankruptcy.
The Bankruptcy Court’s opinion observed that enjoining a criminal prosecution is not necessary to carry out the provisions of the Bankruptcy Code especially in light of the plan and clear language of section 362(b)(1) of the Bankruptcy Code which declares that the commencement or continuation of a criminal action or proceeding is not stayed and that in this case the creditor’s principal motivation was not to obtain payment of a debt but rather as part of a public duty to pro-event further frauds being perpetrated on the public, and to see that justice was done, full well knowing that recovery of any amount from the debtor was most likely impossible.
Unlike the scenario referenced in the May 29, 2014 blog post, the debtor’s timing was off because the matter had already been referred prior to the bankruptcy filing and the creditor’s motivation for the referral was proper. Although a properly timed and noticed bankruptcy filing may prove useful to prevent certain prosecutions (i.e. NSF checks and failure to pay a casino marker) in general, a bankruptcy filing is not a useful way to deal with criminal law problems.