Massachusetts Doctor Files for Bankruptcy to Avoid Jail
In one of the more unusual bankruptcy cases we have heard about, a doctor in Brookline, Massachusetts has filed bankruptcy to avoid going to jail. As reported by WBUR in late August, Dr. Nataly Minkina owed about $250,000 stemming from a lawsuit she filed against her lawyers. Thanks to the bankruptcy code’s automatic stay, Dr. Minkina avoided jail, though she must continue to work away at her debts.
Frivolous Lawsuit Led to Debts
Dr. Minkina found herself in debt to the tune of a quarter of million dollars after filing a legal malpractice lawsuit against her attorneys. Unfortunately, the judge found the case frivolous and ordered her to pay the legal fees that the attorneys had spent to defend themselves in the case.
Dr. Minkina was on the verge of going to jail because she had failed to pay a $78,000 sanction that the court levied against her after finding her in contempt. Judges have inherent contempt powers to compel compliance with their orders. Issuing a monetary fine is often a first step but, if that does not work, a judge can order a person to jail.
The Automatic Stay
To avoid time behind bars, Dr. Minkina quickly filed for Chapter 13 bankruptcy protection and availed herself of the automatic stay. The automatic stay stops in its tracks any state action to recover money on a debt.
However, Chapter 13 will not allow Dr. Minkina to get out of paying her debt entirely. Instead, a Chapter 13 allows a debtor to repay debt over three to five years, contributing their discretionary income to their unsecured creditors. Only at the end of the repayment period will any unsecured debts get wiped out entirely.
Novel Issue of Law
Although the state court judge released Dr. Minkina from jail, a question remains over whether the automatic stay applies to contempt proceedings in state court. The judge has ordered the parties back into court to consider this issue in early September.
Currently, there is conflicting legal precedent on the issue. For example, the Ninth Circuit Bankruptcy Appellate Panel has held that a pre-petition contempt action is exempt from the automatic stay. However, another court in the Eastern District of Pennsylvania has found that the automatic stay applies to civil contempt but not criminal contempt. Other courts around the country are also divided.
Although this issue is interesting, the fact is that most debtors will not be trying to avoid a contempt proceeding when they apply for bankruptcy. Instead, they will rely on the automatic stay to stop wage garnishment and lawsuits related to more familiar debts—credit cards, personal loans, and medical debt.
Need Help? Contact Nowack & Olson Today
The automatic stay is a powerful tool that protects our clients from collections actions, at least temporarily. After getting some breathing room, many of our clients can address their debts in an orderly manner, finding financial freedom in the process.
For more information about how a consumer bankruptcy might help, please contact us at Nowack & Olson today. One of our South Florida bankruptcy attorneys will be happy to discuss your case.