A federal judge has dismissed a bankruptcy case filed by a personal injury attorney who failed to disclose more than $400,000 in income.
Attorney Jeffrey M. Brody concealed referral fees he had received before he petitioned for bankruptcy protection and while the case was pending, according to the judge.
“The debtor is not an ‘honest debtor’ deserving of the substantial benefits afforded by a bankruptcy discharge,” U.S. Bankruptcy Judge Kyu Y. Paek stated in the July 28 decision. “Creditors were kept in the dark.”
Brody ran his own law firm in Kingston, Ulster County, until 2017, and then joined Finkelstein & Partners, in Kingston.
He petitioned for Chapter 13 bankruptcy protection in 2021, estimating from $100,000 to $500,000 in assets and liabilities. He testified at a creditors meeting that the case was prompted by a legal malpractice lawsuit filed against him.
The plaintiff in the malpractice case, Krystal Shultis, alleged that Brody had mishandled a medical malpractice lawsuit. She was seeking $500,000 from him.
Brody had transferred his pending lawsuits to the Finkelstein firm, and the firm agreed to pay him referral fees as cases concluded with monetary awards.
From 2019 through 2024, Brody was paid $426,757 in referral fees. But none of that income was listed on bankruptcy reports. Instead, he claimed average monthly salary of $13,490 to $14,635, plus Social Security income. But even his purported salary was inaccurate, judge Paek found, because it was based on after-tax income. His actual average monthly income was $19,449.
Chapter 13 bankruptcy enables debtors to propose a plan to repay creditors, based on their disposable income. Brody proposed paying $315 a month for five years, allowing unsecured creditors to recover only 0.3% of their losses.
No one objected and the court confirmed the plan in April 2022.
Three years later, this past April, bankruptcy trustee Thomas C. Frost asked the court to dismiss Brody’s entire bankruptcy case. Brody, he claimed, had acted in bad faith by hiding referral fees.
Brody responded that he had not acted in bad faith, and anyway the confirmed plan, by law, was a settled matter.
Judge Paek noted that a confirmed plan can be revoked on the grounds of fraud, were evidence has been concealed or could not have been discovered with due diligence.
Brody’s creditors had no reason to suspect that Brody had substantial supplemental income, because he omitted the income on bankruptcy reports. Had creditors known about the referral fees when the payment plan was proposed, or even after the plan was confirmed and he continued to receive referral fees, they could have sought a greater payout than the meagre 0.3%.
“The debtor’s lack of candor regarding the referral fees was in bad faith,” Paek ruled, “and constitutes cause for dismissal.”
He has scheduled an Aug. 12 hearing to discuss disposition of the case.
