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Sunday, June 18, 2006

Law - Kentucky lawyer's debt deal in turmoil

Andrew Wolfson of the Louisville Courier Journal reports today:

Louisville lawyer Ron Sheffer, whose law firm with offices from Paducah to Lexington collapsed under a $16.6 million mountain of debt, would pay most of his creditors less than 2 cents on the dollar under a proposed bankruptcy settlement.

Sheffer, 67, has been blocked from discharging his debts because a federal bankruptcy judge ruled that he fraudulently diverted assets to his wife.

Federal regulators oppose the proposed $394,583 settlement because they say it would allow Sheffer to "purchase" a discharge -- in effect buying his way out of trouble. Under the proposed deal, Sheffer would pay more to the creditor that won the fraud ruling than to other creditors.

The U.S. Bankruptcy Trustee, a division of the Justice Department charged with protecting the bankruptcy system and investigating fraud and abuse, says allowing Sheffer to settle his case would violate public policy and bankruptcy law, which is designed to protect "honest" debtors.

Sheffer's lawyer and creditors that support the deal say it is the fairest and least expensive way to resolve the extraordinary case, one of only a few bankruptcies in Western Kentucky that has been blocked by a fraud finding.

They also note that Sheffer could retire, leaving creditors with no wages to garnish if he is barred from discharging his debts through bankruptcy.

"If there is no discharge, it becomes a Wild West free-for-all," said Harry Mathison, attorney for Ohio Valley National Bank of Henderson, which won the fraud ruling but now supports the settlement. "This is the best way to resolve what can only be characterized as a mess."

Sheffer's lawyer, J. Baxter Schilling, said the proposed deal was reached through court-ordered mediation, and until the bankruptcy court has an opportunity to hear all arguments, it would be inappropriate for him or Sheffer to comment beyond what they've said in court papers.

But former bankruptcy judge Merritt Deitz Jr., who has no role in the case, predicted the settlement won't be approved because it favors some creditors over others.

Posted by Marcia Oddi on June 18, 2006 08:46 AM
Posted to General Law Related