Bad Boys of Bankruptcy: S2E6: Forgery and Fire – The Purdy Case

This case concerns the consequences for debtor misconduct in a Chapter 13 case. The Chapter 13 debtors, Marcus and Amanda Purdy, sought court approval to take out a mortgage to purchase a home, but the court denied the motion to incur debt and the debtor’s motion to reconsider the ruling. Undeterred, the debtors moved forward with obtaining a mortgage to purchase the property, providing a letter to the mortgage lender on the Chapter 13 trustee’s letterhead which was later discovered to have been forged by Mrs. Purdy. When the Chapter 13 trustee discovered the forged letter, he moved to dismiss the debtor’s case with prejudice with a 15-year bar to refiling. The bankruptcy court ultimately granted the motion, dismissing the case and barring Mrs. Purdy from filing for bankruptcy for 10 years, and barring Mr. Purdy, who did not have knowledge of the forged letter, from filing for 5 years. The debtors appealed the order to the district court, which not only affirmed the bankruptcy court, but instructed the clerk to refer the matter to the U.S. Attorneys’ office for criminal prosecution. Mrs. Purdy was thereafter federally prosecuted for mortgage fraud, and in final tragic twist, the home purchased without bankruptcy court authorization wound up burning down a few months after it was purchased. Judge Gunn discusses the bankruptcy case, the appeal to the district court, and the collateral criminal consequences with attorney Landon G. Van Winkle and the U.S. Bankruptcy Administrator (“BA”) for the Eastern District of North Carolina, Brian Behr. Issues discussed include the investigative role of the Chapter 13 trustee and BA’s office into debtor misconduct, the role of local rules in bankruptcy cases, and the penalties debtors may face for violations of court orders in bankruptcy.