When does money become money? (When is a debt &quot;realized&quot;?) A lot of taxable liabilities depend on the notion of when a monetary gain is &quot;realized&quot;, but it is not clear to me how this is defined legally. For example, if a person sells stock, then the brokerage will credit the cash account of the client. The client does not actually have the money in the sense that the brokerage &quot;owes&quot; them the money, but since the brokerage can be viewed as sort of a bank, then the gain could be considered realized. So, take a different kind of debt. A gambler wins money at a casino, but just has chips. If the gambler keeps the chips, obviously the chips are not &quot;money&quot; so the gain cannot be said to be &quot;realized&quot;. Now, suppose the gambler cashes the chips, but only to his account at the casino. The casino now owes the money to the gambler but has not paid it. The casino is not a bank, so the customer's balance is a commercial debt, not money. So, if you consider that to be a &quot;realized&quot; gain of money, does that mean any business credit is? For example, if a vendor issues a business a new credit for some reason, then is that gain &quot;realized&quot; as soon as the vendor notifies the business of the credit, or only when the business receives a check for the credit and actually deposits it in its bank account? For example, if I sell something to a business, they owe me the money for the good, but that is not a &quot;realized&quot; gain yet, until they actual pay me and the money is in my bank account. So, basically the question revolves around possession of money and whether one can be said to &quot;possess&quot; money owed by a bank, casino, other business, person, or whatever. One pretty obvious rule here is that only one person can possess the cash. So, either the cash belongs to me or the casino, not both, for example. If the casino is actually holding my money in a separate entitled account which is &quot;mine&quot;, then I guess theoretically the money is &quot;mine&quot;, but if the casino just considers my &quot;account&quot; to be just a ledger entry, then the cash does not really exist. It's just a debt they have to me, so it cannot be considered to be &quot;realized&quot;.
In general, a liquid account, denominated in monetary units (dollars, pounds, euros, etc) from which the owner has the right to make a withdrawal at any time is treated legally much the same as cash. This includes a bank account and a brokerage 'cash&quot; account. It will not include a mutual fund account denominated in shares of stock, nor a debt which is not collectable at will. When the proceeds of a transaction are depositd into such an account, I believe that the profit (if any)m has been &quot;realized&quot; and that a taxable event has occurred. Under 26 U.S.C. § 1001 a gain or loss is realized on the sale or other disposition, or exchange of property. Nothing is ssid about 'cash&quot; or accounts with a signature authority. Under 26 CFR 1.1001-1: ... the gain or loss realized from the conversion of property into cash, or from the exchange of property for other property differing materially either in kind or in extent, is treated as income or as loss sustained. in Cottage Savings Ass'n v. Comm. of Internal Revenue, 499 U.S. 554, 559 (1991) The US Supreme Court wrote: Rather than assessing tax liability on the basis of annual fluctuations in the value of a taxpayer's property, the Internal Revenue Code defers the tax consequences of a gain or loss in property value until the taxpayer &quot;realizes&quot; the gain or loss. The realization requirement is implicit in § 1001(a) of the Code, 26 U. S. C. § 1001(a), which defines &quot;[t]he gain [or loss] from the sale or other disposition of property&quot; as the difference between &quot;the amount realized&quot; from the sale or disposition of the property and its &quot;adjusted basis.&quot; As this Court has recognized, the concept of realization is &quot;founded on administrative convenience.&quot; Helvering v. Horst, 311 U. S. 112, 116 (1940). ... Section 1001(a)'s language provides a straightforward test for realization: to realize a gain or loss in the value of property, the taxpayer must engage in a &quot;sale or other disposition of [the] property.&quot; The parties agree that the exchange of participation interests in this case cannot be characterized as a &quot;sale&quot; under § 1001(a); the issue before us is whether the transaction constitutes a &quot;disposition of property.&quot; ... Neither the language nor the history of the Code indicates whether and to what extent property exchanged must differ to count as a &quot;disposition of property&quot; under § 1001(a). Nonetheless, we readily agree with the Commissioner that an exchange of property gives rise to a realization event under § 1001(a) only if the properties exchanged are &quot;materially different.&quot;... ... We start with the classic treatment of realization in Eisner v. Macomber, supra. In Macomber, a taxpayer who owned 2,200 shares of stock in a company received another 1,100 shares from the company as part of a *pro rata- stock dividend meant to reflect the company's growth in value. At issue was whether the stock dividend constituted taxable income. We held that it did not, because no gain was realized. ... In Phellis and Marr, we held that the transactions were realization events. We reasoned that because a company incorporated in one State has &quot;different rights and powers&quot; from one incorporated in a different State, the taxpayers inPhellis and Marr acquired through the transactions property that was &quot;materially different&quot; from what they previously had. United States v. Phellis, 257 U. S., at 169-173; ... Taken together, Phellis, Marr, and Weiss stand for the principle that properties are &quot;different&quot; in the sense that is &quot;material&quot; to the Internal Revenue Code so long as their respective possessors enjoy legal entitlements that are different in kind or extent. Thus, separate groups of stock are not materially different if they confer &quot;the same proportional interest of the same character in the same corporation.&quot; Marr v. United States, 268 U. S., at 540. However, they are materially different if they are issued by different corporations, id., at 541; United States v. Phellis, supra, at 173, or if they confer &quot;differen[t] rights and powers&quot; in the same corporation, Marr v. United States, supra, at 541. No more demanding a standard than this is necessary in order to satisfy the administrative purposes underlying the realization requirement in § 1001(a). See Helvering v. Horst, 311 U. S., at 116. For, as long as the property entitlements are not identical, their exchange will allow both the Commissioner and the transacting taxpayer easily to fix the appreciated or depreciated values of the property relative to their tax bases Thus any exchange of property for other property which is in some significant sense different, such as interests in different mortgages of similar market value, or any sale of property causes a gain or loss to be realized.It does not matter in what sort of account the proceeds are held, or even whether the proceeds are in cash as opposed to some other sort of property. The beneficial owner realizes a gain or loss, even if s/he is not the legal owner.
It is currently legal to barter goods or services in exchange for gold or silver bullion in the United States. Gold and silver do not have to be registered or certificated, although a prudent person would usually seek evidence confirming their authenticity and it would be common practice to keep gold and silver in a repository such as a bank or Fort Knox, and to conduct the transaction via negotiable certificates evidencing ownership of the gold or silver (basically warehouse receipts whose transfer is governed by the Uniform Commercial Code) rather than to physically transfer the gold or silver, in a large dollar value transaction. There are been periods of time in the United States where this was not allowed, unless done by a state government (which has a constitutional right to do so), or by a local government authorized by a state government to do so. But those laws are not currently in force and haven't been for a long time. Transfers conducted with gold or silver bullion in excess of $10,000 per transferee per year, probably have to be reported to the same officials to whom a cash transaction in that amount is reportable on IRS Form 8300, because it is considered a collectible cash substitute, even though it is legal to do so and no tax is specific to barter transactions in gold or silver. IRS Publication 1544 explains the rule.
Let's say you have an actual contract where you give A something of value in consideration of which B gives you something of value. That way, the exchange is legally enforceable and is not just a cancellable promise. This is all written up clearly, and you become a creditor. One thing to bear in mind is that you may have to wait in line so that others are paid first. For example, taxes have to be paid, also secured creditors have to be paid. Nearly at the end of the list, unsecured creditors such as you are paid, and finally heirs can receive shares of what is left. I don't know what you mean by &quot;recognizing&quot; a debt, but what a financial institution could do is treat a debt as an asset, for the purposes of a loan. For instance, a bank might lend you $10,000 where you pledge your home as a thing of value that they can take in case you default on repayment. You cannot force a bank to accept a particular asset as collateral, so the answer to the &quot;how&quot; question is &quot;by persuasion&quot;. Since your asset has an indefinite value between $0 and let's say $10,000, you would have to persuade the bank that there is negligible risk to them. In the case of property used as collateral, when you default the creditor can use the courts to seize your property and sell it, but they can't seize the property of a third party who owes you something, they would have to wait possibly for years for the third party to die and see what's left. Investment instruments might be used as collateral, but only if they can be liquidated reasonably promptly. The risk to the bank is extremely high, but if you are very persuasive, they might accept such a debt as collateral.
First of all, there is more than one legal sense in which the term a person's "estate" is used. You are using it in the archaic sense of all of the property owned by a living natural person, but this is not a contemporary use of the term. Normally, the term estate is referred to property that belongs to a dead person that is subject to probate, the property that belongs to a trust, or the property that was transferred to a bankruptcy trustee by operation of law upon the filing of a bankruptcy petition. None of those modern senses of the word apply to this question. You are just asking about the extent to which a particular kind of debt (criminal restitution) can be collected from the person who owes that debt. Your tag also implies that you are particularly interested in New York law. The probate laws of the State of New York are codified in a portion of its statutes known as the EPTL (Estate, Powers and Trusts law), but as noted above, that is not relevant in this case. The criminal law provisions related to restitution, and the general rules applying to debt collection (spread across several of New York's statutes such as the Real Property Actions and Proceedings Law (RPAPL), the New York Penal Law, and the Civil Procedure Laws and Rules (CPLR)) are the laws applicable to your subquestions. 1) Mr. X has spent all the money and is broke. He can't possibly pay the $1 million. When he gets out of jail and (presumably) starts working again, how much of his income can he keep, and how is "excess income" assessed toward the $1 million debt? This involves the liability of Mr. X and not "his estate". If he goes bankrupt this debt would not be discharged if the proper procedural steps are taken. In general, restitution judgments can be enforced by the procedures set forth for collection of a civil judgment and also through the terms of any relevant probation or parole conditions (which would typically allow for incarceration for willful failure to comply with the conditions to the extent that Mr. X is able to do so with minimal due process protections). Civil judgments can be enforced through garnishment of amounts owed to you (such as bank account balances and wages) subject to certain exemptions from creditors (only some of which apply to restitution judgments) and through writs of execution against property owned by you (the process is quite different for tangible personal property v. real property). The general rule is that wages are exempt from creditors up to an amount equal to 30 hours times minimum wage or 75% of the total whichever is greater. There is usually no exemption for income as an independent contractor, businessman or for bank accounts (unless fully traceable to certain exempt assets). Certain kinds of property (there is a long list) are exempt from creditors as well (although certain kinds of assets are exempt as against some but not other creditors). 2) Mr. X has a house worth $1 million with a mortgage of $1 million (a civil liability). I have been told that a criminal judgment takes precedence over a civil liability. Is it true, as my friend asserts, that the $1 million crime victims will get their money before the mortgagee after the house is sold? This is also a claim against Mr. X and not his estate. Your friend was incorrect. A mortgage is a property interest that takes priority over an unsecured debt like a restitution judgment even if that debt may have special priorities in some circumstances. (This assumes that the mortgage is recorded before a "judgment lien" is recorded in the real property records of the county where the house is purchased or is recorded contemporaneously with the purchase of the house. If a judgment lien is recorded and then a mortgage is entered into and recorded later, the judgment lien would have priority.) 3) Mr. X has a house worth $2 million with a $1 million mortgage, and $1 million of equity. Is there anything (e.g. taxes) that will stand in the way of the house being sold, $1 million being paid to reimburse the crime victims, and $1 million to the mortgagee? Put another way, what is the order of reimbursment between victim, mortgagee, and other claimants such as taxes? To grossly oversimplify a complicated process with a variety of exceptions: The highest priority would be any outstanding liens for unpaid property taxes, Then sometimes all or part of a homeowner's association lien, then the first mortgage, then any other other liens junior to the mortgage that are not subject to a homestead exemption of CPLR Section 5206, because the homestead exemption was waived or to which it does not apply by law (e.g. mechanic's liens for work done on the property but not paid for and second mortgages), then the homestead exemption amount (paid to Mr. X) which in New York ranges from $75,000 to $150,000 depending upon the county in question which remains exempt for one year if kept segregated or reinvested in a new home (twice as much if the debtor is married), then judgment liens paid in order of recording which were recorded prior to the restitution judgment lien. The property interest in the house associated with judgment liens or other mortgages recorded after the restitution judgment lien foreclosed upon that burden the property (i.e. junior liens) are erased in a foreclosure, subject to a right of redemption set forth in in RPAPL Section 1352: Sec. 1352. JUDGMENT FORECLOSING RIGHT OF REDEMPTION. Where real property has been sold pursuant to a judgment in an action to foreclose a mortgage, and an action is thereafter brought to foreclose or extinguish a right of redemption in such real property, the judgment, instead of directing a sale of the property, shall fix the right of any person having a right of redemption therein or the right to foreclose a subordinate mortgage or other lien and shall provide that a failure to redeem or commence an action for the foreclosure of such mortgage or other lien within such time shall preclude such person having a right of redemption or the holder of such mortgage or other lien from redeeming such property or foreclosing such mortgage or other lien, and thereafter such person having a right of redemption or the holder of such mortgage or other lien shall be excluded from claiming any title or interest in such property and all title or interests of such person having a right of redemption in, or the right to foreclose a subordinate mortgage or other lien against such property shall thereby be extinguished and terminated. The claims would be paid out of the proceeds of a sheriff's sale net of the costs of sale. If there is money left over after all of these claimants are paid, it would go to the property owner, Mr. X. But, in your scenario with a $1 million mortgage and a $1 million restitution lien and a $2 million value, there would be no excess. If a properly bid sale price is not enough to pay the entire restitution judgment, the shortfall called a "deficiency" remains as a "deficiency judgment" that is still owed by Mr. X. Strictly speaking, the higher priority liens don't get paid from the sales proceeds (except the owner's homestead exemption amount), instead the foreclosure sale buyer takes the property subject to those liens and those senior lienholders have a right to foreclosure in turn if they are paid off. Also, procedurally, the value of the property net of higher priority liens and encumbrances is determined by the highest bid made at a sheriff's sale (with the foreclosing debtor allowed to use the amount of the lien as payment), not on the basis of an appraisal or prolonged sale via a realtor. Often there will be no bidder other than the creditor bringing the foreclosure. APPENDIX: Criminal restitution in New York State is primarily governed by N.Y. Penal Law Section 60.27 which reads as follows: Restitution and reparation In addition to any of the dispositions authorized by this article, the court shall consider restitution or reparation to the victim of the crime and may require restitution or reparation as part of the sentence imposed upon a person convicted of an offense, and after providing the district attorney with an opportunity to be heard in accordance with the provisions of this subdivision, require the defendant to make restitution of the fruits of his or her offense or reparation for the actual out-of-pocket loss caused thereby and, in the case of a violation of section 190.78, 190.79, 190.80, 190.82 or 190.83 of this chapter, any costs or losses incurred due to any adverse action taken against the victim. The district attorney shall where appropriate, advise the court at or before the time of sentencing that the victim seeks restitution or reparation, the extent of injury or economic loss or damage of the victim, and the amount of restitution or reparation sought by the victim in accordance with his or her responsibilities under subdivision two of section 390.50 of the criminal procedure law and article twenty-three of the executive law. The court shall hear and consider the information presented by the district attorney in this regard. In that event, or when the victim impact statement reports that the victim seeks restitution or reparation, the court shall require, unless the interests of justice dictate otherwise, in addition to any of the dispositions authorized by this article that the defendant make restitution of the fruits of the offense and reparation for the actual out-of-pocket loss and, in the case of a violation of section 190.78, 190.79, 190.80, 190.82 or 190.83 of this chapter, any costs or losses incurred due to any adverse action, caused thereby to the victim. In the event that restitution or reparation are not ordered, the court shall clearly state its reasons on the record. Adverse action as used in this subdivision shall mean and include actual loss incurred by the victim, including an amount equal to the value of the time reasonably spent by the victim attempting to remediate the harm incurred by the victim from the offense, and the consequential financial losses from such action. Whenever the court requires restitution or reparation to be made, the court must make a finding as to the dollar amount of the fruits of the offense and the actual out-of-pocket loss to the victim caused by the offense. In making this finding, the court must consider any victim impact statement provided to the court. If the record does not contain sufficient evidence to support such finding or upon request by the defendant, the court must conduct a hearing upon the issue in accordance with the procedure set forth in section 400.30 of the criminal procedure law. The provisions of sections 420.10, 420.20 and 420.30 of the criminal procedure law shall apply in the collection and remission of restitution and reparation. For purposes of the imposition, determination and collection of restitution or reparation, the following definitions shall apply: (a) the term "offense" shall include the offense for which a defendant was convicted, as well as any other offense that is part of the same criminal transaction or that is contained in any other accusatory instrument disposed of by any plea of guilty by the defendant to an offense. (b) the term "victim" shall include the victim of the offense, the representative of a crime victim as defined in subdivision six of section six hundred twenty-one of the executive law, an individual whose identity was assumed or whose personal identifying information was used in violation of section 190.78, 190.79 or 190.80 of this chapter, or any person who has suffered a financial loss as a direct result of the acts of a defendant in violation of section 190.78, 190.79, 190.80, 190.82 or 190.83 of this chapter, a good samaritan as defined in section six hundred twenty-one of the executive law and the office of victim services or other governmental agency that has received an application for or has provided financial assistance or compensation to the victim. A victim shall also mean any owner or lawful producer of a master recording, or a trade association that represents such owner or lawful producer, that has suffered injury as a result of an offense as defined in article two hundred seventy-five of this chapter. (a) Except upon consent of the defendant or as provided in paragraph (b) of this subdivision, or as a condition of probation or conditional discharge as provided in paragraph (g) of subdivision two of section 65.10 of this chapter, the amount of restitution or reparation required by the court shall not exceed fifteen thousand dollars in the case of a conviction for a felony, or ten thousand dollars in the case of a conviction for any offense other than a felony. Notwithstanding the provisions of this subdivision, if an officer of a school district is convicted of violating any section of article one hundred fifty-five of this chapter where the victim of such crime is such officer's school district, the court may require an amount of restitution up to the full amount of the fruits of the offense or reparation up to the full amount of the actual out-of-pocket loss suffered by the victim, provided further that in such case the provisions of paragraph (b) of this subdivision shall not apply. (b) The court in its discretion may impose restitution or reparation in excess of the amounts specified in paragraph (a) of this subdivision, provided however that the amount in excess must be limited to the return of the victim's property, including money, or the equivalent value thereof; and reimbursement for medical expenses actually incurred by the victim prior to sentencing as a result of the offense committed by the defendant. Any payment made as restitution or reparation pursuant to this section shall not limit, preclude or impair any liability for damages in any civil action or proceeding for an amount in excess of such payment. In the event that the court requires restitution or reparation to be made to a person and that person dies prior to the completion of said restitution or reparation, the remaining payments shall be made to the estate of the deceased. The court shall in all cases where restitution or reparation is imposed direct as part of the disposition that the defendant pay a designated surcharge of five percent of the entire amount of a restitution or reparation payment to the official or organization designated pursuant to subdivision eight of section 420.10 of the criminal procedure law. The designated surcharge shall not exceed five percent of the amount actually collected. Upon the filing of an affidavit of the official or organization designated pursuant to subdivision eight of section 420.10 of the criminal procedure law demonstrating that the actual cost of the collection and administration of restitution or reparation in a particular case exceeds five percent of the entire amount of the payment or the amount actually collected, as the case may be, the court shall direct that the defendant pay an additional surcharge of not more than five percent of the entire amount of a restitution or reparation payment to such official or organization, or the actual cost of collection or administration, whichever is less unless, upon application of the defendant, the court determines that imposition of such additional surcharge would cause undue hardship to the defendant, or any other person who is financially supported by the defendant, or would otherwise not be in the interest of justice. Such additional surcharge, when added to the initial five percent surcharge, shall not exceed ten percent of the amount actually collected. If the offense of which a person is convicted is a class A, class B, class C, or class D felony involving the sale of a controlled substance, as defined in article two hundred twenty of this chapter, and no other victim who is a person is seeking restitution in the case, the term "victim" as used in this section, in addition to its ordinary meaning, shall mean any law enforcement agency of the state of New York or of any subdivision thereof which has expended funds in the purchase of any controlled substance from such person or his agent as part of the investigation leading to such conviction. Any restitution which may be required to be made to a law enforcement agency pursuant to this section shall be limited to the amount of funds expended in the actual purchase of such controlled substance by such law enforcement agency, less the amount of any funds which have been or will be recovered from any other source, and shall not include a designated surcharge pursuant to subdivision eight of this section. Any law enforcement agency seeking restitution pursuant to this section shall file with the court and the district attorney an affidavit stating that funds expended in the actual purchase of a controlled substance for which restitution is being sought have not been and will not be recovered from any other source or in any other civil or criminal proceeding. Any law enforcement agency receiving restitution pursuant to this section shall promptly transmit to the commissioner of the division of criminal justice services a report stating the dollar amount of the restitution received. If the offense of which a person is convicted is defined in section 150.10, 150.15 or 150.20 of this chapter, and no other victim who is a person is seeking restitution in the case, the term "victim" as used in this section, in addition to its ordinary meaning, shall mean any municipality or volunteer fire company which has expended funds or will expend funds for the purpose of restoration, rehabilitation or clean-up of the site of the arson. Any restitution which may be required to be made to a municipality or volunteer fire company pursuant to this section shall be limited to the amount of funds reasonably expended or to be expended for the purpose of restoration, rehabilitation or cleanup of the site of the arson, less the amount of any funds which have been or will be recovered from any other source, and shall not include a designated surcharge pursuant to subdivision eight of this section. Any municipality or volunteer fire company seeking restitution pursuant to this section shall file with the court, district attorney and defense counsel an affidavit stating that the funds reasonably expended or to be expended for which restitution is being sought have not been and will not be recovered from any other source or in any other civil or criminal proceeding. For the purposes of this subdivision, "volunteer fire company" means a fire company as defined in paragraph a of subdivision two of section one hundred of the general municipal law. Notwithstanding any other provision of this section to the contrary, when a person is convicted of harming an animal trained to aid a person with a disability in the second degree as defined in section 195.11 of this chapter, or harming an animal trained to aid a person with a disability in the first degree as defined in section 195.12 of this chapter, the court, in addition to any other sentence, shall order the payment of restitution to the person with a disability who was aided by such animal. If the offense of which a person is convicted is defined in section 155.25, 155.30, 155.35, 155.40 or 155.42 of this chapter, and the property taken is timber, the court may upon conviction, in addition to any other sentence, direct the defendant to pay the rightful owner of such timber an amount equal to treble the stumpage value of the timber stolen as defined in section 71-0703 of the environmental conservation law and for any permanent and substantial damage caused to the land or the improvements thereon as a result of such violation. Such reparations shall be of such kind, nature and extent as will reasonably restore the lands affected by the violation to their condition immediately before the violation and may be made by physical restoration of such lands and/or by the assessment of monetary payment to make such restoration. If the offense of which a person is convicted is defined in section 240.50, subdivision one or two of section 240.55, section 240.60, section 240.61, section 240.62 or section 240.63 of this chapter, and no other victim who is a person is seeking restitution in the case, the term "victim" as used in this subdivision, in addition to the ordinary meaning, shall mean any school, municipality, fire district, fire company, fire corporation, ambulance association, ambulance corporation, or other legal or public entity engaged in providing emergency services which has expended funds for the purpose of responding to a false report of an incident or false bomb as defined in section 240.50, subdivision one or two of section 240.55, section 240.60, section 240.61, section 240.62, or section 240.63 of this chapter. Any restitution which may be required to be made to a victim pursuant to this subdivision shall be limited to the amount of funds reasonably expended for the purpose of responding to such false report of incident or false bomb, less the amount of any funds which have been or will be recovered from any other source and shall not include a designated surcharge pursuant to subdivision eight of this section. Any victim seeking restitution pursuant to this subdivision shall file with the court, district attorney and defense counsel an affidavit stating that the funds reasonably expended for which restitution is being sought have not been and will not be recovered from any other source or in any other civil or criminal proceeding, except as provided for by section 3-112 of the general obligations law. Where a transfer of probation has occurred pursuant to section 410.80 of the criminal procedure law and the probationer is subject to a restitution condition, the department of probation in the county in which the order of restitution was imposed shall notify the appropriate district attorney. Upon notification by the department of probation, such district attorney shall file a certified copy of the judgment with the clerk of the county in the receiving jurisdiction for purposes of establishing a first lien and to permit institution of civil proceedings pursuant to the provisions of subdivision six of section 420.10 of the criminal procedure law.
I assume you are talking about this case: FORIS GFS AUSTRALIA PTY LTD vs THEVAMANOGARI MANIVEL. For that amount, most people would be willing to break the law to keep it, and good advice what to do would be “ask a lawyer”. Needs citation. I certainly wouldn't: a) I think taking money that I know doesn't belong to me is wrong, b) even if I didn't believe that, the amount is so large the bank will certainly eventually come after it. The amount is so large I won't credibly be able to claim an innocent mistake. Simply hiding the money won't work, since the bank will be able to demonstrate that the money was deposited in my account, and I did withdraw it. I would be required to make restitution. This is exactly what happened to the defendant in the above case: they split up the money among friends and bought a house. The house is now being sold by the court, with the proceeds used to reimburse the plaintiffs. Would a lawyer be allowed to give me legal advice to help me keeping this money, for example by giving 500,000 each to twenty reliable friends, moving to Panama, or whatever would allow me to keep and spend the money? (Not asking whether two strategies that I came up with in ten seconds would actually work). Especially if it is advice if the form “X is illegal, but you can get away with it”. No. For example, the American Bar Association Model Rules of Professional Conduct, Rule 1.2 Scope of Representation &amp; Allocation of Authority Between Client &amp; Lawyer states: (d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. That's just a suggested ethical standard, but most countries will have something along those lines. Note also that in the US there is also a &quot;Crime-Fraud&quot; exception to attorney-client confidentiality. If a lawyer assists a client in carrying out a criminal or fraudulent scheme then their communications are no longer privileged and can be subpoenaed and introduced as evidence in court.
In the case of McKee v. Isle of Capri Casinos, we can tell because that case has been legally decided. As the court says, there was a contract and "the patron was not entitled to the bonus under those rules", and plaintiff "failed to prove the necessary elements of either promissory or equitable estoppel". They did not "represent to her that a bonus would be available if she played the game", and did not "promise to pay the $41 million after the notice was displayed". The (very complex) rules of the game are easily available on the machine, and there is a prominent disclaimer that "MALFUNCTION VOIDS ALL PAYS AND PLAYS". Under the rules, the winning configuration stated that she was entitled to $1.85. The problem was that it also announced "Bonus Award - $41797550.16". This was due to an inexplicable software error which in communicating with the central computer awarded a "legacy bonus", which is no part of the game in question. The maximum legacy bonus is $99999.99; the manufacturer knows of the possibility of this kind of error and has implemented a fix that is thought to eliminate the problem. The first point then is that the casino didn't just claim there was a malfunction, they proved that there was one. Second, the terms of the contract hold: she was entitled to $1.85, and the extraneous message was not part of the contract. That is, she did not actually win the large payout, the malfunction was in saying that she received a bonus. If a patron could likewise prove that they had actually won but the machine malfunctioned to represent the situation as a loss, they would of course be entitled to the appropriate winnings. The problem simply resides in the difficulty of a patron proving that.
Would the court be able to order the gym to transfer said membership to a creditor? Or perhaps pay out a pro rate lump sum to the creditors in exchange for canceling said membership? Would it matter if the lifetime purchase is for something more substantial than a gym membership? I.e. do the rules change if you've contracted Hilton to provide you a free room in any hotel for the rest of your life? What happens varies a bit depending upon the kind of bankruptcy. In a Chapter 7, all property and contract rights of the bankrupt debtor vest in the bankruptcy trustee when the bankruptcy petition is filed, by operation of law, with certain exceptions. (Chapters 11, 12 and 13 which are reorganizations are conceptually more complicated and I won't address them at length. But, in a reorganization, the title to the debtor's property doesn't necessary vest in a distinct bankruptcy estate at a single moment in time and instead can continue to be owned by the debtor subject to various bankruptcy related obligations.) Certainly, a right to use a hotel for life, which is very close but not identical to a legal life estate in a time share, would be a bankruptcy estate asset and would be vested in the bankruptcy trustee. The bankruptcy court is fairly limited in how it can adjust the rights of third-parties who are not creditors of the bankrupt, although it is not entirely without any authority to do so. It can invalidate &quot;ipso facto&quot; clauses in contracts that are triggered only upon bankruptcy, it can unwind preferential payments and fraudulent transfers made prior to filing for bankruptcy, the trustee can invalidate contracts that a third-party lien creditor could invalidate, they can declare restraints on the transferability of contract and property rights that are invalid under state law invalid, and so on. But, generally speaking, the property rights of a party are what they are defined to be unless a specific exception applies. In some cases, if an asset is not exempt from creditors claims, but is also not transferrable, the bankruptcy court could probably compel the bankrupt debtor to buy that asset back from the bankruptcy estate at fair market value, on some sort of financing terms that made it possible to do so, so that the creditors of the estate are not harmed by the lack of transferability. A fact pattern involving a membership in a Surf Club worth several hundred thousand dollars is explored in 2014 ruling in Feaster v. Surf Club, an adversary proceeding in a debtor-member's Chapter 13 bankruptcy, although it doesn't address all of the issues in this question.
Short Answer Does a secured loan create obligations beyond the collateral assets? The vast majority of the time it does. Long Answer The default rule is that security interests in assets other than real property is a recourse debt under the Uniform Commercial Code (UCC) (a model statute that individual states can enact voluntarily) and the applicable common law (which is uniform almost everyplace except Louisiana and Puerto Rico). This means that deficiency judgments are allowed if the seized collateral is insufficient to pay the loan in full. It also means that the lender can sue on the debt without foreclosing the collateral at all if the lender wishes to do so. A note and security agreement can be made expressly &quot;non-recourse&quot; which limits recovery to seizure of the collateral and precludes a suit on the debt itself. A secured loan can also become non-recourse if the unsecured debt is discharged in bankruptcy, or if the deadline for filing a claim expires in a probate case. Neither bankruptcy nor the probate claims process extinguish the rights of a secured creditor in the collateral, even if the right to bring a suit on the debt itself is terminated. Special tax rules (that, in substance, disallow tax losses with no economic effect) apply to non-recourse debts (especially the special case of limited liability companies which are taxed as general partnerships but subject to special non-recourse debt rules). When filing a claim in bankruptcy, if the collateral is worth less than the debt, two claims must be filed. One secured claim in an amount equal to the value of the collateral and a second unsecured claim in the amount by which the debt exceeds the value of the collateral. In the case of secured debts in real property, most states mirror the personal property rule (which is very close to Uniform since every state, territory and district in the U.S. had adopted Article 9 of the Uniform Commercial Code governing security interests in property other than real estate). But in a few states (including California), security interests in owner occupied residential real estate (a.k.a. mortgages, liens, encumbrances, or deeds of trust) are truly, or in practice are, effectively non-recourse. Be aware also that there are a handful of isolated, mostly state specific but some federal exceptions. The most pertinent federal exception is for swap agreements and certain other kinds of derivatives (exceptions which are found primarily in the bankruptcy code) involving setoffs. There is a section of the Uniform Commercial Code Article 9 involving &quot;strict settlements&quot; that rarely applies except in pawn arrangements. There are also a number of statutory liens (mostly perfected by possession of the collateral rather than by a UCC-1 financing statement) that create a security interest in collateral by operation of law without a signed security agreement that are sometimes non-recourse (e.g. auto mechanic's liens in selected states).