Published by Mark

Anna Nicole Smith Demonstrates Power Of Potential In Bankruptcy

November 11, 2008 at 4:22 am

As Anna Nicole Smith, Vickie Lynn Hogan led a life filled with excitement and tragedy. As I’ve explained many times in earlier blogs, I read many different types of publications in order to keep up with any news that can affect my bankruptcy law clients. I pay no mind to tabloid gossip, but it was almost impossible to ignore the bombardment of startling news about Anna Nicole, ending with her death last year at age forty. Some of these developments relate directly to bankruptcy law.

In order to understand the situation, here is a quick synopsis of the part of Anna Nicole’s bio that provides some insight into how bankruptcy laws work. Anna Nicole’s second marriage was to oil billionaire Howard Marshall, 63 years her senior. Marshall died in the early 1990’s, and Anna Nicole began a lengthy legal battle over her share of her husband’s estate, claiming her husband had promised she’d receive half his assets. This lawsuit dragged on and on, and in 2006 reached all the way to the Supreme Court, which affirmed her right to pursue her case in federal court. (Even though Anna Nicole herself is no longer alive, the dispute over her late husbands’ estate is not yet settled today, and is being pursued in the name of her daughter.) Many lurid details became the stuff of headlines over the years leading up to Anna Nicole’s death from a drug overdose. Her twenty-year old son died while visiting his mother in the hospital. Smith’s attorney Howard Stern, her ex-boyfriend Larry Birkhead, and Zsa Zsa Gabor’s husband Frederic Prinz each claimed to be the father of Nicole’s infant daughter Dannielynn. (Ultimately DNA tests confirmed that Birkhead was the father).

Remember that Anna Nicole’s lawsuit over the estate began in the early 1990’s, yet, ten years later, the suit had not been settled. Meanwhile, Anna Nicole herself was being sued for $850,000 by an employee of hers. Having borne tremendous court costs for the estate suit, Smith was forced to file bankruptcy in the state of California. As I’ve explained in earlier bankruptcy blogs, as part of the process of filing bankruptcy, the debtor is required to prepare for the bankruptcy hearing a list of all assets and all debts (see The Creditors’ Meeting – Be There Or Be Square). What is important to point out here is that the list of assets must include potential assets. In other words, if a debtor is involved in any kind of a lawsuit from which he or she has the potential of collecting money, the bankruptcy court needs to consider that fact. In order for the bankruptcy process to be fair to creditors as well as to debtors, those creditors need to be made aware that the debtor has the potential to collect more money. The creditors will consider that possibility in deciding whether to contest (or whether to agree to) any discharges of debt that might result from the bankruptcy court ruling.

The supreme irony is that Anna Nicole Smith was in dire financial straits at the time of the bankruptcy filing, yet the potential existed that she would be coming into a multi-billion dollar inheritance! As a long-time bankruptcy lawyer in Indiana, serving 38 counties in our state, I must remind readers, my clients are not stars and models like Anna Nicole Smith, but everyday people who have fallen on hard times. Smith’s story does illustrate an important point, though, one I discuss with all my clients as I’m helping them prepare the bankruptcy paperwork: All assets must be disclosed, I explain, even the ones you may be receiving through a lawsuit or judgment. In other words, the bankruptcy court needs to know not only about the birds in your hand, but the ones in the bush as well!

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