Former Idaho gubernatorial candidate and anti-government activist Ammon Bundy is undergoing bankruptcy proceedings as he tries to discharge $53 million in civil penalties from a defamation suit filed by St. Luke’s Health System in 2022.
But what does it mean to file for this particular type of bankruptcy and how did we get here?
First, the backstory.
Bundy protests prompt hospital lockdown
As previously reported by Boise State Public Radio and the Idaho Capital Sun, St. Luke’s Health System said hundreds of people, including elected officials, attended a protest outside its downtown Boise hospital.
Demonstrators protested over the hospitalization of the grandson of Diego Rodriguez, a close ally of Bundy’s, who was also named in the lawsuit filed by St. Luke’s.
The hospital eventually went into lockdown for roughly two hours and diverted ambulances to other medical facilities during that time.
Bundy and Rodriguez then continually issued statements, released videos and posted blog entries accusing St. Luke’s, its executives and some of its providers of being complicit in child trafficking.
The hospital sued the pair, as well as organizations linked to them, shortly after the protests on May 11, 2022.
After months of hearings, several of which Bundy didn’t attend, 4th District Court Judge Nancy Baskin entered a default judgment against the men and their respective companies totalling $51.8 million, according to court records, with interest accruing at 10.25% per year.
Bankruptcy by the book
There are multiple paths individuals and companies can choose when filing for bankruptcy.
Chapter 7 bankruptcy, which Bundy is seeking, involves liquidating assets to pay off creditors while discharging debts that aren’t exempt under the law.
Once someone files an application for bankruptcy an automatic stay goes into effect to prevent creditors from collecting on debts while proceedings are ongoing.
Bundy’s application lists the St. Luke’s court judgment as his only debt, which he pegs at $53 million.
All told, the assets he reported combine to about $1.6 million. Most of that comes from his former home in Emmett, which Bundy values at $1.4 million.
In his application, Bundy wrote he “sold house to my friend Aaron Welling to try and avoid losing our home to St. Luke’s Health System Executives.”
Since the transaction happened less than two years before he filed for bankruptcy, it’s possible the trustee handling the case could recover the home and sell it.
What can courts wipe off your balance sheet?
Under Chapter 7 bankruptcy, many types of debt can be waived. Of course, that’s after selling any nonexempt assets to pay off creditors.
Consumer debt, like credit card balances, personal loans and medical bills are common things people relieve themselves using Chapter 7 bankruptcy.
There are, however, some types of debt that can’t be wiped clean using bankruptcy. That includes student loans, alimony and child support, as well as certain taxes and debt acquired via fraud.
That leads us to the big question: can civil court judgments be discharged through bankruptcy?
As with just about everything in the legal system, it seems, it depends.
One section of the bankruptcy code lawyers I’ve spoken with said exempts debt from being discharged if it involves “willful and malicious injury by the debtor to another entity or to the property of another entity.”
Attorneys for St. Luke’s could argue Bundy’s actions over the past two years – before, during and after the lawsuit – constitute “willful and malicious injury” to the organization.
Procedurally, that question could turn into a separate lawsuit within the bankruptcy case and could drag on for months or even longer, lawyers said.
Weighing the costs to the benefits
When someone is in dire financial straits, filing for bankruptcy can give them a fresh start.
Under Chapter 7 specifically, debts are largely, if not completely, lifted after the applicant’s assets are sold and used to pay off their creditors as much as possible.
The average case takes between four to six months to process, assuming there aren’t any complications.
The tradeoff is, for the next seven to 10 years, that bankruptcy mark will stay on a person’s credit file, tanking their score.
Jonathan Byington, a professor at University of Montana’s Alexander Blewett III School of Law who specializes in commercial law, said the federal bankruptcy law is part of the American social safety net.
While there are penalties, people can get a financial reset.
“I anticipate this case will illustrate parties arguing over where the limit of that social safety net should be,” Byington said.
That wasn’t always the case throughout history.
Prior to the 18th century, Britain’s early bankruptcy laws required all debts to be repaid before a person could be released from bankruptcy.
Those laws eventually evolved to become more debtor-friendly.
In a presentation to the Federal Reserve Bank in Atlanta, Ann M. Carlos, a professor emerita at University of Colorado Boulder, concluded these changes “had the potential to increase the rate of investment and the retention of entrepreneurial talent in the economy.”
The ancient world offered more extreme solutions.
The Code of Hammurabi, which governed Babylonia in 1700 BC, allowed one to sell themself or family members into slavery for three years as a way to repay a debt.
Egyptians, according to the Greek historian Herodotus, would borrow money using their father’s mummy and family burial chamber as collateral.
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