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Colorado and federal bankruptcy law at odds over what happens in case of death 

Not an easy way out

click to enlarge Gregory Chernushin's bankruptcy continues. - FILE PHOTO
  • File photo
  • Gregory Chernushin's bankruptcy continues.

If you're up to your eyeballs in debt and declare bankruptcy, you could lose everything so your creditors can be paid off.

But under Colorado law, there is a disturbing way you might preserve wealth for your spouse and family: You could kill yourself.

This extreme move might result in certain assets being declared off-limits to creditors — at least that's the issue at the core of a motion filed in December in the bankruptcy case of disbarred Colorado Springs lawyer Gregory Chernushin, who killed himself in June. His death raises the question of whether a Crested Butte vacation home jointly held with his wife, Andrea, is now outside the reach of the bankruptcy court. And it's a particularly interesting question in this case, because Chernushin doesn't just owe money to Visa or a home lender — he admitted to stealing money from his clients, leaving some in dire straits ("A betrayal of trust," Cover, Feb. 24, 2016).

"This is a unique case, and as a result there is a paucity of case law to assist this Court to determine how the law should be applied to the facts," bankruptcy trustee Robertson Cohen wrote in a motion for summary judgment, which asked the judge to allow the home to be sold to pay off creditors. "A vacation home, a disbarred lawyer, a criminal complaint for theft, and a tragic suicide all impact how this case should be decided under the law."

Chernushin, a longtime attorney in Colorado Springs who represented clients injured in wrecks or on the job, closed his practice in early 2015. Several clients filed complaints with the Office of Attorney Regulation Counsel alleging he took their settlements without their permission. Chernushin admitted in the July 2015 disbarment agreement that he took a total of $334,865 from a handful of clients.

In Oct. 2015, Chernushin filed Chapter 7 bankruptcy, which forces the sale of assets to pay debts, including a person's home. In it, he stated he owed people and companies nearly $1.5 million, but his assets were valued at $847,628. Most of that value was vested in his home at 1515 W. Cheyenne Road in Colorado Springs, valued at $595,000, and a condo in Crested Butte, which his bankruptcy filing said was worth $220,000.

The Cheyenne Road property had a mortgage, and assessor records show Frost Construction acquired it Dec. 5 out of foreclosure. The Crested Butte property still has a mortgage against it.

On May 27, 2016, a district judge issued a warrant for Chernushin's arrest, accusing him of four felony counts of theft and two counts of felony forgery. The more serious charges carried penalties of two to six years in prison.

On June 9, Chernushin was found dead of a self-inflicted gunshot wound at the Target Tree Campground off U.S. Highway 160, about 26 miles west of Durango.

Meantime, a filing in U.S. Bankruptcy Court sought an accounting from Andrea Chernushin of assets her husband transferred to her allegedly to avoid payment of his debts. Those debts include more than $350,000 owed to the IRS, as well as hundreds of thousands owed to clients and others.

On June 15, Cohen, the bankruptcy trustee, filed a complaint seeking to sell the Crested Butte property and use the proceeds to pay off creditors in the bankruptcy, after paying the debt against the condo and paying Andrea Chernushin her half of the sales price.

In an Aug. 10 filing, Andrea Chernushin disputed that "this Court has subject matter jurisdiction in any matter related to the Crested Butte Property as that property is no longer an asset of the Debtor's Estate since the Debtor's death in June 2016."

In a Dec. 12 filing, Cohen argues that bankruptcy courts have exclusive jurisdiction over the assets in a bankruptcy estate, including "every conceivable interest of the debtor" held on the date a bankruptcy petition is filed, regardless of the death of the debtor. When the bankruptcy was filed, ownership of the condo was not disputed, Cohen argues.

But that federal bankruptcy law is in conflict with a Colorado law, specifically the law of joint tenancy with right of survivorship. That law allows a property jointly held to transfer to the survivor, and the deceased owner's interest is terminated.

So which pertains? Federal bankruptcy law or state law?

Federal law, Cohen says in his motion, quoting from the U.S. Constitution, which states that federal law "shall be the supreme Law of the Land ... Laws of any State to the Contrary notwithstanding."

"The prospect that property of the estate could be eliminated or removed absent a motion by the trustee and an order of the court is counter to all aspects of the United States Bankruptcy Code," Cohen argues.

On Dec. 29, Andrea Chernushin filed a request seeking an extension of time until Jan. 16 to file a response and cross-motion for summary judgment, which would ask the judge to let her keep the house. "Mrs. Chernushin maintains that Colorado law and bankruptcy law are clear here and that summary judgment should actually enter in her favor on this issue," the motion states.

"Defendant Andrea Chernushin owned the Crested Butte Property as a joint tenant with her deceased husband until June 9, 2016 when he passed away. Defendant Andrea Chernushin is now the sole and exclusive owner of the Crested Butte Property," the filing states.

It adds she is "now the sole owner of the Crested Butte Property as the surviving tenant" and the bankruptcy trustee has no claim to it.

Chernushin's lawyer disciplined

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