Judge refuses to hold ex-lawyer Chris Pettit in contempt

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Former San Antonio lawyer Christopher “Chris” Pettit – accused of looting his clients’ money – narrowly avoided being tried in contempt of court for withdrawing more than $186,000 from his retirement accounts after filing for bankruptcy.

Also on Monday, U.S. Chief Bankruptcy Judge Craig Gargotta awarded Pettit $100 a day to cover his living expenses pending a hearing on the former attorney’s motion to receive a personal budget of more than $10,000 a day. month.

The Chapter 11 trustee overseeing Pettit’s bankruptcy assets wanted him to be held in contempt for withdrawing money from his retirement accounts and then went on a spending spree.

Calling it a “very close” decision, Gargotta said he was “not ready to find Mr. Pettit in contempt” after a hearing that spanned three days. The evidence was “mixed” as to whether Pettit cooperated with the trustee, he said.

“I want to say clearly for the benefit of everyone here, I don’t condone what he did,” Judge said. About a dozen former clients of Pettit attended the hearing at a downtown courthouse.

Trustee Eric Terry determined Pettit spent more than $260,000 in the nearly 50 days after he filed for bankruptcy on June 1. Much of it went to “unnecessary and inappropriate” expenses, Terry alleged, including $20,000 at Disney World and nearly $5,000 at the Four Seasons Resort Orlando.

Pettit, 55, said the retirement money was exempt from the bankruptcy estate — and beyond the reach of his creditors — because the accounts were funded by legitimate income under federal law. He thus says he is free to use the money as he sees fit. Terry replied that no decision has been made as to whether the money is exempt.

Gargotta, citing case law, said property eligible for exemption is initially considered property of the bankruptcy estate until it is “claimed and distributed as exempt.”

Instead of scorning Pettit, Gargotta said he would “put a little more teeth” into the trustee’s other demands. If Pettit fails to comply with these, the trustee can file documents with the court showing that Pettit is in contempt.

If Pettit doesn’t “purge” himself on the contempt charge, he can be incarcerated, the judge said.

“In my view, the only stick the court has is … to put Mr. Pettit in jail,” Gargotta said.

“I don’t know if monetary penalties at this stage will be sufficient,” the judge added. “So I’m going to have to provide an incentive, if you will, to make sure Mr. Pettit cooperates with the trustee and any other interested parties.”

In his decision, the judge prohibited Pettit from spending more on retirement or other accounts. He cannot transfer any personal property and must return all jewelry and works of art to the trustee. He must also allow the trustee to inspect a Florida mansion, according to Pettit, which is owned by an entity for the benefit of his 10-year-old son’s trust. The property was valued at over $6 million.

Pettit filed for bankruptcy for himself and his law firm after a dozen lawsuits were filed against him alleging he stole client funds. He personally listed approximately $40 million in assets and $112 million in debt. At least $50 million of client money is missing, a creditor’s attorney has estimated.

Pettit also returned his law degree. He had been in practice since 1991, specializing in estate planning and personal injury cases. But he also handled trust and probate matters, prepared tax returns and provided financial advice.

The FBI investigated the clients’ allegations. An assistant U.S. attorney attended the first day of the hearing on Wednesday.

The judge scheduled a hearing for August 4 on Pettit’s emergency motion to use money and approve a “limited” budget.

Until then, Pettit and his son will have to live on $100 a day.

Michael Colvard, Pettit’s bankruptcy attorney, was looking for more. Colvard said Pettit didn’t have a car and a Lyft from his home in a gated community of Stone Oak to downtown was at least $20 each way. Pettit claims a 2021 Porsche Macan, worth $46,000, as exempt from his bankruptcy.

“I’m going to stick to $100 a day right now,” Judge said. “I’m not changing my mind on that.”

On Sunday, Colvard submitted a proposed budget to the court that asks Pettit to receive about $10,300 a month for his expenses. Almost half of the money is allocated to child care costs and school fees. The second largest expense is $850 for mental health services.

Some creditors are likely to oppose the budget.

Pettit landed a job at an “art store” in Florida, selling art to order, Colvard told the judge. It is unclear whether he will be able to start work, given his daily allowance and the order to cooperate with the trustee.

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