Discharge Denied Former Chapter 13 Debtors

28 Apr Discharge Denied Former Chapter 13 Debtors

It is generally unwise to break the rules and disobey a court order. This appears to be true for debtors in a Chapter 13 plan as well. InStandiferd v. United States Trustee the 10th Circuit Court of Appeals upheld denial of discharge for twodebtors who failed to comply with the court order confirming their plan and later sought a Chapter 7 discharge. The Court of Appeals for the 10th Circuit approved the use of Bankruptcy Code §727(a)(6)(A) by the bankruptcy court after the Standiferds refused to obey the confirmation order by failing to file monthly operating reports and copies of their tax returns with the trustee.

While the results appear harsh, the facts of the case show that the Standiferds nearly tripled their already considerable debt during the four years they operated an undisclosed business under the protection of their Chapter 13 plan. While debts mounted, profits from the business were used for home improvements. By failing to provide copies of tax returns to the trustee, the Standiferds were able to conceal the income from their business and make modest payments on their plan while feathering their nest. Converting a case to Chapter 7 is freely permitted and may be good strategy in some circumstances. If the conversion is made in good faith, debtors are allowed to keep assets they acquired during the Chapter 13 case and discharge new debts.

Like many things in life, good faith is the key to a successful conversion by Chapter 13 debtors. The reverse, evident in the Standiferd case, appears to include the failure to disclose income to the trustee and the debtors’ willful failure to comply with the terms of a confirmedplan. Loss of the discharge is a significant penalty. However, the Standiferds willfullyfailed to comply with a lawful order of the court and the result of that failure was the concealment of important information from the trustee.

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.
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