Just because you get your bankruptcy discharge doesn’t mean you get to keep it!

27 Nov Just because you get your bankruptcy discharge doesn’t mean you get to keep it!

The Bankruptcy Court in the Eastern District of Texas, Tyler Division, recently revoked a debtor’s discharge for (1) failing to schedule certain assets entirely and (2) substantially undervaluing other assets.

The Court found the debtor acted with fraudulent intent in intentionally not listing the assets and/or undervaluing the assets and concluded the discharge previously granted the debtor was revoked.
In this particular case, the Debtor was involved in contentious divorce litigation with her “soon-to-be ex-spouse.” Bankruptcy court approval was required in order to finalize the property settlement in her divorce. Unfortunately for the debtor, attached to the divorce decree was a list of her sole and separate property that had been attached as an exhibit to her 2001 prenuptial agreement. The lists contained references to properties purportedly belonging to her that were not listed in her bankrupcy schedules.

Subsequently, her Chapter 7 Trustee discovered that her bankruptcy schedules contained “a litany of omissions, inconsistencies, and undervaluations.” Debtor filed amended schedules which revealed even more omissions from the two prior sets of schedules she had filed.

The Debtor testified that the omissions and undervaluations were a result of the careless manner in which she reviewed the sets of schedules prior to signing them and that she was victimized by her attorney alleging he transferred incorrect information from her divorce documents to her bankruptcy schedules. The court found the debtor had knowingly and fraudulently misstated the existence and value of her assets on her schedules and that the mistakes were not innocent mistakes.

The court cited the Seventh Circuit’s In re Yonikus case which stated that “[D]ebtors have an absolute duty to report whatever interests they hold in property, even if they believe their assets are worthless or unavailable to the bankruptcy estate.”

Listing all of one’s assets and liabilities in their bankruptcy schedules is essential and is required of any one filing for bankruptcy protection. The schedules “serve the important purpose of insuring that adequate information is available for the Trustee and creditors without need for investigation to determine whether the information is true.”

While the facts in this case are egregious, it serves as an important lesson to all debtors considering filing for bankruptcy just how important it is to be honest in preparing your paperwork to be filed with the Court. You, as the Debtor, are signing, under penalty of perjury, that the information provided is true and correct to the best of your knowledge. Amending schedules to add something you forgot to list is okay, but amending schedules after you get caught for not listing property is another story.

In re Darby, 2007 WL 2822603 (Bankr.E.D.Tex.).
(Bankruptcy Case No. 04-61246; Adversary No. 06-6004.)

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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