Destruction of Bank Statements No Grounds for Denial of Discharge, Massachusetts Court Rules

21 Feb Destruction of Bank Statements No Grounds for Denial of Discharge, Massachusetts Court Rules

A Massachusetts bankruptcy court recently ruled that a chapter 7 debtor’s destruction of his bank statements was insufficient grounds to deny him a discharge under sections 727(a)(3) or 727(a)(4)(D) of the bankruptcy code.

The debtor in In re Hegarty, 2008 WL 5246475 (Bky.D.Mass. Dec. 16, 2008), had operated a credit reporting business some years before his chapter 7 case was filed. He transferred the business to his daughter, along with its checking account, but he retained check signing authority. The debtor did not write any checks on the account during the two years prior to his bankruptcy filing, and he asked his daughter to remove his name from the account. The debtor’s schedules omitted any reference to this account.

The trustee argued that the debtor should have listed the account in his schedules, and that it was fraudulent to fail to do so. The court disagreed, ruling that there was no fraudulent intent. The debtor had testified credibly that he no longer believed he had any interest in this account, even though in actuality the account had remained in his name.

The debtor had also opened a personal checking account two years prior to his bankruptcy filing. He did not retain any of his bank statements which had mailed to his residence, because retaining such statements was not his practice. Accordingly, none of these statements was in his possession when he filed bankruptcy. Additionally, the debtor simply listed a “checking” account on his bankruptcy schedules; he did not indicate the name of the bank nor did he supply the account number.

After the trustee commenced an adversary proceeding relating to the debtor’s prebankruptcy transfer of assets, the trustee made numerous requests for the missing bank statements. The debtor never produced them, but the trustee eventually obtained the bank statements by means of a subpeona.

The court ruled that although the debtor had unquestionably “failed to keep or preserve” his bank records within the meaning of section 727(a)(3), the debtor’s conduct was justified. The debtor was well aware that his bank records could readily be obtained from the bank later, if the need arose. Additionally, there was some confusion between the trustee and the debtor’s attorney as to whether the trustee had simply agreed to obtain the bank statements himself, by subpeona. The court also ruled that the debtor did not “withhold” the bank statements with the meaning of section 727(a)(4)(D), because the debtor was not in possession of the bank statements.

The court denied the trustee’s request for denial of discharge, simply noting, with remarkable restraint, that “this matter could have been resolved easily by either party without the need of a trial,” and that the result was “an unnecessary trial and use of resources.”

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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