Liberal Amendment Rules and Bad Faith

13 Jun Liberal Amendment Rules and Bad Faith

The Bankruptcy Court in New Hampshire recently decided In re Wunderlich, 2007 WL 1630461 (Bkrtcy.D.N.H. 2007) denying a debtor’s attempt to amend his schedule of exemptions in a Chapter 7 bankruptcy case. The Court noted that:

Bankruptcy Rule 1009(a) provides that [a] voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed. Despite this permissive language, the Court may deny the amendment of exemptions where the amendment would prejudice creditors or where the debtor has acted in bad faith or concealed assets. Bad faith is generally determined from an examination of the relevant surrounding circumstances and must be shown by clear and convincing evidence. It takes more than mistake or inadvertence to constitute bad faith, there must be some form of deception.

Id. at 4 (citations and quotation marks omitted).

In this case, the Court found that bad faith was “a recurring theme” running through the case, with the debtor undervaluing assets and making false and misleading statements about his state of residence. Debtors who come into the bankruptcy system planning to play games and mislead the Court often are found out. These debtors are often strongly punished by a Court that has broad discretion to ferret out and curb abuses in the system.

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