Giving grandma the car, the kids the keys to the bungalow in Hawaii or putting Uncle Joe on title to the stock certificate is never a good idea for someone considering filing for bankruptcy. While giving stuff to family members may seem innocent enough, it is something that can come back to haunt a debtor. This is because when an individual files for bankruptcy protection, he or she automatically subjects their past and present financial lives to close inspection. The trustee administering the bankruptcy case typically has a window of time, up to six years in some states, in which to look back and review each transaction entered in to by the debtor.
The bankruptcy court is generally reluctant to deny discharge to an honest debtor. In citing several 9th Circuit Court of Appeals cases that repeat a pithy quote, Judge Randall Dunn states:
“A denial of a discharge is an act of mammoth proportions, and must not be taken lightly. In light of this gravity, this Court and many others have stated that Section 727 must be construed liberally”
However, with the standard of proof set at a preponderance of the evidence, Judge Dunn goes on to say “in spite of whatever weight on the scale favors the debtor’s discharge, a party seeking to deny the debtor a discharge under 11 USC § 727 likely will prevail if the evidence establishes that it is more likely than not that the objecting party’s case is justified.”
It seems that untracked transactions of nearly a million dollars with Russian clients/customers/friends in one year is sufficient to swing the balance in favor of the United States Trustee in an unreported opinion denying discharge to debtor Valerie Caron.
Bankruptcy Code Section 727(a)(3) prevents the granting of a discharge to a debtor when he “has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case.” That was clearly the case for Mr. Caron.
While debtors in bankruptcy are often poor record keepers, the 9th Circuit Court of Appeals has repeatedly required a “true presentation” of the debtor’s financial affairs so that the creditors need not risk the concealment of assets obscured by inaccurate or incomplete books and records. In other words, if the record keeping is so bad that it is not possible to determine whether or not assets are being hidden, a discharge in bankruptcy can be denied to the debtor.