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Bankruptcy Appellate Panel Affirms Denial of Couple’s Bankruptcy Discharge and Sanctions Against Former Attorney

A panel of the U.S. Sixth Circuit Court of Appeals recently affirmed a bankruptcy court’s ruling to deny the discharge of a couple’s debts that had been requested as part of a Chapter 7 bankruptcy petition they filed in 2008 with the help of their attorney. The appeals court ruled that the decision by the bankruptcy court to deny the debtor’s requested discharge because of their failure to disclose their interests in several trusts, corporations, annuities, and other pieces of property owned by others was a legitimate response to the debtors’ apparent attempt to deceive the court as to the nature of their assets and liabilities. The attorney who prepared the initial petition had also been implicated in the ruling of the bankruptcy court and sanctioned for his role in concealing the debtors’ assets, although the debtors were held to their sworn statements and unable to pass full responsibility for the inaccuracies onto their former attorney.

Legal BooksDebtors Fail to Reveal Several Pieces of Property in 2008 Bankruptcy Petition

The debtors in the case of In re Blasingame are a married couple who sought the assistance of a bankruptcy attorney to file a Chapter 7 bankruptcy petition to address their debts in 2008. The attorney prepared a petition, the related schedules, and a Statement of Financial Affairs for the debtors, which were accompanied by affidavits signed and endorsed by the debtors under oath that swore to their knowledge and understanding of the information contained in the schedules, as well as their truthfulness. Throughout the bankruptcy process, the creditors challenged the statements and claims of the debtors, eventually demonstrating to the bankruptcy court that the debtors had knowingly made false statements on their petition.

The Debtors Claimed Their Attorney Prepared the Documents, and They Thought They Were Accurate

When confronted with the allegations of dishonesty and swearing a false oath, the debtors responded that the attorney who prepared their petition had assured to them that everything was being prepared properly and that they did not know that there were blatant omissions in their filings. The bankruptcy court found that the debtors’ attorney had been dishonest in preparing the fillings but also held the debtors to the statements in which they swore they had personal knowledge that the statements made were accurate, and it ultimately dismissed the bankruptcy petition and imposed sanctions against the attorney for the dishonest conduct. The debtors appealed the ruling, arguing that they were honest to their attorney and did not know he had done anything wrong.

Appellate Panel Holds Debtors to Their Word

On appeal, the panel affirmed the denial of the debtors’ petition, holding them accountable for the sworn statements they made and refusing to allow them to pass the blame entirely onto their attorney. The court explained that a debtor can have a bankruptcy denied for making a false statement without regard to the actions of the attorney who prepared the initial filings. By finding that the debtors made a false statement, under oath, which they knew was false, and with the fraudulent intent to deceive the bankruptcy court concerning an issue material to the bankruptcy case, the court made clear that the denial of the discharge was appropriate.

Debtors Have an Affirmative Duty To Disclose Assets to a Bankruptcy Court

Although bankruptcy attorneys are hired to assist debtors with bankruptcy filings and prepare documents, it is ultimately the debtors who are held responsible for disclosing all of their assets to the court. If an attorney wrongfully advises a debtor to withhold information from the court, the debtor may not be able to discharge their debts, and the attorney cannot be held solely responsible in hindsight. For this reason, it is essential for debtors to be honest with their attorneys and the bankruptcy court.

Are You Overwhelmed in Debt and Looking for Help?

If you or a loved one is in trouble with debt, you can get relief without breaking any laws or deceiving the courts. With the help of the Louisville and Southern Indiana bankruptcy attorneys at the Schwartz Bankruptcy Law Center, you can determine a sensible course of action to address your debts, while maintaining possession of assets you do have, legally and without risk of retribution by a court. Contact us today. We represent clients throughout the U.S. in all bankruptcy proceedings. Call 866-366-3328 or contact us through our website to schedule a risk-free consultation.

More Blog Posts:

Debtor Is Denied All Relief after Making False Statements in Bankruptcy Petition, Kentucky Bankruptcy Lawyers Blog, published October 28, 2016.

First Circuit U.S. Court of Appeals Affirms False Oath Charge Against Bankruptcy Debtor, Kentucky Bankruptcy Lawyers Blog, published November 10, 2016.

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