Concealing Assets May Result in Dismissal of Bankruptcy Case

A Louisville Chapter 7 bankruptcy filing presents an incredible opportunity for those who are buried by debt. However, it’s of paramount importance that debtors are forthcoming with the court regarding their assets – ALL of their assets. Otherwise, they risk potentially having their case dismissed, in addition to other possible sanctions.
That’s exactly what happened in Daniels v. Agin, a case recently reviewed by the U.S. Court of Appeals for the First District.

In this case, the trustee determined that the debtor had intentionally failed to disclose and deliberately concealed information from the court, a move that prompted the bankruptcy court to revoke the debtor’s discharge. That means he’ll be on the hook for all the debt he was trying to have removed.

The debtor in this case was from Massachusetts, and he had filed for a Chapter 7 bankruptcy, which allows for the total discharge of debts. In doing so, however, the court will consider the assets you have and liquidate those in order to help pay your creditors. These creditors won’t be paid in full, of course, but they may receive some compensation.

In each Chapter 7 bankruptcy case, there are exemptions for which debtors can and should file. These exemptions can protect certain assets, like your home, your retirement accounts, your car, various household items, etc.

In this case, the debtor, who was engaged in a decreasingly profitable business as a fishing boat broker, and requested a summary judgment that would allow his profit-sharing plan to be excluded from the bankruptcy estate. That would mean he would be allowed to keep it, and it could not be liquidated in order to help satisfy his debt.

The plan contained approximately $440,000 in funds that had been transferred from the trust of a deceased uncle, whose widow had sued the debtor, claiming he was not entitled to transfer those funds. The widow won her civil case, but she had not been paid by the time the debtor filed for bankruptcy in 2007.

About six months before his bankruptcy filing, the debtor transferred some $470,000 from the profit-sharing plan into two new IRA accounts that were in his name.

He initially filed for a Chapter 13 bankruptcy, which was later converted to a Chapter 11 and then to a Chapter 7.

In the subsequent bankruptcy schedules disclosing assets, which he was required to file, he did not include those two new IRA accounts and further requested exemption of the profit-sharing plan, which was valued at $575,000 and described as an IRA. The debtor failed to turn over any documents relating to the two IRAs, and there was no mention of them in subsequent meetings.

He was granted a discharge of his debts in July of 2009.

That might have been the end of the story, but for an IRS audit that was requested later that year. Auditors specifically requested information regarding the relationship between the plan and the two IRA accounts.

The findings of that audit subsequently prompted the bankruptcy trustee in the case to file an objection to the debtor’s claim of exemption for the profit-sharing plan because he had used it to provide a loan to his son – something prohibited by the IRS.

It was at this time that the court learned that the bulk of the plan’s assets had been transferred to the undisclosed IRAs.

As a result, the bankruptcy court granted the trustee’s motion, finding that the profit-sharing plan should not have qualified for an exemption and thus neither should the IRAs, whose funds were derived from that plan. The concealment of the accounts further sealed the fate of those accounts as non-exempt.

If you need to speak to a Kentucky bankruptcy attorney or Louisville foreclosure defense firm, contact the Schwartz Bankruptcy Law Center at 866-270-4495 for a free and confidential consultation to discuss your rights.

Additional Resources:
Daniels v. Agin, Nov. 25, 2013, U.S. Court of Appeals for the First District, Appeal from the U.S. District Court for the District of Massachusetts
More Blog Entries:
Louisville Bankruptcy Lawyers – Borrowing Money Before Filing, May 29, 2013, Louisville Chapter 7 Bankruptcy Lawyer Blog

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