Accurate Disclosure of Financial Condition Vital in Bankruptcy Cases

When a person (the debtor) files for bankruptcy protection, one of the critical aspects to obtaining relief is the debtor’s accurate disclosure of his or her finances. In order for a federal bankruptcy court to properly handle any case, whether it is a Chapter 7, Chapter 12, Chapter 13 or Chapter 11 case, the court must have confidence that the information upon which it makes rulings is basically valid. Otherwise, parties involved in a particular bankruptcy case, as well as the bankruptcy judge, would not be able to make the determinations necessary to litigate or decide a case.

Accordingly, bankruptcy courts can refuse to discharge a debtor under Chapter 7 if the court finds that the debtor made false or fraudulent assertions about his or her financial condition. A federal bankruptcy statute, § 727(a)(4)(A) establishes the standards by which such courts decide if a Chapter 7 debtor can be refused discharge: (1) the debtor must make a false statement under oath; (2) the debtor must know that the statement was false; (3) the debtor must make the statement with fraudulent intent; and (4) the statement related materially to the bankruptcy case.

In a recent case originating in New Mexico,  In re Mesibov, No. 13-10864-j7, Adv. No. 13-1069 T. (Bankr. Court, D. New Mexico 2014), a Chapter 7 debtor was sued by a creditor which claimed that she had falsified information relating to her salary, alimony, a portion of her alimony designated for payment  of her divorce attorney’s legal fees and child support. A credit union requested that the court grant summary judgment denying discharge to the debtor. Summary judgment constitutes a legal mechanism by which courts can prevent cases from going to trial on the grounds that there are no factual disputes which are genuinely at issue in the case.

The Court compared the information the debtor provided in her filings with the court to independent sources of information as to the amounts of her income and other figures. While the court found that discrepancies existed which raised questions about the veracity of the debtor’s claims, it did not find that there were no material issues of fact; hence, the court refused to grant summary judgment in the case.

However, this does not mean the debtor has been exonerated or that she has no concerns as to whether she will qualify for a discharge. The denial of the summary judgment only means that the case will now go to trial. She will have to now defend herself at a trial on the matter and her counsel will need to show how the discrepancies in her disclosure are neither material to issues in the case nor fraudulent.

In Albuquerque, Giddens & Gatton Law, PC has attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, PC at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.