Miller v. Lister (In re Lister), No. 08-13738-B-7, Adversary Proceeding No. 08-1201 (Bankr. ED Calif., Feb. 17, 2011).
In a recent decision, the California bankruptcy court considered the issue of whether to deny a bankruptcy discharge to debtors who had been less than honest during their bankruptcy proceeding.
In 2008, the Listers (Lloyd and Linda) filed for bankruptcy, including all required schedules and a statement of their financial affairs. The Listers signed a declaration that the documents submitted were truthful and accurate to the best of their knowledge, information, and belief. However, the documents failed to report income resulting in the management of Lister's business, Lister Auto Repair, and did not disclose the equipment and other assets owned by that business. In fact, Lister testified that he did not own the business, despite listing the business as his sole proprietorship on his tax returns.
Under the Bankruptcy Code, when such documents are materially false, the debtors may be denied discharge under § 727 if the debtor knowingly and fraudulently, or in connection with the case, made a false oath or account relating to a material fact. Congress passed this law to make sure that the bankruptcy estate is administered fairly and avoid deception.
In the case, the court held that the schedules of assets the Listers submitted constitute an "oath" under § 727, and that the debtor's interests in the business omitted from the schedules was a material fact. Further, the court found that the Listers had knowingly omitted such fact, reasoning that Lister was an experienced business person who knew his status at the Auto Repair business. Indeed, said the court, this was fraudulent omission, because it was kept out for the specific purpose of perpetrating a fraud. The debtor's sophistication combined with the obvious reason for omitting such information lead to the court's denial of discharge for the Listers.
