I have been asked by clients if they can avoid having to list all of their credit cards on their bankruptcy schedules. The answer is simple: “no.” However, they must list all of their debts. And if you owe the credit card company money, you must list it on your bankruptcy schedules (open lines of credit are not debts, although no debtor should expect that an inactive line of credit will survive a bankruptcy filing). Not doing so is – legally speaking – stupid. And recently, a debtor in Massachusetts learned just how stupid it really was.
The debtor filed a chapter 7 case. In an Adversary Proceeding, a creditor alleged that the debtor made a false oath when she failed to list five separate credit card debtors on her petition. She also did not bother to amend her schedules at any time…even after the Adversary Proceeding was filed. When asked about it, the debtor replied:
I didn’t list [the credit cards] because I didn’t want to totally destroy my credit. That’s basically – I didn’t think I had to, you know, divulge these small little credit cards that didn’t mean anything. They weren’t huge.
Not “huge”
The creditor filed the Adversary Proceeding objecting to the discharge based on the debtor’s making a false oath. For it to justify denial of the discharge the representation must be related to a material fact in the bankruptcy case and the debtor had to have had a fraudulent intent. Here, the court focused on the debtor’s “reckless indifference to the truth”, which was fueled by her statements that she did not want to “destroy” her credit, and had not amended her schedules at any time.
At oral argument before the Bankruptcy Appellate Panel, she attempt to argue “no harm, no foul”: since she did not intend to harm anyone, and since no one was really harmed, she should still get her discharge. Not a big deal. Not “huge.” The Court didn’t buy it:
At a minimum, the omission most certainly did harm the credit card companies, as the debts would have been discharged without their having had an opportunity to assert any objections they may have had. Further, while sworn statements are to be treated with seriousness in any court proceeding, this is especially so in bankruptcy where the successful functioning of the bankruptcy system hinges on both the debtor's truthfulness and her willingness to make a full disclosure. ……“Neither the trustee nor the creditors should be required to engage in a laborious tug-of-war to drag the simple truth into the glare of daylight.” ... Indeed, the very purpose of [Bankruptcy Code provision providing for a denial of discharge for making a false oath] is to protect the integrity of the bankruptcy process by ensuring that those who seek its protection “do not play fast and loose with their assets or with the reality of their affairs.” .. The bottom line is that this Debtor sought to use the bankruptcy system to her advantage while avoiding its consequences. The system simply does not abide such dishonesty, no matter how minor the Debtor would have us believe the omission was.
The debtor’s discharge was denied. Unfortunately for this debtor, her omissions were pretty huge. And yes, I dare say there were pretty stupid. After all, why bother going through the chapter 7 process if at the end of it there is no discharge?
Chase v. Harris (In re Harris), Bankruptcy Appellate Panel, First Circuit (April 15, 2008)
Comments
She didn't want to 'destroy her credit' ?? Clearly she did not understand that bankruptcy on her credit report is THE ultimate in destruction !! Doesn't matter if those creditors might have deigned to keep those accounts open - it would not have helped her credit 1 iota.
Posted by: DianeT | May 1, 2008 2:48 PM
I agree that her justification for not being honest on her bankruptcy petition is mind-boggling. While filing bankruptcy might be problematic for credit report purposes, the fact is, being so burdened by debt that it becomes overwhelming can also be difficult if not worse. Unfortunately, for this debtor - she has trashed her credit - and she's still stuck with her debt. A very unwise move on her part - and one that I hope serves as a warning to others.
-Bill McLeod
Posted by: Bill McLeod | May 1, 2008 5:47 PM