It is axiomatic that any and all information requested by the United States Bankruptcy Court on the Chapter 7 Petition be complete, accurate and up to date. Folks filing for bankruptcy protection are given a discharge based on that truthful information. Therefore, if material information is not disclosed, the debtor can be subjected to significant penalties.
Failing to Disclose Income on Petition Results in Court Revoking Discharge
In a case that was handed down by Bankruptcy Court Judge Hoffman, this issue was considered and a decisive result was rendered: no discharge for failing to report income. In this case, a married couple who owned a home met someone at a New Year’s Eve party. Learning that he needed an apartment, they immediately invited him to stay in their finished basement in Methuen. He paid rent in the amount of $850 per month at the outset and lived there for approximately three years.
When the debtors filed for federal bankruptcy protection, they completed their bankruptcy petition with their attorney and appeared for the Creditor’s Hearing in Boston. Their debts, which totaled over $71,000, were discharged and the case was closed.
However, for reasons we cannot determine, they neglected to report the rental income from their tenant. A falling out must have occurred between the debtors and the tenant because he allegedly reported the situation to the bank holding the mortgage who moved to have the case reopened by the court. While the Court found the reason “vengeful” the Court also found the tenant’s testimony “credible.” A hearing was held where the debtors argued that the basement was not rented out but merely a guest room in which their “friend” occasionally paid a household contribution, not rent.
Bankruptcy Court Hearing and Decision
The Court determined that the debtors were disingenuous. The “friend” was someone they met at a party and immediately entered into a contract with, and was clearly a “tenant” and not a “friend” and that this assertion was “absurd.” Further, the tenant paid monthly “rent” which was actually increased from $850 to $950 over the course of the tenancy. The Court found that this income, even if it were inconsistent, should have been disclosed on the Petition and Schedules, and at the Creditor’s Hearing where the debtors testified under oath that the Petition and Schedules were accurate. The Court seemed disturbed that following the disclosure of the rental income the debtors still failed to update their Petition and Schedules and continued to maintain that this information and income was insignificant.
Wherefore, the Court found that the debtor was in violation of Section 727(d)(1) resulting in a denial of discharge. See In Re: Mazzone, Chapter 7 Case Number 12-41224-MSH.
Prepare Your Bankruptcy Petition With an Experienced Attorney
It has always been clear that you must be honest and complete in the way you prepare and file your Bankruptcy Petition. This case demonstrates why failing to do can result in a complete loss in all efforts to discharge your debts.
We have not reviewed the Petition and Schedules here, however, we would assume that with good bankruptcy planning, and a truthful Petition and Schedules, these debtors could have had the opportunity for a full discharge of their significant debts.
Call Attorney Neil Burns, a bankruptcy lawyer with 29 years of experience, for a free consultation. 617-227-7423
