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Eighth Circuit BAP Upholds Denial of Discharge for Omitting Information on Assets - Lincoln Savings Bank v. Freese

December 26, 2011

The Upland personal bankruptcy attorneys at Howard Law, P.C., routinely help clients think about how best to disclose their assets and debts in a bankruptcy. Presenting your situation strategically is part of smart bankruptcy planning, but we never hide our clients' assets or allow them to do so, because this is illegal and can cancel the bankruptcy entirely. That kind of penalty was assessed against the debtor in Lincoln Savings Bank v. Freese, a decision of the Eighth U.S. Circuit Court of Appeals Bankruptcy Appellate Panel. The bankruptcy court denied a discharge to Jay Freese of Iowa, saying he omitted material information when he listed his assets, and made a false oath. Freese appealed, arguing that he did not understand the questions and intended no deceit, but the BAP upheld the denial of his discharge.

When Freese filed for Chapter 7 bankruptcy, he signed his schedules and statement under oath just like any other debtor. However, one of his creditors, the Bank, brought an action alleging that he made numerous false statements under that oath. Among them was the omission of a livestock business he was running in addition to his full-time job, and its profits; co-ownership of his wife's car; $25,000 in income from 2007; and sales of two ATVs, a Bobcat utility vehicle and a tractor. At trial, Freese testified that he misunderstood the meaning of "gross profits" in the form and thus excluded his livestock business because he ran it at a loss, as a "hobby farm." He also testified that he didn't report his ownership of his wife's car because it was his wife's, and he didn't report the utility vehicles because he did not believe they were part of the Bank's collateral. He noted that he freely disclosed information about his livestock business to the Bank and the bankruptcy trustee and answered all the trustee's questions, but the trial court was unimpressed. It denied him a discharge of his debts.

To make a false oath, bankruptcy law requires that the debtor make a statement under oath with fraudulent intent, knowing that statement to be false and materially related to the bankruptcy case. On appeal, Freese argued that his oath was not false because he mistakenly interpreted the questions differently, and thus he lacked the required knowledge and intent. He also argued that his omissions were immaterial. However, the BAP found, the record supports the finding that Freese made a false oath. The bankruptcy court noted that Freese is experienced in the business world and "selectively understood" certain concepts. For example, while he claimed he failed to list the livestock business because it ran at a loss, he had correctly listed gross profits from his employee job. This is not the law, the BAP said -- and furthermore, failure to understand the question is not grounds to withhold information. These are material omissions, the BAP said. By finding for Freese, it said it would have to allow each bankruptcy filer to adopt his or her own subjective standards for interpreting forms. Thus, it upheld the denial of discharge.

As Huntington Beach individual bankruptcy lawyers, we wonder whether Freese had an attorney when he originally filed for bankruptcy. It's possible that he genuinely didn't understand the forms he was asked to submit to the court, and that all of this stems from a genuine misunderstanding rather than intent to deceive. This is why experts recommend that bankruptcy filers, particularly people with complicated bankruptcies, get help from an experienced bankruptcy attorney like our own Vincent Howard. Here at Howard Law, P.C., we work with our clients to make sure they fully understand what is being asked of them, as well as the penalties for not being completely honest. Our San Diego County consumer bankruptcy attorneys can help debtors structure their filings to ensure that they stay within the law, while still putting their best foot forward.

If you're in debt so deep that you're afraid you'll never fully pay it off, you should call Howard Law, P.C., to discuss the possibility of a bankruptcy. For a consultation, send us a message online or call 1-800-872-5925.

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