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First Circuit Upholds Revocation of Discharge for Bankruptcy Debtor Who Lied About Assets - Thunberg v. Wallick

July 27, 2011

Our Claremont personal bankruptcy attorneys have written here before about the dangers of deceiving a bankruptcy court. Some of the consequences of deceit include having your bankruptcy discharge revoked, which means you are no longer protected from the debts that were discharged; creditors may still go after you, even though you've done the hard work for a Chapter 13 repayment plan or Chapter 7 liquidation. That was the case for the debtor in Thunberg v. Wallick, a First U.S. Circuit Court of Appeals decision. Bruce Thunberg filed for Chapter 7 bankruptcy in 2000 and received a discharge later that year. In 2002, trustee Marc Wallick petitioned successfully to have the discharge revoked for fraud.

Like many bankruptcy filers, Thunberg had recently gotten divorced at the time of his bankruptcy. When the divorce was settled, his ex-wife agreed to pay him $30,000 a year for 15 years. Two-thirds of that amount was alimony (often called spousal support) and one-third was to settle ownership of joint property. Thunberg's bankruptcy petition did list these payments, noting the alimony as income and the property settlement as subject to two property liens. However, in discussions with the trustee, Thunberg and his attorney said the liens applied to the entire payment, not just the property interest. The liens were later discovered to not be perfected. Thunberg also sped up the payments by agreement with his ex-wife, without telling the trustee, and used part of his payments for private purposes. Given all of this evidence, the bankruptcy court agreed to revoke Thunberg's discharge. Thunberg appealed to the federal district court, which agreed. He then appealed to the First Circuit.

Before the appeals court, Thunberg argued that his misrepresentations were honest mistakes, not intentional fraud. He noted that he mostly avoided explicitly false statements, and the First agreed, but noted that this was not enough to show clear error by the bankruptcy court. The factual inferences the bankruptcy court drew from Thunberg's unwillingness to correct the trustee were enough to support a finding of fraud, the court said. It also dismissed Thunberg's argument that the bankruptcy judge confused the legal standards for revoking a discharge with denying discharge, saying there was no evidence for this. Thus, it upheld Thunberg's revocation of discharge.

As Huntington Beach individual bankruptcy lawyers, we work hard to help our clients understand the serious consequences of deceiving a bankruptcy court. Thunberg's choice not to correct the trustee about what money was available will have serious financial consequences. He is not protected from debts that were previously discharged, which means the harassment by creditors can start up again (and likely already has). A Chapter 7 case like his involves liquidating most of the debtor's possessions, which means Thunberg likely made some sacrifices in order to get his bankruptcy discharge. Now, those sacrifices have no reward. However, the bankruptcy will stay on his credit report, hurting his credit for 10 years. Our Moreno Valley consumer bankruptcy attorneys advise our clients very strongly to disclose everything, even things they would rather keep or believe aren't important, to avoid this outcome.

Howard Law PC represents people throughout California who are considering bankruptcy as a way to avoid foreclosure or to handle debts they can no longer handle on their own. To learn more and tell us your story, send us a message online today or call 1-800-872-5925.

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