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Kaler v. Charles: Honesty is Critical in Chapter 7 Bankruptcy

August 3, 2012

The recent denial of appeal in Kaler v. Charles, heard by the U.S. Bankruptcy Appellate Panel in the Eighth Circuit, illustrates how being dishonest in your Chapter 7 Bankruptcy filing can ruin your chance at a fresh start. fingerscrossed.jpg

Los Angeles Chapter 7 Bankruptcy Lawyer Vincent Howard knows that some people are tempted to press their luck in attempts to keep property they worry they would otherwise lose. A couple ways they do this include:

Failing to disclose property in the hopes that the court won't find out about it;
Attempting to hide property by giving or transferring it to a relative or friend before filing.

It almost never works, and bankruptcy law in 11 U.S.C. 727(a)(4)(A) is very clear that when you aren't honest about your assets, you not only face the possibility of forgoing your bankruptcy proceeding and debt relief entirely, you could even face criminal perjury charges (one man in Alabama was recently sentenced to 27 months in prison for perjury after failing to disclose a $100,000 building sale).

In some instances, your bankruptcy attorney may be able to argue it was a simple mistake or a result of disorganization, but that usually is only effective if it's actually true.

In the case of Kaler v. Charles, the debtor, "Charles" was denied his bankruptcy debt relief because he was accused of failing to fully disclose his assets.

Back in 2010, Charles filed for debt relief through a Chapter 7. In that filing, he indicated that his $225,000 home was underwater, with $258,000 in secured claims against the home. A month later, he amended his filing to say that the secured debt he owed was about $10,000 less than what he originally claimed.

It was also at that time that he indicated he held a 50 percent stock ownership in a concrete company. He valued that stock at $1.00. He also claimed he owned 50 percent stock in a property company, which he also valued at just $1.00.

Then five months after the original filing, Charles filed another amendment, this time stating that his actual stock in the concrete company was $15,000 and further that he had obtained a substantial amount of income from varying business entities.

The following month, the trustee in the case, "Kaler," commenced an adversary proceeding against Charles, saying his discharge should be denied under Bankruptcy Code 727(a)(2)(B) and (a)(4)(A). The trustee claimed that there were multiple non-disclosures and false oaths that merited a denial of the discharge. Further, the trustee alleged Charles had tried to conceal property from the bankruptcy court.

In order to prove all this, he would have to show that the statements made were false, that the debtor knew they were false, that the statements were made with fraudulent intent and that the statements were of material importance to the bankruptcy case.

In September of last year, the bankruptcy court held a trial and sided with the trustee in denying Charles' bankruptcy. The court determined he had undervalued his interest in both companies, as well as undervaluing his house and overvaluing the debt against it and failed to disclose certain income for the previous two years.

The appellate court agreed with the lower court, which means Charles won't be eligible for Chapter 7 bankruptcy relief.

The truth is, it's simply not worth. A skilled bankruptcy attorney can work with you to determine whether there are legal ways you can keep the assets and property that are most important to you, while still granting you access to debt relief.

Los Angeles Bankruptcy Attorney Vincent Howard at Howard Law can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.

Additional Resources:
Kaler v. Charles, U.S. Bankruptcy Appellate Panel for the Eighth Circuit, Justia Dockets

More Blog Entries:
More Seniors Filing for Chapter 7 Bankruptcy in L.A., July 16, 2012, Los Angeles Bankruptcy Lawyer Blog