Failure To Keep Adequate Records Can Be Grounds For Denying Bankruptcy Discharge


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Case Law and Analysis Chapter 7 Bankruptcy Consumer Laws by State


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In Chapter 7 bankruptcy, a debtor is entitled to a Discharge of his or her debt unless one or more of twelve exceptions is met. One such exception is the failure to keep adequate records. In order to ensure that you have entered bankruptcy court in good faith, the court and trustee must be able to verify that your financial condition is as you say it is. If they can’t do this, you might not be entitled to a discharge.

In re Barbara Moore – Bankruptcy Case Example

The risk of losing a discharge for failing to keep adequate records was addressed by a Bankruptcy Court in the Eastern District of Michigan, Southern Division. See In re Barbara Moore , Case No. 08-31004-dof (E.D.Bank,MI., 2009). The debtor in In re Barbara Moore , was denied discharge under 11 U.S.C. §§ 727(a)(3) and (a)(5) after she failed to produce adequate records for expenditures of insurance proceeds which were received just months prior to filing for bankruptcy protection. The debtor’s request was complicated by the fact that when she initially consulted with a bankruptcy attorney she was aware she would be receiving the insurance proceeds and presumably advised of her record keeping obligations and risk of loss of discharge under 11 U.S.C. § 727.

The Court Sides With the Trustee

The Court ultimately sided with the bankruptcy Trustee in finding that the debtor failed to met the standards set forth in §§ 727(a)(3) and (a)(5) to explain expenditures despite the fact it did not find that the debtor actively destroyed, mutilated or falsified records. The Court found that the debtor simply failed to provide any records for certain alleged expenditures while money order receipts for other expenses did not clearly indicate that the money orders were made payable to any particular individual or entity. Although the Court noted that the debtor was not obligated to keep records in any particular manner, she was required by §§ 727(a)(3) and (a)(5) to produce records sufficient as to not require a creditor to guess as to what occurred. Because the records provided by the debtor did not satisfy this requirement, her discharge was denied.

Debtor Must Keep Adequate Records

As highlighted in In re Barbara Moore , it is important that debtor’s keep adequate records not only after filing for a Chapter 7 bankruptcy but before. Despite the fact that exceptions to discharge are strictly construed against a creditor, “a discharge in bankruptcy is a privilege, not a right, and should only inure to the benefit of the honest debtor.” Wazeter v. Michigan National Bank, 209 B.R. 222, 227 (W.D. Mich. 1997).