Trustee Blog

Omissions and False Statements

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 Chapter 7 Trustee Charles Daff advises each debtor that comes before him, that the debtor must tell the truth both in testimony and the petition submitted to the Court. From time to time, Trustee Daff will come across a case in which the debtor does not include all the information necessary to complete his investigation. Trustee Daff  mentions the  following case:

In re Khalil, 379 BR 163, 177 – Bankr. Appellate Panel, 9th Circuit 2007

“Debtor’s discharge cannot be denied under § 727(a)(4) unless his false statements or omissions were made “knowingly and fraudulently.”   Recklessness by itself will not suffice, but recklessness combined with other circumstances can support an inference that he acted with knowing and fraudulent intent.”

The Court in Khalil stated ”We publish to  clarify that evidence of reckless indifference to accuracy may be  probative of intent even though reckless indifference alone does not suffice to establish the requisite intent.” The Court further stated

“The fundamental purpose of § 727(a)(4)(A) is to insure  that the trustee and creditors have accurate information without  having to conduct costly investigations.”

In order for Mr. Daff and all the other Trustees to investigate petition, the items in the petitions must be listed correctly and the testimony must be true. If the items asked for in the petition are not listed or the debtor makes false statements at the hearing, then the Trustee can file a lawsuit to dismissed the case and the bar the discharge under 11 U.S.C. 727. The standard under 727 is high, but omitting information combined with fraudulent intent will cause the Court to bar the discharge.

Practice Pointer:

Remind your clients to tell the truth at the hearing and to tell the truth in the petition as all statements are under penalty of perjury. In addition, remind them not to leave out any information or the case could be barred from receiving a discharge.

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