FALSE OATH BY OMISSION GROUND FOR DISMISSAL OF BANKRUPTCY

Section 727 (A) (4) of the bankruptcy code states that the court will give the debtor a discharge unless “the debtor knowingly and fraudulently, in connection with case-(A) made a false oath or account; (B) presented or used a false claim…;” but is failing to accurately disclose the value of debtor’s art collection a false oath or account?

 In Re Peters, the chapter 7 debtor taught himself about fine art and was previously married to an art historian. He owned and operated an art gallery for several years and was in the business of buying and selling paintings. Let’s just say that debtor knowledge of art was more than the normal Manny, Moe or Jack. Mr. Peters was familiar with many of the resources used to value art. On Schedule B he listed “Art” worth $2,400. The word “Art” was the only description provided. At the 341-A meeting of creditors, debtor told the trustee that the “Art” consisted of “nine or ten” pieces. In reality, the debtor’s art collection consisted of 16 pieces worth $28,687. The court found that several of the pieces appraised for well over $500, and that the debtor attempted to sell an original oil painting for $4,700 shortly after filing for bankruptcy. The court said the debtor may not have intentionally undervalued the art he owned when he filled out his schedules, but he made an inadequate effort to determine the value of the individual pieces, and then failed to amend his schedules to reflect more accurately the number, value, and quality of his artwork. The court denied the debtor’s discharge pursuant to Section 727(A) (4). “Peters made a false oath by omission when he failed to list and describe the individual paintings in his “Art” collection, the court said. “The failure to disclose the names and descriptions of the “Art” is material, because the failure to disclose bears a direct relationship to Peter’s estate, and the existence and disposition of his property. Had the names and descriptions of the “Art” been disclosed, Peter’s art might have been further investigated by the Chapter 7 trustee and/or creditors of the estate within the deadline to object to exemption.” The debtor also made a false oath when he failed to provide a better of the market value of the “Art”. The value placed on the “Art” by Peters bears a direct relationship to Peter’s estate and the existence and disposition of his property and is a material false oath. This false oath prevented the chapter 7 trustee from examining the true nature and value of the artwork and from determining whether the artwork was within the exemption limits claimed by debtor or whether the artwork, or some portion thereof, would be considered non-exempt and possibly be recovered by the estate for the benefit of creditors.”

Even if debtor did not intentionally undervalue his “Art” collection when he filed his petition, he did not appear to have a high regard for being truthful. At the meeting of creditors, he had a chance to correct his petition by testifying accurately about how many pieces of art he had and what the fair market values were. Since he owned and operated a gallery, he must have known the real fair market value of the items and he must have known how many pieces he had in his possession. The fact that he tried to sell an original painting for $4,700 right after he filed for bankruptcy indicates that he knew that he had grossly understated the value of his entire collection at $2,400. Further “nine or ten” pieces are a lot less than 16 pieces. It turned out that his entire collection was appraised at twelve times more than what he stated in his bankruptcy petition. He could have still corrected his testimony by amending his schedules after the 341-A meeting to show the correct quantity and values which he failed to do. Thus debtor showed a conscious omission which amounted to a material misrepresentation of fact.