FAILURE TO PRODUCE DOCUMENTS RESULTS IN DENIAL OF BK DISCHARGE

We are talking about a debtor in a chapter 7 case where the U.S. Trustee has requested debtor to produce documents to enable the U.S. Trustee to understand the financial history and financial transactions that led debtor into filing for bankruptcy. The UST may investigate a bankruptcy case which has unusual circumstances to determine if there is abuse of the bankruptcy system. A triggering point of the investigation is high consumer debt level for a low income debtor. For instance, debtor who works as a care giver making $1,500 monthly owes $100,000 of credit card debt. If you consider net income is $1,200, debtor incurred 83 times take home pay. Mathematically, there is no way for debtor with that income to pay off $100,000 of credit card debt. Hence, the UST may ask debtor to explain how she incurred so much debt and what the $100,000 was used for. These circumstances per se do not result in dismissal of the chapter 7 case. However, if debtor is not able to explain what happened, or is able to explain what happened but is not able to produce documents to prove what happened, then the UST will file a motion to dismiss or deny discharge. A legitimate reason, for example, is debtor used the $100,000 to finance a laundry business which failed. The correct response to UST is for debtor to produce the purchase contract for the laundry business, income and expense statements for the laundry, pictures of the laundry and equipment etc. These documents will prove to the UST that the $100,000 of credit cards was used to finance debtor’s laundry business which failed. If such is the case, then the UST will interpose no objection to debtor’s discharge.

In Re Janjuah, the debtor’s schedules and statements listed $227,327 in unsecured debt, some of which appeared to be recently used, and gross earnings of $2,100 monthly. The UST sent a letter to the debtor asking him to explain his financial condition. The debtor’s attorney responded with a one page fax indicating that the debtor would provide documentation shortly. Debtor failed to do so. At the 341a meeting of creditors, the debtor testified that he had been unemployed for six months. He also said that he used a line of credit for Chase Bank to invest in real estate and that he transferred $75,000 to his brother in Islamabad, Pakistan for that purpose. Perhaps debtor’s plan was to buy prime real estate in Pakistan, a fully furnished cave adjacent to Osama’s cave. The Chapter 7 trustee asked for, but did not receive, documentation regarding these transfers. Maybe debtor hid $75,000 of cash under his bed? So, the chapter 7 trustee filed a motion to compel production of documents. At the same time, the UST filed a complaint to deny the debtor’s discharge. Debtor failed to produce documents despite the court order compelling production of documents. Thus, the UST amended its complaint to deny debtor’s discharge pursuant to Section 727(a)(6)(A) which provides that the court will deny discharge if the debtor has “refused, in the case…to obey any lawful order of the court, other than an order to respond to a material question or to testify;”. The court subsequently granted the UST’s motion for summary judgment. “Here, the court entered an order directed at the defendant, compelling the defendant to turnover the documents previously request by the Chapter 7 trustee. The court’s order was lawful. The order did not require the defendant to respond to a material question or to testify. Further, the evidence presented by the UST in support of its motion for summary judgment establishes that the defendant was aware of the Court’s order and has simply disregarded it.”

Certainly, it was simple enough for debtor to produce documents proving that the $75,000 was given to his brother in Pakistan to buy prime real estate there unless the cash was really still under his bed. But debtor refused to even produce the money wire transfer document.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than four thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.