Honesty, the best policy

It should go without saying that bankruptcy petitions are supposed to be filled out accurately, after all, they are submitted to the court under penalty of perjury. Beyond that, things simply go smoother if the truth is being told and the figures on the forms are accurate. Not to be overlooked is the requirement that all of the debtor’s assets and liabilities must be declared at filing.

While there is probably no bankruptcy court that requires an inventory of every last spoon in the kitchen drawer, omission of substantial assets is just begging for trouble. A New Hampshire couple just found this out the hard way, as the opinion of the United States Bankruptcy Court for the District of New Hampshire in In re Stanton dramatically shows.

The Stantons hired a builder to put a log home on their lot in northern Coos County; unhappy with the finished product, which they said was plagued by mold and other problems, they withheld final payment. The builder sued, and the case was ultimately litigated all the way to the New Hampshire Supreme Court, where the couple lost.

The Stantons then filed for bankruptcy, but the builder sued them in the Bankruptcy Court as well, bringing up a number of allegations, including fraud. One of the disputed points included personal items allegedly “stripped” from the house before the couple left it. The couple paid a friend to keep these in a rented storage unit.

Obviously, the couple believed they were the rightful owners of these items. But they were never declared on the bankruptcy paperwork, even after it was amended several times. Nor was the rent paid to the friend for storage (which was a debt like any other) declared.

The price paid was steep. Seizing on these omissions, the bankruptcy judge agreed this was a fraudulent concealment, and denied the couple the right to discharge of any of their debts! This case will serve a warning that while the Bankruptcy Code offers powerful relief to debtors, an honest an accurate accounting is part of the price paid for this benefit.

 

By Doug Beaton

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