Disclosing the amount of an exempt asset wasn’t enough. A debtor properly lost his discharge, the First Circuit said, because he only disclosed the name of one retirement account, not both.
Although the mistake possibly resulted from sloppy work by the debtor’s lawyer or the lawyer’s paralegal, the debtor lost his discharge nonetheless.
A man had two retirement accounts with the same bank. One was a 401(k) and the other was a cash balance plan.
Each bank statement covered both accounts. Headings on the statements read, “401(k) Plan and Cash Balance Plan.” The two accounts were listed separately on the bank statements, with the cumulative balance was shown under the heading, “Total Retirement Accounts.”
On his schedule of assets, under the line for “Interests in IRA, ERISA, Keogh, or
other pension or profit sharing plans,” he listed $148,000 as the amount of a “401(k) with Wells Fargo.” Although the schedule did not include the name of the cash balance plan, $148,000 was the total amount of both retirement accounts together.
Following an objection to discharge by a creditor, the bankruptcy judge denied discharge under Section 727(a)(4) for making a false oath. The district court affirmed, and so did the First Circuit in an Oct. 25 opinion by Rhode Island District Judge John J. McConnell, Jr., sitting by designation.
For Judge McConnell, the question was whether the debtor “knowingly and fraudulently made a false oath” that related to “a material fact.” Swearing to the schedules was a false oath, he said, because the debtor failed to include the name of the cash balance account.
Like other courts he cited, Judge McConnell said that failure to show the name of the account was material because “we have rejected the notion that valuation determines materiality.” He added that “knowledge of an asset’s value alone does little to forewarn creditors and the court of unscrupulous dealings.” Creditors “have a right to investigate the history of a debtor’s asset,” he said.
The appeals court saw “no perverse result” in denying discharge even though “[b]ankruptcy disclosures are not meant to create a trap for the unwary.”
It is unclear from the opinion whether the omission was intentional on the debtor’s part or resulted from a mistake in his lawyer’s office, because he testified that the schedules were prepared from information that he provided to his former attorney. Whoever caused the omission, the debtor contributed to his own problems because the bankruptcy judge, according to the First Circuit, “‘found him less than credible’ based on numerous misrepresentations conflated with evasive answers.”
The debtor’s trial lawyer may have committed a second error as well.
The pleadings did not raise the issue regarding the missing account name, because the mistake evidently surfaced for the first time during trial.
Judge McConnell’s opinion implies that debtor’s counsel could have barred consideration of the “unpleaded claim” by raising an objection at trial. Since counsel did not object, Judge McConnell said that the debtor impliedly consented to the trial of the unpleaded claim under Fed. R. Civ. P. 15(b)(2).
The opinion is Crawford v. Premier Capital LLC (In re Crawford), 16-1285 (1st Cir. Oct. 25, 2016).