In re O'Neill - 10-06832
In this case and adversary was brought to object to the discharge of certain debts. There were 2 counts in this case. The first count was brought under 11 USC 727(a) 4 and 5. The second count was brought under 11 USC 523(a)(2)(A).
Under 727(a)(4) the plaintiff has the burden of establishing 5 elements:
1. The debtor made a statement under oath
2. The statement was material
3. The statement was false
4. The Debtor knew the statement was false
5. The statement was made with intent to deceive. (In re Hansen, 325 BR 746, 757).
Under 727(a)(5), if the plaintiff demonstrates all 5 elements then the burden shifts to the Debtor to satisfactorily explain the loss or deficiency of assets to meet the Debtor's liabilities.
Here there was an issue of certain ownership interests in a company that were not disclosed and of another interest in property that had lost prior to the filing of the bankruptcy. In the initial petitions and schedules this information was not included; however, the petition and schedules were amended to include the omitted information. Importantly, this information was given to the bankruptcy attorney but included in the initial petition; however, the amendments were filed in a relatively timely manner. The plaintiff in the adversary attempted to use this omission to fulfill elements 1, 2 and 4. However, the court was not persuaded by this argument. Additionally the court noted that in order for the omission to be material it would have had to interfere with the administration of the estate. Here the omission were timely corrected and they had no value to the estate (both omissions had negative values). The court ruled for the Debtors on Count 1.
Under 523(a)(2) a debt is not discharged if it is for a monetary debt obtained by false pretenses or representations or actual fraud. Here the plaintiff asserted the loan they gave to the Debtor was obtained via false pretenses or actual fraud. The Plaintiff must demonstrate 3 elements:
1. The defendant obtained the funds through representation they knew to be false or with reckless disregard for the truth
2. The defendant intended to deceive the plaintiff
3. The plaintiff must have relied on the misrepresentations.
Here there was an issue with all three elements. The plaintiff never asked for any specific representations, the debtors made very few representations and those representations that were made did not show reliance or intent to deceive. The court also ruled for the Debtors on Count 2.