Business Law & Bankruptcy
When Josh was asked, during a bankruptcy proceeding, whether he had ever been sued, he responded that he had not. In fact, he had once been sued for intentional infliction of emotional distress. That suit had been settled many years earlier and had no financial impact on Josh today. Josh’s debts were discharged in bankruptcy. Creditors want the discharge revoked because of Josh’s lie.
Should a discharge be revoked because of a lie made in court by the debtor that had no impact on the case?
In Dale Alleman v. Brett J. Kitson, 341 Fed. Appx. 234 (7 Cir. 2009) Brett J. Kitson and his wife, Courtney, had filed a joint bankruptcy petition in ...view middle of the document...
Alleman challenged the bankruptcy court's determination that he had not proven facts sufficient to support his theory that discharge was barred under§727(a). Mr. Alleman argued that Mr. Kitson failed to retain business records for Kitson Enterprises, a corporation of which Mr. Kitson was the sole shareholder and §727(a)(3) of the Bankruptcy Code prohibits discharge when the debtor has “concealed, destroyed, mutilated, falsified, or failed to keep or preserve” records"from which the debtor's financial condition or business transactions might be ascertained…”.The bankruptcy court found that these records were not material to Mr. Kitson's financial condition because the corporation’s tax returns showed that the business made no profit, the bankruptcy court had determined that Kitson Enterprises had no assets, and Mr. Kitson had earned no money from the corporation. The Court of Appeals, therefore, agreed that the bankruptcy court was correct to conclude that the records were immaterial and discharge was not barred under §727(a)(3).
Mr. Alleman also submitted that the bankruptcy court should not have granted Mr. Kitson a discharge because he had made a number of misstatements and omissions on the bankruptcy statement and schedules, and §727(a)(4) forbids discharge where the debtor "knowingly and fraudulently . . . made a false oath or account." The bankruptcy court found that Mr. Kitson's bankruptcy filing did contain several misstatements and omissions, but concluded that they did not run evoke §727(a)(4) because none of them were material to the bankruptcy petition. The court again agreed with the bankruptcy court’s decision on this issue.
Mr. Alleman also claimed that Mr. Kitson identified his corporation as BK Motorsports rather than its official name, Kitson Enterprises, and he failed to list the Employer Identification Number for that business. The bankruptcy court found that these misstatements and omissions were immaterial, and the court agreed. The court found that although there might be cases in which misstatement of a corporate name and omission of an EIN would hinder the court in its attempt to ascertain the extent of the debtor's assets, this was not such a case.
Mr. Alleman further pointed out that Mr. Kitson failed to disclose a $ 6,300 loan from his parents. The bankruptcy court concluded that omission of the parental loan was not material because Mr. Kitson's estate had no remaining assets with which to pay unsecured creditors, therefore, the omission had no effect on whether any of the unsecured creditors, including Mr. Alleman, would receive any distribution from the estate.
Finally, Mr. Alleman submitted that discharge was improper because Mr. Kitson represented in his bankruptcy statement that he had no record related to Kitson Enterprises. This representation was false. Mr.Kitson admitted at trial that he had possessed such records at the time of the bankruptcy filing and subsequently had disposed of them. The court...