Many debtors arrive in Bankruptcy Court having committed missteps, or even misconduct, in their financial affairs and dealings with others.  Even for these debtors, Bankruptcy is often an opportunity for them to get a "fresh start."  However, one of the requirements of this fresh start is that a debtor must be completely honest in documents and pleadings filed in their Bankruptcy case.  This is a continuing obligation throughout the case, and debtors have a duty to make amendments as needed.  The consequences of not doing so may include the dismissal of the case, a ban on re-filing for a certain period of time, or the denial or revocation of the discharge.  Worse yet, as schedules are filed under oath and penalty of perjury, the failure to properly disclose information on the schedules can lead to criminal prosecution.

In In re Roberts, Ch. 13 Case No. 11-60690, 2013 Bankr. LEXIS 631 (Bankr. S.D. Ga. January 24, 2013) (click here for .pdf), the debtor probably got off light.  The debtor initially filed a Chapter 7 case, but subsequently converted to a Chapter 13.  In his initial Chapter 7 Schedule I, Debtor listed his non-filing spouse’s occupation as a "homemaker" with no income.  Two months after filing, debtor’s spouse got a job as a substitute teacher but the debtor did not amend his schedules.  A few months later the debtor amended his schedules in conjunction with the conversion to Chapter 13, but his amended Schedule I again stated his spouse was a homemaker with no income.  The "error" finally came to light 10 months after the case was filed when the debtor filed a motion for approval to purchase a house (presumably, when it was beneficial to disclose the additional income).  The Chapter 13 Trustee moved to dismiss.

The Court granted the motion and barred the debtor from re-filing for 180 days.

Notwithstanding the number and variety of possibly relevant factors, "the easiest way to fail the good faith test. . . is for a debtor to ‘misrepresent, lie or otherwise mislead the court.’" …That is precisely what has happened here.

Roberts tried to game the system. He failed to disclose his wife’s part-time income at two different junctures: when she first began substitute teaching and when the case was converted. Further, he failed to disclose on his Amended Schedule I the reasonable anticipation of an increase in household income when he knew that chances were good his wife would be working full-time within the next few months.

Roberts, who attended college and is employed as a manager, testified that he was not aware of the requirement to disclose changes in total household income until he filed the motion to incur debt. I find that testimony not credible.

When a debtor misrepresents, lies, or otherwise misleads the court, there is no "Oops defense." …Here, Roberts had an additional $20,000 in household income during the first five months of 2012 that he did not disclose. Failure to disclose $20,000 is not an "oversight," as Roberts’ attorney characterized it. Roberts has therefore failed to meet his burden to prove the Plan was proposed in good faith under § 1325(a)(3).

"Failure to make accurate disclosure in bankruptcy documents, making fraudulent representations to the court, or an unfair manipulation of the Bankruptcy Code is sufficient cause for dismissal." … Here, the Trustee has conclusively shown that Roberts failed to make accurate disclosure in his bankruptcy documents; the Trustee has thus met the burden of proof for dismissal of the case under § 1307(c).

IT IS THEREFORE ORDERED that the chapter 13 case of Aaron S. Roberts is DISMISSED WITH PREJUDICE, barring refiling for a period of 180 days from the date of this Order.

Had the case remained in Chapter 7, it is possible, if not likely, the Chapter 7 Trustee or United States Trustee would have filed an adversary proceeding to deny or revoke the debtor’s discharge, which essentially would have acted as a permanent bar of the discharge of his debts up to that point pursuant to §523(a)(10).  He could also have been prosecuted for the federal crime of bankruptcy fraud.