Bankruptcy

Where Did It All Go?

By Bill McLeod, Esq.

Keeping good financial records is always a good idea and if you?re filing bankruptcy, having good records on hand will help your case go smoothly. As married debtors in the Western District of Pennsylvania recently learned, not having them can lead to a denial of the Chapter 7 discharge.

The debtor, who was described as a ?vintage automobile enthusiast who restored such vehicles and sold them to third parties,? was also the sole shareholder and president of a start-up company. The company borrowed (and he and his wife personally guaranteed) about $1.4 million. To obtain the loans, the debtor and his wife prepared financial statements.

According to the financial statements prepared in 2003 (which were signed with the acknowledgment that false statements could lead to criminal prosecution), the debtors stated that they had personal assets that totaled $2,185,000 and that their liabilities totaled only $328,000. The assets include a homestead worth $550,000, household goods and furnishings that were worth $75,000 and automobiles and automobile parts that totaled $750,000. The business failed and closed its doors before it ever started operating.

By the time the debtors filed bankruptcy, they had already lost their home in foreclosure. But according to their schedules, their assets had diminished to about $32,000 while their liabilities totaled about $1.5 million. Their household goods, which were worth $75,000 were now worth only $3,026. The automobiles, which were declared on the financial statements as being worth $300,000, were now worth only $3,140. The auto parts, which were previously disclosed as being worth $450,000 were now worth only $3,200. The schedules and statements also showed other discrepancies and raised other questions, but they are too numerous to list here. Needless to say, the US Trustee and some creditors had one very important question they wanted answered.

Full post as published by McLeod Law Offices on June 19, 2008 (boomark / email).