Summary:
The bankruptcy court denied Russell and Mildred Autry's motion to convert their Chapter 7 bankruptcy case to Chapter 13, citing their bad faith. The Bankruptcy Administrator had objected to the conversion, presenting evidence that the Autrys had concealed their ownership of a property in Ocean Isle Beach, North Carolina, which they had purchased with proceeds from the sale of another property in Tennessee. The Autrys failed to disclose this property in their initial filings, inaccurately stated that they resided in a travel trailer, and omitted other relevant financial information, such as homeowners' insurance and real estate taxes.
Despite the Autrys amending their schedules after the § 341 meeting of creditors, the court found their explanations for the omissions lacking in credibility. The court concluded that their consistent concealment of the Ocean Isle property and related misrepresentations showed bad faith, which justified denying their request to convert to Chapter 13 under the principles established in Marrama v. Citizens Bank of Mass. Thus, the court upheld the Bankruptcy Administrator’s objection, denying the motion to convert.
Commentary:
It would not be a wild guess to assume that the Trustee, as indicated by his questions (transcribed into the opinion) at the Meeting of Creditors, was fully aware of the Ocean Isle beach property and merely gave the Autrys one last opportunity to honestly disclose this asset (and enough rope to hang themselves.)
This is likely because the cost of detailed asset and liability searches, through such programs as WestLaw PeopleMap, have become much less expensive. Failing to use this or similar services going forward by consumer debtor attorneys may be tantamount to malpractice.
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To read a copy of the transcript, please see:
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