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Bankr. W.D.N.C.: In re Popp- Dismissal pursuant to § 707(a) for Nondisclosure and Lack of Cooperation

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By Ed Boltz, 24 April, 2025

Summary:

Michael and Mary Popp filed a Chapter 7 petition in May 2024, but the case was dismissed under 11 U.S.C. § 707(a) after the debtors failed—despite months of requests and hearings—to adequately explain what happened to more than $123,000 in proceeds from the sale of their Florida home less than two years before filing.

The initial Statement of Financial Affairs omitted the home sale entirely. When the Chapter 7 Trustee independently discovered the transaction, he requested documentation for the numerous five-figure transfers that occurred shortly thereafter. The Popps eventually amended their SOFA to include the sale but never properly disclosed the nature, purpose, or recipients of most of the transfers—relying instead on cryptic marginal notes like “mom pay bk” and “? Cash” scribbled next to the withdrawals. The Trustee made multiple follow-up requests and even met with counsel, who promised to improve the disclosures. Yet the supplemental productions were incomplete, inconsistent, or simply unresponsive.

By the November 2024 hearing, the Trustee still had no clear understanding of how the funds were spent. Although the Debtors testified and offered some clarifications at the hearing—especially the Female Debtor—the testimony didn’t align with the documents, the amendments were never properly made, and the Trustee was still unable to administer the estate. The Court found that although the Popps did not act in bad faith, their failure to cooperate or to timely and accurately respond left the Trustee without a viable path forward. Dismissal, rather than denial of discharge or contempt proceedings, was deemed the most appropriate remedy.

Commentary:

This case reminds practitioners that incomplete cooperation can be just as fatal as outright fraud.    Judge Laura Beyer’s opinion doesn’t suggest that the Popps were hiding money or acting in bad faith—just that their inability (or unwillingness) to document where $123,000 went left the Trustee in the dark, and that darkness is incompatible with the “sunlight” required for Chapter 7 administration.

Though the Debtors eventually amended their SOFA and produced some records, the Court made clear that half-answers and annotated bank statements—especially ones with vague notations like “paid Bank OZK” or “bought camper”—do not meet the standard of full, candid, and prompt disclosure that Chapter 7 demands. The fact that the Trustee had to repeatedly follow up, and that even the night before the hearing the Debtors were still scrambling to identify transactions, reflected more than just bad timing; it showed the systemic failure to take the bankruptcy process seriously.

It is,  however,  difficult to square this decision,  which dispenses with the Popp's reliance of counsel defense ("The Debtor cannot rely on the advice of counsel defense regarding errors in the Schedules where the Debtor has declared under penalty of perjury that he has read the Schedules, and to the best of his knowledge they were true and correct.”)  without any reference to the recent Fourth Circuit Court of Appeals published decision in Sugar v. Burnett   where a dismissal  with a bar to refiling for five (5) years (which is if anything more punitive than a dismissal under § 707(a)) was vacated and remanded specifically   for a determination of whether that debtor had a valid  reliance on counsel defense.

Complicating Popp (and Sugar as well)  is that once questions arise about the allocation of blame between  debtor and their attorney,  continued representation by that lawyer increasingly appears to present an unwaivable conflict of interest.  Whether debtors (by definition broke) can afford to hire new,  independent counsel  or whether the other  lawyers (and the judge)  in the case have obligations to report the matter to the state bar are further problems.

With proper attribution,  please share this post. 

To read a copy of the transcript, please see:

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