Debtor Who failed to Disclose $5,000 in Lockbox Received Discharge since UST Failed to Show Requisite Intent

Debtor Who failed to Disclose $5,000 in Lockbox Received Discharge since UST Failed to Show Requisite Intent

Debtor is a single mother of two minor children who works full-time and does not receive child support. In February 2016, Debtor received her 2015 federal and/or state income tax refunds. From those refunds, Debtor placed approximately $5,000 (the “Funds”) in a lockbox in her home. Debtor intended to use the Funds to buy a house from her Landlord and believed “with all my heart” that the Funds were “earmarked” for Landlord.

On March 2, 2016 (the “Petition Date”), Debtor commenced her chapter 7 bankruptcy case by filing a voluntary petition. The Funds remained in Debtor’s possession on the Petition Date, though the Funds were not disclosed on her bankruptcy schedules (Schedule B, question 16 or question 22) or statement of financial affairs (question 21 or question 23).

Debtor’s bankruptcy counsel, Kramer, or persons working for Kramer prepared the schedules and statement of financial affairs based on information provided by Debtor. Debtor performed only a brief review of the schedules and statement of financial affairs before signing them.

5. At the 11 U.S.C. § 341 meeting of creditors (the “341 Meeting”) on April 4, 2016, Debtor testified under oath that she gave the Funds to Landlord in mid-March either to pay rent in advance or to buy a house on contract. By letter dated April 6, 2016, chapter 7 Trustee Hammes made demand on Landlord for turnover of the Funds.

Debtor testified that Kramer and persons working for Kramer knew of the Funds before the schedules were prepared, and that Debtor followed Kramer’s advice with respect to disclosure (or non-disclosure, as the case may be) of the Funds. Debtor testified that Kramer and persons working for Kramer knew of the Funds before the 341 Meeting, but that Kramer did not prepare Debtor in advance of the 341 Meeting, did not advise Debtor what to say at the 341 Meeting and did not attend the 341 Meeting with Debtor. Kramer testified that Kramer did not know of the Funds until after the 341 Meeting, and that Debtor signed a statement pre-petition indicating her understanding that cash on hand, money in accounts and tax refunds would have to be turned over to the chapter 7 trustee.

On April 12, 2016, Debtor filed an amended Schedule B disclosing the Funds.

Beginning on or about April 12, 2016 and concluding on or about July 5, 2016, Debtor paid to Trustee Hammes a total of $4,700 in installments, representing the portion of the Funds demanded by Trustee Hammes, within the time frame established by Trustee Hammes.

Debtor paid Trustee Hammes in full prior to UST’s conducting an 11 U.S.C. § 2004 examination of Debtor on July 12, 2016 (the “2004 Examination”). Debtor testified that Kramer advised Debtor to tell the truth at the 2004 Examination.

On August 1, 2016, UST filed this adversary proceeding objecting to Debtor’s discharge pursuant to 11 U.S.C. §§ 727(a)(2)(B) and (a)(4)(A).

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