First Circuit Upholds Bankruptcy Court’s Denial of Discharge of Debtor (who is also a Lawyer) Where she Failed to Disclose Lawsuits

First Circuit Upholds Bankruptcy Court’s Denial of Discharge of Debtor (who is also a Lawyer) Where she Failed to Disclose Lawsuits

Debtor is a licensed attorney in Massachusetts. In 2007 and 2008, she was involved in two separate automobile accidents in which she claims she sustained injuries.

On March 6, 2011, Debtor filed a voluntary bankruptcy petition under Chapter 13, retaining Anthony Rozzi as her attorney for the bankruptcy case. In her initial Statement of Financial Affairs, Debtor was asked to identify all suits to which she was a party within one year of filing her bankruptcy case. In her filed schedules, she did not disclose either  actions.

At the first meeting with her creditors on April 8, 2011, Debtor, accompanied by Attorney Rozzi, testified under oath and when asked whether there were any changes she wanted to make to her initial filings, she said “No.” Attorney Rozzi stepped in and stated that “[t]here are lawsuits ․ [t]hat need to be added ․ both lawsuits that Debtor has out. And, uh, and she also has a personal injury claim.” Later at the meeting, Attorney Rozzi said that he was “going to add any lawsuits that are important” in an amended filing. Finally, when the Chapter 13 trustee asked about a $20,000 payment listed in the plan, Debtor responded that she had “several judgments right now” and was “anticipating that one of those judgments would come through by the end of the plan.” Four days after the creditors’ meeting, Debtor appeared in Essex Superior Court to argue a motion to reinstate the Duffy action.

Attorney Rozzi filed amended schedules on Debtor’s behalf on September 23, 2011, which added several accounts receivable and money judgments, but did not list either the still pending  actions. In September of 2012, Debtor settled one action for $20,000, but she did not seek bankruptcy court approval for the settlement. On October 5, 2012, the Chapter 13 trustee, still unaware of the two lawsuits or the settlement, filed a motion to dismiss Debtor’s bankruptcy case for failure to make plan payments. In response, on October 30, 2012, Debtor again amended her filings, finally disclosing the  actions, as well as the settlement in one of them.

In light of Debtor’s failure to disclose the  lawsuits in a timely manner, the Chapter 13 trustee moved to convert Debtor’s Chapter 13 petition to a Chapter 7 petition. At the hearing on the trustee’s motion, Attorney Rozzi argued that Debtor had not disclosed the lawsuits earlier because she did not believe they were viable. Attorney Rozzi further claimed that Debtor had not told him that the two lawsuits were active until October 2012.

The bankruptcy judge granted the motion to convert the case to a Chapter 7 petition, concluding that Debtor’s failure to disclose the lawsuits indicated that she had not filed her bankruptcy case in good faith. The United States Bankruptcy Appellate Panel for the First Circuit affirmed the bankruptcy judge’s decision.

Thereafter, on September 30, 2014, William Harrington, the United States Trustee for Region One, commenced an action seeking to deny Debtor’s discharge on the grounds that she had made false oaths within the meaning of 11 U.S.C. § 727(a)(4), or alternatively, that she had concealed property of the estate within the meaning of 11 U.S.C. § 727(a)(2)(B) by failing to disclose the two lawsuits. After a trial, the bankruptcy judge denied Debtor’s discharge under 11 U.S.C. § 727(a)(4), concluding that she had acted with reckless indifference to the truth by failing to disclose the two lawsuits in a timely manner. The bankruptcy judge did not address the alternative grounds for denying discharge under 11 U.S.C. § 727(a)(2)(B).

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