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Will Missing Financial Records Hurt My Chapter 7 Bankruptcy Case?


Chapter 7 bankruptcy is designed to give Iowa debtors a “fresh start” by discharging their legal obligation to pay certain pre-bankruptcy debts. But a federal bankruptcy judge may refuse to grant a discharge if the debtor fails to follow the law. For example, the Bankruptcy Code states a debtor is not entitled to a discharge if he or she “has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information” related to their finances.

In other words, if you do not keep proper records, and as a result the bankruptcy court cannot get a complete picture of your finances, that alone is enough to justify denying your request for a discharge. And this is true even if you were simply reckless or sloppy and did not intentionally destroy any records.

Court Denies Bankruptcy Discharge After Couple Fails to Account for Storage Bins, Watch Collection

A recent decision by the Eighth Circuit Appellate Bankruptcy Appellate Panel, In re Dykes, offers a cautionary tale of what can go wrong when a debtor does not keep proper records. Although this case is from Minnesota, the Eighth Circuit also has jurisdiction over Iowa, so its decisions are relevant to anyone file for bankruptcy in this state as well.

The debtors in this case are a married couple who accumulated more than $4.1 million in debts. After filing for bankruptcy, the trustee assigned to the case objected to a discharge. The trustee cited the debtors’ failures to keep proper records with respect to two groups of assets.

The first issue was related to three large storage bins the debtors rented to store their personal property after they lost their home to pre-bankruptcy foreclosure. The debtors failed to keep up with their rent payments on the bins, and the property was “forfeited and sold,” again prior to the bankruptcy case. The debtors later told the bankruptcy trustee and the court there were “hundreds of thousands of dollars” in property in those bins, but they never kept or provided a written accounting.

The second issue involved “dozens of watches” purchased from a Las Vegas jeweler, according to court records. The debtor husband said he collected the watches, but he “had little to no paperwork concerning many of the watches still in his possession” at the time he filed for bankruptcy. Prior to bankruptcy, the husband signed a contact admitting he owed the jeweler $390,700 for the watches. The husband later returned some of the watches, but once again, he did not keep proper records and the “watches on the list of returns did not match the watches listed as paid for in invoices from the jeweler that were submitted at trial” before the bankruptcy court.

Based on all this, the bankruptcy court sustained the trustee’s objections to the discharge. The Bankruptcy Appellate Panel agreed with this decision, noting that while “[d]enial of a discharge is a harsh remedy,” it was justified by the debtors’ “failure to maintain adequate written records.”

Speak with a Southeast Iowa Bankruptcy Lawyer Today

Before you file for bankruptcy, you need to make sure all of your finances are properly documented. Haphazard or incomplete records can doom your bankruptcy case before it even begins. If you need advice or assistance from a qualified Southeast Iowa Bankruptcy Attorney, contact the Noyes Law Office, P.C., today.


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