Court May Infer Intent to Deceive from Magnitude of Omission

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Minnesota Bankruptcy Case: Court May Infer Intent to Deceive from Magnitude of Omission from Scheduled Assets

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Bennington v. Thomas (In re Thomas), 431 B.R. 468 (B.A.P. 8th Cir. (Neb.) 6/22/10) (Kressel, C.J.).

Case Summary:

Court May Infer Intent to Deceive from Magnitude of Omission from Scheduled Assets

The Eighth Circuit BAP affirms the bankruptcy court’s order denying debtor-husband’s discharge and refusing to deny debtor-wife’s discharge, finding no clear error in the trial court’s determination that the debtor-husband intended to conceal assets. Debtors owned a company with another couple, where the husbands were primarily responsible for its operation. When it ran into financial difficulty, it gave its lender false borrowing base certificates, but later corrected the problem. On the schedules in their individual case, the debtors failed to disclose two large tax refunds, a loan payment, a $500,000 settlement, and $90,000 of income from the company received within the prior two years. Under questioning at the creditor meeting, the debtors disclosed the tax refunds and the loan payment, but not the settlement or the additional income. The lender sued to have its debt determined non-dischargeable based on the false borrowing base certificates, and to deny the debtors’ discharges based on the schedule omissions. The bankruptcy court found the bank debt dischargeable because debtor-husband was not sufficiently involved in preparation of the borrowing base certificates. However, it denied his discharge, finding intent to conceal property of the estate. The bankruptcy court found that debtor-wife had insufficient knowledge of the omissions to infer intent. On appeal, the BAP affirms the rulings on discharge, mooting the dischargeability appeal. Although debtor-husband claimed that the omissions from the schedules were innocent oversights, the BAP found no clear error in the bankruptcy court’s inference of intent from the recklessness and magnitude of the omissions.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.