Poor record keeping can cause big bankruptcy headaches
by AccountingWEB on
By John O'Connor, National Bankruptcy Forum founder and president
When it comes tax time, failure to keep accurate records can be a big headache, a major inconvenience. Parsing through a year of bank statements and business receipts is no fun. However, in the bankruptcy world, failure to keep accurate financial records can be grounds for denial of a discharge of debts. The bankruptcy trustee can actually sue you if your records aren’t in order.
The bankruptcy discharge is a federal court order that wipes away the debtor’s personal liability for unsecured debts existing at the time the case is filed. In the vast majority of cases, it is the discharge that motivates the bankruptcy filing in the first place.
The grounds for withholding a discharge are set out in section 727(a) of the bankruptcy code. Fraudulent activity makes up much of the list of 12 reasons a creditor or trustee can object to a discharge. However, many debtors might be surprised to learn that failing to keep accurate records can also be the catalyst for a lawsuit objecting to discharge under section 727(a)(3) of the code.
A 727(a)(3) discharge objection raises the following factual issues:
- Has the debtor failed entirely to keep financial records?
- Is such failure “justified under all the circumstances of the case”?
- Is it still possible to ascertain the debtor’s financial condition and business transactions?
In ruling on an objection to discharge for failure to keep accurate records, the court will consider the three factors listed above.
What are the negative ramifications of a successful challenge to a discharge? Not only will the debtor remain liable for the debts that might have been shed in bankruptcy, the debtor's non-exempt assets will be liquidated as well. That’s right, no debt relief and the trustee sells your stuff, certainly not a great bargain.
The lesson here is simple: Accurate accounting pays dividends in everyday life as well as in the bankruptcy court. Be careful out there. If you are concerned that poor record keeping could have an impact on your bankruptcy, contact a bankruptcy attorney.
About the author:
National Bankruptcy Forum founder and president, John O’Connor, is a Charlotte, NC lawyer focusing on complex litigation. Former bankruptcy attorney O'Connor filed what the Raleigh, North Carolina News & Observer called “one of the largest mortgage fraud cases in state history.” He currently represents a national client base of over 350 plaintiffs in the Glanton vs. Bank of America litigation. Glanton and sister case Angel vs. Bank of America allege violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) as well as the North Carolina Unfair and Deceptive Trade Practices Act by numerous nationally chartered banks and real estate developers.
Wait, there's more!
There's always more at AccountingWEB. We're an active community of financial professionals and journalists who strive to bring you valuable content every day. If you'd like, let us know your interests and we'll send you a few articles every week either in taxation, practice excellence, or just our most popular stories from that week. It's free to sign up and to be a part of our community.
Premium content is currently locked
2 weeks 4 days ago by mucar1990