People sometimes talk about “putting things into” a bankruptcy or “not putting something into” their bankruptcy. In reality, bankruptcy law requires full complete truthful disclosure of all assets, income and debt.

Often, various issues can be addressed in a beneficial manner as long as there is full disclosure. But, when people play ‘hide and seek’ in their bankruptcy case, trouble can rear its ugly head.

Such was the case in a recent appeal in which retired U.S. Supreme Court Justice David Souter was called in to sit as special justice to the U.S. Court of Appeals.

People who file used to be called “bankrupts,” but, at some point, that was changed to “debtor.” In any event, the broke person filing the petition in this case disclosed a truck used in his business, but claimed a legal exemption, meaning he could keep the apparently valuable vehicle. So far, so good.

Intentionally left out of the filing, though, was a payment he received of $25,000 from the sale of the house in which he and his ex-wife used to reside. He swore under oath that he received nothing from the sale, claiming his ex-wife received the entire balance.

Problem is, he did actually receive $25,000, yet repeatedly declared and swore under oath that he received zip.

The issue in the case was whether bankruptcy law authorized the taking away of the otherwise exempt property, in this case the truck. Stated more technically, did the wrongful concealment of the payment rise to the level of such fraud that the bankruptcy court could surcharge otherwise exempt property, or in this case take the truck away?

In Malley v. Agin, decided on Aug. 15 in the First Circuit Court of Appeals, Souter held that willful concealment of funds was a violation of a debtor’s duties of full disclosure under bankruptcy law. Compounded by continuing misrepresentation on the matter, this was fraud both on the court and against creditors, justifying the otherwise highly unusual remedy of taking away exempt property.

So, the person who filed the bankruptcy here was both denied the discharge of debt sought in the bankruptcy, but also lost property that otherwise would have been exempt.

Souter, of course, was justice to the New Hampshire Supreme Court for years before elevation to the U.S. Supreme Court. When not enjoying the quiet life in his small New Hampshire town, he is still called into service in the Circuit Court of Appeals.

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