My First Nomination For The Bankruptcy Debtor's Honor Roll

Creditors, their attorneys, and some bankruptcy trustees have a negative opinion about bankruptcy debtors. I’ve read comments in the media by laymen that refer to bankruptcy debtors as either dishonest or immoral for avoiding debts they are legally and morally obligated to pay. The stereotype does not apply to the debtor who consulted with me today.

This man had already filed Chapter 7 bankruptcy pro-se (without an attorney). He had no non-exempt assets at the time he filed. There were no issues in his case. The bankruptcy court issued a discharge on schedule. The trustee closed his case four months after it was filed. Done and gone in four months. Then, the story got interesting.

He explained to me that about a month after his case was closed, but within six months of his filing date, his mother died unexpectedly and left him a large inheritance. Its enough money to pay all his unsecured debts discharged in bankruptcy. Inheritances within six months after a Chapter 7 bankruptcy filing are part of the bankruptcy estate. However, none of his creditors nor the trustee knows about his windfall. He asked me if he should let the Trustee know about the inheritance.  His legal question for me was whether he is obligated to initiate a motion to reopen his bankruptcy case so that he can amend his schedules and turn over his inheritance.

I researched the issue initially and briefly while he sat in my office. My initial investigation showed me that he is obligated to inform the court about his inheritance, and that failure to do so would jeopardize his bankruptcy discharge. I told him he had a legal obligation to disclose the money. On the other hand, I also assured him that his communication was privileged and that I could not divulge his information to his trustee or anyone else unless he so directed. I explained that the decision about what to do was totally up to him.

I was really interested to hear his reaction. I think that most of my clients (and maybe many readers) would keep all the money and their mouths shut. The chances of this guy getting caught are really small. What would you do?

The man said that he is going to contact the trustee and disclose the inheritance because it’s the right thing to do and he wants to do whatever he is legally obligated to do. I think he means it. He seemed sincere and he really did not consider hiding the inheritance even though he said he felt he probably could get away with it.

It was nice to hear a client insist on doing the morally (and legally) correct thing. I deal with many people who try to stretch the limits of bankruptcy to get away with things without regard to morality. It shows that there are truly honest bankruptcy debtors who really would pay back all their creditors if they had the money. The bankruptcy court should have a debtor honor roll for people like this.

Comments

[Jonny]

Good for him! It truly is refreshing to hear about good honest people, and lawyers that appreciate them :) It's rough going through the bankruptcy process, and when someone is willing to go back and undo whats been done its quite noble.