Wednesday, May 19, 2010

Section 727(a)(3): Failure to Produce Financial Records

Section 727(a)(3) states that the court shall grant the

debtor a discharge unless the debtor has concealed,

destroyed, mutilated, falsified, or failed to keep or

preserve any recorded information, including books,

documents, records, and papers, from which the debtor’s

financial condition or business transactions might be

ascertained, unless the failure to act was justified under

all of the circumstances of the case.

The purpose of §727(a)(3) is to give a creditor and the

court complete and accurate information concerning the

status of the debtor’s financial affairs and to test the

completeness of the disclosure requisite of a discharge. The

policy served by debtor’s disclosure obligations is to give

unsecured and undersecured creditors the ability to trace a

debtor’s financial history to determine whether they are

being treated fairly.

The elements of a §727(a)(3) claim that must be proved by a

preponderance of the evidence are as follow: (1) the

creditor must prove that the debtor failed to keep or

preserve records; and (2) such failure was not reasonably

under the circumstances and this failure makes it impossible

to ascertain the debtor’s true financial condition or

business transactions. All records that are necessary to

understand a debtor’s financial condition are within the

scope of this section. All books and materials which shed

light on what was done with a debtor’s bankruptcy estate and

the factors which led to the filing for relief are material

to a §727(a)(3) analysis.

In a personal bankruptcy case, the quintessential documents

that must be preserved and kept are debtor’s pay stubs and

tax returns. The debtor’s failure to provide bank and credit

card statements can also form the basis for denying a

discharge under §727(a)(3) since those documents form the

core of what is necessary to ascertain the debtor’s

financial condition, primarily debtor’s use of case assets.

The determination of whether a debtor has maintained

adequate records is particularly fact intensive and must be

determined on a case by case basis. Considerations relevant

to this determination include debtor’s occupation, financial

structure, education, experience, and sophistication.
Warmest Regards,

Bob Schaller

Your Bankruptcy Advisor

Blog By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm Click for Bankruptcy Lawyer Job Opportunities. You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at Discharging Student Loans to learn about how the bankruptcy laws can help you.

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