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

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