What Can Cause Your Chapter 7 Petition to be Denied?

Chapter 7 bankruptcy offers consumers a chance to be relieved of crushing debt and to get a fresh financial start. However, the law is not intended as a cover for fraud, deception or other conduct abusive of the bankruptcy system. Debtors who seek the law’s protection are held to high standards of good faith and candor. Failure to observe them can cause your Chapter 7 bankruptcy petition to be denied in whole or part.

Fraud in a Chapter 7 bankruptcy can take many forms, such as concealing the existence of assets, not disclosing their fair value or transferring assets in suspect transactions. If you sell or gift valuable property — such as vehicles, artwork or jewelry — to close friends or family members within one year prior to your bankruptcy filing or just after the filing, those transfers will be examined. If they paid for the transfers, but at below market prices, the judge may decide that these were fraudulent conveyances and allow the trustee to “claw back” the assets into the bankruptcy estate. 

Bear in mind that the trustee or a creditor can raise allegations of fraud at any time during the bankruptcy proceeding. If they allege you own a substantial asset but you did not disclose it, the judge will require you to explain its absence from your filings. If you cannot explain the loss of that asset, fraud could be inferred. Any loss or destruction of financial records likewise would be taken seriously.

Any false statement you make to the court also can have disastrous consequences. This includes statements in your court filings as well as your testimony in court. If the judge decides that you lied during the bankruptcy proceedings, your petition could be dismissed.

In addition to bad-faith grounds, your Chapter 7 petition can be dismissed for procedural reasons. For example:

• You failed to complete the credit counseling required of all debtors seeking bankruptcy protection. 
• Your income, expenses and debt levels make you ineligible for Chapter 7 but eligible to file a Chapter 13 bankruptcy.
• You had debts discharged under Chapter 7 within the last eight years or under Chapter 13 within the last six years. 
• You failed to follow an order issued by the judge.

When you are in dire financial straits, you need an experienced California attorney who knows Chapter 7 bankruptcy and the court system and who can analyze your particular debt situation. Based in downtown Beverly Hills, I provide a wide range of services for individuals and families suffering from the weight of excessive debt. Call the Law Offices of Michael Jay Berger at 310-271-6223 or contact me online to schedule a free consultation.