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Can a Bad Faith Bankruptcy Filing Result in a Revocation of a Chapter 7 Discharge?

Sam Jackson: A Revoked Discharge

When Sam filed his Chapter 7 bankruptcy petition, his wealthy Uncle Larry was terminally ill. A week before Sam was to attend the 341 meeting of the creditors, his uncle passed away. Uncle Larry's will stated that Sam would receive a cash inheritance of $500,000.00. At the 341 meeting, the Chapter 7 trustee asked Sam if he had acquired any new assets since he filed his bankruptcy case. Sam said that he had not.

The Chapter 7 trustee declares Sam's case to be a no-asset case and recommends discharge. Sam is granted his discharge, and begins to spend his inheritance. One of Sam's creditors discovers Sam's inheritance and files a motion to revoke the discharge. Given that Sam lied to the trustee during the 341 meeting, and given that he failed to disclose the inheritance as required by the Bankruptcy Code, the Bankruptcy Court grants the motion to revoke Sam's discharge.

He may have also exposed himself to liability for bankruptcy fraud. If Sam's uncle died months after the completion of his bankruptcy, this would have not been a problem. Assets acquired after a discharge is received are the property of the individual, not the bankruptcy estate. Again, the underlying principal behind the Bankruptcy Code is a fresh start, allowing people like Sam to spend and invest money again.

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