Debtors Must Disclose All Business Interest

One of the questions asked on the Statement of Financial Affairs (one of the forms that comprise a bankruptcy petition) is whether the debtor had any interest in a business within the last six years, and if so they need to be listed. If the debtor has a current interest in a business, that interest must also be disclosed in his Schedules. Failure to list these interests could jeopardize the debtor’s right to a discharge.

An example of this can be found in a recent case in the Bankruptcy Court in West Virginia. In this case the debtor had a 10% interest in a business and his brother owned the other 90%. Prior to filing the case the debtor received a total of $1,000 of income from the business. The day after he filed, he received another $1,200.00 of income. He did not disclose his interest in this business or the income he received anywhere in his petition. One of his creditors filed a complaint objecting to his discharge due to his failure to disclose this information. The court found that although his interest in the business may not be valuable, it was no excuse for the debtor’s failure to disclose it. The court also found that the debtor knew of his business interest as it was disclosed in his tax returns. Therefore, the court ruled that the debtor either made an intentional false statement or at a minium showed a reckless indifference to the truth and denied him a discharge.

It is therefore critical that if you own an interest in a business, even if it is a very small interest, that information must be disclosed in your petition. I have found clients may forget about a business that they may have started a few years ago, but did not earn much money, if any, from that business during its operation. A review of the tax returns they filed for the last few years however, discloses this business interest. When I then meet with the debtors, I remind them of this business and get its starting and ending dates, the type of business it was and their interest in the business and put all that information in the petition. If you are filing a case without a lawyer make sure to review all your past tax returns so that information on those returns is consistent with the information on your petition.

Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.