Opinion ID: 691991
Heading Depth: 3
Heading Rank: 1

Heading: Omissions as False Statements

Text: 10 We have not had occasion to address the question of whether the omission of prior bankruptcies from a petition constitutes a false statement under Sec. 152. However, our colleagues in the Ninth Circuit have addressed a similar situation. In United States v. Lindholm, 24 F.3d 1078 (9th Cir.1994), the debtor had falsely entered none on a bankruptcy petition when he was instructed to list his prior bankruptcy filings. Id. at 1085. The debtor also made false statements by selectively listing one previously filed petition and actively omitting to mention the other petitions previously filed. Id. The Ninth Circuit held that the debtor's actions were sufficient to sustain his convictions under 18 U.S.C. Sec. 152. It noted his false statement (none) but also stated that, [i]n any event, an omission is the equivalent of a false statement. Id. (citation omitted). The government urges us to adopt the reasoning of Lindholm. 11 Although we have not confronted previously whether failing to disclose prior bankruptcies constitutes a false statement under Sec. 152, we have found that omissions of other material information may support a conviction under Sec. 152. In United States v. Cherek, 734 F.2d 1248 (7th Cir.1984), cert. denied, 471 U.S. 1014, 105 S.Ct. 2016, 85 L.Ed.2d 299 (1985), the president and principal shareholder of a corporation failed to list an automobile as an asset on the corporation's bankruptcy petition. We held that this omission was sufficient to support a conviction for bankruptcy fraud: Section 152 properly imposes sanctions on those who preempt a court's determination [of the status of an asset] by failing to report the asset. Id. at 1254. 12 The reasoning of Cherek is compatible with that of Lindholm and that reasoning ought to govern this case. In determining the appropriate disposition of a petition, a bankruptcy court must first be provided with a complete record of the debtor's accounts and credit history. A material omission on a bankruptcy petition impedes a bankruptcy court's fulfilling of its responsibilities just as much as an explicitly false statement. The bankruptcy courts depend on petitioners to provide truthful and complete information. These courts have the right to expect that the petitions filed will reflect accurately the financial situation of the petitioner. The bankruptcy adjudicatory process simply cannot function properly if petitioners are not honest about their credit history. When honesty is absent, the goals of the civil side of the system become more expensive and more elusive. 1 Collier on Bankruptcy p 7A.01(4)(a). 13 The importance of the debtor providing accurate information is illustrated by the fact that bankruptcy courts routinely deny discharges to petitioners who omit material facts about their credit history. See In re Yonikus, 974 F.2d 901, 904 (7th Cir.1992) (affirming revocation of discharge under 11 U.S.C. Sec. 727(d)(2): Debtors have an absolute duty to report whatever interests they hold in property.). The courts impose such a penalty because they require complete and accurate information to allow the trustee and creditors to trace the debtor's financial history from a reasonable period in the past to the present. In re McCall, 76 B.R. 490, 497 (Bankr.E.D.Pa.1987). Creditors should not be forced to undertake an independent investigation of a debtor's affairs; rather, they have a right to be supplied with dependable information on which they can rely in tracing a debtor's financial history. Meridian Bank v. Alten, 958 F.2d 1226, 1230 (3d Cir.1992). Section 727 makes complete financial disclosure a condition precedent to the privilege of discharge, see Broad Nat'l Bank v. Kadison, 26 B.R. 1015, 1018 (D.N.J.1983), in order to preserve the goal of fair dealing between the debtor and creditors. In re Zell, 108 B.R. 615, 627 (Bankr.S.D.Ohio 1989). 2 14 Criminal sanctions for bankruptcy fraud are designed to set basic rules for participation in the civil bankruptcy process. 1 Collier on Bankruptcy p 7A.01(4)(a). Thus, Sec. 152 quite reasonably sets the expectation that debtors ought to disclose every material fact about their credit history, including prior bankruptcy filings. In this regard, it complements the policy of the bankruptcy statute that honesty and fair dealing are prerequisites to seeking the protection of the bankruptcy courts. 3 15 This case vividly demonstrates the potential for abuse that exists when a debtor is less than fully forthcoming with this relevant information: Mr. Ellis was able to secure three Chapter 7 discharges within a period of seven years, despite the prohibition contained in 11 U.S.C. Sec. 727(a)(8). 4 Furthermore, had the bankruptcy court been cognizant of Mr. Ellis' full history of repetitive filings, he would not have succeeded in almost continuously staying the collection efforts of his creditors for eleven years. Leaving blank the question concerning prior bankruptcy filings on Mr. Ellis' 1989 and 1991 petitions had the same practical effect as if Mr. Ellis had affirmatively replied none. Therefore, if we are to be faithful to the congressional intent, omissions of this type must be treated, for purposes of Sec. 152, in the same manner as blatantly false statements.