In this case, the Debtor had failed to disclose that he had settled a lawsuit before filing bankruptcy, and that he had repaid his grandmother $7000 from the settlement. The Chapter 13 Trustee David Peake found out about it, and filed a Motion to Dismiss, arguing that the Debtor was not prosecuting his case in "good faith" as required by the Bankruptcy Code.

After hearing the evidence, U.S. Bankruptcy Judge Marvin Isgur in Houston ruled for the Debtor, finding that he was in good faith. When he realized that the lawsuit settlement should have been listed, the Debtor amended his bankruptcy Statement of Financial Affairs to disclose it. He also filed a Motion to Vacate the confirmation order, to pay an extra $7000 to his creditors, because that is considered a "preferential payment" to his grandmother, and the plan would otherwise have not been able to be confirmable. The Court stated in part:

Although it is a close call, the burden of proof on the motion to dismiss rests with Trustee Peake. In re Dickerson, 232 B.R. 894, 897 (Bankr. E.D.Tex. 1999). Under all of the facts and circumstances, the Court cannot conclude that Walker failed to act in good faith.

This is just another example of the cardinal rule in bankruptcy court, "disclose, disclose, disclose." If you don't disclose everything about your financial situation in the first place, you are asking for trouble. But if you do the right thing, the Court is generally going to be on your side.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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