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Not Credible Debtor Forgot About $70K In Safe Deposit Box; Discharge Revoked

Monday, August 5, 2013
By Stephanie M. Acree

A bankruptcy court did not err in revoking a Chapter 7 debtor's discharge for fraud when the debtor failed to disclose the existence of two safe deposit boxes on his bankruptcy schedules, the U.S. District Court for the Western District of Louisiana held July 18 (Wilkerson v. DeBaillon, W.D. La., No. 6:12-cv-02210-RFD-CMH, 7/18/13).

Judge Rebecca F. Doherty was unpersuaded by the debtor's argument that he had forgotten about the safe deposit boxes, one of which contained $70,000 in cash, and affirmed the revocation of discharge.


Safe Deposit Boxes
Debtor Shannon Wilkerson was in the business of owning and managing nightclubs, pursuant to which he handled large amounts of cash. Wilkerson rented two safe deposit boxes from Whitney Bank in 1994 and 1997 respectively, which he claimed were used for cash savings and storing cash for business deals. According to Wilkerson's testimony, he visited the safe deposit boxes frequently prior to 2000, but he had not visited either of them since July 19, 2000.

Wilkerson filed for Chapter 11 protection in June 2003, but the case was subsequently dismissed in 2005 without Wilkerson receiving a discharge. Wilkerson did not disclose the existence of the safe deposit boxes during the pendency of the bankruptcy filing. Whitney Bank sent Wilkerson “drill notices” in June 2006 because the rent for the boxes was delinquent, but those notices were apparently sent to an outdated address and Wilkerson claimed not to have received them.


Omission From Schedules
Wilkerson then filed for Chapter 7 relief on Jan. 21, 2008, and again, he did not disclose the existence of the safe deposit boxes on his schedules or on the statement of financial affairs. On March 18, 2008, Whitney Bank opened the safe deposit boxes and discovered that one of the boxes contained $70,000 in cash. Wilkerson received his discharge on Feb. 13, 2009. The bank notified the U.S. Attorney, who in turn notified the Chapter 7 trustee of the money's existence via a letter dated March 16, 2009. The following November, the Chapter 7 trustee initiated an adversary proceeding seeking to revoke Wilkerson's discharge.

On March 21, 2011, Wilkerson pleaded guilty in federal court to a charge of failing to disclose the safe deposit box containing $70,000 in connection with his Chapter 11 bankruptcy case in 2003. In connection with the guilty plea, Wilkerson admitted that he knew he had the safe deposit boxes and had reason to believe they still contained cash when he filed for bankruptcy in 2003, but he made no admissions regarding the 2008 bankruptcy. The bankruptcy court issued an order granting the motion to revoke the Chapter 7 discharge on Feb. 29, 2012. The court also denied Wilkerson's motion for a new trial or alternatively, to allow additional evidence in an order dated May 8, 2012. Wilkerson appealed both orders to the district court.


$70,000 Not Forgotten
The court said that the central issue on appeal was “whether the [b]ankruptcy [c]ourt erred in finding that Wilkerson obtained his previously granted discharge through fraud.” Section 727(d) of the Bankruptcy Code stipulates that a Chapter 7 discharge shall be revoked if “such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after granting of such discharge.” In this case, the bankruptcy court was not persuaded by Wilkerson's claim that he forgot about the safe deposit boxes and the $70,000. In reaching this conclusion, the bankruptcy court relied in part on Wilkerson's testimony that “he enjoyed seeing his savings in cash, and that he visited the safe deposit box frequently prior to 2000.” The bankruptcy court also relied on Wilkerson's stipulation in connection with his guilty plea that he was aware of the safe deposit boxes when he omitted them from his 2003 bankruptcy schedules.

The district court found that the bankruptcy court did not commit clear error in concluding that Wilkerson knowingly and fraudulently omitted the safe deposit boxes from his schedules. The court found that the bankruptcy court did not, as Wilkerson argued, “completely ignor[e] the significant circumstantial evidence in this case.” Rather the district court found that the bankruptcy court simply did not find Wilkerson's evidence to be credible.


Psychological Report Not Persuasive
For example, Wilkerson introduced a psychological report in support of the argument that his omissions were due to a mental condition, and he claimed that this evidence was “totally disregarded and ignored” by the bankruptcy court. However, the district court found that the bankruptcy court had not disregarded the evidence of a mental condition, but rather that the report was based on an examination that took place years after the bankruptcy filing and therefore did not reflect Wilkerson's mental condition at the time he committed the omissions.

Furthermore, Wilkerson argued that during the time the money was available to him in the safe deposit box, his businesses began to decline, his car was repossessed, and his home was sold at foreclosure. He reasoned that if he had been aware that the cash existed, he would have used it to avoid those losses. However, the bankruptcy court said the decline of the businesses and the loss of the car both occurred before the 2003 bankruptcy, and Wilkerson had already admitted in conjunction with his guilty plea that he was aware of the safe deposit boxes at the time of that bankruptcy filing. The bankruptcy court also found that the loss of the house did not outweigh the other evidence.

Regarding the motion for a new trial, the district court said it “could find no evidence, nor any argument by Wilkerson sufficient to satisfy the prerequisites to justify granting a new trial.” According, the district court affirmed both of the bankruptcy court's orders.

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