Bankrupt Debtors Lose Discharge After Spending Annuity Payouts

August 17th, 2009 by Reed Allmand

In the bankruptcy case of (Craney, Fred C. Jr. and Suzanne M.; In re (Forker v. Craney)), the debtors’ bankruptcy discharge was revoked because they spent money that was clearly property of the bankruptcy estate.

The details of the bankruptcy case:

In this Chapter 7 bankruptcy case, debtors reported that the debtor-husband received monthly payments of $324.38 from an annuity. The debtors were informed by the bankruptcy trustee that the annuity payments of $324.38 were the property of the bankruptcy estate and that the bankruptcy trustee would be contacting the payor regarding the money. However, it took a year for the bankruptcy trustee to do this. In the meantime, the debtors continued to receive the money directly deposited into their account and they spent the money knowing that it was the property of the bankruptcy estate. After it was revealed that the money had been spent by the debtors, the trustee filed a complaint to revoke their bankruptcy discharge. The debtor’s responded by paying $700 and promising the rest later; but it was not enough. The bankruptcy court found that the debtors engaged in fraud because they failed to give the trustee the balance of the annuity payments they received and their discharge was revoked.

It is important that debtors get clarity on which assets are part of the bankruptcy estate and which are not. Even if an asset belonging to the bankruptcy estate has not been collected by the trustee, do not assume that it is “forgotten” or its status has changed. If a debtor takes possession of or somehow liquidates an asset belonging to the bankruptcy estate it could be grounds for the trustee to revoke their discharge. If a bankruptcy trustee has failed to collect an asset belonging to the bankruptcy estate speak with your bankruptcy attorney; but do not spend, liquidate, sell or give away the asset.