In a recent bankruptcy filing a discharge was denied because the debtors’ schedules included blatant omissions and did not contain the signature of the debtors. The schedules filed in this Chapter 7 bankruptcy case by attorney Joel J. Margolis contained horrific omissions, including a furniture store filled with furniture, a $13,000.00 bank account, a 2008 Mercedes automobile, and real property. These omissions only came to light through serendipitous notification by the bank where the deposit was held and by diligent investigation by the Chapter 7 trustee, Jeffry Locke, and his employees.Pursuant to § 704(a)(6) of the Bankruptcy Code, Locke had a duty to object to the debtors’ discharge. He originally sought to do so based on the false schedules, as § 727(a)(4)(A) forbids a discharge to debtors who make a false oath. However, it soon came to light that the debtors had a defense to this claim based on Margolis’ conduct. They had never signed the schedules Margolis filed on their behalf.
It was later discovered that the bankruptcy attorney in this case was in fact negligent. The bankruptcy attorney not only submitted bankruptcy schedules without the debtors’ signature; but he also allowed non-attorneys to give legal advice to the debtors. The bankruptcy attorney immediately sanctioned the bankruptcy attorney; but still denied the debtors’ bankruptcy discharge. The bankruptcy court argued that it is the responsibility of the debtor to submit schedules which are accurate and that the denial of discharge could not be overturned simply because the debtors did not sign the schedules. They also said that it is the responsibility of the bankruptcy attorney to make sure that the debtor is being truthful and if they suspect that the debtor is being dishonest then they should refuse to represent them.