Good Faith Reliance on Advice of Counsel as Defense in Bankruptcy
Posted in the California Forum
#1 Dec 28, 2012
San Francisco Attorney Michael Papuc represents debtors and creditors in bankruptcy proceedings.
A debtor's goal in filing for bankruptcy is to obtain a discharge of his or her debts. It is very important that the debtor be honest and forthright in completing bankruptcy papers, including the Petition, Schedules of Property Owned or Leased, Statement of Financial Affairs, including providing complete and accurate information of all Income and Expenses. The Debtor will be questioned under oath at the meeting of creditors. Failure to provide honest answers to questions posed in writing or orally under oath may result in denial of discharge, and possible criminal prosecution. Very often, the debtor will rely on his or her attorney's advice in providing answers. When doing so, the debtor must act in good faith in dealing with his or her attorney, by providing complete information to the attorney, so that the attorney may properly advise the debtor on how to answer anticipated questions.
Under 11 U.S.C.§ 727(a)(4), a debtor can be denied a discharge if it is proven by a preponderance of the evidence that the debtor made a false statement under penalty of perjury, that it was made knowingly and fraudulently, and that it was with respect to a material fact.
Sometimes the debtor will rely on the defense of good faith reliance on advice of counsel, in an attempt to negate the claim that the debtor knowingly and fraudulently made false statement under penalty of perjury. This is a high risk move, because the entire file of the debtor's attorney, including all confidential communications between the attorney and client (debtor), becomes discoverable by the trustee or creditor bringing the adversarial proceeding.
The case of In re Adeeb, 787 F.2d 1339, 1343 (9th Cir. 1986) states:"Generally, a debtor who acts in reliance on the advice of his attorney lacks the intent required to deny him a discharge ... However, the debtor's reliance must be in good faith."
Thus, for a debtor to prevail on this defense, he or she must provide all information in debtor's possession, custody or control which would be sufficient for the attorney to provide appropriate advice on what to write in the bankruptcy papers, or provide appropriate advice on what to testify to during the course of proceedings. If the debtor fails to provide complete information to his attorney, the defense good faith reliance on advice of counsel will fail.
#2 Dec 28, 2012
It is important for debtors to e completely honest when preparing their bankruptcy papers. Eveything they sign off on is under penalty of perjury.
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