When Can a Bankruptcy Court Refuse to Discharge a Civil Judgment?

by | Feb 4, 2021 | Bankruptcy

Many people contact an Orlando bankruptcy attorney because they have been recently hit with a civil court judgment. You often see news headlines about plaintiffs who win a multi-million dollar verdict against a defendant. But oftentimes, the defendant lacks the resources to pay such a judgment and instead is forced to file for bankruptcy.

Florida Couple Criticized by Court for Failing to Preserve Business Records

While many civil judgments can be discharged (canceled) through bankruptcy, there are certain exceptions that a creditor may try and invoke. For example, if a debtor conceals, destroys, or fails to keep proper business records-thereby preventing creditors or the bankruptcy judge from accurately assessing the debtor’s financial status-the the court may refuse to discharge a debt. This means that the underlying debt remains legally enforceable even after the debtor exits bankruptcy.

A recent case from Fort Myers illustrates how a debtor may get into trouble under this exception. This case involves a married couple that jointly filed for bankruptcy. The wife was the sole owner of an interior design business. A dispute arose between the wife and another married couple that hired her to decorate their house. Eventually, these dissatisfied clients sued the wife for breach of contract in Florida state court.

The state court ultimately ruled for the plaintiffs and ordered the defendant to pay over $72,000 in damages. A few days later, the defendant and her husband filed for Chapter 7 bankruptcy protection. The plaintiffs asked the bankruptcy court to bar the discharge of their $72,000 judgment because the defendants failed to “maintain books and records” of the interior design business, as required by law.

The defendants claimed they were unable to preserve their business records because the wife’s showroom-which was located in a 22,000 square foot commercial facility-had become infected with “toxic mold.” As a result, the wife testified that she “left all the business records,” including documents related to the plaintiffs’ lawsuit, in her showroom, which she surmised was later destroyed by the landlord. The husband also testified that he “threw all of the bank statements and other financial statements” for his wife’s business “in the trash.”

A bankruptcy judge has the authority to excuse the destruction of business records after considering “all of the circumstances of the case.” Unfortunately for the debtors here, the judge did not accept their “toxic mold” excuse. Indeed, the judge noted the defendants presented no evidence-other than their own testimony-to prove “the extent to which the showroom was or was not contaminated.” Nor did they present adequate financial records of any kind with respect to the wife’s business. Consequently, the court declined to discharge their debt to the plaintiffs.

An Orlando Bankruptcy Lawyer Can Help

Filing for bankruptcy is not simply a matter of showing up in court and declaring you have no money. You need to provide extensive documentation of your finances so the court has a clear understanding of your need for discharge. Contact the Law Office of K. Hunter Goff, P.A. at 866-409-1647 to schedule a free consultation with a dedicated attorney who can explain your bankruptcy options.