Ethics

American Bankruptcy Institute Law Review Staff

 

 

Broadly construing section 105(a) of the Bankruptcy Code (the “Code”), the First Circuit, in Malley v. Agin, upheld a surcharge against the value of an otherwise exempt asset as an appropriate remedy for a chapter 7 debtor’s fraudulent concealment of assets.[1] The debtor intentionally failed to disclose $25,000 in assets, which violated his specific disclosure obligations under section 521 of the Code, as well as his general obligation to be forthright and honest with the court.[2] The bankruptcy court sanctioned the debtor by denying the debtor’s discharge pursuant to section 727 of the Code.[3] In addition, the bankruptcy court used its general equitable powers under section 105(a) to surcharge the concealed amount, plus the cost of untangling the fraud, against the value of an otherwise exempt asset—a truck used in the debtor’s business.[4] On direct appeal to the First Circuit, the debtor challenged the bankruptcy court’s surcharge order on the grounds that it exceeded the court’s equitable power under section 105(a).[5]