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February 3, 2008

Supreme Court rules that a non-disclosed asset remains in the estate - in 1905

First National Bank of Jacksboro v. Lasater,  196 U.S. 115 (1905)Djbrewer

Issue:  When the debtor does not disclose an asset to the chapter 7 trustee, what happens to the asset when the case is closed?   

Ruling:    It remains with the estate. 

Justice David J. Brewer:

The debtor had a claim against a bank for usury.  Federal law at the time permitted him to collect two times the usurious interest paid to the bank.  The debtor did not disclose the claim to the trustee and filed suit in federal court against the bank two months after the chapter 7 was closed.  The district court gave judgment to the debtor/plaintiff. 

The Supreme Court reversed and remanded.  “It cannot be that a bankrupt, by omitting to schedule and withholding from his trustee all knowledge of certain property, can, after his estate in bankruptcy has been finally closed up, immediately thereafter assert title to the property on the ground that the trustee had never taken any action in respect to it.  If the claim was of value (as certainly this claim was, according to the judgment below), it was something to which the creditors were entitled, and this bankrupt could not, by withholding knowledge of its existence, obtain a release from his debts, and still assert title to the property.”

February 3, 2008 in Supreme Court | Permalink

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