No Judgment. Just Help.

Failure to Cooperate With the Trustee Could Result in Sanctions

On Behalf of | Oct 14, 2013 | Bankruptcy |

In a recent case in Texas, In re Morgan, WL 4519608 (Bankr. S.D. Tex 2013), the bankruptcy court sanctioned a debtor for his willful failure to obey its order to provide the trustee with documents.

The debtor was a physician who operated his practice as a professional association. He exempted the practice and valued it at zero. A secured creditor filed a claim which indicated that it had a security interest in all the PA’s accounts receivable, furniture, fixtures and equipment. The Chapter 7 trustee believed that the value of the PA might exceed the secured creditor’s claim and asked that the debtor provide him with certain financial documents within seven days of the meeting of creditors. When the debtor failed to comply with the trustee’s request, the court entered an order compelling him to comply. At the hearing on the motion to comply, the trustee advised the court that the debtor had given him limited financial documents and had failed to fully comply with the court order. The court then issued a show cause order. At the hearing on the show cause order the debtor testified that he was having a hard time getting all the documents requested by the trustee because of the age and volume of the documents requested by him. The court gave the debtor another two weeks to comply and this time the debtor finally complied. However, the trustee asked the court for an award of attorneys fees and costs. The court found that because the debtor had not complied with the court order, sanctions were warranted and ordered the debtor to pay the trustee’s legal fees and expenses.

In my role as a trustee, I sometimes need additional documentation from a debtor. If the debtor fails to send them to me within the time frame requested, I will file a motion to compel. If the debtor sends me the documentation before the court has entered an order, I will withdraw the motion to compel. If not, the court will enter the order and the debtor must then send me the requested documentation or face sanctions for failure to comply.