In re Ravasia

Case Type:
Case Status:
United States Bankruptcy Appellate Panel of the Ninth Circuit No. EW-20-1212-BTL (9th Circuit, Apr 16,2021) Not Published
The BAP affirmed the decision to allow the UST leave to amend the complaint, because the amended complaint related back to the original complaint under FRBP 7015. The additional objection to discharge claims were permissible under FRBP 4004(b)(2), because some of the facts relevant to the claims were revealed only through discovery. The BAP also affirmed the bankruptcy court's decision to deny the Debtors a discharge under § 727(a)(4)(A) for false oaths, because there was sufficient evidence that the Debtors made material false oaths, knowingly with the intent to deceive.
Procedural context:
The chapter 7 trustee sought two extensions to filing a complaint to deny the Debtors a discharge. Then the chapter 7 trustee filed a complaint alleging that the Debtors "knowingly and fraudulently made materially false statements or accounts in their bankruptcy case under § 727(a)(4)(A)." The chapter 7 trustee noted that the Debtors failed to disclose transfers within 90 days of the petition date and cash withdrawals. The chapter 7 trustee proposed a settlement with the Debtors, but the United States Trustee (UST) objected to the dismissal of the § 727 complaint. The bankruptcy court ruled in favor of the UST. The bankruptcy court's order approved the monetary settlement but substituted the UST as plaintiff in the § 727 action. Two years after the § 727 action commenced, the UST sought leave to amend the complaint asserting that the Debtors' amendments reflected that the Debtors' made additional false oaths by failing to properly estimate income and expenses in 2017 and the estimates were off by thousands. The UST argued that the misrepresentations were designed to hide the truth of the financial situation which included thousands spent on non-essential foreign travel, private school and college tuition for their children, spa days, and other recreation. The bankruptcy court granted the leave to amend. The bankruptcy court held a three-day trial, and then the bankruptcy court entered an order denying the Debtors a discharge under § 727(a)(4)(A). The bankruptcy court found the Debtors made numerous false oaths on the schedules regarding income and expenses. The bankruptcy court found that husband's real income was substantially more than what was listed initially, there was no indication his income could increase, and January 2017 was not representative of the husband's ordinary or expected income. The bankruptcy court found that these misrepresentations occurred knowingly, deliberately, and consciously with the intent to deceive others about the husband's income, because the Debtors' had time and opportunity to amend and correct the schedules and even the amendments two years later reflected substantial under reporting. The bankruptcy court also found that the wife's testimony at the 341 Hearing regarding her ability to find employment and receive income was not credible, and the bankruptcy court also found that the failure to amend schedules when she secured employment demonstrated that the false oaths occurred knowingly and fraudulently with the intent to deceive. The bankruptcy court then found that the Debtors' materially misrepresented their expenses and the misrepresentations were made knowingly, deliberately, and consciously and the Debtors' never fully amended their schedules with accurate information. The Debtors appealed both the bankruptcy court's decision to allow the UST leave to amend and the bankruptcy court's order denying the Debtors a discharge.
The Ravasias (Debtors) both worked as physicans. The husband worked as a psychiatrist, and he was continuously employed throughout all the pertinent time periods. The wife worked as an obstetrician/gynecologist, and she experienced periods of unemployment and underemployment. In January 2017, the Debtors filed a Chapter 7 Bankruptcy after closing their medical practice. Their bankruptcy schedules reflected primarily business debts. They listed regular monthly income for the husband of almost $27,000 and no estimated overtime. No income was listed for the wife as she was currently unemployed but looking for work. Their expenses were listed at almost $27,000 without any indication for changes to income or expenses. The Debtors also indicated that they may receive a tax refund for 2016 in an unknown amount. The Debtors signed the schedules under penalty of perjury. At the 341 Hearing, the Debtors acknowledged reviewing the schedules, signing the schedules, and stating the schedules was accurate under oath. The wife stated under oath that she was not employable since the closing of the Debtors' medical practice. The wife stated she intended to spend nearly two months volunteering in another country to have recent experience to increase her ability to secure employment, and she also stated that she was actively seeking locum tenens work in another country. She had no estimate of when she would secure paid employment or how much such work would pay. After completing the volunteer work, the wife found regular locum employment in Canada and throughout the United States earning over $260,000 in 2017. The husband earned over $660,000 in 2017, well in excess of the estimated $27,000 a month disclosed on the schedules. The chapter 7 trustee requested credit card statements, including several the Debtors failed to disclose, and discovered that the Debtors made no changes to their lifestyle, but the credit card bills continued to be paid. The Debtors spent approximately $45,000 a month, well over the amount listed on Schedule J. Two years after the § 727 action commenced, the Debtors filed amended schedules reducing the husband's wages to approximately $21,000 but continuing to list the wife's income as $0.00. The amended expenses indicated monthly expenses in excess of $90,000. The Debtors asserted that the reduction in income was attributed to the wife planning to leave the country for some period of time, and the husband being needed to solo parent for the duration. The Debtors claimed that the monthly expense increase reflected additional business expenses and student loan payments for the Debtors' children.
The Hons. Brand, Taylor, and Lafferty

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