A debtor, who owned a car repair business, filed for Chapter 7 Bankruptcy and sought a discharge. However, the trustee objected, arguing that the debtor’s failure to keep and preserve business records should prevent the debtor from pursuing a discharge. After the commencement of the bankruptcy case, the trustee requested financial information from the debtor. The debtor only provided bank statements and a tax return from 2019 (he failed to file taxes after that point). The debtor also failed to provide any information from an accountant, balance sheets, profit and loss statements, or any other type of business record. Furthermore, the debtor’s bank statements were very confusing, listing multiple accounts with significant transfers of funds on a monthly basis. When asked about the transfers, the debtor could not explain what each transfer was for, where the money went, or how it was used. Furthermore, the debtor did not provide any justification for his failure to properly keep business records for his business of thirty-five years.
In United States Tr. v. Fhuere (In re Fhuere), 667 B.R. 904 (Bankr. D. Utah 2025), the court denied the debtor’s discharge for failure to properly keep and preserve business records. In reaching this conclusion, the court had to first determine whether the trustee could establish that the debtor failed to properly keep records, and if so, the court would then have to determine if the debtor established a justification for his failure. Upon the facts discussed above, the court found that the trustee had established that the debtor failed to maintain business records. Importantly, in reaching this conclusion, the court reasoned that the records provided were not enough for the trustee (or anyone else, for that matter) to assess the financial condition of the debtor accurately. Next, the court considered whether the debtor had good reason for this failure and found none. In its reasoning the court instructed that the debtor’s record keeping practice needed to be the same caliber as others in the industry with equally complex organizations. Finding that a reasonable person in the debtor’s situation would have regularly filed taxes, hired accountants, and used accounting software, the court found no justification applied to the debtor. As such, the debtor’s discharge was denied.
By Maycee Redfearn, [email protected]
Edited By Jace Brown, [email protected]
Edited By Hayden Mariott, [email protected]