Under 11 U.S.C. § 727(a)(5), the court shall grant the debtor a bankruptcy discharge, unless the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities. A creditor objecting to a debtor's discharge must be able to specifically identify unaccounted for assets that were once in the debtor's possession that are now "no longer available for the debtor's creditors." In re Grammenos, 469 B.R. 535, 550 (Bankr. D.N.J. 2012) citing In re Robbins, 2008 WL 2038833 at *3. However once the burden has been met, it is up to the debtor to explain the loss of assets or deficiency of assets to meet his liabilities. Id. It is important to note that the creditor is not required to prove that the debtor acted "fraudulently or intentionally" for a denial of bankruptcy discharge under 11 U.S.C. § 727 (a)(5). Id.
What entails a satisfactory explanation is a matter of discretion for the court. Id citing In re Shafer, 2010 WL 1286427, at *6-7 (Banrk. D.N.J. March 31, 2010); In re Buzzelli, 246 B.R. 75, 117 (Bankr. W.D. Pa. 2000). The explanation given by the debtor will judged based on whether it is believable, not whether the debtor was engaging in sound business judgment when the assets were dissipated. In re Grammenos, 469 B.R. at 550 citing In re Robbins, 2008 WL at *4. The debtor does not need to make an elaborate explanation to the court; however, "it must consist of more than a 'vague, indefinite, and uncorroborated hodgepodge of financial transactions.' " Id quoting In re Young, 2010 WL 4777626, at *6, (Bankr. D.N.J. Nov. 15, 2010); See also Buzzelli, 246 B.R. 75, 116 (Bankr. W.D.Pa. 2000)(finding that "a creditor is not required to rely on a debtor's [mere] statement that he no longer has certain assets" and explanations of an indefinite nature such as assets being spent on living expenses unsupported by documentation). Therefore, if you are contemplating bankruptcy and have recently lost a substantial amount of assets, it is important that you be able to explain the loss of assets for the court should a creditor object to your discharge.
Contact a Lawyer
If you are considering bankruptcy, contact a lawyer so you can be guided accordingly as to what your options are and what option is best for you. The bankruptcy process can be difficult to navigate, so it is important that you have someone representing you who is familiar with the process to make sure everything goes smoothly.