February 9, 2007: Bankruptcy – Failure to maintain corporate financial records can support denial of discharge to individual debtor. 

The court recently re-enforced the rule that a business must maintain financial records to maintain its corporate shield. The court ruled that the Chapter 7 debtors’ failure to keep any record of the extensive prepetition transactions that they conducted on a cash-only basis, failure to prepare and file tax returns on their own behalf or on behalf of their closely-held corporations, and failure to maintain complete corporate records was such as to warrant a denial of their discharge under the “recordkeeping” discharge exception.

While the debtors’ closely-held corporations were not alter egos of the debtors, the fact that the debtors’ income and assets derived largely from these two corporations was itself sufficient to impose on the debtors an obligation to maintain records of these corporations’ financial dealings. The debtors explained that they could not afford to hire professionals to create and preserve complete financial records; the judge was not persuaded.

The citation to the case is In Re Spitko (2007 WL 1720242 (Bankr. E.D. Pa).