The Estate of Ray Bishop et al v. Mulholland et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	Michael Mark Mulholland and 	No. 7-10-14587 JR
Patricia Mary Mulholland,
Debtors.
The Estate of Ray Bishop and
Patricia Bishop,
Plaintiffs,
v. 	Adv. No. 10-1154 J
Michael Mark Mulholland and
Patricia Mary Mulholland,
Defendants.
MEMORANDUM OPINION
This matter is before the Court on a complaint objecting to discharge under 11 U.S.C.
§727(a)(4)(A). A trial on the merits was held on June 2, 2011. Plaintiffs assert that Defendants
knowingly and fraudulently made a false oath or account by failing to accurately disclose assets,
income, and pre-petition transfers in their Statement of Financial Affairs and Schedules.
Defendants acknowledge that their Statement of Financial Affairs and Schedules contain errors,
but assert that the errors resulted from honest mistakes and misunderstanding as to the
information they were required to disclose, and that they did not act with fraudulent intent.
The Court, having considered the evidence presented at trial, the arguments of counsel,
and the relevant case law, and being otherwise sufficiently informed, has determined the
Defendants’ discharge should be denied pursuant to 11 U.S.C. § 727(a)(4)(A).
FACTS
Debtors, Michael Mark Mulholland and Patricia Mary Mulholland, filed a voluntary
petition under Chapter 7 of the Bankruptcy Code on September 8, 2010 (the “Petition Date”).
They are represented by counsel in their chapter 7 case. For his principal occupation, Mark
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Mulholland operates a vending machine business known as Ruidoso Vending. The Debtors own
the business as a sole proprietorship. The Debtors also operate a sole proprietorship business
known as Alpha Storage. Through Alpha Storage, the Debtors rent two storage units on a
month-to-month basis under oral agreements. They use a portion of the Alpha Storage units to
store inventory and equipment for Ruidoso Vending.
On the Petition Date, the Debtors filed their Statement of Financial Affairs and Schedule
of Assets and Liabilities, which they signed under penalty of perjury. The Statement of
Financial Affairs and Schedules contain various misstatements and omissions.
Schedule B at line 2 lists “Joint checking account, First National Bank, Ruidoso, NM
88345” having a current value of $500.00, and no other accounts. On the Petition Date, the
Debtors had the following bank accounts:
Bank 	Account
number
(last 4
digits)
Name(s) on the
Account
Account balance
on the Petition
Date
Total Deposits and
Withdrawal on the Bank
Statement that Includes
the Petition Date
1st National Bank
in Ruidoso
5101 	M. Mark
Mulholland dba
Ruidoso Vending
Commission
Account
$ 42.18 	Deposits $ 669.77
Withdrawals $ 566.40
1st National Bank
in Ruidoso
8111 	Patricia
Mulholland or M
Mark
Mulholland
$ 1,952.16 	Deposits $ 3,074.54
Withdrawals $ 3,216.12
1st National Bank
in Ruidoso
9811 	Mr. or Mrs. M.
Mark
Mulholland
$ 458.93 	Deposits $ 7,768.81
Withdrawals $ 7,930.74
On Schedule B at line 9, which requires disclosure of interests in insurance policies, the
Debtors checked “None.” On the Petition Date, the Debtors owned two life insurance policies
having no cash value.
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On Schedule B at line 29, which requires disclosure of machinery, fixtures, equipment
and supplies used in business, the Debtors listed “Snack Machines, 3 Polyvend, 6 federal, 4
Rowe Automatic” and scheduled a value of $4,000 for the equipment. Those scheduled items
are candy vending machines used in the Ruidoso Vending business. On the Petition Date, the
Debtors owned and operated, as part of the Ruidoso Vending business, five additional candy
vending machines, six cigarette vending machines, and twenty one gumball vending machines.
In addition, on the Petition Date, the Debtors operated as part of the Ruidoso Vending business at
least fifty Coca-Cola vending machines that they rent as lessees on a month-to-month basis.
On Schedule B at line 30, which requires disclosure of Inventory, the Debtors checked
“None” on their schedules filed on the Petition Date. After the meeting of creditors held
pursuant to 11 U.S.C. § 341(a), the Debtors amended line 30 of Schedule B to list “13 machines
at a value of $60.00 each, Storage bin with $500.00 worth of inventory” and scheduled an
inventory value of $1,280. The reference to 13 machines was a reference to the 13 candy
vending machines listed on line 29 of Schedule B.
On Schedule G, which requires disclosure of executory contracts of any nature and all
unexpired leases of real or personal property, the Debtors checked “None.” In the Alpha Storage
business, the Debtors rented two storage units to third parties under oral month-to-month leases.
In the Ruidoso Vending business, the Debtors were lessees for at least fifty drink machines
rented on a month-to-month basis.
Schedules I and J require debtors to list their occupation, current income, and current
expenses. The Debtors’ Schedule I states that Michael Mark Mulholland’s occupation is “Self
Storage Operator,” and Patricia Mary Mulholland’s occupation is “Retired.” Schedule I lists the
following income: 1) for Michael Mulholland, $1,797.00 per month income from the self
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storage business, $253 per month from an IRA, and $153.00 per month of pension or retirement
income; and 2) for Patricia Mulholland, $2,050 per month pension or retirement income. The
Debtors’ combined monthly income reported on Schedule I is $3,633.00. Schedule J reports
total monthly expenses of $7,927.00, including a $1,712.00 monthly payment on the storage
units for the Alpha Storage business. Schedules I and J do not disclose any of the Debtors’
income or expenses from the operation of the Ruidoso Vending business.
Question 1 of the Statement of Financial of Affairs requires debtors to state the “gross
amount of income” the debtors have received from operation of their business from the
beginning of the current calendar year to the date the bankruptcy case was commenced and for
the two years immediately preceding calendar years. In response to Question 1 the Debtors state:
2008 	$ 26,924.00: Husband Self Storage Operator
2009 	$ 20,858.00: Husband Self Storage Operator
2010 YTD 	$ 11,722.00: Husband Self Storage Operator
Question 2 of the Statement of Financial of Affairs requires debtors to state the amount of
income they received other than from employment, trade, profession, or operation of the debtors’
business during the two years immediately preceding calendar years. In response to Question 2
the Debtors state:
2008 	$ 24,620.00: Wife Retirement Income
2009 	$ 24,620.00: Wife Retirement Income
2010 YTD 	$ 14,748.00: Wife Retirement Income
The Debtors three bank accounts reflect total deposits, as follows:
Bank 	Account number (last 4 digits) 	Year 	Total deposits
1st National Bank
in Ruidoso
5101 	2009
Jan to Sept 2010
$ 5, 873.36
$ 2,743.331
1st National Bank
in Ruidoso
8111 	2009
Jan to Sept 2010
$ 32,606.732
$ 23,181.853
1 Excludes deposits made in the months of January, February and March 2010 because the bank statement for those
months were not available.
2 Includes $9,355.05 deposited in 2009 from sources other than Patricia Mulholland’s retirement income.
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1st National Bank
in Ruidoso
9811 	2009
Jan to Sept 2010
$ 94,986.544
$ 46,855.975
The Debtors 2009 personal federal income tax return reflects that the Debtors received
$66,426 in calendar year 2009 from the Ruidoso Vending business. Of the deposits made in the
Debtors’ bank accounts in the months of January 2010 through September 2010, more than
$40,000 was received from operation of the Ruidoso Vending business.
In response to Question 3a on their Statement of Financial of Affairs, the Debtors failed
to disclose monthly payments in the amount of $750.00 during the 90-day period preceding
commencement of their bankruptcy case to a lender holding a lien on the Debtors’ Ford 350
truck used in the Ruidoso Vending business. The Debtors made those payments by depositing
cash in a bank account in their daughter’s name and having their daughter then disburse funds
from the account to the lender. The Debtors set up that arrangement when their bank accounts
were being garnished.
Question 18 of the Statement of Financial of Affairs requires debtors to identify certain
information regarding all businesses in which a debtor was an officer, director, partner, or
managing executive of a corporation, partnership, sole proprietorship, or self-employed
professional within the six years preceding the commencement of the bankruptcy case. The
Debtors stated in response to Question 18:
Ruidoso Vending, Taxpayer I.D. No. 85-0218320, P.O. Box 500, Alto, NM
88345, vending machine business, 1987-January 4, 2008
Alpha Storage, last four digits of social security number 8990, 113 Upper Terrace
Rd., Ruidoso, NM 88345, storage unit business, 2003-present.
3Excludes deposits made in the month of January 2010 because the bank statement for that months was not
available. Includes $11,844.60 deposited from January through September 2010 from sources other than Patricia
Mulholland’s retirement income.
4 Includes $74,945.01 from sources other than retirement income.
5 Includes $36,504.83 from sources other than retirement income.
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The corporation that operated the Ruidoso Vending business ceased operations in January 2008.
Since that time, Mark Mulholland has been operating the Ruidoso Vending business as a sole
proprietorship.
Plaintiffs commenced this adversary proceeding on September 23, 2010. The meeting of
creditors held pursuant to 11 U.S.C. § 341(a) was held and concluded on October 19, 2010.
Except for an amendment to Schedule B at line 30 filed November 9, 2010 relating to inventory,
the Debtors did not prior to the trial on the merits held June 2, 2011 amend the Statement of
Financial Affairs or Schedules of Assets and Liabilities filed on the Petition Date.6
DISCUSSION
The Plaintiffs, The Estate of Ray Bishop and Patricia Bishop, assert that the Debtors
knowingly and fraudulently presented material false information and omitted material
information about their assets, income and occupation in their Statement of Financial Affairs and
Schedules, which constitutes a false oath for which their discharge should be denied under 11
U.S.C. § 727(a)(4). The Debtors counter that the omissions in their Statement of Financial
Affairs and Schedules were not done knowingly and fraudulently but were honest mistakes based
on the Debtors’ good faith misunderstanding what they were required to disclose.
Granting a discharge to the honest but unfortunate debtor is a fundamental policy of
bankruptcy.7 Given the harshness of the penalty of denial of discharge, Courts construe
6On June 7 and 8, 2011, after the trial on the merits, the Debtors amended their Statement of Financial Affairs and
Schedules.
7 See Williams v. United States Fidelity & Guaranty Co., 236 U.S. 549, 554–555, 35 S.Ct. 289, 290, 59 L.Ed. 713
(1915)(noting that a fundamental purpose driving the bankruptcy system is to “relieve the honest debtor from the
weight of oppressive indebtedness, and permit him to start afresh free from the obligations and responsibilities
consequent upon business misfortunes.”)(citations omitted); Standiferd v. United States Trustee, 641 F.3d 1209,
1212 (10 th Cir. 2011)(giving the debtors a fresh start by discharging debts is reserved for “‘the honest but
unfortunate debtor’”)(quoting Grogan v. Garner, 498 U.S. 279, 286–87, 111 S.Ct. 654, 112 L.Ed.2d 755
(1991)(quotations omitted))(remaining citation omitted)).
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exceptions to discharge liberally in favor of the debtor and strictly against creditors.8
Nevertheless, debtors who seek the protections afforded under the Bankruptcy Code have a duty
to fully disclose the nature of their assets and financial affairs when preparing their statements
and schedules.9 The denial of discharge serves to ensure that ‘“those who seek the shelter of the
bankruptcy code do not play fast and loose with their assets or with the reality of their affairs.”’10
“Section 727(a)(4)(A) is designed to ensure that the debtor provides honest and reliable
information to the trustee and others interested in the administration of the bankruptcy estate
without their having to conduct costly investigations to discover the debtor's true financial
condition.”11 Bankruptcy trustees typically lack the time and resources to conduct such
investigations.12 “In order to deny a debtor's discharge pursuant to [Section 727(a)(4)(A)], a
creditor must demonstrate by a preponderance of the evidence that the debtor knowingly and
fraudulently made an oath and that the oath relates to a material fact.”13
8Freelife Int’l, LLC v. Butler (In re Butler), 377 B.R. 895, 914-915 (Bankr.D.Utah 2006)(citing In re Kontrick, 295
F.3d 724, 736 (7 th Cir. 2002) and Rosen v. Bezner, 996 F.2d 1527, 1534 (3 rd Cir. 1993)(remaining citations
omitted)).
9Butler, 377 B.R. at 914-15(“In exchange for that ‘fresh start,’ the Code requires debtors to accurately and truthfully
present themselves before the court.”)(citing Farouki v. Emirates Bank Int’l, Ltd., 14 F.3d 244, 249 (4 th Cir. 1994)).
See also, The Cadle Co. v. King (In re King), 272 B.R. 281, 300 (Bankr.N.D.Okla. 2002)(‘“The bankruptcy
schedules and statement of affairs do not ask the debtor to make an assessment of what he thinks are important
assets or debts. Debtor[s] must, under oath, list all creditors and assets, as well as all transfers of property within the
prior year.’”)(quoting Superior Nat’l Bank v. Schroff (In re Schroff), 156 B.R. 250, 256 (Bankr.W.D.Mo.
1993)(emphasis added by King)).
10Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir. 1997)(quoting Boroff v. Tully (In re Tully), 818 F.2d 106, 110
(1st Cir. 1987)).
11Giansante & Cobb, LLC v. Singh (In re Singh), 433 B.R. 139, 154 (Bankr.E.D.Pa.2010)(citing In re Retz, 606 F.3d
1189, 1196-97 (9 th Cir. 2010)(remaining citation omitted)). See also In re Guadarrama, 284 B.R. 463, 474
(C.D.Cal. 2002)(full and truthful answers in the statement of financial affairs are required to give the trustee and
creditors the ability to discover assets and fully investigate the debtor’s pre-bankruptcy financial affairs).
12See Bay State Milling Co. v. Martin (In re Martin), 141 B.R. 986, 997 (Bankr.N.D.Ill. 1992)(stating that
“Bankruptcy Trustees lack the time and resources to play detective and uncover all the assets and transactions of
their debtors.”)(citations omitted).
13Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1294 (10 th Cir. 1997)(citation omitted).
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False Oath
A debtor’s statement of financial affairs and schedules are made under oath.14 Omissions
as well as affirmative statements made in a debtor’s Statement of Financial Affairs and
Schedules constitute statements under oath and can constitute a false oath for purposes of Section
727(a)(4)(A).15
Materiality
Materiality is broadly defined for purposes of Section 727(a)(4)(A). “A false statement or
omission may be material even in the absence of direct financial prejudice to creditors.” 16
Debtors have an absolute duty to report whatever interest they hold in property, even if they
believe their assets are unavailable to the bankruptcy estate.17 Debtors may not decide for
themselves the nature of their property interest or that a property interest need not be disclosed.18
“‘The subject matter of a false oath is ‘material,’ and thus sufficient to bar discharge, if it bears a
relationship to the bankrupt's business transactions or estate, or concerns the discovery of assets,
business dealings, or the existence and disposition of his property.’” In re Garland, 417 B.R.
805, 814 (10th Cir.BAP 2009)(quoting Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618
14 Rule 1008, Fed.R.Bankr.P. and 28 U.S.C. § 1746.
15 In re Phillips, 2010 WL 6259975, *6 (9 th Cir. BAP 2010)(“A false statement or omission in the debtor’s
bankruptcy schedules or statement of financial affairs can constitute a false oath.”)(citing In re Roberts, 331 B.R.
876, 882 (9th Cir.BAP2005)); Melarango v. Ciotti (In re Ciotti), 448 B.R. 694, 703-04 (Bankr.W.D.Pa. 2011)(“a
debtor's failure to list in the bankruptcy schedules and statement of financial affairs all assets owned can constitute a
false oath or account since these statements are made under oath.”)(citation omitted); Netherton v. Baker (In re
Baker), 205 B.R. 125, 131 (Bankr.N.D.Ill.1997)(“A debtor's petition and schedules constitute a statement under oath
for purposes of a discharge objection under § 727(a)(4).”)(citations omitted); Lanker v. Wheeler (In re Wheeler),
101 B.R. 39, 49 (Bankr.N.D.Ind.1989)(“A false oath may be made by the debtor by signing sworn documents that
bear false information . . .”)(citation omitted).
16Roberts, 331 B.R. at 883 (citations omitted).
17See Palmer v. Downey (In re Downey), 242 B.R. 5, 13-14 (Bankr.D. Idaho 1999)(stating that “[i]t is not for the
debtors to elect what to disclose; all property and interests in property must be disclosed.”)(citing In re Tripp, 224
B.R. 95, 98 (Bankr.N.D.Iowa 1998), In re Guajardo, 215 B.R. 739, 742 (Bankr.W.D.Ark.1997) and In re Craig,
195 B.R. 443 (Bankr.D.N.D.1996)).
18Id.
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(11th Cir.1984)). A debtor has a duty to disclose assets that are worthless, and a failure to do so
can support denial of discharge under Section 727(a)(4).19
Knowingly and Fraudulently
A debtor acts knowingly and fraudulently for purposes of 11 U.S.C. §727(a)(4) if he or
she acts deliberately and consciously with an intent to defraud.20 Because debtors rarely admit to
fraudulent intent, the requisite intent necessary for denial of discharge under § 727(a)(4)(A) may
be inferred from circumstantial evidence, including the debtor’s course of conduct, a pattern of
concealment and other surrounding circumstances.21 “[W]hile evidence of recklessness alone
will not satisfy the intent requirement of § 727(a)(4), evidence of recklessness may be combined
with other circumstantial evidence to prove fraudulent intent.” 22 The cumulative effect of the
debtor’s false statements and a failure to correct misstatements and omissions promptly can
evidence a pattern of reckless and cavalier disregard for the truth that is sufficient to prove
fraudulent intent under § 727(a)(4)(A). 23 However, a debtor’s discharge will not be denied
19 See In re Calder, 907 F.2d 953, 955 (10th Cir. 1990)(“a ‘recalcitrant debtor may not escape a section 727(a)(4)(A)
denial of discharge by asserting that the admittedly omitted ... information concerned a worthless business
relationship or holding; such a defense is specious’”)(quoting Chalik, 748 F.2d at 618).
20See United States Trustee v. Warr (In re Warr), 410 B.R. 891, 897 (Bankr.D.Idaho 2009)(both knowledge by an
action taken deliberately and consciously and an intent to defraud are required to deny a discharge under 11 U.S.C. §
727(a)(4)).
21 See, e.g., Lincoln Sav. Bank v. Freese (In re Freese), 2011 WL 2604750, *4 (Bankr. N.D. Iowa 2011)(fraudulent
intent may be established by circumstantial evidence)(quoting In re Bauder, 333 B.R. 828, 830 (8 th Cir. BAP 2005);
Singh, 433 B.R. at 150 (same).
22 In re Khalil, 578 F.3d 1167, 1168 (9 th Cir. 2009). See also, Stamat v. Neary, 635 F.3d 974, 982 (7th Cir. 2011)(“a
showing of reckless disregard for the truth is sufficient to prove fraudulent intent.”)(citations omitted); In re
Keeney, 227 F.3d 679, 686 (6 th Cir. 2000)(“A reckless disregard as to whether a representation is true will also
satisfy the intent requirement.”); Garland, 417 B.R. at 815 (“While ‘mere mistake or inadvertence is not sufficient to
bar a debtor's discharge’ under § 727, ‘reckless indifference to the truth has consistently been treated as the
functional equivalent of fraud for purposes of § 727(a)(4)’”)(quoting King, 272 B.R. at 302)(internal quotation
marks omitted)).
23See In re Duncan, 562 F.3d 688, 695 (5 th Cir. 2009)(“the cumulative effect of false statements may, when taken
together, evidence a reckless disregard for the truth sufficient to support a finding of fraudulent intent.”). See also,
McCarthey Investments LLC v. Shah (In re Shah), 2010 WL 2010824, *6 (Bankr. S.D.N.Y. 2010)(fraudulent intent
inferred from the Debtor’s level of sophistication and a pattern of numerous misstatements); In re Wills, 243 B.R.
58, 64 (9th Cir.BAP 1999)(“A court may find the requisite intent where there has been a pattern of falsity or from a
debtor's reckless indifference to or disregard of the truth.)(citing In re Coombs, 193 B.R. 557, 564 (Bankr.S.D.Cal.
1996)).
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under 11 U.S.C. §727(a)(4) when false statements or omissions are due to mere mistake or
inadvertence24 or even made from ignorance or carelessness.25
While the creditor bears the ultimate burden of proof under 11 U.S.C. §727(a)(4), once
the creditor has demonstrated an omission or false statement, the burden of going forward shifts
to the debtor to show that the omission was the result of an honest mistake or to otherwise
provide a credible explanation for the false statement. 26 Ultimately, the determination of
whether a debtor’s discharge should be denied under U.S.C. §727(a)(4) often depends upon the
demeanor and credibility of the debtor in explaining the reasons for failing to make full and
complete disclosures.27
Application of the law to this case
The Debtors’ Schedules and Statement of Financial Affairs contain several affirmative
misstatements and omissions. The Debtors disclosed only one of three bank accounts with
balances on the Petition Date, even though the Debtors were actively using all three accounts.
They also failed to schedule oral month-to-month rental agreements of storage units and drink
machines. The Debtors failed to schedule two life insurance policies. The Debtors also failed to
disclose on their Statement of Financial Affairs pre-petition payments on a vehicle made within
90 days prior to commencement of the bankruptcy case.
24See Brown, 108 F.3d at 1294 (recognizing that “we must not penalize the debtor for an inadvertent mistake.”).
25Roberts, 331 B.R. at 884; Ciotti, 448 B.R. at 704 (observing that “[e]ven a false statement resulting from ignorance
or carelessness does not rise to the level of “knowing and fraudulent” sufficient to deny a discharge.”)(citing In re
Oliver, 414 B.R. 361, 374 (Bankr.E.D.Tenn. 2009)).
26See Chase v. Harris (In re Harris), 385 B.R. 802, 804-05 (1st Cir.BAP 2008)(“Once it reasonably appears that the
debtor made a false oath, the burden shifts to the debtor to come forward with evidence that she has not committed
the offense charged.”)(citations omitted); In re Moreo, 437 B.R. 40, 59 (E.D.N.Y. 2010)(“Once the moving party
meets its initial burden to produce evidence of a false statement, the burden of production shifts to the debtor to
produce a ‘credible explanation.’”)(citation omitted).
27See Mercantile Peninsula Bank v. French (In re French), 499 F.3d at 354-55 (4 th Cir. 2007)(“in evaluating a
§727(a)(4)(A) claim, ‘a determination concerning fraudulent intent depends largely upon an assessment of the
credibility and demeanor of the debtor.’”)(quoting Williamson v. Fireman’s Fund Ins. Co., 252 F.2d 249, 252 (4 th
Cir. 1987)); In re Burgess, 955 F.2d 134, 137 (1 st Cir. 1992)(same).
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In addition, required disclosure is lacking regarding the Debtors sole proprietorship
known as Ruidoso Vending. The Debtors failed to schedule all of the assets of that business.
They did not disclose on Schedule I Mark Mulholland’s occupation as an operator of that
business, or include in Schedules I or J any of the income or expense of the business. The
Debtors did not include any of the revenues of Ruidoso Vending when listing their pre-petition
income in response to Statement of Financial Affairs, Questions 1 and 2, and did not disclose
Ruidoso Vending, the sole proprietorship, in response to Question 18.
Patricia Mulholland did not testify. Mr. Mulholland testified that he did not list six
cigarette machines and twenty gumball machines he operates in his Ruidoso Vending business
because the machines are basically worthless due to there being no market for the types of
machines he owns. He testified that he disclosed his self storage unit business instead of his
Ruidoso Vending business as his occupation in Schedule I because he believed he had to choose
one occupation to list and he chose the self storage business as his occupation. He testified
further that he did not list the bank account ending in 5101 because it is a business bank account
used by Ruidoso Vending to pay commissions, and that the funds in the account are deposited
and disbursed within days. Mr. Mulholland testified that he believed he did not need to include
any of the income or expenses of Ruidoso Vending in Schedules I or J, or in response to
Statement of Financial Affairs Questions 1, because it was business income and expenses, and,
in any event, Ruidoso Vending did make a profit. Likewise, he testified that he did not disclose
prepetition vehicle payments made within the 90-day period prior to the commencement of his
bankruptcy case because he viewed those payments as business expenses, and he believed that
disclosure of business expenses was not required. Mr. Mulholland testified that he did not list
six cigarette machines and twenty gumball machines he operates in his Ruidoso Vending
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business because the machines are basically worthless. He explained further that he believes
there is no market for those types of machines. Mr. Mulholland testified that he did not include
on Schedule H his two storage unit rentals to third parties because they were oral month-to-
month rentals, and he thought only written leases for a longer term needed to be disclosed.
Finally, Mr. Mulholland testified that he did not schedule his two life insurance policies because
they have no cash value.
The Court does not find Mr. Mulholland’s explanation of why he omitted information
concerning Ruidoso Vending from the Statement of Financial Affairs and Schedules to be
credible. Mr. Mulholland testified that he believed such information was not required because
Ruidoso Vending is a business. The Debtors’ own Statement of Financial Affairs and Schedules
belie this position. 	The Debtors owned and operated two sole proprietorship businesses on the
Petition Date: Ruidoso Vending and Alpha Storage. The Debtors included on Schedules I and J
the income and expenses of Alpha Storage and disclosed in response to Statement of Financial
Affairs Question 1 the income of Alpha Storage, even though it is also a business. In response to
Statement of Financial Affairs Question 18, which requires disclosure of corporations and sole
proprietorships, the Debtors disclosed their Alpha Storage sole proprietorship and Ruidoso
Vending for the period it operated as a corporation from 1987 to January 4, 2008, but failed to
disclose the Ruidoso Vending sole proprietorship they have operated since January 4, 2008. The
Debtors listed Mr. Mulholland’s occupation as a self storage operator, even though his principal
occupation was operating Ruidoso Vending. 	No credible explanation was given by the Debtors
for their failure to disclose the Ruidoso Vending sole proprietorship in their Schedules and
Statement of Financial Affairs. 	If Mr. Mulholland believed information regarding Ruidoso
Vending did not need to be disclosed because it is a business, that does not explain why he
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scheduled some of the equipment and inventory of Ruidoso Vending in Schedule B nor why he
included information on his Statement of Financial Affairs regarding his other business, Alpha
Storage.
The Court also does not find credible Mr. Mulholland’s testimony that he believed he did
not need to disclose business income in Schedule I or in response to Statement of Financial
Affairs Question 1 if the business did not make a profit. Statement of Financial Affairs Question
1 expressly states that all “gross income” is to be disclosed; it does not request disclosure of “net
income” after deduction of expenses. Further, Schedules I and J require debtors to lists all
income and expenses.
The Court finds that the Debtors made false statements under oath in their Statements of
Financial Affairs and Statements, and that the statements were material. Further, having
considered the nature of the nature of the misstatements and omissions in the Debtors’ Statement
of Financial Affairs and Schedules, Mark Mulholland’s explanation regarding the misstatements
and omissions, surrounding circumstances, and the cumulative effect of the misstatements and
omissions, the Court finds the misstatements and omissions by Mark Mulholland were made
with the requisite knowledge and fraudulent intent required for denial of discharge under 11
U.S.C. § 727(a)(4)(A). Although the Debtors did amend their Statement of Financial Affairs and
Schedules of Assets and Liabilities following the trial on the merits in this adversary proceeding,
the Court finds that such amendments do not negate the finding of fraudulent.28
The Plaintiffs demonstrated that the Statement of Financial Affairs and Schedules
contained false statements and omissions. 	The Statement of Financial Affairs and Schedules
28Cf. In re Beauchamp, 236 B.R. 727, 734 (9 th Cir. BAP 1999), aff’d, 5 Fed.Appx. 743 (9 th Cir. 2001)(affirming a
denial of discharge even though the debtor ultimately amended his schedules because the “trial court took testimony,
gauged the demeanor of the witnesses, and found that, but for the scheduled Rule 2004 examination, [the Debtor]
would not have disclosed the account.”); In re Gartner, 326 B.R. 357, 373 (Bankr.S.D.Tex. 2005)(finding that filing
amended Schedules and an Amended Statement of Financial Affairs did not excuse the debtor’s false oaths).
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were signed not only by Mark Mulholland but also by Patricia Mulholland. 	Consequently, the
burden shifted not only to Mark Mulholland but also to Patricia Mulholland to show that the
false statements and omissions were the result of an honest mistake on her part or to otherwise
provide a credible explanation for the false statements and omissions. Because Patricia
Mulholland did not testify, and the Court has found that the explanations given by Mark
Mulholland do not negate a finding knowledge and fraudulent intent, the Court finds that the
Plaintiffs have also sufficiently established that the discharge should be denied under Section
727(a)(4)(A) as to Patricia Mulholland.
CONCLUSION
For the foregoing reasons, the Court will deny the discharge as to both Mark Mulholland and
Patricia Mulholland under 11 USC §727(a)(4)(A). A judgment consistent with these findings of
fact and conclusions of law will be entered.
______________________________
ROBERT H. JACOBVITZ
UNITED STATES BANRUPTCY JUDGE
Entered on Docket Date: September 16, 2011
Copies to:
Richard A Hawthorne
Attorney for Plaintiff
1221 Mechem Dr Ste 2
Ruidoso, NM 88345-7224
Charles E Hawthorne
Attorney for Defendants
900 Sudderth Dr
Ruidoso, NM 88345-7224
Case 10-01154-j Doc 24 Filed 09/16/11 Entered 09/16/11 11:28:47 Page 14 of 14