In re: : Monik Chlad

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 18‐3056
IN RE : MONIK C HLAD,
Debtor‐Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:17‐cv‐5198 — John J. Tharp, Jr., Judge.
____________________
A RGUED A PRIL 8, 2019 — D ECIDED MAY 2, 2019
____________________
Before WOOD, Chief Judge, and S CUDDER and S T . EVE ,
Circuit Judges.
SCUDDER , Circuit Judge. In 2013 Monik Chlad and her
husband, Eric Vehovc, filed a joint petition under Chapter 7
of the Bankruptcy Code seeking to discharge about $5 mil‐
lion of debt. After Chlad and Vehovc filed financial disclo‐
sures in relation to their petition, two creditors brought an
adversary proceeding objecting to the discharge. Alleging
that the filings omitted information material to the debtors’
financial condition, the creditors invoked 11 U.S.C.
§ 727(a)(4) and sought to prevent the discharge. Following a
bench trial, the bankruptcy court denied the discharge, find‐
ing that the omissions reflected material false statements

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2 No. 18‐3056
made with fraudulent intent. The district court affirmed, and
only Chlad has appealed. Seeing no clear error in the bank‐
ruptcy court’s factual findings, we too affirm the denial of
discharge.
I
Chlad is the sole owner of a real estate company named
Lockwood Development, Inc. Chlad’s husband worked for
Lockwood as well, and the two ran the company together.
They also owned several parcels of real estate in their own
names. In connection with their bankruptcy petition, Chlad
and Vehovc filed the required Statement of Financial Affairs
and bankruptcy schedules. As its names implies, the
Statement of Financial Affairs required the debtors to
disclose information about their finances, including sources
of income, and payments to creditors and other transfers
made within specified time periods. The bankruptcy
schedules required the debtors to identify interests in
property and creditors as of the date of the bankruptcy
petition. Chlad and Vehovc accompanied these disclosures
with a declaration stating under penalty of perjury that they
had reviewed the information in those documents and it was
true and correct.
The disclosures in those filings—and more importantly,
what was not disclosed—gives rise to this appeal. Two credi‐
tors, Mitchell Chapman and Semy Investments Ltd., com‐
menced an adversary proceeding identifying numerous
omissions in the filings and challenging the debtors’ eligibil‐
ity for a Chapter 7 discharge. They alleged that Chlad and
Vehovc failed to disclose the existence of particular real es‐
tate, a significant creditor, bank accounts, a shareholder loan,
certain sources of income, and an alternate first name used

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No. 18‐3056 3
by Chlad. The absence of this information from Chlad’s fi‐
nancial filings in the bankruptcy court is undisputed.
The omissions underlying the issues on appeal are:
 Chlad did not disclose real estate located on
Van Buren Street in Chicago that she and
Vehovc jointly owned, and the related fact that
the property secured mortgages. Chlad
misstated that one of these mortgages was
secured by another property.
 Chlad failed to report the existence of a
significant creditor—Edgebrook Bank. Chlad’s
company, Lockwood, had executed a
promissory note for over $800,000 in favor of
Edgebrook Bank. While the note was secured
by a mortgage on a parcel of real estate, Chlad
and Vehovc personally guaranteed
Lockwood’s obligations to Edgebrook Bank.
 Chlad failed to disclose a shareholder loan of
over $1 million she had received from
Lockwood. From 2010 to 2013, Lockwood’s tax
returns disclosed a loan to a shareholder—
Chlad—which was as high as $1.2 million at
the beginning of 2010. The loan balance fell to
$50,000 by the end of 2012, and to $0 by the
end of 2013. Chlad neither disclosed Lockwood
as a creditor nor any transfers to Lockwood
made in the year preceding the bankruptcy
petition.

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4 No. 18‐3056
 Chlad’s filings made no mention of two jointly
owned bank accounts—one with her mother
and another with a Lockwood subcontractor—
as well as related transfers of funds out of
those accounts within the two years preceding
the bankruptcy petition.
 Chlad likewise failed to report certain sources
of income received during the two years pre‐
ceding the bankruptcy petition—child support
payments and rental income that provided her
more than $4,000 a month.
 Chlad failed to disclose that, in addition to the
name “Monik,” she also used the first name
“Monika” in her business affairs, including on
multiple bank accounts and tax returns.
The bankruptcy court resolved the adversary proceeding
by holding a bench trial. Chlad testified that the omissions in
her filings were the result of innocent mistakes. She ex‐
plained that she had shared most of the omitted information
with her bankruptcy attorney and that he was at fault for not
ensuring the completeness and accuracy of her filings with
the bankruptcy court. Chlad’s attorney likewise testified and
generally maintained that he was responsible for some of the
omissions in Chlad’s filings.
But the trial testimony also showed that Chlad actively
managed her financial affairs and had knowledge of
Lockwood’s business dealings and her own assets and
liabilities. Other testimony revealed that, prior to
bankruptcy, Chlad hired an assistant to collect information
about the properties she owned. Chlad then shared the

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No. 18‐3056 5
resulting inventory, which included the Van Buren property
in Chicago, with her attorney. Furthermore, prior to filing
the financial disclosures with the bankruptcy court, Chlad
met multiple times with her attorney and discussed the
information in the filings. Chlad’s attorney advised her of
the consequences of making misstatements in the
submissions and together they reviewed the filings page by
page before ultimately filing them in the bankruptcy court.
The trial concluded with the bankruptcy court denying
Chlad and her husband a discharge under § 727(a)(4) of the
Bankruptcy Code. The court determined that the omissions
and misstatements were material and reflected false state‐
ments made under oath that the debtors knew or should
have known to be false. The court further concluded that,
taken together, the omissions and misstatements demon‐
strated a reckless disregard for the truth, which was suffi‐
cient to support a finding of fraudulent intent necessary to
deny discharge under § 727(a)(4). In a well‐reasoned and
thorough opinion, the district court affirmed.
II
Discharge under Chapter 7 “is reserved for the ‘honest
but unfortunate debtor.’” In re Kempff, 847 F.3d 444, 447 (7th
Cir. 2017) (quoting Stamat v. Neary, 635 F.3d 974, 978 (7th Cir.
2011)). Section 727 of the Bankruptcy Code enforces this res‐
ervation by providing grounds for denying a discharge to
dishonest debtors. See 11 U.S.C. § 727(a). The creditors’ chal‐
lenge to Chlad’s discharge falls under § 727(a)(4)(A), which
withdraws a debtor’s eligibility for discharge where she
“knowingly and fraudulently, in or in connection with the
case—(A) made a false oath or account.” The creditors bear
the burden of establishing Chlad’s ineligibility for discharge

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6 No. 18‐3056
by a preponderance of the evidence. See Kempff, 847 F.3d at
447.
A
We begin with Chlad’s contention that the bankruptcy
court’s decision denying her discharge should be reviewed
de novo. She disagrees most especially with the bankruptcy
court’s finding that she acted with fraudulent intent in
omitting the required information, insisting that the inquiry
is a mixed question of law and fact entitled to de novo review.
This position is at odds with our caselaw.
On appeal from a district court’s review of a bankruptcy
court’s ruling, we review the bankruptcy court’s factual find‐
ings for clear error and the legal conclusions of both the
bankruptcy court and the district court de novo. See Kempff,
847 F.3d at 448. And, with respect to the fraudulent intent
inquiry in particular, we have explained that “[w]hether a
debtor possessed the requisite intent to defraud is a question
of fact, which is subject to the ‘clearly erroneous’ standard of
review.” Id. at 449 (quoting In re Marcus‐Rehtmeyer, 784 F.3d
430, 436 (7th Cir. 2015)).
This more deferential clear error standard makes sense
because an “intent determination often will depend upon a
bankruptcy court’s assessment of the debtor’s credibility,
making deference to the court’s finding particularly appro‐
priate.” In re Krehl, 86 F.3d 737, 743 (7th Cir. 1996). Indeed, in
recognition of the ringside view that the bankruptcy court
occupies in making the intent determination, “where the ev‐
idence on the intent question is such that two permissible
conclusions may rationally be drawn, the bankruptcy court’s
choice between them will not be viewed as clearly errone‐

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No. 18‐3056 7
ous.” Id. at 744. We therefore review the bankruptcy court’s
determination that Chlad acted with fraudulent intent—and
all of its other factual findings—for clear error.
B
By its terms, § 727(a)(4)(A) provides a ground for deny‐
ing discharge where the debtor “knowingly and fraudulent‐
ly” makes a “false oath or account” in connection with the
bankruptcy proceeding. We have thus required the party
opposing discharge to prove that the debtor made a material
false statement under oath, the debtor knew the statement
was false, and the statement was made with fraudulent in‐
tent. See Stamat, 635 F.3d at 978.
All agree that the omissions in Chlad’s bankruptcy filings
constituted false statements made under oath. From there,
however, Chlad takes issue with the remaining elements,
contending that the omissions were not material and neither
made with knowledge nor intent to defraud the bankruptcy
court or her creditors. She insists that the omissions reflected
innocent mistakes, including by her bankruptcy attorney,
and in any event, were inconsequential to the administration
of her estate.
The battleground of this appeal lies in § 727(a)(4)’s re‐
quirement that the statements be made both “knowingly”
and “fraudulently.” We have no trouble concluding that
Chlad had knowledge of the information omitted from her
financial filings in the bankruptcy court. This is not a scenar‐
io in which a debtor had little familiarity with her financial
affairs, left business affairs to others, or took care to ensure
complete and accurate disclosures only to learn after the fact
of an isolated mistake or two. Quite the opposite was true.

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8 No. 18‐3056
Chlad was informed of her own financial condition and the
business and financial affairs of Lockwood, and she devoted
time to gathering information to ensure she had a complete
and accurate picture. Take, for example, the Van Buren
property that Chlad and her husband owned in Chicago.
Chlad hired an assistant to collect information regarding
properties that she, her husband, and Lockwood owned. The
trial revealed that she not only reviewed the inventory of the
properties, but also discussed with her assistant and attorney
her desire to avoid losing the Van Buren property as a result
of the bankruptcy.
Chlad raises no real dispute about her knowledge of the
Van Buren property, the guaranty to Edgebrook Bank, the
joint bank accounts, the additional sources of income, and
the use of an alternate name in prior financial dealings. She
contends, however, that she was unaware of the reduction of
the shareholder loan from Lockwood, asserting that the loan
reduction was an “accounting function write‐down” per‐
formed by her tax preparers. But this only gets Chlad so far,
for the record shows her knowledge of the loan itself. The
trial evidence demonstrated that, every year from 2010
through 2013, Chlad reviewed and signed Lockwood’s tax
returns, each of which disclosed the loan she received from
Lockwood. Lockwood’s tax preparer also testified to dis‐
cussing the shareholder loan with Chlad. As the bankruptcy
court explained, “[e]ither the shareholder loan existed as of
the Petition Date” and Chlad’s schedules were false because
they failed to identify Lockwood as a creditor, or “Chlad re‐
paid the loan prior to the Petition Date” and Chlad’s State‐
ment of Financial Affairs was false because it failed to list
any payment to Lockwood made within one year of the

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No. 18‐3056 9
bankruptcy petition. Either way, the record leaves no doubt
that Chlad knew of the loan’s existence.
At a broader level, Chlad argues that the bankruptcy
court erred in finding the knowledge requirement satisfied
because she knew or should have known that her financial
filings contained false statements. Chlad is correct to observe
that a “should have known” standard does not align with
the language of § 727(a)(4), which requires that the false
statement be made “knowingly.” Yet, apart from reciting this
standard, the bankruptcy court made no finding rooted in
anything less than Chlad’s knowledge. The court found that
Chlad knew of each of the assets, liabilities, and other items
she omitted from her filings.
To be sure, we do not read § 727(a)(4)’s knowledge re‐
quirement, as Chlad seems to urge, as necessitating an
awareness of a legal obligation to disclose particular infor‐
mation. Chlad’s actual knowledge of the omitted infor‐
mation itself suffices to fulfill this element.
We come, then, to the more substantial issue in this
appeal—whether the bankruptcy court clearly erred in
finding that Chlad acted “fraudulently” as required by
§ 727(a)(4). This aspect of the statute focuses on Chlad’s
mindset when she omitted information from her bankruptcy
disclosures. We ask whether Chlad did so intending to
deceive her creditors and the bankruptcy court. See In re
Katsman, 771 F.3d 1048, 1050 (7th Cir. 2014). It is not
necessary that the creditors demonstrate that Chlad
“intend[ed] to obtain a pecuniary benefit” through her
omissions. See id. Rather, “[e]vidence of ‘reckless disregard
for the truth is sufficient to prove fraudulent intent.’” Kempff,
847 F.3d at 449 (quoting Stamat, 635 F.3d at 982). While

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10 No. 18‐3056
“simple negligence or innocent misunderstandings” cannot
serve as the basis for a finding of fraudulent intent, id. at 451,
a finding of fraudulent intent “may be based on inferences
drawn from a course of conduct,” Matter of Yonikus, 974 F.2d
901, 905 (7th Cir. 1992). A debtor’s reckless disregard for the
truth may be found through an evaluation of the
circumstances as a whole and the pattern of omissions
engaged in by the debtor. See Stamat, 635 F.3d at 982. A
finding of fraudulent intent is proper, where, in light of a
“larger picture of omissions and errors … the totality of the
[debtor’s] omissions and errors rises above mere negligence
to the level of reckless disregard for the truth.” Id.
In evaluating Chlad’s intent, her knowledge of the
omitted information properly informs the inquiry into her
mindset in not disclosing the requisite information. The ex‐
planation of a mistake is more likely to be true where the
facts show that the debtor did not know of a liability or asset
or did not fully understand her own financial affairs. Here,
however, Chlad took an active role in her financial affairs
and was aware of her assets and liabilities. So, too, was she
aware of her bankruptcy proceedings and the need to file
disclosures with the bankruptcy court. Chlad supplied the
necessary information to her attorney, met with him numer‐
ous times, and reviewed her filings page by page with him
before they were filed. The resulting filings included a series
of omissions and errors that deprived the court and Chlad’s
creditors of an accurate and complete account of Chlad’s fi‐
nancial affairs preceding bankruptcy and financial condition
as of the petition date.
The bankruptcy court was right to underscore the over‐
arching pattern of false statements plaguing Chlad’s filings.

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No. 18‐3056 11
The filings suffered from multiple omissions and errors, and
this pattern contributed meaningfully to the bankruptcy
court’s finding that she engaged in a “series of statements
that [she] knew were false and material” and reflected a
reckless disregard for the truth.
In reaching this conclusion, the bankruptcy court took
care to discredit some of Chlad’s alternative explanations.
The bankruptcy court, for instance, explained that the fact
that Chlad knew of the Van Buren property and conducted a
detailed review of her schedules with her attorney before
submitting them, “casts doubt on [her] testimony that the
omission of the Van Buren Property from [her] Schedules
was inadvertent.” For her part, Chlad points out that the
bankruptcy court did not conclude that her testimony as a
whole was not credible. Perhaps so. But this does not mean
we can disregard the credibility determinations that the
court did make. The record shows that the bankruptcy court
weighed the totality of the testimony it heard and other evi‐
dence it received, and, in the end, determined that Chlad’s
pattern of omissions evinced a reckless disregard for the
truth.
Chlad may be right that some of her omissions—if
viewed in isolation—may reflect mistakes. Consider, for ex‐
ample, the fact that some of the omitted information—such
as the existence of her alternate first name—was shared with
the bankruptcy trustee. By focusing on isolated omissions,
Chlad suggests a reason why each piece of information was
omitted. But Chlad’s patchwork reasoning asks us to ignore
the broader pattern clear from the trial evidence: that Chlad
made a series of false statements about information of which
she was aware. Viewing this evidence in its totality—

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12 No. 18‐3056
including the explanations Chlad offered for the omissions—
the bankruptcy court found that Chlad’s actions as a whole
evinced a reckless indifference for the truth in the represen‐
tations made in her filings. And even if we accept Chlad’s
piecemeal approach, and conclude that the evidence allows
“two permissible conclusions” to be drawn about Chlad’s
intent, “the bankruptcy court’s choice between them will not
be viewed as clearly erroneous.” Krehl, 86 F.3d at 744.
We owe a brief word on Chlad’s final argument that the
omitted information was immaterial. “[A] fact is material ‘if
it bears a relationship to the debtor’s business transactions or
estate, or concerns the discovery of assets, business dealings,
or the existence and disposition of the debtor’s property.’”
Lardas v. Grcic, 847 F.3d 561, 570 (7th Cir. 2017) (quoting
Stamat, 635 F.3d at 982). Applying that standard here, we
find unpersuasive Chlad’s arguments that the information
was insignificant or related to assets worth nothing to the
estate. Chlad points out, for example, that the undisclosed
bank account she shared with her mother had only around
$2,000 withdrawn from it in two years. No doubt that this
amount is small relative to the $5 million in debt that Chlad
sought to discharge. But here again Chlad looks at each
piece of information in isolation and fails to recognize that it
bears a relationship to her business transactions and
financial affairs. And we have emphasized that “[d]ebtors
have an absolute duty to report whatever interests they hold
in property, even if they believe their assets are worthless or
are unavailable to the bankruptcy estate.” Yonikus, 974 F.2d
at 904.
Returning to the example of the undisclosed bank ac‐
counts, those accounts relate to the existence and disposition

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No. 18‐3056 13
of Chlad’s property, thereby satisfying the materiality re‐
quirement. Chlad’s argument regarding materiality is even
weaker with respect to some of her other omissions. Chlad’s
personal guaranty to Edgebrook Bank, for example, imposed
an obligation of over $800,000 on her. By no means is this an
insignificant amount, even compared to the estate as a
whole. The omitted information bore on Chlad’s business
dealings and the disposition of her property and was there‐
fore material to her bankruptcy.
At bottom Chlad’s appeal asks us to reweigh the evi‐
dence in her favor and conclude that her omissions were
immaterial and the result of inadvertence and innocent mis‐
takes. But we decline to disturb the factual findings of the
bankruptcy court, which find ample support in the record
evidence. Nor can we adopt Chlad’s approach of viewing
each piece of omitted information in isolation and ignoring
the broader pattern of omissions and errors underlying the
bankruptcy court’s finding that she acted with fraudulent
intent.
On this record, then, we AFFIRM.

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