I cannot recall how many times a client has suggested protecting cash from a creditor or a bankruptcy trustee by withdrawing the cash from his bank account and then telling the creditor, judge, or bankruptcy trustee that the cash was spent or lost at the casino. The problem is that judges do not find debtor’s stories to be credible. Courts will impose contempt citation if the debtor cannot produce the cash or a much better explanation of why it is impossible to find and turn over the money.
In a Georgia bankruptcy case a Chapter 7 debtor received an arbitration award after filing bankruptcy of which about $120,000 was part of the bankruptcy estate. The debtor had filed his claim before he filed bankruptcy. The debtor received the money but then refused to turn over to the trustee that part of the award which was part of the bankruptcy estate. The debtor had many excuses why he could not comply with the turn over request (and court order) including that he had withdrawn large sums of cash which had been used to pay expenses or lost gambling.
The court found that the debtor’s testimony was not credible. The court gave the debtor four weeks to come up with the money or face incarceration for civil contempt. Merely stating that “you spent or lost the money” is not a reliable excuse for non-compliance with court orders. Debtors, including the debtor in this case, require detailed accounting and expense records. The debtor at least must prove how money was spent, why money was lost, and to whom money was paid.