THE 5th amendment to the United States Constitution states that no person may be compelled to testify against himself. Hence a person may refuse to answer a question on the grounds that it might incriminate himself. Our discussion involves questioning in a bankruptcy proceeding where a debtor refuses to answer invoking the 5th. Several years ago, I actually advised my client to invoke the 5th under intense questioning from the trustee. He invoked the 5th at least 10 times on record saying, “Upon advice of counsel, I invoke the 5th.” In that case debtor was involved in a business where he accepted cash in advance for a specific purpose. The problem was that the business was losing money so debtor used a portion of the cash received to keep the business afloat. When the business ground to a halt, debtor owed $500,000 of cash received from clients which were not used for the right purpose. Many of his clients showed up at the bankruptcy hearing to denounce debtor so trustee subjected client to intense questioning on what he did with the funds received. Many of the questions required answers that would have incriminated client in a criminal case for malversation of funds.
In Re Brown decided Jan-28-2014, during a Rule 2004 examination of the Chapter 7 debtor, trustee asked about a 2008 personal financial statement which showed that the debtor and his wife held a half ownership interest in farmland. Debtor invoked the 5th when asked to confirm his signature on the financial statement and the accuracy of its contents. Trustee later asked the debtor if the banker had ever questioned him about why the farm was not included in subsequent years’ financial statements. Debtor responded, “No, he did not.” Debtor then invoked the 5th again when trustee pressed this line of questions. After the examination, trustee filed a motion to compel debtor to answer the questions he had refused to answer on the grounds of the 5th. Debtor responded that trustee’s questions were not “material” to his bankruptcy. Debtor said land records showed that he did not own the farm, and that answering the trustee’s questions about the farm could incriminate him for bank fraud. “Many courts use a two-step process to evaluate the validity of the Fifth Amendment assertion. The first step is to determine whether there is a conceivable possibility that the witness could be linked to a crime; and the second, to determine whether the facts sought to be elicited could form a link in the chain of evidence necessary to convict the witness of that crime,” the court said. Debtor satisfied the first step. If he admitted that the 2008 financial statement he gave to the bank was false, then he would be exposed to prosecution for bank fraud, which has a 10-year statute of limitations. The second requirement was also satisfied because the trustee was attempting to obtain information that would constitute evidence of bank fraud. “The duly appointed trustee has a duty to identify and recover assets of the debtor’s estate for the benefit of the debtor’s creditors. This duty includes investigating whether the farm is still an asset of the debtor’s estate or whether the debtor fraudulently conveyed it. The bottom line is that the debtor, within the four years before filing bankruptcy, claimed ownership of a farm that he now asserts he never owned. And, the debtor has not given a satisfactory answer to the trustee about why he included in a financial statement a farm that he didn’t own, or, if he owned the farm, what happened to it. Thus, although the Court determines for purposes of the Rule 2004 examination that the debtor properly invoked his 5th Amendment privilege to the specific questions the trustee asked, the debtor should be aware that if the debtor chooses to testify at trial in the adversary proceeding, he may not relate only part of the story and decide to stop…” Trustee motion to compel answers is DENIED.
“We have known and believed the love that God has for us. God is love, and he who abides in love abides in God, and God in him” – 1 John 4:16.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
