U.S. Trustee Program revokes Seattle debtor's $3.9 million bankruptcy discharge

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U.S. Trustee revokes bankruptcy discharge

Highlights

Bankruptcy Court for the Western District of Washington revoked Middleton's Chapter 7 discharge on Oct. 20, covering $3,967,997 in unsecured debt.
Middleton failed to disclose two deposits totaling about $39,600 from his late father's probate estate, which were sent to a business account he controlled and omitted from bankruptcy filings.
The court's fraud finding means Middleton remains liable for his debts, enabling creditors to resume recovery efforts despite his previous bankruptcy discharge.

Washington court judgment and concealed assets

As reported by the U.S. Department of Justice, the Bankruptcy Court for the Western District of Washington entered judgment on Oct. 20 revoking Middleton's Chapter 7 discharge after a trial brought by the Justice Department's U.S. Trustee Program.

The case stems from debts tied to a failed custom home construction business. Middleton first filed for Chapter 11 reorganization, but the case was later converted to Chapter 7 liquidation, and in April 2024 he received a discharge covering $3,967,997 in unsecured debt, much of it linked to claims from investors in his projects.

Several months later, during an evidentiary hearing over Middleton's claim to a homestead exemption on some of his real estate, he disclosed for the first time that he had received two deposits totaling about $39,600 from his late father's probate estate after filing for bankruptcy but before receiving his discharge. The money was sent to a business bank account that Middleton controlled, while his inheritance rights and his interest in the business were not listed in his bankruptcy schedules and statements.

Fraud finding and implications for creditors

An investigation by the U.S. Trustee Program's Seattle office found that Middleton instructed his sister, the executor of the probate estate, to send the funds to a business account unknown to the private trustee administering the bankruptcy case. At trial on the complaint to revoke his discharge, Middleton changed his account and testified that the funds were loans from his sister.

After weighing the evidence, the bankruptcy court ruled in favor of the U.S. Trustee Program, concluding that Middleton obtained his discharge by fraud and knowingly and fraudulently failed to report the funds to the Chapter 7 trustee. Stephen V. Falanga, director of the U.S. Trustee Program, said a bankruptcy discharge offers debtors a fresh start only when they are transparent about their financial affairs.

The judgment means Middleton remains responsible for his debts despite the earlier discharge. For creditors, the decision reopens a path to seek recovery after the bankruptcy case is closed, underscoring the legal and financial risks of omitting assets from court filings.

Our earlier article on Malaysia’s Court of Appeal ruling examined how a lawyer described as a commission partner at a law firm could still be treated as a partner under the Partnership Act 1961 and held personally liable for an unpaid house-sale balance. The court ordered the commission partner to pay RM920,612.65 to the seller, a decision that overturned lower-court findings and signaled wider exposure for commission- or salary-based partners in professional firms.

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