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            In Snyder v. Dykes, (In re Dykes), 590 B.R. 904 (8th Cir. B.A.P., 2018), joint debtors appealed the denial of their discharge.  The bankruptcy court denied the debtors’ discharge on three separate grounds.  First, the debtors failed to maintain adequate records related to their assets.  Second, the debtors could not account for the disposition of at least four watches valued at over $145,000.  Third, the debtors knowingly failed to disclose a ¾ carat loose diamond in their possession and transfers made for the benefit of their children.  On appeal, the Eighth Circuit B.A.P. affirmed the denial of discharge under 11 U.S.C. § 727(a)(3) on the ground that the debtors failed to maintain records from which their financial condition and transactions could be ascertained. 

            Section 727(a)(3) provides an objective requirement that a debtor must satisfy.  The trial court is required to determine whether the debtor kept the records that someone in similar circumstances would reasonably be expected to keep.  590 B.R. at 910.  Normally, this amount of information must enable creditors to “trace the debtor’s financial history, to ascertain the debtor’s financial condition, and to reconstruct the debtor’s financial transactions.”  Id. (citation omitted). 

            Deferring to the trial court’s credibility determination, the B.A.P. upheld the factual findings that debtors failed to keep adequate records.  The debtors bought and sold watches worth hundreds of thousands of dollars and yet kept almost no records of those transactions.  The debtors also failed to provide an accounting of personal property worth hundreds of thousands of dollars that was held in storage and then disposed of by the storage company.

             While one can imagine situations where the lack of records may be explained, and the burden-shifting standard of § 727(a)(3) allows for such an explanation, the debtors also did not offer sufficient justification for their failure.  The debtors’ most interesting argument was that they never subjectively believed that they would file for bankruptcy. As a result, they had no reason to keep adequate financial records.  In essence, the debtors were arguing for a good faith exception to the requirement that debtors keep sufficient records from which their financial condition and transactions could be ascertained.  The B.A.P. rejected this argument on the ground that their state of mind was not at issue, as the standard under § 727(a)(3) is objective.  Judgment was affirmed.