540 B.R. 379
Bankr. S.D. Iowa2015Background
- Debtor Andrews is sole officer/shareholder of C Mac Chambers Co., an insurance agency with irregular cash flow; he personally owed FAB on a commercial note and faced foreclosure, judgment, and collection efforts.
- Andrews received sporadic "draws" from C Mac; corporate records later characterized excess withdrawals as "loans to shareholder(s)," which ballooned to $175,402 in 2012 and $335,521 in 2013.
- During the year before Andrews’ April 3, 2014 Chapter 7 filing, C Mac made multiple substantial payments to Andrews’ wife, MariEllen, who did not report wages on the couple’s tax return and who routinely transferred or surrendered those funds to Andrews.
- FAB moved for collection relief (receiver and execution against stock) and pursued garnishments shortly before Andrews filed bankruptcy; Andrews’ change in reported retirement/status and the shift of income to MariEllen coincided with those collection efforts.
- Andrews’ Statement of Financial Affairs omitted (or denied) payments to American Express creditors within 90 days and payments to insiders within one year, although records showed such payments exceeding the disclosure thresholds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Andrews concealed or transferred property with intent to hinder, delay, or defraud creditors under 11 U.S.C. § 727(a)(2) | FAB: Andrews diverted C Mac draws to an insider (wife) while retaining benefit and control, timed to avoid collection | Andrews: Payments to wife were legitimate wages for services and reflected retirement/shift in duties; transfers were proper | Court: Held for FAB—Andrews concealed interest in draws and acted with actual fraudulent intent; discharge denied under § 727(a)(2) |
| Whether Andrews made knowingly false oaths on bankruptcy filing under 11 U.S.C. § 727(a)(4) | FAB: Andrews omitted required disclosures of payments to creditors (American Express) and to an insider, which were material and prevented trustee inquiry | Andrews: Expenses were corporate-paid business items and classification was accountant’s responsibility; not required to disclose | Court: Held for FAB—omissions were false, knowing, material oaths; discharge denied under § 727(a)(4) |
| Whether FAB’s claim under 11 U.S.C. § 523(a)(2)(A) should be decided | FAB asserted nondischargeability of its debt by fraud | Andrews did not contest on merits after discharge denied | Court: Dismissed as moot—determination unnecessary because discharge denied on other grounds |
| Whether any other relief or costs should be awarded | FAB sought relief and costs | Andrews sought normal discharge and perhaps fees | Court: Parties bear own costs; judgment entered denying discharge as stated |
Key Cases Cited
- In re Coady, 588 F.3d 1312 (11th Cir. 2009) (transfer or concealment in disjunctive under § 727(a)(2) and concealment analysis)
- Addison v. Seaver (In re Addison), 540 F.3d 805 (8th Cir. 2008) (badges of fraud approach to infer intent)
- Rosen v. Bezner, 996 F.2d 1527 (3d Cir. 1993) (focus on concealment of property interest, not merely concealment of transfer)
- Korte v. U.S. Internal Revenue Serv. (In re Korte), 262 B.R. 464 (8th Cir. BAP 2001) (burden, use of circumstantial evidence to infer intent under § 727)
- In re Kaler (Kaler v. Craig), 195 B.R. 443 (Bankr. D.N.D. 1996) (false oath includes inaccurate or omitted information on bankruptcy schedules)