490 B.R. 784
Bankr. E.D. Tenn.2013Background
- Trustee seeks denial of discharge under 11 U.S.C. § 727(a)(4)(A) against Debtors Hughes and Hughes.
- Debtors filed Chapter 7 on May 8, 2012; husband is disabled, wife employed, four children.
- Debtors received a March 2012 Avandia class action settlement of $43,806.89 and immediately spent most of it over the next eight days.
- Settlement funds were used to pay off old debts, purchase a vehicle, purchase furnishings, gift money to children, repay relatives, and move to a new residence; no checking account was maintained.
- Debtors failed to disclose the Avandia settlement as income, omitted gifts, insider transfers, and other prepetition transfers on the SOFA/Schedules, and mischaracterized assets.
- At the first meeting of creditors, the Trustee pressed for disclosures; after questioning, Debtors provided some information, but the court finds prior omissions show intent to deceive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the Debtors knowingly make false oaths under § 727(a)(4)(A)? | Debtors knowingly falsified income, gifts, and insider transfers. | Omissions were inadvertent or based on misunderstanding of questions. | Yes; § 727(a)(4)(A) satisfied; discharge denied. |
| Does later cooperation after being confronted rebut the presumption of fraud? | Post-confrontation disclosure undermines intent. | Nonetheless the initial misrepresentations show fraudulent intent. | No; cooperation after confrontation does not negate intent. |
Key Cases Cited
- In re Jarrett, 417 B.R. 896 (Bankr.W.D.Tenn.2009) (five-element test for 727(a)(4)(A) proven by preponderance)
- In re Keeney, 227 F.3d 679 (6th Cir.2000) (intent can be inferred from pattern of conduct; inadvertence may excuse)
- In re Hamo, 233 B.R. 718 (6th Cir. BAP 1999) (false oath requires materiality and intent; recklessness may satisfy)
- In re Heil, 289 B.R. 897 (Bankr.E.D.Tenn.2003) (continued omissions support intent; corrections pre/post meeting affect outcome)
- In re Flemings, 433 B.R. 230 (Bankr.E.D.Tenn.2010) (badges of fraud and circumstantial evidence used to infer intent)
- Calisoff v. Calisoff (In re Calisoff), 92 B.R. 346 (Bankr.N.D.Ill.1988) (materiality and honesty in disclosure; omissions hinder administration)