463 B.R. 503
Bankr. D. Colo.2011Background
- Debtors Charles F. McVay (UST) seeks denial of discharge for Robert Louis and Hazel Mae DiGesualdo under 11 U.S.C. §727(a)(2) and (a)(4).
- Debtors sold most of A-Mac Aluminum to LeafGuard in May 2008 in exchange for cash and non-competition agreements; LeafGuard paid $302,994.70, with $132,279.69 wired to secured creditors and $170,715.01 to a Personal Account for the Debtors.
- The Debtors withdrew $5,000 in cash on June 27, 2008 from their personal account to pay taxes; the funds remained undisclosed.
- The Worksheet and Petition materials were prepared by counsel’s office, but the Debtors did not review or sign the original Petition, Schedules, or SoFA before filing.
- At the §341 meeting (Dec. 5, 2008), Debtors did not disclose certain transfers (to Melick and Ledbetter) and did not reveal the $5,000 cash; later, new counsel led to turnover of the funds to the Trustee.
- The Court ultimately declines to deny discharge, finding missteps were largely due to inadequate pre-petition counsel and not to intent to defraud.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the $5,000 cash withdrawal supports denial under §727(a)(2)(A) | UST: cash was estate property and transferred/hidden within one year | DiGesualdos: withdrawal was for taxes; not intended to defraud | Denied; no evidence of intent to defraud; not a §727(a)(2)(A) basis |
| Whether post-petition transfers of funds support denial under §727(a)(2)(B) | UST: transfers hindered creditors post-petition | Debtors turned over funds later; no deliberate concealment | Denied; not shown with intent to defraud post-petition accounting |
| Whether nondisclosure of the $5,000 and other transfers supports denial under §727(a)(4)(A) | False oath in signing Petition/Schedules/SoFA and Trustee Info Sheet | Errors due to counsel; not knowing falsity; honest mistake | Denied; omissions not attributable to knowing falsity; ultimately honest missteps corrected |
| Whether the court should exercise discretion to deny discharge given missteps | Discharge should be denied due to serious deception | Equitable balance favors debtors; honest but inexperienced handling | Discretion exercised to grant discharge; not denied |
| Whether specific pre-petition transfers (A-Mac, Melick, Saxon, Go Chrysler) were fraudulent or concealment | Some transfers concealed or improperly disclosed | Some transfers disclosed or mistaken; not fraudulent intent | Denied as basis for denial; some disclosures adequate or explained; no intentional concealment |
Key Cases Cited
- In re Garland, 417 B.R. 805 (10th Cir. BAP 2009) (discusses standards for denial of discharge under § 727(a))
- In re Calder, 907 F.2d 953 (10th Cir.1990) (intent to defraud or hinder may be inferred from circumstances)
- Kontrick v. Ryan, 540 U.S. 443 (2004) (discusses scope of § 727(a) and discretion to deny discharge)
- Rice v. Creative Recreational Sys., 109 B.R. 405 (E.D. Cal. 1989) (discretion of court to grant discharge balancing creditor interests)
- United States Trustee v. Butler, 377 B.R. 895 (Bankr.D. Utah 2006) (elements of § 727(a)(2) and related standards)