Vara v. DeAlto
15-02303
Bankr. D.N.J.Jun 26, 2017Background
- Debtor John Peter DeAlto filed Chapter 7; U.S. Trustee (UST) sued to deny discharge under 11 U.S.C. § 727(a)(2)(A), (a)(4)(A), (a)(5), and (a)(3). Motion for summary judgment by UST; Debtor opposed. Judge Kathryn C. Ferguson issued a letter decision.
- Large pre-petition inflows and withdrawals: roughly $445,942 deposited to checking and $381,907 withdrawn from an investment account in the year before filing; only $200 cash reported at petition—leaving over $800,000 unexplained.
- Debtor reported bank accounts and cash on schedules, but many checks reflect vehicle transactions, transfers to insiders, and alleged loans to friends/family with no promissory notes or corroborating records.
- Debtor gave vague deposition testimony about the disposition of substantial transfers and vehicle-related checks received/paid shortly before filing; claimed many dealings were informal or ‘‘handshake’’ loans and characterized some activity as a hobby.
- UST argued missing assets not satisfactorily explained (§ 727(a)(5)) and that debtor failed to preserve adequate records (§ 727(a)(3)); UST also alleged fraudulent intent for transfers (§§ 727(a)(2)(A), (a)(4)(A)).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether discharge should be denied for fraudulent transfers/false statements (§ 727(a)(2)(A), (a)(4)(A)) | UST: Debtor made transfers with intent to hinder/defraud creditors and made false statements to the court. | DeAlto: Denies fraudulent intent; disclosed accounts on schedules; counsel advised certain vehicle transfers were not estate property. | Summary judgment denied as to Counts 1–2 (intent disputed; credibility issues preclude disposition). |
| Whether debtor failed to satisfactorily explain loss of assets (§ 727(a)(5)) | UST: Large deposits/withdrawals not accounted for; schedules do not explain disposition of ~ $827,849.65. | DeAlto: Spent on living expenses, informal loans, and vehicle transactions; lacks documentation but claims explanations. | Summary judgment granted in part and denied in part; UST made prima facie case but credibility and intent issues limit full summary disposition. |
| Whether debtor failed to preserve or produce adequate records (§ 727(a)(3)) | UST: Records insufficient to reconstruct finances; missing documentation for loans and vehicle dealings makes financial condition unknowable. | DeAlto: Produced voluminous bank documents and asserts full disclosure; characterizes some activity as hobby and informal advances. | Summary judgment granted for UST on Count 4; court finds failure to keep/produce adequate records unjustified and denies discharge under § 727(a)(3). |
| Standard of proof for § 727 claims | UST: Preponderance of the evidence is appropriate. | DeAlto: (not argued as central) | Court applies preponderance standard to all § 727(a) subsections. |
Key Cases Cited
- Pignataro v. Port Auth. of N.Y. & N.J., 593 F.3d 265 (3d Cir.) (summary judgment standard and viewing facts for nonmovant)
- Anderson v. Liberty Lobby, 477 U.S. 242 (U.S.) (standard for genuine issue of material fact on summary judgment)
- Rosen v. Bezner, 996 F.2d 1527 (3d Cir.) (discussing that denial of discharge is drastic and should be strictly construed in debtor's favor)
- Grogan v. Garner, 498 U.S. 279 (U.S.) (preponderance standard applies to nondischargeability determinations)
- Meridian Bank v. Alten, 958 F.2d 1226 (3d Cir.) (§ 727(a)(3) requires records sufficient to permit intelligent inquiry into transactions)
- Goldberg ex rel. Lawrence v. Lawrence (In re Lawrence), 227 B.R. 907 (Bankr. S.D. Fla.) (debtor's duty to preserve records; trustee not required to reconstruct finances)