Clark v. Kearns (In Re Kearns)Clark v. Kearns (In Re Kearns)
This mаtter comes on before the Court pursuant to the May 5, 1992 trial on the trustee’s Complaint Objecting to Discharge Pursuant to 11 U.S.C. § 727(a)(3) & (a)(4). The trustee, Carl R. Clark, (hereinafter “Chapter 7 Trustee”) appeared pro se. Victor William Kearns, Jr. (hеreinafter “debtor”) appeared pro se. The Court took the matter under advisement.
FINDINGS OF FACT
Based upon the pleadings, the record and testimony of witnesses, the Court finds as follows:
1. That on May 22, 1991, debtor filed for relief under Chapter 7 of Title 11, United States Code.
2. That on debtor’s original Schedule B-1 he listed two parcels of real property, both located in Johnson County, Kansas.
3. That on or about August 12, 1991, debtor filed his Amended Schedule B-l disclosing an additional interest in sevеn parcels-of real property located in Johnson County, Kansas.
4. That a first meeting of creditors pursuant to 11 U.S.C. § 341 was held on June 28, 1991, and July 25, 1991.
5. That debtor’s Schedules reflect no transfers of property within the year prior to filing of his bankruptcy petition.
6. That the Chapter 7 Trustee requested from debtor any and all documentation concerning real estate owned or transferred in the last year, held by the debtor individually or as trustee. The only documentation furnished to the Chapter 7 Trustee by the debtor were copies of two “Notices of Resignation by Trustee.” (Plaintiff’s Exhibits 5 and 6).
CONCLUSIONS OF LAW
Set forth in 11 U.S.C. § 727(a) are the circumstances under which a court can deny the debtor’s discharge in bankruptcy. In this case, the Chaрter 7 Trustee argues that the debtor should be denied a discharge pursuant to § 727(a)(3) and § 727(a)(4)(A).
The Chapter 7 Trustee argues that the debtor should be denied a discharge pursuant to § 727(a)(3) due to the debtor’s failure to keep records from which his interest in real estate may be determined. It is provided in 11 U.S.C. § 727(a)(3) that the court shall grant the debtor a discharge, unless—
(3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstаnces of the case;
The reason for denying debtors a discharge under this section is to ensure that the Chapter 7 Trustee and creditors receive adequate information to enable them to trace the debtor’s finanсial history; to ascertain the debtor’s financial condition; and to reconstruct the debtor’s financial transactions.
In re Martin,
Rule 4005 of the Federal Rules of Bankruptcy Procedure provides that the plaintiff has the burden of proving an objection to discharge. “Once an objecting creditor shows by a preponderance of the evidence that the debtor has failed to keep or produce adequate books or records, the burden shifts to the debtor to prove that the failure to do so wаs justified.”
In re Kim,
This Court finds that the Chapter 7 Trustee has met his burden of showing by a preponderance of the evidence that the debtor failed to keep or produce adequate books or records. “Records are not ‘adеquate’ if they do not provide the trustee or
“Records need not be so complete that they state in detail all or substantially all of the transactions taking place in the course of the business. It is enough if they sufficiently identify the transactions that intelligent inquiry can be made respecting them.”
Id.
(Citing
Hedges v. Bushnell,
“Although wrongful intent is not an express requirement under ... § 723(a)(3), ... the debtor’s actions must have rendered his financial condition or business transactions incapable of ascertainment ...”.
In re Schwanke,
This Court, in its discretion, finds that the debtor’s records are inadequate.
See In re Pimpinella,
The Chapter 7 Trustee requested from debtor any and all documentation concerning real estate owned or transferred in the last year, held by the debtor individually or as trustee. The only documentation furnished to the Chapter 7 Trustee by the debtor was copies of two “Notices of Resignation by Trustee.” Debtor provided no copies of any executed land trust agreements, no copies of any deeds to which he took title as trustee pursuant to such a land trust agreement, and no copies of conveyanсes of real property by him as trustee. The debtor may not use oral testimony to supplement the information that is absent from the actual records. Id. (stating that such testimony is at best concluso-ry and at worst self-serving, and that creditors and the court are entitled to have some concrete basis against which to assess such statements).
Once the burden shifts to the debt- or, he is afforded an opportunity to justify the deficiencies in his records. The debtor argues thаt his position as trustee never imposed upon him any obligation or responsibility to keep records. Debtor argues that any trust documents were the sole property of the owners of the beneficial interest involved. “The dеbtor must do more than profess a belief that his records were sufficient or that it was not his practice to keep additional records.”
Id.
“Any attempt to justify the failure to keep records must show that the circumstances were in fact so unusual that ordinary record keeping was not required.”
Id. See also In re Martin,
The Chapter 7 Trustee also argues that the debtor should be denied а discharge pursuant to 11 U.S.C. § 723(a)(4)(A), due to the debtor knowingly and fraudulently making false oaths at his § 341 meetings and by his failure to fully disclose
12. Transfers of property
a. ...
b. Have you made any other transfer, absolute or for the purpose of security, or any other disposition, of real or tangible personal property during the year immediately and preceding the filing of the original petition herein? (Give a description of the property, the date of the transfer or disposition, to whom transferred or how disposed of, and, if the transferee is a relative or insider, the relаtionship, the consideration, if any, received therefore, and the disposition of such consideration.)
Debtor’s response to Question 12.b. as set forth above was “none.”
11 U.S.C. § 723(a)(4)(A) provides that:
(a) The court shall grant the debtor a discharge, unless—
(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account;
“The purpose of this section is to allow creditors to have adequate information of the bankrupt’s estate without the need for an examination or investigation to determine if the statements are correсt.”
In re Hiegel,
This Court finds that the debtor’s failure to list his real estate transactions on his Schedules related to a material fact. Materiality of the false oath does not depend upon prejudice to the creditors, but rather the materiality requirement depends on whether the false oath was pertinent to the discovery of assets or past transactions.
In re Butler,
This Court also finds that debtor’s failure to disclose these transfers on his Schedules constituted an oath made knowingly and fraudulently. In his Memorandum in Support of his motion for summary judgment, debtor argues that “if the Debt- or’s title to reаl property held under trust agreement is void by operation of the Kansas Statute of Uses, then there is virtually nothing in which to pass to or be claimed by the trustee in bankruptcy.” Debtor’s argument is based entirely on his representation that аny land transactions in which he engaged were in the form of a land trust agreement in conformity with the blank Land Trust Agreement attached as an exhibit to his Motion for Summary Judgment. However, due to the debtor’s failure to keep records, the Cоurt has no written evidence of the trust agreements involved. Furthermore, “[djetriment to a creditor need not be shown in order to establish fraudulent concealment or a false oath barring discharge.”
Farmers Cooperative Ass’n v. Strunk,
Debtor also arguеs that he was merely an “agent” for the beneficiaries of certain land trusts and therefore he had no legal or equitable interest in any real property, at
IT IS THEREFORE, BY THE COURT, ORDERED That the debtor shall be and is hereby denied a discharge pursuant to 11 U.S.C. § 727(a)(3) and (a)(4)(A).
This Memorandum shall constitute my findings of fact and conclusions of law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure.