Lead Opinion
Opinion by Judge TROTT; Dissent by Judge O’SCANNLAIN.
Alan Bernard and his wife Linda argue that the district court erred when it affirmed the bankruptcy court’s decision to deny discharge of the Bernards’ debts under 11 U.S.C. § 727(a)(2)(A), which provides that a bankruptcy court should not grant discharge where “... the debtor, with intent to hinder, delay, or defraud а creditor ... has transferred, removed, destroyed, mutilated, or concealed ... property of the debtor, within one year before the date of the filing of the petition....” We affirm the district court because the Bernards violated .this provision when they withdrеw over $64,000 from money market and deposit accounts with the admitted intent to hinder the Sheaffers’ attempts to attach the Bernards’ accounts. We need not reach the other issues raised.
We have jurisdiction over the Bernards’ timely appeal under 28 U.S.C. § 158(d). This appeal raises an issue of law which we review de novo.
Background
This case has followed a long and tortuous path and makes bankruptcy seem more like an ordeal than a fresh start. Fortunately, we need little case history to fully illuminate the dispositivе issue.
On February 15, 1991, the Sheaffers served notice on Bernard that the Sheaffers would apply for a “temporary protective order” in Los Angeles Superior Court. On February 22, the Bernards withdrеw $44,-010.61 from Alan’s money market account; on March 8, Linda cashed a check for $20,000 on an account of Alan Bernard Sound (collectively, the “early 1991 withdrawals”). On March 13, the Superior Court granted a temporary protective order instructing Alan Bernard “to make no transfers from any deposit accounts or any other assets other than in the ordinary course of business for fair consideration.” On March 27, the Superior Court issued an order giving the Sheaffers the right to attach Alan Bernard’s property in the amount оf $47,878.13. On July 17, the Sheaffers levied on a Bernard account, attaching $1,308. On September 10, 1991, the court granted the Sheaffers a $83,574.98 judgment.
The Bernards filed for Chapter 7 on October 7, 1991. The Sheaffers began an adversary proceeding in which they objected to dischargе.
Alan Bernard at first steadfastly testified that he had made the $44,010 withdrawal to finance a vacation. He later testified, under pressure, however, that he had cashed out his account because an attorney had advised him to do so to evade attаchment. His counsel as much as concedes his client’s purpose to defeat the impending judgment. Bernard says that he then stashed the cash in a safe at his home. Shortly thereafter, he claims he spent the cash on vacations during which he incurred huge gаmbling losses. Bernard’s testimony as to all of this is a model of dissemblance and dissimulation. As a result of his purposeful activity, his judgment creditors ended up with little to show for their lawsuit and their promissory notes; and with the help of other questionable transactions by Bernard, the bankruptcy estate became virtually worthless.
On February 3,1994, the bankruptcy court issued a memorandum and order denying discharge on the ground that the Bernards had violated § 727(a)(2)(A). In justifying its decision, the bankruptcy court cited several of the Bernards’ transfers in addition to the early 1991 withdrawals under present discussion. However, it clearly considered the early 1991 withdrawals sufficient by themselves to justify denial of discharge, stating, “[tjhere is no doubt that the Bernards made these transfers with intent to hinder, delay or defraud creditors within one year of the filing for bankruptcy.”
On September 28, 1994, the district court entered an order affirming the bankruptcy court’s decision. The Bernards appealed.
Discussion
11 U.S.C. § 727(a)(2)(A) states:
(a) The court shall grant the debtor a discharge, unless — ...
(2) the debtor, with intent to hinder, delay, or defraud a creditor ... has transferrеd
(A) property of the debtor, within one year before the date of the filing of the petition....
In keeping with the “fresh start” purposes behind the Bankruptcy Code, courts should construe § 727 liberally in favor of debtors and strictly against parties objecting to discharge. In re Devers,
The Bernards hаve admitted they made the early 1991 withdrawals to help fend off the Sheaffers’ attempts to reach the Ber-nards’ assets. These withdrawals were made within one year of the Bernards’ October 7, 1991 filing. Therefore, the only remaining question is whether these withdrawals were “transfers” of property. If they were, then the Bernards violated § 727(a)(2)(A), and the bankruptcy court was correct to deny discharge.
Of course, the Bernards contend that the withdrawals were not transfers in any meaningful sense. By taking money out of the bank, as it were, thеy claim they merely moved their assets from one of their own pockets to another — they had not “transferred” anything to anyone.
This argument has force and arguably finds some support in out-of-circuit law. For instance, the Seventh Circuit has stated, “[i]n order to justify the refusal of discharge under a section 727(a)(2) transfer, ‘it must be shown that there was an actual transfer of valuable property belonging to the debtor which reduced the assets available to creditor and which was made with fraudulent intent.’ ” Matter of Agnew,
This argument faces two insurmountable problems, howеver. First, in In re Adeeb, this court held that “lack of injury to creditors is irrelevant for purposes of denying a discharge in bankruptcy.”
Also, the Bernards’ argument fails to take proper account of the Bankruptcy Code’s definition of “transfer,” which is extremely broad:
“transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in propеrty, including retention of title as a security interest and foreclosure of the debtor’s equity of redemption....
11 U.S.C. § 101(54). The legislative history of this definition confirms its breadth:
A transfer is a disposition of an interest in property. The definition of transfer is as broad as possible. Many оf the potentially limiting words in current law are deleted, and the language is simplified. Under this definition, any transfer of an interest in property is a transfer, including a transfer of possession, custody, or control even if there is no transfer of title, because possession, custody, and control are interests in property. A deposit in a bank account or similar account is a transfer.
S.Rep. No. 989, 95th Cong., 2d Sess. 27 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5813 (emphasis added).
If, as the legislative history indicates, depositing money into a bank account is a transfer, then later withdrawing money from that accоunt should be a transfer, too — it ought to be a two-way street. However, we need not rely on legislative histoiy (and all of its attendant difficulties) to reach this conclusion.
The Bernards did not own money gathering dust in their bank accounts. “As between the bank and the depositor such money becomes the property of the bank and the bank becomes the debtor of the depositor for the amount deposited.” Chang v. Redding Bank of Commerce,
Instead of owning money sitting in their accounts, the Bernards owned claims against their bank. When they withdrew from their accounts, they exchanged debt for money (which, more than incidentally, was more difficult for the Sheaffers to acquire). Thus, when the Bernards made their withdrawals they parted with property, sаtisfying the Code’s definition of transfer. Because they parted with their claims against the bank to hinder the Sheaffers, the Bernards violated § 727(a)(2)(A), warranting denial of discharge.
Conclusion
Denial of discharge is a harsh result. However, bankruptcy has its roots in equity. To get equity, one must do equity. The Sheaffers took legal action to help them collect on a debt owed them by the Bernards. The Bernards intentionally and successfully hindered this effort by making withdrawals from accounts which were under threat of attachment. They now seek to avоid denial of discharge by hiding behind a narrow reading of the word “transfer” as defined by the Bankruptcy Code. “Transfer” is too broad to allow this result.
AFFIRMED.
Notes
. We deny all pending motions and requests for sanctions.
Dissenting Opinion
dissenting:
Because I am not persuaded that the Ber-nards “disposed of’ or “parted with” property, I respectfully dissent.
Seсtion 727 is at the heart of the Bankruptcy Code’s provisions designed “to relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.” Williams v. U.S. Fidelity Co.,
The majority is correct to observe that the definition of “transfer” in the Bankruptcy Code is very broad; it would be a mistake, however, to read it even more broadly than it is written. “ ‘[Tjrаnsfer’ means every mode ... of disposing of or parting with property or with an interest in property....” 11 U.S.C. § 101(54). If there is no “disposing of’ or “parting with” property, then there is no transfer. The question in this case is whether the simple act, without more, of withdrawing money from bank aсcounts and money market accounts is “disposing of’ or “parting with” property.
When the Bernards withdrew money from their own accounts in early 1991, they did not relinquish an interest in property; they merely changed the location of identifiable cash funds. No third party gainеd an interest in the cash, and the total value of the Bemards’s assets did not change. Just as a transfer would occur neither when a debtor breaks a twenty-dollar bill into two ten-dollar bills nor when he cashes his paycheck at his employer’s bank, no transfer occurred here. The cash received by the Bernards was exactly equivalent to and easily identifiable as the sums previously deposited in their accounts.
The majority breaks with the Seventh Circuit in interpreting section 727(a)(2), claiming that this court’s decision in In re Adeeb,
The Seventh Circuit has addressed directly whether a transfer can occur if a transaction did not harm creditors. In Matter of Agnew, it held that “to justify the refusal of dis
The Agnew approach is сonsistent with decisions of bankruptcy courts in this circuit. For example, in In re Harris,
It seems to me that debtors should not be punished for transferring assets available to creditors unless the record establishes that they are actually disposing of or parting with those assets. The bankruptcy court found only that the Bernards withdrew $44,010.61 from a money market account and $20,000 from a checking account in early 1991; it made no findings as to what happened to the money after that and the testimony was controverted.
Based on the record in this ease, the only question before us is whether the withdrawals, as such, were “transfers” as a matter of law. On this issue, I respectfully dissent from the majority’s opinion.