MEMORANDUM OPINION DENYING THE DEBTOR'S DISCHARGE AND RESOLVING TRIAL MATTERS

Karen S. Jennemann, United States Bankruptcy Judge.

After a two-day trial,1 the Court is convinced that the Debtor, Catherine Bentley, although elderly, filed this bankruptcy case to avoid the consequences of her intentionally fraudulent actions in concealing and later selling a valuable antique car, ignoring a court order to turn over the car, and improperly pocketing the proceeds rather than giving the monies to the proper party, Dr. Susan Kolb ("Kolb"), who had a superior interest in and right to possess the car. And as explained below, the Debtor is denied a discharge; her homestead exemption is reduced; there is a constructive trust and equitable lien on the Home for $ $ 112,767.04; and Claim 4 of Dr. Kolb is allowed a nondischargeable claim of $ 133,141.12.

Chronology of Relevant Events

To say both the facts and the legal arguments in this dispute are unique is an enormous understatement. Debtor, assisted by her nephew and lawyer, went to extraordinary lengths to hide a valuable 1930 Cord Phaeton (the "Cord"), sell it secretly, use the proceeds to pay off her home mortgage, and then file bankruptcy all to keep Kolb from getting paid on a $ 50,000 loan she made to the Debtor's son in 2007. The following is a chronology of the events.

Summary of Legal Disputes

With this chronology of events, I now will give the reader a road map to follow. The legal analysis is divided into three sections—the first section will address Kolb's claim; the second section will address the dischargeability of Kolb's claim and the denial of the Debtor's discharge; the third section will address the reduction of the Debtor's homestead exemption and the Chapter 7 Trustee's entitlement to an equitable lien and constructive trust.

The first issue is whether Kolb, who lent money to the Debtor's son, has a claim against the Debtor. Kolb filed Claim 4-1 for $ 133,141.12, which includes the $ 50,000 principal balance and accrued interest since June 24, 2006.72 Debtor objected to Kolb's Claim.73 I conclude the Debtor has direct liability to Kolb due to her actions in hiding and selling the Cord and then fraudulently transferring the sales proceeds to pay off her home mortgage.

The second section of this Memorandum Opinion discusses Kolb's adversary proceeding asserting in three counts raised under §§ 523(a)(2)(A), (a)(4), and (a)(6) why her claim is not dischargeable.74 Kolb also asserts that the Debtor is not entitled to a discharge under § 727(a)(2)(A) of the Bankruptcy Code. Debtor vigorously opposed this adversary proceeding and the majority of the trial revolved around whether the Debtor fraudulently sold the Cord to avoid Kolb's collection efforts. I conclude the Debtor acted with actual fraudulent intent in selling the Cord and using the monies to pay off her mortgage. Kolb's claim is not dischargeable.75 I also will deny the Debtor a discharge under § 727(a)(2)(A) of the Bankruptcy Code because she failed to disclose the Wells Fargo account and the approximately $ 12,000 of the Cord sales proceeds not used to pay her home mortgage.

The last section addresses the Chapter 7 Trustee's challenges to the Debtor's home and her homestead exemption. Mr. Thomas filed an objection to the Debtor's homestead exemption seeking to reduce the Debtor's homestead exemption under § 522(o) of the Bankruptcy Code because she used the fraud tainted monies from the sale of the Cord to pay her mortgage.76 Kolb also filed an adversary proceeding seeking to impose an equitable lien or constructive trust on the home for similar reasons.77 Debtor, again, vociferously opposed these efforts. I conclude that the Debtor's homestead exemption is reduced by $ 112,767.04, and the Chapter 7 Trustee may have an equitable lien and constructive trust on her home for the same amount.

Kolb's Claim of $ 133,141.12 is Allowed

Debtor objected to Kolb's Claim 4-1.78 Parties bear shifting burdens of proof in asserting and challenging a bankruptcy claim. Section 502 of the Bankruptcy Code states a proof of claim is presumed valid until an interested party objects. Once an objection is filed, the burden of proof shifts to the objecting party, usually a debtor or a trustee, to rebut the prima facie validity of the claim.79 So what constitutes a prima facie claim?

A proof of claim filed under the bankruptcy rules "shall constitute prima facie evidence of the validity and amount of the claim."80 Bankruptcy Rule 3001(c) specifies that when a claim is based on a writing, like the loan from Kolb to Lynford, a creditor must attach the original or a duplicate of the underlying writing and other supporting documentation, such as "invoices, itemized statements of running accounts, [and/or] contracts."81

The rules rightfully require creditors to attach minimal supporting documentation for a claim so a debtor can evaluate its validity without discovery or extraordinary expense.82 Bankruptcy Rule 3001(c) provides a debtor with "fair notice of the conduct, transaction, and occurrences that form the basis of the claim."83 Attaching supporting documentation is a mandatory prerequisite to establishing a claim's prima facie validity.84

Here, Kolb's Claim 4 meets the test for a valid prima facie claim. She used the official claim form and attached voluminous supporting documentation.

Debtor then filed her objection rebutting the prima facie validity of Kolb's claim. Debtor primarily attacks the validity of the underlying loan between Kolb and the Lynford on numerous grounds. For example, she argues the loan was improperly notarized, was never made, and was not secured by the Cord; the claim is barred by the statute of limitations, the Statute of Frauds and parol evidence rules; and Kolb has unclean hands and failed to mitigate her damages.

Debtor's arguments are specious. As Kolb stated in her response, Kolb is not pursuing recovery of the underlying debt on the promissory notes against the Debtor. Kolb's claim arises from the Debtor's sale of the Cord when a court had ruled Kolb could have possession of the car. The Cord's ownership was contested when the Debtor sold the Cord. Indeed, nothing in the record indicates the Debtor had any legal interest in the Cord or any legal right to sell the vehicle.

The Court finds the Debtor specifically knew the Georgia Court ruled Kolb was entitled to possession of the Cord. Debtor went to great effort to move and hide the Cord until she could sell it and then she promptly converted the non-exempt sale proceeds into exempt proceeds by paying the mortgage encumbering her exempt home. Kolb's claim is sufficiently supported by the record and her testimony that the money was lent to Lynford, and Lynford defaulted. The Cord was, at the very least, subject to Kolb's superior claim when it was sold. More important, Debtor had actual knowledge the Cord was subject to Kolb's superior claim when the car was sold. There was no credible evidence disputing the calculation of the claim, measured by the amount due under the loan from Lynford. The Court therefore finds the Claim is allowed for $ 133,141.12.

Debtor's Discharge is Denied

The primary purpose of a Chapter 7 consumer bankruptcy case is to reward an honest debtor with a fresh start from all debts—a discharge.85 Courts construe objections to discharge liberally for the debtor and strictly against the objecting party.86 Early and complete disclosure by the honest debtor avoids extraordinary and unjustified work by Chapter 7 Trustees, who should not spend time recreating what "may" have happened to a debtor's assets.87

When a party objects to a debtor's discharge, the initial burden is on that party to prove the objection by a preponderance of the evidence.88 Once met, the burden shifts to the debtor to rebut the allegations.89 Plaintiffs argue the Debtor is precluded from discharging her debts because, intending to hinder, delay, or defraud her creditors, she set up the brand new Wells Fargo Account to deposit the proceeds of the Cord sale and intended to shield those proceeds from creditors. Debtor removed the remaining cash from the Wells Fargo Account and failed to properly account for how it was spent within one year of the bankruptcy petition.

Section 727(a)(2)(A) of the Bankruptcy Code provides a debtor should not receive a discharge if the debtor with intent to hinder, delay, or defraud a creditor or an officer of the estate has transferred, destroyed, mutilated or concealed property of the debtor, within one year before the date of filing the petition. To warrant denial of discharge under § 727(a)(2)(A), a plaintiff must show: "(1) that the act complained of was done within one year prior to the date the petition was filed, (2) with actual intent to hinder, delay, or defraud a creditor, (3) that the act was that of the debtor, and (4) that the act consisted on transferring, removing, destroying, or concealing any of the debtor's property."90

Debtor specifically stated she opened the Wells Fargo Account to keep the Cord sale proceeds separate and so that no one, i.e., Kolb, could take the proceeds from her. Debtor never disclosed the Wells Fargo Account on her bankruptcy schedules or statements. She used around $ 98,000 from the sales proceeds to pay the mortgage encumbering her exempt homestead. In February 2016, Kolb filed a fraudulent transfer action against the Debtor.91 One week later, in March 2016, Debtor wrote checks to herself for cash withdrawing the balance of the monies, approximately $ 12,000, from the Wells Fargo Account. She testified she used the case for "living expenses." But, nothing in the record supports the Debtor's explanation.

The Court finds the Debtor wrote checks totaling $ 12,000 to herself from the Wells Fargo Account in March 2016, within one year of filing bankruptcy on January 13, 2017, shortly after Kolb filed the fraudulent transfer action against her and with the actual intent to hinder, delay, or defraud a creditor (Kolb) and intending to transfer and conceal these monies from Kolb and later her Chapter 7 Trustee. The Court finds the Debtor had more cash than she disclosed on her schedules, and her discharge is denied on § 727(a)(2)(A).

Kolb's Claim 4 is Nondischargeable under § 523(a)(2)(A)

Kolb's Claim 4 also is nondischargeable under § 523(a)(2)(A) of the Bankruptcy Code. Kolb must prove non-dischargeability under § 523(a) by a preponderance of the evidence.92 "Courts have generally interpreted § 523(a)(2)(A) to require the traditional elements of common law. fraud."93 In the Complaint, Kolb alleged the Debtor acted under false pretenses, made materially false representations, and/or committed actual fraud when selling the Cord.94 In her closing argument, Kolb argued the Debtor's conduct supported an actual fraud allegation.95

Actual fraud precluding discharge "`consists of any deceit, artifice, trick, or design involving [the] direct and active operation of the mind, used to circumvent and cheat another—something said, done or omitted with the design of perpetrating what is known to be a cheat or deception.'"96 The Court finds Kolb's claim is nondischargeable based on actual fraud due to the Debtor's designed scheme to sell the Cord when she knew it was subject to Kolb's claim and superior entitlement to possession of the Cord. Debtor's evasive answers to questions at her January 2015 deposition and to the Volusia County Sheriff's inquiry further supports this finding. The Court finds this scheme was intentionally designed to circumvent and cheat Kolb of her superior claim in the Cord and constitutes actual fraud and justifies finding her Claim 4 is not dischargeable.

Further, courts routinely use the "badges of fraud" analysis under both § 727 and § 523 of the Bankruptcy Code to determine fraudulent "intent."97 Badges of fraud include:

Several badges of fraud are present here. Debtor did not disclose the Wells Fargo Account. Debtor was sued by Kolb a week before she cashed out the $ 12,000 remaining in the secret Wells Fargo Account. Debtor had actual knowledge Kolb was seeking possession of the Cord in the Georgia Case and in the Florida litigation when she moved the Cord to Florida and hid it. Debtor refused to disclose the location of the Cord to Kolb at her January 2015 deposition and when she knew Kolb was seeking a break order to enter All Aboard Storage. Most telling, the Debtor refused to inform the Volusia County Sheriff where the car was located when he questioned her in October 2015, telling him to "arrest her" if needed. Debtor, whose other debts total $ 1,200, admitted she filed this bankruptcy case specifically to avoid a judgment by Kolb against her in the Georgia Case. That the Debtor used the majority of the Cord sales proceeds ($ 98,000) to pay the mortgage on her home, an exempt asset, is particularly troubling.

"Although the presence of some badges of fraud does not necessarily establish bad intent, `a confluence of badges can constitute conclusive evidence of an actual intent to defraud.'"99 And, besides the badges of fraud, a finding of fraudulent intent generally requires extrinsic evidence shows a fraudulent purpose.100 Such extrinsic evidence might include behavior or conduct specifically and intentionally designed to mislead or deceive creditors.101

The Court finds the Debtor specifically and intentionally misled and deceived Kolb during critical steps in Kolb's attempt to recover the Cord. Before the Debtor was formally added to the Georgia Case, the Debtor and Horne communicated frequently and on dates critical in the Georgia Case. Debtor refused to disclose the location of the Cord in time for Kolb to take possession of the car. She sold the Cord, to which she had no known legal interest, after the Georgia Court ruled Kolb could possess the Cord. Debtor then refused to disclose the sale or the car's location to the Volusia County Sheriff. Debtor opened a secret bank account specifically to keep the Cord sale proceeds separate from her normal checking account and so that no one could try to take the money away from her. Debtor paid off her only other real debt (her mortgage) and then withdrew and secreted the rest of the cash proceeds. These are not the actions of an honest but unfortunate debtor. These are calculated acts to defraud and defeat the claim of a legitimate creditor, Kolb. The timing of the material transactions and movements is too coincidental to not be calculated. The Court is convinced that the Debtor's only real purpose in selling the Cord as she did was to evade Kolb's collection efforts. Kolb's claim is not dischargeable under § 523(a)(2)(A) of the Bankruptcy Code.102

Competency Defense is Rejected

Debtor's lawyer argued the Debtor could not have the requisite fraudulent intent because she had diminished mental capacity when the acts complained of took place.103 The Court rejects this defense. Debtor was declared incompetent and appointed a guardian in May 2018. Debtor points to the Order Determining Total Incapacity of Debtor that stated the Debtor suffered from a "Microvascular Ischemia" diagnosed in 2014, which arguably caused the Debtor some degree of dementia, paranoia, hallucinations, memory loss, and confusion.104

All of us suffer deterioration and health issues as we age, and the Debtor admittedly was around 90 years old in 2015, when she was hiding and later selling the Cord to defeat Kolb's collection efforts. However, there was no medical expert testimony during trial that the Debtor lacked the ability to form the requisite fraudulent intent under § 727 or § 523 prior to May 2018. I am not a doctor and without medical testimony, I cannot guess at the Debtor's medical condition or interpret medical records.

I, however, can interpret substantial evidence in the record supporting a conclusion that the Debtor was competent when she sold the Cord in 2015, and when she filed this bankruptcy case in January 2017. She moved the Cord from Florida to Georgia. She arranged to store the car at All Aboard Storage. She contracted with Auctions America to sell the car. She opened the Wells Fargo Bank Account and used it to pay her mortgage and pocket the $ 12,000 balance. She attended depositions and court hearing in this bankruptcy case appropriately answering questions. These do not appear to be acts of an incompetent person.

Moreover, the two people closest to her—her lawyer and her nephew—both previously stated they believed the Debtor competent. Debtor's lawyer specifically represented the Debtor was competent to file this bankruptcy case in her own capacity at the meeting of creditors, held on February 28, 2017.105 Mr. Graybill stated that his aunt, the Debtor, continued to sign pleadings in the Georgia Case right up to the date this bankruptcy was filed. Moreover, neither the Debtor's lawyer nor her nephew sought the appointment of a guardian for the Debtor until after this Court appointed a Guardian Advocate.

Age alone does not make a person incompetent. And, here, I would find the Debtor had sufficient capacity to form the intent to defraud Kolb when she secreted and sold the Cord and took the various actions leading up to this bankruptcy filing.

Debtor's Homestead Exemption is Reduced by $ 112,767.04

Because the Debtor is denied her discharge and Kolb's claim is allowed, the Court moves to the next group of issues on the Debtor's claimed homestead exemption. Debtor asked the Court to allow her to convey her homestead property.106 The Court finds this Motion now is moot due to the Debtor's death and will be denied by separate order.

Trustee objected to the Debtor's homestead exemption arguing the Debtor used fraud-tainted funds to pay the mortgage on her Home and the Debtor fraudulently asserted her homestead exemption under Rule 4003(b)(2).107 The Objection is sustained; insofar as the homestead exemption is reduced by $ 112,767.04.

Under § 522(o), the Bankruptcy Code provides that if there is a conversion of non-exempt assets into homestead property, here cash arising from the sale of the Cord, done with fraudulent intent, the value of the Debtor's homestead exemption may be reduced by the value of the property disposed of.108 The Court finds the Debtor used the non-exempt cash from the sale of the Cord deposited into the Wells Fargo Account to pay off the mortgage on her Home. As explained earlier, the Debtor made this transfer with actual fraudulent intent to deprive Kolb of the monies (or the Cord). The Court will reduce the value of the Debtor's exemption under § 522(o) by $ 112,767.04.

The Court also will award pre-judgment interest and future collection costs in calculating the reduction to the Debtor's homestead exemption.109 Interest is calculated by using Florida's interest rate effective at the time the Debtor paid off the mortgage (4.75% on January 4, 2016).110 The Court's used $ 97,681.21, the amount the Debtor paid her mortgage company, as the base amount of damages. The daily rate is .000129781. The number of days between January 4, 2016 until April 8, 2019 is 1,190 days. $ 97,681.21 multiplied by the daily rate of .000129781 is $ 12.68.111 The daily interest multiplied by 1,190 days (rounded to the nearest penny) is $ 15,085.83. That figure ($ 15,085.83) added to the base damages ($ 97,681.21) equals $ 112,767.04. Interest will continue to accrue at the daily rate of $ 12.68, from April 8, 2019, until paid in full. Further, to make the estate whole for the Debtor's fraudulent actions, the Chapter 7 Trustee may recover any costs he incurs to collect this amount or to sell the Home.

Debtor argues the Trustee may not rely on § 522(o) of the Bankruptcy Code because his Objection was not filed within 30 days of the last amendment to her schedules or meeting of creditors.112 However, the Trustee objected to the Debtor's claimed exemption under Rule 4003(b)(2) and § 522(o). Under Rule 4003(b)(2), a Trustee may file an objection to the Debtor's claimed exemption any time before one year after the case is closed if the Debtor fraudulently asserted the claimed exemption.113 Trustee's objection fits squarely within this legal analysis and is timely filed.

Taking these doctrines together and analyzing them with the Court's findings under § 727, § 523, and the traditional badges of fraud, the Court concludes the Trustee's objection should be sustained. Debtor fraudulently asserted her homestead exemption and used non-exempt cash to pay off her mortgage with fraudulent intent. She is not entitled to the full value of her homestead exemption.

Debtor's Homestead is Subject to Equitable Lien and Constructive Trust

Plaintiffs also seek to impose an equitable lien and constructive trust on the Home. An equitable lien and constructive trust are the best ways to remedy the wrongs committed in these proceedings. Bankruptcy Courts are courts of equity, and the Court will use these tools of equity to prevent the Debtor's estate from retaining a piece of valuable real property wrongfully paid off with the proceeds of the sale of the Cord.

Imposing an equitable lien is a recognized exception to Florida's homestead exemption.114 Florida's leading case is Havoco.115 There, the Florida Supreme Court held that a homestead is protected even if money was invested in a home with a specific intent to hinder, delay, or defraud creditors.116 Still, Havoco recognized an equitable lien could be imposed on a homestead "where funds obtained through fraud or egregious conduct were used to invest in, purchase, or improve the homestead."117 Courts have imposed equitable liens even when the homeowner was "innocent," because the "focus is on unjust enrichment, not fraud."118

As detailed above, the Debtor obtained the cash to pay the mortgage on her Home through a fraudulent scheme and egregious conduct specifically designed to evade Kolb's collection efforts. The money is easily traceable because the Debtor's Wells Fargo Account was used only to recover the Cord sale proceeds and to pay the Home mortgage. Even if the Debtor was innocent and unintentional in this scheme, which she was not, the Court concludes it is an appropriate remedy to impose an equitable lien on the Home to prevent the Debtor's (and now her estate's) improper enrichment from the proceeds of the improper Cord sale.

Trustee also argues a constructive trust should be imposed on the home as a remedy for unjust enrichment. As Bankruptcy Judge May noted in his Lee case, constructive trusts have been imposed even when there is no confidential relationship between the parties.119 Constructive trusts are appropriate tools to right a wrong and prevent the unjust enrichment of one person (Debtor or her estate) and the expense of another (Plaintiffs).120 Debtor has been unjustly enriched by using the Cord sale proceeds to pay off her mortgage at the expense of Kolb. A constructive trust is appropriate.

A constructive trust and equitable lien are imposed on the Home for $ 97,681.21 plus prejudgment interest from the date the Debtor paid off the mortgage on January 4, 2016, for a total of $ 112,767,04.

Any other defenses raised by the Debtor not explicitly discussed in this opinion are rejected. Separate orders consistent with this memorandum opinion shall issue.

ORDERED.