GARY SPRAKER, United States Bankruptcy Judge.
In this adversary proceeding, the United States Trustee ("UST") seeks denial of debtor Frederico Z. Anthonys' discharge pursuant to 11 U.S.C. §§ 727(a)(2), (a)(4) and (a)(5).
The debtor filed a "bare bones" chapter 13 petition on May 22, 2013, with the assistance of counsel, attorney Jason Crawford.
The debtor, acting pro se, filed his schedules and statements on September 16, 2013, while his case was pending under chapter 13.
The debtor's Schedule B listed personal property with a total value of $5,349.00. For automobiles, the debtor listed a 1999 Malibu worth $2,100.00, located at his residence.
On his Statement of Financial Affairs, the debtor responded "none" to question 10.a, which requires the disclosure of "all other property ... transferred either absolutely or for security within
The debtor's initial meeting of creditors was held on August 16, 2013. At this meeting, the debtor stated that he had no legal counsel, nor did he have any source of income. The meeting was continued because the debtor had not yet filed his schedules and statements.
On September 27, 2013, eleven days after filing his schedules and statements, the debtor attended a continued meeting of creditors. At this meeting, the chapter 13 trustee, Larry Compton, asked him if he had listed all of his assets and creditors. The debtor responded, "Yes."
Six days after the debtor gave this testimony, a quitclaim deed was recorded in the Fairbanks Recording District which reflected that the debtor had transferred his interest in Lot 4, Block 3, Kingsmen Estates, First Addition ("the Kingsmen property") to Anna Byam.
At the same creditors' meeting held on September 27, the debtor was also asked about another parcel of real property located in North Pole, Alaska ("the Morning Star property"). A warranty deed produced at the meeting reflected that the debtor and another individual, James Schuster, became co-owners of the property in 2003. When asked if he was an owner of record for this property, the debtor attempted to qualify this term, responding that he was "maybe a co-owner."
The debtor was questioned further about the Morning Star property at the continued § 341 meeting held November 1, 2013. He estimated the property was worth about $20,000.00, and said he purchased it with Mr. Schuster as a business partnership.
On February 10, 2014, the debtor's ex-wife moved to convert the chapter 13 proceeding to a liquidation under chapter 7. On February 27, 2014, the court conducted a hearing on several matters in the case, including the motion to convert. The court orally granted the motion, although the order converting the case was not entered until March 5, 2014.
In addition to the two undisclosed parcels of real property, the debtor had an interest in several vehicles at the time he filed his petition. He disclosed two vehicles on his Schedule B, a 1980 Cutlass and a 1999 Malibu, which, per the document, were both located at his residence on Marlette Court. At the November 1, 2013 § 341 meeting of creditors the trustee asked him about other specific vehicles titled in his name. In response, the debtor stated that an '87 Cutlass belonged to his wife and was in her possession. He also stated that a '76 Chevy was "at the lot," that it didn't work and that it was basically a "junk car." He confirmed that another Olds Cutlass, a '78 Ford, and an '82 Pontiac were "at the lot" or "on the property," but also characterized these as junk vehicles. He also stated that the '82 Pontiac belonged to his wife.
In spite of the discussions at the § 341 meetings about the undisclosed lots and vehicles, the debtor never amended his Schedules or Statement of Financial Affairs to correct these omissions.
The UST initiated this adversary action on June 20, 2014. The UST seeks denial of discharge for the debtor's failure to list his interest in the Kingsman and Morning Star properties, or, alternatively, his failure to disclose the prepetition transfer of those parcels. The UST also seeks to deny the debtor his discharge for his failure to schedule a 1983 Olds Cutlass, a 1987 Olds Cutlass, a 1996 GMC Sierra, a 1976 Chevy Truck, a 1980 Olds Cutlass, a 1976 Ford Truck, a 1982 Pontiac J2000, and a 1978 Honda Accord.
Shortly after commencement of the adversary proceeding, the debtor sought to remove Mr. Crawford as his attorney. The court granted the motion to remove counsel on July 15, 2014. Another attorney, Valerie Therrien, subsequently filed an answer on the debtor's behalf in this adversary action.
Trial of this matter was held on June 29, 2015. The debtor appeared and testified on all matters. The chapter 13/7 trustee, Mr. Compton, also testified. Ms. Byam, however, was not called as a witness, and no testimony from her was presented regarding the transfers of the Kingsman or Morning Star properties, or the subsequent recording of the two quitclaim deeds.
The debtor testified that he is self employed, and works in consulting. He has completed high school and taken some college courses. He stated that, in the past, he has operated restaurants on his own.
The debtor testified that he transferred both the Kingsmen Estates and Morning Star parcels to Anna Byam in August 2011. He explained that he made these transfers to pay Ms. Byam for childcare/daycare services she had provided to him after his wife moved out. At the time of the transfers, he and his wife were separated. They filed for divorce in 2012. The divorce has been very contentious. The debtor stated that his children lived with him until August 15, 2012.
The debtor testified that he had a professional relationship with Ms. Byam at the time he transferred the properties to her, though he admitted that she was currently living with him.
Although the debtor said the transfers were made to repay Ms. Byam, he again stated that she gave him some money in exchange as part of the transaction. He characterized it as "tip money" that she had, not even $1,000.00. He believed she gave him the money because he was going through hard times and she thought she was getting the best end of the deal. Yet, he also stated that they had looked at the fair market value of the property and figured it wouldn't cover her two years of service.
The debtor was asked how he calculated the value of the two properties. He said
The debtors' testimony regarding the value of the two lots was contradicted by Property Summaries for the parcels introduced into evidence by the UST.
When asked why he had not listed the transfers of the two parcels on his Statement of Financial Affairs, the debtor explained that the transfers occurred more than two years from the date he filed that document. He said he filled out and filed the Statement of Financial Affairs in September 2013, while the transfer occurred in August, 2011. Yet, he also testified that he did not recognize this document, or the Schedules, because they appeared to have been prepared on a computer, and he would have hand-printed the information on these documents. He also challenged the authenticity of his signature on both. His trial testimony in this respect contradicts his prior testimony at the September 27, 2013 § 341 meeting, wherein he stated that he had signed these documents, and affirmed that everything listed on them was true and correct, to the best of his knowledge.
The debtor's trial testimony regarding the vehicles was inconsistent with his Answer. He again stated that he had never owned an 1983 Oldsmobile. However, he said the 1978 Honda, and the 1976 Chevy truck were his former wife's vehicles, as was the 1987 Cutlass. He also stated that the 1987 Cutlass was at his former wife's residence. He also "believed" that the 1976 Chevy truck was on his property and then removed, but again couldn't provide any details. He testified that the 1982 Pontiac J2000 had been removed from his property a while back, but could not provide further specifics.
The debtor characterized the unscheduled cars as "junk vehicles." Though he denied ownership of the vehicles at trial, he also explained that he did not list some of the vehicles in his Schedule B because he didn't know they were still in his name. He said a couple of vehicles were buried in the ground and that they had been hauled away, either before or after he filed his petition, by FNBA. He could not be specific as to the location of these vehicles. He testified that some of them were either outside of his house or stored on a powerline easement. According to the debtor, many people left junk cars on the powerline
At trial, the debtor asserted that Mr. Compton had told him not to worry about listing the vehicles in his schedules. The debtor had an opportunity to cross-examine Mr. Compton and questioned him in this area repeatedly. He asked Mr. Compton whether he recalled telling the debtor he didn't need to schedule any asset worth less than $10.00. Mr. Compton said he did not recall such a conversation. He further testified that the vehicles should have been scheduled, regardless of their value.
The debtor also suggested that Mr. Compton or attorney Jason Crawford were at fault for not amending his Schedules and Statement of Financial Affairs. He stated that Mr. Crawford had failed to do his job, and "that is the bottom line." He also accused Mr. Compton of making mistakes in the case. He asked Mr. Compton if he recalled asking Mr. Crawford to amend the Schedules. Mr. Compton stated that he did advise Mr. Crawford that this should be done.
Finally, the debtor complained that nothing had gone right since "day one" in his divorce proceeding. It had not gone the way he had hoped. He contended the UST brought the adversary action "due to outside aid from other sources," specifically, his former spouse, whom he claimed was vindictive and should not be permitted to participate in the bankruptcy proceeding.
Chapter 7 of the Bankruptcy Code embodies two ideals: (1) it offers a "fresh start" to an individual debtor through the discharge of most debts, and (2) it provides for the equitable distribution of a debtor's assets among competing creditors.
Section 727(a)(4)(A) precludes discharge to a debtor who "knowingly and
The first element is satisfied here. The debtor has made false oaths in connection with his case. At his September 27, 2013 § 341 meeting, the debtor affirmed that he had listed all his assets and creditors. Yet, he omitted his interest in several vehicles from his Schedules, and, more significantly, failed to disclose his prepetition transfer of the two parcels of real property on his Statement of Financial Affairs. The quitclaim deeds introduced at trial establish that he transferred both parcels to Anna Byam on August 11, 2011, a date within two years of the filing of his petition. The debtor's Answer admits the two parcels were transferred on this date, and further avers that he believed he no longer owned the parcels at the time he filed his petition. Yet, at his earlier § 341 meetings, the debtor only revealed his interest in these properties upon questioning from the trustee and others in attendance. Further, he failed to even mention that he had transferred the Morningstar Property to Ms. Byam. At the § 341 meetings, he testified that he co-owned that property with Mr. Schuster, and attempted to qualify his interest as being something less than a true ownership interest. The quitclaim deed for the Morningstar property was not revealed until the day it became public record through its recording on February 27, 2014, the same day that oral argument was held on the motion to convert filed by the debtor's former spouse.
Ultimately, neither the UST nor the trustee challenged the validity of the quitclaim deeds. For this reason, the court finds that the debtor did not have an interest in the two parcels he transferred to Ms. Byam on the date he filed his petition, and his failure to list an interest in these properties on his Schedule A did not constitute a false oath. However, the quitclaim deeds unquestionably establish that he transferred his interest in the parcels within two years prior to filing his petition. His failure to list these transfers on his Statement of Financial Affairs constitutes a false oath.
The debtor concedes he did not list the transfers, but argues that he was not required to, because the transfers occurred more than two years after he signed and filed the document. This explanation is not believable. Question 10.a on the Statement of Financial Affairs asks the debtor to list "all other property, other than property transferred in the ordinary course of business or financial affairs of the debtor, transferred either absolutely or as security within
As to the undisclosed vehicles, there is some confusion regarding exactly what vehicles the debtor owned as of his petition date. The confusion is largely created by the debtor's own testimony, which the court found evasive and combative. For example, the debtor denied ownership of certain vehicles because they were in his wife's possession rather than his (the 1987 Oldsmobile and 1982 Ponitac J2000), and professed that he didn't have to list other vehicles because they had no value in his opinion.
The debtor claims that he was not required to list the additional vehicles because they were worthless, and Mr. Compton advised him not to list them. At trial, the debtor repeatedly argued that Mr. Compton had told him that he need not list property worth less than $10.00. Although Mr. Compton could not recall such a discussion, the excerpt of the November 1, 2013 meeting of creditors, UST Ex. 11, shows that he told the debtor, "If it's worth $10 — or at least anything over 50 bucks, you ought to list."
The record does not establish specific values for any of the omitted vehicles, but such an argument misses the point. The debtor filed his schedules on September 16, 2013, after the original creditor's meeting held August 16, 2013, and prior to the continued creditors' meeting set for September 27, 2013. The very first discussion of omitted vehicles is found in the November 1, 2013 meeting of creditors, wherein Mr. Compton examines the debtor on specific vehicles not listed in his Schedule B. Based upon this record, the debtor could not have relied on Mr. Compton's comments made at this meeting in deciding
On a much more fundamental level, the debtor was affirmatively required to list all vehicles that he owned as of the petition date regardless of value. "The recalcitrant debtor may not escape a section 727(a)(4)(A) denial of discharge by asserting that the admittedly omitted or falsely stated information concerned a worthless relationship or holding; such a defense is specious."
The second element requires that the debtor's false oath relate to a material fact. A fact is material "if it bears a relationship to the debtor's business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of the debtor's property."
The debtor's false oaths regarding the transferred parcels of real property were material because they related to the existence and disposition of two of his most valuable assets, aside from his residence. As for the unscheduled vehicles, although the trustee ultimately determined that they had no value to the estate, the debtor's omission of these assets was also material. The fundamental purpose of § 727(a)(4)(A) is to insure that parties in interest "have accurate information [regarding the debtor's financial affairs] without having to conduct costly investigations."
The third element of § 727(a)(4)(A) is that the debtor acted knowingly in making the false oath. A debtor acts knowingly where he or she acts "deliberately and consciously" when making the false oath.
In spite of his assertions as to the accuracy of these documents, the court concludes that the debtor was fully aware of his omission of the transfers from his Statement of Financial Affairs at the time he filed it. First, the Kingsman and Morning Star properties represented the debtor's most significant assets aside from his residence. Pragmatically, the Kingsman and Morning Star properties were more valuable than the residence because he had equity in those parcels. Second, the debtor's shotgun and scattered denials regarding the reasons for his failure to disclose the transfers are not believable. He contends he misunderstood Question 10.a because he calculated the two year period from the time he filled out and filed the document in September 2013, suggesting that the look back period expired in September 2011. As discussed above, this explanation is unbelievable. Question 10.a is clear that the two year period is calculated from the date "immediately preceding the commencement of this case."
As discussed in further detail below, the omission of the undisclosed vehicles from Schedule B presents a more difficult question. An appealing argument can be made that the debtor intentionally excluded the vehicles as part of an overall scheme to omit assets from his bankruptcy. His evasiveness and lack of credibility at trial support such a finding. However, the age, apparent poor condition, and lack of value of these vehicles, suggest otherwise. Even though the debtor never amended his schedules to include the omitted vehicles, the court is not convinced that he fraudulently omitted these "junk" vehicles from his Schedule B. Thus, no additional analysis is required with respect to these omitted assets.
The fourth element of § 727(a)(4)(A) is that the debtor made the false oath fraudulently. A reckless disregard for the truth, by itself, is insufficient to establish this element.
The UST must show that the debtor actually intended to deceive the creditors or trustee.
The circumstances surrounding the prepetition quitclaim transfers themselves, the debtor's omission of these transfers on his Statement of Financial Affairs, and the postpetition recordings of the deeds compel a finding of fraudulent intent. Numerous badges of fraud are present. The underlying transfers were made to an insider, the woman with whom the debtor is now living. While the specifics of the debtor's finances at the time of the transfers are unknown, there are suggestions that the debtor's business was failing, and that he was experiencing "hard times" at the time they were made.
The debtor's explanations as to why he omitted these transfers are unpersuasive. Throughout the trial, He was recalcitrant, evasive, and combative. Moreover, his explanations regarding the property transfers were inherently contradictory and not credible. On the one hand, he stated that he transferred the parcels to Ms. Byam to pay her for valuable services rendered. Yet, he also said the properties were both worthless, and further said Ms. Byam paid him some consideration for their transfer. Based upon the totality of the circumstances, and given the presence of multiple badges of fraud, the court finds that the debtor fraudulently omitted the two transfers of real property to Ms. Byam from his Statement of Financial Affairs.
Unlike the omission of the transfers of the real property, fraudulent intent cannot be found with respect to the debtor's failure to disclose the unlisted vehicles. Although the lack of value does not excuse him from disclosing his ownership in these vehicles, it weighs against any fraudulent intent. The trustee does not deny that the omitted vehicles were of limited value, and he has abandoned them based upon his independent conclusion that they cannot be sold for more than it would bring them to sale. Although it is not clear from the testimony at trial, the evidence strongly suggests that the vehicles are not operational. The debtor testified that they are in various locations spread across town, including in his ex-wife's possession, on the his property, and on a utility easement. Additionally, at the November 1, 2013 meeting of creditors, the debtor testified that the registration for the 1987 Oldsmobile Cutlass had expired in 2011, the 1976 Chevy had not been registered since 2002, and the 1978 Ford was last registered in 1996.
All of the circumstances surrounding the vehicles suggest that, while they remain in the debtor's name, they have been effectively discarded by him in any pragmatic sense. Moreover, the debtor did list two vehicles in his Schedule B; the 1999 Malibu valued at $2,100.00, and a "broken" 1980 Cutlass valued at $100.00. It is unclear why the debtor listed these vehicles, and in particular the 1980 Cutlass, but not the other vehicles. Charitably construed, it suggests that the debtor believed that the 1980 Cutlass, even in its "broken" condition, had more value than the other omitted vehicles. Disclosure of these two older vehicles suggests that the debtor was not fraudulently attempting to conceal his ownership of the other vehicles.
All four elements of § 727(a)(4)(A) have been satisfied as to the debtor's omission of the transfers of real property to Ms. Byam. Accordingly, his discharge will be denied on this basis. However, the UST has not established the requisite fraudulent intent necessary to deny the debtor his discharge under § 727(a)(4) for the failure to list the undisclosed vehicles in his Schedule B.
The UST also seeks denial of discharge under § 727(A)(5), which precludes discharge to a debtor who "has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities."
A debtor's failure to offer a satisfactory explanation for a loss or deficiency of assets, when called on by the court, is a sufficient ground for denial of discharge under § 727(a)(5).
The UST challenges the debtor's failure to adequately explain the disposition of the undisclosed vehicles. However, the court has found that the challenged vehicles remained titled to the debtor. Moreover, Mr. Compton was able to locate, and evaluate, the vehicles. Based upon this record, the debtor continues to own the vehicles, and there has been no disposition of the vehicles for which he is required to account. The record does not support a finding that the debtor failed to account for the vehicles, but rather he failed to disclose them. Denial of the debtor's discharge under § 727(a)(5) is inappropriate.
Under § 727(a)(2)(B), a chapter 7 discharge will be denied if the debtor "has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed" property of the estate "with intent to hinder, delay, or defraud a creditor or an officer of the estate" after the petition filing. The UST contends the debtor concealed the two lots and the unscheduled vehicles, after he filed his petition, with the intent to hinder, delay or defraud a creditor or officer of the estate. To establish this claim, the UST must prove: "(1) a disposition of property, such as a transfer or concealment, and (2) a subjective intent on the debtor's part to hinder, delay or defraud a creditor through the act [of] disposing of the property."
As with claims under § 727(a)(4), the failure to list property of the estate in a debtor's schedules may suffice to establish concealment for purposes of § 727(a)(2)(B).
The UST's claim for denial of the debtor's discharge for concealment of the undisclosed vehicles necessarily fails as well, based upon the court's prior conclusion under § 727(a)(4) that the debtor lacked fraudulent intent with respect to these assets. While the UST need only prove an intent to hinder or delay to sustain its concealment claims under § 727(a)(2)(B), the ages, condition, and lack of value of these vehicles militates against such a finding for the same reasons as set forth above. Accordingly, the court finds that denial of the debtor's discharge under § 727(a)(2)(B) is not warranted.
For the reasons stated above, the court finds that the debtor has knowingly and fraudulently made a false oath in this case by failing to disclose the transfers of the Kingsman and Morningstar properties made within two years from his petition date. Accordingly, his discharge will be denied under § 727(a)(4)(A).
An order and judgment shall be entered consistent with this Memorandum Decision.
