The court granted summary judgment to the plaintiff, finding a judgment debt excepted from discharge under § 523(a)(6) because the debtor willfully injured the plaintiff and acted with malice when he purposefully hit the plaintiff multiple times.
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The court denied the pro se debtor a discharge under §§ 727(a)(2), (a)(3), (a)(4) and (a)(5), finding after a trial that the debtor misrepresented her true financial position in her schedules and statement of financial affairs. She amended these only after the U.S. Trustee investigated, found discrepancies, and filed a motion to dismiss for bad faith. The discrepancies were material and numerous, and the cumulative effect and nature of the falsehoods demonstrated a pattern of reckless and cavalier disregard for the truth and established the requisite fraudulent intent.
The court also found that the debtor transferred and concealed large amounts of cash and other property both pre-petition and post-petition, with many of the transfers of personal property and cash occurring after she decided to file for bankruptcy. The evidence demonstrated her intent to hinder and delay creditors.
Likewise, the debtor failed to keep adequate financial records, choosing instead to operate on a cash basis and failing to account for how the cash was spent. She also failed to explain the loss or deficiency of her assets.
The court granted summary judgment to the Chapter 7 trustee, avoiding a lien that was noted on a vehicle’s certificate of title after the bankruptcy petition date. The court found the lien to be an unauthorized post-petition transfer and a preference. Because the lien was not timely noted on the title, it did not attach and was not perfected under Nebraska law. The lien was avoided and the creditor ordered to disgorge payments received on it.
The court denied a creditor’s motion for relief from stay to compel debtor’s specific performance of a pre-petition contract to sell her home. The court found the contract to be executory, as neither party had performed as of the petition date, and it was deemed rejected under § 365(d)(1). The creditor’s right to specific performance is a claim in the bankruptcy case, which can be reduced to money damages. Because the debtor has received a discharge, the creditor is enjoined by the discharge injunction from continuing any action to recover the debt as a personal liability of the debtor.
The debtor moved to avoid a judgment lien on her home because it impaired her homestead exemption. The creditor agreed the lien was partially avoidable; the only dispute concerned the home’s value and therefore to what extent the homestead exemption was impaired.
The court heard testimony from each party’s appraisers and found the creditor’s valuation to be supported by the evidence. The court then did the math (amount of judicial lien plus amount of all other liens on the property plus amount of the homestead exemption less the value of the debtor’s interest in the property absent any liens equals the extent of impairment), and avoided some $59,000 of the creditor’s lien.
The court granted summary judgment to the debtors, ordering that a wholly unsecured junior lien on the debtors= residential real estate may be avoided after the debtors complete Chapter 13 plan payments.
After a trial, the court declined to except the debt at issue from discharge under § 523(a)(2)(A). The plaintiff consigned a boat and trailer for sale with the debtor’s business and turned over a signed title for the boat. The items sold four months later. When the plaintiff received a check from the debtor for less than he had anticipated, even accounting for the debtor’s sales commission, he learned that the debtor had reduced the sales price without authorization. The plaintiff also learned that the price paid by the buyer was more than the plaintiff had been told, because the debtor charged an installation fee for some optional equipment purchased by the buyer. The plaintiff did not deposit the check from the debtor while he investigated the sales price discrepancy. By the time the plaintiff tried to deposit the check, it was returned for insufficient funds. The plaintiff ultimately sued in state court and obtained a confessed judgment from the debtor personally and on behalf of his company.
After the debtor filed a bankruptcy petition, the plaintiff commenced this adversary proceeding to except the debt from discharge based on false pretenses, false representation, or actual fraud. The court found no evidence of the debtor’s intent to induce the creditor to rely on a false representation. Rather, the debtor acted in good faith in selling the consigned property and obtaining the best price he could for it. At most, there was a breach of contract. Even if the plaintiff were able to establish a claim under § 523(a)(2)(A), only a fraction of the amount sought would be excepted from discharge. The plaintiff received a check for $4,000 for the sale of the property. He contends he may have been entitled to $4,600 based on the total sales price of the boat and trailer. Had the plaintiff cashed the check in a timely manner, it would have been honored, so $4,000 of the debt owed to him is a result of his own inaction.
The court sustained the objection to confirmation filed by the Subchapter V trustee regarding the plan provisions for payment of a secured creditor’s § 1111(b) claim. The court found that the plan proposes to pay to the secured creditor “far more than it is entitled to receive as a result of its election under 11 U.S.C. § 1111(b), [so] there is less money available to pay to unsecured creditors. Accordingly, the plan discriminates unfairly and is not fair and equitable to the class of unsecured creditors.”
In this case, the bank was under-secured. It elected under § 1111(b)(2) to waive its unsecured deficiency claim and have the entire debt treated as a secured claim. The practical application of § 1111(b)(2) is a two-part test, derived from § 1129(b)(2)(A)(i)(II), where the debtor must pay the electing creditor a stream of payments that has a present value equal to the value of the creditor’s collateral and the total amount of the stream of payments must equal the amount of the creditor’s debt.
The majority of courts permit interest payments on the allowed secured portion of the claim to apply to both parts of the § 1111(b)(2) calculation, which is the better-reasoned approach and “gives effect to the plain language of § 1129(b)(2)(A)(i) which merely requires that in a cram down, the creditor making the § 1111(b)(2) election receive a stream of payments equal to its total claim and with a present value equal to the value of the collateral. Requiring anything more would be an unwarranted and unsupportable extension of the statutory requirements of § 1129(b)(2)(A).”
Because the plan as proposed contemplated overly generous payments on the bank’s § 1111(b) claim at the expense of unsecured creditors, confirmation was denied.
After a trial on objections to discharge, the court ruled in favor of the plaintiffs and denied the debtors a discharge under § 727(a)(2) (transfer or concealment of property with intent to hinder, delay, or defraud a creditor) and § 727(a)(4)(A) (false oaths or accounts).
The court found that the debtors intentionally failed to disclose (1) their interest in two bank accounts they used for personal and business expenses, (2) their ownership of a parcel of real estate; and (3) the pre-petition transfer of personal property valued at more than $42,000 to the debtor’s mother. Contrary to the debtors’ assertion that the fault for failing to include such information on the bankruptcy schedules lies with their bankruptcy attorney, the court found that the debtors had not bothered to disclose most of the omitted information to the attorney.
In denying the discharge, the court said:
Here, the sheer volume and materiality of the misstatements and omissions demonstrates, at a minimum, reckless indifference to the truth. In fact, the schedules and SOFA appear to be intentionally false, even after two prior amendments.
Defendants’ schedules and SOFA were and are not accurate or reliable. This is not a situation where there were only one or two innocent omissions; instead, they were numerous. Many were corrected, but only after a creditor went through the effort to dig them out and the trustee re-convened the meeting of creditors. A debtor’s “petition, including schedules and statements, must be accurate and reliable, without the necessity of digging out and conducting independent examinations to get the facts.” In re Sears, 246 B.R. at 347 (citing Mertz v. Rott, 955 F.2d 596, 598 (8th Cir. 1992)). Some omissions have not been corrected at all.
Accordingly, the Court finds that the elements for denial of discharge under 11 U.S.C. § 727(a)(2) and 11 U.S.C. § 727(a)(4)(A) have been met, and it is not necessary to address the causes of action under § 727(a)(5) or § 523.
After an evidentiary hearing, the court denied a creditor’s complaint objecting to discharge and dischargeability. The debtors are the only two members in an LLC that once owned and operated golf equipment retailer with five locations in Nebraska and Iowa. The plaintiff and his business loaned money to the LLC because the plaintiff was close friends with the debtors’ family. Regular payments were made on the loan until the LLC’s cash-flow issues intensified. The debtor provided financial documentation to the plaintiff and kept him informed about store closings and liquidations. As store locations were sold, the LLC paid operating expenses, a sales tax debt, and some unsecured debts. The plaintiff thereafter filed a state-court replevin and collection action and the LLC turned over the assets remaining after the store liquidations. The debtors then filed this Chapter 7 petition.
With regard to the plaintiff’s claim under § 727(a)(2) for transfer or concealment of assets, the court ruled that because the assets at issue belonged to the LLC and not to the debtors, the creditor’s claim had no basis. Even if the assets were property of the estate, the creditor’s claim was based on a difference in value between amounts stated in pre-petition asset summaries provided to the creditor and the amounts actually turned over to the creditor as part of the replevin action. As the bankruptcy court noted, “[t]he plaintiff is not the first creditor secured primarily by inventory and equipment to find itself holding a significant deficiency claim on liquidation.” There also was no evidence of the debtors’ intent to hinder, delay, or defraud when they moved the LLC’s remaining inventory into storage. The creditor did not request that any of the assets be turned over to him; instead, he waited and then filed a replevin action.
With regard to the plaintiff’s claim under § 727(a)(3) for failure to preserve records, he did not establish that he requested any records, any records were destroyed, or existing records were inadequate. The evidence indicated the LLC’s business records were available and accessible.
With regard to the plaintiff’s claim under § 727(a)(4)(A) that the debtors made false oaths of material facts in connection with the bankruptcy case, the plaintiff did not establish a pattern of false statements. Omissions in the bankruptcy schedules were not knowingly and fraudulently made and were subsequently corrected. Discrepancies in asset values were attributable to the passage of time between the preparation of old financial statements and current bankruptcy schedules.
With regard to the plaintiff’s claim under § 727(a)(5) alleging the failure to satisfactorily explain the loss or deficiency of assets, the assets at issue belonged to the LLC, not to the debtors, so the debtors were under no obligation to explain a perceived loss or deficiency. Even if the assets belonged to the debtors, the plaintiff did not establish a loss or deficiency. The LLC’s assets were either turned over to creditors, recovered by third parties, held by landlords, or turned over to the plaintiff.
With regard to the plaintiff’s claim under § 523(a)(2)(A) alleging that the debtors falsely represented he would have a first-position lien on the LLC’s assets in exchange for one of the loans made, the evidence does not establish the necessary elements. First, there is no evidence the debtor represented that he could grant the plaintiff’s request for a first-position lien. Even if he did make such a representation, it is not a misrepresentation simply because the intended result did not happen. The evidence indicates that at the time the security agreement was signed, the debtor believed the plaintiff could be given a first-position lien. Moreover, the plaintiff did not rely on any such representation and made the loan without concern for collateral because he wanted to help the debtor.
With regard to the plaintiff’s claim under § 523(a)(2)(B) alleging that the debtors provided a false financial statement with intent to deceive, he did not establish an intent to deceive. In addition, the plaintiff’s loans were not made in reliance on the financial statements, and there is no evidence the financial statements were materially false. Any discrepancy was due to a flawed comparison of values.
Finally, with regard to the plaintiff’s claim under § 523(a)(6) alleging willful and malicious injury because the debtors paid unsecured creditors instead of the plaintiff, there was no evidence the debtors acted maliciously. Malice is not necessarily inferred from a debtor’s conduct of using proceeds to try to keep a business afloat. Here, the debtors tried to keep the last store open in order to maximize recovery for the plaintiff, among others. The plaintiff was kept apprised of the debtors’ plans and either agreed or acquiesced to them. At most, there was a breach of a security agreement, but it did not rise to the level of a willful and malicious injury. Accordingly, judgment was entered in favor of the defendants on the complaint.