Transfer exempt property with fraudulent intent, discharge denied says Houston bankruptcy court

Posted on Aug 11, 2015

U.S. Bankruptcy Judge Jeff Bohm sitting in Houston has ruled that transfers of property in fraud of creditors will lead to the denial of a chapter 7 discharge, even if the property transferred was exempt Individual Retirement Accounts or I.R.A.'s. In re Hawk, Adversary No. 14-03191, U.S. Bankruptcy Court, Southern District of Texas, Houston Division.

The Debtor had a large judgment against him, and had a personal account garnished or seized be the creditor. In response, he and his wife cashed out some IRA's, and put them in a business account, admittedly to keep them from being garnished. Then the funds were used for various purposes, including household expenditures.

After the Debtor filed chapter 7 bankruptcy, the plaintiff brought an adversary proceeding or lawsuit in bankruptcy court and successfully argued that the debtor "with the intent to hinder, delay or defraud a creditor,...transferred, removed, destroyed, mutilated or concealed... property of the debtor, within one year before the date of the filing of the petition," in violation of 11 USC Sec. 727(a)(2), and therefore was not entitled to a discharge of any of his debts.

The court also held that the debtor omitted a $5000 loan repayment to a brother and a $2500 repayment to a credit card debt within 90 days before the bankruptcy was filed from his Statement of Financial Affairs, and therefore was also denied a discharge under 11 USC Sec. 727(a)(4).

Finally, the court held that the debtors sufficiently described what happened to $6 Million that they received from liquidating a business in 2007, and did not deny their discharge on that basis. And the debtor's wife was completely exonerated of having fraudulent intent, so that she would be entitled to a discharge of debts. The judgment against the debtor is under appeal.

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