bankruptcy laws. However, people are presumed to know the law, and ignorance of the law is

not a defense. See U.S. v. Int’l Minerals & Chem. Corp., 402 U.S. 558, 563 (1971) (“The

principle that ignorance of the law is no defense applies whether the law be a statute or a duly
promulgated and published regulation.”), Furthermore, Appellee was represented by competent
counsel at all times, which lessens any leniency that may be given to an otherwise
unsophisticated litigant. Nevertheless, the bankruptcy court found that Appellee did not possess
the requisite fraudulent intent, despite her omission of the four creditors. Upon reviewing the
record in its entirety, however, the Court finds that the bankruptcy court did not apply the proper
legal standard, and therefore, the Court need not determine whether the bankruptcy court’s
factual determinations were clearly erroneous.

2, Cumulative Effect

Appellant argues that, in addition to the five-factor test applied by the bankruptcy court, it
should have also considered the cumulative effect of Appellee’s omissions as a totality of the
evidence. Appellee rejects the cumulative approach and contends that it was sufficient for the
bankruptcy court to make a separate finding as to each omission. The Court disagrees. It is well
established that, as to the fourth factor of the test for a § 727 violation, “[f]raudulent intent may
be proven with circumstantial evidence, ‘and the cumulative effect of false statements may,
when taken together, evidence a reckless disregard for the truth sufficient to support a finding of
fraudulent intent.’” Cantwell & Cantwell, 464 B.R. at 789 (citing In re Duncan, 562 F.3d 688,
695 (Sth Cir. 2009)) (emphasis added). Indeed, “{c]ourts must deduce fraudulent intent by
examining the totality of facts and circumstances surrounding the transaction in question.” In

re Costello, 299 B.R. at 895 (emphasis added).



Cantwell & Cantwell v. Vicario, 464 B.R. 776, 789 (N.D. Ill. 2011) (quoting In re Chavin, 150

F.3d 726, 728 (7th Cir. 1998)). “Actual intent to hinder, delay, or defraud a creditor is required
under § 727(a)(2)(A). . . . However, since debtors rarely declare their purpose to deftaud their
creditors, intent may be proved by circumstantial evidence or by inferences drawn from a
debtor’s course of conduct.” In re Costello, 299 B.R. 882, 895 (Bankr. N.D. Ill. 2003) (internal
quotation marks and citations omitted). “[D]ischarge should not be denied where the untruth
was the result of mistake or inadvertence. The misstatement or omission must have been made
knowingly and fraudulently; mere negligence in not sufficient to deny discharge to debtors.” In
te Baker, 205 B.R. 125, 132 (Bankr. N.D. Ill. 1997) (internal citations omitted).

I. Knowing and Intentional Omissions

Appellant argues that Appellee evidenced her intent to defraud when she knowingly and
intentionally omitted four creditors, made up of family and friends, because she intended and felt
obliged to pay them back at the expense of other creditors. Indeed, Appellee specifically
testified to that fact, under oath during the trial. According to Appellee, the creditors at issue
were family and friends who loaned her money for food, shelter, and legal expenses while she
was going through what has been described as an “acrimonious” divorce. She testified that “My
friends are people who help me, and it’s [sic] difficult situation. And I was hope [sic] to pay
them back. I couldn’t include them and don’t—and never pay them, I was thinking I had to pay
them back.” Trial Tr. 169: 21-25. While Appellee argues that she did not believe that those
people were creditors, she, through counsel, admitted at oral argument that several, if not all, of
the loans from the four family members and friends were in fact signed notes.

In arguing that her omission was merely an innocent mistake or misunderstanding,

Appellee makes much of the fact that she is an unsophisticated person, unfamiliar with the



In addition to the omission of family and friends as creditors, Appellant points to five
additional omissions that the bankruptcy court noted, and individually rejected. The omissions
include: (1) Appellee’s failure to disclose Appellant as a creditor; (2) Appellee’s failure to
include alimony payments from 2010; (3) Appellee’s failure to include a time share in Las
Vegas, Nevada that she co-owned with her ex-husband; (4) Appellee’s failure to include her
house in Indiana which she co-owned with her ex-husband; and (5) Appellee’s failure to include
her ex-husband as a co-debtor on the condo which they owned together. At trial, Appellee
explained that many of the omissions she simply “forgot” to include, such as the alimony in
2010. As to the time share, Appellee claimed that she did not consider that to be property, and as
to the house in Indiana, Appellee claimed that she thought that the property had already been
foreclosed. Other omissions, Appellee explained, were based on her reliance on a state-court
post-nuptial agreement. For example, she believed that the document listed her as the sole owner
of the condo—the marital home where she and her husband lived and jointly owned.

Appellee had an explanation for each omission, and considered individually, some of her
excuses seem plausible, However, that is precisely why courts consider circumstantial evidence
in determining fraudulent intent, and more specifically, the cumulative effect of the evidence.

See Cantwell & Cantwell, 464 B.R. at 789. Taken together, Appellee’s omissions are

inexcusable and through her “course of conduct,” evidence her fraudulent intent. In re Costello,
299 B.R. 895, Appellee knew that she had a duty to report fully and truthfully on her bankruptcy
petition. Appellee admitted that she intentionally omitted family and friends whom she wanted
to pay back. Although Appellee claims that she did not know her time share in Las Vegas was
“property,” and she thought her house in Indiana had been foreclosed, she still knew that the

properties existed and that she had a duty to report them.



Ht

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

In the matter of
VLADIMIR SKAVYSH,

Plaintiff/A ppellant,
No. 12 CV 3807
Vv.
Hon. Charles R. Norgle
SOFIA KATSMAN,

See SS Sw

Defendant/Appellee.
OPINION AND ORDER
Plaintiff/Appellant Vladimir Skavysh (“Appellant”) filed the instant interlocutory appeal
on May 17, 2012, seeking reversal of the bankruptcy court’s decision to reject arguments
pursuant to 11 U.S.C. § 727 and to grant discharge in bankruptcy to Defendant/Appellee Sofia
Katsman (“Appellee”). For the following reasons, the Court grants the appeal. The case is
remanded for further proceedings consistent with this Opinion.
1. BACKGROUND
Appellee filed for Chapter 7 bankruptcy on March 23, 2011. At all times during the
proceedings, Appellee was represented by counsel. Appellee thereafter filed an amended
Schedule F to her bankruptcy petition, omitting Rhada Eydelman as a creditor. On May 10,
2011, Appellee’s § 341 meeting was held and the Chapter 7 trustee entered a report of “no
assets” available for distribution from the bankruptcy estate.
Subsequently, Appellant filed an adversary complaint in Appellec’s bankruptcy
proceeding on September 5, 2011, objecting to Appellee’s discharge under 11 U.S.C. §§ 523 and

727. The bankruptcy court bifurcated the claims and proceeded to trial on Appellant’s § 727



Individually, some of Appellee’s omissions could be considered “mere speculations,

suspicions, or inferences of possible culpability,” In re Johnson, 98 B.R. 359, 367 (Bankr. N.D.

Il. 1988), but taken as a whole, they are circumstantial evidence of Appellee’s fraudulent intent
requiring a denial of discharge under 11 U.S.C. § 727(a).
III. CONCLUSION
For the foregoing reasons, the Court grants the appeal and remands the case the
bankruptcy court for further proceedings consistent with this Opinion.

IT IS SO ORDERED.

ENTER:

i
CHARLES RONALD NORGLE, Judge
United States District Co

DATE: March 28, 2013



claims. Appellant argued that Appellee should be denied discharge because she: (1) concealed
property within a year of filing her bankruptcy petition in violation of § 727(a)(2); (2)
intentionally concealed recorded information in violation of § 727(a)(3); and (3) made false
statements with respect to her bankruptcy case in violation of § 727(a)(4)(A).

The trial was held on March 14, 2012, and Appellee testified for approximately three
hours. It is undisputed that the bankruptcy court found Appellee’s testimony credible.
Ultimately, the court found that Appellee did not act with the requisite intent under § 727(a)(4)
in her various omissions to her bankruptcy petition. Accordingly, the court denied Appellant’s
adversary complaint, challenging discharge.

Appellant moved for leave to file appeal of an interlocutory order, which was granted on
April 17, 2012, and the appeal was sent to this Court on May 17, 2012. The interlocutory appeal
is now fully briefed and before the Court. Oral argument was held on March 15, 2013.

Ii. DISCUSSION
A. Standard of Review

The question presented is whether Appellee possessed the requisite fraudulent intent to
be denied discharge under § 727. “Whether [Appellee] possessed the requisite intent is a
question of fact, which is subject to the highly deferential ‘clearly erroneous’ standard of
review.” In re Davis, 638 F.3d 549, 553 (7th Cir. 2011) (citing Carini v. Matera. 592 F.2d 378,
380 (7th Cir. 1979)), “If the bankruptcy court’s account of the evidence is plausible in light of
the record viewed in its entirety, [the court] will not reverse its factual findings even if [it] would
have weighed the evidence differently.” Stamat v. Neary, 635 F.3d 974, 979 (7th Cir. 2011)

(internal quotation marks and citation omitted).



However, Appellant also questions whether the bankruptcy court applied the proper legal
standard in determining fraudulent intent. Application of the proper legal standard to determine
fraudulent intent under § 727 is a legal question that the Court reviews de novo. See id, (“We
review the bankruptcy court’s conclusions of law de novo.”); see also Vill. of San Jose v.

McWilliams, 2847 F.3d 785, 790 (7th Cir. 2002) (finding that “[t]he construction of the

Bankruptcy Code is a question is law . . . review[ed] de novo” in a case where the bankruptcy
court was interpreting the application of § 727 (internal citation omitted); Herzog v. Leighton
Holdings, Ltd., 239 B.R. 497, 504 (N.D. III. 1999) (reviewing de novo whether the bankruptcy
court applied the proper legal standard).
B. Fraudulent Intent

“The principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest

but unfortunate debtor.”” Marrama y. Citizens Bank, 549 U.S. 365, 367 (2007) (quoting Gorgan

y. Garner, 498 U.S. 279, 286 (1991)). Pursuant to § 727(a)(4)(A), “[t]he court shall grant the

debtor discharge, unless the debtor knowingly and fraudulently, in or in connection with the case
made a false oath or account.” 11 U.S.C, § 727(a)(4)(A). To deny discharge under this section,
“the Trustee must prove by a preponderance of the evidence that: (1) the debtor made a statement
under oath; (2) the statement was false; (3) the debtor knew the statement was false; (4) the
debtor made the statement with fraudulent intent; and (5) the statement related materially to the
bankruptcy case.” Stamat, 635 F.3d at 978 (internal citations omitted). At issue here is whether
the bankruptey court’s finding that Appellee did not possess the requisite fraudulent intent was
plausible.

“Intent to defraud involves a material representation that you know to be false, or, what

amounts to the same thing, an omission that you know will create an erroneous impression.”