UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

IN THE MATTER OF: )

KENNETH A. MANNING, Trustee, )

)

Appellant, )

)

v. ) CAUSE NO.: 2:12-CV-489-TLS

)

CECIL ALLEN WATKINS and ) Appeal from the United States Bankruptcy

DEBRA TABLA WATKINS, Debtors, ) Court, Northern District of Indiana, 

) Honorable J. Philip Klingeberger

Appellees. ) (Adversary No.: 10-2042)

OPINION AND ORDER

This is an appeal of the bankruptcy court’s order denying a Complaint for Denial of

Discharge under 11 U.S.C. § 727(a). The Trustee/Appellant, Kenneth A. Manning, filed the

Complaint for Denial of Discharge in adversary proceeding 10-2042. He now argues that the

bankruptcy court clearly erred in finding that the Debtors/Appellees, Cecil Allen Watkins and

Debra Tabla Watkins, did not act with an intent to defraud under § 727(a)(2), did not act

“knowingly and fraudulently” under § 727(a)(4), and did not violate § 727(a)(5).

STATEMENT OF THE CASE

The Debtors filed a Chapter 7 bankruptcy petition on March 30, 2009, in the United

States Bankruptcy Court for the Northern District of Indiana, Hammond Division. On March 30,

2010, after the bankruptcy court granted the Trustee extensions of time to file objections to the

discharge, the Trustee filed a Complaint Objecting to Discharge; Complaint for Judgment

Against Debtor [ECF No. 8 at 000051–55]. The bankruptcy court conducted a two-day trial

concerning the adversary proceeding on October 6 and 28, 2011. The parties presented closing

arguments on November 29, and thereafter the bankruptcy court took the matter under
advisement. During the first day of trial, the bankruptcy court asked the Trustee to clarify under

which provisions of § 727(a) he was proceeding. He stated that he was proceeding only under

§§ 727(a)(2), 727(a)(4), and 727(a)(5). (Oct. 5, 2011, Hr’g Tr. 9:10–12, ECF No. 8 at 000102.)

On July 6, 2012, the bankruptcy court issued its Memorandum of Decision Concerning Action to

Deny Discharge [ECF No. 1-34] along with its Judgment [ECF No. 1-33]. In its forty-one page

Memorandum of Decision, the bankruptcy court held that, in spite of multiple omissions and

misstatements by the Debtors in their bankruptcy filings, the Debtors lacked the intention to

defraud that was required to deny discharge under § 727(a). After the bankruptcy court granted

him an extension of time, the Trustee filed his Notice of Appeal [ECF No. 1] in this cause on

November 21, 2012. 

The Trustee filed his Appellant’s Brief [ECF No. 7] and Appendix [ECF No. 8] on

January 10, 2013. The Debtors filed their Appellees’ Brief [ECF No. 12] and Appendix [ECF

No. 13] on February 25. The Trustee filed his Appellant’s Reply Brief [ECF No. 14] on March

11. The parties agree that this Court has jurisdiction over the matters raised in this appeal

pursuant to 28 U.S.C. § 158(a)(1), and that the issues before the Court are fully briefed and ripe

for ruling.

RELEVANT FACTS

Debtor Cecil Allen Watkins (Allen) operated a real estate business. The business

involved many properties and myriad business entities, but the primary entity was called

Housing Resource Center, Inc. (HRC). Allen’s wife, Debtor Debra Tabla Watkins (Debra),

worked as a homemaker, occasionally helping out with cleaning and painting at some of the

2
properties. Debra was not involved in the day-to-day operation of the real estate business. Debra

paid the family’s personal, household expenses directly from the HRC bank account. Allen also

treated all funds, bank accounts, and assets of HRC and its affiliated entities as his own property.

Debra’s sister-in-law, Dolly Tabla, worked as the bookkeeper for Allen’s real estate business. 

Allen and Debra filed for bankruptcy on March 30, 2009. On May 15, they filed Official

Schedules A–J and the Statement of Financial Affairs (SOFA). Allen and Debra appeared at the

§ 341 meeting of creditors on June 16, and, according to the Trustee’s testimony, both Allen and

Debra testified that they had signed the Schedules and the SOFA, that they had opportunity to

read the documents and review them before signing, that the documents were completely filled

out before Allen and Debra signed them, and that the documents accurately listed all of Allen

and Debra’s assets, money, property, income, bills, debts, liabilities, creditors, and financial

affairs. (Oct. 28, 2011, Hr’g Tr. 295–96, ECF No. 8-1 at 000393–94.) Allen and Debra also

testified at the § 341 meeting that they needed to make changes, amendments, corrections,

additions, or alterations to their bankruptcy filings (id.), though it is not clear from the record

what changes they intended to make at that time. 

The Trustee filed a Motion for Turnover of Records on August 6 seeking documents

relating to HRC and its affiliated entities. The Debtors filed a Certificate of Compliance with the

Motion on August 31 indicating that they had turned over the requested documents. The

bankruptcy court did not grant the Motion for Turnover of Records until September 1. On

September 17, the Trustee requested an extension of time to file a Complaint to Withhold

Discharge; the Debtors did not object and the bankruptcy court granted the extension. On

November 16, the Trustee requested a second extension of time to file a Complaint to Withhold

3
Discharge; the Debtors did object, but, after conducting a hearing, the bankruptcy court again

granted the extension, this time until March 30, 2010. 

The Trustee sent a letter, dated January 18, 2010, to the attorney for the Debtors,

requesting more explanation and information on accounts and assets. The Trustee apparently did

not receive a response from the Debtors until March 30—the deadline for the Trustee to file a

Complaint to Withhold Discharge.1 Accordingly, the Trustee filed his Complaint Objecting to

Discharge; Complaint for Judgment Against Debtor on March 30, 2010. After discovery, on July

12, 2011, the bankruptcy court set the matter for trial to commence on October 6, 2011. (Adv.

Proceeding Docket, ECF No. 8 at 000087.) On September 27, the Debtors filed amended

Schedules B and D into the record for the bankruptcy case. (Bankruptcy Docket, ECF No. 8 at

000079.) The Debtors did not file an amended SOFA. 

After trial on October 6 and 28, 2011, and closing arguments on November 29, 2011, the

bankruptcy court issued its Memorandum of Decision Concerning Action to Deny Discharge on

July 6, 2012. Additionally, the Debtors’ attorney requested leave to withdraw from the case in

December 2011 because of his advancing age and health issues, and the bankruptcy court

granted his request to withdraw on January 24, 2012. Successor attorneys for the Debtors filed

appearances in July and September 2012. 

CONTROLLING LAW

Title 11, United States Code, §727(a) states in relevant part:

1

The Debtors note that the response from Allen is dated January 28, 2010. (Watkins Letter, ECF

No. 8-2 at 000527–32.) The parties agree that at trial they did not resolve the factual issue of when the

Trustee’s office received Allen’s letter of January 28. 

4
The court shall grant the debtor a discharge, unless–

. . .

(2) the debtor, with intent to hinder, delay, or defraud a creditor or an

officer of the estate charged with the custody of property under this title,

has transferred, removed, destroyed, mutilated, or concealed, or has

permitted to be transferred, removed, destroyed, mutilated, or concealed–

(A) property of the debtor, within one year before the date of the

filing of the petition; or

(B) property of the estate, after the date of the filing of the petition;

. . . 

(4) the debtor knowingly and fraudulently, in or in connection with the

case–

(A) made a false oath or account;

. . .

(5) the debtor 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. 

THE BANKRUPTCY COURT’S MEMORANDUM OF DECISION

The bankruptcy court began its Memorandum of Decision by reviewing the legal

principles applicable to a decision under § 727(a). The court also outlined its view of how

bankruptcy policies affect bankruptcy debtors. Specifically, the bankruptcy court noted: 

In the ordinary course of human events, most people simply don’t keep

extraordinarily detailed financial records, don’t organize their financial records or

affairs in a particularly effective way, and do things or fail to do things at times

which may not conform strictly to concepts of federal tax law or maintaining a

Chinese wall between individual finances and the finances of business organizations

in which those individuals are involved. Yet, when certain of these individuals

become involved in a bankruptcy case, a standard is imposed upon them which

departs from the manner in which ordinary people conduct their ordinary financial

affairs in everyday life. Suddenly, they are expected to possess every document

which bears on any issue involved in their bankruptcy case, and to have carefully

orchestrated each of their financial transactions in a manner which conforms strictly

to the types of financial planning that would only be done by an estate planner.

Similarly, when an individual comes under the bankruptcy microscope—isolated

departures from standards associated with absolute candor and absolute adherence

to technical legal requirements in structuring or performing transactions become the

basis for a determination of denial or revocation of discharge, when in fact most [of]

5
the population base has engaged in similar conduct but has not had the misfortune

of having it analyzed to the nth degree in litigation in bankruptcy. 

. . . Denial of discharge is in particular meant to be an extreme imposition of

a sanction, to be imposed upon relatively bad people who have consistently done bad

things; not so bad people who have done fairly seriously bad things in certain

circumstances; or anyone who has done one really bad thing which permeates and

precludes the effective administration of a bankruptcy case. It is not meant to be

imposed upon an individual who is lax or careless in the conducting of financial

affairs or the keeping of records in relation to them—in other words people whose

conduct may fall short of strict technical legal requirements but do not evidence the

intent of figuratively thumbing their noses at their creditors, bankruptcy trustees

and/or the court. 

(Mem. of Decision 17–18, ECF No. 1-34.) 

The bankruptcy court then analyzed Debra’s status in Allen’s real estate business,

holding that her testimony was “clear and convincing” (id. 20), that she “had no real knowledge

of Allen’s business affairs or transactions” (id. 21), and that her role was that of a “stay at home

mom” (id. 20). After concluding that Debra did not need to disclose her interest in bank accounts

under the plain language of the Schedule B or the SOFA, the bankruptcy court found that the

Trustee “failed to establish any ground for denial of Debra’s discharge” under §§727(a)(2),

727(a)(4), or 727(a)(5). (Id. 22.) The bankruptcy court also noted later in its Memorandum,

concerning § 727(a)(4), that “[g]iven the evidence, Allen Watkins is responsible for preparing

and certifying to the accuracy of the documents filed in this case—Debra Watkins has been

exonerated in this context.” (Id. 40 n.11.) 

Next, the bankruptcy court turned to the Trustee’s § 727(a) arguments concerning Allen.

For ten pages, the court analyzed various alleged omissions in the Schedules and the SOFA and

determined that denial of discharge was inappropriate in each and every instance, either because

the documents did not actually require disclosure, or because Allen did not have the requisite

intent to defraud. (Id. 22–31.) The specific alleged omissions discussed were as follows: Allen’s

6
failure to list his interest in a GMC Suburban that he purchased for the use of his brother and for

which his brother made most of the payments; Allen’s failure to list the Internal Revenue Service

or the Indiana Department of Revenue as secured creditors; Allen’s failure to list certain tax

refunds; Allen’s failure to list an adversary proceeding in a prior Chapter 13 bankruptcy; Allen’s

listing $1000 per month as a charitable contribution to the Church of Latter Day Saints when in

fact the actual monthly contribution was $1100; Allen’s failure to list a $600 per month outlay to

support his mother; Allen’s failure to indicate that Dolly Tabla was the bookkeeper for his

business activities; Allen’s transfer of funds from one corporate account into another corporate

account for the purpose of avoiding an Internal Revenue Service tax levy on his personal

finances; and Allen’s over-inclusion of properties that he listed as owned in his own name but

that were in fact owned by a corporation. The bankruptcy court summarized its findings with an

analysis of §§ 727(a)(2) and 727(a)(5), finding that denial of discharge under both of these

sections was not appropriate because “the intent element of 11 U.S.C. § 727(a)(2) has not been

established with respect to any issue in this case” (id. 31–32), and because “the record fails to

establish any loss of assets or deficiency of assets to meet the debtors’ liabilities which has not

been satisfactorily explained” (id. 32) under § 727(a)(5). 

The bankruptcy court turned, finally, to a discussion of the Trustee’s assertions under

§ 727(a)(4). Before analyzing specific alleged omissions, the court outlined its view of the

proceedings. 

Trustee Manning has done an exemplary job of analyzing somewhat

convoluted—although when broken down not that complicated—financial

arrangements by which Cecil Allen Watkins conducted his business activities. The

court understands the Trustee’s frustration, in that the bankruptcy

filings—particularly the Schedules and Statement of Financial Affairs—are hardly

a model of completeness. But the record also establishes that Cecil Allen Watkins

7
provided the Trustee with an extensive amount of documentation regarding his

business transactions, although perhaps not in the format and not within the time

frames which the Trustee might reasonably have desired. But the fact remains that

this debtor did provide the Trustee with an extensive amount of documentation

concerning a number of matters involved in his case, including transactions and

materials involved with his various corporate or partnership related business entities.

The court will also note—because it is worth nothing—that in his testimony, Allen

acknowledged making errors in disclosing several matters and in explaining certain

matters, with respect to the basic documents filed in his bankruptcy case. This is

worth nothing because the court was impressed by Allen’s candor in his testimony,

and with the fact that the provision of voluminous documentation to the Trustee upon

request does and should, have a bearing on a determination of the intent element

required under § 727(a)(4). 

(Mem. of Decision 32–33.) The court continued with a discussion of bankruptcy policies,

adopting a policy to give debtors incentive to provide the fullest disclosure, even through

supplemental filings. The court then stated as follows: 

[T]here is a basic underlying premise that permeates the Trustee’s case. That premise

is that bankruptcy filings—particularly Schedules and Statements of Financial

Affairs—are submitted under oath, and that when they are proven to be not entirely

accurate, denial of discharge logically follows. That is not the case. The provision

which relates to denial of discharge in this context is essentially 11 U.S.C.

§ 727(a)(4)(A), and that section requires that the “false oath or account” be made

“knowingly and fraudulently”. 

(Id. 34.) 

Next, the court discussed specific instances in which the Trustee alleged that Allen had

violated § 727(a)(4). The court found that Allen did fail to fill out various bankruptcy documents

correctly, but did not find denial of discharge to be appropriate in any instance. Specifically, the

court found as follows: 1) “Allen did not accurately state information regarding personal

accounts required by section 11 of the SOFA and by section 2 of Schedule B, even when one

considers the amendment to Schedule B filed by the debtors” (id. 38), but the court found that he

did not “knowingly and fraudulently” fail to disclose, and that his failure was not material; 2) not

8
determining whether Allen should have disclosed his interest in certain escrow accounts under

the SOFA, the court found that “any failure to do so was not ‘knowingly and fraudulently’ done”

(id.); 3) “Allen definitely did not disclose his involvement in certain corporations, both

traditional and limited liability corporations, which should have been disclosed, in relation to his

involvement in them within six years immediately preceding the commencement of the case”

(id.), but the court found that the failure to disclose was not knowing and fraudulent, and was not

material; 4) “There are failures to disclose existing interests in corporations, which one would

expect to find in . . . Schedule B” (id. 39), but the court found that “based upon the entire record,

the existence of these interests is not material with respect to the administration of this

bankruptcy estate” (id.), and that Allen’s failure to list A Management, LLC—which he testified

was owned by another person—was not done knowingly and fraudulently; 5) The debt that HRC

owed to Allen “should have appeared in . . . Schedule B, which it did not” (id.), but the court

found that Allen’s listing of the debt in another section, “in conjunction with the record as a

whole—convinces the court that the failure to disclose the debt owed by Housing Resource

Center, Inc. to Allen Watkins in Schedule B was not ‘knowingly and fraudulently’ omitted” (id.

40). 

In conclusion, the bankruptcy court stated that the Watkins bankruptcy case had been

“one of the most difficult determinations which the court ha[d] ever been called upon to make.”

(Id.) It reiterated that Allen “failed to disclose items which should have been disclosed in both

Schedule B and the Statement of Financial Affairs” (id.), and that he therefore made technically

false oaths in those documents. The court summed up its holding, however, as follows: 

[T]he failure to make a disclosure under oath, or the failure to make a complete

disclosure under oath, in bankruptcy documents will not in and of itself give rise to

9
a ground for denial of discharge—the failure must be undertak[en] “knowingly and

fraudulently”. This is true regardless of the cumulative number of failures, if the

required intent is not established. The record simply does not establish that Allen

Watkins “knowingly and fraudulently” made a false oath with respect to matters

involved in this case. 

(Id.) For all of these reasons, the bankruptcy court denied the Trustee’s claims under

§§ 727(a)(2), 727(a)(4), and 727(a)(5), and denied the Complaint for Denial of Discharge. 

STANDARD OF REVIEW

The Federal Rules of Bankruptcy Procedure provide for district court review of final

orders from bankruptcy judges:

On an appeal the district court or bankruptcy appellate panel may affirm, modify, or

reverse a bankruptcy judge’s judgment, order, or decree or remand with instructions

for further proceedings. Findings of fact, whether based on oral or documentary

evidence, shall not be set aside unless clearly erroneous, and due regard shall be

given to the opportunity of the bankruptcy court to judge the credibility of the

witnesses.

Fed. R. Bankr. P. 8013. 

A trustee has the burden of proving by a preponderance of the evidence that grounds

exist to deny a discharge under § 727(a). Stamat v. Neary, 635 F.3d 974, 978 (7th Cir. 2011).

“[O]bjections to discharge under 11 U.S.C. § 727 should be liberally construed in favor of

debtors and strictly against objectors in order to grant debtors a fresh start.” In re Yonkers, 219

B.R. 227, 231 (Bankr. N.D. Ill. 1997). 

A district court reviews a bankruptcy court’s findings of fact for clear error and

conclusions of law de novo. In re Davis, 638 F.3d 549, 553 (7th Cir. 2011). Whether a debtor

“possessed the requisite intent is a question of fact, which is subject to the highly deferential

‘clearly erroneous’ standard of review.” Id. (citing Carini v. Matera, 592 F.2d 378, 380 (7th Cir.

10
1979)). Under that standard, “‘[i]f the bankruptcy court’s account of the evidence is plausible in

light of the record viewed in its entirety, [a reviewing court] will not reverse its factual findings

even if [the reviewing court] would have weighed the evidence differently.’” In re Resource

Tech. Corp., 624 F.3d 376, 382 (7th Cir. 2010) (quoting Freeland v. Enodis Corp., 540 F.3d 721,

729 (7th Cir. 2008)). Further, “[a] finding is ‘clearly erroneous’ when ‘although there is evidence

to support it, the reviewing court on the entire evidence is left with the definite and firm

conviction that a mistake has been committed.’” Kovacs v. United States, 614 F.3d 666, 672 (7th

Cir. 2010) (quoting In re Smith, 582 F.3d 767, 777 (7th Cir. 2009)). 

A reviewing court may find clear error “[‘]even in a finding purportedly based on a

credibility determination.’” In re Chavin, 150 F.3d 726, 728 (7th Cir. 1998) (quoting Anderson v.

City of Bessemer City, 470 U.S. 564, 575 (1985)). Such a finding depends on factors other than

the demeanor and inflection of witnesses. Where “[d]ocuments or objective evidence . . .

contradict the witness’ story,” or where “the story itself . . . [is] so internally inconsistent or

implausible on its face that a reasonable factfinder would not credit it,” such a finding may be

appropriate. In re Chavin, 150 F.3d at 728. 

Finally, “[t]he absence of any supporting authority or development of an argument

constitutes a waiver on appeal.” Kramer v. Banc of Am. Secs., LLC, 355 F.3d 961, 964 n.1 (7th

Cir. 2004) (citing United States v. Berkowitz, 927 F.2d 1376, 1384 (7th Cir. 1991)). 

DISCUSSION

The Trustee argues that the bankruptcy court erred on five different grounds, relating to

intent, reckless indifference, required disclosure, materiality, and the proper standard to apply to

11
Debra’s disclosures. The Debtors respond that the Trustee’s appeal must fail because the

bankruptcy court did not clearly err in its factual finding that the Debtors lacked the intent

necessary to make out a §§ 727(a)(2) or 727(a)(4) claim, and because the Trustee waived any

argument concerning § 727(a)(5) by not raising it on appeal. Because the bankruptcy court did

not commit clear error in its factual findings and did not fail to apply the appropriate standard as

to intent, and because the Trustee has waived any argument under § 727(a)(5), the Court will

affirm the decision of the bankruptcy court and deny the Trustee/Appellant’s appeal. 

A. § 727(a)(2)(A) and (B)

In his Appellant’s Brief, the Trustee asserts that denial of discharge is appropriate under

§ 727(a)(2)(A) and (B). Although he references § 727(a)(2) generally, the Trustee only makes

one clear reference to § 727(a)(2) as it relates to the facts of this case, instead focusing most of

his argument on § 727(a)(4). It appears, however, that the Trustee is arguing that the Debtors:

1) with intent to defraud,2

 transferred, removed, or concealed their own property within one year

before filing the bankruptcy petition in violation of § 727(a)(2)(A); and 2) with intent to defraud,

transferred, removed, or concealed property of the estate after filing the bankruptcy petition in

violation of § 727(a)(2)(B). The Debtors insist that the bankruptcy court did not clearly err in

finding that they lacked the intent to defraud under § 727(a)(2). The Court agrees that the

Trustee has not shown clear error, and it will affirm the decision of the bankruptcy court with

respect to § 727(a)(2). 

2

As the Debtors note, although § 727(a)(2) contemplates an intent to “hinder, delay, or defraud,”

the Trustee has only alleged that the Debtors acted with an intent to defraud. The Court will, accordingly,

address only the intent to defraud under § 727(a)(2). 

12
The Trustee’s only specific argument concerning § 727(a)(2) is the following: “As a

matter of law, the Debtors’ full payment of the undisclosed shareholder loan by fall of 2009 (6

months after filing bankruptcy) was a violation of 11 U.S.C. [§] 727(a)(2)(A and B).”

(Appellant’s Br. 14, ECF No. 7.) It is undisputed that at the time the Debtors filed for

bankruptcy, HRC owed Allen $266,326.00, which Allen had loaned to the company. Allen did

not list this amount as a debt owed to him in his bankruptcy filings. However, he did list as

income $8,959.00 per month as income from “[m]oney being paid back from loan to Housing

Resource Center.” (Mem. of Decision 40.) It is also undisputed that by the fall of 2009, HRC

paid this debt back to Allen, but the Trustee was unable to recover this amount on behalf of the

estate. The bankruptcy court analyzed this omission in the context of § 727(a)(4), finding that “in

conjunction with the record as a whole . . . the failure to disclose the debt owed by Housing

Resource Center, Inc. to Allen Watkins in Schedule B was not ‘knowingly and fraudulently’

omitted.” (Id.) The Trustee’s argument is now that the failure to list the $266,326.00 debt

amounted to concealing $266,326.00 of assets with the intent to defraud under § 727(a)(2). For

the same reasons the bankruptcy court rejected the Trustee’s argument under § 727(a)(4), it fails

under § 727(a)(2). Allen did not conceal the debt owed to him by HRC at all. Indeed, he listed it

as part of his bankruptcy filing. He failed to list it in the correct way, or in the correct place. But

he did not conceal it. Further, the record as a whole shows that he did not omit the $266,326.00

debt amount from an intention to defraud. If he had intended to defraud, he would not have

notified the Trustee that he was receiving $8,959.00 per month as income from a loan that HRC

was paying back to him. The bankruptcy court found that “no basis to deny Allen’s discharge

pursuant to 11 U.S.C. § 727(a)(2)(A) or (B) has been established.” (Mem. of Decision 31.) As to

13
the Trustee’s specific argument that the shareholder loan repayment to Allen after he filed for

bankruptcy violated § 727(a)(2), the bankruptcy court found, generally, that any payment to or

on behalf of the Debtors from any of Allen’s business entities after filing of the bankruptcy

petition “was done in what the debtor/debtors viewed as the ordinary course of operation of

Allen’s business ‘empire’, as the Trustee at one point in the trial termed it.” (Id.) Thus, the

Trustee failed to show that the Debtors intended to defraud when any transfers occurred

subsequent to the filing of the bankruptcy petition, and the bankruptcy court accordingly refused

to deny discharge under § 727(a)(2). The Court agrees with the Debtors that the Trustee has

failed to show clear error in the bankruptcy court’s § 727(a)(2) findings. The Court is not left

with a definite and firm conviction that a mistake has been made. See Kovacs, 614 F.3d at 672.

Indeed, giving due regard to the opportunity of the bankruptcy court to judge the credibility of

the witnesses, see Fed. R. Bankr. P. 8013, the Court does not even find that it would have

weighed the evidence differently, see In re Resource Tech. Corp., 624 F.3d at 382.

The Trustee’s other argument under § 727(a)(2) appears to be that Allen transferred,

removed, or concealed assets prior to bankruptcy by moving them from one corporate account to

another corporate account to shield them from an IRS tax levy against his personal tax liability,

and that he did so with an intent to defraud under § 727(a)(2). The bankruptcy court examined

this claim in its Memorandum of Decision, finding that “taking steps to shield personal assets

from collection by not maintaining a bank account in an individual name is not in and of itself

fraudulent—there is no requirement in any law that an individual has to establish a bank account

in a manner which allows collection by a creditor.” (Mem. of Decision 30.) Thus, Allen’s efforts

to prevent the IRS from collecting taxes from a corporation to satisfy his personal tax liability

established “no ground for denial of discharge” under § 727(a)(2). (Id. 31.) The Court finds that

14
the Trustee has failed to show clear error in the bankruptcy court’s treatment of this issue.

Allen’s attempt to prevent the IRS from collecting personal taxes from a corporation does not

evidence the intent to defraud necessary under § 727(a)(2), and the Court is not left with the

definite and firm conviction that the bankruptcy court erred on this point. 

For the reasons discussed, the Court will deny the Trustee’s appeal with respect to denial

of discharge under § 727(a)(2).3

B. § 727(a)(4)(A)

The Trustee’s primary arguments relate to his allegations under § 727(a)(4). He alleges

that the bankruptcy court clearly erred in finding that statements by Allen and Debra in their

bankruptcy filings:4

 were not false; or were not made “knowingly and fraudulently”; or were not

material statements. The Debtors argue that none of the bankruptcy court’s § 727(a)(4) findings

3

At one point in his Appellate Brief, the Trustee suggests that Allen’s transfer of $7,661.00 to A

Management, LLC, on the same date he filed his bankruptcy petition constitutes criminal, “knowing and

fraudulent” material concealment under 18 U.S.C. § 152. (Appellate Br. 26–27.) As the Debtors note,

however, the Trustee did not seek denial of discharge on the basis of criminal concealment, and “when an

issue was not raised in the bankruptcy court, a finding that the issue is waived at the district court level is

the correct result, since to find otherwise would permit a litigant simply to bypass the bankruptcy court.”

In re Sokolik, 635 F.3d 261, 268 (7th Cir. 2011) (quotation marks omitted). Courts should only grant an

exception to this rule under “exceptional circumstances,” id., and the Trustee has presented no such

circumstances. Accordingly, to the extent the Trustee argues that the Debtors engaged in criminal material

concealment, the Court finds that such argument is waived. Further, even if the Court were to reach the

merits of such an argument it would find that the bankruptcy court was not clearly erroneous in finding

that the transfer of which the Trustee complains occurred in the ordinary course of his business, and that it

was also not clearly erroneous in finding that Allen did not transfer funds on the date of filing his

bankruptcy petition with the intent to materially conceal assets. 

4

The Debtors also made statements under oath at the § 341 meeting of creditors. But the

bankruptcy court noted that the Trustee did not produce a transcript of the § 341 meeting, and the court

was therefore unable to analyze the testimony at that meeting. Further, the bankruptcy court found that

“the Trustee did not assert any direct issue concerning Allen’s § 341 testimony, which leads to the

inference that Allen was cooperative and truthful at that examination.” (Mem. of Decision 34 n.8.) The

Trustee has not challenged the bankruptcy court’s finding on this point; accordingly, the Court will

discuss the Debtors’ allegedly false statements in the bankruptcy filings but not at the § 341 meeting. 

15
were clearly erroneous. The Court agrees that the Trustee has not shown clear error, and it will

affirm the decision of the bankruptcy court with respect to § 727(a)(4). 

Although the Trustee does not discuss each element of a § 727(a)(4) claim, the Court will

analyze his arguments by proceeding through the elements as outlined by the Seventh Circuit. To

prevail on a § 727(a)(4) claim, a 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 978–79 (citing, inter

alia, In re Duncan, 562 F.3d 688, 695 (5th Cir. 2009)).

1. The Debtors Made Statements Under Oath.

As discussed above, the Debtors made statements under oath in their bankruptcy filings

and amended filings, and at the § 341 meeting of creditors. The Debtors admit that they made

statements under oath, and that the first element for denial of discharge under § 727(a)(4) has

been established. 

2. The Debtors Made False Statements.

As the Debtors note in their Brief of Appellees, “[w]hether the [d]ebtors made a false

oath within the meaning of § 727(a)(4)(A) is a question of fact.” In re Yonkers, 219 B.R. at 232.

However, the Court disagrees with the Debtors in their analysis of this point. The Debtors argue

that even though the bankruptcy court found that their initial filings were deficient, it also found

that their “supplementations and testimony subsequent to filing the petition corrected these

deficiencies” (Br. of Appellees 11, ECF No. 12) and that “statements made by Mr. and Mrs.

16
Watkins were not false, under the totality of the circumstances” (id. 12). The Court finds that the

Debtors have misread the bankruptcy court’s Memorandum of Decision. In fact, in spite of the

Debtors’ supplemental filings, the bankruptcy court found that several omissions and

misstatements remained. (See, e.g., Mem. of Decision 38 (“The record establishes that Allen did

not accurately state information regarding personal accounts required by section 11 of the SOFA

and by section 2 of Schedule B, even when one considers the amendment to Schedule B filed by

the debtors.”).) Accordingly, the bankruptcy court found that Allen “failed to disclose items

which should have been disclosed in both Schedule B and the [SOFA]” and that he “technically

made a ‘false oath’ with respect to those documents.” (Mem. of Decision 40.) The Court found

that some of the Debtors’ false statements were not material, and that they did not make any

false statements with the intent required under § 727(a)(4). But the Debtors are incorrect in

arguing that the bankruptcy court made factual findings that they did not make false statements.

The bankruptcy court found that they did make false statements in their bankruptcy filings, thus

satisfying the second element of a § 727(a)(4) claim.5

3. The Debtors Did Not Knowingly and Fraudulently Make False Statements.

The third and fourth elements under § 727(a)(4) require a showing that the Debtors knew

their statements were false when they made them, and that they made them fraudulently. The

5

The Trustee also argues that the bankruptcy court erred as a matter of law by finding that the

Debtors did not need to disclose certain corporate assets in their bankruptcy filings. The Trustee cites to

the Seventh Circuit’s decision in Stamat. It is unclear that any portion of Stamat, which was decided

before trial in this matter and which the bankruptcy court cited in its Memorandum of Decision, would

undermine the bankruptcy court’s findings with respect to disclosure in this case. Even if the Trustee had

shown that the bankruptcy court was incorrect in one or more of its findings concerning disclosure, it

would not alter this Court’s conclusion that the bankruptcy court did not clearly err with respect to the

intent necessary to substantiate a claim under § 727(a)(4). 

17
Trustee’s primary argument is that the bankruptcy court erred concerning the Debtors’ reckless

disregard for the truth in their bankruptcy filings, and whether such a reckless disregard

substantiates a fraudulent intent under § 727(a)(4). The Trustee argues, first, that the bankruptcy

court erred as a matter of law by not applying the reckless indifference standard as articulated by

the Seventh Circuit in Stamat. In the alternative, the Trustee argues, second, that if the

bankruptcy court did apply the reckless indifference standard, then its factual finding that the

Debtors did not evidence the intent necessary to deny a discharge under § 727(a)(4) was clearly

erroneous. The Court will address these arguments in turn. 

Concerning the intent to defraud, “a showing of reckless disregard for the truth is

sufficient to prove fraudulent intent.” Stamat, 635 F.3d at 982 (citing, inter alia, In re Chavin,

150 F.3d at 728, and In re Duncan, 562 F.3d at 695). A finding of fraudulent intent “may be

based on inferences drawn from a course of conduct” and “may also be inferred from all of the

surrounding circumstances.” In re Yonikus, 974 F.2d 901, 905 (7th Cir. 1992). Furthermore, “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.” In re Duncan, 562 F.3d at 695. 

First, it appears that the bankruptcy court did apply the reckless indifference standard. As

the Trustee admits, the bankruptcy court began its Memorandum of Decision by outlining the

legal standards governing § 727(a) claims, including claims under § 727(a)(4). For example, the

bankruptcy court stated: “If a debtor’s bankruptcy schedules reflect a reckless indifference to the

truth then the party seeking denial of the discharge need not offer any further evidence of fraud.”

(Mem. of Decision 11 (quoting In re Yonkers, 219 B.R. at 233 (internal quotation marks

omitted)).) The bankruptcy court also stated that “a showing of reckless disregard for the truth is

sufficient to prove fraudulent intent.” (Mem. of Decision 12 (quoting Stamat, 635 F.3d at 982).)

18
The Trustee argues that the bankruptcy court failed to apply this standard, however, and points to

the following language from the court’s Memorandum of Decision: 

The record establishes that Allen Watkins failed to disclose items which should have

been disclosed in both Schedule B and the Statement of Financial Affairs. Due to that

failure, he technically made a “false oath” with respect to those documents.

However, as previously discussed, the failure to make a disclosure under oath, or the

failure to make a complete disclosure under oath, in bankruptcy documents will not

in and of itself give rise to a ground for denial of discharge—the failure must be

undertak[en] “knowingly and fraudulently”. This is true regardless of the cumulative

number of failures, if the required intent is not established. The record simply does

not establish that Allen Watkins “knowingly and fraudulently” made a false oath

with respect to matters involved in this case. 

(Mem. of Decision 40 (emphasis added).) The Trustee argues that the language above shows that

the bankruptcy court abandoned the reckless indifference standard by stating that the cumulative

number of failures does not establish the knowing and fraudulent intent required to substantiate a

§ 727(a)(4) claim. The Court disagrees. 

The bankruptcy court clearly stated the appropriate standard under § 727(a)(4). As the

bankruptcy court stated, “a showing of reckless disregard for the truth is sufficient to prove

fraudulent intent.” Stamat, 635 F.3d at 982. But while “the cumulative number of false

statements may, when taken together, evidence a reckless disregard for the truth sufficient to

support a finding of fraudulent intent,” In re Duncan, 562 F.3d at 695, the Trustee points to no

authority stating that a large number of omissions and false statements must amount to a reckless

disregard for the truth. The Seventh Circuit in Stamat analyzed the difference between making

omissions and errors negligently and making them with a reckless disregard for the truth. Stamat,

635 F.3d at 982. Here the bankruptcy court found that the Debtors’ cumulative number of

omissions and errors did not establish the knowing and fraudulent intent necessary to

substantiate denial of discharge under § 727(a)(4). Implicitly, the bankruptcy court found that the

19
Debtors’ omissions and errors did not demonstrate a reckless disregard for the truth, which

would have established a knowing and fraudulent intent. Accordingly, it appears the bankruptcy

court did apply the reckless indifference standard. 

Second, the bankruptcy court did not clearly err in its finding that the Debtors’ omissions

and errors did not show a reckless disregard for the truth. As noted above, this Court must give

“due regard” to “the opportunity of the bankruptcy court to judge the credibility of the

witnesses.” Fed. R. Bankr. P. 8013. Further, the Court’s clearly erroneous standard of review for

bankruptcy findings of fact is “a well-established rule of law rooted on the reasonable thesis that

a trial judge is best able to appreciate the nuances of demeanor and evidentiary content that go

into determinations of the credibility of witnesses.” In re Martin, 698 F.2d 883, 885 (7th Cir.

1983). A bankruptcy judge is “in a unique position to form judgments about what actually may,

or may not, have happened.” Id. at 886. See also In re Yonikus, 974 F.2d at 905–06 (trier of fact

considers the “whole pattern of conduct” and the witness’s demeanor when answering questions

(quotation marks omitted)). In this case, the bankruptcy court found Debra’s testimony about her

lack of involvement in Allen’s business affairs to be “clear and convincing.” (Mem. of Decision

20.) Further, the bankruptcy court “was impressed by Allen’s candor in his testimony.” (Id. 33.)

The bankruptcy court distinguished the Debtors’ case from others the court had previously

decided in which debtors “essentially thumbed [their] nose[s] at the court and thereby evidenced

the intent to thwart creditors, or a trustee, or the court.” (Id. 40.) 

The bankruptcy court’s findings were not clearly erroneous. The bankruptcy court was in

a unique position to form judgments about what actually happened when the Debtors filed for

bankruptcy. After two days of trial, after taking the matter under advisement for a number of

months, after analyzing numerous individual omissions and errors by the Debtors, and after

20
penning a forty-one page opinion, the bankruptcy court determined that Allen and Debra did not

show a reckless indifference to the truth sufficient to substantiate a knowing and fraudulent

intent under § 727(a)(4). The Trustee urges that so many omissions and errors, some of which

represented substantial dollar amounts, must evidence reckless indifference. But after managing

this case for years, the trier of fact determined otherwise. The bankruptcy court noted that this

was “one of the most difficult determinations” it had ever made. (Id. 40.) No authority cited by

the Trustee mandates a finding of a reckless indifference to the truth based on a large number of

omissions or errors. Instead, a large number of omissions or errors may establish a reckless

indifference to the truth, which does satisfy the intent element for a § 727(a)(4) claim. See In re

Retz, 606 F.3d 1189, 1199 (9th Cir. 2010) (“the significant number of falsehoods and omissions,

together with the failure to amend the Schedules and SOFA in the three years between the

petition and trial, can constitute reckless indifference to the truth, which is evidence of

fraudulent intent.”) (emphasis added); In re Koss, 403 B.R. 191, 213 (Bankr. D. Mass. 2009)

(“reckless disregard may . . . be found based on the cumulative effect of a series of innocent

mistakes”) (quotation marks omitted) (emphasis added). See also In re Donahue, No. 11-026,

2011 WL 6737074, at *12 (B.A.P. 1st Cir. Dec. 20, 2011) (“courts may look to circumstantial

evidence and draw inferences from a course of conduct to establish that a debtor acted with

fraudulent intent”) (emphasis added); In re Yonikus, 974 F.2d at 905 (“fraudulent intent may also

be inferred from all of the surrounding circumstances”) (emphasis added). The bankruptcy court

could have found that the number and scope of the omissions and errors by the Debtors

constituted a reckless indifference to the truth of their bankruptcy filings which would have

substantiated a claim under § 727(a)(4). But based on its close evaluation of the witnesses and all

the evidence, the bankruptcy court determined that the Debtors were not recklessly indifferent to

21
the truth of their filings. Given this Court’s deference to the bankruptcy court’s opportunity to

judge witness credibility, the Court is not left with the definite and firm conviction that a mistake

has been committed. Kovacs, 614 F.3d at 672. Accordingly, the Court will affirm the bankruptcy

court’s finding of fact on this point. 

The Trustee cites In re Chavin, 150 F.3d 726 (7th Cir. 1998), for the proposition that

demeanor and credibility determinations by a finder of fact may be refuted by evidence that is

contrary to in-court determinations concerning witnesses. The Trustee’s reliance on Chavin is

misplaced. In Chavin, the trustee sought denial of a bankruptcy discharge because of fraud under

§§ 727(a)(2) and 727(a)(4). The bankruptcy court granted summary judgment in favor of the

trustee, and the district court affirmed. The Seventh Circuit affirmed the decision to deny

discharge on a motion for summary judgment in spite of the usual practice of sending

§§ 727(a)(2) and 727(a)(4) claims to trial. The Chavin court stated that “[a] denial of knowledge

may be so utterly implausible in light of conceded or irrefutable evidence that no rational person

could believe it; and if so, there is no occasion to submit the issue of knowledge to determination

at a trial.” Id. at 728. Chavin was “a mature and experienced businessman who on the eve of

bankruptcy had properties worth millions of dollars.” Id. at 729. Finding that “[t]he questions

[Chavin] claims not to have understood were not esoteric, and his explanations for his failure to

answer them correctly [we]re ridiculous,” id., the Seventh Circuit held that in no instance “could

a reasonable person believe Chavin’s stated reason for his false representation or omission.” Id. 

The Trustee insists that, as in Chavin, no reasonable person could possibly believe the

Debtors’ explanations for their omissions and errors on their bankruptcy filings. But the Court

finds that the facts of the Debtors’ case do not place it in the “exceptional category” of Chavin,

id., where a determination as to intention was appropriate in lieu of in-court findings of fact.

22
Nothing suggests that Allen and Debra’s failure to correctly answer questions in the bankruptcy

Schedules and SOFA was “ridiculous.” Allen and Debra were not sophisticated businesspersons

failing to disclose over a million dollars of income in their bankruptcy. Allen and Debra did

make efforts to supplement their bankruptcy filings upon request, whereas Chavin made no

efforts to correct his deficient filings. As the bankruptcy court found concerning the Debtors,

Allen’s business model was “somewhat convoluted—although when broken down not that

complicated.” (Mem. of Decision 32.) In his Reply, the Trustee argues that “not caring whether

some representation is true or false . . . is . . . the equivalent of knowing that the representation is

false and material.” Chavin, 150 F.3d at 728. But the bankruptcy court was impressed with

Allen’s candor at trial, and with the extensive documentation he provided the Trustee. The

bankruptcy court did not find that Allen lacked concern about whether his representations were

true or false. Consequently, the Trustee’s reliance on In re Herchakowski, No 10-49287, 2013

WL 620291, at *5 (Bankr. D.N.J. Feb. 19, 2013) (granting a § 727(a)(4) claim where the court

found that a debtor did not care whether his statements in bankruptcy filings were true or false),

is unavailing. Moreover, the case of In re Taylor, 461 B.R. 420 (E.D. Mich. 2011), is also

distinguishable because in Taylor the debtor was a lawyer who had been practicing for thirteen

years and who was “not an unsophisticated debtor,” id. at 423. By contrast, Allen was a selftaught real estate broker. The Taylor debtor made no effort to amend his bankruptcy filings to

correct his errors, whereas Allen filed amended documentation before trial. 

The Trustee has failed to show that no reasonable finder of fact could possibly believe

that the Debtors lacked the intent necessary to substantiate denial of discharge under § 727(a)(4).

Accordingly, the Court distinguishes the extreme circumstances of Chavin, finds that the holding

from Chavin does not suggest that the bankruptcy court’s § 727(a)(4) findings in this case were

23
clearly erroneous, and distinguishes cases like Herchakowski and Taylor on their facts.6

The Trustee also argues that the bankruptcy court clearly erred in finding Debra

“exonerated” on the § 727(a)(4) claim because Allen was the one “responsible for preparing and

certifying to the accuracy of the documents filed in [the] case.” (Mem. of Decision 40 n.11.) The

Trustee argues that Debra should have been more aware of what she was signing. He asserts that,

at least by the time she filed the amended Schedule B, Debra should have known to properly

verify the accuracy of the document, and that her failure to do so constituted a reckless disregard

for the truth amounting to knowing and fraudulent behavior under § 727(a)(4). Thus, the Trustee

argues that the bankruptcy court’s finding to the contrary was clear error. The Debtors respond

that the bankruptcy court appropriately found that Debra had no involvement in Allen’s business

affairs, except occasional maintenance on the properties. Accordingly, the Debtors argue, she

could not have knowingly and fraudulently filed bankruptcy paperwork. The Court agrees that

the Trustee has failed to show that the bankruptcy court clearly erred in its findings with respect

to Debra’s discharge. 

“Acceptable excuses for failure to maintain sufficient business records are lack of

sophistication with regard to business matters, the debtor’s subordinate role in the business

operation, and that the debtor is an innocent spouse who relied on the other spouse for record

keeping.” In re Goodman, 227 B.R. 626, 631 (Bankr. E.D. Pa. 1998) (quoting In re Blanchard,

201 B.R. 108, 123 (Bankr. E.D. Pa. 1996)). Further, “a spouse may be innocent when he or she

6

The Court also distinguishes Cannon-Stokes v. Potter, 453 F.3d 446, 448 (7th Cir. 2006), in

which the Seventh Circuit stated that it was “impossible to believe” a sizeable claim was overlooked

when a debtor filed for bankruptcy. It is not impossible to believe the Debtors would have filed their

bankruptcy schedules in the way they did, and in the case of the $266,326.00 loan to HRC, they did not

overlook it at all. They listed it in the wrong place, and in the wrong way. Thus, the Trustee’s citation to

Cannon-Stokes also does not disturb the Court’s holding that the bankruptcy court did not clearly err with

respect to § 727(a)(4). 

24
relies on the other spouse for maintaining the books and records.” In re Tanglis, 344 B.R. 563,

571 (Bankr. N.D. Ill. 2006). However, when a spouse who has no involvement with her

husband’s business dealings fails to accurately document her own financial affairs, a court may

deny her discharge on that basis. Id. at 572. 

The bankruptcy court found that Debra was exonerated because she was an innocent

spouse with no knowledge of her husband’s financial affairs. This factual finding is supported by

the record and not clearly erroneous. Further, the Trustee does not suggest that Debra

accumulated her own debts or failed to document her own financial affairs as in Tanglis. At least

three different times at trial, Debra referred to her confusion regarding her husband’s business.

She also stated that going through his paperwork in an attempt to independently verify the filings

she was signing would have been overwhelming to her, and would not have helped. (Oct. 28,

2011, Hr’g Tr. 284:18–24, ECF No. 8-1 at 000382.) She clearly relied upon Allen for record

keeping, In re Goodman, 227 B.R. at 631, and depended on his judgment in filling out the

bankruptcy filings. The Trustee argues that on the eve of trial she should have taken a closer

interest in fact-checking her husband’s documentation. But the bankruptcy court found that

Debra was a stay at home mom with no working knowledge of her husband’s business activities,

and she testified to her confusion where such matters were concerned. The bankruptcy court’s

finding that a discharge was appropriate was not clearly erroneous. The bankruptcy court had the

opportunity to evaluate Debra’s demeanor and found that she had no intent to defraud. Further, a

spouse who relies on her husband’s business acumen is not acting recklessly or being indifferent

to the truth of her statement, even when she is signing an amended document prepared for her by

her husband. The court is not left with the definite and firm conviction that a mistake has been

committed. Accordingly, the Court will affirm the bankruptcy court’s findings with respect to

25
Debra under § 727(a)(4). 

4. Some of the Debtors’ False Statement Were Not Material.

Under the fifth and final element of a § 727(a)(4) claim, the Trustee must establish that

the Debtors made a false statement that “related materially to the bankruptcy case.” Stamat, 635

F.3d at 978. Materiality is a mixed question of law and fact. McGrath v. Zenith Radio Corp., 651

F.2d 458, 466 (7th Cir. 1981). It involves assessments that are “[‘]peculiarly ones for the trier of

fact.’” Id. (quoting TSC Indus., Inc. v. Norhway, Inc., 426 U.S. 438, 450 (1976)). “The scope of

appellate review, therefore, is limited: only where reasonable minds cannot differ on the issue of

materiality may a court determine the issue as a matter of law.” McGrath, 651 F.2d at 466. The

Trustee argues that “‘the threshold to materiality is fairly low,’” In re Sullivan, 455 B.R. 829,

839 (B.A.P. 1st Cir. 2011) (quoting In re Sears, 246 B.R. 341, 347 (B.A.P. 8th Cir. 2000)), and

that the bankruptcy court clearly erred in finding that the Debtors’ omissions and errors did not

rise to the level of materiality. The Debtors argue that “the Bankruptcy Court did not find any of

Debtors’ inaccuracies or inadvertent omissions rose to the standard of materiality.” (Br. of

Appellees 20, ECF No. 12.) 

The Court agrees with the Debtors that the Trustee has failed to show that the bankruptcy

court clearly erred in any of its materiality findings. The bankruptcy court found many of the

Debtors’s omissions and errors did not rise to the level of materiality under § 727(a)(4). In other

cases, the bankruptcy court did not address the issue of materiality. Given the bankruptcy court’s

finding that the Debtors did not knowingly and fraudulently take any action under § 727(a)(4),

and this Court’s conclusion that the bankruptcy court did not clearly err on that point, the Court

finds no clear error in the bankruptcy court’s treatment of the issue of materiality under

26
§ 727(a)(4). In no instance has the Trustee demonstrated that reasonable minds cannot differ on

the issue of materiality, McGrath, 651 F.2d at 466, and the Court is not left with the definite and

firm conviction that a mistake has been committed.7

 Accordingly, the Court will uphold the

bankruptcy court’s findings on materiality under § 727(a)(4). 

5. The Debtors Did Not Violate § 727(a)(4).

Having analyzed the elements necessary to substantiate a claim under § 727(a)(4), the

Court finds that although the Trustee established that the Debtors made false statements under

oath, he failed to establish that the Debtors knowingly and fraudulently made any false

statements under oath, or that any of their false statements under oath related materially to the

bankruptcy. Thus, the bankruptcy court did not clearly err in denying the Trustee’s § 727(a)(4)

claim. 

C. § 727(a)(5)

Finally, the Trustee asserts that the Debtors violated § 727(a)(5). However, the Trustee

makes no specific allegation under 11 U.S.C. § 727(a)(5), which allows for denial of discharge

7

Further, the Court agrees with the Debtors that the cases of Cannon-Stokes v. Potter, 453 F.3d

446 (7th Cir. 2006), and Biesek v. Soo Line Railroad Co., 440 F.3d 410 (7th Cir. 2006), cited by the

Trustee in a different section of his brief, do not disturb the Court’s materiality analysis. Both CannonStokes and Biesek involved debtors who omitted reference to legal claims in their bankruptcy petitions,

received bankruptcy discharges, and later sued on the claims they declined to mention. In both cases, the

Seventh Circuit found the debtors could not realize gain on legal claims the debtors purposely overlooked

in their bankruptcy petitions. The debtor in Cannon-Stokes was attempting to “scam [her] creditors.”

Cannon-Stokes, 453 F.3d at 448. The Seventh Circuit found that the “lie” in Biesek “could not have been

inadvertent.” Biesek, 440 F.3d at 411. But the record does not show, and the bankruptcy court did not

find, that Allen and Debra had the same intentions. Moreover, as discussed in a previous footnote, it is not

“impossible to believe” that the Debtors could have overlooked the omissions in their filings, see

Cannon-Stokes, 453 F.3d at 448, and so any materiality argument based on Cannon-Stokes or Biesek fails

because of the different facts in those cases. 

27
where “the debtor has failed to explain satisfactorily, before determination of denial of discharge

. . . any loss of assets or deficiency of assets to meet the debtor’s liabilities.” The Debtors argue

that the Trustee has waived any argument under § 727(a)(5) on appeal by not developing an

argument or citing any authority. See Kramer, 355 F.3d at 964 n.1 (“The absence of any

supporting authority or development of an argument constitutes a waiver on appeal.”). The

Debtors are correct. The Trustee has waived any argument relating to § 727(a)(5). 

Moreover, even were the Court to consider § 727(a)(5), it would find that the bankruptcy

court did not clearly err on this issue. The bankruptcy court found that “the record fails to

establish any loss of assets or deficiency of assets to meet the debtors’ liabilities which has not

been satisfactorily explained.” (Mem. of Decision 32.) The Trustee did not even attempt to show

that this finding by the bankruptcy court was clear error, and the Court would uphold the

bankruptcy court’s finding on this point if the Trustee had not waived the issue. 

D. The Debtors’ Equity Argument

In their Brief of Appellees, the Debtors argue that “it remains within the discretion of a

bankruptcy court to grant a discharge even when grounds for denial of discharge are

demonstrated to exist.” Union Planters Bank, N.A. v. Connors, 283 F.3d 896, 901 (7th Cir. 2002)

(quotation marks omitted). Because “exceptions to discharge are to be construed strictly against

a creditor and liberally in favor of the debtor,” Stamat, 635 F.3d at 979 (quotation marks

omitted), the Debtors insist that the bankruptcy court correctly determined that discharge was

appropriate in their case. The Trustee responds that although “[t]he general rule is that the right

to a discharge is left to the sound discretion of the bankruptcy court, and that an appellate court

will not interfere with the decision of a bankruptcy court to grant a discharge unless there is a

28
gross abuse of discretion,” In re Suttles, 819 F.2d 764, 766 (7th Cir. 1987) (citation and

quotation marks omitted), nevertheless the Seventh Circuit has not decided “whether the

bankruptcy court’s discretion to grant a discharge under a subsection of § 727 that requires

fraudulent intent is as broad,” id. at 766 n.2. Moreover, a debtor “cannot obtain a discharge . . . if

one of the conditions specified by [§ 727(a)] exists.” Disch v. Rasmussen, 417 F.3d 769, 774 (7th

Cir. 2005) (specifically listing §§ 727(a)(2), 727(a)(3), and 727(a)(5)). 

The Court finds that it need not reach the Debtors’ equity argument. Because the Court

has already found that it should affirm the bankruptcy court’s findings with respect to

§§ 727(a)(2), 727(a)(4), and 727(a)(5), it need not address whether the bankruptcy court would

have had discretion in equity to grant discharge in spite of a finding of intent under § 727(a). The

bankruptcy court’s ruling was based on the Trustee’s failure to meet his burden under § 727(a),

not on equitable principles. 

The Trustee argues the bankruptcy court’s attempt to encourage debtors to supplement

their bankruptcy filings rather than disallowing amendments runs afoul of the Seventh Circuit’s

holding in Village of San Jose v. McWilliams, 284 F. 3d 785 (7th Cir. 2002). In McWilliams, a

§ 727(a)(2) case, the Seventh Circuit reversed a bankruptcy judge’s decision to grant discharge

to debtors who initially concealed property but later provided full disclosure, rectified their

infraction, and ensured that their creditors were not harmed. Id. at 790. Noting that the debtors

were “certainly unfortunate debtors,” the court found that they were “not exactly honest debtors

either.” Id. at 794. Because of the plain language of the code, the Seventh Circuit found

discharge inappropriate in spite of the debtors’ “attempts to remedy the fraud by disclosing the

transfers and reconveying the property after they filed for bankruptcy.” Id.

The Court finds McWilliams distinguishable for a very simple reason. Whereas the

29
McWilliams debtors intentionally concealed property in their bankruptcy filings in violation of

§ 727(a)(2), the bankruptcy court found that Allen and Debra lacked the intention to defraud

necessary to substantiate a claim under any paragraph of § 727(a). Further, the bankruptcy court

was aware of § 727(a) cases “in which initial bankruptcy filings evidence violations . . . , and no

matter what a debtor may subsequently do, the initial ‘bad act’ cannot be undone.” (Mem. of

Decision 34.) But as the bankruptcy court held, “[t]his isn’t one of those cases.” (Id.) 

The Court need not reach the Debtors’ equity argument for the reasons listed above. Nor

is the Court’s affirmation of the bankruptcy court disturbed by the Trustee’s citation to

McWiliams. The bankruptcy court did not adopt an equitable policy out of line with Seventh

Circuit caselaw in its statements concerning the need to encourage debtors to fully disclose

through amendments. Rather, the bankruptcy court recognized that where a trustee does not

show an intention to defraud sufficient to substantiate claims under any portion of § 727(a), a

bankruptcy court should encourage full disclosure through amendment. 

CONCLUSION

For all the reasons discussed above, the Court AFFIRMS the bankruptcy court’s

Memorandum of Decision Concerning Action to Deny Discharge dated July 6, 2012, pursuant to

Federal Rule of Bankruptcy Procedure 8013 and 28 U.S.C. § 158(a)(1). 

SO ORDERED on July 31, 2013.

 s/ Theresa L. Springmann 

THERESA L. SPRINGMANN

UNITED STATES DISTRICT COURT

FORT WAYNE DIVISION

30