Opinion ID: 2995620
Heading Depth: 2
Heading Rank: 2

Heading: Objections to Discharge Based on

Text: Section 727(a)(2) In order to succeed with an objection to discharge based on section 727(a)(2), the creditor must prove: (1) that the act complained of was done at a time subsequent to one year before the date of the filing of the petition; (2) with actual intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under the Bankruptcy Code; (3) that the act was that of the debtor or his duly authorized agent; (4) that the act consisted of transferring, removing, destroying or concealing any of the debtor’s property, or permitting any of these acts to be done. Lee Supply Corp. v. Agnew (In the Matter of Agnew), 818 F.2d 1284, 1287 (7th Cir. 1987) (citation omitted). The facts show that three of the four elements were met. The issue was whether the second element, actual intent, had been met. Though actual intent is difficult to prove, it may be shown through circumstantial evidence, and the Fifth Circuit adopted a series of factors which, if proven, indicate actual fraud: (1) the lack or inadequacy of consideration; (2) the family, friendship or close associate relationship between the parties; (3) the retention of possession, benefit or use of the property in question; (4) the financial condition of the party sought to be charged both before and after the transaction in question; (5) the existence or cumulative effect of the pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors; and (6) the general chronology of the events and transactions under inquiry. Pavy v. Chastant (In the Matter of Chastant), 873 F.2d 89, 91 (5th Cir. 1989) (citation omitted). If the creditor can show that one or some of these factors are met, [t]his creates a presumption of an intent to defraud establishing plaintiff’s prima facie case and shifting . . . the burden [to the debtor-defendant] of demonstrating that he lacked fraudulent intent. Id. The McWilliamses did transfer the properties for $1.00 and love to their grandchildren, retained possession of the deeds, and transferred the properties after they had been notified that the Village demolished the building and would seek to recoup the costs from them. This circumstantial evidence demonstrates the McWilliamses transferred the properties to either conceal or prevent the Village from obtaining them to satisfy their debts. The bankruptcy court similarly found that several of these factors were met, yet concluded that the McWilliamses did not make the transfers with the intent to hinder, delay, or defraud creditors. The bankruptcy court concluded that the McWilliamses cured the fraud and redeemed themselves by disclosing of the transfers and subsequently recovering the properties.
Debtor Though it does not cite a specific case in support, the bankruptcy court’s reasoning is in line with a doctrine announced in First Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d 1339 (9th Cir. 1986). In Adeeb, the Ninth Circuit allowed the granting of a discharge petition over a creditor’s objections because the debtor disclosed the previous transfers to the creditors and was making a good-faith effort to recover the property at the time an involuntary bank ruptcy petition was filed. Id. at 1346. Adeeb, after being threatened by this creditors, consulted with an attorney who advised him to transfer title to several parcels of property to third parties for no consideration. Id. at 1341. After consulting with a second attorney, Adeeb told his creditors about the transfers, and the creditors filed for an involuntary bankruptcy. Id. Adeeb attempted to recover the properties, and the creditors objected to the discharge based on section 727(a)(2). Id. The Ninth Circuit interpreted the term transfer in section 727(a)(2) to mean ’transferred and remained transferred’ because, they concluded, Congress intended to deny discharge only to debtors who try to keep assets hidden until after they obtain their discharge in bankruptcy. Id. at 1344-45. Adeeb, as other courts have concluded, appears to contravene the plain language of the Code. See, e.g., Davis v. Davis (In re Davis), 911 F.2d 560, 562 (11th