Thank You For Submiting Feedback!
The Bankruptcy Code provides that a debtor may be denied a discharge under Chapter 7 if, among other things, he has transferred property with intent to hinder, delay, or defraud a creditor within one year before the date of the filing of the petition. 11 U.S.C.S. § 727(a)(2).
Appellant debtor consulted with counsel before filing a Chapter 11 bankruptcy. On counsel's advice, appellant liquidated almost all his non-exempt property and converted it into exempt property. Appellant admitted the purpose of his actions was to shield his assets from creditors. The bankruptcy court denied appellant a discharge, finding appellant had intended to defraud, hinder, and delay his creditors. The district court affirmed. Appellant debtor sought review of the district court’s decision.
Under the circumstances, did the bankruptcy court err in denying appellant a discharge?
The court affirmed the lower court’s orders because the bankruptcy court was not clearly erroneous in inferring fraudulent intent rather than astute pre-bankruptcy planning on appellant's part. Appellant's attempt to shield a large amount of property went beyond the purpose for which exemptions were permitted. Although state law permitted appellant to use an unlimited exemption, federal law governed appellant's discharge.