In re Chauncey

• Decision Date: 18 February 2004
• Docket Number: Adversary No. 03-3116-BKC-PGH-A.,Bankruptcy No. 02-37312-BKC-PGH.
• Citation: 308 B.R. 97
• Parties: In re Andrea M. CHAUNCEY, Debtor. Patricia Dzikowski, Plaintiff, v. Andrea M. Chauncey, Debtor/Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

308 B.R. 97

In re Andrea M. CHAUNCEY, Debtor Patricia Dzikowski, Plaintiff, v. Andrea M. Chauncey, Debtor/Defendant.

Bankruptcy No. 02-37312-BKC-PGH.

Adversary No. 03-3116-BKC-PGH-A.

United States Bankruptcy Court, S.D. Florida.

February 18, 2004.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Patricia Dzikowski, c/o John L. Walsh, Esq., Ft. Lauderdale, FL, pro se.

Norman L. Schroeder II, Esq., Lake Worth, FL, for debtor.

AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW

PAUL G. HYMAN, JR., Bankruptcy Judge.

THIS MATTER came before the Court for trial on October 31, 2003 upon the Complaint to Avoid Transfer, for Turnover of Property of the Estate, to Object to Discharge of the Debtor and for Imposition of Equitable Lien/Equitable Subrogation filed by Patricia Dzikowski ("Plaintiff" or "Trustee"). The Court, having reviewed the pleadings, having heard the testimony of the witnesses, having reviewed the exhibits admitted into evidence, having heard the argument of counsel and being otherwise being fully advised in the premises, enters the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.

FINDINGS OF FACT

On December 31, 2002, Andrea M. Chauncey ("Defendant" or "Debtor") filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code (the "Petition"). At that time, the Debtor owned a home located at 7225 Coppitt Key Street in Lake Worth, Florida. The Debtor owned her home for eight and one half years prior to filing the Petition and that she continuously resided there during that time. The home is subject to a mortgage (the "Mortgage") held by Chase Mortgage Corporation ("Chase").

The Debtor was the sole shareholder of a Florida corporation, AAA Affordable Transmissions, Inc. ("AAA") from 1997 to November 2000. The Debtor closed AAA in November 2000. All of the assets of AAA were leased and were repossessed by the lessors. The Debtor became unemployed as a result of AAA's closing. The Debtor testified that when she closed AAA, she hired help to clean out the business premises and in that move, she lost all of AAA's books and records. The Debtor testified that she has not been able to locate the books and records of AAA since the move and as a result, she could not make them available to the Trustee for inspection.

The Debtor introduced AAA's 2000 Tax Return (the "2000 Tax Return") into evidence. The 2000 Tax Return reflected One Hundred and Eighty-Eight Thousand Nine Hundred Seventy-Four Dollar ($188,974.00) in income for that year. The Debtor testified that she listed this amount on her Statement of Financial Affairs but that she did not receive any of those funds.

The Debtor has been largely unemployed since she closed AAA in November 2000. The Debtor supported herself through part-time employment, contributions from her boyfriend, ex-husband and father. However, she did not keep any records of the contributions of support from her boyfriend, ex-husband and father. The Debtor was unable to provide the Trustee with documents related to her financial accounts because she did not keep copies of bank statements and cancelled checks. The Debtor testified that it would cost between Fifty ($50.00) and Seventy-Five ($75.00) Dollars to obtain copies of these records and she could not afford to do so.

The Debtor is the mother of two young children. In 2002, the Debtor became pregnant with her second child. The Debtor's relationship with her boyfriend ended in 2002 and he moved out of the Debtor's home. The Debtor testified that at that time she was unemployed, living alone, pregnant and afraid that she would lose her home because she was unable to meet her expenses. On March 15, 2002, the Debtor initiated a personal injury lawsuit against Eclipse Marketing of Utah, Inc. ("Eclipse") in state court (the "Personal Injury Lawsuit") seeking to recover for personal injuries sustained as a result of an incident which occurred between the Debtor and an agent of Eclipse.

According to the Palm Beach County Civil Court Public Records, American Express Centurion Bank ("American Express") filed suit against the Debtor on July 30, 2002 (the "American Express Lawsuit"). The Debtor first consulted with and sought the advice of her bankruptcy attorney in August 2002. However, the Debtor did not file for bankruptcy at that time. Also according to the Palm Beach County Civil Court Public Records, on October 23, 2002, a judgment in favor of American Express (the "American Express Judgment") was entered against the Debtor.

On November 22, 2002, the Personal Injury Lawsuit was settled for the gross sum of Eighty-Thousand Dollars ($80,000.00). Upon the direction of the Debtor, these funds were initially deposited into the trust account of the Debtor's personal injury attorney. After payment of attorneys' fees and costs, the Debtor was entitled to a net sum of Forty-Seven Thousand Four Hundred Thirty Dollars and Eight-Two Cents ($47,430.82) ("Settlement Proceeds"). The Debtor did not take possession of the Settlement Proceeds, nor were they ever deposited into her personal bank account. Instead, the Debtor directed her personal injury attorney to remit the Settlement Proceeds directly from his trust account to Chase sometime between November 22, 2002 and December 18, 2002.

On December 18, 2002, Chase received the payment from the Debtor's personal injury attorney and applied the Settlement Proceeds to the outstanding principal balance that existed on the Mortgage. As a result, the principal of the Mortgage was reduced from Eighty-Two Thousand Four Hundred Eight-Six Dollars and Sixty-Five Cents ($82,486.65) to Thirty-Four Thousand Nine Hundred Fifty Dollars and Two Cents ($34,950.02). The Debtor testified that her motivation for remitting the Settlement Proceeds directly from her personal injury attorney's trust account to Chase was to preserve her ability to keep her home. The Debtor testified that she was afraid that she would lose her home and she realized that the equity in her homestead could be protected from unsecured creditors. The Debtor also denied any intent to deceive, defraud or hinder her creditors. The Debtor further testified that the payment to Chase allowed her to lower the monthly payment on the Mortgage.

The Debtor filed her bankruptcy Petition on December 31, 2002. The Debtor claimed her home as her homestead and as exempt under 11 U.S.C. § 522(b), FLA. CONST. Art. 10, § 4(a)(1) and FLA. STAT. § 222.01 (2003). The Debtor testified that the filing of the bankruptcy case was intentionally delayed until after she received the Settlement Proceeds and the payment was made to Chase.

CONCLUSIONS OF LAW

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(E) and § 157(b)(2)(J).

A. Section 727(a)(3)

The Trustee argues that the Debtor should be denied a discharge pursuant to 11 U.S.C. § 727(a)(3) because the Debtor did not maintain and has not produced documents necessary for the Trustee to ascertain and confirm the Debtor's financial condition and transactions.

Section 727(a)(3) of the Bankruptcy Code provides:

The court shall grant the Debtor a discharge, unless —

the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case

11 U.S.C. § 727(a)(3). The burden is on the Trustee to show that both the debtor failed to maintain or preserve adequate records from which the debtor's financial condition or business transactions could be ascertained. Meridian Bank v. Alten, 958 F.2d 1226, 1233 (3d Cir.1992). Thereafter, the burden shifts to the debtor to prove justification. Id.

In the instant case, the Court finds that the Debtor did not maintain and has not produced the documents necessary for the Trustee to ascertain and confirm the Debtor's financial condition and transactions. As the evidence at trial established, none of the business records from AAA have been made available to the Trustee. In addition, the evidence also established that the Debtor failed to provide the Trustee with documentation relating to her personal financial accounts for the year preceding the filing of the Petition. As a result, the Court finds that the lack of documentation has prevented the Trustee from ascertaining the Debtor's financial condition. Therefore, the Court holds that the Trustee satisfied its burden.

As stated above, once the Trustee satisfies its burden of proving that the debtor failed to maintain or preserve adequate records from which the debtor's financial condition or business transactions could be ascertained, the burden then shifts to the debtor to prove justification. A debtor must explain his or her losses or deficiencies of documentation in such a manner as to convince the court of good faith and businesslike conduct. Meridian Bank, 958 F.2d at 1233. In the case at hand, the Court finds that the Debtor's explanation concerning the absence of all her business and personal financial records is unsatisfactory. The Court finds that after moving AAA's books and records, the Debtor had a responsibility to ensure that such documentation was not misplaced and that it was kept for a reasonable time after the business was closed. Furthermore, the Court also finds that the Debtor had a responsibility to retain her personal bank account records and her explanation that she could not afford a relatively minor expense of Fifty ($50.00) to Seventy-Five ($75.00) Dollars to obtain copies of these records is not credible.

In sum, the Court finds that it was the duty of the Debtor to provide the Trustee with adequate financial information and she failed to...