In re Jeffries

• Decision Date: 17 October 2007
• Docket Number: Adversary No. 07-2020.,Bankruptcy No. 06-21158-7-drd.
• Citation: 378 B.R. 248
• Parties: In re Troy Allen JEFFRIES and Denise Shannon Jeffries, Debtors. Bank of Iberia, Plaintiff, v. Troy Allen Jeffries and Denise Shannon Jeffries, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Missouri

378 B.R. 248

In re Troy Allen JEFFRIES and Denise Shannon Jeffries, Debtors Bank of Iberia, Plaintiff, v. Troy Allen Jeffries and Denise Shannon Jeffries, Defendants.

Bankruptcy No. 06-21158-7-drd.

Adversary No. 07-2020.

United States Bankruptcy Court, W.D. Missouri.

October 17, 2007.

Jill D. Olsen, South & Associates, Overland Park, KS, for Plaintiff.

Charles F. Johnson, Osage Beach, MO, for Defendants.

MEMORANDUM OPINION

DENNIS R. DOW, Bankruptcy Judge.

This adversary comes before the Court on the Complaint to Determine Dischargeability of Debt ("Complaint") filed by plaintiff Bank of Iberia ("Plaintiff' or the "Bank") against Troy and Denise Jeffries ("Defendants" or "Debtors")¹. Plaintiff seeks that the debt owed to it by Debtors be deemed nondischargeable under 11 U.S.C. § 523(a)(6) and that Debtors' be denied a discharge under § 727(a)(2). This is a core proceeding under 28 U.S.C § 157(b)(2)(I) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a) and (b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure. For the reasons set forth below, Plaintiff's request to deny discharge under § 727(a)(2) is denied. However, the Court finds that any damage caused to the property meets the standards of a willful and malicious injury under 11 U.S.C. § 523(a)(6) and grants Plaintiff's request for nondischargeability as set forth below.

I. FACTUAL BACKGROUND

On July 15, 2002, debtor Troy Jeffries entered into a promissory note and security agreement with the Bank of Iberia ("Plaintiff') for a loan in the amount of $37,072.04 to purchase a 2002 Red Dodge Ram 3500 Quad Cab (the "Vehicle") which was used as collateral for the loan. Plaintiff's Ex. 8. The Vehicle was purchased for use in Mr. Jeffries' excavating business and also for his personal use. Shortly after he purchased the Vehicle, Mr. Jeffries removed the regular truck bed with flare sides and replaced it with a flat bed, which he testified is common practice in the excavating industry. He testified that he put the regular truckbed with flare sides, the rear bumper and tailgate in his work yard near his home.

On August 28, 2006, Mr. Jeffries had failed to make payments to the Bank on the promissory note and the Bank had the Vehicle repossessed by Professional Recovery and Investigation, LLC, a company which it regularly uses for repossessions. See Plaintiffs Ex. 5. In the Vehicle Condition Report prepared by the recovery company, the truck was noted to be in average general condition, average mechanical condition, average tires, average interior that was dirty, with worn and torn seats and a cigarette burn in the passenger seat. It was also noted in the report that the front bumper was dented and the right rear corner of the flatbed was dented. Ex. 5. Mr. Jeffries testified that at that time the factory dual wheels were still on the Vehicle. Subsequent to repossession of the Vehicle, Debtors redeemed the Vehicle from the Bank. Mr. Jeffries testified that he made a couple more monthly payments to the Bank.

On October 26, 2006, Debtors filed a Chapter 7 bankruptcy petition and listed Bank of Iberia as a secured creditor on their Schedules. On December 1, 2006, the Bank was granted relief from the automatic stay in order to take possession of the Vehicle and repossessed the Vehicle in February 2007. On April 30, 2007, the Bank filed this adversary proceeding seeking nondischargeability of the debt owed to it under § 523(a)(6) and denial of Debtors' general discharge under § 727(a)(2).

At the hearing, Carol Groves, Vice-President of Bank of Iberia, testified that the condition of the Vehicle from the first repossession in August 2006 and the second repossession in February 2007 was substantially different. She testified that the flatbed had been removed and the regular truckbed was just sitting unattached on the back of the truck; that the dual wheels had been removed and replaced with single wheels and tires; and that the truck would not run. The Bank concluded that the Vehicle was worthless because it would be unable to resell it. In December 2006, the NADA retail value for the Vehicle was $18,475 and the wholesale value was $15,625. Plaintiffs Ex. 12.

Richard Wright, Executive Vice-President at Bank of Iberia, also testified at the hearing that at the time of the first repossession the taillights were attached and the flatbed and dual wheels were both attached. However, Mr. Wright testified that at the February 2007 repossession, the flatbed had been removed, the regular truckbed was not attached and the dual wheels, flare sides and taillights were missing. See Plaintiffs Exs. 9, 10 & 14-30.

Larry Herx, who has been a mechanic for 30 years and has numerous mechanic certifications, testified similarly. He stated that at the February 2007 repossession the truckbed was not attached, the dual wheels, flared sides, taillights and rear bumper were removed. He also testified that the fuel pump had been tampered with or switched out, that the oil had not been changed for at least 10,000 miles and that the Vehicle would not start and could not be sold in its present condition. He further testified that the original truckbed looked like it had been left outside for the past four years, which Mr. Jeffries did not dispute. Based on his knowledge, Mr. Herx testified that it would cost $5,400 to repair the Vehicle which included $1,800 for 6 new tires and wheels, $450 for a new fuel pump, $2,000 for a new truckbed; $150 for a rear bumper and $1,000 for labor. He also testified that if the Vehicle would not start after making those repairs that it may need a new engine which would cost $8,250 with labor. However, he also stated that he was unable to give an opinion on whether a new engine would be necessary at the time of the hearing.

Mr. Jeffries testified that he did have the regular truckbed removed a couple of months after he purchased the Vehicle and replaced with a flatbed. He testified that he placed the truckbed with the flaresides attached upside down in his work yard, along with the rear bumper, taillights and ball hitch. He stated that he removed the dual wheels and put them on another of his work trucks in order to get use from them and put single wheels on the Vehicle. He testified that he had planned to put the dual wheels back on the Vehicle prior to repossession by the Bank but that he did not receive notice of the day that the Vehicle was being repossessed. He stated he removed the flatbed from the Vehicle after he filed his bankruptcy petition and had the regular truckbed set on the Vehicle but did not attach it. Mr. Jeffries testified that he had no idea what happened to the flare sides that had been attached to the truckbed, nor did he know what happened to the missing rear bumper, taillights or hitch. He stated that he never looked at the fuel pump to determine its condition but that he did not tamper with it and didn't remember when he last changed the oil in the Vehicle. He testified that he wasn't aware he was to keep the Vehicle from harm and that there are many employees and other people on his property that could have removed the missing items.

II. DISCUSSION AND ANALYSIS

A. 11 U.S.C. 727(a)(2)

Obtaining a discharge is the key component of the "fresh start" a bankruptcy proceeding is designed to give a debtor. Accordingly, denying a discharge to a debtor is considered to be a "harsh and drastic penalty." American Bank of Spickard-Trenton v. Ireland (In re Ireland), 49 B.R. 269, 271 n. 1 (Bankr. W.D.Mo.1985). For that reason, the grounds for denial of discharge listed in § 727 are strictly construed in the favor of the debtor. Floret L.L.C., et al. v. Sendecky (In re Sendecky), 283 B.R. 760, 765 (8th Cir. BAP 2002); Gray v. Gray (In re Gray), 295 B.R. 338, 343 (Bankr.W.D.Mo. 2003); In re Stanke, 234 H.R. 449, 456 (Bankr.W.D.Mo.1999). A trustee or creditor requesting that the court deny a debtor a discharge bears the burden of proving each of the elements of the applicable claim by a preponderance of the evidence. Sendecky, 283 B.R. at 763; Gray, 295 B.R. at 343; Kirchner v. Kirchner (In re Kirchner), 206 B.R. 965, 973 (Bankr.W.D.Mo. 1997).

To make a case for denial of discharge under § 727(a)(2), a plaintiff must demonstrate that the debtor transferred, removed, destroyed, mutilated or concealed assets that might otherwise have been available to satisfy the claims of creditors. See Sendecky, 283 B.R. at 763. Section 727(a)(2) provides:

(a) 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 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.

11 U.S.C. § 727(a)(2)(A) & (B). Actual, subjective intent to hinder, delay or defraud must be demonstrated as a prerequisite to discharge. McCormick v. Security State Bank, 822 F.2d 806, 808 (8th Cir. 1987); Stanke, 234 B.R. at 457; Diamond Bank v. Carter (In re Carter), 203 B.R. 697, 706 (Bankr.W.D.Mo.1996); In re Berry, 37 B.R. 44, 46 (Bankr.W.D.Mo.1983).

In applying § 727(a)(2), courts have noted that the section seeks to protect the rights of unsecured creditors. In re Lane, 166 B.R. 133, 138-39 (Bankr.E.D.Mo.1993); In re Hoffinan, 70 B.R. 155, 160 (Bankr. W.D.Ark.1986); In re Ellefson, 54 B.R. 16 (Bankr.W.D.Wis.1985); In re Harris, 8 B.R. 88, 90-91 (Bankr.M.D.Tenn.1980); cf. In re Lett, 238 B.R. 167, 191 (Bankr. W.D.Mo.1999) (finding that although property was encumbered there was substantial equity in the property and denied discharge under § 727(a)(2))...