In re Jennings
| Decision Date | 19 March 2013 |
| Docket Number | Case No. 12-32615 |
| Court | U.S. Bankruptcy Court — Western District of North Carolina |
| Parties | In re: SAMUEL T. JENNINGS DONNA L. JENNINGS Debtors. |
THIS MATTER is before this Court upon Motion of the Chapter 7 Debtors, Samuel T. Jennings and Donna L. Jennings ("Debtors") to convert to Chapter 13, filed January 29, 2013. The Chapter 7 Trustee filed a Response and Objection to the Motion on February 11, 2013 on the grounds that the conversion would be a bad faith conversion in an effort to further the concealment of assets and false oaths made by the Jennings.
A hearing was held on shortened notice on February 19, 2013. R. Keith Johnson appeared as Chapter 7 Trustee ("Trustee") and Attorney for the Trustee. Brian P. Hayes represented the Debtors.
For the reasons stated, below, the Motion to convert to chapter 13 is DENIED.
The Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§151, 157, 1334, and the General Order of Reference entered by the United States District Court for the Western District of North Carolina on July 30, 1984. This is a core proceeding within the meaning of 28 U.S.C. § 157(b).
1. The Jennings filed a voluntary Chapter 7 bankruptcy case in this Court on October 31, 2012.
2. In their Voluntary Petition, the Jennings stated that their address was 900 Lyerly Ridge Road, Concord, NC.
3. On the second page of their Petition, the Jennings indicated that their residence or their principal place of business had been in the Western District of North Carolina for one hundred eighty (180) days preceding the date of the petition. That statement was untrue in that the Jenningses' residence is located in the Middle District of North Carolina.
4. In their bankruptcy schedules the Jennings indicated that they owned a "RESIDENCE: 4 bedroom, 2.5 Bath Brick Home" which was to be surrendered, said residence having a value of $340,000.00, subject to secured claims of $521,700.00. Schedule A, Oct. 31, 2012, ECF No. 1 at 10.
5. In Schedule D, the Jennings disclosed three (3) secured creditors, one secured by the 2006 Cadillac, and the other two (2) being secured by the four bedroom, 2.5 bath brick home. Schedule D, Oct. 31, 2012, ECF No. 1 at 16.
6. In Schedule E, the Jennings indicated that they owed total priority claims of $22,825.00. These include a property tax claim of $3,433.00. The property to which that tax claim relates is not identified. Schedule E, Oct. 31, 2012, ECF No. 1 at 18.
7. In Schedule F, the Jennings show total unsecured debts of $46,545.00. Schedule F, Oct. 31, 2012, ECF No. 1. at 21.
8. On Question One (1) of the Statement of Financial Affairs the Jennings indicated that in 2010, Donna Jennings had income from Premier Alliance of $152,833.00. Statement of Financial Affairs, Oct. 31, 2012, ECF No. 1. at 27.
9. Further, the Jennings indicated that during 2010, 2011, and 2012, Samuel Jennings had received Social Security benefits of approximately $17,000.00 per year. Their Statement of Financial Affairs also shows that Donna Jennings received Social Security benefits of $95,269.00 in 2010; $179,314.00 in 2011; and $64,134.00 in 2012. Id. at 28.
10. In response to Question 3.a. of that Statement of Financial Affairs, the Jennings affirmed that during the ninety (90) days preceding the filing of the bankruptcy case they had not paid any creditor more than $600.00. Id.
11. In response to Question Seven (7) of the Statement of Financial Affairs, the Jennings indicated that during the year immediately preceding the commencement of the bankruptcy case they had not made any gifts of more than $200.00 in value, apart from ordinary and usual gifts to family members. Id. at 29.
12. In response to Question Ten (10) of the Statement of Financial Affairs, the Jennings indicated that they had made no transfers of property, other than in the ordinary course of their business or financial affairs, within two (2) years before the filing of the bankruptcy case. Id. at 30.
13. In their Statement of Intention, the Jennings expressed an intention to surrender their 2006 Cadillac automobile, as well as their 4 bedroom, 2.5 bath brick home. Statement of Intent Intention, October 31, 2012, ECF. No. 1 at 35.
14. The Section 341 Meeting of Creditors was conducted on December 5, 2012. The Jennings were present and sworn and testified at that meeting.
15. At the Meeting of Creditors, the Trustee questioned the Jennings and reviewed with them the documentation which they had previously provided to him.
16. On December 6, 2012, the Trustee wrote to the attorney for the Jennings seeking additional information relating to statements made at the Meeting of Creditors and relating to a further review of the schedules and statements. The Trustee specifically requested (a) bank records (statements and check registers) regarding an IRA distribution in 2011 of $154,070.00 and deposit of the same into the Jenningses' account, most likely at Wells Fargo; (b) copies of their tax return for 2010, (c) a copy of their 2012 tax return when prepared, and (d) an explanation of the large Social Security benefits received by Donna Jennings reflected in the Statement of Financial Affairs. ECF. No. 14 at 3.
17. Later, in reviewing the Cabarrus County real property records relating to the value of the Jennings real property at 900 Lyerly Ridge Road, Concord NC 28027, and their intent to surrender same, the Trustee discovered that on June 28, 2012, or one hundred twenty-four (124) days before the bankruptcy filing, the Jennings had transferred a second residence located at 1203 Lempster Drive, NW, Concord, NC to their daughter Sheena Jennings. The real property record indicated a purchase price of $153,000.00. This transfer was not disclosed by the Jennings in their Bankruptcy Petition and Schedules. It was not disclosed by them to the Trustee at the First Meeting or thereafter.
18. Upon learning of this undisclosed transfer, the Trustee obtained a copy of the HUD-1 Settlement Statement from the closing attorney. ECF No. 18 at 24. After retirement of the mortgage on that residence, the Settlement Statement shows a transfer of equity by the Jennings to their daughter of $15,300.00. Id. Additionally, the Jennings paid the closing costs associated with that transfer in the amount of $3,812.56. Id. Such closing costs are typically paid by the purchaser. Meanwhile, the HUD-1 has Sheena Jennings taking home $582.23 in the transaction. Id.
19. The Trustee concluded that the Jennings effectively gave their daughter $19,694.79 within one (1) year before the filing of the bankruptcy case and failed to disclose the transfer in their bankruptcy petition. The Trustee believed that the transfer was avoidable as a fraudulent transfer, and by nondisclosure, the Jennings had made several false oaths in their Bankruptcy Petition.
20. When the Trustee confronted the Jennings with these newly discovered facts, the Jennings moved to convert their case to Chapter 13. Motion to Convert Case from Chapter 7 to Chapter 13, filed January 29, 2012. ECF No. 12.
21. With the conversion motion pending, the Jennings amended their Petition to correct these and other misstatements. The Jennings filed an amended Statement of Financial Affairs on February 7, 2013. ECF. No. 15. That Amended Statement revealed for the first time $17,394 of earnings income by Donna Jennings in 2011 and $2,836 of income in 2012, from an entity known as the Gold Refinery. Id. Donna Jennings' 2012 Social Security income, previously reported as $64,134 was reduced to $6,620. Similarly, her 2011 Social Security Income was reduced from $179,314 to $7,850. Donna Jennings 2010 Social Security income, previously attested to as being $95,269, was restated to be an IRA withdrawal. Two previously undisclosedIRA withdrawals by Donna Jennings were revealed: a distribution of $154,070 in 2011 and $49,500 in 2012. Id. However, once again the Jenningses' transfer of the residence to the daughter was not disclosed.
22. On February 11, 2013, the Trustee objected to the Debtors' discharge under 11 U.S.C. §727 [Adv. 13-3019] and separately sued Sheena Jennings to avoid the transfer of the Lempster Dr. residence under 11 U.S.C. §548 and recover the property or its value under 11 U.S.C. §550. [Adv. 13-3020]. In the discharge litigation, the Trustee maintains that the Jennings willfully concealed the transfer of the Lempster Drive residence and the implicit gift to their daughter. The Trustee contends the Debtors are guilty of concealing estate property and of making false oaths in connection with their petition.
23. That same day, on February 11, 2013, the Jennings amended their Statement of Financial Affairs for a second time, to disclose the aforementioned prepetition transfers. In this amendment, they also revealed a Gatlinburg, TN timeshare property not mentioned in the original petition nor the prior amendment. ECF No. 21.
24. The Trustee then objected to the Jennings' conversion of the case to Chapter 13. Having uncovered the transfer of the residence and other nondisclosures by the Jennings and taken steps to remedy these matters, the Trustee considers the Jennings conversion as nothing more than a bad faith attempt to avoid the consequences of their misdeeds.
25. The Jennings, on the other hand, maintain these nondisclosures were innocent mistakes. They maintain that the transfer of the residence was not fraudulent; while title to the residence was in their names, their daughter resided in the house and made the payments on the mortgage. They contend this was her house, not theirs. However, if they are incorrect, they intend to "deal" with the situation in Chapter 13 26. Apart from defanging the Chapter 7 Trustee, the Jennings have no real ability to deal with these issues (or...
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