In re Kessler
| Decision Date | 06 August 1985 |
| Docket Number | Adv. No. 83-0243.,Bankruptcy No. 83-20591 |
| Citation | 51 BR 895 |
| Parties | In re James E. KESSLER, a/k/a James Edward Kessler, Debtor. James E. KUNCE, Trustee, Plaintiff, v. James E. KESSLER, Defendant. |
| Court | U.S. Bankruptcy Court — District of Kansas |
James E. Kessler, pro se.
James E. Kunce, Kansas City, Kan., Trustee.
Carol Park, Wichita, Kan., Asst. U.S. Trustee.
This matter came on for trial on January 30, 1985, on the trustee's complaint objecting to discharge of the debtor pursuant to § 727(a)(2), (4), and (7). The trustee and the debtor appeared pro se. At the conclusion of the trial, the Court took the issue under advisement following submission of a partial transcript of the proceeding. The matter is ready for determination.
Based on the testimony, exhibits, statements of the parties, the file herein, and taking judicial notice of the pleadings in the file of Commercial Insulation Service — KC, Inc., Case No. 83-20545, the Court finds as follows:
1. That this Court has jurisdiction over the parties and the subject matter; and that venue is proper.
2. That according to the schedules filed in the case of Commercial Insulation Service — KC, Inc., Case No. 83-20545, question 21a., debtor James Kessler served as president of that company. Subsequent pleadings filed by the debtor, however, state that he worked as assistant treasurer of the corporation and had never served as its president.
3. That in May 1983, Mr. Kessler opened a checking account at United Missouri Bank of K.C., N.A. (hereinafter referred to as "United Missouri Bank") in the name of James E. Kessler d/b/a Insulation Service. This account was opened after the account he had maintained at the State Bank of Stanley in Stanley, Kansas, had judgments against it. Mr. Kessler stipulated at trial that he wrote checks totalling $36,000.00 from this account. Photostats of cancelled checks introduced at trial (debtor/defendant's Exs. A & B) reflected checks totalling approximately $12,000.00.
4. That on June 24, 1983, Mr. Kessler, acting as agent for Commercial Insulation Service — KC, Inc., (hereinafter referred to as "Insulation Service"), filed a Chapter 7 petition herein for the corporation; he filed his individual petition under Chapter 7 on July 12, 1983.
5. That debtor's individual Schedule B-2—Personal Property "b", required him to describe and evaluate his "deposits of money with banking institutions, savings and loan associations, credit unions, public utility companies, landlords and others." Mr. Kessler's response stated that he had no money on deposit in any such institution. In fact, on the date his personal petition was filed, the debtor's checking account at United Missouri Bank had a balance of $5,625.03 (plaintiff's Ex. 2). The petition filed on behalf of Insulation Service also stated there was no money on deposit.
6. It was from information received as a result of Motions for production of documents that the trustee learned of the debtor's checking account at United Missouri Bank.
7. That subsequent to the filing of the two petitions in bankruptcy, Mr. Kessler continued to use the checking account at United Missouri Bank. Bank statements (Pl. Exs. 2, 3, 4, 5, 6) indicate that following the filing of his individual petition, Mr. Kessler wrote checks totalling $8,914.32 and made deposits of $4,474.30 in the United Missouri account. Mr. Kessler testified that the checks were written to pay his debts and living expenses (including dues to Leawood South Country Club and to a racquetball club), as well as the debts of the corporation Insulation Service. The source of the bank deposits was the corporation's accounts receivable.
8. That Mr. Kessler's answer to question 4 of his individual petition in bankruptcy identified the State Bank of Stanley as the only bank where he had maintained an account within the two years immediately preceding the filing of his petition. At the trial Mr. Kessler testified his failure to list the United Missouri Bank account was due to his ignorance in filling out the forms. The Chapter 7 petition filed for Insulation Service also failed to list the United Missouri account.
9. That following Mr. Kessler's filing of the Chapter 7 petitions on behalf of Insulation Service and himself, Mr. Kessler continued to collect accounts receivable of the corporation and to deposit them in the United Missouri checking account. Mr. Kessler testified that he did this because he believed it was his responsibility, although a trustee had been appointed in each case.
10. That the trustee filed his original complaint objecting to discharge on December 1, 1983; his first amended complaint on December 28, 1983; and his second amended complaint on January 10, 1984. The trustee seeks to have the debtor's discharge denied under sections 727(a)(2)(A) & (B), (4) and (7) of Title 11 United States Code.
WHETHER THE TRUSTEE HAS SUSTAINED HIS BURDEN OF PROOF SUCH THAT THE DEBTOR'S DISCHARGE SHOULD BE DENIED.
Section 727(a)(2) states in pertinent part as follows:
The purpose of this section is to prevent the discharge of a debtor who attempts to avert collection of his debts by concealing or otherwise disposing of assets. In re Balch, 25 B.R. 22, 24 (N.D.Tex.1982).
The Code requires the trustee to prove: (1) that a concealment of property has occurred; (2) that the property was property of the estate; (3) that the act complained of was done within one year of the filing of the petition; (4) that the concealment was done with the intent to hinder, delay, or defraud a creditor of the estate.
Proof of fraudulent concealment in order to bar discharge need only be shown by a preponderance of the evidence. Farmers Co-op Association of Talmage, Kansas v. Strunk, 671 F.2d 391, 395 (10th Cir.1982).
The Court finds that the trustee has sustained his burden of proof in this case. The trustee Kunce established that the debtor concealed his checking account at United Missouri Bank by failing to list the account in the schedules of his individual petition or those of his corporation. Although 11 U.S.C. § 521(4) required him to "surrender to the trustee all property of the estate", Mr. Kessler failed to do so. The Court finds that his failure to turn over the proceeds from the accounts receivable and to list the funds in United Missouri Bank was tantamount to concealment; thus, the first element under § 727(a)(2) was met.
The second element is present also, since the checking account was opened in the debtor's name and he never divested himself of his interest in the checking account, and continued after the filing of the petition to execute complete control over the property of the estate, even after a trustee was appointed. Thus, the Court finds the second element under § 727(a)(2) has been satisfied.
The Court further finds that the concealment occurred from the date the account was opened in May 1983, until it was discovered by the trustee in the fall of 1983; and the act therefore was done within one year of the filing of the petition; so the third element has been met.
Mr. Kessler alleges the Court should not bar his discharge pursuant to this section because he lacked the requisite intent to hinder, delay, or defraud a creditor. He contends that no fraud may be present when he used the money to pay personal and corporate creditors. Having had the opportunity to hear Mr. Kessler testify on the witness stand and to observe his demeanor, however, this Court is convinced that Mr. Kessler concealed his interest in the United Missouri checking account with an intent to defraud his creditors. Volis v. Puritan Life Ins. Co., 548 F.2d 895, 901 (10th Cir.1...
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