In re Lineberry
| Decision Date | 19 November 1985 |
| Docket Number | Bankruptcy No. 3-84-00036,Adv. No. 3-84-0032. |
| Citation | 55 BR 510 |
| Parties | In re Mark D. LINEBERRY, Debtor. Beverly TAYLOR, Plaintiff, v. Mark D. LINEBERRY, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Kentucky |
J. Baxter Schilling, Louisville, Ky., for plaintiff.
L. Stanley Chavin, Jr., Louisville, Ky., for defendant.
This matter comes before the Court on plaintiff-creditor's Complaint, objecting to the discharge of certain debts under 11 U.S.C. Section 523(a)(5) and/or to debtor's Chapter 7 discharge under 11 U.S.C. Section 727(a)(2)(A), Section 727(a)(3), Section 727(a)(4)(A), Section 727(a)(4)(D), and Section 727(a)(5).
The plaintiff is the former wife of the debtor-defendant, and the "debts" in question arose from the state court decree disposing of the property interests, maintenance and support issues flowing from this divorce proceeding.
At issue is the interpretation to be given certain provisions of the state decree, i.e., whether certain awards therein are in the nature of maintenance and/or support. Additionally, plaintiff alleges that defendant must be denied a discharge under Sections 727(a)(2)(A), (a)(3), (a)(4)(A), (a)(4)(D), and (a)(5), as his conduct has been violative of the provisions set forth therein.
At the outset as this Court has stated previously, "it must be recognized that this court in applying the law under Title 11, can neither abate the highly charged emotional feelings of the parties nor lessen the bitterness resulting from the termination of the marital relationship." In re Bailey, 53 B.R. 732 (Bkrtcy., W.D.Ky., 1985). The plaintiff argues that the debtor's conduct prior to the filing of this bankruptcy petition and disclosures therein fall significantly short of that standard required by the Code, and accordingly, his right to a discharge should be denied under Sections 727(a)(2)(A), (a)(3), (a)(4)(A), (a)(4)(D), and/or (a)(5). Further, this opinion must determine the legal consequences of the state court provisions in the context of a subsequently filed bankruptcy, testing whether such provisions or awards are nondischargeable under Section 523(a)(5).
It is well-settled that the burden of proof is on the plaintiff when challenging the debtor's right to a discharge. Rules of Bankruptcy Procedure 4005. Further, it should be noted that the plaintiff's burden of proof on the Section 727 claims is that of clear and convincing evidence before the debt is excepted from discharge. In re Martin, 761 F.2d 1163 (6th Cir.1985); In re Perez, 52 B.R. 824 (Bkrtcy., W.D.Ky.1985).
In the instant case, issues under Section 727 have been raised which, if established, would make moot a determination of the Section 523(a)(5) challenge. Therefore, this court will first address the plaintiff's complaint relative to the debtor's conduct under the applicable Sections of 727, which provide:
Section 727. Discharge.
More specifically, the plaintiff alleges that the debtor transferred, removed or concealed certain property within one year before filing the petition, which property consisted of over $8,000.00 from an account known as the "MDIC" (Medical Doctors Investment Club) account. Further, plaintiff alleges that the debtor has failed to keep proper records and books concerning the aforestated $8,000.00 in the MDIC account; that he made a false oath in that he failed to list the MDIC account in the Statement of Affairs of his bankruptcy petition; and that he has withheld information and records concerning the MDIC account from his Trustee. Finally, the plaintiff alleges that the debtor has failed to explain satisfactorily the loss or deficiency of his assets, particularly the depletion of the MDIC account in a period from July 16, 1983 through December 14, 1983, which shortly preceded his filing his petition in bankruptcy on January 9, 1984.
The debtor, in rebuttal, offered testimony that there was no intent to conceal any property of his estate from the creditor inasmuch as she admitted that she was aware of the existence of the MDIC account on the day he filed his petition; that he has not destroyed any records concerning his financial condition inasmuch as he has never kept records; that he did not knowingly make a false oath in his Statement of Affairs by omitting the MDIC account inasmuch as the omission was inadvertent. Finally, debtor offered testimony concerning itemizations as to the expenses he incurred and the manner in which they were paid by withdrawing sums from the MDIC account.
The court now addresses plaintiff's proof to determine whether a prima facie case has been presented on the elements contained in the applicable Sections of 727. This court has previously held that the intent requisite to preclude a discharge under Section 727(a)(2)(A) must be an actual fraudulent intent as distinguished from constructive intent. In re Chambers, 36 B.R. 791 (Bkrtcy., W.D.Ky.1984); In re Waddle, 29 B.R. 100 (Bkrtcy., W.D.Ky. 1983). After reviewing the testimony and proof submitted, it is the opinion of the Court that plaintiff has failed to sustain its burden of proving fraudulent intent essential to its objection under Section 727(a)(2)(A). The plaintiff admitted she knew of the MDIC account, so there was no concealment of the asset. Further, despite plaintiff's multitude of Section 727 claims, it is the opinion of the Court that plaintiff has failed to sustain its burden of proof on all of the Section 727 objections.
As to the Section 727(a)(3) objection, plaintiff has presented no proof that debtor has destroyed any financial information or records. While there was testimony by the debtor that he is not the best recordkeeper as to his personal financial records, such testimony does not make out a prima facie case under Section 727(a)(3). In re Cycle Accounting Services, 43 B.R. 264 (Bkrtcy., E.D.Tenn.1984). In fact, Dr. Lineberry has never kept accurate financial records. During the marriage, the plaintiff who is a C.P.A., always kept meticulous records of their financial affairs.
Two elements must be present to deny discharge under Section 727(a)(4)(A): (1) debtors' oath must have been knowingly and fraudulently made; and (2) it must have related to a material fact. In re Waddle, supra at 103. Generally speaking, a debtor who, without fraud, omits from his sworn schedules property of no value is not guilty of making a false and fraudulent oath. Id. The debtor contends that his failure to list the MDIC account was the result of an honest mistake on his part. He testified that he did not list the account because it had no funds in it at the time he filed and he, therefore, did not consider it an asset of his estate. Debtor has amended his Statement of Affairs to show the MDIC account as one that he maintained for a two-year period prior to filing his petition. It has been held that the courts will not deny discharge when a false statement in the Statement of Affairs is due to mere mistake or inadvertence. In re Butler, 38 B.R. 884, 889 (Bkrtcy.D.Kan., 1984).
Plaintiff's objection to discharge under Section 727(a)(5) also must fail in that the debtor has offered what the Court finds to be a satisfactory explanation of the depletion of the MDIC account. The standard by which explanation of loss or deficiency of assets to meet liabilities is measured is one of reasonableness or credibility. In re Cohen, 47 B.R. 871, 874 (Bkrtcy., S.D.Fla.1985).
Although the debtor is not, by his own admission, the best recordkeeper, he did offer specific itemizations of how the money from the MDIC account was spent in the questioned two and a half month period. He did not trace the entire sum, but stated that it was an abnormal time in his life and that he expended the funds on travel expenses related to his application for fellowships, large household purchases, attorney's fees in connection with his divorce action, and other living expenses. After hearing the testimony of Dr. Lineberry and viewing the demeanor of the witness, the Court finds that he has given a credible and satisfactory explanation of the loss of this asset, particularly since the debtor customarily used cash. See, In re Church, 47 B.R. 186 (Bkrtcy., E.D.Tenn.1985).
Next addressing the Section 523(a)(5) issue, the Court is called upon to determine the significance to be given the provisions contained in the Findings of Fact and Conclusions of Law entered by Judge Olga S. Peers, Jefferson Circuit Court, on September 15, 1983, following a two-day trial of the divorce action involving the plaintiff-creditor and defendant-debtor herein. Said Findings of Fact...
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