In re Young

• Decision Date: 01 August 2006
• Docket Number: Adversary No. 04-1476.,Bankruptcy No. 04-14794.
• Parties: In re Ginger YOUNG, Debtor. John S. Pereira, as Trustee in Bankruptcy of Ginger Young, Plaintiff, v. Ginger Young, Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

346 B.R. 597

In re Ginger YOUNG, Debtor John S. Pereira, as Trustee in Bankruptcy of Ginger Young, Plaintiff, v. Ginger Young, Defendant.

Bankruptcy No. 04-14794.

Adversary No. 04-1476.

United States Bankruptcy Court, E.D. New York.

August 1, 2006.

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Ann Marie Sinisi, Esq., Law Offices of John S. Pereira, New York, NY, for the Chapter 7 Trustee.

Michael D. Siegel, Esq. Siegel & Siegel, P.C., New York, NY, for the Debtor/Defendant.

MEMORANDUM DECISION DENYING THE CHAPTER 7 TRUSTEE'S OBJECTIONS TO THE DEBTOR'S DISCHARGE

ELIZABETH S. TONG, Bankruptcy Judge.

This adversary proceeding (the "Adversary Proceeding") was commenced by the filing of a complaint (the "Complaint") by John S. Pereira, as Chapter 7 trustee (the "Trustee" or "Plaintiff') of the bankruptcy estate of Ginger Young, the debtor in the above-captioned Chapter 7 case and the defendant in this Adversary Proceeding (the "Debtor"). By his Complaint, the Trustee seeks to deny the Debtor a discharge in bankruptcy.

A trial was conducted before the Court on June 15, 2005 (the "June 15 Trial"), at which counsel for the Trustee and counsel for the Debtor appeared and were heard, and testimony was taken. Thereafter, the parties attempted to resolve the issues through mediation but were unable to do so. The trial record was closed on April 25, 2006, and the matter was submitted for decision. Based on the entire record, including the testimonial and documentary evidence and the arguments of the parties, and for the reasons set forth below, the Trustee's objections to the Debtor's discharge are denied.

Jurisdiction

This Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(b). This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A). The following are the Court's findings of fact and conclusions of law after a trial pursuant to Rule 52 of the Federal Rules of Civil Procedure, as made applicable by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

Background

A. Procedural History

The Debtor filed for relief under Chapter 7 of Title 11 of the United States Code (the "Bankruptcy Code") on April 6, 2004 (the "Petition Date"). The Trustee was appointed as interim Chapter 7 trustee, and thereafter qualified to become the permanent Chapter 7 trustee of the Debtor's estate. The Debtor was examined at a Section 341 meeting of creditors on May 13, 2004 (the "May 13 Section 341 Meeting"). That examination was continued on July 7, 2004 (the "July 7 Section 341 Meeting"), and September 8, 2004 (the "September 8 Section 341 Meeting").

The Trustee filed the Complaint on September 29, 2004. The Complaint includes five claims for relief. By the first claim for relief (the "First Claim for Relief'), the Trustee seeks an order declaring that any and all postpetition transfers made by the Debtor are null and void as against the Trustee under Section 549 of the Bankruptcy Code. The second claim for relief (the "Second Claim for Relief') seeks an accounting from the Debtor of all nonexempt property under Section 541 of the Bankruptcy Code. The third claim for relief (the "Third Claim for Relief') seeks to deny the Debtor a discharge based on the Debtor's alleged unjustified acts or failures to act with respect to keeping and preserving recorded information under Section 727(a)(3) of the Bankruptcy Code. The fourth claim for relief (the "Fourth Claim for Relief') seeks to deny the Debtor a discharge based on the Debtor's alleged knowing and fraudulent withholding of recorded information relating to her property and financial condition under Section 727(a)(4)(D) of the Bankruptcy Code. The fifth claim for relief (the "Fifth Claim for Relief') seeks to deny the Debtor a discharge based on the Debtor's alleged failure satisfactorily to explain the deficiency of assets to meet her liabilities under Section 727(a)(5) of the Bankruptcy Code.

The Debtor filed an answer to the Complaint on October 8, 2004, in which she denies the allegations supporting the Trustee's objections to her discharge and request for avoidance of alleged postpetition transfers. The Debtor seeks a judgment dismissing the Complaint.

As indicated above, this matter was tried by the Court on June 15, 2005. The Trustee and the Debtor testified on their own behalf, and the Debtor offered the expert testimony and report of Laura Boyd, MSW. At trial, the Trustee withdrew the First Claim for Relief relating to postpetition transfers. Trial Tr. at 91:18-20.¹ At the close of the June 15 Trial, the parties agreed that referral to court-annexed mediation could assist the parties in resolving the matter, and on that same day, the Court entered a Mediation Referral Order. Adversary Docket No. 13. By stipulation signed on August 11, 2005, the parties agreed upon a mediator and on August 18, 2005, the Court entered a Stipulation and Mediation Order. Adversary Docket No. 19. The Final Report of Mediator filed on February 17, 2006, indicated that the mediation process ended in an impasse. Adversary Docket No. 25.

A post-trial conference was held on March 28, 2006, at which the Trustee and counsel for the Debtor appeared and were heard. At the conference, the Trustee confirmed that the First Claim for Relief relating to postpetition transfers and the Second Claim for Relief seeking an accounting were withdrawn. Accordingly, there remain for decision the Trustee's Third, Fourth, and Fifth Claims for Relief under which the Trustee seeks to deny the Debtor a discharge under Sections 727(a)(3), 727(a)(4)(D), and 727(a)(5) of the Bankruptcy Code.

A final post-trial conference was held on April 25, 2006, at which the Trustee and counsel for the Debtor appeared telephonically and were heard. The trial record was closed and this matter was submitted for decision.

B. Factual Background

The Debtor's Petition lists assets of $23,720 consisting of $20 cash on hand, $500 in a checking account, household goods of $1,500, wearing apparel of $1,500, $20,000 in an IRA account, and $200 in Disney stock. Petition, Schedule B. The Debtor claims that the funds in her checking account, her household goods, her wearing apparel, and her IRA account, are exempt property. Petition, Schedule C. The Debtor does not list any secured debt, and lists unsecured debt of $30,043.71, comprised primarily of credit card debt and telephone and utility debt. Petition, Schedules D, F.

The Debtor completed about two years of college but has not earned a degree. Trial Tr. at 9:12-19. She has been employed as a paraprofessional by the New York City Department of Education for eight years, and lists total monthly income of $1,523 and total monthly expenses of $1,470. Petition, Schedules I, J. The Debtor's Statement of Financial Affairs shows employment income of $21,000 in 2003, $1,500 in 2002, and $18,000 in 2001. Statement of Financial Affairs ("SOFA"), item 1. The Debtor's 2003 Federal income tax return shows total income in 2003 of $82,824, including $19,124 in wages, a S31,435 IRA distribution, and a $31,250 pension distribution. Debtor's Exh. D (2003 Federal income tax return). The Debtor states in her Statement of Financial Affairs that no financial accounts or instruments were closed, sold, or otherwise transferred within one year of the Petition Date. SOFA, item 11.

The Debtor's Statement of Financial Affairs shows that for the two years prior to the Petition Date, she had no income other than from "employment or operation of business." SOFA, item 2. The Statement of Financial Affairs also shows that she was an "officer, director, partner, or managing executive of a corporation, partnership, sole proprietorship" called Gentle Ferocity, a cleaning business, from 2001 to 2003. SOFA, item 18A. As to the business activities of Gentle Ferocity, the Debtor testified that "[t]he business never existed. All we had was a tax ID." Trial Tr. at 12:13-14.

From 1981 to 2003, the Debtor resided in and was the sole owner of a one-family home located at 1863 East 33rd Street, Brooklyn, New York (the "East 33rd Street Property"). SOFA, item 15; Plaintiffs Exh. 7 (transcript of May 13 Section 341 Meeting) at 3:11-24. About six and one-half months before the Petition Date, on September 22, 2003, the Debtor sold the East 33rd Street Property for $390,000. Debtor's Exh. C (closing statement for East 33rd Street Property sale.) On July 8, 2003, the Debtor's real estate attorney, Raymond L. Ferrier, received a $39,000 down payment from the prospective purchasers. Joint Pre-Trial Statement, Undisputed Facts, at 2. The closing statement shows that the Debtor attended the closing on September 22, 2003, and that the net proceeds of the sale of the East 33rd Street Property were approximately $78,000 (the "Sale Proceeds"). Debtor's Exh. C (closing statement for East 33rd Street Property sale.)

At the May 13 Section 341 Meeting, the Debtor testified that she and her children had been threatened by an individual, Thih Anderson, who forced her to enter into four mortgages secured by the East 33rd Street Property and who arranged for the sale of the East 33rd Street Property when mortgagees took steps to foreclose. Plaintiffs Exh. 7 (transcript of May 13 Section 341 Meeting) at 5:23-11:12. At the May 13 Section 341 Meeting, the Trustee's attorney requested that the Debtor produce all documents relating to the sale of the East 33rd Street Property. Plaintiffs Exh. 7 (transcript of May 13 Section 341 Meeting) at 12:23-13:14. In response, the Debtor produced the closing statement, described by the Debtor's attorney as "the only document [the Debtor] can locate," and "documents from the ACRIS system, which confirms the mortgages..." Debtor's Exh. C (May 17, 2004, letter from the Debtor's attorney to the Trustee).²

At the July 7 Section 341 Meeting, the Debtor was examined by Diana Adams of the Office of the United States Trustee and the Trustee. By Stipulation and Order...