I had the opportunity to further research the issue. In Martin v. Bajgar (In re Bajgar), 104 F.3d 495, 501 (1st Cir. Mass. 1997) , the fact that the transfer was disclosed in the schedules did not matter. The “transfer bell” could not be unrung through disclosure.
Even if the debtor recovers the transferred property, it may not matter. The 11th circuit says that a retransfer back to the debtor is inconsequential; the initial transfer is sufficient to deny the discharge. In re Davis, 911 F.2d 560, 562 (11th Cir. Ga. 1990).
On the other hand, the 4th circuit says you can unring the transfer bell in a voluntary petition, provided that you recover all the tranferred assets before the filing and notify the creditors and notify the creditors of the transfer prior to the filing. First Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d 1339 (9th Cir. 1986). The court, in essence, took the “no harm, no foul” approach, finding that if this were done, the creditors were really not hurt by the transfer.
My case is in the 3rd Circuit, and I have no idea how the court would hold. I have some compelling facts, in that the amount of assets transferred to the spouse would otherwise have been covered by exemptions. My client had only one small judgment against him, and had he not made the transfer and the creditors levied upon the assets, he could have filed C7 and voided the levy under 522(h). On the other hand, my client has over $400,000.00 in debt, and if the court holds against us, he would have $400,000.00 in debt that he could never discharged. 727(A)2 is exactly what concerns me.
Chapter 13 is not available, since he has over $400,000 in unsecured debt from a failed business.
I am not concerned so much about Tee avoiding any transfers. My client would concede losing 10K (the value of the property transferred) in order to avoid 400K in debt.
We could wait a year in order to avoid 727(A)(2) issues, but he has several lawsuits against him which will become judgments soon. He owns his home with his non-debtor spouse which would not have enough equity to interest Tee, but which has too much equity to avoid judgment liens a year from now if we wait to file. No creditors were actually hindered, delayed or defrauded, but the Tee would argue that only the intent matters. I would undo, disclose and notify in every way I could, and I think I would have a great argument if I filed. However, there would be no guaranty that I would win, and that is the problem. I think wife has legal title to money that is in her name alone, but full equitable title to money is held by Debtor (in all fairness, it’s his money). Like when mom puts her name on son’s car title (for insurance purposes) but it’s really the son’s car as he’s made all payments, paid for all repairs, and retains full control and use of vehicle
Related posts: