IN RE: RONALD WAYNE DAVIDSON CASE NO. 86-00092
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
RONALD WAYNE DAVIDSON CASE NO. 86-00092
DONALD L. FRAILIE, Trustee PLAINTIFF
V. ADV. NO. 88-0040
BETTY LEE DAVIDSON, et vir. DEFENDANTS
JOHNSON'S DAIRY, INC. et. al. PLAINTIFFS
V. ADV. NO. 86-0217
RONALD WAYNE DAVIDSON DEFENDANT
FINDINGS OF FACT
In these adversary proceedings, the plaintiff seeks denial of the debtor's discharge pursuant to ll U.S.C. 727(a)(2)(A).
On April 22, l986 the debtor, Ronald Wayne Davidson, executed a petition for relief under chapter 7 of the Bankruptcy Code, a Statement of Financial Affairs for debtor Engaged in Business and accompanying Schedules A and B, which after the occurrence of certain intervening events as hereinafter set out, were subsequently filed with the court on May 7, l986.
The schedules to the petition indicate the debtor owned interests in real property. The Statement of Affairs indicates there had been a "transfer of property under the terms of a Separation Agreement which will become a part of a Decree of Dissolution of Marriage."
Prior to April 22, l986 the debtor, Ronald Wayne Davidson, and his wife, Betty Lee Davidson, owned several tracts of real estate as joint tenants with right of survivorship. On April 22,
l986 the debtor, Ronald Wayne Davidson, executed seven deeds by which he transferred all his right, title and interest in the several tracts of real estate to his wife.
Each deed contained the following recitation:
There is no monetary consideration, as this conveyance is pursuant to a Separation Agreement entered into by the parties, dated April l6, l986, which is to be included into any Decree of Dissolution of Marriage of the parties...
The seven deeds were lodged for record in the Boyd County Court Clerk's Office on April 25, l986. As indicated, the petition for relief under chapter 7 of the Bankruptcy Code was filed in this court on May 7, l986.
The marriage of the debtor, Ronald Wayne Davidson, and Betty Lee Davidson, was dissolved by decree of the Boyd Circuit Court entered July l3, l986, in action No. 86-CI-330. The Separation Agreement incorporated in the decree provides as follows with respect to the real estate of the parties:
4. That the wife shall be the owner of all real property owned by the parties, as follows:
a. The marital residence and lots on Shopes Creek Road, Ashland, Boyd County, Kentucky;
b. The lots on Young Road in Boyd County, Kentucky;
c. The 65 acre lot on East Fork in Boyd County, Kentucky;
d. The property and lot on U.S. 60 in Boyd County, Kentucky; and
e. The 65 acre lot on Bear Creek, Lawrence County, Kentucky.
The husband shall convey title to all the above-listed real estate to the wife and the wife shall assume and be responsible for all indebtedness thereon. Further, the wife agrees to indemnify and hold the husband harmless from any liability as relates to the property described herein.
At the time of the transfer by the debtor of his interest in the several tracts of real property in question to his wife, there was substantial equity in the properties in excess of the mortgage indebtedness to Ashland Federal Savings and Loan Association and Kentucky Farmers Bank on some of the properties. The indebtedness which Betty Lee Davidson agreed to asssume and to hold the debtor harmless with respect to was in the approximate amount of
$40,000.00. The properties are valued at an excess of $60,000.00.
CONCLUSIONS OF LAW:
The plaintiff trustee has objected to the debtor's discharge under section ll U.S.C. 727(a)(2)(A) which provides:
(a) The court shall grant the debtor a discharge unless-
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred,
removed, destroyed, mutilated, or concealed-
(A) property of the debtor, within one year before
the date of the filing of the petition; or...
To meet the burden of proof to sustain an objection to discharge under section 727(a)(2)(A), the plaintiff must establish:
l. that the debtor transferred or concealed property;
2. that such property belonged to the debtor;
3. that the transfer or concealment occured within one year
of the filing of the petition; and
4. that the debtor transferred or concealed the property with the intent to hinder, delay or defraud a creditor.
Matter of Brooks 58 B. R. 462 (Bankr. W. D. Pa. l986).
In this case there is no argument that the debtor transferred seven tracts of real estate to his wife within one year of the filing of the debtor's bankruptcy petition. The sole issue to be determined is whether the debtor transferred the property with the intent to hinder, delay or defraud a creditor.
Actual fraudulent intent may be determined by circumstantial evidence or inferences drawn from a course of conduct. In Re Chambers 36 B. R. 79l (Bankr. W. D. Ky. l984). The debtor in the present case claims no attempt was made to defraud any creditor. Since it is clear that a debtor will not voluntarily testify that his intent was fraudulent, the court has the authority to deduce such fraudulent intent from all of the facts and circumstances of the case. Brooks, p. 465.
Several courts have discussed the various indices by which fraudulent intent can be found. These badges of fraud include:
l. an absence or neglible amount of consideration;
2. the value which the transfer gave to or took from the debtor's estate;
3. the time in which the transfer occured;
4. the relationship between the debtor and his transferee;
5. the debtor's financial condition at the time of the transfer;
6. the concealment of the transfer; and,
7. whether the transfer occured while a collection
lawsuit against the debtor was either threatenend or pending.
Id. p. 466
In the case at bar, several of the badges are present. The debtor owned a one-half undivided interest in the properties that were transferred. The value of his interest was at least $10,000.00. The agreement of Betty Lee Davidson to assume and pay the balance due on the mortgage indebtedness and to hold the debtor harmless with respect thereto is less than reasonable equivelant value in exchange for the debtor's interest. The fact that valuable property has been gratuitously transferred raises a presumption that such transfer was accompanied by the actual fraudulent intent necessary to bar discharge. 4 Collier on Bankruptcy sec. 727.02 (15th Ed. l982).
The debtor executed the petition for relief and the seven deeds on April 22, l986. The deeds were then recorded on April 25,
l986. The petition for relief was filed on May 7, l986. When these transactions, made within days of each other, are coupled with the fact that the transfers were made to the debtor's wife, the badges of fraud begin to multiply.
At the hearing on February 23, l989, the debtor testified that at the time of the transfer, he owed money to Johnson's Dairy and to Curry. He testified that he knew Johnson's Dairy and Curry were preparing to sue him. Clearly this shows a belief on the part of the debtor that a collection lawsuit was being threatened, and is indicative of fraudulent intent.
Taken as a whole, sufficient evidence is present to draw the conclusion that the transfers were conducted in an attempt to hinder, delay or defraud a creditor. The elements of proof having been met, the debtor's discharge is denied pursuant to ll U.S.C. 727(a)(2)(A).
Dated: By the Court
Phillip D. Mckenzie
C. David Mussetter
Ronald Wayne Davidson