In a case involving multiple corporations and transfers back and forth from the Debtors’ household bank accounts and corporate accounts, the Trustee and a major creditor sought a denial of discharge against the debtors under 11 U.S.C. § 727.
After reviewing and finding that the Debtors displayed several of the “badges of fraud”, see West v. Abdelaziz (In re Abdelaziz), 2012 Bankr. LEXIS 591, at *7-8 (Bankr. M.D.N.C. Feb. 1, 2012), the bankruptcy court nonetheless found that the Debtors also displayed several of the mitigating “badges of a desperate but well-intended debtor”, including:
(1) Evidence showing that the multiple corporations were established for legitimate purposes;
(2) Attempted negotiations prior to bankruptcy with creditors;
(3) Repayment of transfers from corporate accounts, particularly from liquidation of the individual Debtors’ personal property;
(4) Preferential payments were not evidence of an intent to hinder, delay or defraud other creditors;
(5) The Debtors lack of financial sophistication; and
(6) That the Debtors might, even though in one joint bankruptcy as husband and wife, not both share the culpability.
Accordingly, the court found that these matters were better suited for a trial and summary judgment was denied.
“Badges of Fraud” is a far catchier phrase than “Badges of Desperate but Well-Intended Debtor”. Perhaps “Badges of Credulity”?
Quotes from ” The Treasure of the Sierra Madre” or “Blazing Saddles” are welcome. David Badger need not reply, since we do not need to hear from him, unless he has showered recently.
For a copy of the opinion, please see: