The Debtor acquired a piece of real property in 2001 solely in his name. In 2007, three months after the Plaintiff/Creditor file a lawsuit against the Debtor, the Debtor transferred the property to himself and his wife as Tenants by the Entireties. Four months later, the Debtor filed Chapter 7.
The Plaintiff brought an action against the Debtor under 11 U.S.C. § 727(a)(2) to deny his discharge on the basis that the transfer of property had been done to hinder, delay or defraud creditors, specifically to thwart collection on any judgment resulting from his State Court Action.
The Court began by recognizing that a transfer by itself is insufficient to show an intent to hinder, delay or defraud creditors, and then turned to the various "badges of fraud", including:
1. Lack of consideration for the transfer;
2. A family relationship between the parties;
3. Some retention of the property for personal use;
4. Suspicious financial condition before or after the transfer;
5. The existence of a pattern or series of transactions after the incurring of debt, onset of financial difficulties, or pendency or threat of suit by creditors;
6. Suspicious chronology of events and transactions under inquiry; and
7. An attempt to keep the transfer a secret.
While one factor may be sufficient to find fraudulent intent, several factors together will strongly indicate the presence of fraudulent intent. Citing to In re Ford, 773 F.2d 52 at 54 (4th Cir. 1985), the Court did state that exemption planning was not per se impermissible as "[m]ere conversion of a property from non-exempt to exempt on the eve of bankruptcy-even though the purpose is to shield the asset from creditors-is not enough to show fraud." That notwithstanding, however, an assertion of exemption planning does not erase an intent to hinder, delay or defraud creditors.
The Debtor testified that the transfer was a means of preventing his ex-wife from throwing his current wife off the property in the event of his death. This did not protect the transfer, as the ex-wife was herself a creditor and was being hindered, defrauded or delayed. That the Debtor's wife had contributed money and labor towards the acquisition and improvement of the property was also unavailing, since that would have at most entitled the Debtor's wife to a one-half interest in the property, rather than the entireties interest. The Court then found that the transfer had all of the badges of fraud, including the Debtor's failure to disclose the transfer in the Statement of Affairs and the timing of the transfer following the commencement of a lawsuit.
Stout v Fields.PDF
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