Summary:
Ms. Hollan hired the Kaspers & Associates Law Offices, L.L.C. ("Kaspers") in 2013 to represent her in an employment discrimination law suit. During that case, Ms. Hollan sold her unecumbered homed in Atlanta, with net proceeds of more than $300,000, and relocated to Burlington, North Carolina. Through a series of cash withdrawals from her bank accounts, Ms. Hollan took more than $200,000 in cash, which she testified was subsequently kept in her car, because she distrusted banks. After the employment discrimination law suit was dismissed, Kaspers brought suit against Ms. Hollan for legal fees, this time successfully obtaining a judgment for $172,954.39 in February 2019. Ms. Hollan then filed a Chapter 7 bankruptcy immediately thereafter. Both the Bankruptcy Administrator and Kaspers filed an Adversary Proceeding seeking to dismiss the case pursuant to 11 U.S.C. §727(a)(3), (a)(4)(A) and (a)(5), alleging that Ms. Hollan not only
Regarding 11 U.S.C. §727(a)(3), the Bankruptcy Court held that while, pursuant to Mercantile Peninsula Bank v. French (In re French), 499 F.3d 345, 354 (4th Cir. 2007), a debtor is not required to maintain "perfect records", Ms. Hollan was “obliged by the statute to preserve sufficient and adequate financial records to enable the court and the parties to
reasonably ascertain an accurate picture of [her] financial affairs.” Id. at 355. The court found that Ms. Hollan had, in the four years preceding her bankruptcy, more that $400,000 of liquid assets (consisting of her income, tax refunds, insurance proceeds and most substantially the funds from the sale of the Atlanta residence) but could only account for slightly less than $150,000 of expenditures during that period. Given her graduate degree in business administration, the court found that Ms. Hollan's failure to even "go to the local dime store and purchase a ledger" Citing Neary v. Hughes (In re Hughes), 353 B.R. 486 (Bankr. N.D. Tex. 2006) in which to keep financial records warranted dismissal of the case.
As to 11 U.S.C. §727(a)(5), in attempting to explain the use of her funds, Ms. Hollan testified that she continued to live a "Buckhead Lifestyle" after relocating to Burlington, which the court found to be not only extravagant, but an insignificant explanation for the expenditure of the unaccounted funds. Instead the court found that Ms. Hollan's spending, when coupled with her decision to keep the funds in her car rather than a bank, indicated she had attempted to hide them from Kaspers. That behavior the could found subjected her to a higher degree of scrutiny for failing “to explain satisfactorily ... any loss of assets or deficiency of assets to meet the debtor’s liabilities.” 11 U.S.C. §727(a)(5). Accordingly, dismissal was justified under this section as well.
Despite allegations by Kaspers that she had made of false oaths during her bankruptcy case and finding Ms. Hollan's testimony was "a rambling monologue and full of inconsistencies", the court declined to reach the issue of whether dismissal was also warranted under 11 U.S.C. §727(a)(4)(A).
Commentary:
Given that Ms. Hollan lives in Burlington, North Carolina, which is squarely in the Middle District of North Carolina, it is perhaps a bit surprising that the Bankruptcy Administrator for the Eastern District of North Carolina did not seek to have this case dismissed or the venue transferred, as that would have been a much faster resolution.
In explaining her expenses during the four preceding years, perhaps Ms. Hollan could have started from the schedules in be petition. Schedule J shows actual monthly expenses of $4,691.08, where an estimated Form B22C (Ms. Hollan was below median income, so that full form was not completed) would have allowances of ~$2,400.00. Over four years, that would have accounted for between $115,200 and $225,000, dramatically reducing the amount that she could not explain.
That both the courts here (and in Hughes in 2006) thought that debtors could obtain account ledgers at "dime stores" was hopefully a rhetorical flourish, as it otherwise displays an outmoded disconnect with the fact that most dime stores closed in the 1980s. It is unlikely that the dollar stores which have replaced them sell something as utilitarian as an account ledger.
For a copy of the opinion, please click here:
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