Converting Non-exempt Property Into Exempt, Bankruptcy Fraud & Prison
In re: Addison, No. 07-2064, 07-2727 (U.S. 8th Circuit Court of Appeals, August 07, 2008) In a bankruptcy case, rulings against debtor and denial of discharge are affirmed in part and reversed in part where: 1) the bankruptcy court clearly erred in finding that debtor converted nonexempt property into his homestead with the intent to hinder, delay, or defraud a creditor; 2) it erred similarly in finding debtor transferred nonexempt funds into a Roth IRA with such intent; 3) the resultant denial of discharge required reversal; and 4) two 26 U.S.C. section 529 tuition savings accounts opened for the benefit of his children were nonexempt property of his bankruptcy estate.
In re Stern, No. 00-56431 (9th Cir. 02/04/2003) Feb. 6, 2003 TRANSFER OF ASSETS INTO EXEMPT PROFIT-SHARING RETIREMENT PLAN ON EVE OF BANKRUPTCY WAS NOT FRAUDULENT David A. Gill, Bankruptcy Trustee (“Trustee”), appeals the district court’s decision affirming the bankruptcy court’s order, which granted summary judgment in favor of the debtor Steven Stern (“Stern”). Stern cross-appeals the district court’s determination that Stern’s pension plan funds are not excluded from the bankruptcy estate.
Stern filed for bankruptcy after the entry of a sizable judgment against him in an arbitration proceeding. We must determine whether the transfer of proceeds from an Individual Retirement Account (“IRA”) into a Profit Sharing Pension Plan was a fraudulent conveyance, subject to avoidance by the Trustee.
Constrained by our precedent, we AFFIRM the district court’s holding that, although the pension plan was properly included within the bankruptcy estate, the pension plan assets were exempt from distribution to Stern’s creditors.
In 1978, Stern terminated the 1974 Plan and created a qualified, defined benefit pension plan (“1978 Plan”). In 1989, Stern terminated the 1978 Plan and transferred the plan assets into an IRA account (“IRA”).
We are controlled by our prior opinion in Wudrick v. Clements, 451 F.2d 988 (9th Cir. 1971). In that case, we ruled “that the purposeful conversion of nonexempt assets to exempt assets on the eve of bankruptcy is not fraudulent per se.” In reversing the district court’s determination that Wudrick engaged in a fraudulent conveyance, we clarified that “[t]he finding of fraud was based solely on the fact that nonexempt assets were deliberately converted to exempt assets just prior to filing the bankruptcy petition.” Id. at 990. We explained that this “evidence was insufficient as a matter of law to establish fraud.” Id. Our analysis was impliedly affected by the clarification that a different conclusion might be reached “if on the eve of bankruptcy a debt were created with no intention of repaying the creditor . . . .” We also noted that a finding of fraud must be established by “clear and convincing” evidence. See also Retirement and Bankruptcy.
Beeler v. Jewell, No. 00-35474, 00-35518 (9th Cir. April 09, 2002) Debtors encumbered their house prior to filing for bankruptcy, and further financing of debtors’ corporation after bankruptcy filing did not amount to the creation of a new lien entitling mortgagee to proceeds from bankruptcy sale of house.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width=”1/1″][vc_separator][/vc_column][/vc_row][vc_row][vc_column width=”1/1″][title text=”Property divided pursuant to divorce decree and fraudulent transfer issue” size=”h3″ line=”true”][vc_column_text]In re Beverly, 374 B.R. 221 (9th Cir.BAP 2007) affirmed in part, dismissed in part by In re Beverly, 551 F.3d 1092 (9th Cir. 2008). BAP reversed the Bankruptcy Court by finding that Debtor and his former wife committed fraudulent transfers. Their divorce decree awarded the debt to the future Bankrupt while the former wife got all of the non-exempt property. The non-exempt property would have been enough to satisfy all of the debt. Contrast with In re Bledsoe, 569 F. 3d 1106 (9thCir 2009) where the Court of Appeals found that the mere allegation that the property settlement of divorce decree did fairly divide property was insufficient under §548 without proof of actual fraud.
Bankruptcy Fraud and Prison
Don’t use the excuse that “my attorney told me to lie/cheat/steal.” This is not a defense; it is evidence that you are an idiot and you still go to prison.
US vs James P. Roti, No. 06-3192, U.S. 7th Circuit Court of Appeals, May 03, 2007, Easterbrook, Chief Judge. Saddled with a judgment for more than $400,000 on account of a guarantee of his small corporation’s debts, James Roti decided to hide his assets from creditors. He has been convicted of bankruptcy fraud, see 18 U.S.C. §157, and concealing assets from the bankruptcy trustee, see 18 U.S.C. §152. His sentence is 21 months’ imprisonment. Roti concedes that he parked some assets with family members and moved others to accounts unknown to his creditors, and that he lied to his principal creditor, to the federal bankruptcy court, and to the trustee. Roti says that his lawyer Andrew Werth put him up to it, and at trial he contended that he should be acquitted because Werth managed the scheme’s details. The jury rejected that defense—for it was no defense at all.
That two people cooperate to swindle a third does not excuse either of the schemers, even if one of them is a lawyer. Advice of counsel is not a free-standing defense; though a lawyer’s fully informed opinion that certain conduct is lawful (followed by conduct strictly in compliance with that opinion) can negate the mental state required for some crimes, including fraud. See United States v. Sprong, 287 F.3d 663, 665-66 (7th Cir. 2002); cf. United States v. Cheek, 3 F.3d 1057, 1061 (7th Cir. 1993). But Roti does not contend that Werth assured him that concealing assets and lying to the court would be lawful. Roti did not call Werth as a witness or introduce any opinion letter. So it is hard to understand how Werth’s role, whatever it was, can negate scienter. Roti does not deny knowing that he was lying under oath, if not at the outset (he says that he signed blank schedules that Werth filled in and filed) then in his oral declaration at the creditors’ meeting under 11 U.S.C. §341 that all of the schedules were complete and correct.
See also Pre-Bankruptcy Planning