Nos. B79-504S/B, B79-505S/BUnited States Bankruptcy Court, W.D. Washington
March 11, 1980
Former Bankruptcy Act — Discharge of Debts — Concealment of Property — Dissipation of Funds
VOLINN, Bankruptcy Judge
A debtor who used funds for a pleasure trip and planed a vacation with friends with the intent that his creditors not receive any benefit from these assets, thereafter filing a petition in bankruptcy, was not entitled to discharge under Sec. 14(c)(4) of the Bankruptcy Act. SeeSec. 14(c)(4) at ¶ 2132 and Sec. 727(a)(2) at ¶ 10,117.
[Digest of Opinion]
The creditor in the instant case objected to discharge of the bankrupt’s debt under Sec. 14(c)(4) of the Bankruptcy Act. Hence, the two issues presented to the court was whether there was in fact a transfer, removal or destruction of the bankrupt’s assets within twelve months of filing a petition in bankruptcy and whether these transfers were made with the intent to hinder, delay or defraud creditors. Specifically, the court said, “the creditors must show a transfer, removal or destruction of property belonging to the bankrupts which reduced their assets available to the creditors without adequate consideration coming back into the estate.”
“The court found that the evidence based on the admitted facts contained in the Pretrail Order together with the bankrupt’s testimony established both facts to support denial of their discharge under Sec. 14(c)(4).” The bankrupts admitted that they had conferred with their attorneys regarding bankruptcy in December, 1978. In February 1979, having received $8,000 in satisfaction of a lien, they spent $5,000 vacationing and testified that they planned a “second honeymoon” with friends. In addition, they admitted that they did not deposit the $8000 in their bank account for fear creditors would garnish their account, and that they were aware the trustee was entitled to the funds.
“A gratuitous transfer raises a presumption of fraud. The creditors are not required to show any corresponding benefit to third parties, but rather, dissipation of the bankrupt’s estate.” Therefore, the evidence presented was sufficient to establish an intent to hinder, delay or defraud creditors. Further, the court cited In re Finder, 61 F.2d 960
(2nd Cir. 1932), cert. denied, 289 U.S. 736 (1932) as a case factually similar to the instant case. The bankrupt, in that case, “withdrew money for a plane ticket and expenses for a pleasure trip to Florida, after having made arrangements with an attorney to file bankruptcy, which was done two days later. The court therein said that even if this was not a transfer within the meaning of Sec. 14(c)(4), it was a removal of assets with intent to hinder, delay and defraud creditors.” Consequently, the court found that the debt was nondischargeable by virtue of Sec. 14(c)(4) of the Bankruptcy Act.