Converting
non-exempt property into exempt:
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.
Read more...
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 sizeable 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.
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.
http://caselaw.lp.findlaw.com/data2/circs/9th/0035474p.pdf
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.
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