Cipolla v. Roberts (In re Cipolla)

Summarized by Aaron Kaufman , Gray Reed LLP
13 years 11 months ago

Citation:

Tag(s):

Ruling:

A debtor’s status as an attorney, without more, could not give rise to a presumption that the debtor had knowledge of homestead exemption laws or other bankruptcy rules and requirements. Because the bankruptcy court relied on this presumption, and that presumption may have influenced the court’s critical findings—namely, the debtor’s credibility—the Fifth Circuit held that the error was not harmless and required remand for “further adjudication without including that erroneous presumption in the matrix.” The Fifth Circuit also explained that the bankruptcy court’s application of the “badges of fraud” to its section 522(o) analysis was proper. Because section 522(o) uses the familiar language “with the intent to hinder, delay, or defraud a creditor,” case law applying either the Texas Uniform Fraudulent Transfer Act or sections 548(a) and 727(a)(2) of the Bankruptcy Code could all be instructive. In dicta, however, the court of appeals addressed the debtor’s contention that at least one of the badges of fraud found by the bankruptcy court was clearly erroneous: the finding that a nine year period between the acquisition of property and the incurrence of substantial debt could be considered “short” under the badges of fraud analysis. The court of appeal noted in a not-so-subtle manner that, while the bankruptcy court did not err as a matter of law, the debts incurred closer in time to the 2000 property acquisition were “clearly more relevant to [the debtor’s] intentions” than those incurred nine years later in 2009. With those instructions and dicta, the matter was remanded.

Procedural context:

Appeal from the Western District of Texas, which affirmed an order of the Bankruptcy Court for the Western District of Texas, Austin Division.

Facts:

Thomas Cipolla, the Debtor, was an attorney licensed to practice in Texas and Missouri. He filed a chapter 7 bankruptcy petition in 2009 and claimed a South Padre Island condominium as his homestead. The chapter 7 trustee objected under section 522(o), arguing that the debtor converted previously unencumbered, non-exempt property in Missouri during the 10 years before the bankruptcy case with the intent to delay, hinder or defraud creditors by acquiring new property in Texas, where homestead exemptions are unlimited. There was no question that the transfer occurred within the 10 year look-back period. The only issue was whether that transfer was to delay, hinder or defraud a creditor. The debtor argued, among many things, that most of the debts that prompted the bankruptcy were not incurred until 2009, more than nine years after the debtor acquired the Texas property and established that as his new residence. The bankruptcy court sustained the objection, however, finding, as a threshold matter, that finding the debtor was an attorney, who was “presumed to have knowledge of State homestead exemptions.” The court then found five badges of fraud to be present: (1) the transfer was done shortly before the debtor incurred substantial debt; (2) the debtor was sued or threatened with suit before the transfer; (3) the debtor transferred the property to himself; (4) the debtor maintained use of the Missouri property after disposing of it; and (5) the transfer involved substantially all of the debtor’s assets. In light of these factors, the court sustained the objection and denied the debtor’s homestead exemption claim. The debtor appealed.

Judge(s):

King, Wiener and Haynes; Per Curiam opinion (Pursuant to 5th Cir. R. 47.5, the court has determined that the opinion should not be published and is not precedent except under the limited circumstances set forth in 5th Cir. R. 47.5.4).

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