In re: MICHAEL WILLIAM DEVINE

Case Type:
Consumer
Case Status:
Affirmed
Citation:
BAP No. CC-21-1238-LGT (9th Circuit, Jun 30,2022) Not Published
Tag(s):
Ruling:
The Ninth Circuit Bankruptcy Appellate Panel upheld the bankruptcy court's denial of a discharge under sections 727(a)(2)(A) and (a)(3) to an individual debtor for his failure to maintain books and records for his sole proprietorship and for his deposit of a check into a new bank account to avoid the creditors' bank levies.
Procedural context:
The US Trustee filed a complaint to deny the debtor's discharge under sections 727(a)(2)(A), (a)(3), and (a)(5). The bankruptcy court heard oral argument after the parties agreed to submit testimony by declaration without cross-examination. The bankruptcy court found for debtor on section 727(a)(5) and in favor of the UST on sections 727(a)(2)(A) and 727(a)(3). The debtor appealed the ruling to the Ninth Circuit Bankruptcy Appellate Panel.
Facts:
Debtor had run a home remodeling business as a sole proprietorship. The business began experiencing financial difficulties in 2017. Debtor subcontracted work, causing financial problems, and obtained merchant cash advances from multiple companies which eventually began levying on his bank accounts. Debtor also experienced health issues leading to two hospitalizations around this time. After creditors began levying on his bank account, Debtor opened a new account at a credit union and deposited a check for $2,809.20 in the account. Debtor admitted that he deposited the check in that account to avoid the bank levies. Debtor filed a chapter 7 bankruptcy. After gathering evidence from the § 341(a) meeting and a Rule 2004 examination, the United States Trustee (“UST”) filed a complaint in May 2019 seeking denial of discharge under §§ 727(a)(2), (a)(3), and (a)(5). Debtor failed to produce documents related to Schedule F claims of the business's former customers, including written agreements, contracts, invoices, and purchase orders. He did produce bank statements, deposit slips, and canceled checks, but the UST's paralegal was unable to reconcile payments by former customers. Debtor produced virtually no information regarding income other than total sales figures. The bankruptcy court found that this made it impossible for the UST to ascertain the source of Debtor's revenues such that he failed to maintain adequate records. Moreover, Debtor did not provide an adequate justification for his failure to do so because he failed to maintain records even before his illness. Thus, the discharge was properly denied under section 727(a)(3). The denial of the discharge was also proper under section 727(a)(2)(A) because Debtor's deposit of the check into a new account in order to evade his creditors' levies was a "transfer" intended to hinder, delay, or defraud his creditors. Moreover, even if the deposit was not a "transfer", section 727(a)(2)(A) is broad enough to encompass dispositions other than transfers (i.e., removing, concealing, etc.) such that the deposit could still be considered for purposes of the statute.
Judge(s):
LAFFERTY, GAN, and TAYLOR

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