Johnson v. Johnson

Citation:
No. 13-1034 (8th Cir. October 29, 2013).
Tag(s):
Ruling:
Affirmed. Restating the general rule, the Eighth Circuit observed that “[a] showing of fraud in the abstract is not sufficient” to obtain revocation of discharge under § 727(d)(1); “rather a creditor must establish ‘that the entire discharge would not have been granted but for debtor’s fraud.’” Concluding that, had the debtor’s fraud been known, grounds for denial of discharge would have existed under § 727(a)(2)(A) and § 727(a)(4)(A), the Eighth Circuit concluded that there was no clear error in the bankruptcy court’s ruling and affirmed.
Procedural context:
Creditors filed an adversary proceeding in the bankruptcy court seeking to revoke the debtors’ discharge pursuant to 11 U.S.C. § 727(d)(1) based on the debtors’ failure to report a continuing equitable interest in real property to the chapter 7 trustee. Concluding that the debtors procured their discharge through fraud, the bankruptcy court granted the petition and revoked the debtors’ discharge. On appeal, the district court and the Eighth Circuit both affirmed.
Facts:
Two brothers and their wives owned a real estate venture that obtained a bank loan secured by real property owned by each of the two couples. When the joint venture fell into financial difficulty, the bank foreclosed on the real property owned by one couple (the “creditors”), but failed to properly record its mortgage on real estate owned by the other couple (the debtors) and thus could not foreclose on their property. The creditors filed suit against the debtors, who sought protection in chapter 7 shortly thereafter. Before the filing, however, the debtors conveyed certain real estate to a family member for $56,000, while continuing to use and occupy the property and pay for all taxes, utilities, and associated upkeep. Evidence at trial showed that the debtors agreed to repay the $56,000 with interest at some point in the future, at which point they would regain title to the property. The bankruptcy court concluded that the purported sale of real estate owned by the debtors prior to the bankruptcy in fact created an equitable mortgage, and that the debtors failed to report their continuing equitable interest in the real property to the trustee, thus warranting revocation of their discharge.
Judge(s):
Gruender, Beam, and Shepherd.

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