- Citation:
- Malley v. Agin, No. 11-2042 (1st Cir. Aug. 15, 2012)
- Tag(s):
-
- Ruling:
- Joining the Ninth Circuit (Latman v. Burdette, 366 F.3d 774 (9th Cir. 2004)), the First Circuit recently held that a debtor's fraudulent concealment of non-exempt assets is an exceptional circumstance in which an offsetting surcharge against otherwise exempt property is necessary both to protect the integrity of the bankruptcy process and to ensure that a debtor exempts no more than the Bankruptcy Code permits.
In so holding, the First Circuit dismissed the debtor's statutory argument that § 105(a) be narrowly construed, instead choosing to focus on the broad authority granted in the section's first sentence ("[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title"). Applying this construction, the court stated that "[w]hen concealed assets have disappeared, as the $25,000 seems to have done, surcharge is an appropriate and necessary way to vindicate § 521, requiring honest disclosure of non-exempt assets, and § 522, regulating the determination of legitimate exemptions for the debtor's benefit."
Finally, the First Circuit noted that its view of § 105(a) accords with the Supreme Court's most recent interpretation in Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007). There, the Court recognized that bankruptcy judges have broad authority to take any action that is necessary or appropriate to prevent an abuse of process described in § 105(a) of the Code.
- Procedural context:
- The bankruptcy court issued an order surcharging the debtor's interest in exempt property for the debtor's wrongful concealment of non-exempt property that had apparently been spent prior to the trustee's discovery. The core issue on appeal was whether the surcharge order exceeded the court's equitable power under § 105(a). The First Circuit affirmed the bankruptcy court's order and remanded for further proceedings.
- Facts:
- Kenneth Malley, the debtor in a Chapter 7 liquidation proceeding, sold his former marital residence shortly before filing a bankruptcy petition. In his schedules, and also under oath, the debtor indicated that he had received nothing from the transaction, and that all proceeds from the transaction had gone to his ex-wife. In fact, as the Chapter 7 trustee came to find out, $25,000 from the sale of the property had actually been transferred to the debtor. Upon the trustee's request that these funds be turned over, the debtor indicated that the money was unavailable.
- Judge(s):
- Boudin, Souter, Thompson
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