`Sophisticated’ Ch. 7 Debtors Who Concealed Assets Can’t Wipe Out Debt

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By Diane Davis

An educated couple with high income who concealed personal property such as artwork, jewelry, and firearms when they filed for bankruptcy can’t discharge their debts ( Crocker v. Cooper (In re Cooper) , 2016 BL 409116, Bankr. M.D. Tenn., No. 315-90523, 12/8/16 ).

Judge Marian F. Harrison of the U.S. Bankruptcy Court for the Middle District of Tennessee Dec. 8 denied the debtors’ discharge because they concealed personal property with the intent to defraud the Chapter 7 trustee and retain the property.

The court noted that the debtors are “sophisticated business persons who have experience within the bankruptcy system.”

Debtors Frederick and Katherine Cooper filed Chapter 7 as a result of shareholder disputes at Western Funding Inc. (WFI). In Chapter 7 bankruptcy, a debtor’s nonexempt assets are liquidated by a trustee, and the proceeds are distributed to creditors.

Both debtors have significant business experience. Frederick founded an indirect auto finance company and was president and chief executive officer until the company was sold. He is the CEO of WFI with a salary of $300,000. Katherine was employed at WFI as executive vice president with a salary of $275,000.

The debtors also have bankruptcy experience. WFI just went through the Chapter 11 process, and Katherine filed for Chapter 7 twice and received a discharge.

The Chapter 7 trustee saw red flags in their bankruptcy schedules based on the low valuation of the debtors’ residence and the lack of personal property. The trustee hired someone to conduct a surprise inventory of the debtors’ assets at their home and discovered artwork, jewelry, and firearms that had not been disclosed in their schedules. The undisclosed property eventually sold at auction for $60,000.

The debtors said that they forgot to list several guns that were on consignment at a local gun shop. One gun sold for $23,000 two months prior to their Chapter 7 filing. Another gun was sold post-petition for more than $3,000. The debtors said that they didn’t disclose the guns because they didn’t intend to keep them.

The debtors didn’t disclose the sale of a 1960 Austin Healy Sprite vehicle for $3,500 prior to their bankruptcy filing.

The trustee argued that the debtors should be denied a discharge under Bankruptcy Code Section 727(a)(2) and (a)(4) for intending to hinder, delay, or defraud a creditor.

The debtors claimed that they weren’t intentionally concealing property. They had the mistaken belief that only personal property they intended to claim as exempt needed to be listed in their petition.

The court didn’t find the debtors’ explanations plausible based on their education, experience, and demeanor. The debtors weren’t entitled to a discharge when they failed to fill out their bankruptcy papers “honestly and accurately,” the court said. The debtors had “no regard for providing complete and accurate information in their Schedules and Statement of Financial Affairs,” the court said.

M. Todd Jackson, Jackson & Associates PC, Franklin, Tenn., and Denis Graham (Gray) Waldron, Law Office of Timothy G. Niarhos, Nashville, Tenn., represented debtors Frederick and Katherine Cooper.

Phillip G. Young, Thompson Burton PLLC, Franklin Tenn., represented Chapter 7 Trustee Eva Marie Lemeh, Nashville Tenn.

U.S. Trustee Lloyd E. Mueller, Nashville, Tenn.

To contact the reporter on this story: Diane Davis in Washington, D.C. at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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