Ghai Law Firm
Call for a free consultation:
(770) 792-1000
  • ABOUT
    • Testimonials
    • Join Us
  • Practice Areas
    • Personal Injury
      • Pedestrian Accident
      • Car Accidents
        • Speeding Accident
        • Drinking and Driving Accidents
        • Left Hand Turn Accident
        • Rear-End Collision
        • Reckless Driving Accident
        • Uber Accidents
        • Hit-and-Run Accidents
        • Texting and Driving Accident
          • Texting and Driving Under 18
      • Truck Accident
        • Lane Usage Accident
        • Traumatic Brain Injury
      • Product Liability
        • Defective Drugs
        • Defective Medical Device
      • Premises Liability
        • Slip and Fall Accidents
      • Wrongful Death
      • Dog Bite
    • Bankruptcy
      • Debt Relief
      • Credit Card Debt
      • Chapter 13 Bankruptcy
      • Chapter 7 Bankruptcy
      • Foreclosure Bankruptcy
      • Free Legal Case Review
      • Medical Bills Bankruptcy
      • Rebuild Your Credit
      • Wage Garnishments
  • Areas We Serve
    • Kennesaw Personal Injury Lawyer
      • Kennesaw Bankruptcy Lawyer
    • Acworth Personal Injury Lawyer
      • Acworth Bankruptcy Lawyer
    • Marietta Personal Injury Lawyer
      • Marietta Bankruptcy Lawyer
    • Smyrna Personal Injury Lawyer
  • FAQs
  • Blog
  • Videos
  • Contact

Debtors Refuse To Explain $600,000.00 In Credit Card Debt

Home » Debtors Refuse To Explain $600,000.00 In Credit Card Debt

 

In re: JOHN WHEATON & LINDA WHEATON, Debtors.
DONALD F. WALTON, TRUSTEE, Plaintiff,
v.
JOHN WHEATON & LINDA WHEATON, Defendants.

Case No. 6:11-bk-09750-ABB
Adv. Pro. No. 6:11-ap-00254-ABB

UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION

Dated: June 28, 2012

 

 

Chapter 7
MEMORANDUM OPINION

This matter came before the Court on the Complaint Objecting to Entry of the Debtor’s Discharge (Doc. No. 1) filed by the United States Trustee/Plaintiff Donald F. Walton against the pro se Debtors/Defendants John Wheaton and Linda Wheaton seeking denial of their discharge pursuant to 11 U.S.C Section 727(a). The final evidentiary hearing was held on May 14, 2012 at which counsel for the Plaintiff appeared. The Debtors did not appear.

Judgment is due to be entered in favor of the Trustee and against the Debtors for the reasons set forth herein. The Court makes the following Findings of Fact and Conclusions of Law after reviewing the pleadings and evidence, hearing live testimony and argument, and being otherwise fully advised in the premises.

Page 2

FINDINGS OF FACT
Undisputed Facts

Debtors filed a Chapter 7 bankruptcy case on June 28, 2011 (“Main Case”). The Debtors were represented by counsel well-versed in consumer bankruptcy matters. Their attorney was not retained for this adversary proceeding.

For a free legal consultation, call (770) 792-1000

The Debtors’ unsecured debts are substantial. They listed unsecured debts totaling $606,573.56 in their Schedules (Main Case, Doc. No. 1). More than half of the unsecured debt is credit card debt incurred on thirty-eight credit cards, totaling approximately $374,384.00. The Debtors’ Amended Schedule F (Main Case, Doc. No. 12) shows the last active dates on many of the credit cards to be in 2010 and 2011.

No document filed by the Debtors explains what the charges were for or when the charges were incurred. Debtors listed only $1,750 in tangible, unencumbered personal property (Main Case, Doc. No. 1, Schedule B). The remaining balance of the Debtor’s personal property is comprised of overencumbered vehicles, a retirement account, cash, and depository accounts. Id.

Click to contact our personal injury lawyers today

The Debtors’ Amended Statement of Financial Affairs (Main Case, Doc. No. 12) does not show any transfers, gifts, or substantial losses. No documentation the Debtors have produced explains what the Debtors purchased with the credit cards or, if the purchases were for goods, why the goods are not listed as assets in their Schedules. This large amount of credit card debt, coupled with the Debtors’ minimal assets, compelled the Trustee to investigate the possibility of concealed or transferred assets.

The Trustee conducted informal discovery before initiating this adversary proceeding to better understand the discrepancy between the Debtors’ assets and

Page 3

liabilities. The Trustee sent Debtors’ counsel an email notifying him of the investigation, and requesting the following documents:

1) Paystubs from December 2010 to present; 2) Copies of 2009 and 2010 tax returns;
3) All checking account statements and check registers from 12 months prior to filing to present;
4) All savings accounts and certificate of deposit account statements from 12 months prior to filing to present;
5) All investment, retirement accounts, and brokerage statements from 12 months prior to filing to present;
6) All financial statements prepared during the last two years for the purpose of obtaining any type of loan or credit; and
7) All credit card statements for the twelve months prior to filing to present

(AP, Doc. No. 1, Ex. A).

Complete a Free Case Evaluation form now

The Debtors failed to produce any documentation regarding items 4, 6, and 7 above by the stated deadline for compliance. The Debtors submitted incomplete documents regarding items 3 and 5 above. The Trustee emailed Debtors’ counsel requesting the missing documents; the Debtors did not comply (AP, Doc. No. 1, Ex. B). Debtors’ counsel emailed the Trustee stating he had contacted the Debtors and explained the importance of compliance with the Trustee’s request (AP, Doc. No. 1, Ex. C). The email stated the Debtors “have been unable or are otherwise unwilling” to comply with the Trustee’s requests. Id.

Adversary Proceeding

The Debtors’ non-compliance with the Trustee’s informal discovery prompted the filing of the Complaint against the Debtors requesting their discharge be denied pursuant to 11 U.S.C. Sections 727(a)(3), 727(a)(4), 727(a)(5), and 727(a)(2)(A). The Trustee has

Page 4

the burden of proof on each cause of action.

These claims stem from the large discrepancy between the Debtors’ credit card debt and unencumbered personal property. The Trustee filed this Complaint because he believes these facts are consistent with a “credit card bust-out.” A credit-card bust out is a scheme in which someone purchases goods with credit cards, conceals the goods, then files for bankruptcy.

The Trustee required the above-referenced documentation of the Debtors’ bank accounts and credit cards to properly determine whether the Debtors were engaged in a credit card bust-out scheme. The Debtors did not comply with the Trustee’s informal discovery. The Trustee then filed the Complaint. The Debtors never responded.

Debtors have not responded to any pleadings filed in this adversary proceeding. The Clerk of Court entered a default against the Debtors (AP, Doc. No. 6) upon motion by the Trustee (AP, Doc. No. 4). Two evidentiary hearings were held on the Trustee’s Motion for Final Judgment (AP, Doc. No. 5). The Debtors failed to appear.

11 U.S.C. §§ 727(a)(3) and 727(a)(4): The Debtors have either concealed or failed to keep records from which their financial condition can be ascertained. The Trustee has requested financial records in an effort to determine the real financial condition of the Debtors. Debtors’ counsel represented to the Trustee the Debtors were “unable or unwilling” to produce the records the Trustee requested (AP, Doc. No. 1, Ex. C).

The Debtors failed to adequately respond to the Trustee’s informal document requests. They did not file any pleadings in this adversary proceeding. The Debtors have not produced a response that would justify the lack of records. The Trustee established a

Page 5

basis for denial of the Debtors’ discharge pursuant to 11 U.S.C. Section 727(a)(3).

The circumstantial evidence shows the Debtors knowingly and fraudulently withheld recorded information from the United States Trustee in order to impede the Trustee’s efforts to learn more about the Debtors’ financial condition. Debtors’ counsel informed the Debtors of the importance of the Trustee’s requests (AP, Doc. No. 1, Ex. C). The Trustee established a basis for denial of the Debtors’ discharge pursuant to 11 U.S.C. Section 727(a)(4)(D).

11 U.S.C. § 727(a)(5): The Trustee did not establish with particularity the substantive assets the Debtors may have transferred or concealed which may have resulted in a loss or deficiency in assets. The relief sought pursuant to 11 U.S.C. Section 727(a)(5) is due to be denied.

11 U.S.C. § 727(a)(2)(A): The Debtors’ lack of compliance, their refusal to provide documents, and their refusal to explain the discrepancy between their assets and liabilities is insufficient to establish the Debtors concealed or transferred assets with intent to hinder, delay, or defraud the creditors or an officer of the estate.

The Trustee did not establish the Debtors transferred, removed, destroyed, mutilated, or concealed any assets. The Debtors’ actions are indicative of a fraudulent motive, but the Trustee did not establish assets were concealed or transferred. The relief sought pursuant to 11 U.S.C. Section 727(a)(2)(A) is due to be denied.

Page 6

CONCLUSIONS OF LAW

The Trustee seeks denial of the Debtors’ discharge pursuant to 11 U.S.C. Sections 727(a)(2)(A), 727(a)(3), 727(a)(4)(D), and 727(a)(5). Objections to discharge are strictly construed against the objecting party and liberally in favor of the debtor. Schweig v. Hunter (In re Hunter), 780 F.2d 1577, 1579 (11th Cir. 1986). “[T]he reasons for denying a discharge must be real and substantial, not merely technical and conjectural.” Equitable Bank v. Miller (In re Miller), 39 F.3d 301, 304 (11th Cir. 1994).

11 U.S.C. Section 727(a)(3) and 727(a)(4)(D)

The Trustee contends the Debtors should be denied discharge because they concealed records from which their financial condition can be ascertained and they knowingly and fraudulently withheld records or documentation relating to the Debtors’ financial affairs.

Section 727(a) of the Bankruptcy Code sets forth a Debtor shall be granted a discharge unless the Debtor has committed certain abuses. A discharge will be denied where:

the debtor has concealed . . . any recorded information . . . from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case

11 U.S.C. § 727(a)(3); or

the debtor knowingly and fraudulently . . . withheld from an officer of the estate . . . any recorded information, including books, documents, records, and papers, relating to the debtor’s property or financial affairs.

11 U.S.C. § 727(a)(4)(D).

The purpose of Section 727(a)(3) is to make certain the creditors and Trustee are given sufficient information to understand the debtor’s financial condition. In re

Page 7

Juzwiak, 89 F.3d 424, 427 (7th Cir. 1996). The Trustee must make a prima facie showing the Debtors’ records are inadequate. In re Harmon, 379 B.R. 182, 187 (M.D. Fla. 2007). The Debtor may then justify the lack of records. 11 U.S.C. § 727(a)(3); In re Harmon, 379 B.R. at 187.

Grounds for the denial of a discharge do not exist where a debtor completes his bankruptcy papers to the best of his abilities and attempts to be complete and accurate. In re Burns, 395 B.R. 756, 769 (Bankr. M.D. Fla. 2008). A debtor knowingly and fraudulently withholds records when the failure to produce requested records is an attempt to hide assets or impede the trustee. In re Kent, 92 B.R. 540, 543-44 (Bankr. S.D. Fla. 1998).

The Debtors concealed financial information from which the Debtors’ financial condition might be ascertained and they knowingly and fraudulently withheld recorded financial information from the Trustee relating to their financial affairs. The Debtors stated they were “unable or unwilling” to provide the basic financial information the Trustee requested (AP, Doc. No. 1, Ex. C). The records or documentation requested by the Trustee should be in the Debtors’ possession or are easily obtainable by the Debtors.

The Debtors did not provide the Trustee with sufficient information to allow him to fully understand the Debtors’ financial condition. They concealed information documentation such as bank statements and credit card statements from the Trustee after they were made aware of the records deficiency. The Trustee requested these documents to better understand the Debtors’ financial condition, specifically why the Debtors’ credit card debt so far exceeds their tangible, unencumbered personal property.

A prima facie showing of inadequate records was established by the Trustee. The

Page 8

Debtors have not appeared in this proceeding, and therefore have not provided any justification for the lack of the records.

The Debtors’ failure to produce the requested records or documentation was not an innocent mistake, as evidenced by their own statements. The Debtors’ inaction and non-responsiveness constitutes a knowing and fraudulent withholding of the documents from the United States Trustee. The factual circumstances establish a basis for denial of Debtors’ discharge pursuant to 11 U.S.C. Sections 727(a)(3) and 727(a)(4)(D).

11 U.S.C. Section 727(a)(5)

The Trustee contends the Debtors should be denied a discharge because of their failure to adequately explain the loss or deficiency of assets. Trustee alleges the Debtors’ large credit card debt compared to their small amount of tangible, unencumbered personal property suggests a loss or deficiency of assets. A discharge will be denied where:

the debtor has failed to explain satisfactorily . . . any loss of assets or deficiency of assets to meet the debtor’s liabilities.

11 U.S.C. § 727(a)(5).

A plaintiff, to sustain the initial burden to establish an objection to discharge, must establish “the debtor formerly owned substantial, identifiable assets that are now unavailable to distribute to creditors.” Murphy v. Rivertree Landing, LLC (In re Murphy), Case No. 6:08-cv-198-Orl-31, 2008 WL 2224835, *5 (M.D. Fla. May 27, 2008). The burden then shifts to the debtor to satisfactorily explain the loss. Hawley v. Cement Indus., Inc. (In re Hawley), 51 F.3d 246, 249 (11th Cir. 1995).

The burden of establishing the Debtors owned substantial and identifiable assets no longer available to distribute to creditors was not met by the Trustee. The Debtors’

Page 9

credit card debt raises concerns about what was purchased with the credit cards and what may have happened to any tangible purchases.

The Trustee did not establish any identifiable assets purchased with the credit cards because the Debtors refused to provide the documentation the Trustee requested. The provisions discussed supra adequately address the withholding of documents. The Plaintiff has failed to established a basis for denial of the Debtors’ discharge pursuant to 11 U.S.C. Section 727(a)(5).

11 U.S.C. Section 727(a)(2)(A)

The Trustee contends the Debtors should be denied discharge because they intentionally concealed assets. A discharge will be denied where:

the debtor, with intent to hinder, delay, or defraud a creditor or officer of the estate . . . has transferred, removed, destroyed, mutilated, or concealed . . . property of the debtor, within one year before the date of filing the petition.

11 U.S.C. § 727(a)(2)(A).

A plaintiff bears the significant burden of establishing actual fraudulent intent. Equitable Bank v. Miller (In re Miller), 39 F.3d 301, 306 (11th Cir. 1994) (citing Wines v. Wines (In re Wines), 997 F.2d 852, 856 (11th Cir. 1993)). “Concealment” in relation to Section 727(a)(2)(A) “occurs when a debtor’s interest in the property is not obvious, but the debtor continues to reap the benefits the property has to offer.” In re Greene, 340 B.R. 93, 98 (Bankr. M.D. Fla. 2006) (citation omitted).

The Debtors’ conduct does suggest intent to hinder, delay, or defraud creditors, but the Trustee did not establish assets were concealed or whether the Debtors are receiving any benefit from unidentified assets. This inability to identify concealed assets likely was caused by the Debtors’ refusal to provide the requested records and

Page 10

documentation. The provisions discussed supra adequately address this issue. The Plaintiff has failed to established a basis for denial of the Debtors’ discharge pursuant to 11 U.S.C. Section 727(a)(2)(A).

Accordingly, it is

ORDERED, ADJUDGED and DECREED that the relief sought in the Plaintiff’s Complaint (Doc. No. 1) pursuant to 11 U.S.C. 727(a)(3) and 727(a)(4)(D) is hereby GRANTED; and it is further

ORDERED, ADJUDGED and DECREED that the relief sought in the Plaintiff’s Complaint (Doc. No. 1) pursuant to 11 U.S.C. 727(a)(5) and 727(a)(2)(A) is hereby DENIED; and it is further

ORDERED, ADJUDGED and DECREED that John Wheaton’s and Linda Wheaton’s DISCHARGE pursuant to 11 U.S.C. 727 is hereby DENIED.

A separate Judgment consistent with these Findings of Fact and Conclusions of Law shall be entered contemporaneously.

_________________
ARTHUR B. BRISKMAN
United States Bankruptcy Judge

Call or text (770) 792-1000 or complete a Free Case Evaluation form

Bankruptcy Blog Posts:

Bankruptcy Filings Continuing To Rise In 2010

Due to high unemployment and an uncertain economic climate, consumer bankruptcy filings in America have increased in 2010. According to statistics reported by the American Bankruptcy Institute, a

Chapter 7 Bankruptcy and Chapter 13 Bankruptcy Comparison

Good Morning, this is Roger Ghai of www.Chapter7attorneys.com. I wanted to do a little informational video on bankruptcy options. In particular, Chapter 7 bankruptcy options and Chapter 13 bankruptcy

Filing Chapter 7 Bankruptcy – January 2010 Talk Law Radio Show Transcript

Janice: Good afternoon Atlanta and welcome to News & Talk 1380 WAOK. This is Janice Mathis and we’re here this afternoon and every Sat. afternoon at 1pm to talk with one of our lawyers who’s

Difference Between Chapter 13 & Chapter 7 Bankruptcy – March 2010 Talk Law Radio Show Transcript

Janice: Good afternoon Atlanta and welcome to Legal Talk. This is Janice Mathis. This is my favorite hour of the weekend. I learn something new every weekend talking to these brilliant lawyers we have

Bankruptcy FAQ:

Bankruptcy FAQ
Bankruptcy FAQ

Frequently Asked Questions: Table of Contents Who is permitted to file and maintain a chapter 7 case? Who should not file a Chapter 7 case? Is there anything that a person must do

Can Creditors Be Sued For Trying To Collect Debt After You File For Bankruptcy
Can Creditors Be Sued For Trying To Collect Debt After You File For Bankruptcy

The injunction is formally issued pursuant to 11 U.S.C. 362(a), commonly referred to as the Automatic Stay provision of the bankruptcy code, and it prohibits creditors from making further attempts to

Can Your Home Be Sold In Bankruptcy If You Don’t File Bankruptcy But Your Spouse Files Bankruptcy?
Can Your Home Be Sold In Bankruptcy If You Don’t File Bankruptcy But Your Spouse Files Bankruptcy?

In a recent case, In re Beck Mrs. Beck filed for bankruptcy protection but her husband did not. Together they owned a property which was valued at about $530,000.00. The property had actually been in

Can You Claim A Homestead Exemption In A Home You Do Not Live In?
Can You Claim A Homestead Exemption In A Home You Do Not Live In?

The Chapter 7 trustee objected to Mrs. Goulakos’s claim of exemption because she did not live in the house and because she was not the one who claimed the homestead exemption under Massachusetts

Free Case Evaluation

Convenient and Confidential

    Frequently Asked Questions

    Bankruptcy FAQ

    Bankruptcy FAQ

    Can You Keep Your House If You File For Chapter 7 Bankruptcy?

    Can You Keep Your House If You File For Chapter 7 Bankruptcy?

    Can Creditors Be Sued For Trying To Collect Debt After You File For Bankruptcy

    Can Creditors Be Sued For Trying To Collect Debt After You File For Bankruptcy

    Let Ghai Law Fight For You.

    We’re here to provide help when you need us. Fill out this form below and I’ll reach out to discuss your case.

      Ghai Law Firm
      Call for a free consultation:
      (770) 792-1000

      Office Location

      LAW OFFICES OF ROGER GHAI

      1301 SHILOH RD NW STE 430

      KENNESAW GA   30144

      Mon-Fri: 9AM - 6PM

      Important Links

      • About
      • Practice Areas
      • Areas We Serve
      • Contact

      Practice Areas

      Personal Injury Lawyer Bankruptcy Attorney

      Ghai Law Firm

      Cobb County, Marietta, Kennesaw, Acworth

      "The Attorney"

      Site Map
      © Copyright 2023 Law Offices of Roger Ghai
      • ABOUT
        • Testimonials
        • Join Us
      • Practice Areas
        • Personal Injury
          • Pedestrian Accident
          • Car Accidents
            • Speeding Accident
            • Drinking and Driving Accidents
            • Left Hand Turn Accident
            • Rear-End Collision
            • Reckless Driving Accident
            • Uber Accidents
            • Hit-and-Run Accidents
            • Texting and Driving Accident
              • Texting and Driving Under 18
          • Truck Accident
            • Lane Usage Accident
            • Traumatic Brain Injury
          • Product Liability
            • Defective Drugs
            • Defective Medical Device
          • Premises Liability
            • Slip and Fall Accidents
          • Wrongful Death
          • Dog Bite
        • Bankruptcy
          • Debt Relief
          • Credit Card Debt
          • Chapter 13 Bankruptcy
          • Chapter 7 Bankruptcy
          • Foreclosure Bankruptcy
          • Free Legal Case Review
          • Medical Bills Bankruptcy
          • Rebuild Your Credit
          • Wage Garnishments
      • Areas We Serve
        • Kennesaw Personal Injury Lawyer
          • Kennesaw Bankruptcy Lawyer
        • Acworth Personal Injury Lawyer
          • Acworth Bankruptcy Lawyer
        • Marietta Personal Injury Lawyer
          • Marietta Bankruptcy Lawyer
        • Smyrna Personal Injury Lawyer
      • FAQs
      • Blog
      • Videos
      • Contact