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Property Transfer to Parent Was Fraudulent

A debtor who transferred 90 percent of his interest in a 50-acre parcel to his mother for $10, but delayed notarizing the deed until shortly before the rescheduled foreclosure sale, and then failed to disclose his transfer, may not have the debt discharged, as the Roanoke U.S. District Court affirms the bankruptcy court.

Debtor’s closely held corporation, Aequitas-Energy Inc., purchased over 50 acres of land in Roanoke (the Angel Lane property) from his mother for $400,000. He later obtained a loan from Community Trust Bank, secured by a properly recorded deed of trust on the Angel Lane property. The day before the scheduled foreclosure sale, debtor executed deeds transferring the property to himself, and on the day of the sale, filed Chapter 7 bankruptcy, which resulted in the foreclosure being stayed. Debtor later voluntarily dismissed the Chapter 7 case.

The bank rescheduled the foreclosure sale for the Angel Lane property for Jan. 24, 2011. On Dec. 31, 2010, debtor executed a deed transferring 90 percent of the Angel Lane property to his mother for $10. In the interim, an offer to purchase the property fell through and debtor had the deed transferring 90 percent of the Angel Lane property to his mother notarized on Jan. 21, 2011. Later that day the deed was recorded in the clerk’s office and shortly after 5 p.m. on that same day, debtor filed his complaint pursuant to 11 U.S.C. §§ 727(a)(2) and 727(a)(4)(A) to deny debtor’s Chapter 7 discharge.

The bankruptcy court found that debtor’s transfer of 90 percent of the Angel Lane property to his mother constituted grounds to deny discharge under § 727(a)(2)(A), and that debtor intended to defraud his creditors by failing to disclose assets, judgments and other matters on his bankruptcy schedules, financial statements and during testimony at the creditors’ meeting.

This court finds the bankruptcy court’s conclusion plausible that debtor acted with actual intent to defraud his creditors. The timeline of events leading up to the transfer of the Angel Lane Property establishes that debtor transferred 90 percent of that property mere hours before filing his Chapter 7 petition, well within the one-year moratorium on such transfers.

These facts are sufficient to support the bankruptcy court’s conclusion that debtor intended to defraud his creditors.

Judgment for the trustee affirmed.

Bane v. U.S. Trustee (Wilson) No. 7:12cv00529, March 11, 2013; USDC at Roanoke, Va. VLW 013-3-128, 5 pp.

VLW 013-3-128

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