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Transfer of Cash to Safe Deposit Box Results in Denial of Discharge in Chapter 7 Bankruptcy

By Although (English Wikipedia) [Public domain], via Wikimedia CommonsA debtor’s withdrawal of money from a bank account less than a year before filing for Chapter 7 bankruptcy resulted in the denial of a discharge of debt, based on a bankruptcy court’s finding of fraudulent intent. The debtor claimed that he withdrew the money because of concerns about a creditor’s methods of collection. The Bankruptcy Appellate Panel (BAP) for the Ninth Circuit Court of Appeals affirmed the ruling. In re Haag (“Haag I”), Nos. AZ-11-1661, AZ-11-1662, AZ-11-1663, memorandum (BAP 9th Cir., Sep. 27, 2012) (PDF file). The Ninth Circuit also affirmed, rejecting the debtor’s arguments that the court should consider his good intentions regarding the creditor’s allegedly questionable collection practices. In re Haag (“Haag II”), No. 12-60074, memorandum (9th Cir., Aug. 20, 2014).

The debtor was the sole owner of an engineering company called HTI, Inc. that had a line of credit with Northwestern Bank (NWB). In mid-2007, the housing market collapsed, and the company was not able to generate enough revenue to pay the debt. After an unsuccessful attempt to sell the business, the debtor surrendered all of HTI’s assets to NWB in late 2008. He informed the bank that he intended to file for Chapter 7 bankruptcy, and that his only sources of income were IRAs, social security, and unemployment.

In early 2009, the debtor received federal and state tax refunds totaling almost $250,000. He deposited “some or all” of the funds, Haag I at 5, into a personal checking account at the Bank of Tucson. He withdrew $120,000 in cash from that account in July 2009 and placed it in a safety deposit box that he had jointly rented with his wife at another bank. About three weeks later, NWB obtained a judgment against the debtor in a Michigan court, based on his personal guaranty of business debts, for approximately $1.7 million. The bank obtained a domesticated judgment in Arizona, where the debtor resided, in February 2010. The debtor filed for Chapter 7 bankruptcy the following month.

NWB filed an adversary proceeding challenging the debtor’s right to discharge based on the large cash withdrawal less than a year before filing for bankruptcy. The bankruptcy court found that the debtor and his wife had spent nearly all of the money on personal expenses. The debtor claimed that he withdrew the money “because he was concerned about collection action by NWB,” id. at 7, but he also admitted to the court that he intended to keep the money from the bank.

The bankruptcy court held that, even without the debtor’s admission, the record supported a finding that he was not entitled to a discharge of debt. The BAP affirmed the ruling, finding that the movement of the cash was a “transfer” under the Bankruptcy Code, and that the debtor had the “intent to hinder or delay” NWB. Id. at 12-13, 11 U.S.C. §§ 101(54), 727(a)(2)(A).

The BAP also found that the debtor offered no persuasive authority that a “belief that his conduct was morally justifiable” could overcome § 727(a)(2). Haag I at 16. The Ninth Circuit affirmed the BAP’s ruling in a short memorandum, adding that “alleged good intentions” do not “outweigh the clear-cut evidence of his intent to delay and hinder.” Haag II at 5.

For more than 20 years, bankruptcy attorney Devin Sawdayi has represented individuals and families in the Los Angelesand surrounding area in Chapter 7 and Chapter 13 bankruptcies. Contact us today online or at (310) 475-939 to schedule a free and confidential consultation with a knowledgeable and experienced advocate.

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Photo credit: By Although (English Wikipedia) [Public domain], via Wikimedia Commons.