O'Connor v. Ross

Filing 15

OPINION AND ORDER: The bankruptcy court's judgment is REVERSED and the matter is REMANDED for further proceedings not inconsistent with this opinion. Signed by Judge Philip P Simon on 9/9/19. (cc: USBC) (nal)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
IN RE:
THOMAS MICHAEL ROSS,
Debtor.
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HEATHER O’CONNOR,
Appellant,
v.
THOMAS MICHAEL ROSS
Appellee.

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Case No. 3:18-cv-00495-PPS

OPINION AND ORDER
This case is before me on appeal from various orders of the Bankruptcy Court for
the Northern District of Indiana. Appellant Heather O’Connor’s was unsuccessful in her
efforts to prevent Appellee Thomas Ross from being discharged from bankruptcy, and
she seeks review in this court. O’Connor offers a multitude of arguments relating to
how the bankruptcy court decided the issues in this case. The main thrust of her appeal,
however, is that Ross was a dishonest debtor who sought to conceal valuable assets in
order to get an unwarranted clean slate from the bankruptcy court. She says that Ross
failed to disclose an investment property. Then, once it was disclosed, he tricked the
bankruptcy trustee into undervaluing the property. After that, while the bankruptcy
was still pending, he transferred the property to his mother-in-law for no consideration

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prior to the discharge order being entered in this case. She says these and other actions
violated multiple sections of the Bankruptcy Code.
As discussed below, while I do not agree with all of O’Connor’s argument
completely as to Ross’s supposed level of dishonesty, the mandate of the Seventh
Circuit is clear on the transfer of the property and I must reverse the discharge and
remand the case to the bankruptcy court for further proceedings.
Background
Thomas Ross filed a petition for voluntary bankruptcy on July 2, 2016 under
Chapter 7 of the Bankruptcy Code. [See DE 8 at 9-68.] 1 Ross was self-employed as a
general contractor, but costly lawsuits relating to two of his home remodeling jobs
forced him into bankruptcy. [See id.] Ross listed Heather O’Connor, one of those
unsatisfied customers, on his bankruptcy petition as a creditor. [Id. at 57.] Put mildly,
O’Connor and Ross have a contentious history. In 2015, Ross filed a mechanic’s lien
against O’Connor’s property after she, citing her dissatisfaction with his work, refused
to pay him. [Id.] Ross later filed a lawsuit in state court against O’Connor, and she filed
a counterclaim. [Id. at 142, ¶ 10.] This legal sparring preceded Ross’s bankruptcy, which
is why O’Connor is listed her as a creditor noting their pending litigation on his
statement of financial affairs. [Id. at 31, 4.]
Shortly after Ross filed bankruptcy, O’Connor discovered that Ross had not
disclosed a house he owned at 408 G Street in LaPorte, Indiana, on his bankruptcy

Citations to pages in the Appellant’s Appendix are given using the docket number and
page number given at the center-bottom of each page.
1

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schedule of assets. [Id. at 567-68.] O’Connor alerted her lawyer, who in turn brought it
to the attention of the court-appointed bankruptcy trustee Joseph D. Bradley. [Id.] This
property, along with some tools and a truck trailer of lesser significance, are at the
center of this appeal.
On August 2, 2016, trustee Bradley conducted the Section 341 examination of
Ross’s financial affairs. [Id. at 531.] After discussing Ross’s personal residence in
LaPorte, Indiana, Bradley asked Ross if he had any other interest in real estate. [Id. at
191-92.] Ross informed Bradley that he owned another property, 408 G Street, also in
LaPorte. He testified that he bought it with financial assistance from his mother-in-law
as a HUD foreclosure with plans to remodel for profit. [Id.] Ross then said that despite
doing some preliminary work on the house, he no longer planned to remodel the
property, and he incorrectly stated that it was in foreclosure—perhaps mistakenly
believing that Bradley was referring to the fact that Ross purchased it out of foreclosure,
not the current status of the property [id. at 531-32]. In any event, Ross said the property
was “in foreclosure” when it plainly wasn’t. After the 341 meeting with Bradley, Ross
filed amended schedules on September 21, 2016, listing the property as “condemned”
and worth $10,000. [Id. at 70.]
Bradley then conducted further investigation into Ross’s financial affairs. [Id. at
494-95.] He determined that the 408 G Street property had a current, fair market value
of $10,000-$15,000 and that it “may be subject to the equitable lien of the purchaser of
that property, Ms. Pam Koehn, the Debtor’s mother-in-law.” [Id. at 494.] How Bradley
learned of the equitable lien is unclear; it’s not reflected in the record. But the parties
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agree that title was solely in Ross’s hands at the time he filed bankruptcy and that no
lien in favor of Koehn was ever recorded. [See id. at 506-521.]
The price range Bradley gave for the 408 G Street property came, in part, from a
third-party appraisal provided to Bradley by Ross and his attorneys. [See id. at 473-493.]
It valued the property at $13,500, and “in inferior condition now as compared to the
condition at the time of the December purchase. This is due to demolition work” which
had been done on the property by Ross. [Id. at 477.] The appraisal also contained
“comparables” to other foreclosed properties in the area. [Id. at 493.] As a result,
Bradley determined the property had little value to Ross’s creditors given the amount of
money which would be necessary to put the home in marketable condition as well as
the supposed lien from Ross’s mother-in-law. [Id. at 494-494.] Further, Bradley
concluded that Ross had no substantial interest in machinery or tools in his name, as all
the tools Ross used for his business were the personal property of his father and leant to
Ross to use. [Id.] In sum, Bradley concluded that Ross had no interest in property of
recoverable value and filed a Report of No Distribution, asking the bankruptcy court to
discharge Ross’s bankruptcy as a no asset case. [Id. at 495.]
O’Connor was not satisfied with trustee Bradley’s conclusions. She filed an
adversarial complaint on September 30, 2016, opposing the discharge of Ross’s
bankruptcy under 11 U.S.C. § 727(a), alleging Ross concealed assets and made false
oaths on his bankruptcy pleadings. [Id. at 141-45.] Ross filed a motion to dismiss with
sanctions on December 6, 2016. [Id. at 146-147.] The motion to dismiss was denied, and

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the matter was eventually set for trial approximately fourteen months later, in February
2018. [Id. at 237-41, 255.]
On April 21, 2017, however and before the trial, Ross deeded 408 G Street to his
mother-in-law via quitclaim deed. [Id. at 396-97.] This transfer is at the center of this
appeal. All agree that it occurred after trustee Bradley indicated he would not pursue a
sale of the property, but unquestionably while Ross’s bankruptcy was pending and
before any discharge. During the trial 10 months later, Ross testified that he transferred
the property on the advice of his previous counsel (Ross obtained new counsel before
the trial), because of alleged back-taxes owed on the property that he says he couldn’t
afford. [Id. at 533-534.] Ross further testified that he bought the property in December
2015 for $21,500, and that on a multitude of different purchase documents, he was the
only person listed as purchaser or owner. [Id. at 506-16.] He also testified that the only
lien on the property was from a company called Von Tobel Lumber, for materials for a
different property Ross was working on. [Id. at 519-521.] Ross testified that his motherin-law, Pam Koehn, gave him all the money to purchase the G Street property—some
through a joint account and the remainder in cash. [Id. at 535-36.]
But there are some holes in the record about where the money to buy the
property came from. Ross and Koehn had a joint bank account for his remodeling
business, but Koehn testified at trial that she only transferred $500 to Ross, one time,
and that she had no mortgage on the property. [Id. at 561-62.] Neither Ross’s nor
O’Connor’s counsel asked Koehn about the rest of the payment that she allegedly
provided Ross. So that remains unknown. [See id. at 557-63]. Furthermore, Koehn
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testified that she did not pay any back-taxes on the property when Ross deeded the
property to her in April 2017 for nominal consideration. [Id. at 563, 396-97.] And that’s
basically the extent of the evidence regarding the transfer of the 408 G Street property
introduced at trial.
Trustee Bradley also testified at the trial. He testified that, in his opinion, Ross’s
initial omission of 408 G Street was not an “intentional deception or omission.” [Id. at
578.] In fact, trustee Bradley stated that accidental omissions occur in approximately
“five to ten percent” of bankruptcy cases, and he thought that was the case here. [Id. at
577.] He based this on his decades of experience as a bankruptcy trustee and
interactions with Ross. On cross-examination, Bradley noted that he used an appraisal
to assist in determining the value of the 408 G Street property but did not visit the
property himself. [Id. at 582-83.] He said that personally visiting properties subject to a
bankruptcy proceeding is not typical if he has “other information that satisfies [him] as
to the valuation of the property.” [Id. at 583.] Photographs of the property showing it in
a relatively dilapidated condition were also introduced at trial as evidence of its value,
or lack thereof. [Id. at 483-91.] When counsel asked Bradley if he knew what an “REO”
(real estate owned 2) property was—the comparable properties on the appraisal were
REOs—trustee Bradley testified that he did not know. [Id. at 582-83.]

REO properties are also known as “HUD Homes” and are residential properties that
are acquired (thus owned) by HUD as a result of a foreclosure on an FHA-insured
mortgage. Generally, after HUD becomes the owner of the property it then seeks to sell
it to cover the cost of its foreclosure. See U.S. Dep’t of Housing and Urban Development
“HUD HOMES (REO)” (accessed September 5, 2019)
https://www.hud.gov/program_offices/housing/sfh/reo.
2

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O’Connor’s counsel attempted to call a witness—the Chief Deputy Assessor from
the LaPorte County Assessor’s Office—to discuss the valuation of 408 G Street. [Id. at
564-65.] Ross had testified earlier in the trial that he met with the LaPorte County
Assessor’s Office to reduce the tax assessment on the G Street property, though his
memory of the meeting was sparse. [Id. at 521.] This meeting occurred on July 2, 2016,
one month before Ross filed for bankruptcy. [Id.] O’Connor’s attempt to call the deputy
assessor as a witness was to fill in gaps in Ross’s testimony. In addition, O’Connor’s
counsel wanted this testimony in order to rebut the idea that Ross’s initial nondisclosure of the property was anything but innocent, the theory being that Ross had so
recently taken an active role in the property that it was improbable he would
accidentally forget to list it.
The bankruptcy court didn’t allow the deputy assessor to be called as a witness
because she wasn’t listed on the pretrial order. [Id. at 564-65.] But O’Connor’s counsel
did introduce the underlying evidence of the fact that Ross met with the LaPorte
County Assessor’s Office and had the tax assessment (and assessed value) of the
property reduced shortly before filing his petition. One month before filing bankruptcy,
Ross had the property value reduced to $38,200 [id. at 522], nearly four times the value
that Ross listed on his amended schedules three months later when he valued the
property at $10,000. [Id. at 98.]
After trial, the bankruptcy court ruled that O’Connor failed to meet her burden
of proof under Section 727(a) and dismissed her objection. [Id. at 280-91.] The court
found that “[n]othing in the record presented by O’Connor leads the court to plausibly
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infer fraudulent intent by Ross or concealment of assets.” [Id. at 291.] The court pointed
to “Ross’s quick action to amend his schedules” as “discredit[ing] any assertion that he
was trying to hide property.” [Id. at 288.] He continued, finding Ross to be credible
witness and “a complete absence of fraud in his statements and unintentional
omissions[.]” [Id. at 290.] The court also found trustee Bradley’s testimony and
conclusions credible, pointing to his “many years of experiences as a trustee.” [Id. at
287.] Put simply, the bankruptcy court expressed no concern that Ross was anything but
“the honest but unfortunate debtor” that bankruptcy is designed to benefit.
Yet there is something missing in the initial opinion of the bankruptcy judge.
The April 2017 transfer of the 408 G Street property by Ross to his mother-in-law for no
consideration went unremarked in the written opinions. O’Connor claims that the
transfer – done ten months prior to trial and while the bankruptcy was still pending -was a significant event. O’Connor’s counsel raised the transfer as part of the
concealment at trial [id. at 560] and referenced it again in post-trail briefing. [Id. at 261.]
Yet the bankruptcy judge didn’t discuss the transfer whatsoever.
And the saga doesn’t end there. Two weeks after the bankruptcy court dismissed
O’Connor’s objection to discharge, she learned that 408 G Street was listed for sale on a
realtor’s website with an asking price of $114,900. [Id. at 303-08.] It was listed with the
same realtor that Ross used to purchase the home. O’Connor moved to set aside or
amend the bankruptcy court’s order. In her Motion for Relief under Fed. R. Civ. P. 60(b)
and Motion to Alter or Amend Judgment under Fed. R. Civ. P. 59(e), O’Connor cited the

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listing as evidence of Ross’s alleged intent to defraud and as “new evidence” justifying
relief. [Id. at 296, ¶ 4.]
The bankruptcy court denied both of O’Connor’s motions, noting that “the
relevant date for the valuation of [408 G Street] is the date Ross filed for [bankruptcy],
July 2, 2016[,]” and the “real estate listing from April 2018 is irrelevant” and not new
evidence justifying relief under Rule 60(b). [Id. at 339.] The court reiterated its earlier
findings that Ross’s amendment of his asset schedule did not demonstrate fraudulent
intent and trustee Bradley’s conduct and testimony were credible. “The court found the
credible testimony of Ross’ experienced chapter 7 trustee convincing.” [Id. at 340.]
Further, the court found no evidence to “support any inference of [fraudulent intent] by
Ross[.]” [Id. at 341.] The court found “no basis” for O’Connor’s arguments and
dismissed her motions. [Id. at 346.] And once again, the bankruptcy court did not
reference, and thus it seems did not take issue with, the fact that Ross transferred the
property without consideration prior to his discharge from bankruptcy.
O’Connor appeals these orders, asking me to overturn the bankruptcy court’s
denial of her Motion to Alter or Amend the Judgment and the denial of her Motion for
Relief. She wants the bankruptcy court’s discharge order reversed and the bankruptcy
reopened, presumably so she can force an unwinding of the transfer of the 408 G Street
property and sell it to satisfy Ross’s debts.
Legal Standard
My review of a bankruptcy court’s decision is generally a deferential one. The
bankruptcy court’s factual findings are upheld unless they are clearly erroneous—“in
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other words, with a serious thumb on the scale for the bankruptcy court.” U.S. Bank Nat.
Ass'n ex rel. CWCapital Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, 138 S. Ct. 960, 966
(2018). Legal determinations are subject to de novo review. In re Dennis, 927 F.3d 1015,
1017 (7th Cir. 2019). “Under the clearly erroneous standard, if the bankruptcy court’s
factual findings are plausible in light of the record viewed in its entirety, a reviewing
court may not reverse even if it would have weighed the evidence differently.” Mungo
v. Taylor, 355 F.3d 969, 974 (7th Cir. 2004) “This standard plainly does not entitle a
reviewing court to reverse the finding of the trier of fact simply because . . . it would
have decided the case differently.” Anderson v. City of Bessemer City, N.C., 470 U.S. 564,
573–74 (1985). “Where there are two permissible views of the evidence, the factfinder’s
choice between them cannot be clearly erroneous.” Id. (quoting United States v. Yellow
Cab Co., 338 U.S. 338, 342 (1949) (internal quotation marks omitted)).
Further, I must give the bankruptcy court’s assessments of a witness’s credibility
great deference. Anderson, 470 U.S. at 575. “[O]nly the trial judge can be aware of the
variations in demeanor and tone of voice that bear so heavily on the listener's
understanding of and belief in what is said.” Id. (citing Wainwright v. Sykes, 433 U.S. 72
(1977)). Unless I find that “[d]ocuments or objective evidence . . . contradict the
witness’[s] story; or the story itself . . . [is] internally inconsistent or implausible on its
face”, the bankruptcy court’s findings based on a witness’s credibility “can virtually
never be clear error.” Id.
A motion for relief under Fed. R. Civ. P. Rule 60(b), and a motion to alter or
amend a judgment under Fed. R. Civ. P. Rule 59(e), achieve similar ends, but they are
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substantively different. Harrington v. City of Chicago, 433 F.3d 542, 46 (7th Cir. 2006).
Despite their differences, denial of both motions is reviewed only for abuse of
discretion. Gleason v. Jansen, 888 F.3d 847, 851-52 (7th Cir. 2009). “A finding based upon
no reliable evidence whatever is a clear error of judgment and an abuse of discretion.”
First Girl, Inc. v. Reg’l Manpower Adm’r of U. S. Dep’t of Labor, 499 F.2d 122, 124 (7th Cir.
1974); Harrington, 433 F.3d at 550. (finding that there was a factual basis for the lower
court’s holding that circumstances surrounding a lawyer’s personal life did not justify a
relief from judgment under Rule 60(b)); see also Gonzalez v. Crosby, 545 U.S. 524, 540-45
(2005) (affirming the lower court’s denial of a Rule 60(b) motion because the lower
court’s conclusion that a recent Supreme Court decision did not constitute
“extraordinary circumstances” was not an abuse of discretion).
Discussion
O’Connor advances multiple arguments on appeal. First, she argues that that the
bankruptcy court abused its discretion when it denied her Rule 60(b) motion because
the April 2018 listing represents new evidence and Ross’s fraudulent intent. [DE 7 at 1011.] Second, she argues that the bankruptcy court abused its discretion and committed
clear error by denying her Rule 59(e) motion because the court: (1) failed to consider the
timing of Ross’s amended schedules and all his statements and pleadings when it found
no fraudulent intent; (2) found trustee Bradley credible even though he didn’t know
what an “REO” property is and didn’t personally visit the 408 G Street property to
determine its value; and (3) erred as to the legal status and value of 408 G Street and
prohibited O’Connor from introducing rebuttal testimony to establish the property’s
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value. [Id. at 1-2.] Third, she says that the transfer of 408 G Street post-petition was a per
se violation of the Bankruptcy Code. I will address each argument in turn.
A. O’Connor’s Motion for Relief Under Fed. R. Civ. P. Rule 60(b)
O’Connor first argues that the court erred in denying her Rule 60(b) motion
because the listing of 408 G Street represents “new evidence” and shows “fraud . . .
misrepresentation, [and] misconduct by [Ross].” [DE 7 at 9.] The essential purpose of
Rule 60(b) is to undo the court’s final decision on a case, but in a very limited set of
circumstances. See Buck v. Davis, 137 S. Ct. 759, 779 (2017) (“[T]he ‘whole purpose’ of
Rule 60(b) ‘is to make an exception to finality.’”). Granting a Rule 60(b) motion is “an
extraordinary remedy” and I should only do so in “exceptional circumstances.” Davis v.
Moroney, 857 F.3d 748, 751 (7th Cir. 2017). O’Connor asks me to grant this extraordinary
remedy, invoking Rule 60(b)(2)’s new evidence and Rule 60(b)(3)’s fraud prongs.
However, I find nothing in the record to suggest that the bankruptcy court abused its
discretion in denying O’Connor’s Rule 60(b) motion.
O’Connor’s new evidence claim is fundamentally flawed. Importantly, “new
evidence” under Rule 60(b)(2) and Rule 59(e) motions must have existed at the time of
trial. LAJIM, LLC v. Gen. Elec. Co., 917 F.3d 933, 950 (7th Cir. 2019) (“Newly discovered
evidence must have been in existence at the time of the original judgment or pertain to
facts in existence at the time of the judgment.”).
As the bankruptcy court correctly pointed out, the listing of the 408 G Street
property is not “new evidence” as to the property’s value at the time Ross filed for
bankruptcy almost two years beforehand. [DE 8 at 344.] The only relevant date of
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valuation for the property is the day Ross filed for bankruptcy. E.g., In re Rambo, 297
B.R. 418, 424 (Bankr. E.D. Pa. 2003) (property of the estate’s value is the “fair market
value of the real estate as of the date of the filing”); In re Warner, 146 B.R. 253, 255 (N.D.
Cal. 1992) (“[T]he Bankruptcy Court determined that, on the date of filing the
bankruptcy petition, the subject real property had a fair market value of $234,000.”); In
re Mitchell, 103 B.R. 819, 820 n. 1 (Bankr. W.D. Tex. 1989) (‘‘Value’ means fair market
value as of the date of the filing of the petition . . .”) (citing 11 U.S.C. § 522(a)(2)). That
value was provided to the court by trustee Bradley. [DE 8 at 494-95.] As of the date Ross
filed bankruptcy, the appreciation in the property’s value shown by the real estate
listing “did not exist.” [Id. at 344.] There was no “new evidence” to discover at the time.
Instead, the listing of the property was a subsequent development which occurred,
albeit close in time, after the bankruptcy had closed. That is not what the “new
evidence” prong of Rule 60 is concerned with.
O’Connor’s claim that the listing of 408 G Street is evidence of fraud is also
without merit. To prove fraud under Rule 60(b)(3), O’Connor must show that “(1) [she]
maintained a meritorious claim at trial; and (2) because of [Ross’s] fraud . . . ; (3) [she]
was prevented from fully and fairly presenting [her] case at trial.” Walsh v. McCain
Foods Ltd., 81 F.3d 722, 726 (7th Cir. 1996) (citing Lonsdorf v. Seefeldt, 47 F.3d 893, 897 (7th
Cir. 1997)). Even assuming O’Connor’s claim that the property’s value in 2016 was
greater than Ross or trustee Bradley proffered was credible, the April 2018 listing is not
relevant to that claim. Trustee Bradley investigated the value of the property in
November of 2016 and determined it was worth between $10,000-$15,000. [DE 8 at 494.]
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Perhaps that is debatable through the lens of hindsight, but as the bankruptcy court
stated, the only thing the listing in April 2018 proves is that someone put a lot of time
and money into refurbishing 408 G Street after trustee Bradley decided it wasn’t worth
pursuing. [Id. at 339.] Importantly, the bankruptcy court stated that “[p]hotographic
evidence at trial showed [408 G Street] in ramshackle condition.” [Id.] The April 2018
listing has no bearing on any alleged fraudulent conduct by Ross two years beforehand.
Temporally, the listing of the home after the conclusion of the bankruptcy, does nothing
to show that Ross had fraudulent intent to conceal assets or that he committed fraud
upon the bankruptcy court, who was aware of the property at the time of trial.
What’s more, O’Connor offers no evidence that Ross performed undisclosed
work on the house to increase its value prior to trial or conceal anything from the court.
Instead, she offers speculation, albeit reasonable speculation. But that just isn’t enough.
Essentially, she’s asking me to reweigh the evidence from trial in her favor, but this is
not task as the reviewing court. Freeland, 540 F.3d at 729. The bankruptcy court’s factual
findings are more than plausible given the record, meaning I cannot substitute my own
judgment for the bankruptcy court’s. Anderson, 470 U.S. at 573–74. Therefore, the
bankruptcy court’s assertion that O’Connor’s Rule 60(b)(3) motion “is not supported by
the law or record” was correct, and not an abuse of discretion. [DE 8 at 345.]
B. O’Connor’s Motion to Alter or Amend Judgment Under Fed. R. Civ. P. Rule
59(e)
A Rule 59(e) motion allows the movant to alert the trial court to a manifest error
fact or law, or newly discovered evidence. LB Credit Corp. v. Resolution Tr. Corp., 49 F.3d

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1263, 1267 (7th Cir. 1995). However, “[i]t ‘does not provide a vehicle for a party to undo
its own procedural failures, and it certainly does not allow a party to introduce new
evidence or advance arguments that could and should have been presented to the [trial
court] prior to judgment.’” Bordelon v. Chicago Sch. Reform Bd. of Trustees, 233 F.3d 524,
529 (7th Cir. 2000) (quoting Moro v. Shell Oil Co., 91 F.3d 872, 876 (7th Cir. 1996)). The
decision to deny or grant a Rule 59(e) motion is “entrust[ed] to the [trial court’s] sound
judgment” so my review here is “commensurately deferential”; I can only reverse if I
find an abuse of discretion at the bankruptcy court. LB Credit Corp., 49 F.3d at 1267.
With that standard in mind, I turn to O’Connor’s substantive arguments.
“[T]he Bankruptcy Code was meant to discharge only an honest debtor from his
or her debts . . . the Code should be liberally applied to protect the [debtor] only in
those cases where there is no intent to violate its provisions.” Disch v. Rasmussen, 417
F.3d 769, 774 (7th Cir. 2005) (quoting In re Suttles, 819 F.2d 764, 766 (7th Cir. 1987)
(internal quotation marks omitted) (alteration original); see also In re Chlad, 922 F.3d 856,
860 (7th Cir. 2019) (“Discharge under Chapter 7 is reserved for the honest but
unfortunate debtor.”). Section 727(a) of the Bankruptcy Code calls for a debtor’s
discharge, subject to certain caveats (mainly for fraud and dishonesty on the part of the
debtor). O’Connor argued at trial and in her post-trial motion that Ross violated two
subsections of this provision which provide sufficient bases for denying discharge in
this case: (1) Section 727(a)(4)(A) by omitting 408 G Street from his original bankruptcy
schedules and misleadingly undervaluing the property; and (2) Section 727(a)(2) by
doing the same and then executing a deed for the property to his mother in-law. [DE 7
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at 19-20.] Given that a violation of either acts as a bar to Ross being able to receive a
discharge, these exceptions are construed strictly against O’Connor and liberally in
favor of Ross. In re Kontrick, 295 F.3d 724, 736 (7th Cir. 2002), aff’d sub nom, Kontrick v.
Ryan, 540 U.S. 443 (2004).
1. Section 727(a)(4)’s Prohibition Against False Oaths
I’ll begin with O’Connor’s claim that Ross’s initial failure to disclose his interest
in the 408 G Street property, followed by the way in which the property was
subsequently valued, constituted a false statement worthy of preventing his discharge
from bankruptcy. To bar discharge under § 727(a)(4) for false oaths, O’Connor must
show “(1) [Ross] made a statement under oath; (2) the statement was false; (3) [Ross]
knew the statement was false; (4) [Ross] made the statement with fraudulent intent; and
(5) the statement related materially to the bankruptcy case.” Kempff, 847 F.3d at 449
(quoting Stamat v. Neary, 635 F.3d 974, 978 (7th Cir. 2011)) (internal quotations marks
omitted). Elements (1), (2), (3), and (5) are typically easy to show when an (a)(4)
violation is alleged. See, e.g., Chlad, 922 F.3d 856. Here, they are hardly in dispute, as
everyone agrees Ross did not initially include the 408 G Street property on his list of
assets when he first filed for bankruptcy.
This brings us to fraudulent intent, the trickier of the elements to prove. This
requires a showing of specific intent to deceive the trustee or creditors. Id. at 862
(quoting In re Katsman, 771 F.3d 1048, 1050 (7th Cir. 2014) (internal quotation marks
omitted)). This deception does not have to be for the purpose of obtaining a pecuniary
benefit. Id. Rather, a debtor’s “reckless disregard for the truth” can be sufficient to prove
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fraudulent intent. Kempff, 847 F.3d at 449 (quoting Stamat, 635 F.3d at 982). A reckless
disregard for the truth is “not caring whether some representation is true or false . . . .”
In re Chavin, 150 F.3d 726, 728 (7th Cir. 1998). Fraudulent intent can be inferred “in light
of a ‘larger picture of omissions and errors ... the totality of the [debtor's] omissions and
errors rises above mere negligence to the level of reckless disregard for the truth.’”
Chlad, 922 F.3d at 862 (quoting Stramat, 635 F.3d at 982) (alteration original). Mere
negligence or misunderstanding though cannot serve as proof for fraudulent intent. Id.
O’Connor argues that the bankruptcy court did not appropriately consider the
timing of Ross’s amendment to his schedule and his various statements to the court and
to trustee Bradley when it found no evidence of fraudulent intent. [DE 7 at 16-21.] She
argues that Ross amended his schedules only after inadvertently discussing the 408 G
Street property during his Section 341 meeting with trustee Bradley, and that Ross’s
subsequent amendment doesn’t cure his original omission. [Id.] She argues that even if
this isn’t evidence of clear fraudulent intent, Ross’s actions at least demonstrate a
reckless disregard for the truth, justifying denial of his discharge. [Id. at 20-21.]
“[B]ankruptcy law imposes upon one seeking its benefits the positive duty to
schedule for the benefit of creditors all his interest and property rights.” Cincinnati Life
Ins. Co. v. Grottenhuis, No. 2:10-CV-00205, 2011 WL 1107114, at *4 (S.D. Ind. Mar. 23,
2011), aff'd sub nom. Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939 (7th Cir. 2013) (citation
and internal quotation marks omitted). “[D]ebtors have an absolute duty to report
whatever interests they hold in property, even if they believe their assets are worthless
or are unavailable to the bankruptcy estate.” Chlad, 922 F.3d at 864 (quoting In re
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Yonikus, 996 F.2d 866, 904 (7th Cir. 1993); see also Aikens v. Soul Circus, Inc., No. 09 C
6678, 2011 WL 2550828, at *3 (N.D. Ill. June 24, 2011) (debtors have a continuing duty to
update schedules to reflect newly acquired assets). Given the catastrophic effect a
failure to list an asset can have on a debtor’s chances at obtaining a discharge, however,
debtors have an absolute right to amend their bankruptcy petition at any time before
the bankruptcy closes. Bankr. R. 1009(a); Yoon v. VanCleef, 498 B.R. 864, 869 (N.D. Ind.
2013). Courts generally looks favorably upon a debtor rapidly amending her
bankruptcy schedules after realizing a genuine mistake. See, e.g., In re Bailey, 147 B.R.
157, 165 (Bankr. N.D. Ill. 1992) (“[S]ubsequent disclosures are evidence of innocent
intent.”).
O’Connor claims that that Ross’s schedule amendment was the result of his
accidental disclosure of 408 G Street during his Section 341 meeting, which “proves”
fraudulent intent. The bankruptcy court fully rejected this argument, stating:
O’Connor wants this court to infer evil intent from Ross’s failure to
originally schedule the G Street property. Were the court to adopt
O’Connor’s interpretation of an amendment, any debtor who
amends schedules to include omitted property ought to have their
discharge barred. The court does not read the statute in such a
mechanical way. . . . Under the facts of this bankruptcy the court does
not find it reasonable to categorize Ross’s amendment to his
schedules, an amendment perhaps prompted by the discussion at his
§ 341 meeting, as a discovered attempt to conceal assets for which
the court should penalize him. Quite the opposite: The court finds
Ross’s voluntary amendment a sign of an honest debtor cooperating
with this bankruptcy trustee and attempting to fulfill his obligation,
under the statute and rules, to list all his assets and liabilities.
Nothing in the record of this adversary proceeding, or in Ross’s
underlying bankruptcy case, supports the supposition that Ross was
trying to conceal assets.
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[DE 8 at 288-89.] O’Connor repeats her argument here, citing two cases for support.
Neither is particularly instructive.
First, she cites In re Bailey from the Northern District of Illinois. She argues that
since, in her view, Ross didn’t admit to owning 408 G Street until the “the cat was out of
the bag” and he was caught in a lie, his later amendment cannot ameliorate his
deception. Bailey, 147 B.R. at 165; [DE 7 at 17.] However, O’Connor mistakenly
simplifies Bailey so as to read out the requirement that she prove fraudulent intent.
Denying discharge under § 727(a)(4) is not automatically triggered by a failure to
disclose property. Rather, failure to disclose property plus a showing of knowledge,
fraudulent intent, and materiality violates § 727(a)(4) even with later disclosure. Kempff,
847 F.3d at 449 (quoting Stamat, 635 F.3d at 978); Bailey, 147 B.R. at 164-65.
For example, in Bailey the debtor failed to list three bank accounts on his
bankruptcy schedules. One of these was his thrift savings account, an account
established through his employer that was funded through paycheck withholdings. 147
B.R. at 164-65. This account was his largest asset. Id. at 164. The case came down to
whether this omission was done with fraudulent intent. Id. at 164-65. The court found
that the debtor’s omission of the two other accounts, a checking account and a credit
union account, did not evidence fraudulent intent. While those two accounts were
omitted, the debtor turned over the account records to the plaintiff and “answered all
questions regarding his accounts[.]” Id. By contrast, the court did find fraudulent intent
where debtor omitted the thrift savings account, which he had not later disclosed,
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justifying his initial omission post-hoc as being because he thought the account was
exempt. See id. at 159-61. Again, a mere omission alone is not enough to deny discharge;
the ability to prove fraudulent intent is what carries the day. Id. at 164-65. Unlike in
Bailey, Ross did not continue to try to conceal the 408 G Street property, he volunteered
its existence at his Rule 341 meeting and then promptly amended his schedule to reflect
its existence.
Next, O’Connor points me to In re French, No. 01-1058, 2003 WL 21288644, at *2
(Bankr. D. Vt. May 30, 2003) (cited in DE 7 at 17). In French, the debtor originally sought
discharge as a chapter 7 bankruptcy, but later converted to a chapter 13 bankruptcy.
French, 2003 WL 21288644 at *1. Creditors opposing the debtor’s discharge filed their
complaint before conversion and alleged a Section 727(a) violation under chapter 7 or,
alternatively, a Section 1307(c) violation under chapter 13 for operating in “bad faith.”
Id. The court discussed debtor’s omissions under the “bad faith” standard because the
case was converted to chapter 13, finding the debtor’s omissions were not in bad faith.
Id. at *1, *5. Bad faith and fraudulent intent are different legal standards, so this case
doesn’t provide me much guidance. Id. Bad faith is a less stringent standard, as:
There is no set formula to determine whether a plan is proposed in
good-faith . . . [but good faith] is to be judged by the totality of the
circumstances . . . [and] require[s] “honesty of intention” on the part
of the debtor . . . [further,] the debtor [cannot] misrepresent[] facts in
his plan [or] unfairly manipulate[] the Bankruptcy Code or . .
propose[] his plan in an inequitable manner.
Id. (quoting Connelly v. Bath Nat'l Bank, No. 93-CV-6499L, 1995 WL 822677, at *3
(W.D.N.Y. Apr. 13, 1995)). By contrast, fraudulent intent is “intending to deceive, which
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need not connote intending to obtain a pecuniary benefit.” Chlad, 922 F.3d at 856
(quoting Katsman, 771 F.3d at 1050 (internal quotation marks omitted)).
Thus, the only help French gives my analysis actually cuts against O’Connor. In
that case, the debtor’s actions were far more suspect than the conduct O’Connor points
to. For example, the debtor in French amended his schedules not once, but four times,
changing things as simple as his income, adding creditors, living expenses, and
employment information months after the initial chapter 7 filing. French, 2003 WL
21288644 at *3. The court even noted that the filing of these amendments was
suspiciously correlated to “probing questions by the trustees and Plaintiffs.” Id. If this
conduct doesn’t even rise to the level of bad faith, I don’t see how Ross’s single
schedule amendment is sufficient to infer fraudulent intent. The bankruptcy judge’s
findings in this regard are certainly not clear error or an abuse of discretion.
This case law and much of the same evidence also cuts against O’Connor’s
argument that Ross committed fraud and sought to conceal his interest in a trailer and
tools which belonged to Ross’s father. [DE 7 at 21-23.] The tools were not of great value
and not owned by Ross. O’Connor offered no real evidence to the contrary.
Concerning the property’s valuation, O’Connor also says the bankruptcy court
committed clear error in relying on trustee Bradley’s judgment as to the value of 408 G
Street. She says that because he didn’t know what an “REO” sale was or that they
shouldn’t be used as comparable properties for valuation purposes, his testimony
couldn’t possibly be credible. [DE 7 at 17-18.] Like the bankruptcy court, I disagree.
Trustee Bradley testified that in his decades of experience as a bankruptcy trustee, it
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was unusual to physically visit real estate property personally; he’d only physically
examine a property if he were unsatisfied with the valuation information provided. [DE
8 at 583.] Here, he received an appraisal of the property and made a judgment as to
what he thought was its worth in its current state. Trustee Bradley’s assessment was
certainly less than the price the home was assessed at by the county assessor’s office
(discussed below) and lower than what Ross paid for it at the HUD auction
approximately six months before, but not to the point that I can say that it was clear
error or evidence of fraud warranting a denial of Ross’s discharge. This is especially
true considering the only work Ross had performed on the home was demolition work.
“Real estate appraisal is not an exact science.” Latimore v. Citibank Fed. Sav. Bank, 151
F.3d 712, 715 (7th Cir. 1998).
To successfully argue that this was clear error, O’Connor cannot simply repeat
the argument she made to the bankruptcy court and expect a different result. She must
show me evidence that leaves me with the undoubted conviction that a mistake was
made. This is especially true when assessing witness credibility. Anderson, 470 U.S. at
573–74 (“[O]nly the trial judge can be aware of the variations in demeanor and tone of
voice that bear so heavily on the listener’s understanding of and belief in what is said.”)
She has not done so here. In reviewing the evidence, although reasonable minds might
differ, it is plausible that, based on the pictures provided of 408 G Street and trustee
Bradley’s testimony, the property’s value was between $10,000 and $15,000 in 2016.
Further, while O’Connor argues that trustee Bradley should not be deemed credible
because “industry practice” doesn’t allow for REOs to be used for comparable sales
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purposes, she offers no record evidence supporting this contention. At the hearing,
O’Connor asked me to take judicial notice of this “fact” as real estate 101, but that
stretches the doctrine of judicial notice well beyond its confines. See Hennessy v. Penril
Datacomm Networks, Inc., 69 F.3d 1344, 1354 (7th Cir. 1995) (“In order for a fact to be
judicially noticed, indisputability is a prerequisite.”). O’Connor failed to introduce
evidence regarding this use of REOs at trial, and so there is no basis for me to find the
bankruptcy court committed error.
O’Connor next argues the bankruptcy court erred in not allowing rebuttal
testimony as to the property’s value. [DE 7 at 13.] While O’Connor claims the basis for
this exclusion was that the court did not find the evidence relevant [id.], that is not
completely accurate. The bankruptcy court’s primary reason for excluding the
testimony was that the witness was not named in the pretrial order [DE 8 at 340],
adding that even had the evidence been allowed, it would’ve had “insignificant impact
on the outcome.” [Id. at n. 10.] While the judge’s adherence to the pretrial order was
rather strict, trial judges are given great discretion in deciding how to structure
litigation in their courtrooms. Braun v. Lorillard Inc., 84 F.3d 230, 236 (7th Cir. 1996)
(finding no abuse of discretion in district judge’s decision to exclude a rebuttal witness
not listed on the pretrial order because plaintiff failed to show “good cause” for
omitting the witness from the order); see also In re Redmond, 399 B.R. 628, 633 (Bankr.
N.D. Ind. 2008) (noting that the court has great discretion in deeming evidence proper);
O'Sullivan v. City of Chicago, No. 01 C 9856, 2007 WL 671040, at *10 (N.D. Ill. Mar. 1,
2007) (denying motion for new trial and finding that it was proper to exclude a rebuttal
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witness not listed on pre-trial order). I find no clear error or abuse of discretion in the
court’s decision to exclude the Chief Deputy Assessor’s testimony because she was not
included in the pretrial order.
2. Section 727(a)(2)’s Prohibition Against Fraudulent Transfers or
Concealment
This brings me to the second subsection of the Bankruptcy Code that O’Connor
says should bar Ross’s discharge. And on this one, she gets some traction. Discharge
can be denied under § 727(a)(2) if O’Connor can show (1) an act of transferring or
concealing property any time subsequent to one year before filing for bankruptcy; (2)
with the intent to defraud creditors or delay proceedings. Vill. of San Jose v. McWilliams,
284 F.3d 785, 791 (7th Cir. 2002) (citing Lee Supply Corp. v. Agnew (In the Matter of
Agnew), 818 F.2d 1284, 1287 (7th Cir. 1987)); 11 U.S.C. § 727(a)(2)(A) (forbidding
fraudulent transfer or concealment of debtor’s property one year prior to filing
petition); 11. U.S.C. § 727(a)(2)(B) (forbidding fraudulent transfer or concealment of
bankruptcy estate’s property after the date of the filing of the petition).
The point of these provisions is to prevent debts from being wiped away for
individuals who improperly deplete their own assets in the lead up to declaring
bankruptcy or after filing but before being discharged. To prove intent to defraud,
O’Connor must show “by a preponderance of the evidence that [Ross] actually intended
to hinder, delay, or defraud a creditor . . .” In re Kempff, 847 F.3d 444, 448 (7th Cir. 2017)
(quoting Village of San Jose v. McWilliams, 284 F.3d 785, 790 (7th Cir. 2002) (internal

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quotation marks omitted)). Under this provision, intent to defraud must be actual, not
constructive. Id.
As an initial matter, I am puzzled by the fact that Ross’s transfer of 408 G Street
to Koehn, his mother-in-law, for no consideration, went completely unremarked upon
in either of the bankruptcy court’s written opinions. The quitclaim deed transferring the
property was listed as an exhibit on the pretrial order, evidence of the transfer was
adduced at trial, arguments were heard on the point, and O’Connor raised the issue in
her post-trial briefing. [DE 8 at 240, 258, 261, and 560.] Specifically, O’Connor argued
that:
After the filing of his bankruptcy, and during the pendency of this
adversary proceeding, shortly after a hearing on the motion to
dismiss which he personally attended, Ross unapologetically
prepared and executed a deed transferring the G Street property to
his mother-in-law Pamela Koehn. Though he claimed that he did so
under the advice of his prior counsel, he clearly knew that the
property was subject to his bankruptcy at the time and was clearly
identified as an issue with this pending adversary case. This transfer,
alone, is indefensible under 727(a)(2).
[Id. at 261.] For reasons that we’ll see in a moment, the transfer of the property while
Ross was still in bankruptcy was an important issue that should have been addressed
by the bankruptcy court, and the failure to do so requires reversal of Ross’s discharge.
But before I get to the merits of the issue, I’ll address a procedural argument
raised by Ross at the hearing (but not in his briefing submitted on appeal). Ross says
that I shouldn’t even consider the transfer because O’Connor’s complaint did not raise
the issue. Perhaps this is the reason the bankruptcy court didn’t address the transfer,
although that is conjecture. The bankruptcy court did not say O’Connor waived or
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forfeited an argument based on the transfer because she didn’t amend her complaint or
include it in her pretrial order. Instead, it was silent on the whole issue. In any event, I
don’t really view this as a different claim. It is better characterized as simply additional
facts in support of her claim that Section 727(a)(2) barred Ross’s discharge under either
subsection 727(a)(2)(A) or (727)(a)(2)(B).
But even if O’Connor erred in not including it in her complaint, or in not
amending the complaint when it occurred, Federal Rule of Civil Procedure 15 allows for
amendments during and after trial. Fed. R. Civ. P. 15(b). Rule 15(b)(2) specifically says
that “[w]hen an issue not raised by the pleadings is tried by the parties’ express or
implied consent, it must be treated in all respects as if raised in the pleadings.” Id.; Lerch
v. City of Green Bay, 406 Fed.Appx. 46, 47 (7th Cir.2010) (“When a claim not raised in the
complaint is briefed and decided without objection from the parties, we must treat that
claim exactly as if it had been raised in the complaint.”). As I noted above, O’Connor
offered evidence at trial concerning Ross’s transfer of the property to his mother-lawlaw, and she argued the point in her post-trial brief. [DE at 261.] So, the issue was raised
by O’Connor below, but it was not addressed by the bankruptcy court.
Ross’s waiver argument is a nonstarter anyway. He never argued that the issue
was waived by O’Connor in his trial briefing, at trial, or in the post-trial briefing (or
even in the appellate briefing before me). At trial, he objected that work done to the
property since April 2017 was irrelevant and the bankruptcy court agreed, but ample
evidence was adduced concerning the transfer itself. [DE 8 at 561.] Ross never raised
waiver of the argument in the bankruptcy court, or before me until the time of oral
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argument in this court. Failing to raise an argument in briefing and instead raising it for
first time at oral argument is improper. Quality Oil, Inc. v. Kelley Partners, Inc., 657 F.3d
609, 614-615 (7th Cir. 2011) (arguments raised for the first time at oral argument are
waived) (citing Valentine v. City of Chicago, 452 F.3d 670, 680 (7th Cir. 2006). Ross
therefore waived the waiver.
Now on to the substance of O’Connor’s argument that the transfer of 408 G Street
after Ross filed for bankruptcy violated Section 727(a)(2). The outcome here is all but
dictated by the Seventh Circuit’s opinion in Village of San Jose v. McWilliams, 284 F.3d
785 (7th Cir. 2002). I am surprised that neither party cited it in their briefing or
otherwise brought this case to my attention, but it is circuit law that I can’t simply
ignore.
Because I find that Village of San Jose is dispositive here, an extended discussion
of that case is necessary. In Village of San Jose the debtors were an older couple residing
in a small village in central Illinois. 284 F.3d at 788. Among other assets, the McWilliams
owned a building in town which had fallen into disrepair. They received a letter from
the Village indicating that the property had been condemned and that they either
needed to repair it or the Village would demolish it and make them foot the bill. After
receiving an estimate to repair the building, the McWilliamses said they couldn’t afford
to make the repairs or pay for the costs of demolition. Id. The Village made good on its
word and demolished the building pursuant to court order, which also granted it a lien
on the property to satisfy the costs of demolition. After the demolition, but prior to
receiving the bill for the demolition from the Village, the McWilliamses conveyed
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several properties to their four grandchildren, including the lot on which the nowdemolished property had sat.
When they received the bill from the Village, the McWilliamses filed a petition
for bankruptcy. The Village, as a creditor, objected to a discharge. Shortly after that
objection was made, the McWilliamses’ grandchildren re-conveyed the properties back
to the McWilliamses and a hearing on the objection was held. The Village said it was a
clear-cut case of a violation of Section 727(a)(2) because the McWilliamses transferred
the properties for nominal consideration to their grandchildren just before filing for
bankruptcy. The bankruptcy judge, sympathetic to the McWilliamses, took a different
tack and refused to deny the discharge based on Section 727(a)(2) because, in his view,
while they did transfer the property within the impermissible one-year window prior to
declaring bankruptcy, they rectified the situation. The Village, undeterred, appealed the
discharge.
On appeal, the Seventh Circuit, despite some trepidation that doing so was likely
an unjust result, reversed. It found that even though the McWilliamses “corrected” the
transfer and had the property returned to them before they were discharged, the
transfer could not be excused under the mandatory provisions of Section 727(a)(2). In
answering whether the transfer was made with the requisite intent, the Seventh Circuit
adopted the multi-factor test used by the Fifth Circuit. Given the difficulties in showing
actual intent from an evidentiary perspective, the court looks at the existence of six
factors:

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(1) The lack of inadequacy of consideration; (2) the family,
friendship, or close relationship between the parties; (3) the retention
of possession, benefit or use of the property in question; (4) the
financial condition of the party sought to be charged both before and
after the transaction in question; (5) the existence or cumulative
effect of the pattern or series of transactions or course of conduct
after the incurring of debt, onset of financial difficulties, or pendency
or threat of suits by creditors; and (6) the general chronology of the
events and transactions under inquiry.
Pavy v. Chastant (In the Matter of Chastant), 873 F.2d 89, 91 (5th Cir. 1989). “If the creditor
can show that one or some of these factors are met,” there is a rebuttable presumption
that the debtor had fraudulent intent. Village of San Jose, 284 F.3d at 791.
Here, the bankruptcy judge did not engage in this analysis to determine whether
there was fraudulent intent specifically as to the transfer. But it is clear that Ross’s
actions were at least presumptively fraudulent under this test. He transferred the 408 G
Street property for (1) little to no consideration, and (2) to a family member. Id.; see also
In re Coppaken, 572 B.R. 284, 314 (Bankr. D. Kan. 2017) (“[T]he transfer to a family
member makes the transfer more suspicious, not less.”) (denying discharge where
debtor transferred LLC interest to son post-petition for less than its fair market value).
And there is no evidence in the record that I can see which overcomes this presumption,
beyond Ross’s prior conduct in disclosing the existence of the property months before.
At the time trustee Bradley valued the property (fall 2016) it was in a state of
disrepair. As discussed above, the valuation trustee Bradley gave the property was
within the range of reasonable values and I agree that Ross’s original failure to list the
408 G Street property on his disclosures, followed by his prompt admission to
ownership at the Section 341 hearing and subsequent amendment, negates any notion
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of fraudulent intent on that issue. And thus, perhaps like in Village of San Jose, the
bankruptcy judge in this case “felt there was no harm done”, 285 F.3d at 794, because
trustee Bradley had determined the 408 G Street property was not of sufficient value to
be worth pursuing. The problem is, trustee Bradley stopped short of legally abandoning
the property, instead proceeding as a no asset case. But a “no distribution report” is not
“equivalent to abandonment of [an] asset,” because abandonment “may only be
accomplished as outlined in section 554” of the Bankruptcy Code and requires things
like notice to creditors and a separate hearing. In re Peregrin, No. 12 A 1464, 2012 WL
5939266, at *4 (Bankr. N.D. Ill. Nov. 28, 2012) (quoting Ultimore, Inc. v. Bucala (In re
Bucala), 464 B.R. 626, 634 (Bankr. S.D.N.Y. 2012)); Morlan v. Universal Guar. Life Ins. Co.,
298 F.3d 609, 618 (7th Cir. 2002) (“[T]he trustee’s attempt to abandon failed because the
trustee failed to comply with the statutory requirements for abandoning an asset that is
part of the debtor’s estate. The requirements are exacting, in recognition of the potential
harm to creditors . . .”). Thus, the bankruptcy court was incorrect when, in its order
denying O’Connor’s motion for reconsideration, referred to the 408 G Street property as
“abandoned.” [DE 8 at 339.]
Without formal abandonment, 408 G Street remained part of the estate and was a
part of it when Ross transferred the title to his mother-in-law. The Bankruptcy Code
prohibits such transfers. 11 U.S.C. § 727(a)(2)(B). At oral argument, I asked Ross’s
counsel point blank whether Ross had authority under the Bankruptcy Code to
quitclaim deed the property to his mother-in-law after he filed his petition. He
conceded the point unequivocally, agreeing that Ross did not have the legal authority to
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transfer the property. And the consequence of such transfers generally is a denial of a
discharge, the equities of the case notwithstanding. Village of San Jose, 284 F.3d at 794; see
also In re Bajgar, 104 F.3d 495, 498 (1st Cir. 1997) (holding that the principles of equity
“has no place under the [Bankruptcy] Code to the extent the statute addresses the
question” of denying discharge under Section 727(a)(2)) (quoting Levit v. Ingersoll Rand
Fin. Corp., 874 F.2d 1186, 1189 (7th Cir. 1989)); In re Davis, 911 F.2d 560, 562 (11th Cir.
1990) (“The statutory language of section 727(a)(2)(A) is plain and unambiguous. . . . We
recognize that our holding may work hardship in some cases, perhaps this one, but we
are compelled to apply statutory law as enacted by Congress.”).
Because the bankruptcy judge’s written opinions were completely silent on the
transfer, my best guess is that the bankruptcy judge assumed that Ross’s transfer of the
property was harmless, and thus irrelevant. Trustee Bradley determined the property to
not be worth pursuing for the benefit of Ross’s creditors. The bankruptcy court also at
times focused on O’Connor’s inability to show harm to any particular creditor. [E.g., DE
8 at 289.] But showing specific harm to a creditor is not an element or factor to be
considered when determining whether a discharge under Section 727(a)(2) should be
allowed. Village of San Jose, 284 F.3d at 793 (“Even if the Village did not suffer any harm,
the McWilliams’ intent to defraud is all that is needed for a petition to be denied under
section 727(a)(2)”); Matter of Snyder, 152 F.3d 596, 601 (7th Cir. 1998) (“We ourselves
have stated unequivocally that ‘proof of harm is not a required element of a cause of
action under Section 727.’”) (quoting In re Smiley, 864 F.2d 562, 569 (7th Cir. 1989)); In the
Matter of Krehl, 86 F.3d at 744, n.4 (“Yet so long as the debtor acted with the requisite
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intent under Section 727(a)(2), his discharge may be denied even if creditors did not
suffer any harm.”).
The evidence that this was a simple transfer of title because Koehn was the real
owner in interest was, at best, mixed. Ross testified that he had a joint account for his
business with Koehn and that Koehn gave him cash and deposited money in that
account for the purchase of 408 G Street [DE 8 at 536]. But Koehn testified she only gave
Ross $500, one time. [Id. at 562.] Ross testified that he transferred the property because
years of past due property taxes were due and the home was going to be sold at auction
[id. at 534]. Yet Koehn testified that she did not pay any property taxes after the
property was deeded to her. [Id. at 563.] Further, trustee Bradley and the bankruptcy
court operated under an assumption that Koehn had an equitable lien in the home, but
none was ever recorded or offered into evidence. Koehn even denied she had any
mortgage on the property. [Id. at 561-62.] In connection with the post-trial motions, Ross
submitted an affidavit stating that he did not list the property and did not stand to
benefit from its sale. [Id. at 334.] But that does nothing to dispel whether he transferred
the property to a family member for no consideration during the pendency of his
bankruptcy. The point isn’t whether Ross will receive a benefit from the sale now, the
question is whether he intentionally transferred or sought to conceal the asset from his
creditors. The testimony is contradictory and for it to go unremarked upon was clear
error and thus undercut’s the bankruptcy court’s decision as to O’Connor’s Section
727(a)(2) claim.

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On remand, the bankruptcy court should allow for further factual development,
including the introduction of evidence (or lack thereof) of Pam Koehn’s equitable
interest or equitable lien on 408 G Street, when and how the property was refurbished,
and the circumstances under which it was conveyed to Koehn, such as whether it was
on the advice of Ross’s former counsel. Without that evidence, it’s hard not to view this
as anything but an effort to conceal or transfer assets by Ross. If Koehn was the real
owner in interest of the property the whole time and Ross only held legal title but no
equity interest, then the asset probably wouldn’t be his and thus its transfer would not
run afoul of Section 727(a)(2). E.g., In re Jeffries, 378 B.R. 248, 253 (Bankr. W.D. Mo. 2007)
(“Debtor’s destruction or misuse of fully-encumbered property (and property with no
equity) does not warrant denying him a general discharge under § 727 of the
Bankruptcy Code because such an act does not harm the unsecured creditors whom the
section seeks to protect.”); In re Ellefson, 54 B.R. 16, 17 (Bankr. W.D. Wis. 1985) (transfer
of collateralized cattle in which debtor did not have an equity interest not a “transfer”
of his “property” for purposes of Section 727(a)(2)). If that’s the case here, there would
be no basis under Section 727(a)(2) to refuse Ross a discharge. But there’s insufficient
evidence to support that contention at this point and the evidence before me suggests
Koehn did not in fact have such a dominant equitable interest in 408 G Street at the
outset of Ross’s bankruptcy.
In sum, the inequities in Village of San Jose were immense—probably more so
than in this case. After all, the property at issue in Village of San Jose was actually
returned to the estate prior to discharge. Not so here. And while the result in Village of
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San Jose might strike some as a triumph of legal formalism, any questioning of the
opinion by me is, of course, neither here nor there. In a system of courts shaped like a
pyramid where I reside near the bottom, my preferences are unimportant in the face of
clear circuit authority.
Conclusion
For the foregoing reasons, the bankruptcy court erred when it failed to address
the transfer of the 408 G Street property in either of its written opinions.
But because the factual record developed in the lower court is insufficient in my
opinion to definitively find a violation of Section 727(a)(2), I will not deny Ross’s
discharge outright. Accordingly, the bankruptcy court’s judgment is REVERSED, and
the matter is REMANDED for further proceedings not inconsistent with this opinion.
SO ORDERED on September 9, 2019.
/s/ Philip P. Simon
PHILIP P. SIMON, JUDGE
UNITED STATES DISTRICT COURT

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