#2333 signed 7-15-97
JULIE A. VAN DONGE,
RICHARD E. VAN DONGE,
CASE NO. 96-41628-7
ROBERT L. BAER, Trustee,
|v.||ADV. NO. 96-7126|
|RICHARD E. VAN DONGE,
JULIE A. VAN DONGE,
This proceeding is before the Court on the trustee's motion for summary judgment. The
trustee appears by counsel John T. Houston. The defendant-debtors appear by counsel Mark W.
Works. The Court has reviewed the relevant pleadings and heard the arguments of counsel, and
is now ready to rule.
The following facts have not been properly controverted. The debtors were getting a divorce when they filed a joint chapter 7 bankruptcy petition on July 16, 1996. In their bankruptcy schedules, they reported owning household goods consisting of "misc furniture, computer, camera, tv" with a "market value" of $500 and photographic equipment consisting of "photography" with a "market value" of $700, claiming all that property as exempt under K.S.A. 60-2304. Under penalty of perjury, both debtors signed the schedules, declaring them to be true and correct to the best of their knowledge. On August 7, Ms. Van Donge signed a document, submitted the next day to the state divorce court, which indicated that to the best of her knowledge the debtors owned miscellaneous camera equipment with a "fair market value" of $5,000. She contends she did not enter this value on the document and now denies that she thought the equipment had that value.
At the creditors meeting held pursuant to 11 U.S.C.A. §341(a), the debtors testified that the "photography" property listed on their bankruptcy schedules consisted of one "medium format" camera, a flash unit, and some backgrounds. The debtors' 1995 federal tax return, prepared in September 1996, reported that Mr. Van Donge was in the photography business during the 1995 calendar year, and claimed depreciation deductions for photography equipment which he had bought during 1994 for over $15,000, had placed in service during that year, and was still using in his business at the end of 1995. The listed equipment included at least five cameras purchased for a total of $2,700 and a computer and related equipment purchased for a total of $2,882. The debtors did not report in their bankruptcy schedules any transfers of any of the photography equipment during the year before they filed for bankruptcy. In response to the trustee's motion, the debtors state in their brief, "That the values are relative to market value, garage sale value, or business value [that] can be placed on any item." Apparently, they mean to suggest the varying values they have reported for their photography equipment arise from different valuation standards they were applying rather than any attempt to deceive the trustee and their creditors.
On October 2, the trustee demanded turnover of the photography equipment listed in the tax return but not disclosed in the bankruptcy schedules and at the creditors meeting. On November 4, Mr. Van Donge reported to the police that his home had been broken into, and various items had been stolen, including two cameras valued at $1,500, three sets of studio lights valued at $1,800, a camera tripod valued at $90, and camera accessories valued at $500. On December 17, the trustee filed a motion to compel the debtors to turn over the photography equipment not disclosed in the schedules. The next day, he filed a complaint, pursuant to 11 U.S.C.A. §727(a)(2) and (4), seeking to deny the debtors a discharge. In the complaint, he stated that the debtors' attorney had turned one camera over to him, but the debtors had otherwise made no effort to arrange for him to pick up the rest of the equipment.
The Court recently denied the debtors' motion for summary judgment which claimed the trustee's request for turnover was moot since the photography equipment had been stolen. That motion confused this proceeding, concerning the debtors' eligibility to have their debts discharged, with the trustee's motion for turnover. The debtors have not denied making any of the statements and representations at issue here, except for Ms. Van Donge's assertion she did not enter the fair market value on the document submitted in the divorce proceeding. Other than vaguely suggesting the widely differing values they reported for their photography equipment for different purposes do not show knowing falsehoods, the debtors merely question the materiality of their failure to disclose all the equipment and the trustee's reliance on their schedules and their testimony at the creditors meeting.
Section 727 provides:
(a) The court shall grant the debtor a discharge, unless--
. . .
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be, transferred, removed, destroyed, mutilated, or concealed--
(A) property of the debtor, within one year before the date of the filing of the petition; or
(B) property of the estate, after the date of the filing of the petition.
. . . [or]
(4) the debtor knowingly and fraudulently, in or in connection with the case--
(A) made a false oath or account.
Under these provisions, the trustee has the burden of proving the debtors should not be discharged, Fed. R. Bankr. P. 4005, and must do so by a preponderance of the evidence. See First Nat'l Bank v. Serafini (In re Serafini), 938 F.2d 1156, 1157 (10th Cir. 1991) (since Supreme Court ruled all dischargeability elements under §523(a), including fraud, must be proven by preponderance of evidence, same standard should apply for fraud under §727(a)(2)). Once it reasonably appears that the debtors have made a false oath, the burden falls on them to come forward with evidence that they did not violate §727(a)(2) or (4). Boroff v. Tully (In re Tully), 818 F.2d 106, 110 (1st Cir. 1987).
The Court believes the debtors' 1995 tax return, Ms. Van Donge's signature on the document submitted in the divorce proceedings, and Mr. Van Donge's report to the police combine to show the debtors made false oaths when they signed their bankruptcy schedules declaring they had photography equipment worth only $700 and had not transferred any such property during the year before they filed for bankruptcy, and again when they testified at their creditors meeting that their photography equipment consisted of only one camera, a flash unit, and some backgrounds. The debtors have not offered any innocent explanation for these false oaths, suggesting only that they may have been applying different standards in valuing the equipment in different documents and that their bankruptcy estate has not been harmed by their false oaths. The Court is forced to conclude the debtors either failed to appreciate the need to disclose all their assets in their schedules or were hoping to hide assets from the trustee. The fact some of the equipment was stolen four months after they filed for bankruptcy, robbing them of benefits they might have hoped to retain through their false oaths, does not mean they should be granted the benefit of a bankruptcy discharge. As the trustee points out, had the debtors timely met their obligations to disclose assets and turn nonexempt ones over to him, the estate would not have been harmed by the burglary of their house, and the trustee would not have had to review their tax return and documents submitted to another court to find out about the assets. Having been offered no innocent explanation for the debtors' false oaths, the Court must conclude the debtors made them knowingly and fraudulently.
The Court concludes the trustee's motion for summary judgment under §727(a)(4) should be granted, and therefore finds it unnecessary to address his claim under §727(a)(2). The debtors are hereby denied a discharge.
IT IS SO ORDERED.
Dated at Topeka, Kansas, this _____ day of July, 1997.
JAMES A. PUSATERI
CHIEF BANKRUPTCY JUDGE