§ 727(a)(2)(A) - What constitutes concealment

In re Swegan, --- B.R. ----, 2008 WL 761081 (B.A.P. 6th Cir. 2008). Prior to the debtor’s bankruptcy filing, the creditor had begun state court proceedings to collect on a judgment obtained against the debtor. The creditor obtained an order for the debtor to appear for a debtor’s examination, requiring the debtor to testify regarding his property but not ordering him to testify regarding income or to produce any documents. An informal request was made of the debtor, however, to produce a number of documents at the examination.

During the examination, the creditor’s counsel asked the debtor whether he had received proceeds of a life insurance policy as a result of his late wife’s death. He also was asked whether he had any policies insuring his own life. The debtor answered “no” to both questions. By instruction of his lawyer, the debtor did not respond to a number of questions regarding his income and employment.

When the debtor subsequently filed bankruptcy, his schedules listed a life insurance policy valued at $58,900.00 and an annuity death benefit. The creditor filed a complaint to deny the debtor’s discharge pursuant to 11 U.S.C. § 727(a)(2)(A). The creditor alleged that the debtor had concealed property with the intent to hinder, delay, or defraud because at the debtor’s examination, the debtor had denied receiving the proceeds of his wife’s life insurance policy and of having a policy on his own life.

The B.A.P. applied the test set forth in Kaler v. Craig (In re Craig), 195 B.R. 443, 449 (D.N.D. 1996) to determine whether the debtor’s actions required the denial of the debtor’s discharge under § 727(a)(2)(A). The Craig test requires that: (1) the debtor conceal assets within one year of the petition date; (2) the act of concealment be performed by the debtor; (3) the act consist of a transfer, removal, destruction, or concealment of the debtor’s property; and (4) the act be done with the intent to hinder, delay and/or defraud either a creditor or officer of the debtor’s estate. The B.A.P. stated that the third element, which turns on the meaning of concealment, was the matter at issue. The term “concealment” is not defined in the Bankruptcy Code, and it has not been defined by the 6th Circuit Court of Appeals. The B.A.P. concluded that concealment, as used in § 727(a)(2)(A), includes the withholding of knowledge of an asset by the failure or refusal to divulge information required by law to be made known. Applying this standard, the Court found that the debtor was required by law to answer correctly any questions he had answered when he was under oath at the state court debtor’s examination. His false answers to the questions of whether he had received any life insurance proceeds as a result of his wife’s death and whether he had any policies insuring his own life constituted concealment under § 727(a)(2)(A).

As to whether the debtor’s actions constituted concealment, the B.A.P. found that a genuine issue of material fact existed as to whether the debtor had the requisite intent to hinder, delay, or defraud, therefore, the B.A.P. reversed the lower court’s order granting the debtor’s motion for summary judgment and remanded the case for a trial on the issue of intent.