# Finishing Touch Carpet One v. Kinney

> United States Bankruptcy Court, W.D. Arkansas · December 1, 2020

URL: https://www.frixlaw.com/law-library/cases/10454865

## Case

- **Court:** United States Bankruptcy Court, W.D. Arkansas
- **Decided:** December 1, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

IN THE UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF ARKANSAS
EL DORADO DIVISION

IN RE: JIMMY DEAN KINNEY, DEBTOR CASE NO.: 1:20-bk-70361
CHAPTER 7

FINISHING TOUCH CARPET ONE PLAINTIFF

V. AP NO.: 1:20-ap-07029

JIMMY DEAN KINNEY DEFENDANT

MEMORANDUM OPINION AND ORDER

Before the court is a Complaint Objecting to Discharge (“Complaint”) filed by Finishing
Touch Carpet One (“Finishing Touch”), by and through its attorneys, Streetman & Gibson, PLLC,
and an Answer to Complaint Objecting to Discharge filed by the debtor, Jimmy Dean Kinney
(“debtor”), by and through his attorney, Billy J. Hubbell. Also, before the court is the debtor’s
Motion to Convert to Chapter 13 (“Motion to Convert”) and Finishing Touch’s Objection to
Motion to Convert to Chapter 13, each filed by the same attorneys. The court combined and heard
both matters on October 15, 2020. Each party appeared personally and by and through their
attorney. For the reasons stated herein, the Motion to Convert is denied. The relief requested in
the Complaint is granted. The court will enter a separate judgment denying the debtor his Chapter
7 discharge.
I. Jurisdiction
This court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157. This is a
core proceeding under 28 U.S.C. § 157(b)(2)(A), (J), and (O). The following opinion and order
constitute findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy
Procedure 7052.
II. Findings of Fact
Prior to trial, the debtor filed his Motion to Convert to either reorganize or simply avoid
the potential consequences of a section 727 discharge action. Finishing Touch objected arguing a
bad faith conversion. Because the bad faith and discharge allegations mirror and complement each

other, the parties agreed to try both issues at the same time. Finishing Touch initially sought to
deny the debtor his discharge under sections 727(a)(2), (3), (4), (5), and (7). Without specifically
abandoning any of its causes of action, counsel for Finishing Touch indicated in his opening
statement that its case had devolved principally into a section 727(a)(4) action. Accordingly, the
emphasis at trial was on whether the debtor had made a false oath or account on either his schedules
or at his first meeting of creditors sufficient to deny him a discharge.
A. Background
In the Fall of 2018, the debtor began a remodeling project at his home. He incurred debt
to Finishing Touch primarily for items related to his kitchen. Two factors immediately combined
to complicate the relationship: first, the debtor’s account representative at Finishing Touch was

also his stepson; second, the debtor believed he would owe Finishing Touch approximately
$10,000 instead of almost $17,000, the actual charge. The debtor professed ignorance of in-house
issues relative to the bid between the stepson/account representative and his employer. Succinctly,
the account representative may have logged in the project at a discounted and, at least to Finishing
Touch, unacceptable rate.
Despite demand, the debtor did not pay. Finishing Touch filed a Complaint in the Circuit
Court of Ashley County, Arkansas, seeking damages in the amount of $16,973.70 on August 14,
2019. (Plaintiff’s Ex. 1.) The Ashley County Circuit Court set the matter for trial on November
5, 2019. (Pl.’s Ex. 2.) Referencing the fact that debtor’s counsel was “undergoing radiation,” the
debtor moved for a continuance of the November trial on October 21, 2019. (Pl.’s Ex. 3.) The
Ashley County Circuit Court reset the trial for February 11, 2020. (Pl.’s Ex. 4.) The debtor filed
his Chapter 7 bankruptcy on February 7, 2020, thus mooting the state court trial setting. He
apparently qualified for a Chapter 7; his means test calculation reflected no presumption of abuse.

(Pl.’s Ex. 5, at 58.)
The debtor also filed his schedules on February 7, 2020. (Pl.’s Ex. 5.) He acknowledged
participation in the preparation of his schedules—that he had reviewed and signed them under
penalty of perjury. (Pl.’s Ex. 5, at 6, 40, 52, 58.) He listed real estate valued at $95,000 and
personal property valued at $14,065 for a total of $109,065. (Pl.’s Ex. 5, at 18.) Creditors have
liens on his home and vehicles. (Pl.’s Ex. 5, at 21–23.) The debtor indicated that he would exempt
and retain a 2006 Dodge Dakota and his home and that he would enter into reaffirmation
agreements accordingly. (Pl.’s Ex. 5, at 53.) The debtor indicated that he would also retain a 2016
Chevrolet Equinox and a 2016 Polaris Ranger.1 (Pl.’s Ex. 5, at 54.) The debtor has no unsecured
priority claims. (Pl.’s Ex. 5, at 24.) The debtor has unsecured claims totaling $21,419.60, of which

Finishing Touch comprises the overwhelming majority at $16,973. (Pl.’s Ex. 5, at 25–29.) In
sum, the debtor will emerge from bankruptcy having retained most, if not all, of his assets.
Equally, Finishing Touch is overwhelmingly the creditor most affected by the debtor’s bankruptcy
and discharge.
The predicate personal and contractual complications discussed above are not necessarily
relevant to the debtor’s conversion or discharge other than a reflection of the misunderstanding
and perhaps acrimony between the parties. This confusion may have contributed to Finishing

1 The debtor’s Schedule C and Statement of Intention are not fully consistent in this regard
though this matter was not fully developed at trial. See Pl.’s Ex. 5, at 19–20, 54.
Touch’s belief that the debtor had sufficient cash resources to make payment but employed every
means possible to avoid doing so. Concomitantly, Finishing Touch suggests this as a motive for
the debtor’s alleged failure to adequately complete his schedules.
Further complicating the parties’ conflict, the debtor lost his job in October of 2019. The

debtor interposes this economic reversal as part of his defense. Conversely, Finishing Touch
focuses on two related cash events as relevant to the debtor’s discharge: (1) the debtor’s 401(k)
plan liquidation in 2018 and (2) his severance pay received in November 2019, a few months
before he filed bankruptcy.
Based on its belief that the debtor, pre-and post-petition, deliberately avoided paying
Finishing Touch despite an ability to do so—and tailored his schedules accordingly, Finishing
Touch objected to both his discharge and his last-minute effort to convert to a Chapter 13.
Finishing Touch regards the latter as merely an effort to avoid the consequences of its objection to
discharge rather than a legitimate effort to reorganize.
B. Schedules

1. Failure to Disclose Checking Accounts
The debtor checked “[n]o” on the category of “[d]eposits of money,” which includes
“[c]hecking, savings or other financial accounts; certificates of deposit; shares in credit unions,
brokerage houses, and other similar institutions.” (Pl.’s Ex. 5, at 11.) Further, the debtor listed no
accounts in the spaces provided for enumerating specific checking, savings, and other financial
accounts. (Pl.’s Ex. 5, at 11–12.)
These responses are inaccurate. The debtor had a joint checking account with his wife at
First State Bank in Crossett, Arkansas. (Pl.’s Exs. 11–13.) The account was open pre-filing and
remained open post-filing through at least February 26, 2020, with a balance of $4.60 as of that
date. (Defendant’s Ex. 17.) As discussed in more detail below, the account was active, rather than
dormant, in the Fall of 2019.
The debtor also had a joint checking/share account with his wife at Timberline Federal
Credit Union. (Def.’s Ex. 18.) That account remained open through at least March 31, 2020, albeit

with a concluding balance of $5.00. (Def.’s Ex. 18.) The record does not reflect an exact balance
on February 7, 2020.2 (Def.’s Ex. 18.)
The debtor’s wife, Martha Kinney, had another checking/share account solely in her name
at Timberline Federal Credit Union. (Pl.’s Exs. 14–16.) The debtor testified that, while not a
signatory to the account, he did deposit some of his money into that account and both held and
used her debit card on that account. These deposits were not insignificant. On October 17, 2018,
the debtor deposited $40,000 into this account after liquidating his 401(k) plan, which is discussed
in more detail below. (Pl.’s Ex. 14.) The debtor’s wife testified, and her only explanation as to
why the $40,000 was deposited into her account was because of the debtor’s access to and use of
the debit card. The debtor testified, and the records reflect, that other miscellaneous but generally

unquantified deposits of his funds were made into that account. Though pressed, the debtor was
not specific as to amounts or in identifying deposits into that account. The debtor did not disclose
his depository and withdrawal enjoyment of this account on his schedules. On neither his
schedules nor at trial did the debtor ever offer a fully credible explanation for why he used his
funds and transacted personal business from that account rather than from accounts in his name.

2 Presumably, the balance would have been $5.00 as surmised from the fact that no
transactions occurred between January 11, 2020, and March 31, 2020.
2. Unreported Cash
Prior to losing his job in October of 2019, the debtor was a long-time hourly employee at
Georgia-Pacific. He had a relatively stable income, a 401(k) plan, and accrued vacation. His wife
received $806 a month in Social Security benefits. (Pl.’s Ex. 5, at 33.) Collectively, they had

accumulated a home, vehicles, and related consumer assets. On his schedules, the debtor
responded “[n]o” under the category of “[c]ash,” which includes “[m]oney you have in your wallet,
in your home, in a safe deposit box, and on hand when you file[d] your petition.” (Pl.’s Ex 5, at
11.) The debtor did, however, subsequently disclose $400 in cash under a catchall provision. See
“Part 7: Describe All Property You Own or Have an Interest in That You Did Not List Above.”
(Pl.’s Ex. 5, at 18.)
Finishing Touch argues that the debtor actually had more cash on hand when he filed
bankruptcy in February of 2020. In support, Finishing Touch points to two significant cash events.
The first is the debtor liquidating his 401(k) plan in 2018. The second is the debtor’s Fall 2019
income, accumulated vacation pay, and severance from his employer, Georgia-Pacific.

a. The 401(k) Liquidation
The debtor obtained a distribution from his 401(k) plan on October 8, 2018, in the gross
amount of $59,179.13. (Pl.’s Ex. 10, 10-A.) State and federal withholding resulted in a net cash
amount to the debtor of $44,384.34. (Pl.’s Ex. 10-A.) The debtor testified that at the time he had
no inkling his job might be in jeopardy.
Shortly thereafter, there was a $40,000 deposit on October 17, 2018, into Martha Kinney’s
account at Timberline Federal Credit Union. (Pl.’s Ex. 14.) This deposit was from the plan
distribution.
At trial, the debtor was unclear as to what happened to this money. He explained that
$10,000 went for a funeral. In response to questions from his counsel, the debtor indicated that he
had pulled out $10,000 for a funeral in 2016. The exhibit reflects that the actual loan date was
September 18, 2015. (Pl. Ex. 9, at 2.) This earlier loan would certainly not impact disposition of

the 2018 liquidation. The debtor also testified that he liquidated his 401(k) in 2018 to effect the
repairs on his house, which involved more than just his kitchen and Finishing Touch. He testified
that the floors were rotten and had to be replaced, the house had moisture issues, he remodeled the
kitchen, and he bought a pellet stove to heat the house.
In conclusion, the debtor testified that by July of 2019 he did not have any of the 401(k)
proceeds left. No evidence exists that would meaningfully suggest otherwise. In fact, the debtor
testified that his 401(k) statement for December 31, 2019, reflected that he owed more on a loan,
$3,544.96,3 than the closing balance of $1,039.91. (Pl.’s Ex. 9.)
Succinctly stated, the debtor’s 401(k) plan liquidation does not inform this court’s
consideration of the debtor’s cash position at the time of filing. While the liquidation in 2018

might factor into other disclosure categories discussed herein, the lack of credible evidence that
these funds were extant past mid-summer 2019 results in this court disregarding any of the 401(k)
liquidation proceeds from its analysis of any unreported cash at the time of filing, February 2020.
b. Fall of 2019
Georgia-Pacific announced in June 2019 that there would be significant local layoffs.
According to the debtor, Georgia-Pacific then got “wishy washy” and uncertainty resulted. The
debtor acknowledged that he told Finishing Touch in June that he expected an October severance.
However, the actual decision to retire, which according to the debtor was involuntary, occurred

3 The record reflects that this represents the balance on the funeral loan.
around October 17 or 18, 2019. Around that date, Georgia-Pacific informed him that October 26
would be his last day. The debtor testified that only then was he certain that his job was over, and
a severance would be forthcoming. At about the same time, the debtor was already contemplating
bankruptcy, and he obtained his prerequisite credit counseling on October 13, 2019. (Pl.’s Ex.

17.) He testified that it was taking a long time to get all the documentation together, so he decided
to go ahead and take the course.
Thus, by mid-October 2019, at the latest, the debtor was preparing to file bankruptcy. He
also knew that his job was ending October 26. Further, he testified at trial that he was aware then
that he would be without income until April 2020 when his pension payments began. It is under
those conditions that the fact question presents itself of whether the debtor had more than his
scheduled $400 in cash at the time he filed on February 7, 2020.
An analysis of his undisclosed bank accounts becomes pertinent in determining his
available cash resources. On September 26, 2019, the debtor’s joint account at First State Bank
had a $3.83 balance. (Pl.’s Ex. 11.) Deposits and withdrawals/debit cards resulted in a $968.07

balance as of October 25, 2019. (Pl.’s Ex. 11.) The two largest deposits were from Georgia-
Pacific and represented accrued vacation and half a payroll check. The debtor’s last day of
employment was October 26. The statement notes four cash withdrawals during the month totaling
$4,754.85—$777.22 and $2,400 on September 27; $277.63 and $1,300 on October 11.4 (Pl.’s Ex.
11.)
The October 25, 2019 ending balance of $968.07 changed significantly in the following
month, as reflected in a bank statement showing an ending balance of $13,488.61 as of November
26, 2019. (Pl.’s Ex. 12.) On November 22, 2019, a $16,727.35 deposit was made representing the

4 These four cash withdrawals total 99.1% of the withdrawals for that month.
lion’s share of $20,692.15 in aggregate deposits. (Pl.’s Ex. 12.) The $16,727.35 amount is the
debtor’s net severance pay. (Pl.’s Ex. 6-C.) Additionally, a $3,325.87 deposit was made on
November 8, 2019, which the debtor testified included accrued vacation from Georgia-Pacific.
(Pl.’s Ex. 12.) The record is unclear how that number fits in or can be reconciled with a similar

sum received on September 27, 2019. (Pl.’s Ex. 11.) Against deposits, the debtor again made
several cash withdrawals totaling $8,132.48—$150 and $777.22 on October 29; $600 on
November 1; $50 on November 6; $3,277.63 on November 8; $277.63 and $3,000.00 on
November 25. (Pl.’s Ex. 12.)
As of November 26, 2019, the debtor’s account balance was $13,488.61. (Pl.’s Ex. 13.)
The debtor made two cash withdrawals totaling $13,277.63—$13,000.00 on November 27 and
$277.63 on December 16. (Pl.’s Ex. 13.) One other debit in the amount of $186.84 to Martin Tire
along with some miscellaneous debit card entries resulted in an ending balance of $4.60 on
December 26, 2019. (Pl.’s Ex. 13.)
Facially, the debtor’s main joint banking account was exhausted by the end of 2019 and

certainly before his February 2020 bankruptcy filing. However, the debtor withdrew a total of
$26,164.96 in cash from the same joint checking account between September 26, 2019, and
December 26, 2019. Finishing Touch asserts that all or part of this sum remained in the debtor’s
possession at filing with the debtor purposefully opting not to disclose the money on his schedules
to avoid paying his creditors and afford himself income during this fallow period.
The validity of that assertion requires a more exacting analysis of the record to lend clarity,
or at least a quantification, to the debtor’s supposed financial situation at filing. Although not fully
developed at trial, but certainly critical to a balanced analysis, is the fact that the debtor had
ongoing expenses from November of 2019 (the first month after his employment ended) through
February of 2020. The record does provide some salient and dispositive facts in this regard.
Specifically, on his schedules, the debtor reported $4,197.68 a month in expenses against,
presumably, no income after October 26, 2019, until April 2020, other than his last Georgia-Pacific

paycheck(s), vacation pay, and severance. (Pl.’s Ex. 5, at 36.) That is a historical figure and
permits a reasonable pre-bankruptcy analysis of the debtor’s expenses.
The debtor’s joint account at First State Bank is the appropriate starting point. The October
25, 2019 bank statement reflects a $3.83 balance as of September 26, 2019. (Pl.’s Ex. 11.) On
December 26, 2019, the ending balance in the same account was $4.60. (Pl.’s Ex. 13.) So, the
debtor’s October bank statement started with less than $5 in the bank and ended the year in equal
fashion. In between that time, which encompasses his job termination and his only source of
income, the following deposits occurred:

Date Amount
9/27/19 $3,222.05
10/11/19 $1,663.41
10/25/19 $872.76
11/1/19 $638.93
11/8/19 $3,325.87
11/22/19 $16,727.35
No December deposits
TOTAL $26,450.37

(Pl.’s Exs. 11–13.)

The debtor’s joint expenses, unchallenged at trial, of $4,197.68 a month for October,
November, and December equal $12,593.04. The debtor testified that he received no income in
2020, an assertion repeated on his schedules. (Pl.’s Ex. 5, at 42.) Accordingly, that expense figure
should also be extrapolated to include $4,197.68 in expenses for January of 2020 for a total of
$16,790.72. Adding $3,224 in income, representing his wife’s $806 a month in Social Security
for the same October 2019 through January 2020 period, results in income of $29,674.37 and

expenses of $16,790.72. Thus, approximately $13,000 in pre-petition cash withdrawn by the
debtor is unaccounted for.
Also pertinent because of its proximity to his February 7, 2020 bankruptcy filing, the debtor
emptied out the balance remaining in his 401(k) account by withdrawing $1,037.32 at some point
between January 1 and March 31, 2020. (Pl.’s Ex. 8.) The debtor was unable to recall what he
did with that money. The same 401(k) account reflected minimal activity in the year prior to
bankruptcy. (Pl.’s Ex. 9.) The debtor may have withdrawn some cash at an unspecified time
during 2019, and he may have applied for forgiveness of a minimal amount against his 401(k)
loan. (Pl.’s Ex. 9.) Regardless, the unaccounted-for cash over expenses is now in the $14,000
range.

When asked at trial what he spent the unaccounted-for cash on, the debtor initially testified,
“I don’t know.” He then referenced groceries, “stuff”—all presumably expense items already
accounted for in his $4,197.68 monthly expense calculation. Despite his testimony that he liked
to pay some expenses in cash, his cash withdrawals significantly exceeded his presumably valid
and scheduled historical monthly expenses.
More tellingly, the debtor also testified that the approximate $17,000 in severance is what
he had to live on for six months—a period that bridged his employment termination in late October
of 2019 and his pension commencing in April of 2020. That admission does not square with the
idea that he had almost no cash on the date of filing, February 7, 2020. During his testimony, the
debtor acknowledged that on February 7 he had a little bit of cash that he was “living on.” The
debtor then intimated that he had gone through the entire amount by the time he filed his petition.
The bank records, his historical expense calculations, the debtor’s contradictory testimony, and a
lack of quantification strongly suggest otherwise.

This disparity is perhaps partially explained by seven days of February living expenses,
Christmas expenses the debtor estimated at $2,000, and other generally referenced, but
insufficiently quantified, expenses. Additionally, the debtor vaguely quantified some deductions,
such as a $1,500 attorneys fee for the bankruptcy and $400 in reported cash. However, the
Disclosure of Compensation of Attorney for Debtor does not note the date of payment to his
attorney. (Pl.’s Ex. 5, at 56.) Simply put, cash remained after the payment of historical expenses
even if some miscellaneous and insufficiently quantified amounts are taken into consideration.
The debtor also indicated that he deposited some cash into his wife’s Timberline Federal
Credit Union account. He indicated that he sometimes used her debit card and that she had “stuff”
(presumably bills) coming out of her account. This argument has three infirmities.

First, any debit for these generic expenses would presumably already be accounted for in
the debtor’s joint $4,197.68 monthly expense calculation. Second, the record does not
meaningfully support this allegation from the few documents in evidence. In direct response to
questions at trial about question number 17 concerning “[d]eposits of money,” the debtor testified
that he always puts money in his wife’s account. (Pl.’s Ex. 5, at 11.) This assertion would seem
inconsistent with the direct deposits from his employer into their joint account with some
ambiguity left as to what he did with the cash withdrawals.
Third, his wife’s Timberline Federal Credit Union statements from September 1, 2019,
through March 31, 2020, do not meaningfully support the debtor’s assertion in this regard. Besides
her Social Security income directly deposited into her account, very few other deposits were made
other than $450 on September 13, 2019, $400 on September 27, 2019, two transfers of $270 and
$200 on October 11, 2019, $1,000 on November 8, 2019, $1,000 on January 28, 2020, and $700
on March 13, 2020. (Def.’s Ex. 16.) No other entries explained, or otherwise quantified in the

testimony, account for deposits from the debtor into his wife’s account (and the record is not even
clear that these deposits were from the debtor—they are simply unexplained other than a generic
reference by the debtor that he deposited monies into his wife’s account). Also, even if deposited
into her account, the funds would presumably already be accounted for in their joint expense
calculation. Further, if these transfers were from the debtor, he did not disclose them on his
Statement of Financial Affairs. (Pl.’s Ex. 5, at 47.)
The debtor’s wife was equally uncertain as to the source of some of these deposits.5 The
debtor introduced an exhibit reflecting the balance in the joint Timberline Federal Credit Union
account from October 1, 2019, through March 31, 2020, but solely to reflect that there was only a
$5 balance at the end of that period. (Def.’s Ex. 18, at 1, 4.) The debtor offered no explanation

for any of the entries on this statement.
Other than his last checks from Georgia-Pacific discussed above—severance, vacation,
final 401(k) liquidation, and pay—the debtor did not receive any other income from October of
2019 until April 6, 2020, when he became eligible to draw his pension. He did not look for another
job because of his age and physical infirmities. By late October, the debtor also knew that he was
contemplating bankruptcy, that he had lost his job, that he would be without income until April of
2020, and that a November 5 trial in the state court case filed by Finishing Touch was impending.

5 Mrs. Kinney admittedly has some health issues that may have impacted her ability to fully
testify.
The debtor candidly admitted that he knew the severance was what he would need to live on during
the fallow period until his pension began in April of 2020. A comparison of his Georgia-Pacific
deposits at the end of 2019, his historical expenses, his cash withdrawals, his lack of reported and
scheduled pre-petition transfers, and his unquantified explanations compel the finding that the

debtor had anywhere from ten to twelve thousand in unexplained and unaccounted-for cash in his
possession at the time of filing. The lack of certainty is solely a function of the ambiguity resulting
from the debtor’s schedules and testimony.
3. Pre-petition Transfers
On his Statement of Financial Affairs, the debtor indicated he had not in the two years prior
to bankruptcy transferred “any property to anyone, other than property transferred in the ordinary
course of [his] business or financial affairs.” (Pl.’s Ex. 5, at 47.) Further, the debtor testified that
he told his trustee at his section 341 meeting “no sir” when asked if he had transferred property to
anyone in the three years before his bankruptcy.
These statements are incorrect. The debtor deposited $40,000 in proceeds from his 401(k)-

plan liquidation into the account solely in his wife’s name at Timberline Federal Credit Union on
October 17, 2018. (Pl.’s Ex. 14.) This transaction occurred within the two-year period prior to
filing and should have been disclosed accordingly. The debtor’s wife testified that her only
explanation to why the $40,000 was deposited in into her account was because the debtor had
access to and sometimes used her debit card. Additionally, as outlined above, the debtor made
other unquantified transfers of cash to his wife’s account as recently as two or three months before
he filed, none of which appear on his schedules.
This conclusion does not suggest that in isolation anything was inherently wrong or
fraudulent about these transactions. The problem lies in the debtor’s failure to disclose the
transactions, thus hindering creditor or trustee scrutiny.
4. 401(k) Disclosure

On his schedules, the debtor indicated that he had no interest in an IRA or 401(k) account.
(Pl.’s Ex. 5, at 13.) The debtor’s 401(k) plan Account Overview for the period from January 1,
2020, to March 31, 2020, reflects an opening balance of $1,039.91, a withdrawal of $1,037.32,
fees and expenses of $4.84, resulting in a zero-closing balance. (Pl.’s Ex. 8.) The account
statement is not clear, and the record did not clarify when the account went to a zero balance.
Regardless, the account exists and should have been disclosed on the debtor’s schedules. The
debtor failed to do so. Once again, creditors and the Chapter 7 trustee were denied basic and bare
minimum disclosures that typically inform subsequent scrutiny or analysis of the debtor’s financial
condition.
5. Fee Disclosure

On his Statement of Financial Affairs, the debtor answered “[n]o” to the question of
whether he had paid or transferred property to anyone, defined to include attorneys, he consulted
with about filing his petition. (Pl.’s Ex. 5, at 47.) Regardless, debtor’s counsel disclosed on his
Disclosure of Compensation of Attorney for Debtor that he had been paid $1,500 by the debtor
prior to filing. (Pl.’s Ex. 5, at 56.) Again, no explanation was given for such a cavalier effort at
preparing schedules with a minimal regard for accuracy.
6. Misstating Income
The debtor testified that his employer, Georgia-Pacific, forcibly retired him and that
October 26, 2019, was his last day. Despite being unemployed on the date he filed his petition,6
February 7, 2020, the debtor, on his Schedule I, listed monthly gross wages or salary of $4,867.46.

(Pl.’s Ex. 5, at 32). Additionally, he estimated overtime pay of $378.60 for a calculated gross
monthly income of $5,246.06. (Pl.’s Ex. 5, at 32). Deductions resulted in a monthly take-home
pay of $3,270.39. (Pl.’s Ex. 5, at 33). His non-filing spouse receives Social Security of $806 a
month for an aggregate combined monthly income of $4,076.39. (Pl.’s Ex. 5, at 33.) On his
schedules, the debtor indicated that he did not “expect an increase or decrease [of his income]
within the year after [he] file[d] this form.” (Pl.’s Ex. 5, at 33.) Against this reported, but
nonexistent since November 2019 monthly income, the debtor interposed monthly expenses of
$4,197.68 resulting in a negative $927.29 in “monthly net income.” (Pl.’s Ex. 5, at 36.)
These disclosures are simply a puzzler. While the means test includes by definition
calculations based upon income received over the six-month period prior to filing, 7 Schedule I is

typically an accurate statement of current income, presumably supported by historical antecedents.
Regardless, the entries are supposed to be accurate; it is incomprehensible that the debtor would
list income that he simply was no longer receiving and had not received since October 2019.
Additionally, it makes no sense that he would report that as his income without any indication that
there was certainly a decrease not only presently but presumably for the near future. Again, this
simply represents an additional area where the debtor demonstrates a casual disregard for any
accuracy at all in the completion of his schedules.

6 See Plaintiff’s Ex. 5, at 32, where the debtor checked the “[n]ot [e]mployed” box.
7 See 11 U.S.C. § 101(10A) (2020); Pl.’s Ex. 5, at 57.
III. Analysis
A. Bad Faith Conversion
Prior to examining the consequences, if any, of the above facts on his Chapter 7 discharge,
the court must first determine if that analysis is appropriate given that the debtor filed his Motion

to Convert. The filing was done immediately prior to a previous trial setting on Finishing Touch’s
objection to the debtor’s discharge and necessitated the combined hearing on both the Motion to
Convert and the Complaint.
Finishing Touch asserts that the debtor’s effort to belatedly convert to a Chapter 13 is a
bad faith filing. In support, Finishing Touch posits the timing of the debtor’s filing in the context
of its efforts to collect in state court and his last-minute effort to convert to a Chapter 13, which
would obviate a section 727 objection to his discharge.
Specifically, Finishing Touch filed its initial state court complaint on August 14, 2019.
Trial was set on November 5, 2019; however, it was continued at the debtor’s request because of
his lawyer’s illness. The trial was then reset on February 11, 2020; however, it was mooted by the

debtor filing his bankruptcy petition on the eve of trial. During that same time frame, the debtor
lost his job but came into cash sufficient to pay Finishing Touch, yet refused to do so. Thereafter,
the debtor filed his Chapter 7 bankruptcy and reported only $400 in cash. Despite reporting non-
existent income on his Schedule I, the debtor otherwise passed the means test with no presumption
of abuse.
Pursuant to 11 U.S.C. § 706(a), “[t]he debtor may convert a case under [Chapter 7] to a
case under [C]hapter . . . 13 of this title at any time[.]” 11 U.S.C. § 706(a) (2020). Nevertheless,
“a case may not be converted to a case under [Chapter 13] unless the debtor may be a debtor under
such chapter.” 11 U.S.C. § 706(d) (2020). In Marrama v. Citizens Bank of Massachusetts, the
United States Supreme Court found that a debtor’s right to convert is not absolute, but rather, it is
expressly conditioned on the debtor’s “ability to qualify as a ‘debtor’ under Chapter 13.” 549 U.S.
365, 372 (2007). Under 11 U.S.C § 1307(c), a court may dismiss a case under Chapter 13 for
cause. 11 U.S.C § 1307(c) (2020).

Bankruptcy courts . . . routinely treat dismissal for prepetition bad-faith conduct as
implicitly authorized by the words ‘for cause.’ In practical effect, a ruling that an
individual’s Chapter 13 case should be dismissed or converted to Chapter 7 because
of prepetition bad-faith conduct . . . is tantamount to a ruling that the individual
does not qualify as a debtor under Chapter 13.

Marrama, 549 U.S. at 373.

The record in this case compels the conclusion that conversion to a Chapter 13 is not
appropriate for cause, including bad faith. Part of this finding is cumulative and based on the
court’s findings and conclusions above and below concerning the debtor’s disclosures and
completion of his schedules. The debtor filed a Chapter 7, and the juxtaposition of his “current
monthly income,” a calculation based on the six-month period prior to bankruptcy, and expenses
under the means test resulted in a determination that no presumption of abuse existed. The debtor
does not have a job; rather, he and his spouse live on a pension and Social Security. Only after
being pursued on perhaps a well-founded objection to his discharge did he belatedly attempt to
convert to a Chapter 13 and, as section 727 does not implicate the debtor’s discharge in a Chapter
13, escape the consequences.
The debtor would presumably exit his Chapter 7 with almost all of his assets and a
discharge of very little debt other than the amount owed to Finishing Touch. Clearly, his Chapter
7 was principally directed to no other creditor; now that Finishing Touch is pursuing his discharge,
he seeks to convert to a Chapter 13 to avoid the consequences of his own misrepresentations in his
schedules at the cost of a minimal to nothing distribution over three years. His actions, both pre-
and post-petition, reflect a deliberate effort to avoid paying Finishing Touch, putting cash beyond
its reach, and employing bankruptcy to retain all of his disclosed assets, plus undisclosed cash
obtained pre-petition—almost exclusively to the detriment of Finishing Touch, his principal
unsecured creditor.

His effort to convert is in bad faith, and his Motion to Convert is denied. Accordingly, the
debtor remains in a Chapter 7, and Finishing Touch is entitled to consideration of the bases alleged
in its Complaint for denial of the debtor’s discharge.
B. Discharge
Ab initio, the debtor’s bankruptcy is a bit of a puzzler. Unquestionably, the debtor suffered
a financial reverse with the loss of his job, foreshadowed in June 2019 and conclusively terminated
in October 2019. Clearly at or about that time, the debtor was in the process of obtaining his credit
counseling and contemplating bankruptcy. The debtor did not, however, file until February of the
following year. When he did file, his Chapter 7 bankruptcy inordinately had very little effect on
him, his spouse, or anyone else other than Finishing Touch. Specifically, a review of his schedules

reflects that the debtor would emerge from a Chapter 7 proceeding with all his disclosed assets.
Any creditors holding liens on those assets will be paid their reaffirmed debt. The debtor listed no
priority debt; there is only unsecured debt remaining. In turn, the debtor would discharge
$21,419.60 in unsecured debt, of which only $4,446.60 is debt other than to Finishing Touch.
But for Finishing Touch’s objection to his discharge, that is exactly what would have
happened. Accordingly, the question becomes whether the debtor fully and properly disclosed his
financial picture sufficiently to earn his discharge, or did the debtor misrepresent and occlude his
financial circumstances in an effort to benefit both from the discharge and the retention of, in this
instance, principally cash.
Pursuant to section 727(a)(4)(A), “[t]he court shall grant the debtor a discharge, unless . . .
the debtor knowingly and fraudulently, in or in connection with the case—made a false oath or
account[.]” 11 U.S.C. § 727(a)(4)(A) (2020). “To deny a discharge under 11 U.S.C. §
727(a)(4)(A), the plaintiff must establish the following elements: 1. the debtor made the statement

under oath; 2. the statement was false; 3. the statement was made with fraudulent intent; 4. the
debtor knew the statement was false; and 5. the statement related materially to the debtor’s
bankruptcy.” Wetzel v. Eichler (In re Eichler), 599 B.R. 31, 45–46 (Bankr. E.D. Ark. 2019) (citing
Helena Chemical Co. v. Richmond (In re Richmond), 429 B.R. 263, 307 (Bankr. E.D. Ark. 2010)).
“Denial of a discharge is a harsh remedy and § 727 is to be strictly construed in favor of
the debtor.” Home Service Oil Co. v. Cecil (In re Cecil), 542 B.R. 447, 451 (B.A.P. 8th Cir. 2015)
(citing Kaler v. Charles (In re Charles), 474 B.R. 680, 683 (B.A.P. 8th Cir. 2012)). “‘Importantly,
however, § 727 was also included to prevent the debtor’s abuse of the Bankruptcy Code.’” Id.
“To prevail in an action to deny a debtor’s discharge, the objecting party must prove each element
under § 727 by a preponderance of the evidence.” Charles, 474 B.R. at 683–84.

“‘For [] a false oath or account to bar a discharge, the false statement must be both material
and made with intent.” Eichler 599 B.R. at 46 (citing Korte v. U.S. Internal Revenue Serv. (In re
Korte), 262 B.R. 464, 474 (B.A.P. 8th Cir. 2001)). A matter is “material” if it “‘bears a relationship
to the bankrupt’s business transactions or estate, or concerns discovery of assets, business dealings,
or the existence and disposition of his property.”’ Id. “[I]ntent ‘can be established by
circumstantial evidence,’ and ‘statements made with reckless indifference to the truth are regarded
as intentionally false.’” Id.
“It is well established that, because statements made by a debtor in his schedules and
statements, and at his meeting of creditors, are signed under pains and penalties of perjury, they
constitute ‘oaths’ for the purposes of § 727(a)(4)(A).” Charles, 474 B.R. at 684 (citing Korte, 262
B.R. at 474).
As § 727(a)(4)(A) makes clear, the [Bankruptcy] Code requires nothing less
than a full and complete disclosure of any and all apparent interest of any kind. The
debtor’s petition, including schedules and statements, must be accurate and reliable,
without the necessity of digging out and conducting independent examinations to
get the facts.

Cecil, 542 B.R. at 453–54 (citing Korte, 262 B.R. at 474).
“Full disclosure is required, not only to ensure that creditors receive everything they are
entitled to receive under the Bankruptcy Code, but also to give the bankruptcy system credibility
and make it function properly and smoothly[.]” Cecil, 542 B.R. at 453.
Bankruptcy provides debtors with a great benefit: the discharge of
debts. The price a debtor must pay for that benefit is honesty and candor. If a
debtor does not provide an honest and accurate accounting of assets to the court
and creditors, the debtor should not receive a discharge.

Cecil, 542 B.R. at 454 (citing Ellsworth v. Bauder (In re Bauder), 333 B.R. 828, 834 (B.A.P. 8th
Cir. 2005) (Schermer, J. dissenting).
As stated above, the debtor’s Chapter 7 serves no real purpose other than to discharge the
debtor’s debt to his principal unsecured creditor, Finishing Touch. Consistent with that singular
focus, the debtor’s schedules provide little assistance in fully developing or clarifying the debtor’s
past or current financial circumstances. Specifically, the facts compel the conclusion that the
debtor made false oaths or accounts on his schedules, in some instances in reckless disregard for
the truth and in other instances with specific intent to disguise the truth.
1. Checking Accounts
The debtor reported that he had no checking or depository accounts, including any share
accounts with any credit union, at the time of filing. That is incorrect. The debtor had a joint
checking account with his wife at First State Bank and a joint account with his wife at Timberline
Federal Credit Union. He also actively used his wife’s individual share account with Timberline
Federal Credit Union; he used her debit card on the account and deposited his money into her
account.
Albeit with minimal balances when he filed, creditors and his Chapter 7 trustee had a right

to any information about the debtor’s accounts so that they might examine pre-bankruptcy
transactions and historical data, including income, expenses, potential preferences, and possibly
avoidable transfers. Further and significantly, checking account statements often provide a solid
baseline for analyzing issues related to dischargeability or the debtor’s discharge. Here, the debtor
inexplicably and deliberately denied interested parties that opportunity. Frankly, it is difficult to
understand why any debtor would simply omit listing his current checking accounts. But that is
exactly what this debtor did and in doing so denied his creditors one of the fundamental mediums
by which to gauge the entirety of a Chapter 7 debtor’s financial circumstances.
2. Unreported Cash
Despite having two checking accounts and a third one that he freely used, the debtor

omitted the checking accounts and testified that he generally liked to pay his bills in cash. On his
schedules, he disclosed that he had $400 in cash on hand not otherwise listed. (Pl.’s Ex. 5, at 18.)
That amount roughly approximates the $400 balance in his joint and undisclosed checking account
with Timberline Federal Credit Union on December 31, 2019. (Def.’s Ex. 18.)
Cumulatively, the evidence would suggest otherwise, and it is more likely that the debtor
did have additional unreported cash when he filed in February 2020. A number of factors compel
this result. First, the debtor in his schedules did not disclose his checking accounts, the medium
most likely to alert and provide his creditors a means of analyzing his financial and cash
circumstances. No good reason exists for this omission.
Second, the analysis above concerning the debtor’s September through November 2019
account statements reflects significant income, mostly in the form of his severance pay.
Contrasting that income with historical expenditures, consistent with those reported on his
schedules, results in a discrepancy of between approximately ten to twelve thousand dollars for

which there is no definitive accounting. The debtor suggested some vague and unquantified uses
without any supporting documentation or convincing testimony.
Third, the debtor earned no income after his Georgia-Pacific pay, vacation, and severance
deposits in the months of September to November 2019 until his pension commenced in April
2020. At trial, the debtor admitted that the severance pay was something that he was living on in
that interim and that on February 7, 2020, he did have a little bit of cash. Based on his wife’s
minimal Social Security of $806 per month during that interim against expenses of approximately
$4,200 a month, the resulting inference is that the debtor did have some cash available to bridge
that period from the over $26,000 in cash withdrawals he made between September and November
of 2019. If there is an explanation apropos to suggesting otherwise, the debtor did not provide

one.
Fourth, the debtor completed his pre-bankruptcy credit counseling on October 13, 2019.
(Pl.’s Ex. 17.) He also indicated that it had taken a long time to get everything together, so he
went ahead and took the course. During this period, he was clearly aware of and contemplating
filing bankruptcy. Approximately a week before his October 26 termination date, he knew that he
would shortly receive his severance pay. The debtor testified that he knew in October of 2019 that
he would have no income until April the following year and did not look for any other job or source
of income because of his age and physical infirmities. So, in the Fall of 2019, the debtor was
clearly aware that he would need money to live on from filing to April, the month his pension
started, and his only resource was the money he received from Georgia-Pacific. Aided by the
debtor’s candid admission in that regard, it is only a short leap to conclude that he retained some
of the significant cash withdrawals to bridge that gap.
Fifth, during that same time period, the debtor was unquestionably aware that the Finishing

Touch lawsuit had been set for trial on November 5. That setting was continued at his request,
albeit for presumably valid reasons attendant to his attorney’s health. Regardless, the creditor was
pursuing the debtor at a time when the debtor received and cashed his final payouts from Georgia-
Pacific.
Sixth, after a year of inactivity, the debtor also drew out the remaining balance of $1,037.32
in his 401(k) plan sometime between January 1 and March 31, 2020. At trial, the debtor was
unable to recall what he did with that money. Standing alone, this event would not be that
significant; but cumulatively, it is consistent with his pattern of denuding from his accounts all
liquid assets prior to filing bankruptcy.
3. Pre-petition Transfers

At his section 341 meeting, the debtor told his Chapter 7 trustee under oath that he had not
transferred property to anyone in the three years before his bankruptcy. Likewise, on his Statement
of Financial Affairs, he indicated he had not in the two years prior to bankruptcy transferred any
property other than in the ordinary course of his business or financial affairs. (Pl.’s Ex. 5, at 47.)
Both statements are not consistent with his deposit of $40,000 from his 401(k) into his spouse’s
account at Timberline Federal Credit Union on October 17, 2018. (Pl.’s Ex. 14.) Less
consequential than the transfer is the unwillingness to disclose the same. Equally, the transfer
from a joint account to an individual account in his wife’s name appears consistent with a pattern
of removing from his name—and commensurately creditors—monies he received. Equally, the
debtor also failed to report on his schedules other miscellaneous yet unquantified supposed
transfers by the debtor of cash to his wife’s account.
4. Misstating Income
Equally a puzzler is the debtor’s treatment of his income on his schedules. The debtor

testified that his employer, Georgia-Pacific, forcibly retired him and that October 26, 2019, was
his last day. Despite being unemployed on the date he filed his petition, a status the debtor
confirmed on his Schedule I where he checked the “[n]ot [e]mployed” box, the debtor listed
monthly gross wages or salary of $4,867.46. (Pl.’s Ex. 5, at 32.) Additionally, he estimated
overtime pay of $378.60 for a calculated gross monthly income of $5,246.06. (Pl.’s Ex. 5, at 32.)
Deductions resulted in a monthly take-home pay of $3,270.39. (Pl.’s Ex. 5, at 33.) His non-filing
spouse receives Social Security of $806 a month for an aggregate combined monthly income of
$4,076.39. (Pl.’s Ex. 5, at 33.) On his schedules, the debtor indicated that he did not “expect an
increase or decrease [of his income] within the year after [he] file[d] this form.” (Pl.’s Ex. 5, at
33.)

Except for disclosing that he was not employed and his spouse’s Social Security income,
all the above is incorrect. He had no income when he filed and certainly had every belief that there
was or would be a decrease within the year after he filed. Succinctly, his Schedule I reflects a
complete lack of attention to even bear minimum accuracy. Perhaps the schedules were prepared
earlier at a time when maybe the debtor was employed and contemplating a Chapter 13; but this
nor any other explanation was offered for reporting nonexistent income. The debtor did testify
that he had filled out documentation before he got the Georgia-Pacific severance; there was delay
occasioned by the fact that his attorney was ill. But this testimony was in the context of the means
test calculations. Even if this excuse is extended to his Schedule I, intended to be an exact
representation of his current income, then clearly no effort was made to accurately complete the
debtor’s Schedule I.
IV. Conclusion
Simply stated, when taken as a whole, the debtor’s schedules simply reflect, at best, a

consistent reckless indifference toward accuracy and disclosure. This includes the large ticket
items discussed above down to the small things. For example, on his Statement of Financial
Affairs, the debtor answered “[n]o” to the question of whether he had paid or transferred property
to anyone, defined to include attorneys, that he consulted about filing his bankruptcy petition.
(Pl.’s Ex. 5, at 47.) Then, the same exhibit contains a Disclosure of Compensation of Attorney for
Debtor noting that he paid $1,500 to his counsel. (Pl.’s Ex. 5, at 56.) This seemingly minor
incongruity is consistent with simply no attention to accuracy in these schedules.
In sum, the debtor did not have many assets, liabilities, or financial affairs to disclose; but
what he did have he either omitted, misstated, or did so incorrectly. The only two places where
the debtor was consistently accurate was in reporting those assets which he wished to exempt and

those creditors he wished to discharge.
The specific and cumulative nature of the misleading, incorrect, and misstated schedules
compels the conclusion that the debtor intentionally failed to accurately complete his schedules;
alternatively, disclosures or omissions in some instances reflect a reckless indifference to the truth.
Creditors and the trustee are entitled to information that the schedules are designed to elicit in order
to analyze a debtor’s financial circumstances with all the implications and consequences that may
or may not arise. The debtor consistently denied his creditors and the trustee that opportunity. The
lack of candor and disclosure (1) allowed the debtor to retain and use undisclosed cash and (2)
appears targeted at Finishing Touch, the only significant party adversely affected by the debtor’s
bankruptcy.
For these reasons, the relief requested in the Complaint is granted, and the debtor is denied
his Chapter 7 discharge. The court will enter a separate judgment to this effect.
IT IS SO ORDERED.
Dated this 1st day of December, 2020.

HONORABLE RICHARD D. TAYLOR
UNITED STATES BANKRUPTCY JUDGE
cc: Jimmy Dean Kinney
Billy J. Hubbell
Robert Bynum Gibson, III
M. Randy Rice
Patricia J. Stanley, Assistant U.S. Trustee

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10454865. Public record. Not legal advice.