Jack Rose, et ux. v. David Reaves, Chapter 7 Trustee

Before filing for bankruptcy, all individual debtors, forced to allocate their limited resources to essential creditors, consequently intentionally hinder and delay payments to others. This case involves the denial of a discharge under 11 U.S.C. §727(a)(2)(A) to such a debtor, who, prior to filing, used his limited funds to pay only certain necessary creditors, but could not pay others. The courts below, as well as other Circuits, have used a broad statutory definition of “transfer”—a definition necessary and applicable to other Bankruptcy Code provisions— when considering a debtor’s ineligibility for a discharge. Ninth Circuit precedent, though, has already held that property must be “transferred and remain transferred” as of the date of the bankruptcy petition in order to deny a discharge. In this case, the deposit of funds into an account for the express purpose of paying creditors was held to be a “transfer” sufficient to deny Petitioners’ discharge, despite their actual use of those funds for payment to creditors. Using the broad definition of “transfer” intended for other Bankruptcy Code provisions to interpret 11 U.S.C. §727(a) (2)(A) now places every individual debtor at risk of losing his discharge, one of the cornerstones of Congressional intent creating the Bankruptcy Code. Thus, the question presented is: Whether courts considering an objection to discharge under Section 727(a)(2)(A) of the Bankruptcy Code should apply the narrowly tailored definition of “transferred” used in In re Adeeb, 787 F.2d 1339 (9th Cir. 1986), requiring that property be “transferred and remained transferred” as of the date of the petition, or the broad definition of “transfer” contained in Section 101(54) used by other provisions of the Bankruptcy Code to recover assets for the estate.