Century Bank v. Scheid et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
WILLIAM HERBERT SCHEID and
MARY JEAN SCHEID,
Debtors. 	No. 12-11255-t7
CENTURY BANK,
Plaintiff,
v. 	Adv. Pro. No. 12-1226-t
WILLIAM H. SCHEID and
MARY JEAN SCHEID,
Defendants.
MEMORANDUM OPINION
Plaintiff seeks, inter alia, to have Defendants’ discharge denied under 11 U.S.C.
§§ 727(a)(3) and (a)(5). 	Plaintiff has moved for summary judgment on the amount it is
owed and on its § 727 claims.1 The focus of Plaintiff’s argument is the disappearance of
13 items of personal property, which in July, 2010 Defendants valued at $325,200.
Plaintiff also argues that Defendants cannot show what happened to a $12,000 cash
withdrawal, or to the proceeds of a loan from Plaintiff to Defendants’ business, Scheid
Automotive Group, Inc. 	Had the personal property and withdrawn cash been on hand
when Defendants filed bankruptcy, there would have been a substantial dividend to
unsecured creditors. 	As it is, the estate has no assets.
1 See Plaintiff’s Motion for Summary Judgment, filed January 22, 2013, doc. 30 (the “Motion”);
Defendants’ Response in Opposition, filed February 12, 2012, doc. 34 (the “Response”); and
Century’s Reply in support of the Motion, filed February 25, 2012, doc. 37 (the “Reply”).
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The Court finds that, although Defendants’ records are extremely weak in certain
key respects, Defendant have raised enough fact issues in their attempt to justify their
record-keeping, and/or explain the loss of assets, to warrant a trial on the merits. 	The
Court therefore denies Plaintiff’s motion.
I. 	SUMMARY JUDGMENT STANDARDS
Summary judgment is appropriate if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law. 	Fed.R.Civ.P. 56. 2 “[A] 	party seeking 	summary
judgment always bears the initial responsibility of informing the district court of the basis
for its motion, and … [must] demonstrate the absence of a genuine issue of material fact.”
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). 	In determining whether summary
judgment should be granted, the Court will view the record in the light most favorable to
the party opposing summary judgment. 	Harris 	v. Beneficial Oklahoma, Inc. (In re
Harris), 209 B.R. 990, 995 (10 th Cir. BAP 1997).
The party opposing a motion for summary judgment must “set forth specific facts
showing that there is a genuine issue for trial as to those dispositive matters for which it
carries the burden of proof.” 	Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc.,
912 F.2d 1238, 1241 (10th Cir.1990). 	See also Vitkus v. Beatrice Co., 11 F.3d 1535,
1539 (10th Cir.1993) (“[T]he nonmoving party may not rest on its pleadings but must set
forth specific facts showing that there is a genuine issue for trial as to those dispositive
matters for which it carries the burden of proof.”); Otteson v. United States, 622 F.2d
2 Fed.R.Civ.P. 56 applies in adversary proceedings. 	See Bankruptcy Rule 7056.
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516, 519 (10th Cir.1980) (once a properly supported summary judgment motion is made,
the opposing party must respond with specific facts showing the existence of a genuine
factual issue to be tried); Lazaron v. Lucas (In re Lucas), 386 B.R. 332, 335 (Bankr.
D.N.M. 2008) (same).
To deny a motion for summary judgment, genuine factual issues must exist that
“can be resolved only by a finder of fact because they may reasonably be resolved in
favor of either party.” 	Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). 	A
mere “scintilla” of evidence will not avoid summary judgment. 	Vitkus, 11 F.3d at 1539.
Rather, there must be sufficient evidence on which the fact finder could reasonably find
for the nonmoving party. 	See Anderson, 477 U.S. at 251; Vitkus, 11 F.3d at 1539.
“[T]here is no evidence for trial unless there is sufficient evidence favoring the
nonmoving party for a jury to return a verdict for that party. If the evidence is merely
colorable . . . or is not significantly probative . . . summary judgment may be granted.”
Anderson, 477 U.S. at 249. 	Where a rational trier of fact, considering the record as a
whole, could not find for the non-moving party, there is no genuine issue for trial. 	See
Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
II. 	FACTS
The Court finds that there is no genuine issue of material fact about the following:
1. 	On February 25, 2011, a Default Judgment was entered in New Mexico’s
First Judicial District Court in favor of Plaintiff against Defendants, jointly and severally
(the “Judgment”).
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2. 	In the Judgment, Plaintiff was awarded (a) a $132,413.77 money judgment
against Defendants on a certain promissory note, plus interest from February 12, 2011 at
$75.20 per day; (b) a $118,028.82 money judgment against Defendants on a second
promissory note, plus interest from February 12, 2011 at $66.93 per day; and (c) a
$1,043.53 money judgment against Defendants for fees and costs, plus reasonable
attorney fees and costs incurred from February 1, 2011 until all amounts owed under the
Judgment are paid in full.
3. 	Defendants owe Plaintiff the amounts set forth in the Judgment.3
4. 	On July 22, 2010, Defendants submitted a personal financial statement to
Plaintiff, certified to be true and correct as of July 1, 2010 (the “Financial Statement”).4
5. 	In the Financial Statement, Defendants represented to Plaintiff that in July
2010 they owned the following assets worth the following amounts:
Asset 	Stated Value
2009 Dodge Challenger 	$42,000
2008 Dodge Charger Super Bee 	$42,000
1998 Harley Super Glide 	$8,000
1995 Harley Davidson 	$17,000
2007 BMW Motorcycle 	$17,000
2000 Harley Trailer 	$2,000
2008 Honda ATV 	$2,000
Tools 	$38,000
American Flyer Train Collection 	$77,000
Coin Collection 	$18,000
Art Collection 	$24,700
Jewelry 	$20,000
Gun Collection 	$17,500
Total 	$325,200
(together, the “Assets”).
3 The Court is not ruling on the reasonableness or allowability of any post-Judgment attorney
fees.
4 Doc. 30-5.
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6. 	On March 30, 2012, Defendants filed the above-captioned bankruptcy
case.
7. 	None of the Assets is listed on Defendants’ Schedule B.
8. 	In their original Statements of Financial Affairs #10, Defendants only
disclosed their transfer of the 2009 Dodge Challenger and the 2008 Dodge Charger.
9. 	On June 28, 2012, Plaintiff filed this adversary proceeding.
10. 	On October 19, 2012, Defendants filed an Amended SFA #10, in which
they disclosed the disposition of all the Assets.
11. 	In their Response, and/or in the Amended SFA #10, Defendants stated the
following with respect to each Asset:
Asset 	Sales Price 	Date of Sale 	Buyer 	Form of
Payment
2009 Dodge
Challenger
$31,500 	May, 2011 	Wilfredo
Nunez
Wire transfer
of $6,500;
check(s) of
$25,000
2008 Dodge
Charger Super
Bee
unknown 	February,
2012
South Point
Dodge
Trade in for
new car; lien
of
$14,716.95
paid off
1995 Harley
Davidson
$6,000 	May-June,
2011
Ronald
White
cash
1998 [2000] 5
Harley Super
Glide
$6,000 	May, 2011 	Butch
Brieckler
cash
2007 BMW
Motorcycle
$11,500 	April, 2011 	Alan O’Neil 	?
2000 [2001]
Harley Trailer
$1,500 	May, 2011 	Thomas
Maestas
cash
2008 [1996]
Honda ATV
$1,800 	August, 2011 	Unknown
yard sale
buyer
cash
5 The bracketed dates are from Mr. Scheid’s supporting affidavit (the “Scheid Affidavit”).
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Tools 	$4,800 	June-July,
2011
Thomas
Maestas
cash
American Flyer
Train Collection
$18,000 	May-July,
2011
Unknown
yard sale
buyers
cash
Coin Collection 	$7,000 	December,
2010-January,
2011
Unknown
yard sale
buyers
cash
Art Collection 	$8,000 	May-July,
2011
Unknown
yard sale
buyers
cash
Jewelry 	$9,000 	July, 2011 	Alicia
Picciafoco
(Mr.
Scheid’s
sister)
Funds
previously
sent to
Defendants
(the form is
not
specified)
Gun Collection 	$10,000 	May-July,
2011
Unknown
yard sale
buyers
cash
Total 	$115,100, plus
consideration
for 2008 Dodge
Charger
12. 	On July 29, 2011, Defendants withdrew $12,000 from their People’s Bank
account.
III. 	PLAINTIFF’S CLAIM AMOUNT
It is undisputed that Plaintiff’s claim against Defendants is as set forth in finding 2
above. 	The Court will so order.
IV. 	§ 727(a)(3) STANDARDS
A. 	The Statute. 	Under 11 U.S.C. § 727(a)(3), a debtor is not entitled to
receive a discharge if:
the debtor has concealed, destroyed, mutilated, falsified, or failed to keep
or 	preserve 	any 	recorded 	information, 	including 	books, 	documents,
records, and papers, from which the debtor's financial condition or
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business transactions might be ascertained, unless such act or failure to act
was justified under all of the circumstances of the case.
B. 	Underlying Policy.
The purpose of § 727(a)(3) is to make discharge dependent on the debtor's
true presentation of his financial affairs. 	[Lansdowne v. Cox (In re
Cox)], 41 F.3d [1294] at 1296 [(9th Cir. 1994)] (citation omitted). The
disclosure requirement removes the risk to creditors of “the withholding or
concealment of assets by the bankrupt under cover of a chaotic or
incomplete set of books or records.”
In re Caneva, 550 F.3d 755, 761 (9th Cir. 2008), citing Burchett v. Myers, 202 F.2d 920,
926 (9th Cir. 1953).
Section 727(a)(3) requires as a precondition to discharge that debtors
produce records which provide creditors “with enough information to
ascertain the debtor's financial condition and track his financial dealings
with substantial completeness and accuracy for a reasonable period past to
present.” 	In re Martin, 141 B.R. 986, 995 (Bankr. N.D. Ill. 1992); In re
Kearns, 149 B.R. 189, 190-91 (Bankr. D. Kan. 1992); see also Meridian
Bank v. Alten, 958 F.2d 1226, 1230 (3d Cir. 1992); In re Cox, 904 F.2d
1399, 1402 (9th Cir. 1990). 	The provision ensures that trustees and
creditors will receive sufficient information to enable them to “trace the
debtor's financial history; to ascertain the debtor's financial condition; and
to reconstruct the debtor's financial transactions.” 	In re Martin, 141 B.R.
at 995; see also In re Shapiro, 59 B.R. 844, 848 (Bankr. E.D.N.Y. 1986);
In re Pimpinella, 133 B.R. at 697; In re Frommann, 153 B.R. at 116.
Records need not be kept in any special manner, nor is there any rigid
standard 	of 	perfection 	in 	record-keeping 	mandated 	by 	§ 	727(a)(3).
Meridian Bank, 958 F.2d at 1230; In re Underhill, 82 F.2d 258, 259-60
(2d Cir.), cert. denied, 299 U.S. 546, 57 S. Ct. 9, 81 L. Ed. 402 (1936); In
re Zell, 108 B.R. 615, 627 (Bankr. S.D. Ohio 1989); In re Schultz, 71 B.R.
711, 717 (Bankr. E.D. Pa. 1987); In re Graham, 111 B.R. 801 (Bankr. E.
D. Ark. 1990). 	On the other hand, courts and creditors should not be
required to speculate as to the financial history or condition of the debtor,
nor should they be compelled to reconstruct the debtor's affairs. 	In re
Frommann, 153 B.R. at 117; In re Pimpinella, 133 B.R. at 698; In re
Shapiro, 59 B.R. at 848.
In re Juzwiak, 89 F.3d 424, 429 (7th Cir. 1996). 	See also Meridian Bank v. Alten, 958
F.2d 1226, 1230 (3d Cir. 1992) (“the purpose of section 727(a)(3) is to give creditors and
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the bankruptcy court complete and accurate information concerning the status of the
debtor’s affairs and to test the completeness of the disclosure requisite to a discharge”).
C. 	Creditor’s Initial Burden. 	Determination of a § 727(a)(3) objection is a
two-step process. 	In the first step, the creditor has the burden of establishing that the
debtor’s records are inaccurate or inadequate.
It is up to the creditor to establish a prima facie case for denial of
discharge under § 727(a)(3). 	Only if the creditor accomplishes that
initial task does the burden shift to the Debtor to come forward with an
explanation for the lack of recorded information.
McVay v. Phouminh (In re Phouminh), 339 B.R. 231, 241 (Bankr. D. Colo. 2005), citing
PNC Bank v. Buzzelli (In re Buzzelli), 246 B.R. 75, 117, n. 17 (Bankr. W.D. Pa. 2000)
and Beneficial Mortgage Co. v. Craig (In re Craig), 140 B.R. 454, 458 (Bankr. N.D.
Ohio 1992). 	See also In re Gordon, 83 B.R. 78, 81 (Bankr. S.D. Fla. 1988) (once
creditor shows debtor’s records are inaccurate, the burden shifts to the debtor to justify
the nonexistence of the records); In re Hernandez, 2009 WL 6699684, at *2 (Bankr. S.D.
Cal. 2009) (same).
In the Tenth Circuit, the creditor’s initial burden of proof is to show that the
debtor “failed to maintain and preserve adequate records” and “that the failure made it
impossible 	to 	ascertain 	[the 	debtor's] 	financial 	condition 	and 	material 	business
transactions.” 	In re Brown, 108 F.3d 1290, 1295 (10th Cir. 1997), citing In re Folger,
149 B.R. 183, 188 (D. Kan. 1992) (emphasis added in Brown). 	See also Phouminh, 339
B.R. at 241 (same). 	Cf. In re Devaul, 318 B.R. 824, 831 (Bankr. N.D. Ohio 2004) (the
“impossibility” test is from Meridian Bank, is dicta, and is not supported by the language
of § 727(a)(3)).
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The records “need not be so complete that they state in detail all or substantially
all of the transactions taking place in the course of the business. 	It is enough if they
sufficiently identify the transactions that intelligent inquiry can be made respecting
them.” 	Phouminh, 339 B.R. at 241, quoting In re Stewart, 263 B.R. 608, 615 (10th Cir.
BAP 2001).
Proof of fraudulent intent is not part of a creditor’s prima facie case under 11
U.S.C. § 727(a)(3). 	See Kim v. Keeran (In re Keeran), 2012 WL 1196531, at *8 (Bankr.
D.N.M. 2012), citing Buckeye Retirement Co., LLC v. Bullough (In re Bullough), 358
B.R. 261, 283 (Bankr. N.D. Tex. 2007) (“the creditor does not have to show intent or
recklessness”); Meridian Bank, 958 F.2d at 1234 (creditor need not show debtor intended
to conceal his financial condition).6
D. 	Debtor’s Burden of Justification. 	If the creditor establishes its prima
facie case, the burden shifts to the debtor to justify its lack of records. 	Brown, 108 F.3d
at 1295; Phouminh, 339 B.R. at 241; Gordon, 83 B.R. at 81; Devaul, 318 B.R. at 837.
Courts often use the following standard for assessing debtor “justification:”
The issue of justification depends largely on what a normal, reasonable
person 	would 	do 	under 	similar 	circumstances. 	The 	inquiry 	should
include the education, experience, and sophistication of the debtor; the
volume of the debtor's business; the complexity of the debtor's business;
the amount of credit extended to debtor in his business; and any other
circumstances that should be considered in the interest of justice.
Meridian Bank, 958 F.2d at 1231, quoting In re Wilson, 33 B.R. 689, 692 (Bankr. M.D.
Ga. 1983). 	See generally Devaul, 318 B.R. at 836 (thorough analysis of debtor’s burden
6 “Of course, if the failure to keep and preserve proper books of account or records is proved to
have been in contemplation of the filing of a petition under the Code with intent to conceal, the
discharge should be barred in chapter 7, because failure to keep records in such circumstance is
unjustifiable.” 	Collier on Bankruptcy, ¶ 727.03[3][d], citing Stewart Enters., Inc. v. Horton (In
re Horton), 621 F.2d 968 (9 th Cir. 1980).
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of justification).
It is common to evaluate the debtor’s education, sophistication, and experience
when considering whether a lack of records is justifiable. 	See Eggert v. Sendecky (In re
Sendecky), 283 B.R. 760, 766 (8th Cir. BAP 2002) (proof that debtor was poorly
educated, unsophisticated, and lacking in business experience held to be sufficient
justification for lack of records); Devaul, 318 B.R. at 838-39 (court found justification
based on, inter alia, debtor’s limited education and lack of sophistication).
Some courts have combined debtors’ justification for a lack of records with
debtors’ submission of such records as they can find, and/or an oral explanation of their
financial condition. 	See, e.g., In re Ogden, 251 B.R. 441, at *6 (10th Cir. BAP 1999)
(relying on debtor’s testimony about unavailable records to reverse entry of summary
judgment against debtor on § 727(a)(3) claim); Hernandez, 2009 WL 6699684, at *3
(court gave the debtors an opportunity to explain how they spent cash advances, but held
they were unable to do so); In re Sauntry, 340 B.R. 848 (Bankr. E.D. Tex. 2008) (court
considered debtors’ explanation why they operated on a cash basis, and also review
debtors’ tax returns, pay stubs, credit card statements, and the like, and concluded that
debtor’s failure to maintain records was justified).
E. 	Defendants’ 	Argument 	About 	“Kept” 	Records 	Has 	No 	Merit.
Defendants argue that § 727(a)(3) does not require written records, only that any written
records in existence be retained or “kept.” 	Response, p. 10. 	The argument fails. 	It is
reasonably clear that the statute uses “keep” in the sense of “maintain a record [i.e.] . . .
(keep a journal).”7 See also Devaul, 318 B.R. at 833. 	Furthermore, the law is clear
7 Webster’s Third New International Dictionary, definition 2(f) of “keep.”
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that at least for sophisticated debtors, there is an affirmative duty to have written records.
See, e.g., In re Kim, 97 B.R. 275, 280 (Bankr. E.D. Va. 1989) (citing Goff v. Russell Co.,
495 F.2d 199, 201 (5th Cir. 1974), the bankruptcy court held that “although full detail is
not required, there should be written evidence, orderly made and preserved, from which
the present and past financial condition of the debtor may be ascertained with substantial
completeness and accuracy”); Gordon, 83 B.R. at 81 (debtor’s level of sophistication
made her failure to keep sufficient books and records of her financial condition or
business transactions unjustified). 	While not every debtor is required to have written
records, see, e.g., Simcich v. Haugen (In re Haugen), 9 B.R. 4 (Bankr. S.D. Fla. 1980)
(day laborer was not required to keep written savings passbook), relatively sophisticated
debtors are held to a higher standard, and cannot evade the requirements of § 727 by
failing to document their transactions. 	See In re Ogden, 251 B.R. 441, at *6 (while
many consumer debtors are not required to keep books, debtors sophisticated in business
matters are held to a higher level of accountability).
F. 	Defendants’ Argument About Business Transactions Fails. 	Defendants
also argue that they had no obligation to have written records of their sales of the Assets
because the sales were not “business transactions.” 	Response, p. 11. 	This argument
has no merit. 	Section 727(a)(3) in general requires debtors to keep sufficient records
that the Court can determine their “financial condition.” 	Included is a requirement for
enough information to show that the debtors are not concealing assets. 	In re Caneva,
550 F.3d at 761. 	For this reason, the case law construing § 727(a)(3) requires
individuals as well as businesses to keep reasonable written records of their significant
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transactions. 	See Gordon, 83 B.R. at 81 (discharge denied because debtor had no record
of the sale of over $200,000 worth of jewelry, or how she spent the proceeds). 	See also
Hernandez, 2009 WL 6699684, at *2 (individual debtors had a duty to show that their
lack of records was justified under the circumstances and to provide a satisfactory
explanation for their dissipation of cash advances).
V. 	§ 727(a)(5) STANDARDS
A. 	Statute. 	Under 11 U.S.C. § 727(a)(5), a debtor is not entitled to receive a
discharge if:
the debtor has failed to explain satisfactorily, before determination of
denial of discharge under this paragraph, any loss of assets or deficiency
of assets to meet the debtor’s liabilities.
B. 	Creditor’s Initial Burden. 	As with § 727(a)(3), the creditor has the initial
burden of showing an unexplained loss of a significant asset. 	Cadle Co. v. Stewart (In
re Stewart), 263 B.R. 608, 618 (10 th Cir. BAP 2001), aff’d, 35 Fed. Appx. 811 (10th Cir.
2002) (a party objecting to a debtor's discharge under § 727(a)(5) has the burden of
proving facts establishing that a loss or shrinkage of assets actually occurred).
“A prima facie case under Section 727(a)(5) has been held to exist where a
creditor shows that ... there was an unusual and unexplained disappearance of assets
shortly before the debtor filed bankruptcy.” 	Testers v. Carlson (In re Carlson), 2008
WL 8677441, at * 5 (10 th Cir. 2008), quoting Shappell's Inc. v. Perry (In re Perry), 252
B.R. 541, 549 (Bankr. M.D. Fla. 2000).
C. 	Debtor’s Burden of Proof. 	If a creditor establishes its prima facie §
727(a)(5) case, the debtor must satisfactorily explain the loss of its assets, so the court
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does not have to speculate about what happened to them, or about the veracity of the
explanation. 	In re Cooper, 399 B.R. 637, 653 (Bankr. E.D. Ark. 2009). 	See also
Phouminh, 339 B.R. at 247-48 (once creditor has shown that a loss or shrinkage of assets
actually occurred, the burden shifts to the debtor to explain the loss or deficiency in a
satisfactory manner); Sendecky, 283 B.R. at 766 (“[i]f a party demonstrates a deficiency
of assets, the burden shifts to the debtor to explain the loss. 	If the explanation is too
vague, indefinite, or unsatisfactory then the debtor is not entitled to a discharge. 	The
explanation given by the debtor must be definite enough to convince the trial judge that
assets are not missing.”). 	In Carlson, 2008 WL 8677441, at * 5, the Tenth Circuit stated
that “Section 727(a)(5) requires a satisfactory explanation which must consist of more
than vague, indefinite and uncorroborated assertions by the debtor” (quoting Damon v.
Chadwick (In re Chadwick), 335 B.R. 694, 703 (W.D. Wis. 2005)).
“As is the case with Section 727(a)(3), no requirement exists that debtors act
fraudulently or intentionally to sustain an objection to discharge based on Section
727(a)(5).” Carlson, quoting Perry, 252 B.R. at 549. 	However, “[w]hen deciding
whether a debtor's explanation is satisfactory for purposes of Section 727(a)(5), the issue
is whether the explanation satisfactorily describes what happened to assets; not whether
what happened to assets was proper.” 	Id. 	“[T]he debtor does not need to justify the
wisdom or prudence in the disposition of assets”. 	Carlson, quoting Buckeye Retirement
Props of Indiana, LLC v. Tauber (In re Tauber), 349 B.R. 540, 564 (Bankr. N.D. Ind.
2006).
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VI. 	DISCUSSION
A. 	Plaintiff’s § 727(a)(3) Claim.
1. 	Plaintiff’s Prima Facie Case. 	The Court finds that Plaintiff has
carried its burden of establishing a prima facie case under § 727(a)(3). 	There is no
question Defendants’ have very poor records concerning the sale of the Assets and how
the sales proceeds were spent. 	Plaintiff has shown that, from the records before the
Court, it is impossible to ascertain Defendants’ financial condition and material business
transactions.
2. 	Defendants’ Justification for Lack of Records.
a. 	Ms. Scheid’s Duty to Keep Records. 	Defendants argue
that Ms. Scheid’s discharge should not be denied because she was not involved in
Defendants’ 	record-keeping. 	Response, 	pp. 	7-8, 	13. 	The 	Court 	acknowledges
Plaintiff’s argument that Ms. Scheid’s lack of financial acumen and involvement
portrayed in the Response is at odds with her e-mail correspondence to Plaintiff’s loan
officer. 	Reply, p. 3. 	Nevertheless, the Court finds there is a fact issue about Mrs.
Scheid’s involvement in the Defendants’ personal financial affairs, and/or the sale of the
Assets and spending of the sales proceeds. 	See, e.g., Cox v. Lansdowne (In re
Lansdowne), 904 F.2d 1399, 1403 (9 th Cir. 1990) (bankruptcy court must consider wife’s
justification that she relied on husband to keep records).8
b. 	Loan 	607 	Proceeds. 	Plaintiff 	alleges 	that 	Defendants
cannot explain what happened to the “Loan 607” proceeds. 	Motion, p. 19. 	Defendants
8 There is support for the denial of one spouse’s discharge under § 727(a)(3) but not the other.
See, e.g., Cox, 41 F.3d at 1298-1300; In re Goodman, 227 B.R. 626, 631 (Bankr. E.D. Pa. 1998),
citing In re Goldstein, 123 B.R. 514, 523 (Bankr. E.D. Pa. 1991); In re MacPherson, 101 B.R.
324, 326 (Bankr. M.D. Fla. 1989), aff’d, 129 B.R. 259 (M.D. Fla. 1991).
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counter that the needed records are in computers seized by Plaintiff and another creditor.
Response, pp. 6, 12. 	This argument raises a genuine fact issue. 	See, e.g., Ford Motor
Credit Co. v. Branch (In re Branch), 54 B.R. 211 (Bankr. D. Colo. 1985) (discharge
granted where records were accidentally destroyed in a fire); In re Ogden, 251 B.R. 441,
at *7 (alleged seizure of records by county attorney could be justification).
c. 	$12,000 	Withdrawal. 	Plaintiff 	argues 	that 	Defendants
cannot account for $12,000 cash withdrawn from their Peoples Bank account on July 29,
2011. Motion, p. 17. 	Defendants respond that the $12,000 was used to make a down
payment on their house in Texas. 	Response, p. 11; Scheid Affidavit, p. 11. 	This is
consistent, at least to some extent, with Mr. Scheid’s deposition testimony. 	Doc. 30-3,
p. 9. 	Presumably there is a closing statement or other documentary evidence of
Defendants’ purchase of their Texas house. 	The Court finds that there is a genuine fact
issue about the $12,000 withdrawal.
d. 	Ownership of the Assets. 	Plaintiff argues that Defendants
have no records showing ownership of the 1995 Harley, 1998 Harley, 2007 BMW
motorcycle, 2000 Harley Trailer, 2008 Honda ATV, or Mechanics Tools. 	Motion, pp.
8-10. 	Defendants respond with copies of bills of sale, title applications, sales invoices,
titles, and affidavit testimony relating to ownership of these Assets. 	The Court finds
that there is, at a minimum, a genuine fact issue about ownership.
e. 	Disposition of the Assets. 	Plaintiff argues that Defendants
have no records showing their receipt of proceeds when they sold the Assets. 	Motion,
pp. 8-12. 	Defendants respond with some documentary evidence related to the sale of
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the 2009 Dodge Challenger and the 2007 BMW motorcycle, and affidavit testimony of
Mr. Scheid related to the other sales. 	Scheid Affidavit pp. 4-10 and Exhibits A3 and
A10. 	Defendants also argue that (i) Mr. Scheid reasonably thought he could dispose of
his (unencumbered) personal property in any legal manner; (ii) it is not typical to keep
records of yard sale transactions; and (iii) Defendants have some records. 	The Court
finds that Defendants have raised (although perhaps not by much) a genuine fact issue.
f. 	Accounting 	for 	the 	Assets 	Sales 	Proceeds. 	Finally,
Plaintiff argues that Defendants have no records showing how they spent the proceeds
from the sales of the Assets. 	Motion, pp. 8-12. 	Defendants respond with Mr. Scheid’s
affidavit testimony listing categories and amounts of expenses paid with the proceeds,
such as remodeling work ($14,000); windows purchased ($18,330.78); stucco work
($6,000); Texas house down payment ($12,000), and nine other categories. 	Scheid
Affidavit, pp. 10-11. 	Attached to Mr. Scheid’s affidavit are bills from Marvin Design
Studios and Charles E. Martin Builders. 	Scheid Affidavit, Exhibits A13 and A14.
This evidence does not appear to be a sufficient justification for the failure to keep
records. 	Nevertheless, the Court would like to take testimony and documentary
evidence before ruling.
B. 	Plaintiff’s § 727(a)(5) Claim.
1. 	Plaintiff’s Prima Facie Case. 	The Court finds that Plaintiff has
carried its burden of establishing a prima facie case under § 727(a)(5). 	Plaintiff has
shown that there was “an unusual or unexplained disappearance of assets shortly before
the debtor filed bankruptcy.” 	Carlson, 2008 WL 8677441, at *5. 	Had Defendants
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filed bankruptcy in February, 2011, immediately after they consulted with bankruptcy
counsel,9 the Assets would have been part of their bankruptcy estate, and for the most
part available to unsecured creditors. 	By the time Defendants filed their bankruptcy
case a year later, all the Assets were gone, as were the proceeds from their alleged sales.
Plaintiff has carried its burden of showing an unusual or unexplained loss to assets of
substantial value.
2. 	Defendants’ Explanation for Loss of Assets. 	Defendants explain
the loss of the Assets as set forth in Section VI(A)(2)(f) above. The Court finds that the
explanation raises a fact issue. 	In addition, the “innocent spouse” defense raises a fact
issue about the request to deny Ms. Scheid’s discharge.
C. 	Reluctance of Courts to Grant Summary Judgment in §§ 727(a)(3) and
(a)(5) Objection. 	Denial of discharge is not something to be done lightly, and the case
law in this area encourages trial courts to hear all the evidence before reaching a final
decision. 	See, e.g., In re Ogden, 251 B.R. 441, at *6 (reversing the bankruptcy court
grant of summary judgment on creditor’s § 727(a)(3) claim); Settembre v. Fidelity &
Guaranty Life Ins. Co., 2007 WL 4546669, at *4 (W.D. Ky. 2007), appeal dismissed, 552
F.3d 438 (6th Cir. 2009) (same); In re French, 499 F.3d 345, 354 (4 th Cir. 2007) (same);
In re Schifano, 378 F.3d 60 (1st Cir. 2004) (reversing trial court’s summary judgment in
debtor’s favor on creditor’s §727(a)(3) claim). 	The Court think it would be better, all
things considered, to try Plaintiff’s § 727 objections.
VII. 	CONCLUSION
The Court would like to hear Defendants’ testimony about when, where, why, and
9 Motion, p. 9.
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for how much they sold the Assets, why almost all of the transactions were in cash, why
they did not deposit the cash into their bank accounts, why they kept no records, whether
there is sufficient justification for their failure to do so, and whether they can explain to
the Court’s satisfaction what happened to the cash proceeds from the sale of the Assets
and the $12,000 cash withdrawal.
The Court will deny the Motion, except to make a finding about the amount of
Plaintiff’s claim against Defendants. 	This Memorandum Opinion constitutes the Court's
findings of fact and conclusions of law under Fed.R.Bankr.P. 7052. 	A separate order
will be entered.
Hon. David T. Thuma,
United States Bankruptcy Judge
Entered on the docket: March 5, 2013.
Copy to:
James R. Jurgens
100 LaSalle Circle, Suite A
Santa Fe, New Mexico 87505
Nephi Hardman
6709 Academy Rd. NE, Ste. A
Albuquerque, NM 87109
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