GERALD FINES, Chief Judge, Bankruptcy
This matter having come before the Court for trial on a Complaint to Deny Dischargeability filed by Shelby Bobo and Brenda Bobo; the Court, having heard sworn testimony and arguments of counsel and being otherwise fully advised in the premises, makes the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
The Complaint in this matter, filed on June 17, 2002, is captioned as a matter regarding dischargeability. However, the allegations of the Complaint and arguments of Plaintiffs' counsel reveal that Plaintiffs are seeking a denial of Debtor's discharge under the provisions of 11 U.S.C. § 727, rather than a determination of dischargeability of Plaintiffs' particular debt under the provisions of 11 U.S.C. § 523. Specifically, the Plaintiffs seek to have the Debtor/Defendant's discharge denied under 11 U.S.C. § 727(a)(2)(A) and/or 11 U.S.C. § 727(a)(4)(A).
Pursuant to 11 U.S.C. § 727(a)(2)(A), a debtor must be denied a discharge where it is found that the debtor, within one year before the date of filing bankruptcy, with the intent to hinder, delay, or defraud a creditor or an officer of the estate has transferred, removed, destroyed, mutilated, or concealed property of the debtor. The Court must find that the debtor/defendant acted with actual intent requiring a showing of extrinsic evidence suggesting that fraud exists. In re Smiley, 864 F.2d 562 (7th Cir. 1989). Because direct evidence of a debtor/defendant's intent usually is unavailable, intent may be inferred from the circumstances surrounding the debtor/defendant's conduct. In re Smiley, supra, at 566. The question of intent generally will depend upon assessment of the credibility of witnesses and the Court's assessment of that credibility. In re Bonnett, 895 F.2d 1155 (7th Cir. 1989). The burden of proof is upon plaintiffs to establish all elements of 11 U.S.C. § 727(a)(2)(A) by a preponderance of the evidence.Grogan v. Garner, 111 S.Ct. 654 (1991); In re Scott, 172 F.3d 959 (7th Cir. 1999).
Under 11 U.S.C. § 727(a)(4)(A), the Court shall grant a debtor/defendant a discharge, unless the debtor knowingly and fraudulently, in or in connection with the case made a false oath or account. In order to prevail under 11 U.S.C. § 727(a)(4)(A), plaintiffs must establish that (1) the debtor made a statement under oath; (2) the statement was false; (3) the debtor knew the statement was false; (4) the debtor made the statement with the intent to deceive; and (5) the statement related materially to the bankruptcy case. In re Sholdra, 249 F.3d 380 (5th Cir. 2001); In re Bailey, 147 B.R. 157 (Bankr. N.D. Ill. 1992); In re Agnew, 818 F.2d 1284 (7th Cir. 1987). The plaintiffs bear the burden of proof to establish all necessary elements of 11 U.S.C. § 727(a)(4)(A), by a preponderance of the evidence. Grogan v. Garner, supra, at 654.
In examining the facts of this case under both 11 U.S.C. § 727(a)(2)(A) and 11 U.S.C. § 727(a)(4)(A), the Court is unable to find that the Plaintiffs have proven that the Debtor acted with fraudulent intent. While it is clear that the Debtor/Defendant received a substantial insurance settlement within one year of her filing for bankruptcy and that the proceeds of that settlement were quickly exhausted, there is no credible evidence that the dissipation of those proceeds was done with the intent to hinder, delay, or defraud the Plaintiffs in this case. Furthermore, the Court finds that the Debtor's failure to schedule the various transfers which exhausted the proceeds of the insurance settlement on her bankruptcy petition was not done by the Debtor/Defendant with the intent to deceive.
The Debtor/Defendant in this case is an elderly woman who is clearly unsophisticated in the ways of financial matters. The dissipation of the proceeds of her insurance settlement came about as a result of unwise spending and over-generous gifts to her children, rather than through an attempt to avoid paying the judgment held against her by the Plaintiffs. Based upon the testimony of the Debtor/Defendant and the record of the State Court proceeding giving rise to the judgment held by Plaintiffs, the Court is convinced that the Debtor/Defendant had very little understanding of the impact of that judgment or even how it came about. This factor bolsters the Court's finding that the Plaintiffs have failed to prove that the Debtor/Defendant acted with the requisite fraudulent intent even though she engaged in lavish spending and gifting to her children. Although fraudulent intent may be inferred from the circumstances surrounding Debtor/Defendant's conduct, there must be some evidence indicating that the Debtor/Defendant acted in such a way that she knew or should have known that her actions were damaging to the Plaintiffs. In this case, the evidence suggests that it is most likely that the Debtor/Defendant's actions resulted from excitement and over-generosity, rather than fraudulent intent. The Plaintiffs simply failed to produce enough evidence to convince the Court that the Debtor/Defendant's conduct bore any relationship to the Plaintiffs' State Court judgment against her. As a result, the Court must find that the Complaint filed by the Plaintiffs should be denied, and that the Debtor should be granted a discharge pursuant to 11 U.S.C. § 727.