Gresk v. Bulmer (In re Bulmer)

IN RE: BRETT OLIVER BULMER Debtor

PAUL D. GRESK, Chapter 7 Trustee Plaintiff v. CRYSTAL L. BULMER and BRETT OLIVER BULMER Defendants

CASE NO. 15-3116-RLM-7A

Adversary Proceeding No. 15-50153

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

February 10, 2017

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON ALL COUNTS OF PLAINTIFF'S AMENDED COMPLAINT

This matter came before the court on December 15, 2016 for trial on the chapter 7 trustee's amended complaint to avoid certain transfers of real estate as constructively fraudulent under 11 U.S.C. §548(a)(2)(A), to sell property recovered by the estate under 11.U.S.C. §363 and to deny the Debtor's discharge under 11 U.S.C. §727. The Court now makes its findings of fact and conclusions of law with respect to all Counts of the Amended Complaint in accordance with Fed. R. Bank. P. 7052.

Findings of Fact as to All Counts

The Defendant, Crystal L. Bulmer ("Crystal") and the Debtor and Co-Defendant, Brett Oliver Bulmer ("Debtor") were married. As of April 1998, the Debtor owned property located at 7190 South, 700 East and 6815 East U.S. Highway 52, both in Rushville with his parents as joint tenants with rights of survivorship. In April 1998, the Debtor and his parents deeded that property to the Debtor and Crystal which they held as tenants by the entireties.

Between 1998 and 2009, Crystal and the Debtor acquired four (4) more properties in or near Rushville from unrelated parties and held those parcels as tenants by the entireties. In addition, the Debtor owned property located at 27049 West Chapel Road and Debtor owned the remainder interest after his father's life estate in property located at 14012 Middle Street and 7331 East. U.S. Highway 52, all in Rushville. Thus, as of early 2013, the Debtor held interests in nine (9) properties: the 6 parcels jointly owned by him and Crystal, the one parcel owned by him individually, and the two remainder interests in the parcels in which his father, Harold, retained a life estate.

During the marriage, both the Debtor and Crystal borrowed money for their respective businesses. The Debtor borrowed $56,000 to start a saw mill / logging business. There was no evidence presented that Crystal guaranteed the saw mill loan but she did eventually pay it off. Crystal borrowed $102,000 for her school bus business and the Debtor was liable on that loan. Finally, the Debtor also had a contract with Pioneer Seed to de-tassel corn which paid between $25,000 and $30,000 a year.

By early 2013, the Debtor's drug habit had cost him both his logging business and his Pioneer Seed contract. Crystal estimated that the Debtor dissipated as much as $150,000 in marital assets during the course of the marriage because of his drug habit, and in one three-month period alone, "burned through" $69,000. Crystal was grossing between $150,000 and $175,000 a year from her school bus business.

On August 10, 2013 Crystal moved out of the marital residence she shared with the Debtor and decided to file for divorce. By that point, the Debtor had been sued by a third party and Crystal knew the Debtor was "going to court". On September 6, 2013, the Debtor quit claimed his interests to Crystal in the six properties they jointly owned and the one parcel that the Debtor owned alone. Also on September 6, 2013, the Debtor and his father quit claimed to Crystal their interests in their two parcels, but Harold continued to retain his life estate in these parcels. As of the date of these transfers, Crystal had already been paying all of the household bills, including the mortgages, taxes and maintenance costs on the properties, since early 2013 and was caring for Harold who had become ill. The quit claim deeds on the properties were recorded between September 12^th and 16^th of 2013. The creditor who sued the Debtor obtained a judgment against him for over $40,000 on September 17, 2013. Crystal did not move back into the marital residence and she filed for divorce on September 23, 2013, after the transfers were completed.

The Debtor was not represented by counsel in the divorce. He was properly served with the summons but he did not appear at the final hearing. The final hearing lasted about half an hour during which Crystal gave testimony. On February 20, 2014, the Rush County Circuit Court entered its Decree of Dissolution of Marriage. By that point, Crystal and the Debtor had been living apart for several months, and had separate bank accounts. The decree contained little detail. The Debtor was awarded all accounts in his name, two vehicles, and any business interests he owned. He was also ordered to pay $500 to Crystal to reimburse her for an overdraft he caused and which she paid on a joint bank account. Crystal was awarded all accounts in her name, one vehicle and any businesses she owned as well as "all real property owned by the parties including the property located at 7190 S 700 E, Rushville, IN 46173, and any other real estate in [Crystal's] name alone. [Crystal] shall be responsible for all costs associated with said real property including, but not limited, to mortgage, insurance, taxes and shall hold [the Debtor] harmless thereon." Before the divorce was filed, all the parties' real estate had been transferred to Crystal so the divorce decree did not effect a transfer of any property. The decree also provided that Crystal "shall be responsible for payment of approximately$240,000 in marital debt and shall receive the bulk of the assets". Crystal estimated that, since the divorce, she's paid between $125,000 and $145,000 in marital debt.

The Debtor filed a chapter 7 case on July 14, 2014 ("the prior case"). The Debtor indicated in his schedules that he owned no real property and did not disclose the transfer of his interest in the 9 properties to Crystal despite those transfers having occurred less than a year before. The Debtor was incarcerated by the time his §341 meeting was to be held and the chapter 7 trustee attempted to hold the meeting telephonically without success. The prior case was dismissed on the Chapter 7 trustee's motion because the Debtor failed to appear at his §341 meeting for creditors and failed to provide bank documents and tax returns to the trustee. The Debtor filed a second chapter 7 case (the "current case") on April 15, 2015. Paul Gresk was appointed chapter 7 trustee. Again, Debtor indicated that he owned no property and failed to disclose the transfers, even though he had transferred his interest in the properties less than two years before he filed the current case. He signed his bankruptcy papers and declared the information in them to be true and correct under penalty of perjury. The Debtor attended his §341 meeting and testified that he had reviewed his bankruptcy papers before he signed them and that no changes needed to be made. Upon questioning by the trustee, the Debtor testified that he did not currently own real estate but had before the divorce and that he got nothing from the divorce. He was asked by the trustee if he transferred anything of value in the last four years, other than that which was transferred in the divorce, and he at first responded no, then responded that he had transferred one piece of real estate. The trustee now seeks to deny the Debtor his discharge under §727(a)(4) and (a)(7). On June 29, 2015 Gresk filed his complaint which is the subject of this adversary proceeding.

CONCLUSIONS OF LAW AS TO COUNTS I AND II

Counts I and II of the Trustee's amended complaint seeks to avoid the property transfers under 11 U.S.C. § 548(a)(1)(B). That section allows a trustee to avoid a constructively fraudulent transfer of a Debtor's interest in property that was made within two (2) years before the date of the filing of the petition as long as (1) the Debtor voluntarily or involuntarily received less than reasonably equivalent value in exchange for such transfer and (2) was either insolvent on the date of the transfer or becameinsolvent as a result of such transfer. There is no dispute that the Debtor made a transfer of his property and the transfer was made within the two-year period. There is no dispute the Debtor was either insolvent when the transfers were made or he became insolvent as a result of the transfers. The issues the parties have focused on are whether the properties transferred would have otherwise been available for distribution to the Debtor's creditors and whether the Debtor received reasonably equivalent value in exchange for the transfers.

Property of the Estate

Crystal argues that the transfers were not fraudulent because, even if the transfers were avoided, the property still would not be property of the estate because the properties were awarded to Crystal in the divorce and the intervening event and force of the decree "wipes clean" the transfers. Unlike many of the cases cited by Crystal in her brief, the decree did not give rise to the transfers; the transfers occurred six months before the decree and before Crystal filed for divorce. The divorce proceedings and the decree are temporally unrelated to the transfers. What the decree did was to merely award the parties property that they already held in their respective names, thereby having the effect of ratifying the transfers and formalizing the financial arrangement under which Crystal and the Debtor had been operating since early 2013. But the decree itself did not give rise to any of the transfers.¹ The operative time frame in which a fraudulent transfer isviewed is when the transfer was made which, here, would be September 6, 2013, the date the quit claim deeds were executed, or at the latest, when they were recorded, between September 13^th and 16^th, 2013.

Section 541 defines "property of the estate" as all "interests of the debtor in property". Section 548(a)(1) allows avoidance of transfers "of an interest of the debtor in property". By incorporating the language of §541 to define what property a trustee may...