Corporation Not Personal Piggy Bank, Bankruptcy Discharge Denied For Fraud

In re Karr, (Bkrtcy.D.Kan.) (Judge Somers Case No. 09-20008. February 24, 2011: Discharge – Intent to defraud could be inferred from circumstances surrounding diversion of funds. A Chapter 7 debtor’s conduct in the year preceding the bankruptcy filing of his wholly-owned corporation, in using the corporation as a piggy bank to pay personal expenses of himself and his family even as the company’s cash flow problems worsened and it was unable to pay corporate creditors, warranted a denial of the debtor’s individual Chapter 7 discharge under 11 U.S.C.A. 727(a)(7) on a fraudulent transfer theory. An intent to defraud corporate creditors could be inferred from circumstances surrounding the diversion of corporate funds, notwithstanding that the debtor did not attempt to conceal this diversion and testified, after-the-fact, that he intended to repay the corporation for any funds diverted.

Summary by West Highlights

About Jill Michaux

Jill Michaux is a Kansas bankruptcy attorney. She can be found on Google+. She and her partner, Mark Neis, are Topeka's only board certified consumer bankruptcy law specialists.