Exceptions From Discharge and Avoidable Transfers.

The creditors sought summary judgment on their claim that the debtor’s obligation to them should not be discharged in his Chapter 7 bankruptcy proceeding.  The court granted the creditors’ motion, finding that the $135,000 debt was excepted from discharge under 11 U.S.C. § 523(a)(2)(A).  The court had already ruled in a December 17, 2013, decision, that the debtor’s bankruptcy should be converted from a Chapter 12 to a Chapter 7 case on the grounds of fraud.  The court found that the debtor did  not tell the creditors he had filed bankruptcy when he contracted with them for the sale of hay.  As a result, the law of the case applied to establish 11 U.S.C. §523(a)(2)(A)’s required elements: (1) fraudulent omission by the debtor; (2) knowledge of the deceptiveness of his conduct; (3) an intent to deceive; (4) justifiable reliance by the creditor; and (5) damage to the creditor).  In re Clark, No. 12-00649, 2014 Bankr. LEXIS 97 (Bankr. D. Idaho Jan. 10, 2014).  In a later decision, the court noted that during the pendency of the Chapter 12 case, the debtor had also sold a tractor to unrelated persons and deposited the funds into the bank account of a limited liability company (LLC) that he managed (but of which he was not a member or owner).  The trustee claimed that various against various defendants that the trustee claimed had received transfers from the LLC before the case was converted to Chapter 7.  The trustee later filed an avoidance action against the buyers of the tractor on the grounds that the transfer was avoidable.  The buyers claimed that the transfer of the tractor to them was not avoidable because of the two-year statute of limitations contained in 11 U.S.C. Sec. 549.  The court agreed that the transfer was avoidable because the trustee knew of the potentially avoidable transfer at the time the case was converted to Chapter 7 and the trustee obtained the LLC records, but never identified the purchasers.  Thus, the transfer was avoidable because the buyers had no notice that an avoidance action was contemplated until more than two years after the sale of the tractor.  In re Clark, No. 12-00649-TLM, 2015 Bankr. LEXIS 3167 (Bankr. D. Idaho Sept. 18, 2015).