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Trustee Demonstrates Multiple Badges of Fraud to Successfully Avoid the Transfer as Fraudulent Under §548.

Corzin v. DiGiammarino (In re Maglione), Nos. 14-50685, 14-05110, 2016 Bankr. LEXIS 3722 (U.S. Bankr. N.D. Ohio Oct. 14, 2016)

Before May 2000, Debtor Anthony F. Maglione and his now ex-wife incurred debts on certain credit cards that were in the name of his mother, Ruth B. DiGammarino, the Defendant. The Defendant borrowed funds from a bank to satisfy the outstanding balances on the credit cards. The Debtor and the Defendant agreed that the Debtor would repay the debt in monthly installments. A month after, the Debtor filed for bankruptcy. The Debtor and his wife were then Chapter 13 debtors who were obligated to make plan payments to the Chapter 13 trustee on account of their creditors in an amount that exhausted their disposable income above and beyond their reasonable expenses. The Debtor nevertheless made monthly installment payments to the Defendant on account of the oral agreement to repay the original credit card debt. The Trustee brought an adversary complaint against the Defendant to avoid the transfer made by the Debtor to the Defendant, his mother as fraudulent transfers under §548 of the bankruptcy code.

The Court found that the alleged transfer was avoidable because the Defendant made the transfer with an actual intent to hinder, delay, and defraud his now ex-wife and other creditors. The Court found multiple badges of fraud to give rise to the inference of fraudulent intent. First, the Defendant was the Debtor’s mother and therefore had a close family relationship; next, the Debtor and Defendant had a history of secret transactions and the debt that supposedly was owed by the Debtor to the Defendant was inadequate or for no consideration. Further, there was a dissipation of assets shortly before the divorce. The Court stated that these badges of fraud shifted the burden to the Defendant to explain the legitimate purpose of the transfer, and theDefendant did not offer any sufficient explanation. Further, the Trustee also failed to prove at trial a claim for avoidance of a constructively fraudulent transfer because he failed to meet his burden of establishing insolvency of the Debtor.


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