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Eighth Circuit Bankruptcy Panel Affirms Denial of Exemption From Discharge - Van Daele Bros. Inc. v. Thoms

December 30, 2011

At Howard Law, P.C., our Moreno Valley personal bankruptcy lawyers have written here before about exemptions from discharge. This is a bad thing for bankruptcy filers, because it means the debt will have to be paid off in full despite the protections bankruptcy offers. Thus, it's generally used in cases where the debtor has done something wrong. In Van Daele Bros. Inc. v. Thoms, the Bankruptcy Appellate Panel for the Eighth U.S. Circuit Court of Appeals agreed that the behavior of debtor Jeffrey Thoms did not rise to that level. Thoms, of Iowa, owed money to Van Daele because of a sale-leaseback of cattle he had brokered, but then failed to pay his lease. Van Daele argued that this was "willful and malicious," a reason for exception from discharge, but the bankruptcy court and the BAP disagreed.

Thoms was employed as a loan officer at Kerndt Bros. Savings Bank when he approached Jerry Van Daele about the sale-leaseback idea. Van Daele agreed to buy the cattle and lease them back to Thoms. To finance the purchase, he took out a $75,000 loan from Kerndt Bros. Savings Bank. Five months after the deal was finalized, however, Thoms lost his job at Kerndt Bros., causing his income to drop substantially. He was unable to make the first lease payment when it came due, and Van Daele eventually repossessed the cattle. (This triggered separate state-court cases by Thoms's father, who claims some of the repossessed cattle belonged to him.) A few days after the repossession, Thoms attempted to make the installment payment with money borrowed from his daughter, who had in turn borrowed it from a friend under the pretense of a student loan. Van Daele refused to accept less than the full $75,000.

After Thoms filed for bankruptcy, Van Daele moved to except the debt to him from discharge. He alleged the following actions by Thoms were willful and malicious: failing to adequately explain a decrease in the number of cattle; having his father as an undisclosed partner in the cattle business; failing to adequately disclose the debt and repossession in his bankruptcy papers; and trying to pay the installment with a loan gotten under false pretenses. The bankruptcy court found none of this persuasive, and Van Daele appealed.

He had no better luck with the Eighth Circuit BAP. The bankruptcy court had found little evidence that Thoms and his father were partners, the BAP noted -- and in any case, the existence of such a partnership would not be evidence of intent to defraud Van Daele. Similarly, the bankruptcy court found Thoms's explanation for the decrease in herd size credible; he said some had succumbed to disease. The record also does not show any evidence that Thoms disposed of the missing cattle with the intent to harm Van Daele, the panel noted. The BAP said the omissions Van Daele alleges in Thoms's filing papers would, if true, actually undermine the version of events Van Daele had presented. And finally, the fact that Van Daele was willing to get a deceptive loan to pay off the debt actually suggests there was no conspiracy to defraud Van Daele, the panel said. Thus, it said, the bankruptcy court's interpretation of the evidence was actually more plausible than Van Daele's, and it was correct not to except the debt from discharge.

As Los Angeles County individual bankruptcy attorneys, we don't handle a lot of cases involving cattle -- but we know plenty about the standards for excepting debts from discharge. To meet that standard, Van Daele or anyone else would have to demonstrate an intentional attempt to defraud. This is a high standard for good reason. The protections of bankruptcy come at a price, which the filer voluntarily pays in order to wipe the slate clean and start over. Courts generally decline to take away those protections unless the debtor can be shown to have intentionally abused or defrauded someone. Vincent Howard and our team of Anaheim consumer bankruptcy lawyers work hard to protect our clients from this kind of claim for non-dischargeability, because when a debt is not dischargeable, they are stuck paying it off over many years.

Howard Law, P.C., represents Californians who are ready to wipe the slate clean through bankruptcy and start to rebuild their financial lives. If you'd like to talk to us about your situation and your options, call us today at 1-800-872-5925 or send us a message online.

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