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Kenneth T. Malley v. Warren E. Agin, Trustee

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Before Boudin, Circuit Judge, Souter, Associate Justice, *fn1 and Thompson, Circuit Judge.

In this direct appeal under 28 U.S.C. § 158(d)(2)(A) from the United States Bankruptcy Court for the District of Massachusetts, Kenneth Malley, the debtor in a Chapter 7 liquidation proceeding, see 11 U.S.C. §§ 701-784, appeals from an order issued in reliance on 11 U.S.C. § 105(a) surcharging his interest in property listed as exempt. The issue is whether § 105(a) authorizes a charge against the value of otherwise exempt assets as a remedy for the debtor’s wrongful concealment of non-exempt and now unavailable property subject to creditors’ claims, and we hold that the bankruptcy court was acting within its statutory authority.

The issue arises in the aftermath of Malley’s treatment of the proceeds from the sale of his former marital house, which occurred shortly before filing his Chapter 7 petition. The transaction netted over a quarter of a million dollars, from which he repeatedly declared and swore under oath that he had received nothing, the entire balance having gone to his ex-wife, he said. The trustee of the Chapter 7 bankruptcy estate nonetheless came to believe that some $27,000 of those funds allegedly going to the ex-wife were to be used to discharge Malley’s credit card debt, which prompted the trustee to take action against the ex-wife to avoid that disposition. As it turned out, however, Malley’s false disclosure had actually hidden his secret receipt of $25,000, which he claimed he was unable to turn over to the trustee when ordered to do so.

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