This case, tried on November 7 and 8, 1990, is a dischargeability action brought by the debtor's ex-wife. Allegations of violations of both 11 U.S.C. § 727 and 523 were made by the plaintiff-wife.

        The defendant is a fisherman. He has worked as a fisherman since age five. He married the plaintiff in 1978. They had two children and divorced in 1986. Pursuant to the divorce, the defendant received a valuable limited entry fishing permit for the Chignik area. This permit had a value of approximately $322,000.00 at the time of the divorce and $370,000.00 in August of 1989. Defendant was obligated to pay child support of $650.00 per month and had an obligation of $122,500.00 for "property         1 ABR 218  settlement" to his ex-wife. He was in arrears upon those obligations in August of 1989.

        The defendant has a close business relationship with a cannery, technically named Columbia Wards Fisheries but operating as "Ward's Cove" in Chignik, Alaska. There are no banks in Chignik. Ward's Cove acted as a depository or checking account for the debtor. When the debtor received a check, he promptly endorsed it to Ward's Cove. Ward's Cove would give the debtor credit. When the debtor purchased an item or wanted a debt paid, he told Ward's Cove to pay it and Ward's Cove paid it for him. Ward's Cove determined the expenses of operating the debtor's boat, provided accounting services, and issued checks to the crew. Ward's Cove bought fish from the debtor.

        1989 was a poor year for the debtor due to the Exxon Valdez disaster. Nonetheless he earned approximately $60,000.00 in income from sales of fish to miscellaneous purchasers and an additional $60,000.00 from direct Sales to Ward's Cove. The Ward's Cove sales occurred for fish delivered from June 12 through August 3, 1989. Ward's Cove owed the debtor in excess of $60,000.00 for fish it received through August 3, 1989. After deducting funds payable to Ward's Cove through its set-off rights, the defendant had approximately $30,000.00 to $40,000.00 payable to him from Ward's Cove on August 11, 1989.

        1 ABR 219          On August 11, 1989 the defendant filed a chapter 7 bankruptcy. The chapter 7 petition contained no mention of the receivable from Ward's Cove in Schedule B-2. The debtor did not list the fact that Ward's Cove was holding something of value in which he had an interest under paragraph 7 of the Statement of Affairs. He filed a Statement of Affairs on a form for a debtor "Not Engaged in Business" when he was in fact actively engaged in business as a commercial fisherman. He failed to list Ward's Cove as a secured creditor. Ward's Cove was listed as an unsecured creditor.

        The debtor failed to list his employees as creditors. He paid them post-petition from the Ward's Cove account. Following the filing of the petition the debtor received an order which stated in part:

YOU ARE NOTIFIED that, having filed a Petition in Bankruptcy, all of your property is now under the exclusive jurisdiction and control of the United states Bankruptcy Court. The term "property" includes furniture, fixtures, machinery, equipment, automobiles, trucks, tractors, stocks, bonds, accounts receivable, money owed you, income tax refunds, real estate, documents, records, legal files, deeds, and everything else you owned, possessed or had, or which was coming to you on the date the bankruptcy was filed, as well as other property interests as set forth in Section 541 of the Bankruptcy code.

YOU MUST keep all property, including income tax refunds, and be prepared to turn over all of your non-exempt property to the Trustee.

        1 ABR 220 
You may NOT return, give away, or allow anything to be repossessed without Court approval.

        The Ninth Circuit has considered the issue of dischargeability under 11 U.S.C. § 727 in two cases. In re Adeeb, 787 F.2d 1339 (9th Cir. 1986) involved an unusual set of circumstances. Adeeb had transferred some real property to friends and associates pre-petition based upon his then attorney's advice. Adeeb switched attorneys. His new attorney told him to reverse the transfers and disclose them to his creditors. Adeeb started to reverse the transfers. He called a creditors' meeting and advised         1 ABR 221  his creditors of the transfers. While in the process of regaining title, and after the meeting, three creditors filed an involuntary petition against Adeeb. The Bankruptcy Court and the District Court denied Adeeb's discharge under Section 727 of the Code. The Ninth Circuit reversed stating:

        We conclude that a debtor who transfers property within one year of bankruptcy with the intent penalized by section 727(a)(2)(A) may not be denied discharge of his debts if he reveals the transfers to his creditors, recovers substantially all of the property before he files his bankruptcy petition, and is otherwise qualified for a discharge.

        Our conclusion is consistent with cases interpreting "concealed" as used in section 727(a)(2)(A). Those cases state that a "debtor who fully discloses his property transactions at the first meeting of creditors is not fraudulently concealing property from his creditors." In re Waddle, 29 B.R. 100, 103 (Bankr. W.D. Ky. 1983); see 4 Collier on Bankruptcy paragraph 727.02[6][b] (15th ed, 1985). Although a concealment may be undone simply by disclosing the existence of the property, disclosure does not undo a transfer. However, a transfer may be undone by recovering the property.

        In the instant case, a review of the transcript of the first meeting of creditors reflects that the debtor did not reveal the receivable from Ward's cove. In fact, the debtor again stated he had no assets other than those listed in the petition. Sometime after the first meeting of creditors, in late September 1989,

        1 ABR 222  debtor provided the attorney for the trustee with an account statement, defendant's Exhibit "D", which revealed a $60,915.45 "fish credit." By that time, however, the defendant had effectively disbursed the Credit to his favored creditors and himself.

        The Ninth Circuit also considered the issue of dischargeability under 11 U.S.C. § 727 in In re Devers, 759 F.2d 751 (9th Cir. 1985). Devers involved the post-petition sale of secured cattle and a lawn tractor by debtors in a failed chapter 11 proceeding. The court affirmed the bankruptcy court's denial of discharge stating:

        The cases interpreting the statute have held that actual intent to hinder, delay, or defraud must be shown. Constructive fraudulent intent cannot be the basis for denial of discharge, but fraudulent intent may be establishedby circumstantial evidence, or by inferences drawn from a course of conduct. The statute is to be construed liberally in favor of debtors and strictly against the objector.

       . . . .
         Because a debtor is unlikely to testify directly that his intent was fraudulent, the courts may deduce fraudulent intent from all the facts and circumstances of a case. The Debtors here repeatedly sold secured assets of the estate without reporting the sales. As in Nazarian, the numbers and magnitude of these sales eliminate any possible finding of mere negligence that could vitiate the inference of intent.

       . . . .          The intent was confirmed by the Debtors' blatant violation of the court's order to

        1 ABR 223  cease commingling the money earned from these sales. These Debtors spent $30,000 of the money so earned to pay currently accruing operating costs and family living expenses in order to maintain some semblance of a viable operation in order to attract financing. They showed concern only with their own business survival, and therefore ignored one of the most important functions of the debtor in possession -- to inform the creditors and the court of the status of the business undergoing reorganization.

        The facts and circumstances of this case clearly show fraudulent intent and justify denial of discharge on a number of alternative grounds. Under 11 U.S.C. § 727(a)(2) when a debtor has the intent to hinder, delay or defraud a creditor or an officer of the estate and has concealed or transferred property either before or after the filing of the petition, grounds for general denial of a discharge exist. Here the debtor failed to disclose a material asset: an account receivable from Ward's Cove for fish delivered. He delivered the fish, signed the tickets, and knew that he delivered the fish. He knew he was entitled to a credit upon his account from such fish sales and in fact utilized the proceeds to direct payments to himself and certain preferred creditors. He deliberately concealed the existence of such a Credit in an effort to defeat the claims of the trustee and his ex-wife. Such concealment occurred both within one year from the date of the filing of the petition and after the filing of the petition.

        1 ABR 224  Additionally, the debtor made disbursements from his Ward's Cove account post-petition with the intent of defrauding his ex-wife and the trustee.

        Grounds also exist for denial of discharge under 11 U.S.C. § 727(a)(4) because the debtor knowingly and fraudulently made false oaths. In this instance, the false oaths consisted of signing schedules under oath knowing that such schedules failed to reveal complete information regarding assets and liabilities. The debtor is also in violation of 11 U.S.C. § 727(a)(6) for failing to obey the order of the court which required the debtor to keep all property and be prepared to turn such property over to the trustee. The debtor failed to keep such property and in fact utilized his Ward's Cove account to his own benefit post-petition.

        The attorney for the debtor presented argument to the effect that even though the account was not properly disclosed, lien creditors, i.e., crew members with wage claims, would have been entitled to most of the proceeds from the account, and no injury was incurred by the estate. I doubt whether this is truthfully the case. In any event, the determination as to whether or not crew members were secured creditors is an irrelevant consideration. As the Adeeb court stated: "[L]ack of injury to creditors is irrelevant for purposes of denying a discharge in bankruptcy." In re Adeeb, 787 F.2d at 1343. It is incumbent upon the debtor to truthfully and honestly reveal his assets and

        1 ABR 225  liabilities. When he fails to do so, he has forfeited his right to discharge regardless of the amount of harm to creditors.

        For the reasons stated herein, as well as those stated in open court on November 8, 1990 the defendant's discharge is denied in accordance with 11 U.S.C. § 727 and the plaintiff shall be awarded her costs for this action. Plaintiff is directed to prepare a judgment for entry in this cause.

       DATED:    November 14, 1990.

DONALD MacDONALD IV
United States Bankruptcy Judge