The creditor loses his offer in the event of bankruptcy

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A bankruptcy judge rejected a creditor’s decision to block the discharge from bankruptcy of Bill Schwyhart, a former prominent Northwest Arkansas real estate developer, and his wife Carolyn, saying CHP LLC no had failed to prove that the couple attempted to defraud their creditors.

U.S. Bankruptcy Court Judge Harlin Hale for the Northern District of Texas, in a written finding released Tuesday night, said evidence presented at trial in June did not support a denial of the bankruptcy discharge of the couple.

A discharge in a bankruptcy case, with few exceptions, effectively extinguishes the debtor’s pre-bankruptcy obligations, giving it a fresh start. If discharge is denied, creditors are allowed to sue the debtor on pre-bankruptcy debts.

The Schwyharts filed for bankruptcy in Texas in July 2018, claiming more than $ 80 million in debt, mostly business-related. CHP, a Schwyhart creditor, asked the court to deny Schwyhart’s discharge from bankruptcy.

“At trial, the debtors appeared to be honest people. They made a number of mistakes, but they appeared to be honest. And the debtors’ mistakes will not materially change the outcome for the creditors in this bankruptcy case,” wrote Tan.

Hale said the CHP failed to prove the couple used a sophisticated multi-year plan to defraud and hide assets from creditors and the court, as he claimed. He noted that the couple had made a few missteps and even made false statements, but they appeared to be honest mistakes.

“A blanket refusal to release a debtor is a severe remedy; it is, in essence, a civil death penalty. inappropriate disclosures in this matter, ”Hale wrote. “Ultimately, the Court finds and concludes that CHP has not fulfilled its onus and the Debtors are entitled to their discharge.”

CHP attorneys had argued that the Schwyharts were hiding assets through an elaborate network of entities to hinder, delay and defraud creditors. CHP claimed that, as part of a multi-year program, the Schwyharts transferred assets through various entities, including HMG Investments, and used that money for living and other expenses, but then denied knowing about it. and made other false statements in their bankruptcy filing.

In a written statement given through his attorney on Wednesday, Bill Schwyhart said he spent most of his life making northwest Arkansas a place people from all over the world would be. proud to call home and he was happy he and his wife were out of the ordeal. of bankruptcy with their reputation intact.

“The voluminous disclosure and invasive examination of many lawyers, accountants, entities and others over the course of more than two years leaves only a simple but definitive explanation as to why no fraudulent scheme could be proven: because there never has been, ”Schwyhart said. said in the press release.

He said the couple can’t wait to focus on their health and their new life in Dallas.

CHP lawyer Brain Ferguson declined to comment on the decision on Wednesday and said the CHP had not decided whether to appeal.

Stephen Schultz, a tax attorney and bankruptcy specialist in Austin, Texas, said Hale excused a number of false statements because he found the Schwyharts’ testimony credible – in that they were errors honest, even though the Schwyharts were sophisticated debtors with extensive business experience.

Schultz said it was clear that Schwyhart’s lawyers had convinced Hale that the statements made by the couple, while false in some cases, were not made with fraudulent intent.

“The credibility of the debtors at trial was important to Judge Hale and I think it won the day,” Schultz said in a telephone interview Wednesday.

In late June, Bill and Carolyn Schwyhart made their own defense in Dallas bankruptcy court, claiming they never intended to cheat their creditors, adding that they had used corporations for years to pay their bills and other living expenses. Bill Schwyhart also said he has stage four cancer and the couple moved to Dallas in March 2018 to be closer to their doctors to receive treatment for his disease, not to prevent HPC.

Schwyhart testified that he was fighting the challenge of his bankruptcy discharge to restore his reputation, in the face of the CHP accusations. He told the court that his good reputation was all he had left.

Bill Schwyhart, interviewed by his attorney John Lewis Jr., said he did not open a bank account for HMG Investments in 2013 with the intention of hiding funds and was unsure of the structure property of HMG when the couple filed their draft schedules for their bankruptcy forms. . HMG is a business entity established in 1982 to purchase land and real estate.

Alex Schwyhart, son of Bill Schwyhart and stepson of Carolyn Schwyhart, told the court that the HMG funds were loans. He told the court he was controlling HMG and still expected to be reimbursed.

CHP’s attorneys argued, among other things, that the Schwyharts controlled a designated account at HMG and regularly used the account for living expenses to the tune of about $ 12,000 per month for several years, but then concealed their involvement. . They also claim that the Schwyharts emptied the account of around $ 16,000 after filing for bankruptcy, using it to pay bills and for other expenses.

Lawyers for the Schwyharts argued that the couple credibly believed that the HMG account was not owned by the estate. They argued that the couple had an indirect interest in HMG at best and that the money in the account came from Alex Schwyhart and that CHP had not proven that any false statements made by the Schwyharts were made with intent to to trick.

During Northwest Arkansas’ construction boom, Bill Schwyhart worked with trucking mogul JB Hunt and Tim Graham on the Pinnacle Hills Promenade mall, which opened in 2006. After Hunt’s death later that year, his widow, Johnelle Hunt, and Graham severed ties with Schwyhart.

Johnelle Hunt and Graham later sued Schwyhart, claiming he defaulted on various loans. In April 2010, eight development companies managed by Schwyhart filed for bankruptcy, claiming nearly $ 42 million in debt.

Schwyhart was also one of the investors, along with JB Hunt, in the now defunct charter jet company Pinnacle Air LLC, which operated as Aspen JetRide. Billionaire John P. Calamos of Naperville, Ill. And the chairman of financial firm Calamos Asset Management became a partner of Schwyhart when Calamos’ Ajax merged with Pinnacle Air. Aspen JetRide filed for Chapter 7 bankruptcy in early 2009.

Schwyhart testified in June that although business relations with Johnelle Hunt and Calamos turned sour, they eventually settled their differences in a confidential settlement agreement in 2013. The settlement was filed under seal in the Schwyhart bankruptcy case. .

Schwyhart said at trial that he and his wife put the stress of this conflict behind them and lived a peaceful life until CHP filed a lawsuit against them in Arkansas State Court in 2018. He said it was pressure from CHP that prompted the couple to seek bankruptcy protection, as other major creditors, including Calamos and Hunt, had not continued their judgments over the years.

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