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Keywords

contractlawsuittestimonyburden of proofbankruptcychapter 7 bankruptcy

testimonyburden of proofbankruptcy

Related Cases

In re Killingsworth, Not Reported in B.R., 2014 WL 6389931

Facts

Stephen Killingsworth and his ex-wife filed for Chapter 7 bankruptcy on April 30, 2008, receiving a discharge on July 30, 2008. During their marriage, significant sums of money were transferred from the ex-mother-in-law, Sandra Denman, to Killingsworth, which she claims were loans. However, Killingsworth contends these were gifts meant to support him and his ex-wife. Denman was not listed as a creditor in the bankruptcy case and claims she was unaware of it until after filing a state court lawsuit against Killingsworth in 2013.

The Mother–in–Law is not unsophisticated—having worked in cash management for a real estate company for 22 years, according to her testimony.

Issue

The main legal issue is whether the funds transferred from the mother-in-law to the debtor were loans that could be deemed non-dischargeable under section 523(a)(3) of the Bankruptcy Code.

The mother-in-law denies she is violating the discharge and asks this court to declare the non-dischargeability of her debt, pursuant to section 523(a)(3) of the Bankruptcy Code.

Rule

Under Texas law, a gift requires a delivery of possession and a donative intent, while a loan requires a contract with clear terms including repayment obligations. The burden of proof shifts to the party claiming a gift when family members are involved.

Thus, under Texas state law, the burden of proof, for establishing a gift, would ordinarily fall on the one claiming that a gift was made (i.e., here, the Former Son–in–Law).

Analysis

The court analyzed the nature of the funds transferred, determining that the evidence supported the conclusion that the transfers were gifts rather than loans. The mother-in-law's testimony was found to be less credible, and there was no evidence of a formal agreement or expectation of repayment. The court noted the lack of documentation and the informal nature of the transactions, which indicated a lack of intent to create a debtor-creditor relationship.

The court found the Former Son–in–Law more credible on these contradictory points.

Conclusion

The court concluded that the funds provided to the debtor were gifts and denied the mother-in-law's request for a declaration of non-dischargeability of her alleged debt.

The court hereby rules that the funds provided to the Chapter 7 debtor and his ex-wife prior to the April 30, 2008 bankruptcy petition date constituted gifts, not loans and, thus, the request that this court declare that the former mother-in-law has a non-dischargeable debt, pursuant to section 523(a)(3), is denied.

Who won?

The prevailing party is Stephen Killingsworth, as the court ruled in his favor, determining that the funds were gifts and not subject to non-dischargeability claims.

The court found the Former Son–in–Law to be overall more credible than the Daughter and Mother–in–Law.

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