Hanson v. First National Bank In Brookings

848 F.2d 866 (1988)


Ps filed a voluntary joint bankruptcy petition pursuant to Chapter 7. D had loaned money to Ps who were farmers. Before filing, Ps consulted an attorney. On the advice of counsel, Ps had appraised and sold certain of their property which would not be exempt under South Dakota law. They sold to their son, Ronald, a car, two vans, and a motorhome for a total of $27,115, the amount for which the property was appraised. Ronald obtained the monies from a bank loan. Ps also sold some of their household goods and furnishings to another son, Allen Hanson, for $7,300, the appraised value. Ps then used these proceeds to purchase life insurance policies with cash surrender values of $9,977 and $9,978 and, two days before filing their petition, prepaid $11,033 on their homestead real estate mortgage which was held by D. In South Dakota law, a debtor may exempt the proceeds of life insurance policies up to a total of $20,000, and the homestead was also exempt. D objected to Ps' taking non-exempt property and converting it to exempt property on the eve of bankruptcy.  D asserted that none of the property was transferred to the buyers. Ps testified that the vehicles sold to their son, Ronald, were stored at their home because Ronald still lived with them while he was working part-time and attending school part-time. Ps did use the vehicles but did so only with express permission of their son. Ronald subsequently sold the motorhome to a third party. The household goods and furnishings were stored in Ps' home because Allen was living in Anchorage, Alaska, and could not retrieve the property immediately after the sale. The bankruptcy court denied D's motion, which objected to the exemptions. The court found that the Ps had done what was permissible under the law and that their actions did not constitute extrinsic evidence of fraud. D appealed, and the district court affirmed. D appealed.