Justia U.S. 4th Circuit Court of Appeals Opinion Summaries

Appellee, trustee for the Chapter 7 bankruptcy estate of debtor, brought suit against various defendants to avoid a series of transfers of an 11.8 acre parcel of real property in Maryland originally owned by the debtor. By consent orders, the trustee accomplished avoidance of the property's initial and second transfers but trial proceeded against the third transferee, appellant. The bankruptcy court entered judgment in favor of the trustee and avoided the transfer pursuant to 11 U.S.C. 550(b). At issue was whether appellant took in good faith and without knowledge of the voidability of the transfer, thereby satisfying the section 550(b)(1) defense. The court held that the bankruptcy court applied the correct legal standard of objective good faith and affirmed its findings that facts known to appellant would have lead a lender under the circumstances to inquire as to the public record. The court found that appellant did not have knowledge of the voidability of the transfer because it was willfully ignorant in the face of facts which cried out for investigation and such a transferee could not have taken in good faith. Accordingly, the bankruptcy court's order was affirmed.

Plaintiffs appealed the judgment of the district court affirming the bankruptcy court's decision to dismiss their petition for Chapter 7 bankruptcy on grounds of abuse. At issue was whether the bankruptcy court erred in its finding that plaintiffs were able to pay their creditors based on the totality of the circumstances of their financial situation. The court affirmed and held that the evidence amply supported the bankruptcy court's findings of abuse where the court need not depend on the additional amount in Social Security benefits to determine that plaintiffs' excessive budge and unjustifiable expenses were an abuse of Chapter 7.