By: Scott B. Riddle, Esq.

In re Hamblen, Case No. 05-95215, 2006 Bankr. LEXIS 2803 (Bankr. N.D. Ga. September 1, 2006)(Bihary).  The debtors engaged in a series of misconduct both prior to, and during, their bankruptcy case.  This included, but is not limited to, transferring $200,000 to a relative while maintaining control over the funds, pawning estate property (vehicles) post-petition, failing to cooperate with the trustee, misrepresentations on their schedules and at the 341 meeting, and several other acts (described in detail in the opinion).  This conduct led to additional expenses incurred by the trustee and counsel, and he moved to surcharge the debtors’ exemptions to recoup some of these expenses. 

Judge Bihary found that the unusual circumstances of the case warranted a surcharge of the debtors’ homestead and vehicle exemptions and that the court had the authority to fashion such a remedy.  However, the Court could not determined whether, on the facts presented, certain IRA accounts were property of the estate and subject to a surcharge.  Finally, the Court found that the Trustee’s complaint objecting to discharge pursuant to § 727 did not preclude the Trustee’s request for surcharge based on the election of remedies doctrine.

Note: Debtors’ discharge was subsequently denied pursuant to §727.

Amended 1/2/07 to add: See also In re Hamblen, Case No. 05-95215, 2006 Bankr. LEXIS 3241 (Bankr. N.D. Ga. September 18, 2006)(Bihary).  Order requires debtors to cooperate with Trustee (after prior failure to cooperate and comply with previous order) and appear for hearing on civil contempt.  See also June 2006 Order denying Debtors’ Motion to Dismiss after conversion and appointment of trustee.