## Facts

- Arthur Sholdan, a 90-year-old retiree with serious medical problems, lived in an assisted-care facility.
- Sholdan became a defendant in a personal-injury suit with claimed damages allegedly exceeding his liability insurance coverage.
- Shortly after the suit, Sholdan liquidated about $162,000 in non-exempt assets (including bank accounts, certificates of deposit, and a mortgage interest in former farm property).
- Sholdan used the proceeds to purchase a house worth approximately $135,000 and instructed the builder to add finishes to increase the purchase price.
- He filed a Chapter 7 bankruptcy petition soon after purchasing the house, claimed the house as an exempt homestead under Minnesota law, and died shortly thereafter.
- The Chapter 7 trustee objected to the homestead exemption, asserting the transfer was made with actual intent to hinder, delay, or defraud creditors under Minnesota’s Uniform Fraudulent Transfer Act (UFTA), Minn. Stat. § 513.44(a)(1).
- On remand from a prior appeal, the bankruptcy court applied the statutory “badges of fraud” in Minn. Stat. § 513.44(b), found actual fraudulent intent, and sustained the trustee’s objection; the district court affirmed.

## Issues

1. Whether Minnesota’s homestead exemption may be denied in bankruptcy when the homestead was acquired through a transfer made with actual intent to hinder, delay, or defraud creditors under Minn. Stat. § 513.44(a)(1).
2. Whether the bankruptcy court properly inferred actual intent from the UFTA “badges of fraud” in Minn. Stat. § 513.44(b), and whether the finding of fraudulent intent was clearly erroneous.

## Decision

- The Eighth Circuit affirmed.
- Minnesota’s homestead exemption does not protect a homestead acquired through a transfer made with actual intent to hinder, delay, or defraud creditors under Minn. Stat. § 513.44(a)(1).
- The bankruptcy court properly relied on the statutory badges of fraud to infer intent, and its finding of actual fraudulent intent was not clearly erroneous.
- The homestead exemption was denied, making the house available for creditors.

## Legal Principles

- In bankruptcy, the availability and scope of a state-created exemption are determined by state law, even though federal law permits use of state exemptions.
- Minnesota’s UFTA, Minn. Stat. § 513.44(a)(1), limits the homestead exemption when property is transferred with actual intent to hinder, delay, or defraud creditors.
- Actual fraudulent intent may be inferred from circumstantial evidence using the nonexclusive statutory “badges of fraud” listed in Minn. Stat. § 513.44(b).
- Converting non-exempt assets into exempt property may be permissible in general, but exemption claims fail when the conversion is accompanied by actual intent to hinder, delay, or defraud creditors.
- Appellate review of a bankruptcy court’s intent finding is deferential; a supported finding of fraudulent intent is upheld unless clearly erroneous.

## Conclusion

The court upheld denial of a claimed Minnesota homestead exemption where the debtor rapidly converted substantial non-exempt assets into a new homestead after litigation exposure and immediately before bankruptcy, and the surrounding circumstances supported an inference of actual intent to hinder, delay, or defraud creditors under Minnesota’s UFTA.


In re Sholdan, 217 F.3d 1006 (8th Cir. 2000)