## Facts

- Omar A. Tveten, a Minnesota physician, personally guaranteed debts from leveraged real-estate ventures that later failed, leaving him unable to pay nearly $19 million in liabilities.
- Creditors sued as his financial condition worsened; one obtained a judgment in October 1985 for about $139,657.
- In the roughly five months before filing bankruptcy, Tveten completed 17 transactions converting nearly all non-exempt assets (about $700,000) into life-insurance and annuity contracts issued by a Minnesota fraternal benefit society.
- Minnesota law exempted benefits from fraternal benefit associations from creditor process without a monetary cap, enabling Tveten to claim the converted funds as exempt.
- On January 7, 1986, Tveten filed a voluntary Chapter 11 petition listing over $18 million in liabilities and claiming about $700,000 as exempt under the fraternal-benefit exemption.
- Tveten conceded his purpose in making the transfers was to place assets beyond the reach of creditors.

## Issues

1. Whether Tveten’s extensive prepetition conversion of non-exempt assets into exempt fraternal-benefit contracts constituted a transfer made with actual intent to hinder, delay, or defraud creditors under 11 U.S.C. § 727(a)(2)(A).
2. Whether otherwise lawful exemption planning can support denial of discharge when accompanied by extrinsic evidence of fraudulent intent.

## Decision

- The Eighth Circuit affirmed the judgment denying discharge.
- The court held the bankruptcy court did not clearly err in finding actual intent to hinder, delay, or defraud creditors under § 727(a)(2)(A).
- The court recognized that mere conversion of non-exempt property to exempt property shortly before bankruptcy is not, by itself, sufficient to deny discharge, but concluded the surrounding circumstances supported an inference of fraudulent intent.

## Legal Principles

- A debtor may generally convert non-exempt assets into exempt assets before bankruptcy, but discharge may be denied if the conversion is accompanied by actual intent to hinder, delay, or defraud creditors under 11 U.S.C. § 727(a)(2)(A).
- Actual fraudulent intent may be proven by circumstantial evidence and “badges of fraud,” including the timing, number, and scope of transfers and the debtor’s purpose in removing assets from creditor reach.
- Even when property is exempt under state law, the federal discharge remedy may be withheld based on the debtor’s intent and conduct in arranging exemptions.
- On appeal, a bankruptcy court’s finding of actual intent is reviewed for clear error, and appellate courts give substantial deference to the bankruptcy court’s credibility assessments and inferences from the record.

## Conclusion

The court upheld denial of discharge because Tveten’s rapid, near-total conversion of non-exempt assets into unlimited exempt fraternal-benefit contracts, undertaken in the face of massive liabilities and creditor actions and for the admitted purpose of placing assets beyond creditor reach, supported a finding of actual intent to hinder, delay, or defraud creditors.


Norwest Bank Neb., N.A. v. Tveten, 848 F.2d 871 (8th Cir. 1988)