## Facts

- The Village of San Jose condemned a dilapidated two-story brick building owned by Daniel and Ida McWilliams and warned that, if not repaired or demolished, the Village would demolish it and seek costs.
- The Village obtained a state-court order authorizing demolition and granting the Village a lien on the condemned property to secure demolition costs.
- Within one year before filing for Chapter 7 relief, the McWilliamses executed deeds transferring four other Village properties to their grandchildren for nominal consideration (“One ($1.00) Dollar and Love”).
- The McWilliamses retained possession of the deeds and did not initially disclose the four transferred properties as assets in their bankruptcy schedules.
- After the Chapter 7 filing, Daniel McWilliams admitted the transfers when questioned by the bankruptcy trustee.
- After the transfers were disclosed and after the Village objected to discharge, the grandchildren reconveyed the four properties back to the McWilliamses.
- The bankruptcy court granted a discharge, reasoning that the debtors’ post-petition disclosure and reconveyance negated any earlier wrongful intent; the district court affirmed.

## Issues

1. Whether a debtor who, within one year pre-petition, transfers property with intent to hinder, delay, or defraud a creditor is barred from discharge under 11 U.S.C. § 727(a)(2) notwithstanding post-petition disclosure and reconveyance of the property.
2. Whether the bankruptcy court may treat post-petition “remedial” conduct as a defense that negates the debtor’s pre-petition intent and transfer for purposes of § 727(a)(2).

## Decision

- The Seventh Circuit reversed the judgment affirming the discharge and remanded.
- The court held that the debtors’ post-petition disclosure and reconveyance did not negate or cure a § 727(a)(2) violation established by a pre-petition transfer made with prohibited intent.
- The court concluded that the record supported a finding of actual intent to hinder, delay, or defraud, based on common indicators of fraud: insider transferees (grandchildren), nominal consideration, retention of control (keeping the deeds), and timing after the Village’s enforcement actions and lien.

## Legal Principles

- Under 11 U.S.C. § 727(a)(2)(A), discharge must be denied if the debtor, within one year before filing, transferred or concealed property with intent to hinder, delay, or defraud a creditor.
- Fraudulent intent under § 727(a)(2) may be inferred from “badges of fraud,” including transfers to family members for inadequate consideration, retention of control, and timing in relation to creditor collection pressure or litigation.
- Section 727(a)(2) is triggered by the debtor’s pre-petition conduct and intent within the statutory lookback period; later cooperation, confession, or reconveyance does not create a textual or equitable exception to the discharge bar.
- Post-petition remedial steps may bear on other matters (e.g., credibility), but they do not erase the historical fact of a pre-petition fraudulent transfer for § 727(a)(2) purposes.

## Conclusion

The Seventh Circuit held that a debtor cannot avoid denial of discharge under § 727(a)(2) by later disclosing and unwinding a pre-petition transfer made with intent to hinder, delay, or defraud a creditor; once the statutory elements are met, post-petition remediation does not cure the violation.


Village of San Jose v. McWilliams, 284 F.3d 785 (7th Cir. 2002)