In Re Alan Bernard, Linda Bernard, Debtors. Alan Bernard, Linda Bernard v. Clement Sheaffer, Mary Sheaffer

Dissent — O'Scannlain

O’SCANNLAIN, Circuit Judge, dissenting:

Because I am not persuaded that the Ber-nards “disposed of’ or “parted with” property, I respectfully dissent.

Section 727 is at the heart of the Bankruptcy Code’s provisions designed “to relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.” Williams v. U.S. Fidelity Co., 236 U.S. 549, 554-55, 35 S.Ct. 289, 290, 59 L.Ed. 713 (1915), quoted in In re Devers, 759 F.2d 751 (9th Cir.1985). As such, it is “construed liberally in favor of the debtor and strictly against those objecting to discharge.” In re Adeeb, 787 F.2d 1339, 1342 (9th Cir.1986).

The majority is correct to observe that the definition of “transfer” in the Bankruptcy Code is very broad; it would be a mistake, however, to read it even more broadly than it is written. “ ‘[Tjransfer’ means every mode ... of disposing of or parting with property or with an interest in property....” 11 U.S.C. § 101(54). If there is no “disposing of’ or “parting with” property, then there is no transfer. The question in this case is whether the simple act, without more, of withdrawing money from bank accounts and money market accounts is “disposing of’ or “parting with” property.

When the Bernards withdrew money from their own accounts in early 1991, they did not relinquish an interest in property; they merely changed the location of identifiable cash funds. No third party gained an interest in the cash, and the total value of the Bemards’s assets did not change. Just as a transfer would occur neither when a debtor breaks a twenty-dollar bill into two ten-dollar bills nor when he cashes his paycheck at his employer’s bank, no transfer occurred here. The cash received by the Bernards was exactly equivalent to and easily identifiable as the sums previously deposited in their accounts.

The majority breaks with the Seventh Circuit in interpreting section 727(a)(2), claiming that this court’s decision in In re Adeeb, 787 F.2d 1339 (9th Cir.1986), controls. With respect, I read Adeeb as holding only that “lack of injury to creditors is irrelevant for purposes of denying a discharge in bankruptcy.” Id. at 1343. In contrast to the case before us, however, Adeeb dealt with an unambiguous transfer of property to third parties, followed by a re-transfer back to the debtor. Id. at 1341-42. Adeeb says nothing about whether there must be injury to creditors for a transfer to occur; the first transfer did indeed harm Adeeb’s creditors. Adeeb merely held that later retransfers were not a defense to a denial of discharge.

The Seventh Circuit has addressed directly whether a transfer can occur if a transaction did not harm creditors. In Matter of Agnew, it held that “to justify the refusal of dis*1284charge under a section 727(a)(2) transfer, ‘it must be shown that there was an actual transfer of valuable property belonging to the debtor which reduced the assets available to creditor and which was made with fraudulent intent.’ ” Matter of Agnew, 818 F.2d 1284, 1289 (7th Cir.1987) (quoting 4 Collier on Bankruptcy, ¶ 727.02[5] (15th ed. 1986)).

The Agnew approach is consistent with decisions of bankruptcy courts in this circuit. For example, in In re Harris, 101 B.R. 210 (Bankr.S.D.Cal.1989), a bankruptcy court concluded that a debtor did not “transfer” property when he conveyed assets to a trust naming the debtor as sole beneficiary because “the assets were no less susceptible under the Trust to the claims of the Debtors’ creditors than they would have been had no trust ever been created.” Id. at 216. See In re Garcia, 168 B.R. 403, 407 (D.Ariz.1994) (recording declaration of homestead is not a transfer because there was no reduction of assets available to creditor).

It seems to me that debtors should not be punished for transferring assets available to creditors unless the record establishes that they are actually disposing of or parting with those assets. The bankruptcy court found only that the Bernards withdrew $44,010.61 from a money market account and $20,000 from a checking account in early 1991; it made no findings as to what happened to the money after that and the testimony was controverted.

Based on the record in this ease, the only question before us is whether the withdrawals, as such, were “transfers” as a matter of law. On this issue, I respectfully dissent from the majority’s opinion.