Hanson v. First National Bank in Brookings
United States Court of Appeals for the Eighth Circuit
848 F.2d 866 (1988)
Kenneth and Lucille Hanson (defendants), South Dakota farmers filing for Chapter 7 bankruptcy, sold vehicles and household goods to their sons for fair appraised value shortly before filing, on the advice of counsel, and used the proceeds to buy about $20,000 in life insurance and to prepay $11,033 on their homestead mortgage held by First National Bank in Brookings (plaintiff), their largest creditor. They then claimed roughly $31,000 in homestead and life-insurance exemptions under state and federal bankruptcy law. First National objected, alleging the transfers were fraudulent conveyances designed to shield assets. The bankruptcy court found no fraud and allowed the exemptions; the district court affirmed, and First National appealed.
Whether it is evidence of fraud for a debtor to sell property to family members at fair market value, retain some of it due to the circumstances of the buyers, and use the proceeds to increase the debtor's exempt property.