Personal Bankruptcy Discharge and the Myth of the Unchecked Homestead Exemption

Recently one commentator suggested that methods of approval of discharge in modern bankruptcy law can be as arbitrary as the personalities of the varied judges hearing the proceedings.'Thus, the line between prudent pre-bankruptcy planning and fraudulent conveyances has become so blurred that it may no longer exist.The Eighth Circuit recently attempted to clear at least some of the murky waters of pre-filing bankruptcy conveyances.Critics charge, however, that confusion remains.The problem with planning before filing bankruptcy lies in the competing concerns of debtors and creditors.While creditors want as much of their debts paid as possible, debtors naturally want to preserve as much of their property as possible.Once debtors consult attorneys and elect to declare bankruptcy, their goal will be to shield as much of their assets as possible from the reach of their creditors.The law balances these two conflicting desires by using exemptions, which are categories of property beyond the creditors' reach.Depending on the location of the debtor, exemptions may be either state or federal in origin.The use of exemptions in pre-bankruptcy planning becomes most controversial when debtors elect to use various categories of state exemptions that are virtually limitless monetarily.As the debtor's use of exemptions grows monetarily, however, many courts find the debtor's actions closer to fraud.That gray area between wisely using generous state exemptions and fraudulently abusing them is the topic of this Comment.If the court finds that "the debtor, with intent to hinder, delay, or defraud a creditor," transferred property within a year of filing the bankruptcy petition, the court will deny the debtor's request for a discharge, 3 perpetuating his liability.The results of a court granting or denying discharge 1. Regarding debtors in two similar cases, Judge Frank Koger remarked that "[flor all practical purposes, there was only one difference in their bankruptcy cases, i.e., Dr. Tveten drew the Honorable