Opinion
Nos. 4871, 4879.
January 31, 1933.
Appeals from the District Court of the United States for the Western District of Wisconsin; F.A. Geiger, Judge.
Proceedings in the matter of Charles A. Beggs, a bankrupt. From an order of the District Court reversing an order of the referee in bankruptcy dismissing the petition of Harry F. Moors, trustee in bankruptcy, to require the bankrupt and others to turn over certain salary collected by bankrupt, the bankrupt appeals; and from an order denying the application of the bankrupt for discharge upon objection of the First National Bank of Rice Lake, Wis., the bankrupt appeals.
Orders affirmed.
Howard J. Lowry, of Madison, Wis., for appellant.
Laurence S. Coe, of Rice Lake, Wis., for appellee.
Before EVANS and SPARKS, Circuit Judges, and WILKERSON, District Judge.
The two appeals were heard together.
Appellant executed a voluntary petition in bankruptcy on February 19, 1931 and filed it on the next day. He scheduled as assets: Liberty bonds, $200; clothing, $200; equity in automobile, $14. Under the law of Wisconsin these were exempt. He scheduled also an insurance policy which he stated has no cash value. The schedules also showed that on the day on which the petition was executed he paid to the law firm of Lowry Beggs, of which his son was a member, $35 as fees in the bankruptcy case, and assigned to them on account of such fees $170 due to him for salary as a member of the Wisconsin Assembly. Prior thereto the First National Bank of Rice Lake had obtained a judgment against the bankrupt, and on November 11, 1930, had filed the same under 304.21 Wisconsin R.S., known as the quasi garnishment law. The assignment of salary was filed with the secretary of state on February 20, 1931. A check for the salary, however, was made by the secretary of state to the order of the bankrupt, who turned over the proceeds to Lowry Beggs after the filing of the petition in bankruptcy.
The trustee applied for an order on the bankrupt and Lowry Beggs to turn over to him the amount of salary collected by the bankrupt after the execution of the assignment. The referee dismissed the petition without prejudice to the right of the trustee to file a new petition against Lowry Beggs for the purpose of determining the reasonableness of the amount paid to them. The District Court reversed this order, and directed that the fund be turned over to the trustee.
The First National Bank of Rice Lake objected to the application of the bankrupt for a discharge on the ground, among others, that the bankrupt had concealed assets with intent to hinder, delay, and defraud his creditors. It was shown that the insurance policy scheduled had a surrender value of $583. On February 17, 1931, the bankrupt borrowed $550 from the insurance company on the policy. A part of this money was used by the bankrupt to purchase the Liberty bonds and clothing which were claimed as exemptions. After the loan the insurance policy had a cash value of $33. The District Court denied the application for a discharge.
We think that the District Court ruled correctly as to both matters covered by the appeals.
The salary came into the hands of the bankrupt and his attorneys after the filing of the petition in bankruptcy. It should have been turned over to the trustee, and the attorneys should have filed their petition to have their fees fixed. Their position that, having seized the money, the trustee should be required to file a petition to test the reasonableness of their fees is not tenable.
The record, in our opinion, sustains the refusal to grant a discharge. The case does not turn on the right of the bankrupt to exchange nonexempt property for exempt property. The question here is one of good faith. This court (In re Breitling, 133 F. 146, 148) said: "A discharge from one's debts is a privilege created by the bankruptcy act upon condition of a surrender to creditors of all the property of the bankrupt, except such as is exempted from execution by the law of his domicile. There must therefore be entire good faith upon the part of the bankrupt. He must surrender his property fully. He may not retain that which should go to his creditors. * * * If it be doubtful whether a specific item of property should go to creditors or be reserved by the bankrupt, it is not for him to constitute himself the judge, concealing the fact, but it is his duty to disclose the transaction, that the bankruptcy court may determine the right."
Instead of making oath that the insurance policy had no cash value, the bankrupt should have made a full disclosure as to the conditions of the policy, its value, the fact of his loan and the investment of the proceeds, and have brought before the court by appropriate petition his claim for exemptions. His attempt to constitute himself the judge in his own case under all the facts disclosed by this record made it proper for the court to close against him the door of relief.
The judgments should be, and are, affirmed.