Hanson v. First National Bank in Brookings

Kenneth and Lucille Hanson (defendants), farmers in South Dakota, filed a Chapter 7 bankruptcy petition. Upon the advice of an attorney prior to the filing, the Hansons sold a car, two vans, and a motor home to their son Ronald for $27,115, which was the appraised value of the vehicles. They sold household goods and furnishings to their son Allen for $7,300, the appraised value. Ronald took out a bank loan to purchase the vehicles. He sold the motor home and kept the proceeds. The other vehicles were stored at his parents’ home, where Ronald still lived. The parents continued to use the vehicles from time to time but only upon express permission from Ronald. The items sold to Allen were also kept at the Hansons’ home until Allen, who lived in Alaska, could retrieve them. With the proceeds from the sales to their sons, Kenneth and Lucille Hanson purchased two life insurance policies valued at just under $20,000. Two days before the bankruptcy filing, they prepaid $11,033 on their homestead mortgage, which was held by First National Bank in Brookings (First National) (plaintiff). First National was the Hansons’ largest creditor. In accordance with state and federal law, the Hansons sought to exempt their life insurance and homestead from the reach of creditors in the bankruptcy. The exempt property claimed by the Hansons totaled approximately $31,000. First National objected to the claimed exemptions, alleging that they resulted from fraudulent conveyances. The bankruptcy court found no evidence of fraud and allowed the exemptions. The district court affirmed. First National appealed.