Village of San Jose v. McWilliams

Daniel and Ida McWilliams (debtors) owned properties in the Village of San Jose, Illinois (the village) (creditor). In January 1999, the village condemned one of the McWilliamses’ buildings and told the McWilliamses to repair or demolish the building. The McWilliamses failed to comply, so in July 1999, the village obtained a court order permitting the village to demolish the building at the McWilliamses’ expense. The court granted the village a lien on the property to satisfy the demolition costs. In September 1999, the McWilliamses conveyed four other properties to their grandchildren in exchange for “One ($1.00) Dollar and Love” but kept the deeds to the properties. In March 2000, the McWilliamses filed a voluntary bankruptcy petition. Daniel admitted to the property transfers in response to questioning by the bankruptcy trustee. The village objected under 11 U.S.C. § 727(a)(2) to the discharge of the village’s lien, asserting that the McWilliamses had defrauded the village by transferring the properties within one year of filing their bankruptcy petition. The McWilliamses’ grandchildren subsequently reconveyed the properties to the McWilliamses. The bankruptcy court granted the discharge of the lien, finding that the McWilliamses’ disclosure of the transfer and recovery of the properties negated their prepetition conduct. The district court affirmed the bankruptcy court’s ruling, and the village appealed.