We last visited the story of Dustin Wheeler in my article, Debtor’s Fraudulent Transfers Within One Year Of Bankruptcy Filing Leads To Disaster In Cadlerock (Oct. 26, 2024).This involved the U.S. District Court for the Western District of Oklahoma ― my old haunts back in the 1990s ― denying Wheeler’s bankruptcy discharge because his pre-petition transfers of two properties to his Oklahoma wealth preservation trust (“WPT”), which is Oklahoma’s variant of a domestic asset protection trust (“DAPT”). These transfers violated Bankruptcy Code § 727(a)(2)(A) which require a discharge to be denied if the debtor made a fraudulent transfer in the one-year period preceding the commencement of a bankruptcy case.
Wheeler appealed the denial of his discharge to the U.S. Court of Appeals for the Tenth Circuit, which resulted in the opinion that is of this article’s interest in Cadlerock III, LLC v. Wheeler (In re Wheeler), 2025 WL 2651279 (10th Cir., Sept. 16, 2025).
The court first noted that the party objecting to the debtor’s discharge must prove that the debtor, within one year of the bankruptcy petition, transferred or secreted property of the estate with the intent to defeat a creditor. To prove the debtor’s intent, the court looks at the surrounding facts and circumstances of each case, including:
“(1) a debtor’s concealment of prebankruptcy asset conversions;
“(2) the conversion of assets immediately before filing a bankruptcy petition;
“(3) the gratuitous transfer of property;
“(4) the continued use of that transferred property; and
“(5) the transfer of property to family members.”
Wheeler argued that his transfers were proper because he was replenishing his trust after it had made a distribution to his now ex-spouse, and these transfers were made on the advice of his counsel. Wilson also argued that the value of the property transferred was very small (“de minimis”) in relation to the totality of his debts.
The court first took up the issue of whether Wheeler’s replenishing of his Oklahoma WPT provided an excuse for his pre-petition transfers. On this point, the court noted that Oklahoma had amended its WPT statute so that replenishment of such a trust was no longer necessary. At any rate, the Oklahoma WPT statute expressly stated that transfers made thereunder were subject to the Oklahoma Uniform Fraudulent Transfers Act (“UFTA”). Thus, it did not matter that Wheeler categorized his transfers as “replenishment” since they were still a fraudulent transfer.
Nor did it matter that Wheeler made his transfers on the advice of counsel. What apparently happened is that Wheeler did not tell his attorney about a judgment against him when seeking advice about the transfers, and of course the existence of an unpaid judgment would likely have factored into an attorney’s advice as to whether a transfer could be in defraud of creditors.
The court next considered Wheeler’s argument that, compared the amount of its debts, the transfers were of assets of little value. This is the “de minimis” argument. It didn’t fly.
The court stated that while the value of the assets transferred may be taken into account in determining the debtor’s intent in transferring assets pre-petition, a small value was not dispositive. The important thing was the debtor’s intent, and if the debtor intended to diminish the rights of creditors then any amount of property could satisfy § 727(a)(2)(A).
The bottom line was that the 10th Circuit agreed with the District Court that Wheeler should be denied his discharge because of his pre-petition transfers. Thus, the decision of the District Court was affirmed.
ANALYSIS
This case illustrates the extreme danger confronting debtors who make transfers in the one-year prior to the commencement of their bankruptcy case. Even a low-dollar transfer can result in the denial of a discharge if made under suspicious circumstances ― and particularly to any form of trust.
I frequently get asked by debtors something like, “Can I still continue to make my annual contributions to a trust like I’ve made every year for the last 10 years?” If they have ongoing creditor issues, the answer is firmly in the negative. A debtor has no right to continue to fund a trust with annual contributions if creditors will be disadvantages. To make such transfers risks (if not guarantees) denial of discharge if later the debtor lands in bankruptcy. As this case shows, it matters not that the assets being transferred are only minute in value compared to the total amount of indebtedness.
This case also illustrates a limit of advice of counsel, which is that the advice is worthless unless the attorney is advised of every material fact before rendering that advice. Withholding key information from the attorney means the advice will be worthless.
Might as well not bother.