Funds in Joint Account Belong Solely to Non-Debtor

Posted by NCBRC - July 27, 2016

Where the non-debtor co-owner of a joint account was responsible for all the funds in the account at the time the debtor filed her bankruptcy petition, the funds were not part of the bankruptcy estate. In the Matter of Thornton, No 11-13222 (Bankr. N.D. Ga. March 25, 2016).

In anticipation of getting married, the debtor, Verna A. Thornton, and Chuck Sylvester opened a joint checking account into which they each made deposits and withdrawals intended to cover their respective living expenses. A medical malpractice judgment creditor of Ms. Thornton sought a Writ of Garnishment against that account. The credit union turned over the funds, totaling approximately $6,700.00, to the state court. When Ms. Thornton filed chapter 7 bankruptcy, the funds were turned over to the trustee and Mr. Sylvester brought an Assertion of Superior Claim in the bankruptcy court. The trustee opposed the claim arguing that the funds were part of the bankruptcy estate.

State law governed the question of whether, at the time Ms. Thornton filed for bankruptcy, the funds belonged to her, thereby becoming part of the bankruptcy estate under section 541(a)(1), or to Mr. Sylvester.

Under Georgia law, a joint account belongs to the owners in proportion to their contributions to the account. In this case, it was undisputed that the entire amount was attributable to funds deposited into the account by Mr. Sylvester. The court, therefore, turned to whether it was his intention to make those deposits a “gift” to Ms. Thornton, noting that state law creates a presumption against gifts.

The trustee argued that because Ms. Thornton was free to make withdrawals from the account, the deposits by Mr. Sylvester constituted gifts. The court, however, found that evidence did not rise to the level of clear and convincing proof to overcome the presumption against gifts. Rather, the court was persuaded by the parties’ testimony that they intended that they would each contribute to the account, not as gifts to the other, but to cover their own expenses. Though Mr. Sylvester had made only deposits and no withdrawals in the relatively short time (6 months) the account had been opened, that did not change the intended purpose of the account. Thus, the court held that the trustee had failed to overcome the presumption that Mr. Sylvester owned the funds in the account.

The court granted Mr. Sylvester’s Assertion of Superior Claim and ordered the trustee to turn the funds over to him.

Thornton Bankr ND Ga opinion March 2016



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