In Peoplelink, LLC v. Brown,[1] Peoplelink, LLC (hereinafter referred to as the “Plaintiff”) filed suit against Michael Brown (hereinafter referred to as the “Defendant”) seeking a denial of Defendant’s bankruptcy discharge pursuant to 11 U.S.C. § 727(a)(2) as a result of an alleged fraudulent transfer of proceeds from the sale of Defendant’s primary residence with the actual intent to hinder his creditors.
By way of factual background, Plaintiff provided temporary workforce staffing solutions for various businesses. Plaintiff’s customers included Zomac Electrical Systems (hereinafter referred to as “Zomac”), an electrical subcontractor. In November 2019, Plaintiff and Zomac entered into a client services agreement whereby Plaintiff agreed to recruit, interview and assign employees to work for Zomac on a temporary basis.
Defendant had spent most of his career in the construction industry. In January 2003, Defendant and his wife purchased a residence in Frisco, Texas (the “Residence”). The Residence was designated as the Defendant’s homestead and was occupied by Defendant and his wife until its sale in July 2022.
In 2018, Defendant organized Full Boar Ventures, LLC (the “Company”), which he decided would be the business vehicle used to acquire ownership in Zomac. Shortly after the agreement between Plaintiff and Zomac was entered, the Company purchased Zomac. Within a few months after the transaction, both Defendant and the Company were insolvent and unable to keep up with their contractual obligations. In 2021, the Company’s financial condition continued to worsen and Plaintiff’s invoices were going unpaid. In May 2022, Defendant caused the Company to cease all operations. By this time, Defendant owed Plaintiff over $184,000 in unpaid fees.
Defendant consulted with a personal bankruptcy attorney in early 2022. Defendant considered selling the Residence and sheltering the sales proceeds from creditors as he was facing liability for an additional $480,000 in claims (in addition to the amount owed to Plaintiff). In July 2022, Defendant and his wife sold the Residence and used the sales proceeds to acquire an annuity (hereinafter referred to as the “Annuity”). During the period of time after the sale of the Residence and the purchase of the Annuity, Defendant stored the sales proceeds in his attorney’s trust account. It should be noted that under general circumstances, annuities are exempt from creditor seizure pursuant to Texas law.
After acquiring the Annuity, Defendant filed for bankruptcy in October 2022. In a Chapter 7 bankruptcy proceeding, a fresh financial start is provided through a discharge of indebtedness via Code Section 727. In the case at bar, Plaintiff objected to Defendant’s bankruptcy discharge because Code Section 727(a)(2)(A) provides for the denial to a Chapter 7 debtor if the debtor “with intent to hinder . . . a creditor . . . has transferred property of the debtor, within one year before the date of the filing of the [bankruptcy] petition.”[2] As such, to secure the denial of Defendant’s discharge, Plaintiff must establish: (a) a transfer of property; (b) belonging to Defendant; (c) within one year of the petition date; and (d) with intent to hinder a creditor.
In answering Plaintiff’s complaint, Defendant admitted that he used the sales proceeds from the Residence’s sale to purchase the Annuity with the actual intent to hinder his creditors. In walking back his admission, Defendant asserted that no creditor was hindered because all that occurred was the conversion one form of exempt property (the sales proceeds from the Residence) into another form of exempt property (the Annuity).
The United States Bankruptcy Court for the Northern District of Texas (hereinafter referred to as the “Court”) indicated that while Defendant’s argument was creative, it was predicated upon a faulty assumption—that at the time the Annuity was purchased, the sales proceeds from the Residence constituted exempt property.
Pursuant to Texas law, “an individual’s homestead is exempt from seizure for the claims of creditors except for encumbrances properly fixed on homestead property.”[3] To preserve an individual’s homestead protection for one who decides to sell his existing homestead and transition to a new homestead, Texas law further provides that “the homestead claimant’s proceeds of a sale of a homestead are not subject to seizure for a creditor’s claim for six months after the date of sale.”[4] This provides the individual with a sufficient amount of time to use the proceeds from the prior homestead to purchase a new homestead without facing the risk of seizure of the proceeds by creditors.[5]
The Court then indicated that “[t]he object of the proceeds exemption statute was solely to allow the claimant to invest the proceeds in another homestead, not to protect the proceeds, in and of themselves.”[6] The Court further opined that “[i]n relation to use, just as real property loses its homestead character and protection as exempt property where it is shown that there has been a cessation of the use of the property as homestead, coupled with the intent to permanently abandon the homestead with no intention to return and claim the homestead exemption, the proceeds of a sale of a homestead lose their conditional exempt status where (or to the extent that) it is shown that the homestead seller has no intention to use the proceeds to purchase new real property that will be claimed as exempt homestead property.”[7]
Plaintiff successfully established that Defendant had no intent to use any of the Residence’s sales proceeds to purchase a new homestead (which would have been protected from creditor seizure). Therefore, by the time Defendant purchased the Annuity, he had abandoned the conditional exemption applicable to the sales proceeds, causing such funds to constitute non-exempt property. As such, the Court denied Defendant’s bankruptcy discharge, leaving him on the hook to satisfy his outstanding debts.
This case demonstrates the extremely rare scenario of implementing pre-bankruptcy asset preservation planning when nothing needed to be done and Defendant would have been better protected if he simply had left well enough alone.
[1] 2026 WL 911743 (Bk. N.D. Tex., April 2, 2026).
[2] See 11 U.S.C. §727(a)(2)(A).
[3] See Tex. Prop. Code § 41.001(a).
[4] See Tex. Prop. Code § 41.001(c).
[5] Id.
[6] In re Brown, 2026 WL 911743 at *20.
[7] Id. at *20-21.
