            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT United States Court of Appeals
                                                    Fifth Circuit

                                                                             FILED
                                                                          February 6, 2008

                                            No. 06-20234                Charles R. Fulbruge III
                                                                                Clerk

In The Matter Of: ANTHONY DELL UNRUH; SUE NELL UNRUH

                                                          Debtors
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ANTHONY DELL UNRUH; SUE NELL UNRUH

                                                          Appellants
v.

RODNEY TOW, Ch 7 Trustee

                                                          Appellee



                      Appeal from the United States District Court
                           for the Southern District of Texas


Before GARWOOD, JOLLY, and STEWART, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:*
        Anthony and Sue Unruh moved in the bankruptcy court to amend their
exemptions to claim Texas state exemptions instead of the federal exemptions
they had claimed under the Bankruptcy Code. The court denied their motion,
finding bad faith and prejudice to the creditors, largely based on the


        *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
                                    No. 06-20234

understatement and concealment of the value of their assets. The district court
affirmed. Finding no error, we AFFIRM.
                                         I.
      The debtors, Anthony and Sue Unruh, purchased approximately 70 acres
in Dickinson, Texas in August 2002 for $197,800. They built a home on the
property that November for $178,190. The Unruhs’ total investment in the
property, including other minor improvements, was around $386,370. First
Community Bank provided the Unruhs’ construction loan and arranged
permanent financing for the property. In the process, First Community obtained
an appraisal for the house and the surrounding 30 acres at a value of $350,000.
First Community provided financing for the remaining 40 acres of the property
but sought another lender to finance the house and 30 acres. Bank of America
provided the financing for the house and surrounding 30 acres in a separate
loan, closing on April 19, 2004.1
          On April 22, 2004, the Unruhs filed a voluntary petition for bankruptcy
under chapter 7. The Unruhs listed the entire 70 acres, including their house,
on Schedule A for real property at a current market value of $330,000. They
listed secured claims on the property of $326,832. On Schedule C, the Unruhs
claimed federal exemptions under 11 U.S.C. § 522(b)(1), claiming an exemption
for their equity in the property under the homestead exemption. They used part
of the remaining homestead exemption to exempt other property under the
wildcard provision of 11 U.S.C. § 522(d)(5). Listed in the other claimed property
was the Unruhs’ 100 percent interest in their plastic fabrication company, Nell
International. Nell International’s value was listed at $1000, the par value of
the stock.


      1
        At the time of the Unruhs’ bankruptcy filing, the secured debt held by Bank of
America totaled $255,800 and the secured debt held by First Community totaled $71,032.
Together, the total debt secured by the property was $326,832.

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      On December 23, 2004, the trustee applied to have a realtor sell the
homestead property. The same day, the Unruhs filed an Amended Schedule C,
listing the same values for the homestead property and exemption and
continuing to exempt Nell International. On January 19, 2005, the trustee filed
an Objection to Debtor’s Claim of Exemptions. On Janurary 21, the Unruhs filed
a Motion for Abandonment of Homestead or in the Alternative Request for Leave
to Amend Exemptions. The trustee then filed an objection to that motion. The
realtor obtained an offer, dated February 7, from another trustee to purchase
the property for $700,000. The offer did not close. On February 9, the Unruhs
filed a second Amended Schedule C listing the homestead property’s market
value at $700,000, claiming an exemption for 100 percent under Texas state law
exemptions, and no longer claiming an exemption for their interest in Nell
International. The trustee filed another objection to this claim of exemptions.
      The bankruptcy court denied the Unruhs’ motion to abandon the
homestead or amend exemptions. The bankruptcy court found that the Unruhs
intentionally undervalued their property, that their conduct constituted bad
faith, and that allowing the amendment would prejudice the Unruhs’ creditors.
The Unruhs appealed to the district court. The district court entered a final
judgment affirming on January 30, 2006. From this judgment, the Unruhs
appeal pro se.
                                      II.
      The Unruhs contend that the bankruptcy court erred by denying their
motion to amend their exemptions. They argue that the bankruptcy court’s
finding of bad faith is not supported by the evidence and that allowing them to
amend their exemptions would not prejudice their creditors.
                                      III.
      Our review of the record is fully convincing that the bankruptcy court did
not commit clear error in finding that the Unruhs completed their exemption


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schedules in bad faith. The Unruhs’ motion to amend was therefore properly
denied. Because the bankruptcy court’s finding of bad faith is sufficient to deny
the Unruhs’ motion to amend, we do not address the finding that creditors would
be prejudiced.
      In reviewing cases originating in bankruptcy, we perform the same
function as the district court: findings of fact are reviewed under the clearly
erroneous standard and conclusions of law are reviewed de novo. Barron v.
Countryman, 432 F.3d 590, 594 (5th Cir. 2005). The Supreme Court has stated:
“A finding is ‘clearly erroneous’ when although there is evidence to support it,
the reviewing court on the entire evidence is left with the definite and firm
conviction that a mistake has been committed.” United States v. United States
Gypsum Co., 333 U.S. 364, 395 (1948). Strict application of the clearly erroneous
standard is appropriate where the district court has affirmed the bankruptcy
court’s findings of fact. In re Young, 995 F.2d 547, 548 (5th Cir. 1993). We are
particularly mindful that the bankruptcy court has the opportunity to judge the
credibility of the witnesses. In re Bradley, 501 F.3d 421, 434 (5th Cir. 2007).
“Moreover, when the bankruptcy court’s weighing of the evidence is plausible in
light of the record taken as a whole, a finding of clear error is precluded, even if
we would have weighed the evidence differently.” Id.
      Amendments to exemptions are generally allowed liberally under Federal
Rule of Bankruptcy Procedure 1009. However, leave to amend may be denied
“if there is a showing of the debtor’s bad faith or of prejudice to the creditors.”
In re Williamson, 804 F.2d 1355, 1358 (5th Cir. 1986). A finding of bad faith
requires some form of deception, such as an effort to mislead creditors or to
conceal assets, as opposed to a mere mistaken failure to list an asset or to claim
an exemption. See McFatter v. Cage, 204 B.R. 503, 508 (S.D. Tex. 1996).
      The Unruhs incorrectly contend that nothing short of concealment of an
asset itself may constitute bad faith. Bad faith may also be shown by a gross

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and deliberate understatement of the value of an asset, made in an attempt to
deceive creditors or the bankruptcy court. See In re Hannigan, 409 F.3d 480,
484 (1st Cir. 2005) (affirming a finding of bad faith where debtor had
intentionally undervalued property by listing value for only one of two parcels);
In re Bauer, 298 B.R. 353, 356 (8th Cir. BAP 2003) (affirming a finding of bad
faith where debtors substantially undervalued their home in schedules).
      In this case, the bankruptcy court found that the Unruhs deliberately
failed to disclose the accurate value of their real property; stated another way,
the Unruhs filed schedules under oath that deliberately and significantly
understated the value of their assets.       The court found that the Unruhs’
testimony regarding their exemptions lacked credibility on the whole. Without
making a finding of the actual value of the property at issue, the court found
that the Unruhs knew from the beginning of the case that their property was
significantly more valuable than they listed on their schedules. The court found
credible evidence that the Unruhs had been provided with a final appraisal
indicating the higher value of the property around the time of the refinancing of
the property, which occurred only a few days before the Unruhs filed for
bankruptcy protection. In sum, the bankruptcy court found, on the totality of
the circumstances, that the Unruhs “1) failed to answer the Trustee’s questions
honestly at the § 341 meeting, 2) failed to correct the valuation in their first
amended Schedule C, 3) waited nine months before providing an accurate
Schedule C, and 4) gave inconsistent and perhaps untruthful testimony to the
Court.” The court therefore found that the Unruhs had engaged in active
concealment of assets of the estate.
      The Unruhs contend that the bankruptcy court erred by basing its finding
of bad faith on appraisals that were never entered into evidence or entered for
purposes other than to show the actual value of the property. Although the court
did list several appraisals in its opinion, it did not make any finding of the actual

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value of the property. It found instead, based on the totality of the evidence,
including the credibility of the Unruhs’ testimony, that the Unruhs knew at the
time they completed their schedules that the value of the property was
substantially higher than the value they chose to list.
                                      IV.
      In conclusion, we cannot say that the court was mistaken in its factual
findings. Substantial evidence was presented that, at the time they completed
their initial schedules, the Unruhs were aware of appraisals and other
indications that their property was worth significantly more than they listed.
The bankruptcy court’s finding that the Unruhs engaged in active concealment
of assets of the estate is supportable in the light of the evidence, taken as a
whole. We therefore will not disturb the bankruptcy court’s finding.
      Based on the finding that the Unruhs engaged in deception and active
concealment of the value of their real property, which constituted bad faith, the
judgments of the bankruptcy and district courts denying the Unruhs’ motion to
amend their exemptions are
                                                                   AFFIRMED.




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