                                In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 15-3200


IN RE: MARGARET KEMPFF,
                                                       Debtor-Appellee.
APPEAL OF: BRIAN K. FARLEY.
                     ____________________

             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
             No. 14 C 9810 — Thomas M. Durkin, Judge.
                     ____________________

  ARGUED FEBRUARY 23, 2016 — DECIDED JANUARY 30, 2017
                ____________________

   Before WOOD, Chief Judge, and SYKES and HAMILTON,
Circuit Judges.
    SYKES, Circuit Judge. Margaret Kempff’s ex-husband Bart
embezzled more than $1 million from his employer while
the two were still married. To evade detection, he attempted
to replenish the stolen funds, borrowing $400,000 from his
friend Brian Farley on the ruse that the money would be
used for a real-estate development. As security for the loan,
Bart gave Farley a third-priority lien on the couple’s home,
forging Margaret’s signature on the note and mortgage.
2                                                 No. 15-3200

    Bart’s effort to cover his tracks did not succeed. His em-
ployer discovered the embezzlement and reported it to
police; he was eventually convicted of felony theft. In the
meantime, Margaret divorced him and the couple’s home
went into foreclosure. Farley filed a cross-claim in the fore-
closure action seeking to enforce his lien, but the sale of the
home did not yield nearly enough to cover even the first
mortgage. Margaret filed for bankruptcy while the foreclo-
sure was pending, which stayed Farley’s claim.
    Farley then filed an adversary complaint challenging
Margaret’s eligibility for a Chapter 7 discharge. He claimed
that she made a fraudulent transfer after filing her bankrupt-
cy petition and made multiple false statements in her bank-
ruptcy schedules. Margaret testified at trial that these were
innocent mistakes. The bankruptcy judge credited her
testimony and rejected each of Farley’s contentions, and the
district court affirmed that decision. We do the same.
Farley’s arguments for overturning the bankruptcy judge’s
ruling are most charitably described as ill-considered. The
decision rests on the judge’s acceptance of Margaret’s testi-
mony as credible. Credibility determinations are almost
never disturbed on appeal. Farley gives us no good reason to
do so here.
                       I. Background
   Bart Kempff, an attorney, was general counsel for a luxu-
ry home builder in suburban Chicago. Over time he embez-
zled approximately $1.2 million from his employer. In early
August 2007, he launched a desperate scheme to avoid
detection by surreptitiously replenishing the stolen money.
To that end he asked Brian Farley, also an attorney, to lend
him $400,000, ostensibly for a real-estate development. In
No. 15-3200                                                    3

exchange Bart offered Farley a security interest on the real-
estate project and a second mortgage on the home he and
Margaret owned. Farley agreed.
    On August 8 Bart signed a note and mortgage, and Farley
wrote him a check for $400,000. Bart had concealed his
fraudulent activity from his wife, so Margaret wasn’t present
for this transaction. Bart assured Farley that she was willing
to sign and promised to obtain her signature on the loan
documents. He then used the money to partially restore the
stolen funds. On August 21 Bart and Margaret closed on a
bank loan secured by a second mortgage on their home. Two
days later, Bart forged Margaret’s signature on the Farley
loan documents and sent them back to Farley, clearing the
way for him to record the mortgage. Farley did so, but by
then it was third in order of priority.
   While all this was unfolding, Bart’s employer learned of
the embezzlement. On August 21—the same day he and
Margaret closed on the bank loan—Bart was fired. Things
unraveled quickly after that. Several of Margaret’s relatives
loaned the couple sizable sums in the hope that Bart could
repay his employer and avoid prosecution. To no avail; the
State’s Attorney charged him with felony theft, and he was
eventually convicted and disbarred. Meanwhile, the lender
holding the first mortgage on the couple’s home initiated
foreclosure proceedings. Farley filed a cross-claim against
Bart and Margaret in the foreclosure action, but the proceeds
of the home sale were insufficient to cover even the first
mortgage. The nonpriority lienholders received nothing. 1


1 Farley obtained an $840,000 judgment against Bart for breach of
contract and fraud.
4                                                 No. 15-3200

   While the foreclosure action was pending, Margaret filed
a petition for bankruptcy, which automatically stayed
Farley’s claim against her. Farley turned to the bankruptcy
court for relief, filing an adversary action challenging
Margaret’s eligibility for a Chapter 7 discharge. He raised
many grounds; only two remain relevant here. Farley ac-
cused Margaret of transferring property “with intent to
hinder, delay, or defraud a creditor” after the date of her
bankruptcy petition. 11 U.S.C. § 727(a)(2). He also alleged
that she “knowingly and fraudulently” made false state-
ments in her bankruptcy filings. Id. § 727(a)(4).
   The bankruptcy judge held a three-day bench trial on
Farley’s claims. Margaret testified that she did not authorize
the postpetition transfer and that the inaccurate statements
in her bankruptcy filings were innocent mistakes or misun-
derstandings. The judge credited her testimony, found that
she lacked fraudulent intent, and rejected Farley’s claims.
The district court upheld this ruling, and Farley has ap-
pealed.
                       II. Discussion
    Discharge under Chapter 7 of the Bankruptcy Code “is
reserved for the ‘honest but unfortunate debtor.’” Stamat v.
Neary, 635 F.3d 974, 978 (7th Cir. 2011) (quoting Grogan v.
Garner, 498 U.S. 279, 286–87 (1991)). Section 727(a) enforces
this reservation by “deny[ing] the privilege of discharge to
dishonest debtors.” Id. The statute lists 12 grounds for
denying a discharge. 11 U.S.C. § 727(a)(1)–(12). The chal-
lenger must establish the debtor’s ineligibility by a prepon-
derance of the evidence. Stamat, 635 F.3d at 978.
No. 15-3200                                                  5

    On appeal from a district court’s review of a bankruptcy
judge’s ruling, “we apply the same standard as the district
court, reviewing the bankruptcy court’s factual findings for
clear error and the legal conclusions of both the bankruptcy
court and the district court de novo.” In re Marcus-Rehtmeyer,
784 F.3d 430, 436 (7th Cir. 2015). A factual finding is clearly
erroneous if “although there is evidence to support it, the
reviewing court on the entire evidence is left with the defi-
nite and firm conviction that a mistake has been committed.”
Kovacs v. United States, 614 F.3d 666, 672 (7th Cir. 2010)
(quotation marks omitted).
A. Fraudulent Transfer
    A bankruptcy judge may deny a discharge if, after the
date of the bankruptcy petition, the debtor transferred or
permitted to be transferred any property of the bankruptcy
estate “with intent to hinder, delay, or defraud a creditor.”
§ 727(a)(2). Farley alleged that Margaret fraudulently per-
mitted her accountant to transfer funds to the Illinois
Department of Revenue for unpaid taxes.
    The tax payment concerned shares Margaret owned in
Steel Investment Company, a closely held company con-
trolled primarily by relatives on her mother’s side. Prior to
her bankruptcy filing, the Illinois Department of Revenue
issued a $7,288.22 levy for unpaid taxes on income from
these shares. By the time of the levy, Margaret had pledged
the shares to her uncle as security for a loan; she had also
ceded control over any income generated by the shares to
her father in return for the financial support her parents
were providing to her and her children. After she filed her
Chapter 7 petition, her bankruptcy attorney prepared a letter
informing interested parties that the automatic stay prevent-
6                                                 No. 15-3200

ed the Department of Revenue from enforcing the levy. The
letter was sent to the Department and to Richard Schoon,
Margaret’s accountant, who was also the accountant for Steel
Investment Company. When Steel Investment later ap-
proved a distribution to stockholders, Schoon consulted with
the company’s attorney and, despite the contrary instruc-
tions from Margaret’s attorney, transferred a $7,200 distribu-
tion on Margaret’s stock to the Illinois Department of
Revenue.
   The bankruptcy judge accepted Margaret’s testimony
that this transfer occurred without her knowledge, input, or
approval. Because § 727(a)(2) requires a knowing fraudulent
transfer, the judge held that this payment did not disqualify
Margaret from receiving a discharge.
   Farley doesn’t challenge the judge’s factual findings; he
argues instead that § 727(a)(2) contains no requirement that
the complaining creditor actually suffer harm. In re Krehl,
86 F.3d 737, 744 n.4 (7th Cir. 1996) (A “discharge may be
denied even if creditors did not suffer any harm.”). That’s
true, but irrelevant. Discharge is not denied unless the
complaining creditor “demonstrates by a preponderance of
the evidence that the debtor actually intended to hinder,
delay, or defraud a creditor, … [and] intent to defraud must
be actual and cannot be constructive.” Village of San Jose v.
McWilliams, 284 F.3d 785, 790 (7th Cir. 2002) (citations omit-
ted). Farley has not argued that Margaret purposely kept
herself in the dark while suspecting that her accountant
would transfer assets to a favored creditor. Nor could he; the
uncontested facts tell a different story. Margaret notified
Schoon of the bankruptcy stay and informed him that the
Department of Revenue could not enforce the levy. After she
No. 15-3200                                                        7

did so, she had no reason to think that he would transfer
assets to pay the tax debt. Farley has given us no reason to
upset the judge’s ruling.
B. Fraudulent Filings
    Farley’s other challenges fall under the rubric of
§ 727(a)(4), which withdraws discharge eligibility if the
debtor “knowingly and fraudulently” makes “a false oath or
account” in connection with the bankruptcy proceeding. A
party who opposes discharge under this provision must
prove the following: “(1) the debtor made a statement under
oath; (2) the statement was false; (3) the debtor knew the
statement was false; (4) the debtor made the statement with
fraudulent intent; and (5) the statement related materially to
the bankruptcy case.” Stamat, 635 F.3d at 978. Although
Margaret’s bankruptcy filings contained several misstate-
ments, the bankruptcy judge found that Margaret lacked
fraudulent intent. 2
    Fraudulent intent “includes intending to deceive, which
need not connote intending to obtain a pecuniary benefit.” In
re Katsman, 771 F.3d 1048, 1050 (7th Cir. 2014) (internal
quotation marks and alteration omitted). Evidence of “reck-
less disregard for the truth is sufficient to prove fraudulent
intent.” Stamat, 635 F.3d at 982. “Whether a debtor possessed
the requisite intent to defraud is a question of fact, which is
subject to the ‘clearly erroneous’ standard of review.” In re
Marcus-Rehtmeyer, 784 F.3d at 436. And because an “intent
determination often will depend upon a bankruptcy court’s

2 The bankruptcy judge also concluded that some of the inaccuracies
were immaterial. Farley challenges this ruling, but we do not need to
address it.
8                                                      No. 15-3200

assessment of the debtor’s credibility,” the reviewing court’s
deference to the bankruptcy judge’s ruling is particularly
strong in this context. In re Krehl, 86 F.3d at 743 (addressing a
challenge to discharge under § 727(a)(2)).
    Margaret testified that each misstatement in her bank-
ruptcy filings was an innocent mistake. The judge found her
testimony “very credible” and concluded that the errors
resulted from either a misunderstanding or the “utter in-
competence” of Margaret’s attorney, not any fraudulent
intent on her part. Farley carries a heavy burden to convince
us otherwise.
    The first misstatement relates to the Kempffs’ divorce set-
tlement. In her original Schedule B, which listed her personal
property, Margaret checked “None” next to the space re-
served for “[a]limony, maintenance, support, and property
settlements to which the debtor is or may be entitled.” In an
examination conducted under Rule 2004 of the Federal Rules
of Bankruptcy Procedure, Margaret admitted that this
statement was wrong: Bart technically owes her more than
$300,000 under various provisions of their divorce settle-
ment agreement. 3 She filed an amended Schedule B about a
week after this examination. Again she checked “None” in
this box. But in the space reserved for “[o]ther contingent
and unliquidated claims,” she explained that she had
“[c]laims against ex-husband Bart Kempff, pursuant to
Judgment of Marriage Dissolution” and estimated that these
claims were worth “0.00.”



3 The settlement also requires Bart to indemnify Margaret for marital
debts, including debts to her parents.
No. 15-3200                                                   9

    At trial Margaret testified that she did not include the di-
vorce settlement in her original filing because Bart hadn’t
paid her anything and she had no expectation that he would
ever do so. The judge credited this testimony, considering it
eminently reasonable for Margaret to believe that the settle-
ment agreement with her ex-husband—a disbarred, feloni-
ous fraudster who has yet to pay her “one cent” of the
amount he owes—was essentially worthless. The judge
concluded that although Margaret should have disclosed the
settlement in her original filing, she did not omit this infor-
mation with fraudulent intent.
    The second misstatement was a line item in Margaret’s
amended Schedule F listing her creditors. On this form she
listed her parents as creditors in the amount of $1.4 million.
Farley claims this statement was willfully false because
Margaret knew that her parents didn’t have the legal author-
ity to collect on this debt; it was at most a moral obligation,
not a legal debt. The bankruptcy judge discerned no fraudu-
lent intent on Margaret’s part, concluding instead that this
line item was the result of “the inexplicable and I will say
incompetent advice of [her bankruptcy attorney].”
    The third misstatement relates to Margaret’s estimates of
the value of her clothing and jewelry. In her original and
amended Schedule B, she valued this property at $500. At
trial Farley tried to prove—largely via Bart’s testimony—that
Margaret’s clothing and jewelry were worth much more
than $500. The bankruptcy judge rejected Bart’s testimony as
self-serving, unreliable, and generally incredible; the rest of
Farley’s evidence was unsubstantiated or irrelevant. With no
credible evidence about the actual value of Margaret’s
clothing and jewelry, the judge found that Farley had failed
10                                               No. 15-3200

to prove that her estimate was false, much less intentionally
and fraudulently so.
    The fourth misstatement pertains to Margaret’s estimate
of her current income in Schedule I. She originally reported
$2,000 in monthly income in the form of gifts from her
parents, who were supporting Margaret and her children
during this period. The bankruptcy judge concluded that the
actual amount was closer to $4,500 per month. But again the
judge concluded that Margaret’s lower estimate was an
innocent mistake. The difference ($2,500 per month) reflect-
ed charges Margaret made on her parents’ credit cards, and
a reasonable layperson “would not necessarily think that
charges made on somebody else’s charge card should be
included as income.” The judge also noted that Margaret
would have no motive to intentionally understate the gifts
from her parents because the accurate $4,500-per-month
figure “would not have put her anywhere close to the level
at which … there could be even a potential argument that
she should not get a discharge.”
    On this point Farley lodged a further objection: Margaret
never filed an amended Schedule I correcting this misstate-
ment. The judge attributed the omission to Margaret’s
attorney, whose “failure to suggest the amendments …
reflect[ed] a misunderstanding by him of what should be
included … or utter incompetence in not realizing that any
errors in the schedules should be corrected.” Once again, the
judge found that Margaret lacked fraudulent intent.
   The fifth and final misstatement is an item in Margaret’s
amended Statement of Financial Affairs reporting payments
made to inside creditors in the year before the bankruptcy
petition. Margaret reported a $275.35 payment to her par-
No. 15-3200                                                  11

ents; the correct figure was $3,275.35. The judge chalked this
up to a simple typographical error, not a fraudulent falsifica-
tion. The judge also noted that the payment was made more
than a year before Margaret’s bankruptcy petition and thus
did not need to be reported in the first place.
    Farley challenges each of these rulings as clear error but
offers nothing to contradict the judge’s findings. Instead he
points to several cases in which we upheld the denial of
discharge where the bankruptcy judge made specific find-
ings that the debtor fraudulently falsified submissions to the
bankruptcy court. See, e.g., Stamat, 635 F.3d 974; In re Chavin,
150 F.3d 726 (7th Cir. 1998); In re Krehl, 86 F.3d 737; In re
Yonikus, 974 F.2d 901 (7th Cir. 1992). These decisions cannot
possibly help his case; here the bankruptcy judge uniformly
found that Margaret lacked fraudulent intent. Farley also
relies on In re Katsman and In re Marcus-Rehtmeyer, but these
cases are no more helpful to him; in both cases the bankrupt-
cy judge committed legal not factual error.
   Katsman involved a debtor who admitted that she delib-
erately omitted four creditors from her bankruptcy filings.
771 F.3d at 1049. The bankruptcy judge concluded that the
debtor lacked fraudulent intent because she was not moti-
vated by pecuniary interest. Id. at 1050. That was a legal
mistake. Fraudulent intent in this context requires intent to
deceive, but the particular reason for the deception is irrele-
vant. Id. The judge here did not make a similar legal mistake.
     Marcus-Rehtmeyer is not merely irrelevant; it actually un-
dercuts Farley’s position. In that case the bankruptcy judge
accepted the debtor’s explanations for discrepancies in her
filings. We expressed some doubt about this credibility
finding but accorded it deference anyway. 784 F.3d at 436–
12                                                No. 15-3200

37. In the end we reversed the bankruptcy court’s ruling, but
not because we found clear error in the judge’s factual
findings. Rather, we held that the judge misunderstood the
debtor’s disclosure obligations under state law. Id. at 438.
    Our willingness to give the benefit of the doubt to a ques-
tionable credibility determination in Marcus-Rehtmeyer
underscores the fatal flaw in Farley’s arguments. Farley
insists that Margaret’s misstatements taken together evince
reckless disregard for the truth. But her misstatements can
just as easily be attributed to simple negligence or innocent
misunderstandings—by Margaret herself or by her attorney.
So the bankruptcy judge held. Margaret’s explanations were
not so self-evidently absurd or in tension with other evi-
dence as to call that credibility finding into question.
C. “Advice of Counsel” Defense
    Finally, Farley raises a single claim of legal error. He
maintains that the bankruptcy judge should not have al-
lowed Margaret to testify about the advice she received from
her attorney. This argument rests on Rule 8(c) of the Federal
Rules of Civil Procedure, which requires that a responsive
pleading “affirmatively state any avoidance or affirmative
defense.” Farley insists that Margaret’s testimony amounted
to an “advice of counsel” affirmative defense in violation of
Rule 8(c).
   There’s absolutely no support for this argument. Farley
had the burden of proof. Margaret was permitted to offer
evidence to rebut his claim that she made a fraudulent
transfer and filed false schedules in the bankruptcy proceed-
ing with intent to defraud a creditor. A debtor’s testimony
about advice from her bankruptcy attorney is one kind of
No. 15-3200                                               13

evidence that may tend to negate fraudulent intent. See In re
Gotwald, 488 B.R. 854, 872 (Bankr. E.D. Pa. 2013). Margaret’s
testimony about her attorney’s advice was not a disguised
affirmative defense. Rule 8(c) does not apply.
                                                  AFFIRMED.
