Frederick Sims McRae v. Acting U.S. Trustee - Discharge Denied

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Feb. 20, 2026 Get Citation Alerts Download PDF Add Note

In re: Frederick Sims McRae v. Matthew W. Cheney, Acting United States Trustee for Region Four

United States Bankruptcy Court, E.D. Virginia

• Citations: None known
• Docket Number: 25-07004

• Precedential Status: Unknown Status

• Opinion

• Authorities (33)

• Cited By (0)

• Summaries (0)

• Similar Cases (62.2K)

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Trial Court Document

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF VIRGINIA
NORFOLK DIVISION

)
In re: )
)
FREDERICK SIMS MCRAE, )
) Case No. 24-71950-FJS
Debtor. )
_______________________________________)
)
MATTHEW W. CHENEY, ACTING UNITED )
STATES TRUSTEE FOR REGION FOUR, )
) APN 25-07004-FJS
Plaintiff, )
)
v. )
)
FREDERICK SIMS MCRAE, )
) Chapter 7
Defendant. )
_______________________________________)
MEMORANDUM OPINION
On February 20, 2025, Matthew W. Cheney, Acting United States Trustee for Region Four
(the “UST”) filed a Complaint against Frederick Sims McRae (the “Debtor”), seeking a denial of
his discharge pursuant to 11 U.S.C. §§ 727 (a)(2)(B), 727(a)(3), 727(a)(4)(A), and 727(a)(6)(A).
Accordingly, this adversary proceeding constitutes a core proceeding over which this Court has
jurisdiction under 28 U.S.C. §§ 157 (b)(2)(J) and 1334(b). Venue is proper pursuant to 28 U.S.C.
§§ 1408 and 1409(a).
This matter came before the Court on June 3, 2025, for an evidentiary hearing on the UST’s
motion for entry of default judgment against the Debtor filed on April 2, 2025 (the “Motion for
Default Judgment”), pursuant to Federal Rule of Civil Procedure 55(b)(2), made applicable in this
proceeding by Federal Rule of Bankruptcy Procedure 7055, and Local Bankruptcy Rule 7055-
1(B)(2). Counsel for the UST and the pro se Debtor appeared. Counsel for the UST submitted
documentary evidence and testimony elicited from the Debtor in support of the Motion for Default
Judgment. The Debtor contested the relief requested and the underlying entry of default, asserting
that he had not received the Complaint or any pleadings in this matter.

Following the hearing, the Court permitted the parties to file post-hearing briefs in support
of their respective arguments. After consideration of the evidence, pleadings, briefs, and arguments
made at the hearing, this matter is ripe for determination. This Memorandum Opinion constitutes
the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52,
as incorporated into the Federal Rules of Bankruptcy Procedure by Rule 7052.
I. Factual and Procedural History
The Debtor filed a chapter 7 bankruptcy case, pro se, on September 11, 2024, designated
as Case No. 24-71950-FJS. On his voluntary petition, the Debtor listed his place of residence as
1729 Princeton Ave., Norfolk, VA 23523 (the “Princeton Address”) and did not designate any
other address as his mailing address. Pet. at 2, ECF No. 1, Case No. 24-71950-FJS. The Debtor

did not enroll in the Debtor Electronic Bankruptcy Noticing program whereby debtors may elect
to receive court-issued notices and orders by email rather than first class mail.
The day after the Debtor filed his petition, the Clerk issued the Order to Debtor, which
provided, among other things, that the Debtor must preserve and provide upon request all personal
financial and business records, cooperate with the chapter 7 trustee, and provide the chapter 7
trustee with certain personal and financial information prior to the 11 U.S.C. § 341 meeting of
creditors. ECF No. 12.
The Debtor filed all required schedules and statements two weeks prior to the § 341
meeting of creditors, which was originally scheduled for October 8, 2024. ECF No. 17. The chapter
7 trustee held and adjourned the initial meeting of creditors to three subsequent dates, with a final
adjourned date of November 15, 2024. ECF Nos. 19, 21-22. The chapter 7 trustee filed a report on
January 29, 2025, indicating that her inquiry into the Debtor’s financial affairs revealed there
would be no property available for distribution to creditors. ECF No. 34.

By motion filed on January 21, 2025, the UST requested the entry of an order directing the
Debtor to submit to an oral examination and produce documents pursuant to Federal Rule of
Bankruptcy Procedure 2004 (the “Rule 2004 Exam Motion”), to determine the accuracy of the
information supplied by the Debtor in connection with his bankruptcy case. ECF No. 33. Without
objection, the Court entered an order on February 3, 2025, requiring the Debtor to submit to an
oral examination on February 11, 2025, and provide tax returns and other enumerated financial
documents by February 7, 2025 (the “Rule 2004 Exam Order”). ECF No. 35. The Bankruptcy
Noticing Center sent notice of the Rule 2004 Exam Order to the Debtor at the Princeton Address
via first class mail on February 5, 2025. Cert. of Notice, ECF No. 36.
After concluding the examination, the UST initiated the instant adversary proceeding on

February 20, 2025, with the filing of a Complaint seeking the denial of the Debtor’s discharge (the
“Complaint”). AP No. 1. The Complaint sets forth four counts. Count I seeks relief
under § 727(a)(2)(B), alleging that after filing the petition, the Debtor failed to disclose his interest
in F Mac Capital & Holdings, Inc., bitcoin, and financial accounts with Apple Cash, Cash App,
Chime, and Navy Federal Credit Union, in which he possessed an interest on the petition date.
Count II seeks relief under § 727(a)(3) on the basis of the Debtor’s alleged failure to provide
documentation with respect to a limousine service business venture, accounts with Apple Cash
and Cash App, the source of funds for pre-petition deposits, the disposition of funds from a pre-
petition payment, his last-filed state and federal tax returns, and the sources of his post-petition
income. Count III seeks relief under § 727(a)(4)(A), alleging that the Debtor made a false oath or
account by making materially false statements concerning his assets, income, and expenses in his
bankruptcy schedules, on his chapter 7 filing fee waiver application, and when he was examined
under oath. Finally, Count IV seeks relief under § 727(a)(6)(A) because of the Debtor’s alleged

failure to disclose assets and provide financial documents in violation of the Order to Debtor and
to produce documents pursuant to the 2004 Exam Order.
The Clerk issued a summons and initial scheduling order on February 21, 2025. AP No. 2.
The summons set a deadline of March 24, 2025, to file an answer to the Complaint or other motion
and scheduled a pretrial conference for April 8, 2025. Id. The Certificate of Service filed on
February 24, 2025, states that the UST served the Debtor with the summons, initial scheduling
order, and a copy of the Complaint at the Princeton Address via regular, first class United States
mail, postage prepaid. AP No. 3.
The Debtor did not file an answer to the Complaint or other motion by the applicable
deadline. On March 25, 2025, the UST moved for entry of default by the Clerk pursuant to Federal

Rule of Civil Procedure 55(a), made applicable in this proceeding by Federal Rule of Bankruptcy
Procedure 7055 and Local Bankruptcy Rule 7055-1(A) (the “Motion for Entry of Default”). AP
No. 4. The Certificate of Service for the Motion for Entry of Default states that the Debtor was
served with the motion at the Princeton Address via first class United States mail, postage prepaid.
Notice of Mot. at 3, AP No. 4-1. The Clerk entered a default against the Debtor on March 26, 2025
(the “Entry of Default”) based upon the Debtor’s failure to plead or otherwise defend. AP No. 5.
After obtaining the entry of default, the UST filed the Motion for Default Judgment on April 2,
2025, and scheduled the motion for a hearing to be convened on May 6, 2025. Notice of Mot. at
2, AP No. 6-1. The Certificate of Service for the Motion for Default Judgment states the Debtor
was served with the motion and notice of the hearing at the Princeton Address via first class United
States mail, postage prepaid. Id. at 3. The Bankruptcy Noticing Center also provided the Debtor
with notice of the hearing on the Motion for Default Judgment via first class mail. Cert. of Notice,
AP No. 10.

The Court convened the pretrial conference as scheduled on April 8, 2025. Counsel for the
UST appeared but the Debtor did not. The Court continued the pretrial conference to be reconvened
contemporaneously with the hearing on the Motion for Default Judgment, which was rescheduled
to May 20, 2025. On May 2, 2025, the Bankruptcy Noticing Center provided the Debtor with
notice of the rescheduled hearing via first class mail to the Princeton Address. Cert. of Notice, AP
No. 12. The Debtor did not respond to the Motion for Default Judgment or appear at the hearing
held on May 20, 2025. Notwithstanding the Debtor’s failure to appear, the Court continued the
pretrial conference and the hearing on the Motion for Default Judgment to be reconvened
contemporaneously with the hearing on the Debtor’s motion to dismiss his chapter 7 bankruptcy
case, which was scheduled for June 3, 2025 (the “Motion to Dismiss”).1
The Debtor appeared on June 3, 2025, on his Motion to Dismiss, which the Court denied.2

The Debtor also opposed the entry of default judgment. He asserted that he did not receive the
summons, initial scheduling order, and a copy of the Complaint by mail at the Princeton Address
and, in fact, could not recall receiving any mailed notices related to his bankruptcy case apart from
mail to creditors that was returned to him. See June 3, 2025 Hr’g Tr. (hereinafter “Tr.”) 40:11-14,

1 The Debtor sought to voluntarily dismiss his chapter 7 bankruptcy case because he did not appreciate the complexity
of the bankruptcy process and the attendant consequences when he made the decision to proceed in his case without
an attorney. Mot. to Dismiss at 2, ECF No. 38. The Court scheduled a hearing on the Motion to Dismiss for June 3,
2025. The Bankruptcy Noticing Center sent notice of the hearing on the Motion to Dismiss to the Debtor via first class
mail to the Princeton Address. Cert. of Notice, ECF No. 40.
2 The Court denied the Motion to Dismiss by order entered on June 10, 2025, because the Debtor failed to present any
evidence to sustain his burden to establish cause for dismissal under § 707(a). Order Denying Mot. to Dismiss at 2-3,
ECF No. 43.
44:3-19, 99:14-19, AP No. 17. He contended that if had he been aware of the Complaint, he would
have filed an answer and appeared at the pretrial conference. Id. 99:21-25. The Debtor also
contested the merits of the allegations in the Complaint. In deference to the Debtor’s pro se status,
see Ballard v. Carlson, 882 F.2d 93, 96 (4th Cir. 1989), the Court construes the Debtor’s arguments

at the hearing both as an oral motion to set aside the Entry of Default and to deny the Motion for
Default Judgment.
II. Finding of Fact and Conclusions of Law
“Obtaining default judgment is a two-step process.” Clemson Grande Lakefront Condos.,
LLC v. First Fin. Equities Com., LLC (In re Clemson Grande Lakefront Condos., LLC), 472 B.R.
703, 704 (Bankr. D.S.C. 2012). The entry of default is a prerequisite for the subsequent entry of
default judgment. Royal v. Lee, No. 1:17-cv-261-TSE/TCB, 2018 WL 10772683, at *1 (E.D. Va.
Nov. 6, 2018) (citing Husain v. Casino Control Comm’n, 265 F. App’x 130, 133 (3d Cir. 2008);
Danielson v. Human, No. 3:12-cv-840-FDW-DSC, 2013 WL 12218467, at *1 (W.D.N.C. Oct. 21,
2013)); see also LBR 7055-1(B)(2)(b)(iv). Accordingly, first, upon proper motion by the plaintiff,

the clerk must enter default against any defendant who fails to serve an answer or motion within
the thirty days after issuance of the summons. Fed. R. Bankr. P. 7055; Fed. R. Civ. P. 55(a); LBR
7055-1(A). The entry of default against a defendant who fails to plead or otherwise defend against
a complaint is a ministerial function performed by the clerk based solely upon whether the
objective criteria of the applicable rules are satisfied. See Nationwide Mut. Fire Ins. Co. v. Superior
Sol., LLC, No. 2:16-cv-423-PMD, 2016 WL 6648705, at *2 (D.S.C. Nov. 10, 2016); see also LBR
7055-1(A). Upon the entry of default, the defendant is deemed to admit the well-pleaded factual
allegations of the complaint. Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir.
2001).
The Fourth Circuit has a “strong preference” that “claims and defenses be disposed of on
their merits.” Colleton Preparatory Acad., Inc. v. Hoover Universal, Inc., 616 F.3d 413, 417 (4th
Cir. 2010); see also United States v. Shaffer Equip. Co., 11 F.3d 450, 462 (4th Cir. 1993). But
there are exceptions to this policy. Dominion Fin. Servs., LLC v. Pavlovsky, 673 F. Supp. 3d 727,

740 (D. Md. 2023). Entry of “default judgment is appropriate ‘when the adversary process has
been halted because of an essentially unresponsive party.’” Cournoyer v. Buckner (In re Fuller),
Adv. No. 24-02009, 2024 WL 5320021, at *6 (Bankr. M.D.N.C. Nov. 20, 2024) (quoting SEC v.
Lawbaugh, 359 F. Supp. 2d 418, 421 (D. Md. 2005)). In instances where default judgment may be
appropriate, the court may only enter default judgment if it is satisfied that the well-pleaded
allegations of the complaint support the relief requested. Ryan, 253 F.3d at 780.
A defaulting party may seek relief from the consequences of their inaction before the entry
of default judgment by requesting to set aside the entry of default. “[W]hen a party is in default,
but default judgment has not yet been entered, the governing legal standard is one of ‘good cause’
. . . .” Wards Corner Beauty Acad. v. Nat’l Accrediting Comm’n of Career Arts & Scis., No.

2:16cv639, 2017 WL 11509751, at *1 (E.D. Va. Sept. 19, 2017) (citations omitted). This standard
is “more forgiving” than the “excusable neglect” standard applicable to requests for relief from
default judgment because an entry of default “does not implicate any interest in finality.” Colleton
Preparatory Acad., 616 F.3d at 420.
A. Has the Debtor Demonstrated Good Cause to Set Aside the Entry of Default?
The Court must determine whether the Debtor has articulated good cause to grant his oral
motion to set aside the Entry of Default. If the Court finds that good cause exists and sets aside the
Entry of Default, the UST necessarily cannot prevail on the Motion for Default Judgment. If the
Debtor cannot demonstrate good cause to set aside the Entry of Default, then the allegations in the
Complaint are deemed admitted, and the Court must determine if such allegations support the entry
of default judgment.
The determination regarding whether good cause exists to set aside an entry of default is
within the broad discretion of the trial court. A court analyzes the existence of “good cause” by

weighing the following factors articulated by the Fourth Circuit in Payne ex rel. Estate of Calzada
v. Brake, 439 F.3d 198 (4th Cir. 2006): “whether the moving party has a meritorious defense,
whether it acts with reasonable promptness, the personal responsibility of the defaulting party, the
prejudice to the [non-defaulting] party, whether there is a history of dilatory action, and the
availability of sanctions less drastic.” Id. at 204-05 (citations omitted). These factors must be
liberally construed in favor of the defaulting party “in order to provide relief from the onerous
consequences of defaults and default judgments.” Lolatchy v. Arthur Murray, Inc., 816 F.2d 951,
954 (4th Cir. 1987) (quoting Tolson v. Hodge, 411 F.2d 123, 130 (4th Cir. 1969)). The Court
addresses each factor below.
1. Reasonable Promptness

Whether the Debtor acted with “reasonable promptness” to set aside the entry of default is
determined in light of the relevant facts and circumstances. See United States v. Moradi, 673 F.2d
725, 727 (4th Cir. 1982). Within the Fourth Circuit, courts “have found that a defendant acted
reasonably promptly when waiting seventeen, twenty-one, and thirty-two days after default was
entered before attempting to set it aside.” Parks v. Disc. Box & Pallet, Inc., No. 5:12CV081, 2013
WL 662951, at *6 (W.D. Va. Feb. 22, 2013) (citing United States v. $10,000.000 in United States
Currency, 2002 WL 1009734, at *3 (M.D.N.C. Jan. 29, 2002); Esteppe v. Patapsco & Back Rivers
R.R. Co., 2001 WL 604186, at *4 (D. Md. May 31, 2001); Wainwright’s Vacations v. Pan Am.
Airways Corp., 130 F.Supp.2d 712, 718 (D. Md. 2001)) (finding that the a defendant that filed a
responsive pleading twenty-five days following entry of default “falls within the range deemed
reasonably prompt” by other courts); but see Lolatchy, 816 F.2d at 953 n.2 (holding that good
cause existed to set aside an entry of default where counsel—who failed to move to set aside the
default for ten months—was “busy and diligent” while actively participating in the damages aspect

of the case).
In this case, the Debtor did not seek to set aside the Entry of Default until June 3, 2025,
when he appeared at the continued hearing on the Motion for Default Judgment and denied having
received the summons, initial scheduling order, and Complaint, which the Court has construed as
an oral motion to set aside the Entry of Default. At that point, the adversary proceeding had been
pending for three and a half months. His appearance coincided with his appearance on his own
Motion to Dismiss. The only explanation offered for the Debtor’s inaction was that he did not
receive the pleadings mailed to the Princeton Address and was unaware of the pending adversary
proceeding. Tr. 40:11-14, 44:3-19, 99:14-25.
An item that is properly addressed, stamped, and mailed gives rise to a presumption that

the item was received. See In re Burton-Alston, No. 97-16333, 2006 WL 12904, at *2 (Bankr.
M.D.N.C. Jan. 3, 2006); In re Parandeh, No. 14-12578-BFK, 2015 WL 430383, at *5 (Bankr.
E.D. Va. Jan. 28, 2015) (citing In re Weiss, 111 F.3d 1159, 1172-73 (4th Cir. 1997); Fed. Deposit
Ins. Corp. v. Schaffer, 731 F.2d 1134, 1137 n.6 (4th Cir. 1984)). To determine whether the
presumption arises, “courts may consider whether the notice was correctly addressed, whether
proper postage was affixed, whether it was properly mailed, and whether a proper certificate of
service was filed.” In re Perkins, No. 10-03041-JW, 2011 WL 3163294, at *2 (Bankr. D.S.C. Feb.
8, 2011) (quoting Greyhound Lines, Inc. v. Rogers (In re Eagle Bus Mfg., Inc.), 62 F.3d 730, 736 (5th Cir. 1995)). The Princeton Address is the Debtor’s address of record in this case. Pet. at 2,
ECF No. 1. The Certificate of Service for the summons, initial scheduling order, and Complaint
states that the Debtor was served at the Princeton Address via first class United States mail, postage
prepaid, as required pursuant to Federal Rule of Bankruptcy Procedure 7004(b)(9). AP No. 3. The
UST has argued that the presumption arises that the Debtor received the Complaint, summons, and

initial scheduling order. See Supp. Br. at 10, AP No. 22. The Court agrees. Furthermore, the
Certificates of Service for the Motion for Entry of Default and Motion for Default Judgement also
state that the Debtor was served at the Princeton Address via first class United States mail, postage
prepaid, likewise giving rise to the presumption of receipt of those pleadings. See Notice of Mot.
at 3, AP No. 4-1; Notice of Mot. at 3, AP No. 6-1. The presumption of receipt may only be
overcome by “strong evidence to the contrary.” Bosiger v. U.S. Airways, Inc., 510 F.3d 442, 451 (4th Cir. 2007) (A “general denial does not constitute the strong evidence needed to overcome the
presumption of receipt.”). But if the Debtor can rebut the presumption of receipt and establish that
he was in fact unaware of the pendency of this adversary proceeding, his eleventh-hour appearance
might be considered reasonably prompt.

The Debtor denied that he saw the Complaint or any mail pertaining to his bankruptcy case
delivered to the Princeton Address apart from returned mail sent to creditors. Tr. 40:11-14, 44:3-
19, 99:14-25. To explain why he did not receive his case-related mail, he offered only that mail is
delivered to the ground or stairs outside the Princeton Address. Id. 40:7-8. The Debtor admitted,
however, that he has received other mail at the Princeton Address. Id. 40:4-10. To accept the
Debtor’s explanation as credible would demand an inference that somehow only his bankruptcy-
related mailings disappeared or were damaged beyond recognition following their delivery to the
exterior of the Debtor’s residence. The Court declines to draw this inference and finds that the
Debtor has failed to rebut the presumption of receipt.
It was the Debtor’s decision to list and maintain the Princeton Address as his address of
record in his bankruptcy case. While the Debtor attributed this decision to his unawareness of the
allegedly missing mail, the Court finds that it is more plausible that the Debtor listed and
maintained the Princeton Address as his address of record because it is a reliable address. Because

the Debtor has failed to rebut the presumption of receipt, the Court finds that the Debtor was on
notice of the pending adversary proceeding and aware of his failure to respond but elected not to
take any action until his appearance on June 3, 2025. Accordingly, the Court finds that the Debtor
failed to act with reasonable promptness to set aside the Entry of Default. This factor weighs
against setting aside the Entry of Default.
2. Personal Responsibility
A defaulting party’s personal responsibility is determined by examining whether the
default occurred due to circumstances beyond the party’s control. “Courts have discretion to deny
setting aside entry of default when the party’s default was intentional or the result of negligence.”
Pinpoint IT Servs., L.L.C. v. Atlas IT Exp. Corp., 812 F. Supp. 2d 710, 726 (E.D. Va. 2011) (citing

10 James Wm. Moore et al., Moore’s Federal Practice ¶ 55.70 (3d ed. 2011)). The Court has
already rejected the Debtor’s attempt to assign blame for his default to the mail service to the
Princeton Address and incorporates its findings set forth above. The Debtor has offered no other
explanation for his default. Accordingly, the Court finds that the responsibility for the Debtor’s
failure to file an answer or motion is his alone. This factor weighs against setting aside the Entry
of Default.
3. Meritorious Defense
To establish the existence of a meritorious defense, a defendant is not required to convince
the court that he is likely to successfully defend against the plaintiff’s claims at trial. Rather, “[t]he

underlying concern is . . . whether there is some possibility that the outcome . . . after a full trial
will be contrary to the result achieved by the default.” Augusta Fiberglass Coatings, Inc. v. Fodor
Contracting Corp., 843 F.2d 808, 812 (4th Cir. 1988) (emphasis added) (quoting 10 C. Wright, A.
Miller & M. Kane, Federal Practice and Procedure § 2697, p. 531 (2d ed. 1983)); see also Am. All.
Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996) (“To satisfy the criterion of a ‘meritorious
defense,’ the defense need not be ultimately persuasive at this stage.”). Indeed, at this stage, the
defense offered may even be tenuous. See Rasmussen v. Am. Nat. Red Cross, 155 F.R.D. 549, 552 (S.D.W. Va. 1994) (finding the defendant’s defense to be “tenuous” but “recoginiz[ing] the general
policy of deciding cases on their merits”). While the establishment of a meritorious defense does
not impose a demanding burden upon a defendant, the defendant’s argument must be based upon

more than bare allegations, conclusory assertions, or general denials of the plaintiff’s claims. See
Consol. Masonry & Fireproofing, Inc. v. Wagman Const. Corp., 383 F.2d 249, 251-52 (4th Cir.
1967); Mayrant v. Norfolk Redevelopment & Hous. Auth., Civ. No. 2:24cv715, 2025 WL 2738859,
at *7 (E.D. Va. Sept. 23, 2025).
When a defendant seeks to set aside an entry of default with respect to a complaint that
includes multiple, independent claims for relief, courts have held that the defendant need only
establish a meritorious defense to at least one of the plaintiff’s claims. See, e.g., Wildflower + Co.
v. Mood Apparel, Ltd., 338 F.R.D. 192, 198 (S.D.N.Y. 2021) (“As long as the defendant has a
meritorious defense for one of the plaintiff’s claims, and that claim is independent of any other
claim in the case, the factfinder will have some determination to make.”); Percival v. Chronister,
No: 8:23-cv-01243-KKM-JSS, 2024 WL 1655363, at *2 (M.D. Fla. Apr. 17, 2024) (setting aside
an entry of default where the defendants “raised credible arguments that at least some of [the
plaintiff’s] claims lack merit”) ; Hilseweck P’ship v. E. Energy Res., Inc., No. 3:11-CV-0186-D, 2011 WL 3501719, at *2 (N.D. Tex. Aug. 9, 2011) (setting aside an entry of default when the
defendant presented ‘a potentially meritorious defense to at least one of plaintiffs’ claims”); Molly
Maid, Inc. v. O’Daniel, No. 10-CV-13337, 2011 WL 3113108, at *2 (E.D. Mich. June 20, 2011)
(setting aside an entry of default where the defendant “may have a meritorious defense to at least
one claim set forth in the Complaint”).
The Court must consider whether the Debtor has established a meritorious defense to any
of the counts of the Complaint. Although the Debtor did not file a written motion to set aside or
propose a late answer, he offered testimony at the hearing held on June 3, 2025, which the Court
finds raises the existence of a meritorious defense to more than one of the UST’s claims.
Intent is an element of Counts I, III, and IV of the Complaint. To deny the Debtor’s

discharge under Count I of the Complaint, which arises under § 727(a)(2)(B), the Court must find
that the Debtor acted with the intent to hinder, delay, or defraud when, after the filing of the
petition, he transferred, removed, destroyed, mutilated, or concealed the business interest and
financial accounts identified in the Complaint. See § 727(a)(2)(B). The post-petition conduct
alleged in the Complaint is the Debtor’s failure to disclose his interests in bitcoin, an Apple Cash
account, a Cash App account, a Chime checking account, a Navy Federal Credit Union savings
account, and his inconsistent statements regarding his interest in F Mac Capital & Holdings, Inc.
To prevail, the UST must establish that the Debtor engaged in the alleged conduct with the actual
intent to either defraud creditors or to hinder or delay creditors. Branch Banking & Trust Co. v.
Evans (In re Evans), 538 B.R. 268, 286 (Bankr. W.D. Va. 2015) (observing that the disjunctive
phrasing reflects that the intent may be to hinder or delay creditors and not necessarily to defraud).
Courts generally infer the debtor’s intent by examining circumstantial evidence, including “the
debtor’s sophistication to appreciate his responsibility to disclose his assets, representation by

counsel, inordinately high number of omissions from statements, and pattern of reckless behavior
toward his duties to the court.” Id. at 285-86.
The Debtor did not deny that he failed to properly disclose the financial accounts or his
interest in F Mac Capital & Holdings, Inc. Instead, he testified that he did not realize he still had
an open account with Navy Federal Credit Union and failed to appreciate that non-traditional
digital payment methods and accounts required disclosure, including those with de minimis
balances, and that he believed he had made disclosures by providing account statements to the
UST post-petition. Tr. 3:8-18, 38:1-15. He further testified that F Mac Capital & Holdings, Inc. is
not operational. Id. 58:24-59:8. The Debtor’s testimony was more than merely conclusory in that
he offered explanations for his conduct that shed light on his state of mind. If offered at trial and

accepted as credible, this testimony suggests that the Debtor may be able to present sufficient
circumstantial evidence to undermine a finding of intent to hinder, delay, or defraud creditors,
which is an essential element of the UST’s claim for relief under § 727(a)(2)(B). Accordingly, the
Court finds that the Debtor has established the existence of a meritorious defense to Count I.
Count III of the Complaint, which arises under § 727(a)(4)(A), also includes an element of
intent. “‘To deny a debtor[‘s] [] discharge under § 727(a)(4)(A), the objecting creditor must prove
that 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.’” Johnson-Clayton v. Ferebee (In re Ferebee), No. 09-
75200-SCS, 2012 WL 506740, at *12 (Bankr. E.D. Va. Feb. 15, 2012) (citations and internal
quotation omitted) (quoting Faircloth v. Palmer (In re Palmer), No. 05-6017, 2007 WL 2253274,
at *3 (Bankr. N.D.W. Va. Aug. 1, 2007)). Misstatements or omissions in bankruptcy schedules
and statements, at a Section 341 meeting of creditors, and Rule 2004 examination are considered

false statements made under oath, which may warrant the denial of a debtor’s discharge 11 U.S.C.
§ 727 (a)(4)(A) if they are material and made with fraudulent intent. See Mazer-Marino v.
Schiltkamp (In re Schiltkamp), No. 16-13037 (SMB), 2019 WL 1084192, at *7 (Bankr. S.D.N.Y.
Mar. 6, 2019). “[A] statement or omission is material if it adversely affects the ability of the trustee
or creditors to fully discover the debtor's assets and financial condition.” Jalajel v. Pugsley, No.
1:11CV163 LMB/IDD, 2011 WL 1348312, at *2 (E.D. Va. Apr. 8, 2011) (citing Farouki v.
Emirates Bank Int’l, Ltd., 14 F.3d 244, 251 n.19 (4th Cir. 1994)). Whether a statement or omission
is made with fraudulent intent is typically determined by reference to circumstantial evidence or
from a pattern of conduct. Williamson v. Fireman’s Fund Ins. Co., 828 F.2d 249, 252 (4th Cir.
1987) (citing In re Devers, 759 F.2d 751, 754 (9th Cir. 1985); Farmers Co-operative Assoc. v.

Strunk, 671 F.2d 391, 395 (10th Cir. 1982)); see also United Bank of the Middle East, Ltd. v.
Farouki (In re Farouki), 133 B.R. 769, 780 (Bankr. E.D. Va. 1991), aff’d sub nom. Farouki v.
Emirates Bank Int’l, Ltd., 14 F.3d 244 (4th Cir. 1994) (citing In re Tully, 818 F.2d 106, 112 (1st
Cir.1987)) (observing that “‘reckless indifference to the truth’ is the functional equivalent of
fraud”). As a result, a court’s determination regarding fraudulent intent relies heavily upon its
“assessment of the credibility and demeanor of the debtor.” Williamson, 828 F.2d at 252.
The UST alleges the Debtor knowingly and fraudulently made multiple false statements in
his bankruptcy schedules, statements, and filing fee waiver application and during his Section 341
meeting of creditors and Rule 2004 examination. In his testimony, the Debtor offered explanations
for the alleged inaccuracies. He contested that he possessed or realized that he possessed any
interest in certain undisclosed assets, cited a lack of understanding regarding the information he
was required to disclose, and variously described the basis for his beliefs that the challenged
disclosures and testimony were accurate, which circumstantial evidence could establish were

reasonable and held in good faith even if misinformed. See generally Tr. 3:8-113:10. These
explanations, if believed, would militate against an inference of fraudulent intent. Therefore,
because the Debtor could conceivably prove at trial that he lacked the fraudulent intent necessary
for the UST to prevail on its claim for relief under § 727(a)(4)(A), the Court finds that the Debtor
has established the existence of a meritorious defense to Count III of the Complaint.
Finally, Count IV of the Complaint seeks denial of the Debtor’s discharge under
§727(a)(6)(A). To obtain relief under § 727(a)(6)(A), the UST must establish that the debtor
refused to obey any lawful order of the Court. The Fourth Circuit has held that “refused” is not
synonymous with “failed.” Smith v. Jordan (In re Jordan), 521 F.3d 430, 433 (4th Cir. 2008).
Rather, denial of a discharge under § 727(a)(6)(A) requires a finding that “‘the debtor willfully

and intentionally refused to obey the court’s order. Thus, the trustee must show more than a mere
failure to obey the court’s order that results from inadvertence, mistake, or inability to comply; he
must demonstrate some degree of volition or willfulness on the part of the debtor.’” Id. at 434
(quoting Jordan v. Smith, 356 B.R. 656, 660 (E.D. Va. 2006)). If the plaintiff establishes that the
debtor received a court order and failed to comply with its terms, the burden then shifts to the
debtor to explain his non-compliance. See id. In Count IV, the UST alleges that the Debtor refused
to comply with the Order to Debtor by concealing assets and failing to provide documents to and
cooperate with the chapter 7 trustee and with the Rule 2004 Exam Order by failing to provide the
UST with certain documents listed therein.
As discussed above, the Debtor’s testimony attributed his failure to disclose certain assets
to his lack of awareness that he possessed certain assets and misinformed conclusions about what
must be disclosed. He also testified that he made his best efforts to provide all requested documents
based upon the records he had and could produce within the time available. Tr. 48:2-15, 53:1-

54:20. These explanations, if credible, may be sufficient to establish that the Debtor’s
noncompliance with the Court’s orders was the result of mistake, inadvertence, or inability to
comply, which would defeat the UST”s claim for relief under § 727(a)(6)(A). Accordingly, the
Court finds that the Debtor has satisfied his burden to demonstrate the possibility of a meritorious
defense to Count IV.
In Count II of the Complaint, the UST seeks relief under § 727(a)(3), alleging that the
Debtor failed to keep adequate records from his Apple Cash and Cash App accounts, sources of
pre-petition deposits, sources of post-petition income, tax returns, and a limousine service business
venture. Unlike the UST’s other claims for relief, relief under § 727(a)(3) does not requiring a
finding of intent. A debtor will be denied a discharge pursuant to § 727(a)(3) if the court finds that

“the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any
recorded information, including books, documents, records, and papers, from which the debtor's
financial condition or business transactions might be ascertained, unless such act or failure to act
was justified under all of the circumstances of the case.” § 727(a)(3). This exception is rooted in
the policy that a debtor cannot receive the benefit of a discharge unless the debtor has “give[n]
creditors sufficient information from which they can assess the debtor’s estate and general
financial posture.” In re Farouki, 133 B.R. at 780-81. The court has “substantial discretion” to
assess whether a debtor’s recordkeeping is reasonable under the circumstances. United States
Trustee v. Sieber (In re Sieber), 489 B.R. 531, 550 (Bankr. D. Md. 2013). This assessment includes
consideration of “the complexity and volume of the business; the amount of the debtor’s
obligations; whether the debtor’s failure to keep or preserve books and records was due to the
debtor’s fault; the debtor’s education, business experience and sophistication; the customary
business practices for record keeping in the debtor’s type of business; the degree of accuracy

disclosed by the debtor's existing books and records; the extent of any egregious conduct on the
debtor's part; and the debtor’s courtroom demeanor.” Id. (quoting Pereira v. Gardner (In re
Gardner), 384 B.R. 654, 665 (Bankr. S.D.N.Y. 2008)). If the objecting party establishes by a
preponderance of the evidence that the debtor maintained insufficient records, “‘the burden of
production shifts to the debtor to produce additional credible evidence to rebut the proof of
insufficient records, or to justify the absence of records.’” Id. (quoting In re Gardner, 384 B.R. at
665).
In his testimony, the Debtor claimed that he had provided a number of the financial records
identified by the UST and provided specific explanations for his failure to produce others. For
example, in his testimony, the Debtor stated that he earned income from barbering and other side

jobs for which no formal documentation existed. Tr. 23:20-25:23, 27:4-10. He also testified that
he had not obtained W-2s or filed income tax returns in the years immediately preceding the filing
of his bankruptcy case but had provided his last-filed tax returns to the UST despite the allegations
to the contrary. Id. 51:3-21, 54:1-20. The Debtor denied having an Apple Cash account—believing
that to be distinct from Apple Pay, see id. 4:12, 38:7-11—and claimed that he had not provided
the totality of his Cash App statements because he did not have sufficient time to print all his
records, id. 53:1-4. He also denied that any documentation of the limousine service business
venture exists because the venture was only a tentative, informal arrangement with his girlfriend
and son. See id. 80:20-81:12. The Debtor’s testimony suggests that if the UST established that his
recordkeeping was insufficient, the Debtor may be able to prove that certain records do not exist
or that he was unable to provide them for reasons that are justifiable under the circumstances,
which would be sufficient to defend against a denial of discharge under § 727(a)(3). The Court
therefore finds that the Debtor has satisfied his burden to raise the existence of a meritorious

defense to Count II.
The existence of meritorious defenses to the Complaint weighs in favor of setting aside the
Entry of Default.
4. Prejudice to the UST
To assess whether the non-defaulting party has been prejudiced, courts consider—
whether the delay [caused by the default]: (1) made it impossible for the non-
defaulting party to present some of its evidence; (2) made it more difficult for the
non-defaulting party to proceed with trial; (3) hampered the non-defaulting party's
ability to complete discovery; and (4) was used by the defaulting party to collude
or commit a fraud.
Pinpoint IT Servs., L.L.C. v. Atlas IT Exp. Corp., 812 F. Supp. 2d 710, 727 (E.D. Va. 2011)
(quoting Vick v. Wong, 263 F.R.D. 325, 330 (E.D. Va. 2009)) (quotation marks omitted). The
majority of the weight is given to the first two factors. Burton v. The TJX Companies, Inc., No.
3:07-CV-760, 2008 WL 1944033, at *4 (E.D. Va. May 1, 2008) (citing Lolatchy, 816 F.2d at 952 -
53). Courts have generally found that the threat of prejudice is greater when no factual basis for a
meritorious defense exists. Cielinski v. Kitchen (In re Tires & Terms of Columbus, Inc.), 262 B.R.
885, 889 (Bankr. M.D. Ga. 2000) (citations omitted).
Here, the Court has determined that the Debtor has satisfied his burden to establish the
existence of a meritorious defense to the Complaint. The requirement that the UST advance its
case on the merits is not prejudicial but rather “a burden inherent in prosecuting a lawsuit to
conclusion.” Mangan v. Value Health Care Servs., LLC (In re Walnut Hill, Inc.), No. 16-20960
(JJT), 2017 WL 4653003, at *2 (Bankr. D. Conn. Oct. 13, 2017). As discussed above, the Debtor
has admitted to much of the conduct alleged by the UST. The UST’s ability to proceed with its
claims will not be impaired if the Debtor is afforded the opportunity to present evidence regarding
his state of mind and any justification he has for his failure to comply with his duties. Further, no

discovery deadlines have been set in this matter and there is no indication the default was used by
the Debtor to commit a fraud. Accordingly, this factor weighs in favor setting aside the Entry of
Default.
5. History of Dilatory Action
The Debtor has no history of dilatory action in this matter apart from his failure to respond,
which is the subject of this decision. Following the hearing, he complied with the Court’s deadline
for the submission of a post-trial brief. Accordingly, during his limited period of participation in
this adversary proceeding, the Debtor has not engaged in any further dilatory behavior. This factor
weighs in favor of setting aside the Entry of Default.
6. Availability of Other Sanctions

The final factor is whether alternative sanctions short of default are available. Courts often
consider whether the default could be remedied through requiring the defaulting party to pay the
plaintiff’s attorneys fees or other monetary sanctions. See McKesson Med.-Surgical, Inc. v. Flower
Orthopedics Corp., No. 3:17CV631, 2018 WL 944375, at *7 (E.D. Va. Feb. 16, 2018). Here, the
Plaintiff is a governmental official who is not represented by private counsel, and the Debtor is
insolvent. Accordingly, the Court finds that lesser sanctions are not available under the
circumstances. This factor weighs against setting aside the Entry of Default.
III. Conclusion
The final step is the balancing of the Payne factors. An equal number of factors weigh in
favor of and against setting aside the Entry of Default. However, the existence of meritorious
defenses to the Complaint warrants special emphasis given the strong preference in this Circuit in
favor of deciding cases on their merits. Furthermore, the consequences of default and default
judgment are especially onerous for the Debtor as the denial of his discharge in this case would
also render his debts nondischargeable in any future bankruptcy case whereas proceeding to trial
would impose minimal prejudice on the UST. Therefore, on balance, and in view of the
overarching policy considerations, the Court finds that good cause exists to set aside the Entry of
Default so that the Debtor may present his defenses at a trial on the merits.
Accordingly, the Debtor’s oral motion to set aside the Entry of Default is granted. Because
the Entry of Default will be set aside, the UST’s Motion for Default Judgment is denied. The Court
will permit the Debtor to file a late answer to the Complaint so that this matter may proceed to
trial.
A separate Order will be entered by the Court consistent with the findings and conclusions
contained in this Memorandum Opinion.
The Clerk shall deliver copies of this Memorandum Opinion to Matthew W. Cheney,
Acting United States Trustee for Region Four, and to the Debtor at his address of record.’
Entered this 20th day of February 2026, at Norfolk in the Eastern District of Virginia.
SA □□□□

FRANK J. SANTORO
United States Bankruptcy Judge □□
Entered on Docket: Feb 20 2026
3 The Court’s record reflects that the Debtor still maintains the Princeton Address as his address of record.

51