Long Lee v Mailee Hang - Summary Judgment Denied, Chapter 7

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March 31, 2026 Get Citation Alerts Download PDF Add Note

Long Lee, et al. v. Mailee Hang and Vang Tou Hang

United States Bankruptcy Court, E.D. Wisconsin

• Citations: None known
• Docket Number: 24-02130

• Precedential Status: Unknown Status

• Opinion

• Authorities (39)

• Cited By (0)

• Summaries (0)

• Similar Cases (10.9K)

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Trial Court Document

UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF WISCONSIN

In re: Case No. 24-23470-rmb

Mailee Hang and Vang Tou Hang, Chapter 7

Debtors.

Long Lee, et al.,

Plaintiffs,
Adversary No. 24-2130-rmb
v.

Mailee Hang and Vang Tou Hang,

Defendants.

DECISION AND ORDER ON MOTIONS FOR SUMMARY JUDGMENT
AND PLAINTIFFS’ MOTION FOR LEAVE TO AMEND

Plaintiffs Long Lee, Miana Lee, Unlimited Wealth, LLC, David Blong, and
Mee Lee (the “Lee Parties”) are victims of Kay Yang, who ran a fraudulent
investment scheme in Wisconsin. The Lee Parties say that Yang used some of the
funds they invested with her to make below-market mortgage loans to several third
parties, including to debtor-defendants Mailee Hang and Vang Tou Hang (the
“Debtors”). The Lee Parties obtained an order in state court determining that the
Debtors’ mortgage loan from Yang’s company and several other such loans were
fraudulent transfers under chapter 242 of the Wisconsin Statutes. They now seek
to have the resulting debt declared nondischargeble under 11 U.S.C. § 523 (a)(2)(A).
The parties filed cross motions for summary judgment on the nondischargeability
claim, and the Lee Parties filed a motion to amend their complaint to add two more
claims for declarations related to the mortgaged property. Neither party sustained
their burden on summary judgment, and material factual disputes remain. The Lee

Parties also have not shown that their late amendment should be allowed because
the amendment would prejudice the Debtors, and it is futile in any event.
BACKGROUND
Lee Parties’ Investment with Kay Yang
The Lee Parties invested with a company called AK Equity Group, LLC
owned by Kay Yang. Yang solicited funds from investors and asked them to wire
funds to a bank account at Capital One Bank. The Lee Parties deposited a total of
$1,770,000 into the Capital One account between January 25, 2019 and May 30,

2019, believing that they were investing with Yang and AK Equity. (Miana Lee
Decl., ECF 25, ¶¶ 3-4.) AK Equity purported to pool and trade investor funds
through various offshore brokerage accounts. (Halloin Decl. Ex. 1, ECF 24-1, at 6-
8.) It also purported to engage in foreign currency exchange trading. (Id.)
Yang was investigated by the Wisconsin Department of Financial
Institutions (WDFI) for selling unlicensed securities. On July 13, 2020, WDFI

entered a Final Order by Consent to Cease and Desist, Revoking Exemptions, and
Imposing Disgorgement, Restitution, and Civil Penalties. (Halloin Decl. Ex. 1, ECF
24-1.) The order required Yang and AK Equity Group to pay restitution in the
amount of $16,950,776.78 to over 40 investors, including the Lee Parties. (Id. at 9.)
Yang was criminally indicted for her conduct. See United States v. Yang, Case No.
2:25-cr-00097-bhl-scd-1, ECF 1 (E.D. Wis. May 20, 2025).
In 2021, the Lee Parties sued Yang in Wisconsin state court to enforce the
restitution ordered by WDFI. (Halloin Decl. Ex. 5, ECF 24-5.) The state court
entered judgments against Yang in the total amount of $2,443,101.94. (Id. at 2.)

Debtors’ Purchase of the Property
The Lee Parties assert that Yang used the funds they invested to, among
other things, provide a “loan” to the Debtors, who are Yang’s sister and brother-in-
law, in connection with their purchase of residential real property located at 620
West Briarknoll Court in Saukville, Wisconsin (the “Property”). The loan was given
through another Yang company called C&K Associates LLC. On July 12, 2019,
Yang transferred $250,000 from the account at Capital One containing the funds

from the Lee Parties and other investors to an account in the name of C&K
Associates at Associated Bank. (Halloin Decl. Ex. 15, ECF 24-15.) On July 26,
2019, Yang directed that $261,871.17 be wired from the C&K Associates account at
Associated Bank to the title company responsible for closing the sale of the
Property. (Halloin Decl. Ex. 16, ECF 24-16, at 3.)
The Debtors’ purchase of the Property closed on July 29, 2019. The Debtors

provided $1,000 in earnest money before the closing, and they needed $261,871.17
in cash to close the transaction. (Halloin Decl. Ex. 17, ECF 24-17, at 2.) This entire
amount was provided through a loan from C&K Associates. In exchange, the
Debtors signed a promissory note and granted a mortgage on the Property to C&K
Associates. (Halloin Decl. Exs. 18, 19, Dkt. Nos. 24-18, 24-19.) The note has a fixed
interest rate of 2% and a 30-year term. (Halloin Decl. Ex. 19, ECF 24-19, at 2.)
State Court Litigation
On May 24, 2022, the Lee Parties filed a complaint in the Circuit Court for
Ozaukee County, Wisconsin, Case No. 2022-CV-162, against Yang, the Debtors, and

several other persons that the Lee Parties allege similarly purchased properties
using funds that originated from the Capital One account. (Halloin Decl. Ex. 6,
ECF 24-6.) The Lee Parties alleged that the defendants were liable as transferees
of avoidable transfers under chapter 242 of the Wisconsin statutes. (Id. ¶¶ 24-25.)
They requested judgment under Wis. Stat. § 242.04 and attachment of the Property
pursuant to Wis. Stat. § 242.07. (Id. at 11-12.)
On September 8, 2022, the state court entered an Order for Default

Judgment and Judgment and Writ of Attachment determining that judgment
should be entered against the Debtors and the other defendants, jointly and
severally, in the total amount of $2,374,290.16. (Halloin Decl. Ex. 8, ECF 24-8.)1
The Lee Parties did not submit evidence that the judgment was docketed pursuant
to Wis. Stat. § 806.10, and a judgment against the Debtors is not listed on the state
court docket. (See Halloin Decl. Ex. 9, ECF 24-9.)2

The state court’s September 8, 2022 order also declared that “[e]ffective
immediately, the following real property is attached by a lien in favor of [the Lee

1 It appears the state court entered an amended order determining that the total debt is
$2,445,564.41. A copy of an amended order was attached to a separate complaint the Lee Parties
later filed against the Debtors in state court but it is not otherwise in the summary judgment record.
(See Halloin Decl. Ex. 21 at Ex. B, ECF 24-21.)
2 The Lee Parties allege in their complaint that “[t]he judgment has been docketed by the judgment
clerk and is an enforceable judgment lien.” (Compl., ECF 1, ¶ 16.) The Debtors denied this
allegation. (Answer to Compl., ECF 5, ¶ 16.)
Parties],” and the list of attached properties includes the Property. (Halloin Decl.
Ex. 8, ECF 24-8, at 5-6.) The order states, “This attachment may be filed with the
appropriate Register of Deeds for each Property named above.” (Id. at 6.) The Lee

Parties did not present any evidence that they recorded the order with the Register
of Deeds for Ozaukee County, Wisconsin, where the Property is located. Nor does it
appear that the Lee Parties followed the requirements of chapter 811 of the
Wisconsin Statutes to have a writ of attachment issued to the sheriff or to have the
sheriff seize the Property.3
The Debtors did not appeal the state court’s September 8, 2022 order in Case

No. 2022-CV-162.
The Lee Parties commenced a second case in Ozaukee County Circuit Court
against the Debtors and C&K Associates on January 27, 2023, Case No. 2023-CV-
31. (Halloin Decl. Ex. 21, ECF 24-21.) Their complaint alleges that they have a lien
on the Property pursuant to Wis. Stat. § 806.154 and requests execution on the
Property pursuant to Wis. Stat. § 815.05 (2). (Id. at 9.) The Lee Parties also

3 Section 242.07(1)(b) of the Wisconsin Statutes provides that a creditor seeking relief under chapter
242 may obtain, among other remedies, “[a]n attachment or other provisional remedy against the
asset transferred or other property of the transferee if available under chs. 810 to 813 or other
applicable law.” Neither the state court order nor the Lee Parties’ submissions in this Court identify
any applicable law other than chapter 811. Therefore, the Court has assumed that the Lee Parties
were required to follow the procedures in chapter 811 of the Wisconsin Statutes in seeking to enforce
the attachment ordered by the state court.
4 A lien arises under Wis. Stat. § 806.15 only for judgments “properly entered in the judgment and
lien docket.” Wis. Stat. § 806.15 (1). As noted above, it is unclear whether any judgment against the
Debtors was actually entered in the judgment and lien docket for Ozaukee County because the Lee
Parties presented no evidence indicating any judgment was docketed.
requested that title to the Property be transferred to them pursuant to Wis. Stat.
§ 816.08. (Id.)
On June 27, 2023, the state court entered an Order for Default Judgment and

Execution Defendants Mailee Hang and Vang Tou Hang and Interested Party C&K
Associates, LLC. (Halloin Decl. Ex. 24, ECF 24-24.) The order provides that
“effectively immediately, [the Lee Parties] may execute against the [Property]
without any right of redemption.” (Id. at 4.) It also provides that “[t]itle to the
Property is transferred to the [Lee Parties], effective immediately” and that the Lee
Parties “are entitled to the immediate possession of the [Property] pending further

disposition, accounting, and sale.” (Id. at 4-5.) The Lee Parties did not present any
evidence that a writ of execution was issued to the sheriff, that they recorded the
order, or that they engaged in any other procedure to have sheriff execute on or sell
the Property pursuant to chapter 815 of the Wisconsin statutes.
The Debtors attempted to appeal the June 27, 2023 order entered in Case No.
2023-CV-31. (Halloin Decl. Ex. 25, ECF 24-25.) The Wisconsin Court of Appeals
dismissed the appeal on April 2, 2024. (Halloin Decl. Ex. 26, ECF 24-26.)

The Lee Parties separately sued C&K Associates in Ozaukee County,
Wisconsin Circuit Court, Case No. 2023-CV-37. (Halloin Decl. Ex. 10, ECF 24-10.)
They say one purpose of the lawsuit was to secure the records that were supposed to
be maintained for the loan from C&K Associates to the Debtors. (Pls’ Proposed
Findings of Fact (“PFOF”), ECF 23, ¶¶ 39-40.) On June 27, 2023, the state court
entered a Default Judgment and Order to Compel Against Defendant C&K
Associates, LLC. (Halloin Decl. Ex. 11, ECF 24-11.) The order provides, “Any
promissory notes made to C&K Associates, LLC, and mortgages received by it, are
ordered assigned to the [Lee Parties], including, without limitation, any promissory

notes or mortgages relating to . . .” the Property. (Id. at 3.) The order required all
makers of any promissory notes to remit future payments to the Lee Parties. The
parties do not appear to dispute that the Debtors are now required to pay the Lee
Parties under the note and mortgage or that the Debtors are now in default because
they have not made payments on the note and mortgage since 2022.
Procedural History
The Debtors filed a voluntary chapter 7 petition on June 28, 2024, Case No.

24-23470. The Court entered an Order of Discharge on February 3, 2025.
The Lee Parties timely filed this adversary proceeding on October 4, 2024.
Their complaint alleges a single cause of action: they allege that the Debtors owe
them a debt of $2,445,564.41, and they “request that the Court declare that the
[Debtors] are not entitled to receive a discharge of their debt under 11 U.S.C.
section 523 (b) [sic].” (Compl., ECF 1, at 6.) The Court assumes the Lee Parties

intended to refer to 11 U.S.C. § 523 (a)(2)(A). (See id., ¶ 25.)
The Lee Parties filed a motion for summary judgment requesting that the
Court order three forms of declaratory relief. (ECF 21.) They ask the Court to
declare that the debt owed by the Debtors is not dischargeable, that the Property is
not part of the bankruptcy estate, and that the Debtors cannot claim a homestead
exemption in the Property. (Id.)
The Court noted that the Lee Parties’ complaint did not allege claims that
would support the latter two declarations requested in their motion for summary
judgment and allowed the Lee Parties to file a supplemental brief addressing the

Court’s authority to award the requested relief. (ECF 27.) The Lee Parties then
filed a motion for leave to amend their adversary complaint. (ECF 29.) The
proposed amended complaint includes, in addition to a claim seeking a declaration
of nondischargeability under § 523(a)(2)(A), a claim requesting that the Court
declare that the Property is not part of the bankruptcy estate and that the Debtors
cannot claim a homestead exemption. (ECF 29-1 at 9-12.)

The Debtors filed their own motion for summary judgment on the
nondischargeability claim, arguing that the Lee Parties cannot submit evidence
sufficient to support the elements of nondischargeability. (ECF Nos. 26, 31.) The
Debtors also objected to the Lee Parties’ motion for leave to amend the adversary
complaint. (ECF 39.)
JURISDICTION
The Court has jurisdiction over this adversary proceeding pursuant to 28

U.S.C. § 1334 and the order of reference from the district court pursuant to 28
U.S.C. § 157 (a). See 84-1 Order of Reference (E.D. Wis. July 10, 1984) (available at
https://www.wieb.uscourts.gov/general-orders) (last visited March 30, 2026).
Determination of the dischargeability of a debt and allowance or disallowance of
exemptions are core proceedings under 28 U.S.C. § 157 (b)(2)(I). In addition, the
district court, and this Court by the order of reference, has “exclusive
jurisdiction . . . of all of the property, wherever located, of the debtor as of the
commencement of such case, and of property of the estate.” 11 U.S.C. § 1334 (e)(1);
see also Richard Levin & Henry J. Sommer, Collier on Bankruptcy ¶ 3.01 (16th ed.
2026) (“Likewise, the district court has exclusive jurisdiction to determine whether

property is property of the estate to begin with.”). To the extent resolution of the
pending motions requires consideration of issues impacted by the Supreme Court’s
decision in Stern v. Marshall, 564 U.S. 462 (2011), the parties have consented to
this Court’s final adjudication of these issues by their silence. See Fed. R. Bankr. P.
7008, 7012; see also Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665, 683 (2015)
(“Nothing in the Constitution requires that consent to adjudication by a bankruptcy

court be express.”).
DISCUSSION
I. The Lee Parties’ Motion for Leave to Amend
The Lee Parties’ initial adversary complaint includes a single cause of action
seeking to have a debt declared nondischargeable pursuant to 11 U.S.C.
§ 523 (a)(2)(A). They now seek leave to amend their complaint, after the discovery
deadline, to add a claim requesting two declarations: they want the Court to declare
that the Property is not part of the bankruptcy estate and they want the Court to

declare that the Debtors cannot claim a homestead exemption in the Property.
The Lee Parties’ motion is governed by Federal Rule of Civil Procedure 15,
made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7015.
The rule provides that leave of court is required for a party to amend its pleading at
this point in the proceeding, and it directs that “[t]he court should freely give leave
when justice so requires.” Fed. R. Civ. P. 15(a)(2).
“Although the rule reflects a liberal attitude towards the amendment of
pleadings, courts in their sound discretion may deny a proposed amendment if the
moving party has unduly delayed in filing the motion, if the opposing party would

suffer undue prejudice, or if the pleading is futile.” Campania Mgmt. Co. v. Rooks,
Pitts & Poust, 290 F.3d 843, 848-49 (7th Cir. 2002). The Lee Parties’ proposed
amendment would unduly prejudice the Debtors, and it is futile in any event.
A. Amendment Would Prejudice the Debtors.
“Prejudice to the nonmoving party caused by undue delay is a particularly
important consideration when assessing a motion under Rule 15(a)(2).” Allen v.
Brown Advisory, LLC, 41 F.4th 843, 853 (7th Cir. 2022). “[P]rejudice is more likely

when an amendment comes late in the litigation and will drive the proceedings in a
new direction” or “require significant discovery on new issues.” Id.; see also Perrian
v. O’Grady, 958 F.2d 192, 195 (7th Cir. 1992) (“Eleventh hour additions are bound
to produce delays that burden not only the parties to the litigation but also the
judicial system and other litigants.”) (cleaned up). A court has broad discretion to
deny a plaintiff leave to amend to add new claims near or after the deadline to

complete discovery. Hukic v. Aurora Loan Servs., 588 F.3d 420, 432 (7th Cir. 2009)
(affirming denial of motion for leave to amend filed three days before the close of
fact discovery); Rodriguez v. City of Green Bay, No. 20-C-1819, 2022 WL 823948, at
*1 (E.D. Wis. Mar. 18, 2022) (striking amended complaint filed after the close of
discovery and one day before summary judgment motions were due).
The Lee Parties’ motion for leave to amend their complaint was filed after the
close of discovery and after the deadline to file motions for summary judgment. At
all times during discovery and in preparing to file a motion for summary judgment,
the Debtors faced only one claim seeking a declaration of nondischargeability with
respect to the money judgment entered by the state court in Case No. 2022-CV-162.

The Debtors were not put on notice that they would need to defend against a claim
that they do not legally own the Property and could not claim an exemption in the
Property, regardless of the dischargeability of the debt.
The Lee Parties offer no explanation for their failure to include the new
claims in their original pleading.5 See Sanders v. Venture Stores, Inc., 56 F.3d 771,
775 (7th Cir. 1995) (affirming denial of leave to amend after close of discovery and

summary judgment briefing where plaintiffs “offered no explanation whatsoever for
the delay”). They say that “it has become clear during the course of this adversary
proceeding that the [Debtors] are trying to use this bankruptcy proceeding to void
the Ozaukee County Circuit Court’s prior orders and maintain ownership of the
Property.” (ECF 30 at 13.) The Debtors asserted an ownership interest in the
Property and claimed a homestead exemption in the Property in their schedules
filed on the petition date, months before the adversary proceeding was filed. (See

Case No. 24-23470, ECF 1, at 10, 17.) Maybe the Lee Parties thought the Debtors
didn’t really intend to claim an ownership interest and homestead exemption based
on their schedules, but the Debtors’ position should have been clear from their

5 In their reply brief, the Lee Parties assert that they received new discovery from third parties.
(ECF 43 at 21.) The new allegations in the proposed amended complaint, to the extent they are
relevant at all, relate only to the § 523(a)(2)(A) claim already pleaded. The new claims for
declarations regarding the Debtors’ ownership interest in the Property and homestead exemption are
based entirely on facts surrounding the state court orders entered well before the Debtors filed
bankruptcy.
answer to the complaint. (See ECF 5, ¶ 29.) Yet the Lee Parties did not seek to
amend their complaint until over ten months later, after the Court asked the Lee
Parties to brief the issue of the Court’s ability to grant the relief sought in their

motion for summary judgment.
Upon disposition of the parties’ cross motions for summary judgment, this
case will be ready to proceed to trial. If the Court allows the amendment, discovery
may need to be reopened6, and the parties could file another round of summary
judgment motions on the added claims.7 The Debtors and the public have an
interest in a speedy resolution of this case. Perrian, 958 F.2d at 195 (“The burden

to the judicial system can justify a denial of a motion to amend even if the
amendment would cause no hardship at all to the opposing party” because a late
amendment “defeat[s] the public’s interest in speedy resolution of legal disputes.”)
(internal quotation marks omitted). The Debtors will be prejudiced by the late
amendment, so the Court will deny leave to amend.
B. The Amendment Would Be Futile.
It is appropriate to deny a plaintiff leave to amend a complaint where the

amendment would be futile. Moore v. State of Ind., 999 F.2d 1125, 1128 (7th Cir.

6 The Lee Parties say that they do not want additional discovery (see Pls’ Combined Reply Brief, ECF
43 at 21), but the Debtors may want additional discovery regarding the scope of the Lee Parties’
alleged interest in the Property before the Court were to make a binding declaration.
7 The Lee Parties seem to suggest that the Court should permit them to amend their complaint and
then grant summary judgment in their favor on the added claims without allowing the Debtors to
file a responsive motion or pleading or to conduct discovery on the new claims. The Lee Parties offer
no legal authority for the Court’s ability to grant immediate summary judgment in that fashion. See
In re KJK Const. Co., 414 B.R. 416, 426-27 (Bankr. N.D. Ill. 2009) (noting that if a motion for
summary judgment is made before an answer to the complaint is filed, courts are reluctant to grant
summary judgment unless it is very clear that an answer will not raise any significant issues of fact).
1993) (“[T]he court should not allow the plaintiff to amend his complaint when to do
so would be futile.”). “[A]n amendment may be futile when it fails to state a valid
theory of liability . . . or could not withstand a motion to dismiss.” Bower v. Jones, 978 F.2d 1004, 1008 (7th Cir. 1992).
The Lee Parties’ new claim in the proposed amended complaint seeks two
declarations: that the Debtors cannot claim a homestead exemption in the Property
and that the Property is not part of the bankruptcy estate. As an initial matter, the
Court observes that the Lee Parties plead a single claim for two declarations that
would give them inconsistent relief. If the Property is not part of the bankruptcy

estate, then the Debtors cannot claim a homestead exemption in the Property.
Exemptions are available to debtors only where property is part of the bankruptcy
estate. In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993) (“Before an exemption [of
property] can be claimed, it must be estate property.”), abrogated on other grounds
by Law v. Siegel, 571 U.S. 415 (2014).
Regardless, even if the Lee Parties had appropriately requested the relief
under two claims and alternative theories of relief, the claims would be subject to

immediate dismissal.
1. Declaration Regarding Homestead Exemption
In the main bankruptcy case, the Debtors claimed a homestead exemption in
the Property in the amount of $59,000 pursuant to Wis. Stat. § 815.20. Case No. 24-
23470, ECF 1 at 17. Though Wisconsin law allows each debtor to claim up to
$75,000 for a homestead exemption, allowing married couples like the Debtors to
claim up to $150,000, it appears that the exemption claimed by the Debtors is the
difference between the balance on the mortgage to C&K Associates and the value of
the Property.
Pursuant to Bankruptcy Rule 4003, “a party in interest may file an objection

to a claimed exemption within 30 days after . . . the conclusion of the § 341 meeting
of creditors.” Fed. R. Bankr. P. 4003(b)(1).8 The court may extend the time to file
an objection, but only if the party in interest files a motion before the time to object
expires. Id. Failure to file a written objection to a debtor’s claimed exemption, or a
motion to extend the deadline, is fatal to an untimely objection. In re Kazi, 985 F.2d
318, 322 (7th Cir. 1993). This is so even where the party in interest initially

believes the property in which the exemption is claimed is not part of the
bankruptcy estate. Id. The chapter 7 trustee concluded the meeting of creditors on October 29, 2024
and filed a report of no distribution on October 30, 2024. Case No. 24-23470, Dkt.
Nos. 23, 29. Pursuant to Bankruptcy Rule 4003(b), the deadline for the Lee Parties
to object to the Debtors’ claimed homestead exemption was November 29, 2024
(November 28 was Thanksgiving). The Lee Parties did not file their proposed

8 The rule extends this deadline if the debtor files a supplement to the list of exemptions or an
amendment to other schedules that is relevant to the exemption at issue. See Fed. R. Bankr. P.
4003(b)(1); see also In re Kazi, 985 F.2d 318, 323 (7th Cir. 1993) (agreeing that “the objection may go
only to those exemptions affected by [the amended schedules]” and that “[t]he filing of an amended
schedule does not reopen the time to object to the original exemptions”). The Debtors did not file any
amendments to their list of exemptions or relevant supplements to their schedules that would affect
the exemption they claimed in the Property.
amended complaint with the objection to the Debtors’ claimed homestead exemption
until September 18, 2025, well after the deadline.9
The Lee Parties filed their initial complaint on October 4, 2024, which was

within the time to object under Bankruptcy Rule 4003(b). Civil Rule 15(c) provides
that an amended pleading relates back to the date of the original complaint under
certain circumstances, including when “the amendment asserts a claim or defense
that arose out of the conduct, transaction, or occurrence set out—or attempted to be
set out—in the original pleading.” Fed. R. Civ. P. 15(c)(1)(B). Under this rule, if the
Lee Parties’ new claim, filed on September 18, 2025, relates back to the date of the

original complaint filed on October 4, 2024, then the Lee Parties’ claim objecting to
the Debtors’ homestead exemption may be timely.
The Court declines to apply Rule 15(c) to allow the proposed amended
complaint to relate back to the original complaint. Such a rule would encourage
abuse of the bankruptcy process by creditors. “[O]nce the 30-day period to object
expires, a debtor’s claimed exemption cannot be challenged regardless whether it
has a basis in law.” Kazi, 985 F.2d at 322. A creditor should not be permitted to file

a timely nondischargeability action and later amend its adversary complaint to
include an untimely objection to a debtor’s claimed exemption. See, e.g., Dolfi v.
Dolfi (In re Dolfi), 605 B.R. 385, 391-94 (Bankr. W.D. Pa. 2019) (denying leave to

9 It is not at all clear why the Lee Parties even want to bring this claim. Exemptions in bankruptcy
take property out of the bankruptcy estate and out of reach of the chapter 7 trustee. See 11 U.S.C.
§ 522 (b)(1). If the Lee Parties succeed in disallowing the homestead exemption, but the Property is
still part of the bankruptcy estate, then the chapter 7 trustee could withdraw his no-asset report and
seek to liquidate the non-exempt equity in the Property for the benefit of all unsecured creditors.
amend complaint to add claim based on § 523(a)(2)(A) because original complaint
under §§ 523(a)(6) and (a)(15) did not put debtor on fair notice that plaintiffs would
assert nondischargeability due to debtor’s alleged fraud). Moreover, it is not clear

that an objection to a claim of exemption can even be brought in an adversary
proceeding. See Cardservice Int’l, Inc. v. Inman (In re Inman), 260 B.R. 233, 241 (Bankr. M.D. Fla. 2000) (“Such an objection [to the debtor’s exemptions in
household property] should have been brought in the main case, not in this
Proceeding.”).
The Lee Parties’ new claim objecting to the Debtors’ homestead exemption is

subject to immediate dismissal as untimely. Therefore, an amendment to add this
claim is futile.
In an attempt to save their new claim for a declaration as to the Debtors’
homestead exemption, the Lee Parties say they are merely responding to the
Debtors’ invocation of the exemption as an affirmative defense to the Lee Parties’
nondischargeability claim. (See ECF 30 at 10 (citing ECF 5 at 5-6).) “An
affirmative defense limits or excuses a defendant’s liability even if the plaintiff

establishes a prima facie case.” Bell v. Taylor, 827 F.3d 699, 704-05 (7th Cir. 2016)
(internal quotation marks and citation omitted). A plaintiff does not have an
affirmative claim against a defendant based on an affirmative defense, so that does
not save the Lee Parties’ proposed claim for a declaration denying the Debtors’
homestead exemption.
To the extent the Lee Parties seek summary judgment as to an affirmative
defense (as opposed to an affirmative claim for a declaration), the Court will deny
that motion. In their answer to the complaint, the Debtors included an affirmative

defense that the Lee Parties’ “request for relief fails because the Debtor/Defendants’
home is their homestead, with equity at or below $150,000 and therefore exempt
and out of reach of creditors.” (Answer, ECF 5, at ¶ 35.) The Lee Parties’ motion
for summary judgment does not specifically request that the Court grant summary
judgment precluding the Debtors from raising the affirmative defense in paragraph
35 of their answer (or any other affirmative defense). (See ECF 22.) None of the

Debtors’ briefs mention an affirmative defense, either, suggesting that they did not
understand the Lee Parties to be seeking summary judgment on their affirmative
defense. (See ECF 31, 37, 45.) Therefore, the Court will deny summary judgment
because the Debtors did not have sufficient notice of the Lee Parties’ motion on this
issue.
The Debtors are cautioned that they may raise at trial only affirmative
defenses that limit or excuse their liability as to nondischargeability under

§ 523(a)(2)(A) if the Lee Parties establish a prima facie case. Under Wisconsin law,
the holder of a money judgment (which the Lee Parties purport to be) may enforce
that judgment through execution on a debtor’s property. See Wis. Stat. ch. 815.
Certain property is exempt from execution by a creditor, including $75,000 in a
debtor’s homestead. Wis. Stat. § 815.20. The Lee Parties’ ability to enforce their
judgment through execution on the Property does not seem to be relevant to
whether the debt claimed by the Lee Parties is nondischargeable under
§ 523(a)(2)(A). The Debtors’ homestead exemption may affect the property that the
Lee Parties can look to for satisfaction of their claim10, but that is a matter separate

from whether the debt itself is nondischargeable.
2. Declaration Regarding Property of the Estate
The Lee Parties next seek to have the Court declare that the Property is not
part of the bankruptcy estate. Amendment to add this claim also is futile.
The Lee Parties first say that ownership of the Property is a “threshold legal
issue.” (ECF 30 at 6.) Threshold to what? The Lee Parties don’t say. Whether the
Debtors or the Lee Parties own the Property seems to have no bearing at all on

whether any underlying debt is nondischargeable under § 523(a)(2)(A).
The Lee Parties argue that a declaration that the Property is not part of the
bankruptcy estate is within the scope of relief permitted after trial pursuant to
Federal Rule of Civil Procedure 54(c), so their motion to amend does not seek any
relief different from what the Court can grant on their existing nondischargeability
claim. (ECF 30 at 6.) Rule 54(c), made applicable to this proceeding by Federal

Rule of Bankruptcy Procedure 7054(a), provides that a judgment, other than a

10 A declaration of nondischargeability under § 523(a)(2)(A) does not affect the parties’ rights with
respect to any judgment lien the Lee Parties may have. The lien survives bankruptcy unaffected to
the extent it is not avoided. See In re Pajian, 785 F.3d 1161, 1163 (7th Cir. 2015) (“a secured creditor
who fails to [file a proof of claim] can still enforce its lien through a foreclosure action, even after the
debtor receives a discharge”); In re Penrod, 50 F.3d 459, 461 (7th Cir. 1995) (noting the presumption
that “liens pass through bankruptcy unaffected”). The Debtors may exercise their rights under 11
U.S.C. § 522 (f) in the main case to seek avoidance of any judgment lien. In re Ash, 166 B.R. 202, 204 (Bankr. D. Conn. 1994) (“A substantial number of courts considering this issue agree that a debtor’s
avoidance power [under § 522(f)] is not conditioned upon whether the underlying debt is
dischargeable[.]”) (collecting cases). They have not filed such a motion.
default judgment, “should grant the relief to which each party is entitled, even if the
party has not demanded that relief in its pleadings.” Fed. R. Civ. P. 54(c).
Contrary to the Lee Parties’ assertion, a declaration that the Property is not

part of the bankruptcy estate is not relief that can be granted on the Lee Parties’
original complaint, which pleads a single claim for a declaration of
nondischargeability under § 523(a)(2)(A). Pursuant to § 523(a)(2)(A), the Court can
declare that a “debt” is nondischargeable. A “debt” is “liability on a claim.” 11
U.S.C. § 101 (12). A “claim” is a “right to payment” or a “right to an equitable
remedy for breach of performance if such breach gives rise to a right to payment.” 11 U.S.C. § 101 (5). Thus, the relief that the Court can grant on the Lee Parties’
claim under § 523(a)(2)(A) is limited to a declaration that their right to payment of
money obtained by fraud continues notwithstanding the Debtors’ discharge. The
Lee Parties’ new claim related to what is and is not property of the bankruptcy
estate is not relief that the Court could grant under § 523(a)(2)(A).
The Lee Parties also argue that the Rooker-Feldman doctrine somehow
applies to allow their affirmative claim for a declaration that the Property is not

part of the bankruptcy estate. (ECF 30 at 7.) The Rooker-Feldman doctrine
prevents the federal courts from exercising subject matter jurisdiction under certain
circumstances. Under the doctrine, federal courts should disclaim jurisdiction only
in “cases brought by state-court losers complaining of injuries caused by state-court
judgments rendered before the district court proceedings commenced and inviting
district court review and rejection of those judgments.” Gilbank v. Wood Cnty. Dep’t
of Hum. Servs., 111 F.4th 754, 766 (7th Cir. 2024) (quoting Exxon Mobil Corp. v.
Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005). The Lee Parties do not explain
how a doctrine limiting subject matter jurisdiction applies to allow their affirmative

claim for declaratory relief. The Rooker-Feldman doctrine does not prevent state
court losers from seeking bankruptcy relief, which is the only relief the Debtors
have sought. Cf. Sasson v. Sokoloff (In re Sasson), 424 F.3d 864, 871 (9th Cir. 2005)
(“The Rooker–Feldman doctrine has little or no application to bankruptcy
proceedings that invoke substantive rights under the Bankruptcy Code or that, by
their nature, could arise only in the context of a federal bankruptcy case.”).

The Lee Parties also argue that their claim for declaratory relief is
appropriate because, according to the Lee Parties, the Debtors misrepresented their
interest in the Property on their bankruptcy schedules. They cite In re Stamat, 395
B.R. 59, 72 (Bankr. N.D. Ill. 2008), a case in which a debtor’s discharge was denied
under § 727(a)(4) based in part on the debtor’s inaccurate schedules. (Pls’
Combined Supplemental Brief, ECF 30, at 8.) Here, the Debtors’ schedules indicate
that they own the Property, which according to the Lee Parties is not true.

Therefore, say the Lee Parties, ownership of the Property is relevant to their
nondischargeability claim. But the Stamat case was one under § 727(a), which
allows denial of a debtor’s discharge for certain conduct. The Debtors have already
received a discharge; this adversary proceeding is about whether a single debt is
excepted from the discharge under § 523(a)(2)(A). The information included on the
schedules might be relevant to establishing the elements of a § 523(a)(2)(A) claim,
but that does not allow the Lee Parties to raise an entirely separate claim for
declaratory relief.
On the merits, the Lee Parties’ proposed claim for a declaration that the

Property is part of the bankruptcy estate is subject to immediate dismissal because
the proposed amended complaint does not state a claim. Pursuant to § 541(a), a
bankruptcy estate is created upon the filing of a bankruptcy petition that includes
“all legal or equitable interests of the debtor in property as of the commencement of
the case.” 11 U.S.C. § 541 (a). The Lee Parties are right that the bankruptcy estate
is limited to whatever rights a debtor had at the beginning of the case—no more, no

less. (ECF 30, at 8-9 (quoting In re Jones, 768 F.2d 923, 927 (7th Cir. 1985).)
So what interest did the Debtors have in the Property on the petition date?
At that point, the state court had entered an order on September 8, 2022 in Case
No. 2022-CV-162 ordering that the Lee Parties were “entitled to a Writ of
Attachment” for the Property and that the Property was “attached by a lien” in
favor of the Lee Parties that “may be filed with the appropriate Register of Deeds.”
(Prop. Am. Compl., ECF 29-1, at 20-21.)11 The Lee Parties do not allege that the

state court ever actually issued a writ of attachment to the sheriff consistent with
chapter 811 of the Wisconsin Statutes, and no such writ was attached to the
proposed amended complaint or included with the summary judgment record. See Wis. Stat. § 811.02 (a writ of attachment “shall be directed to the sheriff of some

11 The amended complaint includes an allegation that the September 8 order was amended on
December 8, 2022. (ECF 29-1, ¶ 16; id. at 23-27 (Ex. B).) The only difference between the orders
seems to be the amount of the money judgment.
county in which the property of the defendant is supposed to be, and shall require
the sheriff to attach all the property of the defendant within the county or so much
thereof as may be sufficient to satisfy the plaintiff’s demand, together with costs

and expenses”). Nor do the Lee Parties allege that they filed the order or otherwise
recorded a lien with the Register of Deeds for Ozaukee County consistent with the
order. (And a lien would give them only a security interest in the Property, not
ownership of the Property.) The September 8, 2022 order in Case No. 2022-CV-162
was ineffective, on its own, to transfer any interest in the Property to the Lee
Parties.

The state court separately entered an order on June 27, 2023 in Case No.
2023-CV-31. (Halloin Decl. Ex. 24, ECF 24-24.)12 The order provides that the
matter “relates to an execution against the [Property].” (Id. at 3.) The court
ordered that “execution” in favor of the Lee Parties “is appropriate” and that “[t]itle
to the Property is transferred to the [Lee Parties], effective immediately.” (Id. at 4,
¶¶ 2, 5.) The order cites no legal authority for the execution and transfer of title to
the Property, nor do the Lee Parties cite any authority in their briefing. The Court

has assumed that the state court issued an order for execution for “delivery of
property” under Wis. Stat. § 815.03. Once such an order is entered, the execution
must follow the procedures required under chapter 815. Two requirements are
pertinent here. First, “[w]hen the execution requires the delivery of real or personal

12 The Lee Parties do not attach this order to their proposed amended complaint, but they do allege
its existence, so the Court has considered the order included in the summary judgment record.
property, the execution shall be issued to the sheriff of the county where the
property or some part of the property is situated.” Wis. Stat. § 815.07. The Lee
Parties do not allege that a writ of execution was issued to the sheriff. Second,

“[l]evy of execution on real property is made by endorsing on the execution a
description of the property on which the levy was made, and recording the
execution, so endorsed, in the office of the register of deeds.” Wis. Stat. § 815.195.
The Lee Parties do not allege that the execution (or the order for execution) was
recorded with the Ozaukee County Register of Deeds. Therefore, it appears that the
Lee Parties did not, before the petition date, take the appropriate steps to perfect

and levy the execution and transfer title to the Property.
The Lee Parties allege that the state court issued a writ of assistance to the
sheriff, which is evidence that they, not the Debtors, own the Property. (Prop. Am.
Compl., ECF 29-1, ¶ 40; id. at 39-42 (Ex. D).) The writ itself does not include the
legal basis for issuance of the writ, and the Lee Parties do not explain the basis for
issuance of the writ. (See ECF 22 at 11-12.) A writ of assistance puts the owner of
property into possession of the property through assistance from the sheriff; the

writ does not itself create the ownership interest. Jay E. Grenig, Wis. Pl. & Pr.
Forms § 42:10 Enforcement of Judgments: Writs of Assistance (5th ed. June 2025
update) (citing Stanley v. Sullivan, 71 Wis. 585, 37 N.W. 801 (1888) (discussing
nature of writ)).
Had the Debtors not filed bankruptcy, then perhaps the Lee Parties might
have been put into possession of the Property with assistance from the sheriff
despite their failure to perfect the execution. But the writ of assistance was not
served, and the Debtors remained in possession of the Property on the petition date.
Without an allegation that the Lee Parties perfected their legal ownership interest

in the Property (as opposed to having a lien on the Property), the Court cannot
declare that they own the Property.
An observation before moving on: It is not clear why the Lee Parties need or
want a declaration that they own the Property. The chapter 7 trustee filed a no-
asset report and is not trying to liquidate the Property for the benefit of unsecured
creditors. Once the main bankruptcy case is closed, which will happen as soon as

this adversary proceeding is concluded, any interest the Debtors have in the
Property will be abandoned from the bankruptcy estate. 11 U.S.C. § 554 (c).13
The Lee Parties protest that the Debtors should not be allowed to use
bankruptcy law “to create ownership rights which do not exist.” (ECF 30 at 7.)
They do not explain how the Debtors will obtain legal ownership of the Property
merely by listing the Property on their bankruptcy schedules. If scheduled property
of the debtor is not administered by the trustee during the bankruptcy case, any

interest the debtor has in the property passes through the estate unaffected. See 11
U.S.C. § 554 (c). If the Debtors had full legal ownership of the Property on the

13 Another oddity: The Lee Parties assert, and the Debtors do not seem to dispute, that they now own
the mortgage to C&K Associates and that the Debtors are behind on their mortgage payments. (ECF
43 at 10-11.) If all that is true, the Lee Parties could seek relief from the § 362(a) stay to institute
proceedings to foreclose the mortgage. See 9B Am. Jur. 2d Bankruptcy § 1891 (Feb. 2026 update)
(“There is no question that a property is not necessary to an effective reorganization where the
debtor is not attempting to reorganize, but is voluntarily liquidating under Chapter 7 so that, where
the debtor has no equity in the property, a relief from the automatic stay must be granted.”). A
debtor cannot claim a homestead exemption in a mortgage foreclosure. See Wis. Stat. § 815.20 (1).
petition date, then that is what they will have upon abandonment from the estate; if
they had a mere possessory interest on the petition date, then that is all they will
have when this case is over.

II. Motions for Summary Judgment
Summary judgment is appropriate if the pleadings and affidavits on file show
there is no genuine dispute as to any material fact and the moving party can
establish it is entitled to judgment as a matter of law. See Fed. R. Bankr. P. 7056;
Fed. R. Civ. P. 56. An issue of material fact is a question that must be answered to
determine the rights of the parties under substantive law and that can properly be
resolved only “by a finder of fact because [it] may reasonably be resolved in favor of

either party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). The
movant may meet his burden by showing “that there is an absence of evidence to
support the nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). “If the movant has failed to make this initial showing, the court is obligated
to deny the motion.” Hotel 71 Mezz Lender LLC v. Nat’l Ret. Fund, 778 F.3d 593,
601 (7th Cir. 2015) (citations omitted). If the moving party meets his burden, the

burden shifts to the nonmoving party to show there is a genuine issue of material
fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). “The evidence of the non-movant is to be believed, and all justifiable
inferences are to be drawn in his favor.” Anderson, 477 U.S. at 255.
The Lee Parties seek a declaration that a debt owed to them is excepted from
the Debtors’ discharge under 11 U.S.C. § 523 (a)(2)(A). That section excepts debts
“obtained by . . . false pretenses, a false representation, or actual fraud . . . .” 11
U.S.C. § 523 (a)(2)(A). The creditor must prove each element of a
nondischargeability claim by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991). “[E]xceptions to discharge are to be [construed] strictly

against a creditor and liberally in favor of the debtor.” Goldberg Securities, Inc. v.
Scarlata (In re Scarlata), 979 F.2d 521, 524 (7th Cir. 1992).
The term “actual fraud” as used in § 523(a)(2)(A) “denotes any fraud that
involves moral turpitude or intentional wrong.” Husky Int’l Elecs., Inc. v. Ritz, 578
U.S. 355, 360 (2016) (cleaned up); see also In re McGill, No. 22-21547-GMH, 2023
WL 7136151, at *6 (Bankr. E.D. Wis. Oct. 30, 2023) (“The essence of any claim

under § 523(a)(2)(A) is that the debtor, whether by word or deed, somehow cheated
the creditor, which requires some type of ‘moral turpitude’ or ‘intent to deceive’ on
the part of the debtor, rather than simply not abiding by his promises.”) (cleaned
up). Thus, “actual fraud” includes debts incurred through “fraudulent conveyance
schemes, even when those schemes do not involve a false representation.” Husky, 578 U.S. at 366. “[T]he recipient of the transfer—who, with the requisite intent,
also commits fraud—can obtain assets by his or her participation in the fraud. If

that recipient later files for bankruptcy, any debts traceable to the fraudulent
conveyance will be nondischargeable under § 523(a)(2)(A).” Id. at 365 (cleaned up).
A bankruptcy debtor can be liable as a transferee of fraudulently conveyed
property where the debtor participated in a scheme to hide an asset from the
creditor. See McClellan v. Cantrell, 217 F.3d 890, 895 (7th Cir. 2000). In
McClellan, the creditor sold his ice-making machinery to the debtor’s brother for
$200,000, payable to the creditor in installments. Id. at 892. The brother defaulted,
and the creditor commenced litigation to seek return of the machinery and
collection of the remaining balance of the debt. Id. The debtor’s brother “sold” the

machinery to the debtor for $10. Id. The debtor then sold the machinery for
$160,000 and refused to disclose where the sale proceeds went. Id. The Seventh
Circuit held that the debtor’s liability for fraudulent conveyance could be rendered
nondischargeable if the debtor participated in the fraud and had intent to assist her
brother in transferring assets to evade the creditor. Id. at 893-94. The court noted
that a transfer that is merely constructively fraudulent, where the debtor did not

have knowledge of or intent to participate in a fraudulent scheme to hinder the
creditor, may be dischargeable. Id. at 894 (“The fraud exception to the
dischargeability of debts in bankruptcy does not reach constructive frauds, only
actual ones[.]”).
The record includes some evidence of the Debtors’ intent, but there are
genuine issues of material fact precluding summary judgment.
A. The State Court Order Does Not Establish Intent to Defraud.

To prevail on their nondischargeability claim, the Lee Parties must prove
that the Debtors are liable for an actual fraudulent transfer, as opposed to a
constructive fraudulent transfer. The Lee Parties rely heavily on the September 8,
2022 order entered in Ozaukee County Case No. 2022-CV-162. (Halloin Decl. Ex. 8,
ECF 24-8.) They say, for example, that “[t]he Wisconsin Circuit Court already
entered a final order that [the Debtors] were liable for the damages caused by Kay
Yang’s fraud.” (Pls’ Combined Reply Brief, ECF 43, at 18). The order cannot bear
the weight the Lee Parties place on it.
In the September 8 order, the state court stated that “[t]his matter relates to

fraudulent transfers from Defendant debtor Kay Yang to the other named
Defendants in this action.” (Halloin Decl. Ex. 8, ECF 26-8, at 2.) The court found
the Debtors to be in default and concluded that “[t]he allegations of the Complaint
are deemed admitted.” (Id. at 4.) The court then entered judgment against the
Debtors in the amount of $2,374,290.16. (Id.) The Court’s order does not
specifically state the basis of the Debtors’ liability, other than a reference to

fraudulent transfers.
Even assuming we can look to the Lee Parties’ state court complaint to
determine the source of the Debtors’ liability, that does not help the Lee Parties. As
relevant here, the Lee Parties alleged: “Plaintiffs believe that these transfers [to
Debtors for purchase of the Property] were done with an intent to hinder, delay or
defraud the Plaintiffs’ efforts to collect a present or future judgment against Ms.
Yang.” (Halloin Decl. Ex. 6, ECF 24-6, ¶ 23.) They also allege that, “Plaintiffs

believe each of the above transfers to be a violation of Wisconsin Statutes Chapter
242.” (Id. ¶ 25.) The Lee Parties “request[ed] judgment under Wisconsin Statutes
sections 242.04 and 242.07.” (Id. at 11.) The September 8 order provides that these
allegations were deemed admitted by the Debtors. The most that the Debtors
admitted was that the Lee Parties believe the transfer to them was done with intent
to hinder, delay or defraud the Lee Parties; the Debtors did not admit the existence
of any intent to hinder, delay or defraud.
Moreover, the complaint alleged that the transfer was a violation of chapter

242 of the Wisconsin Statutes and requested relief under section 242.04. That
section includes two distinct causes of action: section 242.04(1)(a) relates to actual
fraudulent transfers as to present or future creditors, and section 242.04(1)(b)
relates to constructive fraudulent transfers as to present or future creditors. Wis.
Stat. § 242.04 (1). The Lee Parties did not include a specific request for relief under
either subsection, and the state court did not grant relief under either subsection.

So the Debtors’ liability for fraudulent transfer under the September 8 order could
be based on constructive fraudulent transfer or actual fraudulent transfer. If the
former, their debt to the Lee Parties is dischargeable under McClellan. 217 F.3d at
894 (“The fraud exception to the dischargeability of debts in bankruptcy does not
reach constructive frauds, only actual ones[.]”). The Lee Parties cannot rely solely
on the state court order to establish fraudulent intent. They must prove here that
the transfer was an actual fraudulent transfer.

B. There Are Material Factual Disputes Regarding Intent.
The key element of a nondischargeability claim for actual fraud is the
scienter requirement: the plaintiff must prove fraudulent intent. See Husky, 578
U.S. at 360 (“[A]nything that counts as ‘fraud’ and is done with wrongful intent is
“actual fraud.”). Wrongful intent can be, but rarely is, proven with direct evidence.
Intent can also be proven through circumstantial evidence. State statutes usually
include a list of “badges of fraud” that can be helpful in determining whether a
fraudulent transfer is actually fraudulent, as opposed to constructively fraudulent,
and federal courts considering whether intent is proven for purposes of a claim
under § 523(a)(2)(A) often look to these badges of fraud. See, e.g., In re Wigley, [15

F.4th 1208](https://www.courtlistener.com/opinion/5290466/lariat-companies-inc-v-barbara-wigley/), 1212 n.4 (8th Cir. 2021) (“We reject Barbara’s argument that the
bankruptcy court erred in considering the badges of fraud set forth in Minn. Stat.
§ 513.44 (b).”); In re Kedia, 607 B.R. 101, 110 (Bankr. E.D.N.Y. 2019) (“Actual fraud
can be shown by the presence of multiple ‘badges of fraud[.]’”) (internal quotation
marks omitted).
As with the intent element in other causes of action, intent under

§ 523(a)(2)(A) is a question of fact rarely appropriate for disposition on summary
judgment. See, e.g., Staren v. Am. Nat. Bank & Tr. Co. of Chicago, 529 F.2d 1257,
1261 (7th Cir. 1976) (“[Q]uestions of motivation or intent are particularly
inappropriate for summary judgment.”); In re Salgado, 588 B.R. 209, 214 (Bankr.
N.D. Ill. 2018) (“Summary judgment will almost never be available when fraudulent
intent is a part of the cause of action. This is because intent is a factual issue that is
ordinarily a subjective inquiry, making the Debtor’s testimony and credibility

germane to this determination.”). Summary judgment in favor of the creditor is
appropriate only in “exceptional” cases where a debtor’s denial of knowledge is
“utterly implausible in light of conceded or irrefutable evidence that no rational
person could believe it.” In re Chavin, 150 F.3d 726, 728 (7th Cir. 1998). This is not
one of those exceptional cases.
Before moving on to the evidence on intent, the Court pauses to note an issue
of law that was not well-briefed by the parties, which is whose intent is relevant
when determining whether a debt for an actual fraudulent transfer is

nondischargeable under § 523(a)(2)(A). The Supreme Court in Husky and the
Seventh Circuit in McClellan held that a debt based on a fraudulent transfer can be
declared nondischargeable if the debtor as transferee had knowledge of and intent
to participate in the fraudulent transfer. Husky, 578 U.S. at 365 (noting that a
transferor does not “obtain” debts by fraudulent conveyance, but that “the recipient
of the transfer—who, with the requisite intent, also commits fraud—can ‘obtain’

assets ‘by’ his or her participation in the fraud”) (emphasis added); McClellan, 217
F.3d at 894 (“[I]f though the debtor’s brother intended to thwart McClellan and was
thus committing actual fraud, his sister was innocent—if she had no intention of
hindering any creditor—the debt that McClellan is seeking to collect from her would
not have been obtained by her by actual fraud.”). A more recent Supreme Court
case holds that a debt can be nondischargeable even where the debtor herself did
not have fraudulent intent, but that case did not involve a fraudulent transfer. See

Bartenwerfer v. Buckley, 598 U.S. 69 (2023).
In Bartenwerfer, a husband and wife remodeled and sold a house as business
partners. 598 U.S. at 72. The husband did most of the work during the process,
and the wife was largely uninvolved. Id. After the sale, the buyer discovered
several undisclosed defects. Id. The buyer sued the couple in state court, alleging
various claims for breach of contract, negligence, and nondisclosure, and the court
entered judgment against both of them. Id. at 72-73.
The couple filed bankruptcy, and the buyer sought to have the judgment debt

declared nondischargeable under 11 U.S.C. § 523 (a)(2)(A). Id. at 73. At issue in the
case was whether § 523(a)(2)(A) excepts from discharge only debts for fraud
committed by the debtor herself, as the wife argued, or whether the statute also
excepts debts for money obtained by fraud, even if the debtor was not the fraudster,
as argued by the buyer. The Supreme Court agreed with the buyer. Id. at 74-79.
The Court held that, “[w]ritten in the passive voice, § 523(a)(2)(A) turns on how the

money was obtained, not who committed fraud to obtain it.” Id. at 72. Because the
money owed to the buyer was obtained by fraud (i.e., the husband’s fraud), the debt
owed by the wife was nondischargeable under § 523(a)(2)(A) because she was liable
for the same debt under state law. Id.
The Lee Parties point to Bartenwerfer in support of an argument that they
need not prove the Debtors’ intent, and that it is sufficient for them to prove Kay
Yang’s intent to defraud the Lee Parties. (See Pls’ Combined Reply Brief, ECF 43,

at 18 (“[B]ecause the judgment [in Case No. 2022-CV-162] arises from funds
obtained by Kay Yang’s fraud and then passed to/used by [the Debtors], it is a debt
for money obtained by fraud.”).) But the Lee Parties do not allege that the Debtors
are liable for Kay Yang’s initial fraud. Rather, the Lee Parties allege that the
Debtors are liable for a debt for money obtained through a fraudulent transfer
under chapter 242 of the Wisconsin Statutes, an entirely separate, statutory cause
of action distinct from Yang’s debt to the Lee Parties for fraud.14 (See Halloin Decl.
Ex. 8, ECF 24-8.)
The focus, then, is on the allegedly fraudulent transfer to the Debtors, not on

Yang’s underlying fraud in causing the Lee Parties to part with their money
initially. In Husky, the Supreme Court emphasized that the basis for the
transferor’s underlying debt to the creditor is not relevant to nondischargeability
based on a fraudulent transfer. 578 U.S. at 365 (rejecting dissent’s view that a
claim under § 523(a)(2)(A) must “result from fraud at the inception of a credit
transaction”) (emphasis added); see also McClellan, 217 F.3d at 894 (“[T]he law of

fraudulent conveyance is merely a method of facilitating the collection of a previous
debt that need not itself have been created by a fraud.”) (emphasis added).
Thus Bartenwerfer does not help the Lee Parties in the way they think, because
proof of Yang’s intent to defraud the Lee Parties by causing them to part with their
money between January and May 2019 is different from her intent to hinder, delay
or defraud her creditors when she transferred money to the Debtors to purchase the
Property in July 2019.

There is an outstanding question as to whether Kay Yang’s intent is relevant
to the dischargeability of the Debtors’ liability for an actual fraudulent transfer, or
whether only the Debtors’ intent matters. The majority opinion in Bartenwerfer

14 Wisconsin’s fraudulent transfer law in chapter 242 is a creditor-protection statute. Badger State
Bank v. Taylor, 2004 WI 128, ¶ 41, 276 Wis. 2d 312, 330, 688 N.W.2d 439, 448. It provides remedies
to creditors so they are not deprived of assets that would otherwise be available to satisfy debts when
the debtor becomes insolvent or is about to become insolvent. Id. ¶ 42.
suggests that it may not. 598 U.S. at 72 (“Written in the passive voice,
§ 523(a)(2)(A) turns on how the money was obtained, not who committed fraud to
obtain it.”). The concurrence suggests that liability may be limited to debtors who

have a partnership or agency relationship with the person who committed the
fraud. Id. at 84 (Sotomayor, J., concurring) (“The Court here does not confront a
situation involving fraud by a person bearing no agency or partnership relationship
to the debtor.”). At least one court has held that Bartenwerfer does not extend to
innocent transferees of fraudulent transfers even if the transferor had fraudulent
intent. See In re Vulaj, 651 B.R. 310, 315 (Bankr. S.D. Cal. 2023). The Lee Parties’

discussion of Bartenwerfer does not address the issue of the innocent transferee15
(their discussion focuses on their incorrect argument that the Debtors are liable for
Yang’s underlying fraud), and the Debtors had no opportunity to discuss
Bartenwerfer’s applicability here because the Lee Parties did not cite the case until
their reply brief.
The Court need not decide the issue at this juncture because the summary
judgment record does not include sufficient facts for the Court to conclude that this

could be a case of a fraudster transferor and innocent transferee. The Lee Parties

15 A hypothetical with less complex facts than this case highlights the issue. Suppose P (the primary
debtor) owes a debt to C (the creditor) for $100,000. In an attempt to shield assets from C, P
transfers $10,000 to D (the debtor) in the form of a gift and without consideration. D is unaware of
C’s claim against P or that the $10,000 could have or should have been used to pay C. D is
nevertheless liable as a transferee under Wis. Stat. § 242.04 (1)(a) because she received an actual
fraudulent transfer, and a state court enters judgment in favor of C and against D under Wis. Stat.
§ 242.08 (2). D already spent the money she received from P and does not have $10,000 to pay the
judgment. D files bankruptcy. Is D’s debt to C nondischargeable under § 523(a)(2)(A) if C can prove
that D obtained the $10,000 through P’s actual fraudulent transfer, even if D lacked any intent to
defraud C? That question may not necessarily be answered by Bartenwerfer.
make no argument and present no facts that Yang (or A&K Equity or C&K
Associates) had an intent to hinder, delay, or defraud her creditors when she
transferred funds to the Debtors to purchase the Property.

The innocent transferee legal issue may not matter if the Lee Parties can
present sufficient evidence to prove that the Debtors had an intent to defraud. But
the Lee Parties’ briefs are high on rhetoric and short on facts in this regard. The
Lee Parties rely primarily on the circumstances and terms of the mortgage loan the
Debtors received from C&K Associates. (ECF 22 at 15.) First, the Lee Parties
assert that the Debtors did not fill out a loan application or go through any sort of

credit check or underwriting process. This fact is not undisputed; the Debtors deny
that they did not fill out “traditional loan documents.” (Defs’ Resp. to Pls’ PFOF,
ECF 38, ¶ 65.) Second, the Debtors provided only the $1,000 escrow payment to
purchase the Property, and C&K Associates did not require them to tender a
further down payment for the mortgage loan, which is unusual for a typical
mortgage loan transaction. (See Halloin Decl. Ex. 17, ECF 24-17.) Third, the loan
had a 2% interest rate, which was well below the market rate at the time. (Defs’

Resp. to Pls’ PFOF, ECF 38, ¶¶ 63-64.) Fourth, the Debtors made irregular
payments and eventually stopped making payments yet no foreclosure action or
other collection action was initiated against them. The Debtors dispute that this
gave them knowledge of Yang’s fraud; they say they made payments as directed by
Yang. (Defs’ Resp. to Pls’ PFOF, ECF 38, ¶¶ 73-76.)16 Fifth, the Lee Parties say
that “[t]he financer of the purchase was not a licensed or registered vendor,” citing
facts related to A&K Equity, not C&K Associates. (Pls’ Mot. for Summ. J., ECF 22,

at 15.) Presumably, the Lee Parties rely on the transfer of funds from the A&K
Equity account at Capital One to the C&K Associates account. (See Halloin Decl.
Ex. 15, ECF 24-15.) The Debtors say they don’t know anything about that. (Defs’
Resp. to Pls’ PFOF, ECF 38, ¶¶ 56, 60.)
For their part, the Debtors say that they were not investors in Yang’s
fraudulent investment scheme. They say they were made aware that Yang was

operating C&K Associates and could provide a mortgage loan, “regardless of
familial relations.” They did not know how Yang and C&K Associates operated the
business, and they believed the mortgage loan was legitimate. (Witkowski Decl.
Exs. 3 & 4, ECF 32-3, -4.)
Whether the Debtors acted with fraudulent intent sufficient to prevent
discharge under § 523(a)(2)(A) is a question of fact. The Lee Parties identified some
badges of fraud, but not all are undisputed. While those facts could ultimately

support a finding of intent, they do not necessarily lead to a finding of intent. The
Debtors presented their own affidavits essentially averring that they were good

16 This fact may not support a finding of fraudulent intent because the events happened after the
Debtors received the allegedly fraudulent transfer from Yang’s company. To be nondischargeable
under § 523(a)(2)(A), the money must have been “obtained by” fraud, meaning that relevant intent is
at the time of the transfer. In re Neumann, 13 B.R. 128, 130 (Bankr. E.D. Wis. 1981) (“In order to
prevail under s. 523(a)(2)(A) the plaintiff must show that the [statute’s] elements [including “an
intent to deceive”] existed at the time that the property/money was obtained[.]”). Facts that could
have or should have alerted the Debtors to Yang’s fraud that occurred after the Debtors already
received the money may not bear on their intent in receiving the money months or years earlier.
faith recipients of the funds. The statements in the Debtors’ affidavits that they
lacked knowledge of Yang’s fraudulent transfer scheme and intent to participate are
not “utterly implausible.” The Court cannot conclude that there are no undisputed

issues of material fact such that summary judgment is appropriate for either party
with respect to the Debtors’ intent.
Finally, there are unresolved questions of fact regarding the amount of the
debt that may be declared nondischargeable. The Court can declare a debt
nondischargeable only “to the extent [the money was] obtained by . . . false
pretenses, a false representation, or actual fraud[.]” 11 U.S.C. § 523 (a)(2)(A)

(emphasis added). This means that “[n]ondischargeability therefore is limited to
that portion of the debt directly attributable to fraudulent acts.” In re Christensen,
No. 04 A 3646, 2005 WL 1941231, at *5 (Bankr. N.D. Ill. Aug. 12, 2005); see also
Ojeda v. Goldberg, 599 F.3d 712, 720 (7th Cir. 2010) (“Because the statute provides
that an extension is non-dischargeable ‘to the extent’ that it is obtained by a false
representation, the question for us is what portion of the forbearance is directly
attributable to the false representation.”) (citing Christensen with approval); In re

Poulos, 636 B.R. 535, 541 (Bankr. N.D. Ill. 2022) (“[I]f the debtor misapplies only a
portion of a loan, the amount of the loan not used in the required manner is
nondischargeable.”)
The Debtors received only $250,000 from the Capital One account into which
the Lee Parties deposited funds to be invested by Yang, and only $261,871.17 from
Yang through C&K Associates. The Court need not declare the entire debt (i.e., the
$2,374,290.16 in the state court’s September 8, 2022 order) to be nondischargeable
if such a declaration is not supported by the evidence. 1”
CONCLUSION
The Lee Parties’ motion for leave to amend the adversary complaint is
prejudicially late and futile. With respect to the Lee Parties’ nondischargeability
claim under 11 U.S.C. § 523 (a)(2)(A), there are disputed questions of fact as to the
intent element and the amount of money allegedly obtained by fraud.
Accordingly, IT IS HEREBY ORDERED:
1. The Lee Parties’ motion for leave to amend the complaint (ECF 29) is
DENIED.
2. The motions for summary judgment filed by the Lee Parties (ECF 21)
and the Debtors (ECF 26) are DENIED.

Dated: March 31, 2026
Radnl Buus
Rachel M. Blise
U.S. Bankruptcy Judge

17 The Lee Parties cannot rely solely on the state court’s determination that the Debtors’ liability is
joint and several with the other transferees identified in the complaint in Case No, 2022-CV-162. It
is unclear why the Debtors, as transferees, would have liability under Wisconsin law for funds
received by other transferees. The state court’s determination on joint and several liability may be
preclusive under a doctrine such as claim preclusion, issue preclusion, the Rooker-Feldman doctrine,
or another legal theory. However, even if the Debtors are liable outside of bankruptcy for the entire
amount, only the amount that was “obtained by” fraud can be declared to be nondischargeable.

38