Taking the stand in his own defense Wednesday in a Dallas bankruptcy court, a former real estate developer from Northwest Arkansas said he never intended to deceive his creditors and revealed he had cancer.
Bill Schwyhart and his wife, Carolyn, filed for Chapter 7 bankruptcy protection in Texas in July 2018, claiming about $85 million in debt, mostly related to business.
CHP LLC, a Schwyhart creditor, is asking the court to deny the discharge of the Schwyharts' bankruptcy.
The trial ended Wednesday afternoon with Judge Harlin Hale of the U.S. Bankruptcy Court for the Northern District of Texas saying he would take the case under advisement with a written ruling expected in July.
Attorneys for CHP contend the Schwyharts hid assets through an elaborate web of entities to hinder, delay and defraud creditors. They say Bill and Carolyn Schwyhart, using the multiyear scheme, shifted assets through various entities and used that money for living expenses and other spending but then denied knowledge of them and made other false claims in their bankruptcy filing.
The Schwyharts' attorneys have said in court and in court documents that the couple never intended to hinder, delay or defraud, and that all acts or failures to act outlined in court documents were justified under the circumstances of the case.
Joshua Silverstein, a professor at the University of Arkansas at Little Rock's W.H. Bowen School of Law who researches and writes about bankruptcy, said in response to email questions Wednesday that a discharge in a bankruptcy filing, with a few exceptions, effectively extinguishes the debtor's prebankruptcy obligations giving the debtor a fresh start. If the discharge is denied, it allows creditors to pursue claims against the debtor on prebankruptcy claims.
On Wednesday, the third day of a trial, Bill Schwyhart under questioning by his attorney John Lewis Jr. said he didn't open a bank account for HMG Investments in 2013 with the intent to hide funds and was uncertain of the HMG ownership structure when the couple filed their draft schedules for their bankruptcy forms. HMG is a business entity formed in 1982 to purchase land and real estate.
CHP attorneys argue, among other things, the Schwyharts had control over an account designated to HMG and regularly used the account for living expenses to the amount of about $12,000 a month over several years but then concealed their ownership interest. They also contend the Schwyharts emptied the account of about $16,000 after they filed for bankruptcy, using it to pay bills and for other expenses.
"I would never consider lying to a court, especially a bankruptcy court, because their trustees carry handcuffs. I just have no reason," Schwyhart said.
He also testified that he had stage four cancer and that the couple moved to Dallas in March of 2018 to be closer to his doctors to receive treatment for his illness and not to avoid CHP.
He said he was fighting the challenge to his bankruptcy discharge to restore his reputation, in the face of the accusations by CHP. He told the court his good name was all he had left.
"I wanted to defend my name before I passed on," Schwyhart said.
Under cross-examination by CHP attorney John Leininger that included only one question, Schwyhart said he didn't inform CHP of his illness. Leininger said he was sorry about Schwyhart's illness and that he would pray for Schwyhart's recovery.
"Prayer is what's keeping me alive right now," Schwyhart responded.
Earlier Wednesday, Seth Moore, attorney for Carolyn Schwyhart testified that he helped prepare documents for the couple's bankruptcy and under his advice they didn't include HMG as an asset. He said HMG wasn't listed as a co-debtor under his advice and the couple never tried to hide their connection to HMG.
During the Northwest Arkansas building boom, Bill Schwyhart worked with trucking magnate J.B. Hunt and Tim Graham on the Pinnacle Hills Promenade mall, which opened in 2006. After Hunt's death later that year, his widow, Johnelle Hunt, and Graham broke ties with Schwyhart.
Later, Johnelle Hunt and Graham sued Schwyhart claiming that he defaulted on various loans. In April 2010, eight development companies managed by Schwyhart filed for bankruptcy, claiming nearly $42 million in debt.
Schwyhart was also one of the investors, along with J.B. Hunt, in the now-defunct charter-jet company Pinnacle Air LLC, which did business as Aspen JetRide. Billionaire John P. Calamos of Naperville, Ill., and the chairman of financial company Calamos Asset Management became a partner with Schwyhart when Calamos' Ajax merged with Pinnacle Air. Aspen JetRide filed for Chapter 7 bankruptcy protection in early 2009.
Schwyhart testified Wednesday that while business dealings with Johnelle Hunt and Calamos went sour they eventually settled their differences in a confidential settlement agreement in 2013 The settlement was entered into evidence under seal in the Schwyhart bankruptcy case.
Schwyhart said he and his wife had put the stress of that conflict behind them and and lived a peaceful life until CHP filed claims against them in Arkansas state court in 2018. He said it was pressure from CHP that pushed the couple to seek bankruptcy protection, since other major creditors, including Calamos and Hunt, had not pursued judgments over the years.
In closing arguments Wednesday, attorney for CHP, Brian Ferguson, said their case shows a pattern of concealment by the Schwyharts. He said in the trial CHP had produced documents tying the couple to HMG; that the couple was clearly in control of HMG; and that they failed to list those links on their bankruptcy filings and in statements regarding them.
Ferguson argued both defendants were sophisticated debtors with extensive business experience who took an active role in gathering the data for their bankruptcy filings; that they failed to produce proper viable records of their dealings; and that they didn't take the opportunity to amend their bankruptcy forms when inaccuracies were pointed out.
In closing arguments, Melissa Hayward, one of Bill Schwyhart's attorneys said context was vital in understanding the case and that the couple deserved a discharge. She called a judgment of nondischarge by the court a financial death sentence, saddling the couple with $85 million of nondischargable debt.
Hayward said the Schwyharts credibly believed the HMG account was not the property of the estate. She said they had an indirect interest in HMG at best and that money in the account came from his son. She said CHP failed to prove any false statements made by the Schwyharts were done with fraudulent intent to deceive.
"The Schwyharts deserve peace," she said.
Seth Moore, attorney for Carolyn Schwyhart, said none of the Schwyhart's other creditors were asking the court not to discharge the bankruptcy. He said the couple was honest and truthful during the hearing and that their positions had been consistent throughout.
On Tuesday, during the second day of the trial, Alex Schwyhart, son of Bill Schwyhart and stepson of Carolyn Schwyhart, told the court that funds from HMG were loans. He told the court he had control of HMG and he always expected to be repaid.
When Hayward asked Alex Schwyhart why he lent the money, he said he believed his father would make a comeback using his business acumen, adding that his father had always been there for him and he wanted to help him in return. Under cross examination, Alex Schwyhart said some of the funds had been paid back.