Opinion
Civil Action No. 03-5546.
August 16, 2004
MEMORANDUM ORDER
Charles Albert Haines ("Appellant/Debtor") appeals the September 5, 2003 Order of Bankruptcy Judge Bruce Fox denying Debtor's Motion Seeking Permission to File a Seventh Bankruptcy Petition.
On January 7, 2003, when the Debtor was eight months delinquent in plan payments under his proposed plan, the Bankruptcy Court held a hearing on the Trustee's Motion to Dismiss Appellant's sixth bankruptcy petition. At this hearing, the Debtor testified that he would soon receive an insurance check which would allow him to become current in his plan payments within weeks. (Jan. 7, 2003, Hrg. Tr. at 9). The Chapter 13 trustee agreed to an adjournment on the condition that Debtor consent to a bar against further filings if this case were dismissed for any reason. After consulting with his attorney, Debtor accepted this condition.
As of February 11, 2003, Debtor failed to cure his plan delinquencies and had not filed an amended plan. Thus, the Chapter 13 trustee moved for a dismissal of the case with prejudice due to Debtor's failure to tender plan payments. (Bankr. E.D. Pa. # 02-14772 Doc. No. 39). The Bankruptcy Court issued an Order on February 12, 2003 dismissing the case and barring the Debtor from "filing or re-filing for bankruptcy without further leave of Court". (Bankr. E.D. Pa. # 02-14772 Doc. No. 55).
Thereafter, Debtor hired a new attorney and sought leave to file a seventh bankruptcy case, alleging that his personal residence, then reported as 3345 North Bouvier Street, was scheduled for foreclosure. The Bankruptcy Court denied this motion on May 29, 2003, noting that in six prior unsuccessful petitions since 1998, the Debtor had never listed the North Bouvier Street property as his residence. (Bankr. E.D. Pa. # 02-14772 Doc. No. 59). On August 21, 2003, the Debtor filed a second motion seeking leave to file a seventh bankruptcy case. The Bankruptcy Court conducted a hearing and, on September 5, 2003, denied Appellant's request, specifically finding an insufficient showing of good faith to support the filing. (Bankr. E.D. Pa. # 02-14772 Doc. No. 71). Debtor presently appeals the denial of his second request to file a seventh petition.
Appellant contends that as a matter of law the Bankruptcy Court lacked authority to issue the February 12, 2003, Order barring the Debtor from filing subsequent bankruptcy petitions without leave of the Court. (Appellant Brief, Doc. No. 6 at 14). The applicable standard is wellsettled: "the findings of fact by the bankruptcy court are reviewable only for clear error. Legal questions are, of course, subject to plenary review." In re Brown, 851 F.2d 81, 84 (3d Cir. 1988).
Among other sources, the Bankruptcy Court's power to issue such an Order stems from 11 U.S.C. Section 105(a) of the Bankruptcy Code which states:
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
In Johnson v. Home State Bank, 501 U.S. 78, 88 (1991) the Supreme Court held that under this provision "the bankruptcy court retains its broad equitable power to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the [Bankruptcy] Code". Id. at 88. Additionally, 11 U.S.C. § 105(a) grants bankruptcy courts the power to enjoin future filings beyond 180 days to prevent abuse of the bankruptcy process. See: In re Casse, 198 F.3d 327, 336 (2d Cir. 1999) ("Indeed, in all circuits but the Tenth, bankruptcy courts and district courts invariably derive from § 105(a) or § 349(a) of the Code, or from both sections in some cases, the power to sanction bad-faith serial filers . . . by prohibiting further bankruptcy filings for longer periods of time than the 180 days specified by § 109(g).").
Appellant argues even if the bankruptcy court had the power to issue an order restricting the debtor's future filings, equity demands that this power be used conservatively, and that the Court's use of its power in this case constitutes reversible error. (Appellant Brief, Doc. No. 6 at 11-14). As previously discussed, bankruptcy courts retain the power to issue any order deemed necessary to prevent abuse of the bankruptcy process. In re Casse, 198 F.3d at 336. The bankruptcy court's order dismissing the case and barring the Debtor from filing for bankruptcy without further leave of Court was the result of the Court's factual determination that the Appellant had failed to cure outstanding plan delinquencies and had presented insufficient evidence of changed circumstances to support a reasonable belief that the seventh petition, unlike the prior six, would be successful. (Bankr. E.D. Pa. # 02-14772 Doc. No. 71 at 5). These factual conclusions are well supported by the record and will not be overturned at this level.
The hearing transcript supports the Bankruptcy Court's conclusion that the February 12, 2003 Order effectively granted the Chapter 13 Trustee's original December 9, 2002 Motion (Bankr. E.D. Pa. # 02-14772 Doc. No. 47) seeking to indefinitely bar Appellant from further filings without the permission of the Bankruptcy Court. (Jan. 7, 2003, Hrg. Tr. at 21-23). The transcript further reveals that Appellant agreed that if he did not ameliorate his delinquencies within 30 days of the January 7, 2003 hearing, his sixth filing would be dismissed and he would be precluded from seeking approval to file a seventh petition within 180 days of the dismissal. (Jan. 7, 2003, Hrg. Tr. at 21-23). Under the agreement, after 180 days the Appellant could seek the Court's consent freely, but ultimately the Court's approval would be required to initiate a seventh filing. (Bankr. E.D. Pa. # 02-14772 Doc. No. 71 at 4). Because of the court's equitable powers to take any action necessary to prevent abuses of the bankruptcy process, this agreement between the Debtor and the Trustee did not bind the Bankruptcy Court.
Appellant contends it was inappropriate for the Bankruptcy Court to require a showing of good faith prior to giving him leave to file his seventh bankruptcy. (Appellant Brief, Doc. No. 6 at 14-17).
A bankruptcy court is authorized to confirm a plan only if the court finds, inter alia, that "the plan has been proposed in good faith," and "the debtor will be able to make all payments under the plan and to comply with the plan." 11 U.S.C. § 1325 (a)(6) (1978); Johnson v. Home State Bank, 501 U.S. 78, 87 (1991). Under these criteria, it is incumbent upon bankruptcy courts to examine filings to determine whether sufficient good faith exists. Thus, the bankruptcy court acts within the scope of its authority in dismissing filings which were not made in good faith. See In re Lilley, 91 F.3d 491, 495 (3d Cir. 1996).
Appellant claims that the Bankruptcy Court erred in reaching the factual conclusion that the requisite good faith to support a seventh filing was lacking. Specifically, Appellant contends that the evidence of receipt of supplemental rental income from two additional apartments constituted a sufficient showing of good faith. (Appellant Brief, Doc. No. 6 at 17).
The standard of review is clear: "Courts can determine good faith only on an ad hoc basis and must decide whether the petitioner has abused the provisions, purpose, or spirit of bankruptcy law" and "the decision to dismiss a petition for lack of good faith rests within the sound discretion of the bankruptcy court." In re Tamecki, 229 F.3d 205, 207 (3d Cir. 2000). See also In re Lilley, 91 F.3d 491, 496 (3d Cir. 1996) (quotingIn re Love, 957 F.2d at 1355) ("good faith is a term incapable of precise definition" which requires a "fact intensive determination better left to the discretion of the bankruptcy court" on a "case-by-case basis in light of the totality of the circumstances.").
After a careful evaluation of the Appellant's evidence, the bankruptcy court declined to find a material or substantial change in the Appellant's financial position. (Bankr. E.D. Pa. # 02-14772 Doc. No. 71 at 14). During the September 2, 2003 hearing, the Appellant testified that his rental income had increased by $1,650 a month due to the rental of two previously vacant apartments. (Sept. 2, 2003, Hrg. Tr. at 7-9). The Bankruptcy Court found that, in its long history with Appellant, the Debtor's six previous failed filings were all to have been funded primarily from rental income. Unfortunately, the Debtor's projected rental income frequently had not been realized; indeed, in the view of the bankruptcy court, Appellant previously submitted plans with projected income in excess of the income anticipated in the instant plan. As the bankruptcy court noted, Appellant's previous plans were unsuccessful because of his inability to collect the rental income from his tenants. (September 5, 3003 Opinion, Fox, J., p. 11-12). See In re Elmwood Dev. Co., 964 F.2d 508, 512 (5th Cir. 1992). (Serial filing Debtor relying on fluctuating rental income without a change in circumstances sufficient to increase the likelihood of the reorganization plan lacks good faith.) Thus, under the circumstances of this case, the $1,650 increase in income did not represent a material change in the Appellant's financial circumstances as to increase the likelihood of success for a seventh filing. (Sept. 2, 2003, Hrg. Tr. at 58). This absence of a material change in the Debtor's financial circumstances lead the bankruptcy court to conclude that the Debtor had not established his ability to make the payments under the plan; hence, the court could not find sufficient good faith to permit a seventh bankruptcy filing. (Bankr. E.D. Pa. # 02-14772 Doc. No. 71 at 14).
The Bankruptcy Court's factual determinations are amply supported by the record; its legal determinations do not constitute error, much less clear error.
For all these reasons, Debtor's appeal seeking the reversal of the Order of September 5, 2003, of the bankruptcy court denying the Debtor's motion requesting permission to file a new bankruptcy case (Doc. No. 6) is DENIED.
AND NOW, this 16th day of August 2004, is hereby ORDERED that the Appeal for the reversal of the September 5, 2003, Order of the Bankruptcy Court is DENIED. The Clerk of Court is directed to statistically close this matter.