Summary
revoking dismissal sua sponte as dismissal "accomplish[ed] nothing useful"
Summary of this case from Rosado v. Pablos (In re Rosado)Opinion
Case No. 98-18510-SSM Chapter 7
September 11, 2000
Tracy A. Thompson, Esquire, Alexandria, VA, Counsel for the debtor.
Richard A. Bartl, Esquire, Tyler, Bartl, Burke Gorman, PLC, Alexandria, VA, Chapter 7 trustee.
Dennis Early, Esquire, Alexandria, VA, Assistant United States Trustee.
MEMORANDUM OPINION AND ORDER
An order was entered on the docket on September 7, 2000, dismissing this case on the unopposed motion of Richard A. Bartl, the successor chapter 7 trustee. Because the court, on further reflection, concludes that dismissal of the case accomplishes nothing useful — and in particular, has no effect on the discharge already granted — the dismissal order will be vacated and the case reinstated on the court's docket.
Background
This case was commenced with the filing of a voluntary chapter 7 petition by Anthony Louis Pharao on November 30, 1998. Robert G. Mayer was appointed as the chapter 7 trustee. The trustee notified the clerk that assets were available to pay claims, and the clerk gave creditors notice of the need to file claims. On March 17, 1999, the debtor was granted a discharge in the ordinary course. Some six months later — September 21, 1999 — the trustee filed a motion to require the debtor to turn over a life insurance policy and 1998 Federal and state income tax returns. Prior to the hearing on that motion, the trustee, having been appointed a judge of this court, resigned, and Richard A. Bartl was appointed as successor trustee.
The policy is shown on the debtor's schedules as having a cash value of $3,900.00. Of that amount, $1,000.00 was claimed exempt under the Virginia homestead exemption.
In the meantime, the debtor commenced a chapter 13 case, No. 99-13520-SSM, on July 7, 1999, notwithstanding that administration of the chapter 7 case was not complete. No exception was taken by the chapter 13 trustee or creditors, however, and the debtor's chapter 13 plan was confirmed without opposition on September 16, 1999.
A motion by the chapter 13 trustee to dismiss the chapter 13 case based on the debtor's failure to make plan payments is currently pending.
In the chapter 7 case, an order was entered on December 14, 1999, requiring the debtor to turn over to the successor trustee his 1998 Federal and state income tax returns and a State Mutual Insurance Company life insurance policy. It is not clear from the record whether the debtor did so. In any event, the trustee filed a motion on August 11, 2000, to dismiss the chapter 7 case because of the pending chapter 13 case. No opposition was filed. At oral argument, the trustee elaborated on the basis of the motion, contending that the debtor, by filing the chapter 13 petition before the administration of the chapter 7 case was complete, had essentially "abandoned" his chapter 7 case.
Although there is some case law to the contrary, the only published decision in this district rejects a per se rule that a debtor cannot have 2 cases open at same time. In re Bullock, 206 B.R. 389 (Bankr.E.D.Va. 1997) (Tice, J.). Bullock holds, however, that the second petition cannot seek to discharge the same debts, must have been filed in good faith, and must be warranted by extreme circumstances. If the chapter 13 filing was improper, however, ordinarily the appropriate remedy would have been the dismissal of the second case, not the first case.
The successor trustee also advised the court that, unlike the original trustee, he considered the potential assets too small to justify administration.
Discussion
An unspoken assumption of the motion to dismiss is that dismissal will have the effect of vacating the debtor's discharge. However, nothing in the Bankruptcy Code supports that assumption, and the case law seems clear that dismissal of a bankruptcy case does not by itself vacate a discharge that has already been entered in that case. In re Cronk, 124 B.R. 759 (Bankr.N.D.Ill. 1990) (declining to dismiss case after discharge was entered when debtor's conduct would not independently support revocation of the discharge); In re Puckett, 193 B.R. 842, Bankr. N.D. Ill. 1996) (holding that dismissal of chapter 13 case after grant of discharge does not vacate discharge order); Matter of Depew, 115 B.R. 965 (Bankr.N.D.Ind. 1989) (postconfirmation dismissal of chapter 11 case did not revoke debtors' discharge); In re Pavelich, 229 B.R. 777 (9th Cir. BAP 1999) (order dismissing involuntary chapter 7 cases did not automatically revoke the discharges granted to the debtors). The only reported case in this district, while not directly on point, is consistent with those decisions. In re Adams, 203 B.R. 240 (Bankr.E.D.Va. 1996) (Tice, J.). In that case, the debtor was granted a chapter 7 discharge while a creditor's motion to dismiss the case as a bad faith filing was still pending. Judge Tice held that the discharge was properly issued and that the pendency of a motion to dismiss "is not a basis to revoke the discharge if the court were later to dismiss the case." Id. at 241. Adams thus implicitly recognizes that dismissal of the case does not revoke a discharge already granted.
The effect of dismissal of a case is set forth with great precision in Section 349, Bankruptcy Code. Briefly, dismissal reinstates any receiverships pending before the case was commenced, reinstates any liens or transfers avoided during the case, and vacates certain orders entered during the case. Notably absent from Section 349 is any reference whatsoever to a discharge that may have been granted in the case. In chapter 7 cases, discharges are granted as a matter of course after the bar date for filing objections to discharge has passed. Fed.R.Bankr.P. 4004(c). Since the bar date is only 60 days after the meeting of creditors, it will often be the case that a discharge is granted before administration of the case by the trustee is completed. Discharge does not, however, conclude the administration of a case or eliminate the debtor's on-going obligation to comply with court orders.
Where the debtor fails to comply with valid court orders, the trustee or the United States Trustee may seek revocation of the discharge. § 727(d) and (e), Bankruptcy Code. A proceeding for revocation of a discharge, however, cannot be brought by motion, but requires an adversary proceeding. Fed.R.Bankr.P. 7001. It may very well be that a debtor's conduct in certain circumstances will justify both revocation of a discharge and dismissal of the case. Even so, the discharge revocation and dismissal remain separate issues.
A limited exception may lie under Fed.R.Bankr.P. 9024, which incorporates Fed.R.Civ.P. 60, where a discharge was entered as a result of administrative error or by the excusable failure of the debtor to seek deferral of the discharge. See In re Edwards, 236 B.R. 124 (Bankr.D.N.H. 1999) (vacating discharge to permit debtor to enter into valid reaffirmation agreement); In re Mosby, 244 B.R. 79 (Bankr.E.D.Va. 2000) (recognizing potential availability of Rule 9024 relief from discharge order but holding that debtors had not shown compelling grounds for such relief). In the present case, however, there is no suggestion that the discharge was entered inadvertently or as the result of administrative error.
Dismissal of a chapter 7 case without vacating or revoking a discharge already granted is an anomaly. The basic bankruptcy bargain is the debtor's surrender of his nonexempt property for distribution in exchange for a discharge of his debts. Since dismissal of the case, standing alone, does not affect the discharge, the debtor obtains the benefit of a discharge but no longer has any obligation to surrender nonexempt property. This is not to say that the trustee is required to administer each and every item of nonexempt property if no benefit would result to creditors. The trustee remains free to abandon property which is of inconsequential value or is burdensome. § 554(a) and (c), Bankruptcy Code. If that is the situation with respect to the debtor's tax refunds and the cash surrender value of the life insurance policy, the trustee should give the creditors appropriate notice of intent to abandon and file a report of no distribution. Otherwise, if the debtor has willfully failed to comply with his turnover obligation, the trustee should bring an adversary complaint to revoke the debtor's discharge.
Simply put, once the debtor has been given a discharge, administration of the case should be concluded, if only by the filing of a no asset report. Mere dismissal of the case, however, accomplishes nothing and provides no benefit to creditors.
ORDER
For the foregoing reasons, it is ORDERED:
1. The order of September 5, 2000, dismissing this case is vacated on the court's own motion under Fed.R.Bankr.P. 9023, and this case is reinstated on the docket.
2. The clerk will mail a copy of this order to the debtor, counsel for the debtor, the successor chapter 7 trustee, and the United States Trustee, and will give all creditors and parties in interest notice of the reinstatement of the case.