From Casetext: Smarter Legal Research

In re Bowman

United States Bankruptcy Court, D. New Mexico
Aug 23, 2001
No. 13-01-10470 MA (Bankr. D.N.M. Aug. 23, 2001)

Opinion

No. 13-01-10470 MA

August 23, 2001

John F. Caffrey, Attorney for Debtors, Albuquerque, NM.

Mickey D. Barnett, Attorney for Creditor, Albuquerque, NM.


MEMORANDUM OPINION


THIS MATTER came before the Court on the Creditors Motion to Dismiss for Cause with Concurrence of Trustee (Motion to Dismiss) filed by The Medicine Shoppe International, Inc. (Medicine Shoppe), by and through its attorney of record, Mickey Barnett. The Medicine Shoppe requests the Court to dismiss the Debtors Chapter 13 proceeding with prejudice, deny discharge, and revoke any relief afforded to Debtors under their prior Chapter 7 proceeding. The Chapter 13 Trustee joined in the Motion to Dismiss. The Court held an evidentiary hearing on the Motion to Dismiss on July 30, 2001. After considering the testimony and evidence presented at the hearing, reviewing the relevant case law and statutes, and being otherwise fully informed, the Court finds that the totality of the circumstances surrounding the Debtors filing of their petition in this Chapter 13 proceeding evidence a lack of good faith on the part of the Debtors which warrants a dismissal of this Chapter 13 proceeding.

FACTS, BACKGROUND, AND PROCEDURAL HISTORY

Prior to their Chapter 7 bankruptcy proceeding, Herbert Bruce Bowman and Suzy Bowman opened and operated a pharmacy as a franchise of the Medicine Shoppe. Circumstances surrounding the loan from the Medicine Shoppe to the Bowmans to start the pharmacy are the subject of an adversary proceeding objecting to the discharge of a particular debt pursuant to 11 U.S.C. § 523(a)(2)(A) filed by the Medicine Shoppe against Herbert Bruce Bowman and Suzy Bowman as Case No. 00-1223M.

On or about July 6, 2000, Herbert Bruce Bowman and Suzy Bowman filed a voluntary petition for bankruptcy under Chapter 7 of the Bankruptcy Code. The Debtors Schedule A to their Chapter 7 petition lists two parcels of real property: 1) 520 Grape, T or C, New Mexico; and 2) 921 Locust, T or C, New Mexico. Schedule I lists the Debtors income as $00.00.

Debtors Statement of Financial Affairs lists a pending foreclosure suit filed by TMS Mortgage, Inc. During the course of the Chapter 7 proceeding, TMS Mortgage, Inc. filed a motion for relief from stay as to the real property on Locust, and an order was entered granting relief from the automatic stay to allow TMS Mortgage, Inc. to proceed with its foreclosure action. Also during the pendency of the Chapter 7 proceeding, the Medicine Shoppe filed a complaint objecting to the discharge of a particular debt pursuant to 11 U.S.C. § 523(a)(2)(A), as Adversary No. 00-1223 M. At the Debtors § 341 meeting in the Debtors Chapter 7 case, when the trustee questioned Mr. Bowman about the income reported on his Schedule I, Mr. Bowman disclosed that he had obtained employment as a pharmacist for Walgreens on a part-time probationary basis beginning in the end of June 2000. At that time, Mr. Bowmans hourly pay was $34.14. By September, Mr. Bowmans annual salary was approximately $70,000. The Debtors received a discharge in their Chapter 7 proceeding on or about October 31, 2000.

Debtors filed their petition under Chapter 13 of the Bankruptcy Code on or about January 25, 2001. Schedule A to the Chapter 13 petition fails to list the real property on Locust street, though the Statement of Financial Affairs continues to list the pending foreclosure action filed by TMS Mortgage, Inc. Schedule I lists the Debtors current monthly income from Mr. Bowmans employment as a pharmacist at Walgreens at $3,954.17. The total monthly expenses reported on Schedule J is $3,545.00, leaving approximately $409.00 per month in disposable income which the Debtors propose to pay into their sixty-month Chapter 13 Plan. Schedule J includes the following monthly expenses: 1) $400.00 for charitable contributions; 2) $90.00 for cable television; and 3) $175.00 for recreation.

Plan payments of $409.00 per month for sixty months will result in an estimated recovery to creditors of 3% of their claims. The Medicine Shoppe is the only unsecured creditor to be treated in the Chapter 13 bankruptcy. The Proof of Claim for the Medicine Shoppe as filed in the Debtors Chapter 13 proceeding is for $133,395.10. Debtors propose to pay the Medicine Shoppe its proportional distribution. A hearing on plan confirmation is scheduled for October 9, 2001. At the final hearing on the Motion to Dismiss, held July 31, 2001, Debtors stipulated that, for the purposes of the hearing on the Motion to Dismiss, the debt owing to the Medicine Shoppe would have been non-dischargeable in the Debtors Chapter 7 proceeding. Mr. Bowman also testified that he recently received a raise in pay, and that he was in the process of providing pay stubs to his attorney so that his schedules could be amended. No amendments have yet been filed. Mr. Bowman also testified that he filed the Chapter 13 because the Medicine Shoppe was contesting the Chapter 7, and that a 13 would help give us protection. He also testified that he pays more child support for children from a previous marriage than is required by state courts order directing payment of child support.

Often during the course of Mr. Bowmans testimony, he reported that he could not recall exactly what figures he reported on his forms and that he relied on his attorney. He stated that he looked over the statements and schedules before signing them, but that they made little sense to him. He also testified that the monthly recreation expense of $175.00 as reported on Schedule J is money set aside so that he and his wife can go on vacations, to make a trip to his daughters wedding, and for movie rentals.

Regarding the $90.00 cable television expense, Mr. Bowman testified that that has been discontinued, but that he spends almost as much on movie rentals. He could not recall what the current status of the Locust property is, but acknowledged that he did own property on Locust at one time.

Mrs. Bowman testified that she is not involved with the family finances, that her name is not on the checkbook, and that she has no idea what her husbands salary is. Mrs. Bowman testified further that she does not make the monthly charitable contributions, but rather that Mr. Bowman makes them to his church. Although she attended the § 341 meeting, she did not recall discussing the Locust street property at that meeting, but thinks that the property was either under foreclosure or had been foreclosed by that time. She testified that she and Mr. Bowman had forwarded the foreclosure papers for the Locust property to their bankruptcy attorney. Finally, Ms. Bowman testified that she did not review the statements and schedules carefully before signing them.

DISCUSSION

Motions to dismiss Chapter 13 bankruptcy proceedings are governed by 11 U.S.C. § 1307.

The applicable provision provides:

Except as provided in subsection (e) of this section, on request of a party in interest or the United States trustee and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including

(1) unreasonable delay by the debtor that is prejudicial to creditors;

(2) nonpayment of any fees and charges required under chapter 123 of title 28;

(3) failure to file a plan timely under section 1321 of this title;

(4) failure to commence making timely payments under section 1326 of this title;

(5) denial of confirmation of a plan under section 1325 of this title and denial of a request made for additional time for filing another plan or a modification of a plan;

(6) material default by the debtor with respect to a term of a confirmed plan;

(7) revocation of the order of confirmation under section 1330 of this title, and denial of confirmation of a modified plan under section 1329 of this title;

(8) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan other than completion of payments under the plan;

(9) only on request of the United States trustee, failure of the debtor to file, within fifteen days, or such additional time as the court may allow, after the filing of the petition commencing such case, the information required by paragraph (1) of section 521; or

(10) only on request of the United States trustee, failure to timely file the information required by paragraph (2) of section 521.

11 U.S.C. § 1307(c).

The grounds for dismissal contained 11 U.S.C. § 1307(c) are neither exclusive nor exhaustive. In re Lilley, 91 F.3d 491, 494 (3 rd Cir. 1996); In re Earl, 140 B.R. 728, 733 (Bankr.N.D.Ind. 1992).

Thus, grounds other than those enumerated in 11 U.S.C. § 1307(c) can constitute cause for dismissal.

Many courts have found that lack of good faith in filing the petition is sufficient cause for dismissal pursuant to 11 U.S.C. § 1307(c). See, e.g., Gier v. Farmers State Bank of Lucas, Kansas (In re Gier), 986 F.2d 1326, 1329 (10 th Cir. 1993); In re Leavitt, 171 F.3d 1219, 1224 (9 th Cir. 1999); In re Lilley, 91 F.3d 491, 496 (3 rd Cir. 1996); Eisen v. Curry (In re Eisen), 14 F.3d 469, 470 (9 th Cir. 1994); In re Love, 957 F.2d 1350, 1354 (7 th Cir. 1992). Good faith must be measured on a case-by-case basis, considering the totality of circumstances. Gier v. Farmers State Bank of Lucas, Kansas (In re Gier), 986 F.2d 1326, 1329 (10 th Cir. 1993); In re Lilley, 91 F.3d 491, 496 (3 rd Cir. 1996); Eisen v. Curry (In re Eisen), 14 F.3d 469, 470 (9 th Cir. 1994); In re Earl, 140 B.R. 728, 733 (Bankr.N.D.Ind. 1992). Fraudulent intent need not be present before the court can find a lack of good faith on the part of the debtor. See, In re Leavitt, 171 F.3d 1219, 1224 (9 th Cir. 1999) ([N]iether malice nor actual fraud is required to find a lack of good faith. The bankruptcy judge is not required to have evidence of debtor illwill directed at creditors, or that debtor was affirmatively attempting to violate the law malfeasance is not a prerequisite to bad faith.) (quoting In re Powers, 135 B.R. 980, 994 (Bankr.C.D.Cal. 1991) (relying on In re Waldron, 785 F.2d 936, 941 (11 th Cir. 1986)).

There is arguably a distinction between the good faith inquiry conducted upon consideration of a motion to dismiss and the good faith inquiry conducted upon plan confirmation. See In re Earl, 140 B.R. 728, 733 (Bankr.N.D.Ind. 1992) (noting that § 1325(a) refers to the good faith requirement for filing a plan, not the petition, and citing cases that distinguish between the good faith requirement in filing the petition and the good faith requirement in proposing a plan). However, there is some overlap, because one of the factors a Court can consider in measuring good faith in filing is the contents of the debtors plan. See, In re Earl, 140 B.R. 728, 733 (contents of plan often considered in evaluating motion to dismiss along with the circumstances filing the petition); see also, Eisen v. Curry (In re Eisen), 14 F.3d 469, 470 (9 th Cir. 1994) (when considering a motion to dismiss, court should be guided by the standards used to evaluate whether the plan is proposed in bad faith); In re Bucco, 205 B.R. 323, 324 (Bankr.M.D.Fla. 1996) (same standard for considering good faith in the context of a motion to dismiss as for plan confirmation).

In determining good faith, the Court can also consider pre-petition conduct of the debtor. New Jersey Lawyers Fund for Client Protection v. Goddard (In re Goddard), 212 B.R. 233, 240-241 (D.N.J. 1997) (district court remanded case to bankruptcy court that had refused to consider pre-petition conduct of the debtor in evaluating a motion to dismiss). Other factors relevant to the consideration of a motion to dismiss for cause based on a lack of good faith filing include:

the nature of the debt, including the question of whether the debt would be nondischargeable in a Chapter 7 proceeding; the timing of the petition; how the debt arose; the debtors motive in filing the petition; how the debtors actions affected creditors; the debtors treatment of creditors both before and after the petition was filed; and whether the debtor has been forthcoming with the bankruptcy court and the creditors.

In re Love, 957 F.2d 1350, 1357 (7 th Cir. 1992) (citations omitted). Still other relevant factors include:

(1) whether the debtor misrepresented facts in his [petition or] plan, unfairly manipulated the Bankruptcy Code, or otherwise [filed] his Chapter 13 [petition] or plan in an inequitable manner;

(2) the debtors history of filings and dismissals;

(3) whether the debtor only intended to defeat state court litigation; and

(4) whether egregious behavior is present. In re Leavitt,

171 F.3d 1219, 1224 (9 th Cir. 1999) (internal citations omitted). In applying these and other relevant factors to this case, the Court finds that, under the totality of circumstances, the Debtors have not filed their petition in good faith. First, the only unsecured creditor to be treated in the Debtors Chapter 13 proceeding is the Medicine Shoppe, because all other unsecured creditors have been discharged in the Debtors prior Chapter 7 proceeding. For purposes of this hearing, the Debtors conceded that the debt owing to the Medicine Shoppe would be non-dischargeable in their Chapter 7. Though considered in the context of plan confirmation, the Tenth Circuit Bankruptcy Appellate Panel has stated that particular scrutiny should be given to plans that propose to pay only a small amount to a creditor whose debt would be non-dischargeable in a Chapter 7 proceeding. In re Davis, 239 B.R. 573, 577 (B. A. P. 10 th Cir. 1999) (citing Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123, 1126 (6 th Cir. 1990) (other citations omitted)). The fact that the Debtors now seek to discharge the balance of a debt (after payment of that creditors pro-rata share through the plan) that would have been non-dischargeable in their Chapter 7 proceeding is insufficient, by itself, to constitute cause for dismissal. See, Gier v. Farmers State Bank of Lucas, Kansas (In re Gier), 986 F.2d 1326, 1329 (10 th Cir. 1993) (recognizing that because the Bankruptcy Code permits serial filings under Chapter 7 and Chapter 13, a serial filing is not per se bad faith). However, it is one factor for the Court to consider.

Treatment of creditors under the plan of reorganization is another factor relevant to consideration of a motion to dismiss. See, In re Earl, 140 B.R. 728, 733 (Bankr. N.D. Ind. 1992).

Here, the Debtors plan proposes to make monthly payments of $409 which will result in an anticipated dividend to creditors of only 3% of their claims after five years of payments. The Bankruptcy Code allows debtors to continue their tithing to church. 11 U.S.C. § 1325(b)(2)(A). But this plan proposes to give almost as much in charitable donations ($ 400 per month) as it does to payment of creditors under the plan. Other expenses, such as recreation and cable television, are high. Debtors plan does not propose to pay Creditors much as they could, given the Debtors reported income and expenses.

Although Mr. Bowman testified that the Debtors had discontinued cable television service, he also said they were spending about as much on movie rentals. Mrs. Bowman testified that they did not spend that much on movie rentals, but that the expenses reported were in line considering that Mr. Bowman has children from a previous marriage.

While these considerations are more relevant to considering whether a plan should be confirmed, they are still another factor to consider in connection with a motion to dismiss.

The Motion to Dismiss specifically raises two additional grounds for dismissal:

1) that the Debtors Chapter 7 petition reflected that they had no income from any source, when, in fact, Mr. Bowman was receiving a salary; and

2) that Debtors falsely stated in their Chapter 13 petition that the debts are consumer/ non-business debts when in fact a significant portion of Debtors debts is a business debt owing to the Medicine Shoppe.

Debtors explain away the first of these grounds by stating that when they filed their Chapter 7 bankruptcy petition, Mr. Bowman was in transition, winding up the pharmacy and then starting work on a temporary probationary basis with Walgreens, so it was technically true that he had no income when the petition was filed. Mr. Bowman went on to explain that he disclosed his income when the trustee inquired at the § 341 meeting. In response to the second grounds, the Debtors explain that it was a simple mistake or oversight in checking the incorrect box on the front of the petition.

On the surface these discrepancies seem relatively minor when considered by themselves. But these discrepancies evidence the Debtors lack of candor. Only when Mr. Bowman was prodded at the § 341 meeting did he disclose that he was employed, making nearly $70, 000.00 a year. At the hearing on the Motion to Dismiss, Mr. Bowman disclosed that he recently received a raise, and that he was in the process of forwarding his pay stubs to his attorney so the appropriate amendments could be filed. To date, no amendment to Schedule I has been filed. Debtors failed to list the Locust property as an asset in their statements and schedules, though they listed the pending foreclosure suit. Mr. Bowman testified that he did not know the status of the foreclosure suit, but Mrs. Bowman said they forwarded all of the relevant papers to their bankruptcy attorney.

The Debtors have an affirmative duty to investigate the status of any property in which they hold an interest, and to fully and accurately report such status on their statements and schedules. This they failed to do. In sum, the Debtors actions show that they have not been forthcoming in providing information throughout their bankruptcy proceedings. Stating that they filled out paperwork and relied on their attorney does little to mitigate that fact. Some responsibility falls on the attorney to ensure that all necessary information is properly disclosed and properly reported.

But the Debtors are duty bound to report all relevant information accurately in their statements and schedules and to cooperate with the trustee. See Rules 1007, 1008, 4002, Federal Rules of Bankruptcy Procedure.

Finally, the testimony offered by both Mr. Bowman and Mrs. Bowman was not credible. The Court can only assume that Mr. Bowmans job as a pharmacist requires him to pay attention to numbers and detail. Yet, in the context of this bankruptcy, Mr. Bowman professed to have little knowledge or understanding of the particulars listed in his statements and schedules. Neither Debtor appeared to take the bankruptcy process seriously. Both Mr. Bowman and Mrs. Bowman admitted that they did not carefully review their statements and schedules, though they signed them under penalty of perjury. Mrs. Bowman actually laughed on the witness stand during a portion of her testimony, as if her professed ignorance of her financial affairs is something to simply shrug off. The Court is greatly distressed by the cavalier attitude of these Debtors toward the bankruptcy process. It is cases like these that leave a bad taste in the mouth of the public and stigmatize those debtors who take their obligations under the Bankruptcy Code seriously.

For the foregoing reasons, the Court concludes that the Motion to Dismiss should be granted.

An appropriate order will be entered.

This opinion constitutes the Courts findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.


Summaries of

In re Bowman

United States Bankruptcy Court, D. New Mexico
Aug 23, 2001
No. 13-01-10470 MA (Bankr. D.N.M. Aug. 23, 2001)
Case details for

In re Bowman

Case Details

Full title:In re: HERBERT BRUCE BOWMAN and SUZY BOWMAN, Debtors

Court:United States Bankruptcy Court, D. New Mexico

Date published: Aug 23, 2001

Citations

No. 13-01-10470 MA (Bankr. D.N.M. Aug. 23, 2001)