Opinion
No. 01-84995
March 27, 2002
OPINION
This matter is before the Court on the Chapter 7 Trustee's (TRUSTEE) objection to the motion by the Debtor, Martha Taylor (DEBTOR), to voluntarily dismiss her case. The basis for the TRUSTEE'S objection is that, within one year of her filing, the DEBTOR transferred her homestead and farmland to her son for less than its reasonably equivalent value. If the case is allowed to continue, the TRUSTEE may be able to recover the transferred property and administer the equity for the benefit of unsecured creditors.
A hearing was conducted at which the DEBTOR testified. The real estate in question is comprised of seventy-four acres, fifty tillable, and includes her residence. The consider-ation for the transfer to her son was his payment of the liens that encumbered the property, including an approximate $80,000 mortgage balance to First State Bank of Western Illinois and a judgment lien of $3,200 to Stronghurst Grain Merchandise Company. These liens were paid by the DEBTOR'S son in August or September, 2001, and the DEBTOR conveyed the property to her son at or around the same time. She filed this case three months later, on November 21, 2001.
At the first meeting of creditors, the DEBTOR responded to the TRUSTEE'S question about the value of the transferred property by stating that she believed the property was worth $120,000. At the hearing, however, the DEBTOR testified that her statement was made under a mistaken belief that the property had been appraised for that amount by her son's bank. It is now her belief that the bank loaned her son the money without obtaining an appraisal. She believes the property is worth less than $120,000 and testified that the property was appraised in 1992 for $99,000. The DEBTOR'S son has agreed to allow the DEBTOR to continue to reside on the property, rent free, and the DEBTOR continues to live there.
In her schedules, the DEBTOR lists no real estate, and personal property worth $18,000. Based upon the exemptions claimed by the DEBTOR and liens on two vehicles and a couch, the case was filed as a no asset case. The DEBTOR lists secured debt of $11,704 and unsecured, non-priority debt of $17,634. She is retired and receives Social Security benefits in the amount of $959 per month and earns an additional $230 per month cleaning offices.
The TRUSTEE contends that the DEBTOR'S statement of financial affairs is inaccurate in that the prepetition transfer of her house and farmland to her son was not disclosed in paragraph 10 which requires disclosure of property transferred within one year prior to the bankruptcy filing, other than property transferred in the ordinary course of the business or financial affairs of the debtor. The TRUSTEE concedes that the DEBTOR disclosed the transfer at her first meeting of creditors in response to the TRUSTEE'S questions. The transfer is also indirectly referred to in paragraph 3 of the statement of financial affairs and on Schedule I.
The DEBTOR testified that she transferred the property to her son in order to avoid foreclosure. The TRUSTEE'S position is that it appears that there was substantial equity in the property over and above the amount of the liens, and that the transfer to her son in consideration of his payment of the liens, and nothing more, constitutes an avoidable fraudulent conveyance. The TRUSTEE contends that the DEBTOR does not have an absolute right to dismiss a voluntary Chapter 7 and that it is in the best interest of creditors to allow the bankruptcy case to proceed so that he may seek recovery of the fraudulently transferred property and administer the equity for the benefit of creditors. The DEBTOR seeks dismissal in order to have an opportunity to deal with her creditors outside of bankruptcy.
Pursuant to Section 707(a) of the Bankruptcy Code, a Chapter 7 case can only be dismissed for "cause." 11 U.S.C. § 707(a). Although this provision does not expressly refer to a voluntary dismissal by the debtor, courts routinely apply it to such a motion. In re Watkins, 229 B.R. 907, 909 (Bankr.N.D.Ill. 1999). It is well established that the DEBTOR has no absolute right to dismissal of a Chapter 7 case. In re Turpen, 244 B.R. 431 (8th Cir.BAP 2000).
A primary factor that the Court must consider is the effect of dismissal on creditors. If creditors are prejudiced in any respect by dismissal of a voluntarily filed Chapter 7 case, a request by the DEBTOR for dismissal should be denied in the absence of demonstrated cause. Watkins, 229 B.R. at 909. Whether cause for dismissal exists is decided on a case-by-case basis. Id. Even if the DEBTOR can show cause, the court may deny the motion if there is a showing of prejudice to creditors. Turpen, 244 B.R. at 434.
The sole "cause" alleged by the DEBTOR is that she would like to try to deal with her debts outside of bankruptcy. Based upon her testimony, it is clear that the DEBTOR regrets having filed bankruptcy and wishes to avoid having the TRUSTEE attack the transfer to her son by dismissing her case. Absent conversion to Chapter 13, the TRUSTEE is entitled and obligated to explore whether any equity in the property is available for the benefit of the creditors and to pursue recovery of that equity through an avoidance action. Although she has changed her mind about bankruptcy, there has been no change in the DEBTOR'S circumstances. She filed for bankruptcy relief because she was unable to pay her debts and, based upon her present circumstances, she remains unable to pay her debts. Having voluntarily submitted herself and her assets to the jurisdiction of the Bankruptcy Court, the DEBTOR'S regret over that decision based upon the TRUSTEE'S exercise of his duties, does not constitute "cause" justifying dismissal of her case.
Even if cause exists, it is outweighed by the prejudice to creditors of a dismissal. Based upon her schedules, the DEBTOR does not have the ability to pay her debts. The only hope of payment that creditors have is from the equity, if any, in the property transferred to the DEBTOR'S son. It is unlikely that, outside of bankruptcy, this equity would be made available to the DEBTOR'S creditors. Accordingly, the Court finds that creditors would be prejudiced by dismissal.
For these reasons, the DEBTOR'S motion to voluntarily dismiss her Chapter 7 case will be denied by separate Order. This Opinion constitutes this Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
ORDER
For the reasons stated in an Opinion filed this day, IT IS HEREBY ORDERED that the DEBTOR'S motion to voluntarily dismiss this Chapter 7 case is DENIED.