Opinion
Case No. 94-03087.
June 2000.
SUMMARY ORDER DENYING DEBTORS' MOTION TO SET ASIDE ORDER TO AMEND SCHEDULES
Background and Facts
Before the Court for disposition is Debtors' Motion to Set Aside Order to Amend Schedules. A hearing was held on May 24, 2000, after which the Court took the matter under advisement.
Debtors Bruce and Paula Jean Boulan ("Debtors") filed for bankruptcy under Chapter 13 of the Bankruptcy Code on December 7, 1994. They filed schedules and a statement of financial affairs on December 30, 1994. Their amended Chapter 13 plan was confirmed on October 3, 1995. After making payments for several years, Debtors could not complete the plan and became delinquent in their plan payments. After attempting, but failing, to cure the delinquency, on March 31, 2000, Debtors moved to voluntarily convert their Chapter 13 case to one under Chapter 7 pursuant to Section 1307(a) of the Bankruptcy Code. Chapter 7 Trustee Richard Crawforth ("Trustee") was appointed. On April 10, 2000, an ex parte Order (Docket No. 53) was entered, apparently at Trustee's request, directing Debtors to amend Schedules "I" and "J", and the Statement of Financial Affairs regarding income information for years 1998 through 2000. Debtors move to set this order aside, to which motion Trustee and the U.S. Trustee ("UST") object.
Trustee could not locate a motion or letter in his file requesting this Order be entered, nor does one appear in the Court's file. As a matter of local practice, however, the Court has delegated the authority to the Clerk to issue such orders upon request of the Chapter 7 trustee, and the parties do not dispute that is what likely occurred in this case.
Discussion and Disposition
Debtors argue that under Rule 1019 of the Federal Rules of Bankruptcy Procedure, only prepetition information is relevant when a Chapter 13 case is converted to Chapter 7. Therefore, they suggest, amendments to the schedules concerning income and expenses, or about assets acquired postpetition should not be required.
While it is true that the schedules and statement of financial affairs filed in the Chapter 13 case are "deemed to be filed" in the Chapter 7 case upon conversion, there is nothing in the Rules preventing the Court from requiring those schedules to be amended when necessary. Indeed, even Rule 1019(1)(A) states: "Lists, inventories, and statements of financial affairs theretofore filed shall be deemed to be filed in the chapter 7 case, unless the court directs otherwise." Fed.R.Bankr.P. 1019(1)(A) (emphasis added).
Trustee and UST argue that under Section 704, the trustee has an affirmative duty to investigate the financial affairs of the Debtors. The relevant portions of Section 704 provide:
The trustee shall —
(4) investigate the financial affairs of the debtor;
(6) if advisable, oppose the discharge of the debtor; . . . .
11 U.S.C. § 704(4), (6) (emphasis added). Without updated information, the argument goes, the trustee is left with the potentially outdated information from Debtors' schedules filed in their Chapter 13 case in 1994, and any meaningful investigation of the Debtors' financial affairs would be impossible. Moreover, while Debtors could not be forced to convert the case back to Chapter 13, if grounds were present, the case could be dismissed for "substantial abuse" under Section 707(b). Section 707(b) provides:
After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, but not at the request or suggestion of any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts if it finds that the granting of relief would be a substantial abuse of the provisions of this chapter.
While only the Court or UST can move for dismissal under Section 707(b), "[u]nder current Ninth Circuit law, the Code, and the Bankruptcy Rules, the UST may bring a motion to dismiss Debtor's case pursuant to § 707(b), upon a referral from the panel trustee." United States Trustee v. Joseph (In re Joseph), 208 B.R. 55, 60 (9th Cir. B.A.P. 1997).
The UST and Trustee argue that without current income and expense information, any determination concerning the existence of "substantial abuse" cannot be made. The Ninth Circuit has held that "the debtor's ability to pay his debts when due, as determined by his ability to fund a chapter 13 plan, is the primary factor to be considered in determining whether granting relief would be a substantial abuse." Zolg v. Kelly (In re Kelly), 841 F.2d 908, 914 (9th Cir. 1988); In re Smith, 95 I.B.C.R. 62 (Bankr.D.Idaho 1995). In order to determine whether Debtors have the ability to fund a Chapter 13 plan, their current income and expenditures must be examined. See also, In re Mills, 246 B.R. 395, 400 (citing 6 Collier on Bankruptcy, ¶ 707.04(2) at 707-18 (15th ed. rev. 1999)) ("a review of the debtor's schedules of current income and current expenditures is an appropriate place to start").
The Court agrees with the Trustee and UST. It is clear that under Rule 1019, the Court may require debtors to amend their schedules and statement of financial affairs when necessary. Here, the order directing Debtors to amend their 1994 schedules and statement of financial affairs was properly issued to assist the Trustee in fulfilling his duty under Section 704 to investigate the Debtors' financial affairs and right to a discharge, and to aid in the analysis under Section 707(b). Debtors are not prejudiced by the requirement that they supply such information.
For these reasons, IT IS HEREBY ORDERED THAT Debtors' Motion to Set Aside Order to Amend Schedules be and is hereby DENIED. Debtors shall promptly comply with the Court's order.
DATED This ___ day of June, 2000.