Opinion
No. 02-80538
August 14, 2002
OPINION
This matter is before the Court on the objection filed by Richard E. Barber, Chapter 7 Trustee (TRUSTEE), to the motion filed by the Debtor, Mary M. Byam (DEBTOR), to voluntarily dismiss her case. The facts are not disputed. Upon the death of the DEBTOR'S parents, she and her siblings inherited their home in Davenport, Iowa. She and her brother, Adrian Byam, bought out the interests of their other siblings. Adrian resided there until 1996, expending approximately $16,000.00, to repair and remodel the property. Thereafter, the property was rented.
In 2000, the DEBTOR lost her job at Case New Holland and formed a partnership to operate a furniture assembly business. The business was not successful. After consulting an attorney, she signed a note to Adrian in the amount of $8,000.00, granting a mortgage on the property to secure the note. The mortgage is dated January 23, 2002, and was recorded on January 28, 2002. The DEBTOR filed a Chapter 7 petition on February 6, 2002. The DEBTOR did not disclose the mortgage as a transfer occurring within a year of the filing of the petition. In addition to scheduling her interest in the Iowa real estate, she listed property in Sherrard, Illinois, where she was residing when the petition was filed, claiming a homestead exemption in the Illinois property. The DEBTOR claimed an exemption in the Iowa real estate under the personal property exemption law, and the TRUSTEE'S objection to that claim of exemption was sustained.
The DEBTOR'S petition is dated Dec. 17, 2001.
On June 7, 2002, Federal National Mortgage Association moved for relief from the stay as to the Sherrard, Illinois, real estate, alleging that the arrearage on the mortgage was $9,799.01, through May 1, 2002, not including fees and costs. The DEBTOR did not respond to the motion and an order was entered on July 18, 2002, lifting the stay to permit foreclosure.
Upon learning of the date of the mortgage to Adrian Byam, the TRUSTEE advised the DEBTOR of his position that the granting of the mortgage was a preferential transfer. After attempting to resolve the matter, the TRUSTEE filed an application to serve as attorney to pursue avoidance of the transfer. The following day, the DEBTOR filed a motion to dismiss her petition, alleging that she had resumed her employment with Case New Holland and that she would be able to pay her creditors in full. The TRUSTEE objected to the motion, and after a hearing, the matter was taken under advisement.
A Chapter 7 debtor does not have an absolute right to dismiss a bankruptcy case. In re Turpen, 244 B.R. 431 (8th Cir.BAP 2000). Dismissal is governed by Section 707(a) of the Bankruptcy Code which provides that "the court may dismiss a case under [Chapter 7] only after notice and hearing and only for cause." 11 U.S.C. § 707(a). Voluntary dismissal is not allowed where it will cause prejudice to the debtor's creditors. Turpen; In re Eichelberger, 225 B.R. 437 (Bankr.E.D.Mo. 1998). Prejudice exists where assets which would be available for distribution are lost as a result of the dismissal. In re McCullough, 229 B.R. 374 (Bankr.E.D.Va. 1999); In re Higbee, 58 B.R. 71 (Bankr.C.D.Ill. 1986). A debtor's vow to pay unsecured creditors outside bankruptcy once the case is dismissed does not dispel such prejudice; nor is it regarded as sufficient cause for dismissal. Turpen; In re Spatz, 221 B.R. 992 (Bankr.M.D.Fla. 1998).
It is clear that the DEBTOR'S creditors may be prejudiced by the dismissal of her case, despite her assurances to the contrary. If the TRUSTEE is successful in his attempt to avoid the mortgage, a significant distribution would be available to creditors. The TRUSTEE contends that the value of the Iowa property, subject to a mortgage of $29,200.00, may be worth $50,000.00. The DEBTOR listed unsecured claims of $7,273.76. If the DEBTOR were permitted to dismiss her case and then file a new bankruptcy, the mortgage, falling outside the ninety-day preference period, may not be avoidable. The unsecured creditors would be denied a distributive share in the recovered preference.
The DEBTOR valued the real estate in her schedules at $47,910.00. At this point in the proceedings, any value placed on the property is at best a guestimate, and the TRUSTEE need not prove his estimation is the correct one.
Deere Harvester Credit Union, scheduled by the DEBTOR as a fully secured creditor, has filed an unsecured claim in the amount of $3,390.27, for a "Repo deficiency."
Moreover, the DEBTOR'S claim of exemption of $9,500.00 in the Illinois real estate was unopposed by the TRUSTEE and he abandoned his interest in that property. The DEBTOR represents that the Illinois property has been sold and she expects to "break even." According to the DEBTOR, she intends to move into the Iowa property. If she were to do so, upon dismissal of this case, she could spend any net proceeds, refile a Chapter 7, and avail herself of a homestead exemption in the Iowa property.
The DEBTOR claimed her maximum homestead exemption of $7,500.00 plus an additional $2,000.00 under the personal property wildcard exemption.
As the DEBTOR notes, however, she is barred from refiling for a period of 180 days. 11 U.S.C. § 109(g)(2).
Furthermore, the DEBTOR'S actions in this case do not appear to be entirely innocent. The DEBTOR claims that the failure to disclose the transfer of a mortgage to her brother in the Statement of Affairs was inadvertent, although the transfer was made after she signed the bankruptcy petition and the filing of the petition was delayed until the transfer was completed. The proximity of the mortgage to the petition date makes the DEBTOR'S position highly questionable. Further, only when the TRUSTEE sought to avoid the transfer did the DEBTOR unveil her intention to pay her creditors in full. Her actions cast considerable doubt upon her assurances to pay all her creditors in full. See, Turpen.
Finally, the DEBTOR has undeniably played fast and loose with her exemptions. The wildcard exemption under 735 ILCS § 12-1001(b), by its terms, applies only to personal property and may not be used to exempt an interest in real estate. In re Woodworth, 152 B.R. 258 (Bankr.C.D.Ill. 1993). In addition, the wildcard exemption is limited in amount to $2,000.00. This Court views the DEBTOR'S use of a personal property exemption with a $2,000.00 limit to exempt her interests in two parcels of real estate in an amount of $10,000.00 to be the kind of bad faith exemption claim decried by the Supreme Court in Taylor v. Freeland Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). The Court recognizes that most debtors rely on the advice of their attorney to claim allowable exemptions. Therefore, the Clerk is directed to schedule a hearing pursuant to Fed.R.Bankr.Pro. 9011(c) at which the DEBTOR'S attorney, Dean L. Sutton, shall appear.
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. The Clerk is directed to set a hearing pursuant to Rule 9011(c) of the Federal Rules of Bankruptcy Procedure at which Dean L. Sutton shall appear.