Opinion
6:22-bk-02753-TPG
04-06-2023
In re: Francisco Ortega Robles, Debtor.
Chapter 7
ORDER GRANTING DEBTOR'S MOTION TO VACATE ORDER OF DISCHARGE AND DISMISS VOLUNTARY PETITION
Tiffany P. Geyer United States Bankruptcy Judge
THIS CASE came on for hearing on March 1, 2023 (Doc. No. 48) on the Debtor's Motion to Vacate Order of Discharge and Dismiss Voluntary Petition (the "Motion") (Doc. No. 37), and the opposition (Doc. No. 40) filed by Richard Webber, the Chapter 7 Trustee (the "Trustee"). After consideration of the pleadings, arguments of counsel, the law, and being otherwise fully advised in the premises, the Motion is granted. As explained below, the Court finds that the Debtor has not acted in bad faith, that dismissal does not prejudice creditors, and that the purpose of the Bankruptcy Code's fresh start would be hindered absent dismissal.
All references to the Bankruptcy Code refer to Title 11 of the United States Code.
I. FACTS AND PROCEDURAL HISTORY.
On July 31, 2022, the Debtor, who is 76 years old, filed a voluntary Chapter 7 petition. (Doc. No. 1.) On his original schedules, he included a 2016 Chevrolet Colorado valued at $7,561.50 (the "Colorado"). (Id. at 11.) On a later amended schedule, the Debtor valued the Colorado at $8,653.85. (Doc. No. 24 at 2.)
The Debtor listed his monthly pension or retirement income as $541, his monthly Social Security income as $1,574, and his wife's monthly Social Security income as $1,709. (Id. at 29.) He valued his assets at $235,742.62 (Doc. No. 24-4 at 1), which includes the value of his homestead (Doc. No. 24 at 1). He has two checking accounts, containing less than $200 combined. (Id. at 3.) His monthly expenses are $3,408.25. (Doc. No. 24-4 at 1.) The Debtor scheduled 42 unsecured claims totaling $58,076.76. (Doc. No. 24 at 25.) However, just five proofs of claim were filed, totaling $18,120.58. (Claims Register Summary.) The Debtor reaffirmed the debt for his home, and will make monthly payments of $1,298.25 for 304 months. (Doc. No. 20 at 4.) The discharge was entered on November 3, 2022. (Doc. No. 22.)
Prior to discharge, on October 14, 2022, the Trustee filed an adversary proceeding (Case No. 6:22-ap-79-TPG), against the Debtor and his wife seeking turnover of the Colorado under 11 U.S.C. §§ 541, 542, 548(a), 550, and 551. (Case No. 6:22-ap-79-TPG, Doc. No. 1.) The Trustee alleges that the Colorado was purchased solely in the Debtor's name on September 20, 2016, but that on November 22, 2021 (about eight months before this case was filed), the Debtor transferred title to himself and his wife. (Id. ¶ 10.) Approximately one month before filing for bankruptcy, the Debtor again transferred the title to the Colorado, this time solely to his wife. (Id. ¶¶ 10, 13.) The Trustee contends that these transfers are fraudulent and avoidable and seeks turnover of the Colorado or its value for the benefit of the bankruptcy estate. (Id. at 3-5.)
The Debtor filed an answer on November 28, 2022, admitting to both transfers and that no consideration was provided. (Case No. 6:22-ap-79-TPG, Doc. No. 7 ¶¶ 10, 13.) The only affirmative defense the Debtor raises in the adversary proceeding is contesting the Trustee's value of the Colorado. (Id. at 2.)
In the adversary complaint, the Trustee valued the Colorado at $22,250. (Case No. 6:22-ap-79-TPG, Doc. No. 1 ¶ 12.)
Faced with the possible loss of the Colorado, on December 22, 2022, the Debtor sought to vacate his discharge and dismiss his Chapter 7 case under Federal Rule of Bankruptcy Procedure 1017(a). (Doc. No. 37.) The Debtor asserts that the Colorado is his and his disabled wife's only means of transportation and that losing the Colorado would cause them an undue burden because they will not be able to purchase a new car if it is turned over to the Trustee, leaving them in a worse position than they would be had this case never been filed. (Id. ¶¶ 4-6.) In other words, the Debtor will not receive the benefit of the fresh start that bankruptcy provides.
In response, the Trustee argues that "the Debtor has not accounted honestly for his assets," and that the Debtor transferred the Colorado title to shield the vehicle from creditors. (Doc. No. 40 ¶ 12.) He argues that dismissal would prejudice creditors by depriving the Trustee of administering the equity in the Colorado for their benefit. (Id.¶ 14.) Finally, the Trustee asserts that the Debtor's desire to avoid turnover of the Colorado is not "cause" sufficient to dismiss the case under 11 U.S.C. § 707(a). (Id. ¶ 16.)
II. LAW.
Under 11 U.S.C. § 707(a), the court has discretion to dismiss a Chapter 7 case for cause after notice and a hearing. In re McDaniel, 363 B.R. 239, 243 (M.D. Fla. 2007). The burden to show cause for dismissal is on the movant, and the court should consider whether the debtor lacked good faith in filing for bankruptcy. Id. at 244. Factors to consider in determining the debtor's good faith include the following:
[1] the debtor reduced his creditors to a single creditor in the months prior to filing the petition;
[2] the debtor made no life-style adjustments or continued living an expansive or lavish life-style;
[3] the debtor filed the case in response to a judgment, pending litigation, or collection action;
[4] there is an intent to avoid a large, single debt;
[5] the debtor made no effort to repay his debts;
[6] the unfairness of the use of Chapter 7;
[7] the debtor has sufficient resources to pay his debts;
[8] the debtor is paying debts of insiders;
[9] the schedules inflate expenses to disguise financial well-being;
[10] the debtor transferred assets;
[11] the debtor is over-utilizing the protections of the Code to the unconscionable detriment of creditors;
[12] the debtor employed a deliberate and persistent pattern of evading a single major creditor;
[13] the debtor failed to make candid and full disclosure;
[14] the debtor's debts are modest in relation to his assets and income; and
[15] there are multiple bankruptcy filings or other procedural "gymnastics".Id. (quoting In re Cappuccetti, 172 B.R. 37, 39 (Bankr. E.D. Ark. 1994)). The court also considers the purposes of providing the debtor with a fresh start and facilitating the fair and orderly distribution of assets. Id.
In McDaniel, the District Court for the Middle District of Florida affirmed this Court's decision to permit a Chapter 7 debtor to dismiss her case along with an adversary proceeding she filed to determine the dischargeability of her tax debts where the discharge action was filed prematurely as a result of counsel's failure to adequately consider the timing of the case, thwarting the purpose of the debtor's Chapter 7 case and discharge action. Id. at 241-42. In addition, the debtor had acted in good faith throughout the proceedings: she did not unreasonably delay bringing her motion to dismiss, she paid her bankruptcy fees, and she complied with 11 U.S.C. § 521. Id. at 246. The only prejudice to the creditor was a loss of time to collect a debt, but "creditors are not generally prejudiced by dismissal of bankruptcy cases as they will no longer be stayed from resorting to the courts to collect their outstanding debts." Id.
III. ANALYSIS.
In determining whether the Motion should be granted, the Court considers the factors listed in McDaniel. Here, the information supplied by the parties is limited to the following: whether there are multiple bankruptcy filings or other procedural gymnastics; whether the Debtor intended to avoid a large, single debt; whether the Debtor failed to make candid and full disclosure; whether the Debtor has sufficient resources to pay his debts; whether the Debtor's debts are modest in relation to his assets and income; and whether the Debtor transferred assets. When considered together, these factors merit granting the relief sought by the Debtor.
The Debtor has one previous bankruptcy filing, but it was filed in 2010 and resulted in a standard discharge on January 11, 2011. The Court does not consider two bankruptcy cases filed within approximately twelve years to constitute multiple bankruptcy filings sufficient to indicate bad faith. There also does not appear to be an intent to avoid a large, single debt, as the Debtor reaffirmed his largest debt-the mortgage on his residence. (Doc. No. 20.) Rather, as evidenced by the schedules, the Debtor's motivation in filing this Chapter 7 case appears to be his desire to shed unsecured debt.
Next, the Debtor appears to have made candid and full disclosures. In re McDaniel, 363 B.R. at 244. Although the Trustee asserts that the Debtor intended "to keep his vehicle from his creditors" (Doc. No. 40 ¶ 12), he acknowledges that the Debtor listed the Colorado on his original schedules (id. ¶ 8). It is true that the Debtor filed amended schedules removing the Colorado (id. ¶ 15), but two weeks later and after the complaint in the adversary proceeding was filed, the Debtor filed second amended schedules again listing the Colorado (Doc. No. 24 at 1-2). Thus, the Debtor fulfilled his duty to disclose.
The Court next reviews whether the Debtor has sufficient resources to pay his debts and whether his debts are modest in relation to his assets and income. Not including his homestead, the Debtor values his personal property, including the Colorado, at $9,239.62. (Id. at 2; Doc. No. 24-4 at 1.) He lists two checking accounts containing less than $200 combined. (Doc. No. 24 at 3.) His monthly expenses are $3,408.25, approximately $400 less than his monthly income. (Doc. No. 24-4 at 1.) Although the Debtor lists 42 unsecured claims totaling $58,076.76 (Doc. No. 24 at 25), just five proofs of claim were filed totaling $18,120.58. Under the Reaffirmation Agreement for his home, the Debtor will make monthly payments of $1,298.25 for 304 months on an outstanding balance of $154,118.22 (Doc. No. 20 at 1, 4), amounting to approximately 34% of the Debtor's monthly income. (Id. at 4; Doc. No. 24-4 at 1.) Reviewing the Debtor's financial picture, the Court cannot say that his debts are modest in relation to his assets and income; he does appear to have sufficient resources to pay his debts, though things are tight, and will be tighter with a vacatur of the discharge order, as his creditors will be free to pursue him once again.
Regarding whether the Debtor transferred assets, the Debtor's Statement of Financial Affairs reflects no transfer, other than in the ordinary course of his business or financial affairs within two years before he filed for bankruptcy. (Doc. No. 24-2 at 4.) This contradicts his admissions in the adversary proceeding that he transferred title to the Colorado to himself and his wife on November 22, 2021, and then transferred the title solely to his wife on June 6, 2022. (Case No. 6:22-ap-79-TPG, Doc. No. 1 ¶¶ 10, 13, Doc. No. 7 ¶¶ 10, 13.) Although the optics of such transfers are certainly questionable, there are no facts before the Court regarding why the Debtor transferred title to the Colorado, and the Debtor disclosed the Colorado on his original and second amended schedules. As such, the Court finds the transfers do not mandate a finding of bad faith and gives this factor little weight.
A review of the facts before the Court indicates that the Debtor acted in good faith in this bankruptcy case. This is only the Debtor's second bankruptcy case in over ten years, he did not file the case to avoid a single, large debt, he twice listed the Colorado on his schedules, and his debts are not modest in relation to his assets and income.
In addition, dismissal does not substantially prejudice creditors. "[C]reditors are not generally prejudiced by dismissal of bankruptcy cases as they will no longer be stayed from resorting to the courts to collect their outstanding debts." In re McDaniel, 363 B.R. at 246. Here, the Debtor's case has been pending for approximately eight months, during which time the debtor's unsecured creditors have been unable to attempt to collect on their claims against the debtor. Dismissal of this case and vacatur of the discharge permits the creditors to pursue their remedies against the Debtor.
Finally, the Debtor asserts that a fresh start is not possible without the Colorado. At the hearing, Debtor's counsel represented that the Debtor would not be able to obtain a reliable replacement vehicle if the Colorado were turned over to the Trustee. In sum, the Debtor would be worse off if he must stay in his Chapter 7 case than he would be if his case is dismissed, defeating the fresh start the Bankruptcy Code provides to the honest but unfortunate debtor. Because the McDaniel factors indicate that the Debtor acted in good faith, creditors are not prejudiced, and the Bankruptcy Code's purpose of providing the Debtor with a fresh start would be frustrated should this case continue, the Debtor demonstrates good cause under 11 U.S.C. § 707(a) for dismissal.
IV. CONCLUSION.
Accordingly, it is ORDERED
1. The Motion (Doc. No. 37) is GRANTED;
2. The Order of Discharge (Doc. No. 22) is VACATED;
3. This case is DISMISSED; and
4. The Clerk is directed to close the case.
The Clerk is directed to serve a copy of this order on all interested parties.