In re McVicker
546 B.R. 46
Bankr. N.D. Ohio2016Background
- Debtors Mark and Sharon McVicker guaranteed a $175,000 commercial loan (Cutting Edge Rentals, LLC) secured by four rental units on Stitt Street; balance at filing roughly $125,000.
- Debtors made payments for ~7 years; one unit was severely damaged and unrentable since 2007. Last payment was late Nov./early Dec. 2014; bankruptcy filed May 4, 2015 after a cognovit judgment entered for the bank.
- Debtors hold significant exempt assets: Mr. McVicker IRA ≈ $550k, Mrs. McVicker IRA ≈ $27k, and claimed Ohio homestead exemption for primary residence (equity ≈ $107k).
- Huntington Bank moved to dismiss under 11 U.S.C. § 707(a), arguing the Chapter 7 was filed in bad faith to avoid a large single debt and that debtors could have used exempt retirement or home equity to pay the loan.
- The bankruptcy court conducted an evidentiary hearing, assessed Zick and Spagnolia factors, and analyzed statutory protections for exemptions and retirement accounts (including Siegel, Patterson, and BAPCPA changes).
Issues
| Issue | Plaintiff's Argument (Huntington) | Defendant's Argument (McVickers) | Held |
|---|---|---|---|
| Whether dismissal for "cause" under §707(a) is warranted for lack of good faith / bad faith filing | Case filed to avoid one large debt; debtors have ample exempt assets (IRAs, homestead) and thus filed in bad faith | Filing was a permissible economic/business decision after Mrs. McVicker retired and communications with bank failed; no fraud or manipulation | Denied — no egregious bad faith under Zick; creditors’ ability-to-pay arguments insufficient alone |
| Whether having a single large creditor justifies dismissal | The Huntington debt is a large single debt and motive for filing; debtors should have used exempt assets | Presence of a single large debt is not dispositive; must show additional bad-faith factors (e.g., fraud, concealment, lavish spending) | Single large debt alone insufficient; court requires egregious conduct to dismiss under §707(a) |
| Whether claiming homestead exemption (and not using exempt equity) supports dismissal | Debtors claim substantial homestead equity instead of paying Huntington; this is unfair use of Chapter 7 | Ohio statutory homestead exemption is legislatively provided; Siegel limits courts from overriding statutory exemptions on bad-faith grounds | Debtors may rely on statutory exemptions; claiming them without evidence of manipulative exemption planning does not justify dismissal |
| Whether retirement accounts must be used to pay creditors / justify dismissal | Debtors have large IRAs and withdraw small amounts; they could pay Huntington and thus filing is abusive | Congress protects certain retirement accounts; IRA exemptions and caps weigh against using exempt retirement assets to deny relief | Court rejects ability-to-pay via exempt retirement funds as primary ground for dismissal; retirement protections weigh against dismissal |
| Failure to turn over rents and any conversion of rents | Debtors failed to remit rents assigned to Huntington, suggesting evasion or conversion | Debtors produced evidence rents may have been used for property expenses; conversion claim more appropriately litigated in adversary proceeding | Court viewed failure-to-turn-over as the strongest bank fact but not dispositive; §523/other remedies may be more specific; did not warrant §707(a) dismissal here |
Key Cases Cited
- In re Zick, 931 F.2d 1124 (6th Cir. 1991) (holds lack of good faith can be "cause" to dismiss under §707(a) but sets high, "egregious case" standard and endorses a "smell test")
- Law v. Siegel, 134 S. Ct. 1188 (U.S. 2014) (bankruptcy courts may not use equitable powers to override explicit Code exemption provisions)
- Patterson v. Shumate, 504 U.S. 753 (U.S. 1992) (ERISA-qualified retirement funds are protected from inclusion in the bankruptcy estate under applicable nonbankruptcy law)
- Clark v. Rameker, 134 S. Ct. 2242 (U.S. 2014) (discusses policies supporting protection of retirement assets and statutory limits on exempt retirement funds)
- Krueger v. Torres (In re Krueger), 812 F.3d 365 (5th Cir. 2016) (recognizes non-economic motives can justify dismissal under §707(a) where present)