469 B.R. 694
Bankr. E.D. Mich.2012Background
- Debtors filed a third bankruptcy case (Case No. 11-64190) under Chapter 7; the Trust moved to dismiss for cause, impose a filing bar, and sanction.
- Case history shows prior dismissals and a default judgment against Debtors in 2009 for nondischargeable debt to the Trust.
- Schedules I and J in the petition understated income, contrary to paystubs and postpetition income.
- Amended Schedules I/J filed December 20, 2011 showed higher income and demonstrated feasibility of Chapter 13.
- Debtors converted to Chapter 13, proposed a plan, and the Court held evidentiary hearings on the Trust’s motion.
- Court found bad faith, income misrepresentation, and abuse of the bankruptcy process, justifying dismissal and sanctions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtors filed in bad faith warrant dismissal under §1307(c). | Gislason Trust contends bad faith and abuse. | Mehlhose argues no bad faith; erroneous filings were corrected. | Yes; dismissal for cause affirmed. |
| Whether the understatement of income on Schedule I constitutes perjury and misrepresentation. | Trust asserts material understatements designed to hinder Chapter 13. | Debtors dispute intent; amended schedules later filed. | Yes; Schedu1e I false perjury established. |
| Whether the case should be dismissed for cause under totality of circumstances. | Trust relies on pattern of serial filings and prior dishonesty. | Debtors claim newfound compliance with Chapter 13. | Yes; dismissal for cause based on totality of circumstances. |
| Whether sanctions and attorney-fee reimbursement to the Trust are warranted. | Sanctions necessary to deter abuse and reimburse costs. | Debtors contest amount and basis for fees. | Yes; award of reasonable fees and costs approved. |
| Whether a two-year bar to refiling is appropriate. | Bar necessary to prevent further abuse. | Bar overly punitive. | Yes; two-year bar imposed. |
Key Cases Cited
- Alt v. United States (In re Alt), 305 F.3d 413 (6th Cir. 2002) (good-faith standard for Chapter 13 petitions; totality of circumstances)
- Copper v. Copper (In re Copper), 426 F.3d 810 (6th Cir. 2005) (totality of circumstances test for good faith in filings)
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (U.S. 2007) (bankruptcy court may dismiss Chapter 13 for bad faith; broader power)
- Society Nat'l Bank v. Barrett (In re Barrett), 964 F.2d 588 (6th Cir. 1992) (factors in determining plan and debtor sincerity; good faith)
- Chambers v. NASCO, Inc., 501 U.S. 32 (U.S. 1991) (inherent power to sanction for bad-faith conduct)
- Love v. Love (In re Love), 957 F.2d 1350 (7th Cir. 1992) (nonexhaustive factors for good-faith Chapter 13 filing)