503 B.R. 694
Bankr. N.D. Ind.2013Background
- Chapter 13 case filed Aug 6, 2009; plan confirmed Oct 15, 2009 for 36 months, plan term completed.
- Debtors (the Wheelers) did not inform the trustee that Mrs. Wheeler continued pursuing and ultimately prevailed on a Social Security disability claim begun before filing.
- SSA informed Mrs. Wheeler in Sept 2011 of unpaid benefits for Oct 2009–Apr 2011 and a lump payment bringing total 2011 benefits to $38,749; debtors did not disclose this to the trustee.
- The trustee learned of the 2011 benefits only after receiving the debtors’ 2011 tax return in Aug 2012; the return had been filed late after the trustee moved to dismiss for non‑disclosure.
- Debtors conceded they failed to notify the trustee but argued nondisclosure caused no harm because social security income, they claimed, would not affect plan payments.
- Trustee moved to dismiss under 11 U.S.C. § 1307(c) for cause (failure to disclose material changes prejudicial to creditors); court held trial and granted dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether chapter 13 debtors must disclose post‑petition Social Security disability award/benefits | Trustee: undisclosed change in income is material and prejudicial; warrants dismissal | Debtors: social security is excluded from means calculation, so nondisclosure caused no harm | Court: duty to disclose is ongoing and material; nondisclosure deprived trustee/creditors of information; dismissal granted |
| Whether social security benefits must be considered when determining payments under a confirmed plan | Trustee: creditors/ trustee entitled to decide impact; information matters | Debtors: social security income is excluded and would not change plan payments | Court: unsettled in Seventh Circuit; regardless, disclosure required so parties could evaluate options |
| Whether failure to disclose post‑petition information supports dismissal for cause under § 1307(c) | Trustee: failure to disclose constitutes unreasonable delay prejudicial to creditors | Debtors: no prejudice because payments unaffected | Court: nondisclosure was material and prejudicial by denying opportunity to act; dismissal appropriate |
Key Cases Cited
- Stamat v. Neary, 635 F.3d 974 (7th Cir. 2011) (bankruptcy disclosure duty and importance of accurate information)
- U.S. v. Ellis, 50 F.3d 419 (7th Cir. 1995) (complete disclosure as cornerstone of bankruptcy)
- In re Love, 957 F.2d 1350 (7th Cir. 1992) (trustee bears burden to prove cause for dismissal under § 1307)
- Matter of Yonikus, 974 F.2d 901 (7th Cir. 1992) (absolute duty to report interests in property)
- In re Chalik, 748 F.2d 616 (11th Cir. 1984) (creditors entitled to full disclosure; they decide significance)
- In re Flugence, 738 F.3d 126 (5th Cir. 2013) (chapter 13 debtors’ disclosure obligations similar to chapter 7)
- Robinson v. Tyson Foods, Inc., 595 F.3d 1269 (11th Cir. 2010) (ongoing duty to disclose post‑petition changes)
- In re Cranmer, 697 F.3d 1314 (10th Cir. 2012) (holding social security income not part of means test analysis)
- In re Ragos, 700 F.3d 220 (5th Cir. 2012) (social security income excluded from disposable income calculation)