In Re Fleury
MEMORANDUM OF DECISION ON THE ORDER TO SHOW CAUSE
I. Introduction
I took this matter under advisement after I held a hearing on March 27, 2003 on my Order to Show Cause why I should not dismiss the petition of Jill A. Fleury (the “Debtor”) for lack of good faith in filing. After considering the arguments of all parties and the numerous affidavits which the Debtor submitted, I conclude that the Debtor failed to show cause. For the reasons explained below, I will enter an order dismissing the Debtor’s case and prohibiting the Debtor from refiling for 360 days.
II. Facts
I base my findings on the undisputed facts, on the Complaint to Determine Non-Dischargeability of Debt (the “Complaint”) 1 which Scott A. Carmichael (the “Creditor”) filed; the Debtor’s Answer to the Complaint; the Motion For Relief From Automatic Stay By Scott A. Carmichael (the “Motion for Relief’); the Debt- or’s Answer to the Motion for Relief; the January 9, 2003 hearing on the Motion for Relief; the March 27, 2003 hearing on the Order to Show Cause; and the affidavits which the Debtor submitted.
The Commonwealth of Massachusetts Probate and Family Court, Bristol Division (the “Probate Court”) entered a Divorce Decree terminating the marriage between the Debtor and the Creditor on May 29, 1995. The Divorce Decree incorporated the marital separation agreement which provided that the Creditor receive a one third interest in any judgment or settlement received by the Debtor from her a Massachusetts Commission Against Discrimination (“MCAD”) case. At the time of the Divorce Decree, the MCAD case had not been resolved.
The Debtor filed a petition for Chapter 13 bankruptcy on January 11, 1999 (“Petition I”). In Schedule B, the Debtor listed the MCAD case under the category of “other contingent and unliquidated claims of every nature,” valued the judgment of the MCAD cаse at $143,000.00 and explained that the judgment was “less 35% contingency fee owed to attorney, costs due to attorney and one third of award for emotional distress and back pay owed to [Creditor] pursuant to divorce.”
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The Debtor scheduled one unsecured priority debt, $2,352.99 to the Internal Revenue Service. The Debtor listed two unsecured debts on Schedule F: a student loan of $17,000 and $10,000 on a promissory note to the Creditor. The Debtor did not list the Creditor as a creditor on the judgment of the MCAD case. The Debtor listed two secured loans on her residence totaling $124,189.29 and valued the home at $200,000.00. Additionally, the Debtor fist-ed a $3,550.00 secured car loan. On September 1, 2001, the Debtor paid off the Chapter 13 plan that provided a one hundred percent dividend to the creditors with
In February 2001, the Debtor was awarded $390,000.00 from the MCAD case (the “Judgment”). After paying costs and attorney fees, the Debtor received $244,000.00 of the Judgment. The Debtor failed to alert the Court of her receipt of the Judgment, but states that the Chapter 13 trustee was aware of the final award.
The Debtor’s entered into numerous additional financial transactions from February, 2001 until she filed a second bankruptcy petition. During that period, the Debtor loaned $30,000.00 to her law partner for real property but did not receive a promissory note or enter into a written agreement for repayment. The Debtor states that she has received an automobile from her law partner as repayment on the loan. The Debtor gave $200,000.00 to her sister and her sister then transferred the money to her father. The Debtor’s father placed $100,000.00 into five separate education accounts for the Debtor’s five children. The father then conveyed the remaining funds back to the Debtor. The Debtor also spent $14,000.00 on a trip to Hawaii. The Debtor gave without consideration $58,500.00 to her husband. On March 4, 2002, the Debtor had $79,217.81 in a bank account in her name. In addition, the Debtor refinanced her residence and increased her line of credit.
On June 13, 2002, after a trial on a complaint by the Debtor for modification of the Divorce Decree seeking increased child support, the Probate Court issued Findings of Faсt and Rationale (the “Findings”). 3 Fluery v. Carmichael, Massachusetts Probate and Family Court, Case No. 94 D 1996 DVI (1997). The Probate Court, in holding that the Creditor should increase his child support payments, found that “the real motivation for filing [Petition I] for debtor relief was then, and currently is, an attempt to beat [the Creditor’s] claim for a share of the MCAD claim.” Id. At the same time, the Probate Court held over a complaint for contempt that the Creditоr filed for a future hearing. The Debtor has appealed the Findings of the Probate Court and a ruling on the appeal has not issued.
On July 12, 2002, a month after the Probate Court decision, the Debtor filed a second Chapter 13 (“Petition II”). The Debtor again listed two secured loans on her residence, but no secured loans on automobiles.
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The secured loans in the Schedule D of Petition II totaled $231,605.48. The Debtor valued the home at $325,000.00. The Debtor listed no priority unsecured creditors and three unsecured creditors. The unsecured claims were: $17,417.97 on student loans; $1,373.00 on a credit card; and an unknown amount to the Creditor relating to the Judgment. The Debtor stated in Schedule F that the claim to the Creditor is disputed and alleged that the Creditor’s debt was discharged in the previous bankruptcy and subject to setoff. The Debtor filеd her Chapter 13 plan on July 29, 2002 and did not make any provision for payment of the Creditor’s claim on the Judgment. I confirmed the Debtor’s plan on October 15, 2002. The Creditor did not object to the confirmation of the plan. On
On October 17, 2002, the Creditor filed the Motion for Relief in order to pursue a state court action to recover the money from the Judgment that the Creditor believed was owed to him. On the same day, the Creditor filed an adversary proceeding on the non-dischargeability of his debt. On November 27, 2002, the Debtor filed a response and opposition to the Creditor’s motion for relief and she filed an objection to the Creditor’s proof of claim. I held a hearing on the Mоtion for Relief and the Creditor’s proof of claim on January 9, 2003 and took these matters under advisement. After reviewing the Debtor’s schedules and her actions surrounding the case, I issued an Order to Show Cause (the “Order”) as to why I should not dismiss the Debtor’s case for lack of good faith in filing. I held a hearing on the Order on March 27, 2003. At the hearing, I took the issue of the dismissal of the Debtor’s case under advisement.
III. Analysis
A. Lack of Good Faith in Filing
The Bankruptcy Code provides that “on request of a party in interest or the United States Trustee and after notice and a hearing, the court may convert... or may dismiss a case under this chapter, whichever is in the best interests of the creditors and the estate, for cause...” 11 U.S.C. § 1307(c). Although the statute does not specifically allow a court to dismiss a case on its own motion, courts now recognize that a сourt’s
sua sponte
dismissal is permitted through the 1986 amendments of 11 U.S.C. § 105.
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In re Hammers,
The Debtor must file both her Chapter 13 рetition and Chapter 13 plan in good faith.
See In re Love,
The United States Bankruptcy Appellate Panel of the First Circuit originally did not adopt a totality of the circumstances approach to determine lack of good faith but instead advocated an examination of оnly the circumstances relevant to the debtor’s proposed plan and post-filing conduct.
See In re Keach,
In determining a debtor’s lack of good faith in filing a Chapter 13 petition under the totality of circumstances test, bankruptcy courts consider: (1) whether a debtor misrepresented facts in her petition, unfairly manipulated the Bankruptcy Code, or otherwise filed a Chapter 13 petition in an inequitable manner; (2) the debtor’s history of filings and dismissals; (3) whether the debtor only intended to defeat state court litigation; and (4) whether egregious behavior is present.
Eisen v. Curry (In re Eisen),
Turning to this case and the first factor of misrepresented facts and manipulation of the Bankruptcy Code, the Debtor dissipated over $350,000.00 over the year and a half between her two bankruptcy filings. The Debtor received $244,000.00 from the Judgment and $107,416.19 after refinancing her home between Petition I and Petition II. The Debtor in her affidavit submitted at the March 27, 2003 hearing attempts to account for these proceeds. Her transfers included $100,000.00 in trusts to her children using her sister and father as conduits, a $58,500.00 gift to her husband less than five months before Petition II, a $30,000 loan without repayment terms to a law partner, a trip to Hawaii, lawyers fees and home improvement costs. Not only do these transfers have the indicia of fraudulent transfers, the Debtor in her affidavit fails to account for $26,308.74 of the assets she received from the Judgment and the refinancing of her residence. The first factor of the totality of circumstancеs test demonstrates that the Debtor lacked good faith in filing.
I combine my analysis of the second and third factors because they are closely intertwined in this case. The Debtor’s history of filings demonstrates that the Debtor only intended to defeat the Probate Court’s Divorce Decree. Although Petition II is only the Debtor’s second bank
In Petition I, the Debtor expressly listed her interest in the Judgment as to not include the Creditor’s claim yet listed the Creditor’s claim on a promissory note. Conversely, in Petition II, the Debtor lists the Creditor’s claim in the Judgment as contested because thе claim was discharged in Petition I. The Debtor, a lawyer and a partner in her own firm, based her conclusion that the Creditor’s debt was discharged on the representations, from other lawyers, including her law partners. Schedule B in Petition I, however, belies the Debtor’s contention that the Creditor’s debt was discharged in Petition I. The Debtor cannot make contradictory statements in her filings with the Court.
See Payless Wholesale Distributors, Inc. v. Alberto Culver (P.R.) Inc.,
As to the egregious behavior factor, the Debtor is not making an honest effort to repay her debts to the best of her abilities but instead is attempting to thwart payment to the Creditor.
See Patriot Cinemas,
The Debtor’s actions appear purposeful and plаnned. The Debtor purposefully excluded the Creditor’s claim from her Petition I by the wording in Schedule B. The Debtor then received the Judgment and had the ability to pay the Creditor’s claim, as well as all creditors’ claims. Instead, the Debtor transferred all of the money she received from refinancing her house and from the Judgment to family and friends. The Debtor transferred over $350,000.00 in less than year and a half. By the time of thе filing of Petition II, the Debtor had very few assets and little income with which to fund a plan or pay the Creditor’s claim in full.
The filing of bankruptcy solely to thwart a creditor claim rather than making a honest effort to pay debts is bad faith.
See Gier v. Farmers State Bank (In re Gier),
B. Bar from Refiling for 360 days
The dismissal of bankruptcy cases with and without prejudice is authorized by 11 U.S.C. § 349(a).
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In general, a bankruptcy court’s dismissal is ordered without prejudice in order to carry out the remedial purpose of the Bankruptcy Code
“Cause” for dismissal under 11 U.S.C. § 349 has not been specifically defined by the Bankruptcy Code.
In re Leavitt,
The extent and egregiousness of the Debtor’s actions found in the foregoing analysis of totality of the circumstances for 11 U.S.C. § 1307(c) establishes “cause” for dismissal under § 349 and amply justifies dismissal with prejudice. Because of the Debtor’s single-minded intent to avoid payment to the Creditor, I find that a 360 day bar to refiling is justified to prevent the Debtor from making another attempt at delaying or defeating the Creditor’s claim to the Judgment.
IV. Conclusion
For the above reasons, I will enter an order dismissing the Creditor’s case with prejudice with a bar from refiling for 360 days.
Notes
. The Complаint arises from an adversary proceeding the Creditor instituted against the Debtor. The Complaint incorporates the Bristol County, Massachusetts Probate and Family Court’s "Findings of Fact and Rationale” (the "Findings”) as to the Debtor’s complaint for modification of alimony. I take judicial notice of the findings pursuant to F.R.E. 201. State court findings are among the kind of facts of which I can take judicial notice. F.R.E. 201(b).
. At the time оf the filing of Petition I, a ruling in favor of the Debtor in the MCAD case was under appeal.
. The Debtor had filed the complaint for the modification of the Divorce Decree on November 21, 1997 in the Probate Court.
. The Debtor lists an equitable interest but not a legal interest on the automobile of her law partner on Schedule B of Petition II.
. Section 105(a) states that:
The court may issue any order, process, or judgment that is necеssary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. 11 U.S.C. § 105(a)
. Section 349(a) reads
"Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dis-chargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title.” 11 U.S.C. § 349(a).
. This Court’s authority to dismiss a case with prejudice arises from the same section of the Bankruptcy Code that the Court derives its power to dismiss a case
sua sponte.
11 U.S.C. § 105(a);
see also Greenberg,