In re Herrera
MEMORANDUM OPINION
Bеfore the Court is the Debtor’s motion for - voluntary dismissal under 11 U.S.C. § 707(a) (the “Motion”),
I. FACTS
The Court finds:
Debtor owns and lives in a small house at 2311 Tapia Blvd. SW, Albuquerque, NM.,The house was given to him by his parents. Debtor listed the house on his bankruptcy schedules at $70,000. An appraisal from 2009 gave a value of $115,000. The house is encumbered by a $34,000 line of credit mortgage.
Debtor’s brother owned a smaller house next door, at 2307 Tapia Blvd SW. Because his brother did not pay property taxes, in about 2001 the house was scheduled for tax sale. Debtоr bought the house from the brother by paying the taxes (about $2,000), but told his brother that he would give back the house if the brother repaid the $2,000. The brother never did. Debt- or scheduled the 2307 Tapia house at $30,000.
Debtor scheduled approximately $20,000 in general unsecured claims.
Debtor is unable to work and receives $550 per month in Sociаl Security disability payments. His income is supplemented by $800 per month from renting the 2307 Tapia house. Debtor relies on the rental income to pay his living expenses.
Based on his demeanor and testimony, the Court finds that Debtor has significant cognitive disabilities, which prevented him from understanding the nature and effect of filing this bankruptcy case.
.Debtor’s friends advised hini to file bankruptcy. It was their view that bankruptcy would be a good idea.' Debtor, thinking the advice was sound, sought out bankruptcy petition preparers Samuel Post and Jessica Patricio to help him with his schedules. It is clear Debtor did not undеrstand what could happen to his nonexempt assets if he filed bankruptcy. Debtor testified that he relied on Mr. Post to explain basic bankruptcy concepts to him, but it is clear that Debtor did not understand any of the explanations given.
Debtor mistakenly believed that he would be able to keep his house and the rental property. He had no idea that the rental house would certainly have to be turned over to a bankruptcy trustee, nor that his own home could be vulnerable.
Filing a Chapter 7 bankruptcy case clearly was detrimental to Debtor’s interests, and any competent attorney would have advised against it. A Chapter 13 case might have been advisable, as would аn out-of-court credit card repayment
On September 1, 2015, less than two months after filing his petition, Debtor obtained an attorney and filed his motion tо dismiss. The Trustee is the only objecting party.
II. DISCUSSION
A. Voluntary Dismissal for Cause under § 707(a).
Debtor seeks to dismiss this case under § 707(a). Section 707(a) provides that “[t]he court may dismiss a case under this chapter only after notice and a hearing and only for cause ...” Section 707(a) includes a list of nonexclusive examples of cause. A dеbtor seeking to voluntarily dismiss a case under § 707(a) has the burden to show cause for dismissal. In re Turpen,
A finding of cause is “сommitted to the sound discretion of the bankruptcy court.” In re Smith,
Cause “may simply be that dismissal is in the best interest of the debtor and not prejudicial to creditors.” 6 Collier on Bankruptcy, ¶707.03[3] (Alan N. Resniсk & Henry J. Sommer eds., 16th ed.). See also In re Aupperle,
When considering whether “cause” exists to dismiss a case at the debtor’s request, the Tenth Circuit Bankruptcy Appellate Panel said:
Dismissal factors that are often considered are: the best interests of both debtor and creditors; trustee’s consent or objection; potential to dеlay creditor payments; good or bad faith in seeking dismissal; and the possibility of payment priority becoming' reordered outside of bankruptcy. Emphasis is typically given to any prejudice that dismissal might cause the estate’s creditors. Finally, a debtor’s ability to pay debts outside of bankruptcy is not sufficient cause, by itself, to dismiss.
In re Isho,
The factors can be grouped into two general areas: the debtor’s motivation in seeking dismissal after invoking the protections of the bankruptcy court; and whether dismissal is contrary or “prejudicial” to creditor interests. In re Jabarin,
1. Debtor’s Motivation to Dismiss. In evaluating a motion to dismiss, courts will closely scrutinize a debtor’s motivation for seeking dismissal. A debtor must seek dismissal in good faith without intent to manipulate the court system. Jabarin,
In contrast, where it is apparent that the debtor seeks dismissal because an innocent mistake of law or fact, courts are more likely to allow the dismissal. See In re McDaniel,
Courts differ on the extent of prejudice they can tolerate before declining to dismiss a case. The Jabarin court identified three standards used:
• any prejudice to creditors is an absolute bar to voluntary dismissal, no matter how compelling the reasons for the debtоrs’ request for voluntary dismissal;
• a “balancing of interests test” where the court considers whether “dismissal is in the best interest of the debtor and the creditors of the estate”, taking account the debtor’s interest in a fresh start versus the creditor’s concern with delay in pursuing its claim; and
• dismissal is to be “granted freеly unless it will cause ‘plain legal prejudice’ to creditors”
Some court have observed that creditors “are genеrally not prejudiced by dismissal since they will no longer be stayed from resorting to the state courts to enforce and realize upon their claims.” In re Schwartz,
Courts are in general agreement that a substantial delay between the petition date and the dismissal motion filing date is prejudicial. See In re Stairs,
There also is general agreement that creditors would be prejudiced if estate assets, available to creditors in the bankruptcy cаse and needed to pay their claims, would become unavailable upon dismissal. See In re Stephenson,
B. The Factors Weigh in Favor of Dismissal.
The Court analyzes the Debtor’s motivation in dismissing the case, and resulting prejudice to creditors, as follows:
Debtor’s Motivation
[[Image here]]
These factors strongly favor dismissal. It is clearly in Debtor’s best interest to dismiss this case. Debtor stands, to lose his house and/or rental property
Prejudice
[[Image here]]
The “prejudice” factors also favor dismissal, since creditors would suffer little or no prejudice if the case were dismissed. There was only a slight delay between the petition date and the date Debtor sought dismissal. If dismissed, none of Debtor’s assets would be removed from the reach of creditors.- The small number of credit card creditors are sophisticated lenders that can readily pursue their state court rights and remedies. They may be paid sooner than if the case remained in Chapter 7. None of the creditors objected to dismissal. Although the trustee objected, that is not enough to tip the balance against dismissal.
Balancing the interests of the parties and focusing on Debtor’s motivation in dismissing this case and potential prejudice to creditors, the Court concludes that in this case the balance tips in favor of dismissal.
III. CONCLUSION
Debtor carried his burden of showing cause to dismiss this bankruptcy case under § 707(a). The motion to dismiss will
Notes
. Unless otherwise indicated, all statutory references are to 11 U.S.C.
. The Court heard the Trustee’s motion for turnover of real properties at the same time. The Trustee also filed an objection to Debtor’s exemptions, which was not argued.
.In making these findings, the Court took judicial notice of the docket. See St. Louis Baptist Temple, Inc. v. Fed. Deposit Ins. Corp.,
.Debtor testified that, in his opinion, the 2311 Tapia house may be worth $90k, and the 2307 Tapia house may be worth $70k. He did not state the basis for these opinions.
. This does not include Debtor's mortgage, which he scheduled as unsecured.
. Debtor also had difficulty understanding the yes or no questions on the Trustee’s Questionnaire given to him at the § 341 meeting and was not able to answer the questions accurately.
. The Trustee has standing to object to Debt- or’s motion to dismiss, See, e.g., Penick v. Tice (In re Penick),
. A dеbtor’s innocent mistake of law or fact may not be sufficient cause if dismissal would cause significant prejudice to creditors. See, e.g., In re Jabarin,
. It is not clear why the trustee sought turnover of Debtor’s residence. The evidence indicates that the rental house has enough value to pay all creditors.
. The Court does not make a finding of incompetency under the current record. However, courts have found that a debtor's lack of mental capacity to file a bankruptcy petition may be cause to dismiss a case. In re Anderson,