DECISION DENYING MOTION TO DISMISS
A voluntary petition for relief, in the name of Herman Segal as debtor (the “Debtor”), filed on September 10, 2013, commenced this chapter 7 bankruptcy case. On January 30, 2014, the Debtor moved to dismiss the case. In his motion to dismiss (the “Motion to Dismiss”), the Debtor claimed that he neither signed the petition nor approved the filing. After considering the entire record, including testimony, arguments, and submissions, the Court finds that the Debtor authorized his former counsel to place him into bankruptcy; the Debtor’s conduct subsequent to the filing ratified the chapter 7 petition; and the Debtor is equitably estopped from disavowing the bankruptcy case. Moreover, the Debtor has acted in bad faith, and dismissal would severely prejudice his creditors. Because the Debtor failed to establish cause for dismissal, the Motion to Dismiss is denied.
JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This matter is a core proceeding under 28 U.S.C. § 157(b)(2). This decision constitutes the Court’s findings of fact and conclusions of law to the extent required by Federal Rule of Bankruptcy Procedure (“Bankruptcy Rule”) 7052.
BACKGROUND
On September 13, 2013, while out of the country, the Debtor called Maxim Maxi-mov, Esq., the initial attorney in this case.
After the Original Petition was filed, Richard E. O’Connell, the chapter 7 trustee for the Debtor’s estate (the “Trustee”), began investigating the Debtor’s finances. On October 10, 2013, the Trustee filed (i) Motion for Authorization to Conduct a 2004 Examination of the Debtor and the Debtor’s wife, Yocheved Segal, and (ii) Motion to Compel the Debtor to Perform His Duties Under § 521(a) and Bankruptcy Rule 4002. Neither the Debtor nor Mr. Maximov appeared at the hearing held on November 14, 2013, and the Court granted the Trustee’s motions.
The Debtor did not cure the § 521 deficiencies, and the Court issued an Order to Show Cause why the case should not be dismissed for failure to file schedules. There was no appearance by or on behalf of the Debtor at the hearing on the Order to Show Cause, held on November 21, 2013. The Debtor incorrectly assumed that if he ignored the Court’s notices and the Trustee’s requests for information, the case would be dismissed. However, the Court adjourned the show cause hearing to December 4, 2013, based upon the Trustee’s “request[ ] that the Debtor’s case not be dismissed and that the Trustee be permitted to continue the discharge of his duties under section 704 of the Bankruptcy Code.” Statement of Trustee 2 ¶ 1, ECF No. 27.
The Trustee’s motion for authorization to sell the Co-op, pursuant to 11 U.S.C. § 363 (the “Sale Motion”), finally elicited a response from the Debtor. Mr. Maximov filed written opposition; and the Debtor, Mr. Maximov, and Warren Graham, Esq., also representing the Debtor, appeared before this Court on December 4, 2013, for the hearing on the Sale Motion. On the record, Mr. Segal, personally and through his attorneys, addressed the Sale Motion, but did not advise the Court that he believed the entire case should be dismissed. The Court overruled the Debtor’s objection and authorized the Trustee to sell the Co-op. Hr’g Tr. 41:8-9, Dec. 4, 2013, ECF No. 72. Additionally, the Court determined it would not proceed on its Order to Show Cause regarding dismissal. Hr’g Tr. 13:16-19. The Court admonished that a debtor who files a “barebones” petition to obtain the automatic stay should not assume the case will be automatically dismissed if he ignores his duties as a debt- or.
On December 5, 2013, the Court issued an Order (the “Order to Compel”) directing Mr. Segal to perform his duties as a debtor, including filing a list of creditors, schedules of assets and liabilities, schedule of current income and current expenditures, and a statement of financial affairs. Order, ECF No. 37. The Order to Compel
The Debtor filed the required items on December 28, 2013. However, the Debtor repeatedly invoked the Fifth Amendment on the documents and refused to fully disclose his real and personal property, the nature and amount of claims against him, and the names of his creditors. Schedules, ECF No. 41; Means Test, ECF No. 42. Concurrently, the Debtor filed an amended petition on Official Form 1, which bears his original signature (the “Amended Petition”). Am. Pet., ECF No. 43.
On January 30, 2014, the Debtor, acting pro se, filed the instant Motion to Dismiss. The Motion to Dismiss raised, for the first time, that the Debtor never signed the Original Petition. Subsequently, Rachel Blumenfeld, Esq., replacement counsel for the Debtor, filed a memorandum of law in support of dismissal.
The Trustee opposes the Motion to Dismiss. He contends that the Debtor’s signature on the Amended Petition remedied any defects that inured from the unsigned Original Petition. Also, the Trustee argues that dismissal would reward the Debtor for his delay and refusal to cooperate and prejudice the Debtor’s undisclosed creditors.
DISCUSSION
11 U.S.C § 707(a) applies to a chapter 7 debtor’s motion to voluntarily dismiss his own case. Schwartz v. Geltzer (In re Smith),
only after a notice and a hearing and only for cause, including — (1) unreasonable delay by the debtor that is prejudicial to creditors; (2) nonpayment of any fees or charges required under chapter 123 of title 28; and (3) failure ... to file ... the information required by paragraph (1) of section 521(a), but only on a motion by the United States trastee.
11 U.S.C. § 707(a). The statutory examples of cause “are illustrative, not exclusive.” Smith,
A. The Petition
Bankruptcy Rules 1008 and 9011(a) require that a petition for relief be signed. Generally, if “the debtor did not sign the
In Willis, the debtor alleged that she did not sign or review the petition filed by her attorney. Although the debtor learned shortly thereafter that a case had been commenced without her authorization, six weeks passed before she first stated on the record that she did not sign the petition. Despite numerous opportunities to disclose the defect, the debtor remained silent and benefited from the automatic stay. The debtor participated in the bankruptcy, but “only in ways she deemed beneficial to her,” such as moving to reconvert her case and opposing motions for stay relief. Willis, 345 at 653-54. She did not fulfill any responsibilities of a debtor, such as “filing accurate schedules and cooperating with the trustee,” and “repeatedly failed to turn over documents.” Id. at 654, 651.
Similarly, in In re Scotto, No. 8-09-75956-REG,
The Willis and Scotto courts denied the debtors’ motions to dismiss on the grounds that the debtors’ post-petition conduct ratified the filings. “Ratification, .under the law of New York, is ‘the affirmance by a party of a prior act that did not bind it at the time but that was done or purportedly done on its account.’ ” In re Nigeria Charter Flights Contract Litig.,
Alternatively, Ms. Willis and Mr. Scotto, debtors who “enjoy[ed] the benefits, and none of the detriments,” of bankruptcy, were equitably estopped from later asserting the case must be dismissed because they did not sign the petition or authorize the filing. Willis,
[w]here a person wronged is silent under a duty to speak, or by an act or declaration recognizes the wrong as an existing and valid transaction, and in some degree, at least, gives it effect so as to benefit himself ... he acquiesces in and assents to it and is equitably estopped from impeaching it.
Rothschild v. Title Guarantee & Trust Co.,
(1) An act constituting a concealment of facts or a false misrepresentation; (2) An intention or expectation that suchacts will be 'relied upon; (3) Actual or constructive knowledge of the true facts by the wrongdoers; (4) Reliance upon the misrepresentations which causes the innocent party to change its position to its substantial detriment.
Gen. Elec. Capital Corp. v. Armadora, S.A.,
Mr. Segal submits that he “did not willingly or knowingly participate in the preparing or filing of his Chapter 7 bankruptcy petition.” Debtor Mem. 4 ¶ 8, ECF No. 80. But, at the evidentiary hearing, Mr. Segal testified:
I definitely authorized [Mr. Maximov] to file some petition ... I had authorized him to file something on my behalf ... I did authorize him to file the bankruptcy on my behalf ... I authorized broadly a petition to stop the sale, not a Chapter 7.
Ev. Hr’g Tr. 71:2-18. The Debtor carefully chooses his words to- acknowledge that, while he used the Original Petition as a means to halt the foreclosure sale, he “never authorized the filing of a Chapter 7.” Ev. Hr’g Tr. 43:21-22 (emphasis added). Thus, Mr. Segal argues that this case must be dismissed because he did not execute the Original Petition, which Mr. Maximov filed under chapter 7.
The Court finds that the Debtor authorized Mr. Maximov to place him into bankruptcy. Moreover, under the doctrines of ratification and equitable estoppel, the absence of Mr. Segal’s written signature on the Original Petition does not mandate dismissal.
First, the Debtor ratified the filing under chapter 7 by voluntarily signing the Amended Petition. The Order to Compel did not require the Debtor to refile Official Form 1. Nevertheless, Mr. Segal averred a belief that the Amended Petition was both directed by the Court and necessary to correct errors in the Original Petition. Ev. Hr’g Tr. 11:1-5. On the Amended Petition, under “Estimated Assets” and “Estimated Liabilities,” Mr. Segal crossed out the boxes that had been checked on the Original Petition and wrote “I refuse to answer & assert my 5th Amendment Rights.” Am. Pet. 1, ECF No. 43. However, the Debtor made no new markings on the Amended Petition under “Chapter of Bankruptcy Code Under Which the Petition is Filed.” Am. Pet. 1, ECF No. 43. Instead of apprising the Court that Mr. Maximov allegedly filed under chapter 7 without his consent, the Debtor acquiesced to the chosen chapter when he signed the Amended Petition.
Second, the Debtor’s selective participation in the chapter 7 proceedings ratified the filing. For example, the Debtor appeared in opposition to the Trustee’s Sale Motion. Mr. Segal’s testimony that he was “not aware” that he could challenge his status as a debtor under chapter 7 as part of his objection is not credible. Ev. Hr’g Tr. 44:12-17.
- Alternatively, Mr. Segal is equitably estopped from asserting the Original Petition is void because he did not execute it. The Debtor knew that the Original Petition did not bear his signature, but intended that the automatic stay would go into effect by operation of its filing. Soon after, the Debtor became aware that the Original Petition had been filed under chapter 7. See Notice, ECF Nos. 4, 4-1 (“Notice of Deficient Filing — Chapter 7” mailed to Debtor on September 12, 2013).
B. The Debtor’s Best Interest
A debtor does not have unbridled “discretion to withdraw his case once it has been commenced.” In re Klein,
The Debtor argues that he should not be held accountable for the chapter 7 filing because Mr. Maximov allegedly failed to explain the differences between the chapters of the Bankruptcy Code. Ev. Hr’g Tr. 35:9-10. Mr. Segal denies authorizing a chapter 7 petition, but insists that if Mr. Maximov had advised him that a trustee would be appointed to liquidate his assets, the Debtor never would have selected chapter 7. Debtor Mem. 3-4, 6 ¶¶ 8, 16, ECF No. 80. According to the Debtor, “at no time was [he] interested in going to bankruptcy or availing [him]self of the Bankruptcy Court and its protections other than that [sic] prevention of that foreclosure sale ... [but] that exercise seemed pointless” once the Court authorized the sale of the Co-op. Ev. Hr’g Tr. 11:8-11. While pro se litigants are generally held to a more lenient standard, the Debtor is a law school graduate and a former attorney. Ev. Hr’g Tr. 38:1-3. The Debtor’s submissions that he did not anticipate the consequences of bankruptcy and that Mr. Maximov gave him poor legal advice do not constitute cause for dismissal.
The Debtor argues that dismissal is necessary to protect his constitutional rights. See Mot. ¶ 13, ECF No. 54 (“[The Trustee] is on a witch hunt and a fishing expedition to try to get me to violate my constitutional rights by causing me to incriminate myself and to violate my religious principals and violate my rights to freedom of association.”). The Debtor refuses to testify or produce documents about his creditors, because he fears the disclosure might subject him to criminal prosecution on charges that could include tax evasion. E.g. Ev. Hr’g Tr. 61:9-67:20. At the evi-dentiary hearing, the Debtor invoked his
The Debtor testified: “I thought I made it obvious by everything that I did that I didn’t want to be in bankruptcy.” Ev. Hr’g Tr. 51:6-7. However, a debtor is not at liberty to selectively disengage from the chapter 7 bankruptcy processes. Other than Mr. Segal’s conclusory pronouncements, the record is devoid of any indication, let alone evidence, that the Debtor has the ability to repay his creditors in full outside of bankruptcy. A debtor’s “fresh start” begins with an honest accounting of his financial affairs.
C. Creditors’ Best Interest
The question of creditors’ best interest “is typically one of prejudice.” Smith,
The Debtor filed the Original Petition for the express purpose of staying the foreclosure sale; he did not intend to prosecute the bankruptcy case. The Debt- or waited 142 days to move for dismissal. During that interval, he continued to benefit from the automatic stay. Despite op
Furthermore, creditors are prejudiced when a debtor acts in bad faith. Bruckman,
Courts should not sanction “dismissal of a case after it has appeared that the debtor failed to account honestly for his assets ... for such a failure indicates the likelihood of further questionable practices to the detriment of creditors.” Schwartz, 58 B.R. at 925. If a debtor fails to fully disclose his financial affairs during the bankruptcy, “[t]he court has no assurance that the debtor’s assets will be distributed to the creditor body if it relinquishes its jurisdiction in ordering dismissal.” In re Klein,
The Debtor insists that the cooperative association was the only creditor “pressuring” him at the time of the filing. Mot. ¶ 9, ECF No. 54; Ev. Hr’g Tr. 48:11-14. Subsequent developments in the case, however, belie that characterization. For example, the Internal Revenue Service filed Proof of Claim No. 2 in the amount of $508,926.87, and the Debtor testified that he has not filed tax returns for several years. Ev. Hr’g Tr. 39:3-16. Also, at the evidentiary hearing, the Debtor' admitted that he owes approximately $400,000 to Annette Kleinfeld. Ev. Hr’g Tr. 41:24-42:10. Moreover, in January 2014, Arnold Young sued Mr. Segal, because the Debtor allegedly forged his signature on a loan guarantee. Ev. Hr’g Tr. 39:17-41:18.
Mr. Segal stated that “the delays and the various misdeeds attributed to [him] were simply that [he] did not want to be in bankruptcy.” Ev. Hr’g Tr. 14:2-3. The Debtor disingenuously surmises that the Trustee “cannot have the protection of the creditors in mind because he has no idea how may creditors I might have.” Mot. ¶ 14, ECF No. 54. However, Mr. Segal’s refusal to cooperate does not obviate the Trustee’s fiduciary duty to thoroughly investigate into the Debtor’s financial affairs. The Trustee has filed multiple applications under Bankruptcy Rule 2004 to examine certain third parties and compel document production regarding the Debtor’s accounts, insurance policies, and property transfers. The Trustee’s investigation has revealed a likelihood that the estate has assets and a creditor body for whose benefit they should be administered. Furthermore, the Trustee believes that the Debtor may have transferred undisclosed assets post-petition without Court authorization. E.g. Ev. Hr’g 72:4-74:4 ($37,000 check to ING dated October 7, 2013 bears Debtor’s signature); 2004 Mot. 2 ¶ 2-3, ECF No. 93 (Debtor sued in connection with sale of property located at 423 West 162nd Street, New York, NY). The Trustee suggests that, if the case is dismissed, Mr. Segal would continue 'his pattern of suspect transactions harmful to creditors. Opp’n 20 ¶ 64-65, ECF No. 61.
Mr. Segal accepted the benefits of bankruptcy, but eschews his obligations as a debtor. The Debtor testified:
I have never felt, rightly or wrongly, that I am under the bankruptcy even though it has been advantageous at certain points. So if I transacted or did anything, I don’t believe I was in violation of any laws regarding what a person in bankruptcy should or should not be doing.
Ev. Hr’g Tr. 82:22-83:1. After considering the entire record, the Court concludes that Mr. Segal has operated in bad faith, and allowing him to voluntarily dismiss the case at this time would be improper.
CONCLUSION
For all of the foregoing reasons, the Debtor failed to establish cause for dis
Notes
. On June 20, 2014, the Court granted Mr. Maximov’s Motion to Withdraw as Counsel. Order, EOF No. 89.
. Also on the December 4, 2013 calendar was the Court's Order directing that Mr. Maximov appear and show cause why he failed to prosecute to the case. The Court marked off this Order to Show Cause, but warned Mr. Maxi-mov that counsel must perform due diligence before filing a petition. Hr’g Tr. 10:16-22, Dec. 4, 2013, ECF No. 72.
. On August 8, 2014, the Court granted Ms. Blumenfeld’s Motion to Withdraw as Counsel. Order, ECF No. 101. Since then, the Debtor has appeared pro se.
. This written opinion memorializes the Court's oral summary, on the record of .the hearing held on January 29, 2015, of its intended decision on the Motion. That day, the Court heard various matters, including the Trustee’s Motion for Default Judgment in his adversary proceeding objecting to the Debt- or’s discharge. After the Court announced its conclusion that the case would not be dismissed, Mr. Segal stated that he did not oppose the entry of a default judgment denying his discharge. Hr'g Tr. 34:17-38:12, Jan. 29, 2015, ECF No. 179. Therefore, on January 31, 2015, the Court issued an Order Granting Motion for Default Judgment and Judgment denying the Debtor’s discharge. Order, ECF No. 13-01545 Doc. 32; J„ ECF No. 13-01545 Doc. 33.
. "The debtor may convert a case under this chapter to a case under chapter 11, 12, or 13 of this title at any time, if the case has not been converted under section 1112, 1208, or 1307 of this title. Any waiver of the right to convert a case under this subsection is unenforceable." 11 U.S.C. § 706(a).