Laura L. Reppert
Spyra Law Office
Pittsburgh, PA
Attorney for the Debtor
Owen W. Katz, Esq.
Office of the Chapter 13 Trustee
Pittsburgh, PA
Attorney for Ronda Winnecour
The failure to timely disclose post-petition assets in chapter 13 cases is the concealment of property of the estate and, therefore, must carry heavy consequences no matter how late in the case it occurs. It is undisputed that Laura L. Reppert (“Debtor“) took title to an unencumbered 2021 BMW 235 automobile (the “BMW“) in March 2021, approximately four years into her chapter 13 case, but did not inform the Court or chapter 13 trustee.1 Instead, the existence of the BMW was revealed nearly a year later by the Debtor‘s husband in his own bankruptcy.2 This prompted an evidentiary hearing on an Order to Show Cause why, among other things, the Debtor‘s now-completed chapter 13 case should not be dismissed with prejudice for her failure to promptly disclose a substantial post-petition asset.3 The Debtor primarily argues that the BMW was an early birthday gift from her parents to her then 14 year old daughter.4 For the
reasons set forth below, the Court is unconvinced, leаving a dismissal with prejudice the only appropriate outcome under these unusual circumstances.
I. BACKGROUND
The Debtor filed her chapter 13 petition on February 21, 2017. Although it was not discovered at the time, she failed to list her general unsecured creditors on the creditors mailing matrix and they did not receive notice of this filing.5 Nevertheless, the Debtor scheduled nonpriority unsecured claims totaling $29,150.43 on Schedule E/F.6 Since she listed only $6 of monthly net income on Schedule J,7 no iteration of her confirmed plan ever contemplated a dividend to general unsecured creditors.8 Instead, the plan focused on curing mortgage and real estate tax arrears.9 Thus, the lack of unsecured creditor engagement was unsurprising given their prospects.
The Debtor‘s case proceeded quietly until February 2022, when the chapter 13 trustee moved to dismiss because the plan term had elapsed without the Debtor satisfying her financial commitment.10 At the same time, the Debtor‘s husband, Todd Reppert, sought to convert his chapter 7 case to chapter 13, or alternatively dismiss it.11 It is undisputed that they have been married at all relevant times despite the Debtor having indicated that she was not married on her Statement of Financial Affairs.12 Critically, to refute an allegation
that he had acquired an undisclosed BMW, Mr. Reppert explained that the Debtor owned the BMW and attached a copy of the Pennsylvania Certificate of Title as proof.13 In light of this revelation and the pending motion to dismiss, the Court scheduled a status conference to determine whether she had, in fact, acquired and concealed an estate asset.14
Prior to the status conference, the Debtor cured her plan default by remitting the final payment to the trustee.15 She also filed a response admitting that the BMW is titled in her name, but asserting that it was purchased by her parents for the benefit of her underage daughter.16 This was followed by a self-styled “Affidavit under Penalty of Perjury” (“Affidavit“) purportedly signed by James and Kathy Palfrey stating that the BMW was аn early sixteenth birthday gift for their granddaughter.17
The Debtor did not attend the status conference, but Mr. Reppert did and offered a preview of her defense. He also confirmed that his daughter‘s name is misspelled in the Affidavit. With the final plan payment completed, the chapter 13 trustee pragmatically took no position with respect to the BMW, noting that “[t]his is, I suppose, an unusual case in the sense that no unsecured creditors filed claims.”18 She withdrew the motion to dismiss, but the Court nonetheless continued the status conference in order to hear from the Debtor directly and assess her eligibility to receive a discharge.
Days later, the Debtor filed an Amended Schedule A/B to disclose the BMW and listed its unencumbered fair market value as $36,000.19 Notably, she did not indicate that any other person had an interest in the BMW despite an explicit prompt to do so.20 The Debtor also failed to list the BMW‘s approximate mileage on the appropriate line.21
The omission of all generаl unsecured creditors from the matrix was finally uncovered during the Court‘s review of Amended Schedule A/B.22 Given the impact of this added wrinkle, the Court ordered the Debtor to appear in person and
show cause why the Court should not deny [her] a discharge . . . or dismiss this case with prejudice due to her failure to (i) promptly disclose a substantial post-petition asset, (ii) properly serve
her unsecured creditors, and (iii) comply with W.PA.LBR 1007-1(g).23
Curiously, the Debtor‘s written response only suggested that any “electronic filing error” was the result of “clerical error” and otherwise took no position with respect to the Order to Show Cause.24 The chapter 13 trustee now supports dismissal with prejudice.25
The Court held an evidentiary hearing on the Order to Show Cause in May, 2022. From the outset, the Debtor challenged the contention that the BMW was property of the estate. She argued that neither the Bankruptcy Code nor any case state that non-monetary gifts of assets received by the debtor more than 180-days after the petition date become part of the chapter 13
estate.26 In fact, counsel suggested that a contrary rule “makes no sense” and that this happens all the time.27 Alternatively, the Debtor asserted that she merely holds title to the BMW in trust for her daughter. When pressed about the appropriate outcome for this case, she grudgingly suggested that dismissal was preferrable to a discharge so she could file a chapter 7 case to discharge the unsecured debt that did not receive notice in this case.28 Yet, to be clear, the Debtor did not move to voluntarily dismiss her case.
In support of her trust argument, the Debtor testified that her stepfather and mother, the Palfreys, purchased each of their other two grandchildren new cars (a “truck” and a Camaro) for their sixteenth birthdays.29 Her youngest daughter, for whom the BMW is allegedly held in trust, turned 16 years old on April 23, 2022.30 In other words, when the BMW was acquired, the daughter was only 14.31 According to the Debtor, Mr. Palfrey insisted on purchasing a vehicle early because he is suffering from dementia and wanted an oppоrtunity to see it enjoyed before his symptoms worsened.32 The Debtor testified that she took title to the BMW pursuant to the Palfreys’ wishes with the understanding that she would transfer ownership to her daughter “when they can.”33
Despite supposedly being a gift from the Palfreys to their granddaughter, the Debtor and Mr. Reppert alone selected the vehicle and negotiated its purchase.34 Her daughter‘s only input related to its color.35 When asked why the BMW was chosen, the Debtor only offered a vague statement about its relative safety.36 Emphasizing
At the hearing, the Debtor could not recall how much the BMW cost, but believed it was in the “thirties.”39 She testified that the Palfreys gave them the funds to purchase the BMW and her husband paid the dealеrship.40 The Debtor said that she did not know the Palfreys’ financial condition, nor how they could afford such expensive gifts for each of her three children.41 She explained that they are both retired, but Mr. Palfrey previously drove a school bus while Mrs. Palfrey worked at K-Mart until it closed.42
After the Debtor‘s testimony, Mr. Reppert took the stand ostensibly to clarify details that the Debtor could not recall or misremembered. Like his wife, he could not explain why they picked the BMW for their daughter.43 Mr. Reppert stated that the Palfreys supplied a
cashier‘s check for $40,000 payable directly to the dealership.44 He did not know the source of the Palfreys’ funds, but noted that Mr. Palfrey was a supervisor at Snyder‘s of Berlin for 30 years before driving a school bus part-time.45 In any event, Mr. Reppert repeatedly and unequivocally testified that the cashier‘s check covered the full purchase price of the BMW, including taxes and fees, and that neither he nor his wife contributed funds to the transaction.46
At the conclusion of the hearing, the Court directed the Debtor to file a certification of the BMW‘s current mileage and, in light of the seeming testimonial inconsistency, a verified copy of the cashier‘s check used to purchase it.47 Her timely submission reflects that as of March 2022, one month prior to the daughter‘s sixteenth birthday, the BMW‘s odometer read 3,559 miles.48 The Debtor also filed a copy of a cashier‘s check from PNC Bank payable to “Bobby Rahal” for $40,000.49 The Court then took the Order to Show Cause under advisement.
While this decision was undergoing final revisions, certain developments occurred in Mr. Reppert‘s chapter 7 case that are relevant to the matter at bar. Under
States Trustee filed a complaint seeking to deny him a discharge based on a series of false oaths.52 Of particular importance here, the Trustee states that Mr. Reppert testified that his sole proprietorship paid $12,443.71 to “Bobby Rahal” in March 2021 for “for my wife, her car.”53 The memo line of the check reads, “Mom‘s Car Balance BMW.”54 When asked if the BMW was for his spouse, Mr. Reppert replied, “That‘s actually, yes, yes, but her and my daughters.”55 As highlighted by the Trustee, these statements stand in stark contrast to those offered in support of his motion to convert,56 to say nothing of his sworn testimony in this case. In his answer, Mr. Reppert admitted the truth of these allegations but casually explained that he previously “did not recall that he paid the additional sum required to purchase the [BMW].”57
Taking this new information into account, the true purchase price of the BMW was at least $52,443.71, substantially more than either the Debtor (in the “thirties“) or Mr. Reppert ($40,000) stated under oath. This is particularly notable because the Debtor indicated its fair market value was only $36,000 on Schedule A/B. The Court takes judicial notice of the fact that persistent global supply chain problems over the last few years have driven vehicle prices up across the board. As a result, used cars arе holding their value. Based on the Debtor‘s testimony, the BMW should still be in excellent condition. As a result, it is doubtful that the BMW would have depreciated to such a degree in a year. Indeed, according to Kelley Blue Book,58 the BMW‘s trade-
in value would range between $41,472-$44,515.59 While the value of the BMW exceeds the scheduled claims either way, the discrepancy bears on her credibility and the attention she gave an amended schedule at the heart of an ongoing dispute.
II. JURISDICTION
This Court has authority to exercise jurisdiction over the subject matter and the parties under
A. The Completion of Plan Payments did not Moot the Order to Show Cause
From the outset, the Court must address the elephant in the room: the Debtor has completed all payments under her confirmed chapter 13 plan. To be sure, the completion of chapter 13 payments is an important benchmark under the Bankruptcy Code.60 Once this occurs, no further modifications of the plan are possible.61 Additionally, subject to certain exceptions,62 “as soon as practicable after completion by the debtor of all payments under the plan . . . the court
shall grant the debtor a discharge” under
Before delving into this statutory debate, the Court observes that the Debtor has not filed a certificate evidencing her completion of a personal financial management course.67 Technically, the discharge hinges the completion of an instructional course rather than the filing of the certificate,68 but the Court is not obliged to act without one.69 This, however, is a procedural failing that could be remedied. For that reason, and because the present inability to enter a discharge would not appear to be a meaningful distinction under these cases, the Court must press on with its analysis.
There are four published decisions that expressly hold that a motion to dismiss for bad faith is rendered moot by the completion of payments under a confirmed chapter
each case, the court held that the plain language of
The facts of In re Frank are par for the course, which is to say bad. The debtors’ confirmed plan obligated them to pay approximately $10,000 over 39 months, yielding no dividend to their unsecured creditors.73 About a month before completing their payments, the debtors inadvertently tipped off the trustee to a previously undisclosed personal injury claim that they settled for $67,000.74 Before the trustee moved to dismiss based on their non-disclosure of the asset, the debtors tendered their final payment.75
In a thoughtful analysis, the court in In re Frank found that although there is no time limit for seeking dismissal under
promoting finality takes greater precedence.”78 It then found further incidences of the statute invoking a “principle of finality,” such as
Like the other cases, In re Frank rests on the “clear mandate laid out in
intent: “Congress favors finality over the need to address bad conduct” after the “narrow time periods” provided in the statute.86 This enabled the court to characterize its plain reading of
The Court begins with the well-established rules of statutory construction. The Supreme Court of the United States instructs that “when the statute‘s language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.”88 Indeed, “[t]he plain meaning of legislation should be conclusive, except in the ‘rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.‘”89 In the event of an absurd result, “the intention of the drafters, rather than the strict language, controls.”90 “The starting point in discerning congressional intent is the existing statutory text,”91 and “we assume that . . . Congress said what it meant.”92
Again, the Court concedes that
“shall dismiss” trumps
The Court does not deny that Congress embedded principles of finality into the Code. Certainly, the one-year time limit for seeking revocation of a discharge exemplifies how finality conceptually underpins the judicial system as a whole: “all litigation must end in due course and reach a resolution that cannot be disturbed.”96 Admittedly,
faith,99 nor prevents a party in interest from compelling a modification of the confirmed plan when undisclosed assets are discovered.100 Thus, while the confirmation order is final, the Code nonetheless contemplates that it may be undermined and rendered moot by these alternative mechanisms. The lesson here is that “principles of finality” must be understood and weighed within their statutory context.
Considering the Code as a whole, there are far more obvious and important overarching Congressional interests at play than finality. The Supreme Court has repeatedly recognized that
a central purpose of the Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy “a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” But in the same breath that we havе invoked this “fresh start” policy, we have been careful to explain that the Act limits the opportunity for a completely unencumbered new beginning to the “honest but unfortunate debtor.”101
creditors the maximum they can afford.104 These reforms also: replaced the presumption in favor of granting the debtor a discharge with a mandatory presumption of abuse triggered by the means test; restricted the relief available to serial filers; imposed a minimum “applicable commitment period” on chapter 13 debtors; and reduced the scope of the chapter 13 discharge.105 In sum, Congress made manifest its intent to curtail abusive filings and limit bankruptcy relief to the “honest but unfortunate debtor.” That is the lens through which the Court must assess the rationality of a literal interpretation of
From this perspective, the idea that Congress provided a “wide loophole for the dishonest debtor” should trigger great skepticism. In re Frank seemingly overlooked that because its reasoning appears tainted by confirmation bias. Put simply, the court perceived this statutory “loophole” or “gap” because it fixated on the combination of sections 1330(a) and 1328(e) to the exclusion of everything else. It is hardly surprising that the court found a common signal in favor of finality since it only considered the interplay of two similar provisions that clearly embody that principle. In reality, much of this purported gap is filled by other provisions that cover debtor fraud and misconduct. Although In re Frank seems non-committal on this point,106 compulsory plan modification and dismissal are indisputably within the statutory bounds before the completion of payments. Factoring that into the equation, the gap is neither so wide as to have been obvious to lawmakers, nor does it so strongly or uniformly reflect the primacy of finality.
That said, there is a loophole created by reading
treating the completion of payments as the final buzzer signaling an abrupt default victory for a bad faith debtor is plainly an unfair and irrational outcome.
But the full implications of construing
The cases demonstrate that these concerns are not hypothetical. As previously explained, the trustee in In re Frank promptly moved to dismiss upon learning that the debtors concealed a substantial personal injury settlement, but could not beat the debtors’ final payment under a plan that paid nothing to unsecured creditors.112 In In re Parffrey, the debtor short circuited a motion to dismiss and obtained a discharge by completing his final four plan payments early оnce it was discovered that he had not filed any post-petition tax returns.113 Notably, the court
found that particularly galling because the case was prompted by the debtor‘s failure to pay prepetition income taxes, which he likely paid off by diverting funds from postpetition tax obligations.114 In In re Holman, the court found that the debtors engaged in a pattern of “misreporting or conceal[ing] income, new debt, and asset acquisition and disposition from the Trustee” while using “chapter 13 to drastically modify their home mortgage loans.”115 Despite “flout[ing] their duties” and “violat[ing] both their plan and confirmation order,”116 the debtors were granted a discharge when the court realized the trial on the motions to dismiss filed by the chapter 13 trustee and the United States Trustee occurred three months after the completion of payments.117 The district court affirmed, observing “it is an unsatisfying result as it appears that Debtors gamed the system to their advantage.”118
Ultimately, the Court finds that a plain reading of
Alternatively, even if that holding were to be found clearly erroneous, there is still another reason why the completion of payments in this case would not have automatically rendered the Order to Show Cause moot. Recall that the Debtor‘s final plan payment was late. In In re Klaas, the Third Circuit affirmed this Court‘s conclusion that “bankruptcy courts have discretion to grant a brief grace period and discharge debtors who cure an arrearage in their payment plan shortly after the expiration of the plan term.”120 The Third Circuit also provided a non-exhaustive
(1) whether the debtor substantially complied with the plan, including the debtor‘s diligence in making prior payments; (2) the feasibility of completing the plan if permitted, including the length of time needed and amount of arrearage due; (3) whether allowing a cure would prejudice any creditors; (4) whether the debtor‘s conduct is excusable or culpable, taking into account the cause of the shortfall and the timeliness of notice to the debtor; and (5) the availability and relative equities of other remedies, including conversion and hardship discharge.121
While the Court cannot deny that the Debtor‘s default was modest and cured quickly, the equities do not militate in favor of granting a grace period. As will be explained below, the Court finds that the Debtor has not established her good faith, rendering a discharge unfairly prejudicial to her creditors. Put simply, granting this debtor an extension under these circumstances would not “further the goals of the Bankruptcy Code.”122
B. The BMW is Property of the Estate
Generally, the commencement of a case under the Bankruptcy Code creates an estate comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case” as well as “[a]ny interest in property that would have been property
of the estate . . . that the debtor acquires . . . within 180 days” of the petition date.123 Under chapter 13, however, property of the estate also includes “all property of the kind specified in [section 541] that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted . . . .”124 Thus, all legal and equitable interests of the debtor in property acquired during the case—such as a car—is property of the estate and “must be promptly reported to the Court and trustee.”125
Importantly, a debtor‘s responsibility to disclose assets does not end at plan confirmation.126 Nor is that continuing duty an empty gesture or mere procedural technicality. In this district, property of the estate does not re-vest in the debtor until the completion of the plan.127 As the Court emphasized in In re Zvoch, “the terms of the plan may be revisited at any time before the completion of payments. And just like the debtor, the trustee and unsecured creditors have the right to seek a plan modification.”128 The takeaway, succinctly put by the United States Court of Appeals for the Eleventh Circuit, is that:
[i]f postconfirmation assets were not subject to disclosure, modifications for increased payments would be rare because few debtors would voluntarily disclose new assets, and the trustee and creditors would be unlikely to obtain this information from sources other than the debtor.129
That all said, property of the estate does nоt include “[p]roperty in which the debtor holds . . . only legal title and not an equitable interest.”130 Put simply, property held in trust for another is not property of the estate.131 But the burden of proving a trust relationship falls on the party seeking to exclude an asset from the bankruptcy estate.132
By virtue of the Debtor‘s undisputed legal title, the BMW is presumptively property of her bankruptcy estate. Her alternative argument that postpetition non-monetary gifts of assets do not fall within the purview of
Without mincing words, the idea that a luxury vehicle was purchased for the use of a 14-year-old who cannot drive is inherently suspect. That is the perception the Debtor needed to overcome to prevail. Yet by and large, her testimony was self-serving and lacking salient detail.
Meanwhile, Mr. Reppert‘s testimony was undermined (to the extent not refuted outright) by his subsequent admission that supplied additional funds for the purchase of the BMW. Perhaps the most telling consideration is that neither of them could explain why they chose the BMW in the first place.
Little was offered to corroborate their story, and what was raises more questions than are answered. The Affidavit allegedly signed by the Palfreys is so obviously problematic that it weighs against the Debtor‘s credibility. It lacks an attestation clause indicating that it was, in fact, signed under the penalty of perjury, their granddaughter‘s name is misspelled, and, of course, Mr. Palfrey‘s signature is concerning
In the end, the Debtor did not carry her burden to demonstrate that her interest in the BMW was solely legal and not equitable. The testimony elicited was self-serving, contradictory, and unsubstantiated. No compelling evidence established that anyone other than the Debtor and her husband were involved in the purchase of the BMW or that it was held in trust for their daughter. To be blunt, the Debtor‘s offering was so anemic that the Court can only
conclude that either she did not take the Order to Show Cause seriously or she was unable to bolster her testimony with evidence because her story was fabricated.137 Either way, the Court finds that the BMW is property of the estate.
C. Dismissal is Warranted Under Section 1307(c)
The bankruptcy court, after notice and a hearing, may dismiss a chapter 13 case or covert it to chapter 7 for “cause” if it “is in the best interest of creditors and the estate.”138 “Cause” is not defined, but
(1) the nature of the debt;
(2) the timing of the petition;
(3) how the debt arose;
(4) the debtor‘s motive in filing the petition;
(5) how the debtor‘s actions affected creditors;
(6) the debtor‘s treatment of creditors both before and after the petition was filed; and
(7) whether the debtor has been forthcoming with the bankruptcy court and the creditors.142
With the Court having found that the BMW is property of the estate, it fell to the Debtor to establish her good faith in the face of her nondisclosure.144 Curiously, she did not offer, and counsel did not elicit, any testimony to explain why she was not forthcoming about the BMW‘s existеnce. Any justification implicit in the trust narrative fails because the Court does not find that she was incorrect about the BMW being held in trust, but rather that her story is incredible. Certainly, this factor does not weigh in her favor.
The impact of the BMW‘s concealment on creditors is measured in terms of materiality and prejudice. The issue of materiality is easily settled since she acknowledges that it has an unencumbered fair market value of at least $36,000.145 Notwithstanding the peculiar circumstances of this case, there is also clearly prejudice.
The Court starts with the premise that any general unsecured claims would have been entitled to a pro rata share of the BMW‘s value. Since she scheduled nonpriority unsecured claims totaling $29,150.43,146 it is fair to assume these claims exist.147 Had those creditors filed
corresponding proofs of claim, a liquidation analysis would have required the plan to pay them in full to be confirmed.148 Obviously, that is a far better outcome than the 0% dividend the Debtor provided in her confirmеd chapter 13 plan.149 Thus, the failure to disclose the BMW was at least theoretically prejudicial.
Admittedly, no unsecured creditors filed proofs of claim in this case. Filing a proof of claim is a prerequisite to both having an allowed claim and receiving a distribution under a chapter 13 plan.150 With no allowed general unsecured creditors to pay, the value of the BMW was seemingly unnecessary for the completion of the plan. From this perspective, there might appear to have been no actual prejudice. Yet therein lies the rub: it is undisputed that no unsecured creditors were given notice or an opportunity to file proofs of clam since none were listed on the creditor‘s matrix.151 As a result, the potential for prejudice
If the case had proceeded properly, the creditors should have been in a position to insist that their claims be paid, perhaps in full. Instead, they have suffered nothing but delay. With payments completed, the Debtor‘s mistakes are now irreparable because no further plan modifications are possible.154 Even if the unsecured creditors “enjoy” the benefit of not being discharged since their claims were neither disallowed nor provided for by the plan,155 the reality is that they have been denied access to the best venue in which to promptly demand the value of the BMW. Accordingly, the Court finds that the creditors have been severely prejudiced by the Debtor‘s failings in this case.
For all these reasons, the Court concludes there is ample cause to dismiss this case for bad faith under
The Court starts with the premise that the Debtor enjoyed the automatic stay for the full term of her chapter 13 plan and, by her own admission, achieved her goal for the case by bringing her mortgage and real estate tax obligations current. If a chapter 13 discharge was on the
table, the deficient matrix would have meant that it could not have discharged the Debtor from any prepetition claims that did not receivе notice of the bankruptcy. Statutorily, the entry of a chapter 13 discharge also would have prevented those same claims from being discharged in chapter 7 for at least another year.158 Based on these observations, it is fair to say that a one-year restriction on receiving a chapter 7 discharge is merely the natural consequence of failing to provide notice to creditors in a completed chapter 13 case. A corollary to that proposition is that dismissal without prejudice under such circumstances would permit the Debtor to immediately seek a chapter 7 discharge of the omitted creditors
IV. CONCLUSION
In light of the foregoing, the Court will enter an order dismissing this case with prejudice and imposing a two-year filing bar. This opinion constitutes the Court‘s findings of fact and conclusions of law in accordance with
ENTERED at Pittsburgh, Pennsylvania.
GREGORY L. TADDONIO
CHIEF UNITED STATES BANKRUPTCY JUDGE
Dated: September 30, 2022
Case administrator to mail to:
Debtor
Attorney Spyra
Chapter 13 trustee