Harrington v. Bailey (In re Bailey)
| Decision Date | 30 April 2021 |
| Docket Number | Case No. 16-40479-CJP,Adv. Pro. No. 19-04006-CJP |
| Parties | In re: TAMMY J. BAILEY, Debtor WILLIAM K. HARRINGTON, UNITED STATES TRUSTEE, Plaintiff v. TAMMY J. BAILEY, Defendant |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
The United States Trustee ("UST") filed a motion (Dkt. No. 110) (the "Motion") seeking to dismiss the Chapter 7 case of the debtor, Tammy J. Bailey (the "Debtor"), for abuse under 11 U.S.C. § 707(b)(3)1 to which the Debtor objected (Dkt. No. 113) (the "Response"). The Motion had been consolidated for trial with the UST's two-count complaint brought under § 727(a)(4) and (a)(5) (the "Discharge Objections"). Pursuant to the Discharge Objections, the UST alternatively seeks to deny the Debtor's discharge if the case is not dismissed.
The following decision constitutes my findings of fact and conclusions of law in accordance with Fed. R. Bankr. P. 7052. In reaching my determination, I have considered (i) the demeanor and credibility of the Debtor, the only witness who testified at the trial held in this matter, (ii) the exhibits that were admitted into evidence, (iii) facts that have been admitted in the answer, the response to the Motion, and the joint pretrial memorandum, (iv) the record in theDebtor's case, and (v) the oral arguments of counsel. I have also taken judicial notice of the dockets in this case and in the related bankruptcy case of the Debtor's spouse.
This Court has jurisdiction over these matters pursuant to 28 U.S.C. §§ 157(a) and 1334 and Rule 201 of the Local Rules of the United States District Court for the District of Massachusetts. The matters are core proceedings within the meaning of 28 U.S.C. § 157(b)(2)(A) and (J). Both parties acknowledged that I have authority to enter a final order with respect to the Motion and a final judgment regarding the consolidated Discharge Objections asserted in the adversary proceeding.
A. Background
The Debtor filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on March 23, 2016 (the "Petition Date"). On April 22, 2016, the Debtor filed her Statement of Financial Affairs ("SOFA") and schedules, signing accompanying declarations under penalties of perjury that the schedules and SOFA were true and correct to the best of her knowledge and belief. Schedules I and J reflected a combined monthly income of $7,109.61 for the Debtor and her non-filing spouse, and monthly household expenses of $6,410.25, leaving a monthly net income of $699.36.
The Debtor also filed a Chapter 13 Plan (the "Plan") concurrently with her schedules. Under the Plan, the Debtor proposed payments to the Chapter 13 Trustee (the "Trustee") in the amount of $700 per month for a period of 60 months. The Debtor's "Chapter 13 Statement of [Her] Current Monthly Income and Calculation of Commitment Period" (Official Form 122C-1),showed that the Debtor was a below median debtor for a household of five in Massachusetts and had an applicable plan commitment period of three years. The Debtor voluntarily proposed a 60 month plan payment term in order to "cure home mortgage arrears." Plan § 1. Through her Plan, the Debtor proposed to cure prepetition arrears of $35,230 and maintain payments with respect to the claim of U.S. Bank Trust, N.A., as Trustee for LSF8 Master Participation Trust (the "Bank"), secured by the Debtor's residence. The Plan included an estimated zero percent (0%) dividend to unsecured creditors with claims totaling $189,872.34, of which $173,472.42 were nondischargeable student loan claims and $16,399.92 were nonpriority general unsecured claims.
On May 27, 2016, the Bank objected to confirmation of the Plan pursuant to § 1325, asserting the Debtor failed to cure the total amount of its prepetition arrears of $43,443.78, which would be reflected in a "soon to be filed Proof of Claim."3 The Debtor responded to the Bank's objection and, after a hearing on October 4, 2016,4 I sustained the confirmation objection and ordered the Debtor to file an amended plan.
On October 20, 2016, the Debtor filed an amended Chapter 13 plan (the "Amended Plan"), which provided for increased monthly payments in the amount of $925 for 60 months in order to address the Bank's prepetition arrears totaling $46,370.30, as reflected in the proof of claim filed by the Bank. Pursuant to the Amended Plan, the estimated dividend to unsecured creditors remained at zero percent (0%) on increased total claims of $193,525.17, of which $177,125.25 were nondischargeable student loan claims and $16,399.92 were nonpriority general unsecured claims. The Debtor also filed an amended Schedule J on October 20, 2016 ("FirstAmended Schedule J"), noting that "Schedule J, [wa]s no longer a true and accurate representation of Debtor's income, expenses and disposable income" and reflecting reduced expenses and increased net monthly household income of $924.36.
I entered an order confirming the Amended Plan on February 8, 2017. On May 8, 2017, the Bank filed a motion for relief from stay, alleging that the Debtor was in arrears for thirteen (13) postpetition payments from April, 2016 to April, 2017, totaling $21,575.49 (the "Stay Relief Motion"). The record does not include any bank statements or other evidence showing the Debtor's actual expenses at the time she filed her First Amended Schedule J and Amended Plan or for the period following confirmation of the Amended Plan through filing of the Stay Relief Motion.
The Debtor and the Bank entered into an agreement to resolve the arrearages asserted in the Stay Relief Motion (the "Stipulation"), stipulating that a lump sum payment of $17,000 made by the Debtor on June 27, 2017, would be applied to outstanding postpetition payments. The parties further agreed that the Debtor would cure the remaining postpetition arrears through additional monthly payments of $1,966.73.
The Trustee objected to approval of the Stipulation because "the Debtor . . . failed to identify the source of the $17,000.00 lump sum payment made to the mortgagee or how [the Debtor] will be able to maintain a cure amount of $1,900.00 per month in addition to her regular mortgage payment of $1,645.73." Obj. 1, Dkt. No. 61. The Debtor filed a response stating "the $17,000 lump sum payment was funded from the non-filing spouse's pension account." Resp. 1, Dkt. No. 62. At the hearing on approval of the Stipulation, Debtor's counsel represented that the $17,000 payment came from a withdrawal from the non-filing spouse's retirement account and that a second withdrawal from the retirement account would be taken in order to make the additional cure payments due through November, 2017, the Trustee withdrew her objection, andI approved the Stipulation. At the trial on the Motion and Discharge Objections, the Debtor testified she did not remember where she thought she would get the funds to make the $3,612 payments for the months of August, 2017 through November, 2017, representing the regular monthly payment amount and the monthly cure payment amount due pursuant to the Stipulation. The Debtor acknowledged that her Schedules I and J on file at the time did not reflect she had sufficient funds to pay and testified that she may have borrowed from a family member to help her and that "if we took from other places to make it happen then we took from other places to make it happen."
On October 2, 2017, the Bank filed a certificate of non-compliance asserting that the Debtor had failed to comply with the terms of the Stipulation and seeking entry of an order granting the Stay Relief Motion. The Debtor did not file an objection to the certificate, and the Court granted the Bank relief from stay on October 26, 2017.
On March 20, 2018, the Trustee moved to dismiss the Debtor's case, because the Debtor was in arrears according to the terms of the Plan in the amount of $3,761, or 4 monthly payments, and because the Debtor failed to produce a copy of her 2016 federal tax return. The Debtor filed a limited response to the Trustee's dismissal motion, stating that she intended to convert her case, but that "[i]n the event the Debtor is unable to convert or her intent changes the Debtor request[ed] that the matter be set for hearing." Ltd. Resp. ¶ 2.
On April 6, 2018, the Debtor voluntarily converted her case to one under Chapter 7. Also on April 6, 2018, the Debtor moved to further amend her Schedules I and J. The Debtor's post-conversion amended Schedules I and J ("Post-Conversion Schedules") were amended more than seventeen months after the Debtor's last amendment and reflected combined monthly income of the Debtor and her non-filing spouse of $9,195.83 and monthly household expenses of$9,195.83, leaving a monthly net income of negative $.37.5 Pursuant the Final Report and Account, the Trustee distributed payments totaling $15,664 under the confirmed Amended Plan prior to conversion.
On December 21, 2017, the Debtor's spouse, Todd Bailey, filed a separate Chapter 13 case (Bankr. Case No. 17-42263), which remains pending. In his case, Mr. Bailey filed initial Schedules I and J on December 21, 2017 and several supplemental Schedules I and J. The Debtor's Post-Conversion Schedules were consistent with her spouse's supplemental Schedules I and J on file at the time of the Debtor's conversion.6
With respect to alleged missing disclosures on Schedule I, the Debtor testified that, after the Petition Date, she had earned small amounts of other income from "hobbies" such as the sale of skin products that she did not include on her supplemental schedules. The Debtor's 2017 jointly filed federal tax return (Ex. 35) showed an $84 profit from operation of a business and miscellaneous total income of $1,742.10 as reflected on Form 1099-MISC income (Ex. 36) and Schedule C of the 2017 federal return. The Debtor also testified that she received certain payments towards heating expenses from...
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