In re Armwood

• Decision Date: 13 December 1994
• Docket Number: Bankruptcy No. 94-65990.
• Citation: 175 BR 779
• Parties: In re John H. ARMWOOD, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

175 B.R. 779 (1994)

In re John H. ARMWOOD, Debtor.

Bankruptcy No. 94-65990.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

December 13, 1994.

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David Lee Judah, Atlanta, GA, for debtor.

M. Regina Thomas, Chapter 13 Trustee, Atlanta, GA.

ORDER

MARGARET H. MURPHY, Bankruptcy Judge.

This matter arises on the Chapter 13 Trustee's motions to dismiss with prejudice and for imposition of sanctions against Debtor and Debtor's attorney. Hearing was held August 1, 1994. Debtor did not appear. Pursuant to direction of the court at the hearing, Debtor's attorney filed a post-hearing report August 22, 1994 (the "Report"). An amendment to that report (the "Amendment") was filed September 26, 1994.

STATEMENT OF FACTS

The instant case is Debtor's fifth Chapter 13 case. Debtor, as well as the attorney representing Debtor in this case (and in the third case), are attorneys licensed by the State Bar of Georgia. This case commenced April 29, 1994, upon the filing of a skeletal petition. A "skeletal" petition is one in which no schedules and plan are filed with the petition. Debtor filed no Schedules, filed no plan,¹ and listed only one creditor on the mailing matrix.² Debtor failed to attend the § 341(a) Meeting scheduled for May 24, 1994, and Debtor made no payments to the Chapter 13 Trustee as required by 11 U.S.C. § 1326.

Debtor filed four prior unsuccessful Chapter 13 cases. The first case, Case No. 90-00145, was filed January 4, 1990 and was dismissed October 15, 1990, pursuant to an earlier order entered August 29, 1990 and the Chapter 13 Trustee's motion of October 4, 1990. The second case, Case No. 90-14221, commenced October 10, 1990, and was dismissed July 17, 1992. The third case, Case No. 92-72519-SWC, was filed by the same attorney representing Debtor in the instant case. The third case commenced July 31, 1992, with the filing of a skeletal petition. The schedules and plan were filed August 28, 1992. That case was dismissed "with prejudice" December 29, 1992, pursuant to 11 U.S.C. § 109(g).

The fourth case, Case No. 94-62825-ADK, was filed February 28, 1994; and, as in the instant case, Debtor filed no Schedules or plan, listed only one creditor on the mailing matrix, and made no payments to the Chapter 13 Trustee. Debtor appeared for the § 341(a) Meeting and requested that it be reset but that request was denied because no Schedules or plan had been filed. The case was dismissed at the confirmation hearing; the order of dismissal was entered April 24, 1994.

In the instant case, at the August 1 hearing on the motions to dismiss and for sanctions, Debtor's attorney stated, on behalf of Debtor, who did not attend the hearing, that this case was filed to stop repossession of Debtor's automobile, a 1989 Mercury Marquis. No further information concerning the disposition of the debt secured by the automobile was provided. In an attempt to show that Debtor had a realistic possibility of reorganization when this case was filed, Debtor's attorney disclosed that one of the debts, which was listed in Debtor's Schedules filed in the second case (Case No. 90-14221) as a secured claim in the amount of $50,000 (the "Lawsuit Debt"), had been reduced by settlement. Debtor's attorney, however, provided no documentation or precise information to support the allegation of settlement.

At the same hearing, and as a further showing that this case was filed in good faith, Debtor's attorney stated that when this case was filed, Debtor and Debtor's attorney believed that Debtor's student loans were more than seven years old and were, therefore, dischargeable. Upon investigation, however, Debtor's attorney asserts he discovered that, as a result of one or more deferments of payment obtained by Debtor, no grounds existed to claim that the student loans were dischargeable. Section 1328(a)(2) provides that student loans are nondischargeable in a Chapter 13 case unless they first became due more than 7 years, "exclusive of any applicable suspension of the repayment period," before the date of filing of the bankruptcy petition.

In an attempt to explain events which precipitated Debtor's financial difficulties, Debtor's attorney disclosed that Debtor had been expecting income from the City of Atlanta in the amount of approximately $3,500, which had not been paid as Debtor expected. Debtor's attorney also acknowledged that Debtor owes child support arrearages and estimated those arrearages to be $5,000-$7,000.

The court directed Debtor's attorney to file the Report to document information regarding the Lawsuit Debt, the student loans, and the child support. The Report and the Amendment, however, were inadequate. The Report and the Amendment failed to provide specific information regarding the student loans: the specific amounts and payees of the loans, the dates the loans first became due and payable, and the dates of the deferments.

With respect to the $50,000 Lawsuit Debt, paragraph 9 of the Report set forth, "This claim was settled for $3,000 in 1993." No documentation to support that statement was attached to the Report. In the Amendment to the Report, copies of two documents from a New York state court (one document was incomplete) relating to the settlement were attached. Those documents show the Lawsuit Debt was reduced from $50,000 to $25,000 by settlement, and further reduced in the settlement, by payment from a third party, to $21,000.

The allegations in the Report concerning the unpaid compensation from the City of Atlanta were less precise than the statements made in the hearing, and provided no dates, specific amounts or support regarding any expected payment. Debtor's attorney set forth Debtor's belief that "child support arrearages total approximately $8,000," but again provided no specific facts or documentation.

The Report concludes, "This case was filed in good faith. But for the student loans and the City of Atlanta, the case would have been feasible."

CONCLUSIONS OF LAW

Motion to Dismiss "With Prejudice"

Section 1325(a) of the Bankruptcy Code sets forth a good faith requirement in Chapter 13. Bankruptcy courts have a duty to preserve the bankruptcy process for its intended purpose and may dismiss a Chapter 13 case which is filed in bad faith. Shell Oil Co. v. Waldron, 785 F.2d 936 (11th Cir.1986). The standard for determining whether a petition is filed in good faith is a "totality of the circumstances" test. Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991); Jim Walter Homes, Inc. v. Saylors, 869 F.2d 1434 (11th Cir.1989); Kitchens v. Georgia Railroad Bank and Trust Co., 702 F.2d 885 (11th Cir.1983). The factors (the "Kitchens Factors") to be considered in determining whether a petition was filed in good faith are:

1. The amount of the debtor\'s income from all sources;

2. The living expenses of the debtor and his dependents;

3. The amount of attorney\'s fees;

4. The probable or expected duration of the debtor\'s Chapter 13 plan;

5. The motivations and sincerity of the debtor in seeking relief under the provisions of Chapter 13;

6. The debtor\'s degree of effort;

7. The debtor\'s ability to earn and the likelihood of fluctuation in earnings;

8. Special circumstances such as inordinate medical expenses;

9. The frequency with which the debtor has sought relief under the Bankruptcy Reform Act and its predecessors;

10. The circumstances under which the debtor has contracted debts and has demonstrated bona fides, or lack thereof, in dealings with creditors;

11. The burden which the plan\'s administration would place on the Trustee;

12. The extent to which claims are modified and the extent of preferential treatment among classes of creditors;

13. Substantiality of repayment to the unsecured creditors;

14. Consideration of the type of debt to be discharged and whether such debt would be nondischargeable under Chapter 7;

15. The accuracy of the plan\'s statements of debts and expenses and whether any inaccuracies are an attempt to mislead the court; and

16. Other factors or exceptional circumstances.

Kitchens, 702 F.2d 885.

In the event of serial petitions, to avoid dismissal on the grounds of bad faith, a debtor usually should be able to show a change in circumstances between the two filings. In re Jones, 105 B.R. 1007 (N.D.Ala. 1989).³ A finding of bad faith does not require a finding of actual fraud, malice, scienter or an intent to defraud. Waldron, 785 F.2d 936 (11th Cir.1986).

Filing even a skeletal petition secures the protection of the automatic stay of 11 U.S.C. § 362(a) for both the honest debtor and the abusive debtor. The automatic stay serves to protect the honest debtor in desperate financial circumstances from creditor action and to provide a much-needed "breathing spell" to marshal resources and prepare to deal with creditors in a fair and orderly manner. NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984). The abusive debtor also obtains the protection of the automatic stay but employs it to delay or thwart creditor action while refusing to fulfill the duties imposed by the Bankruptcy Code. The uses of the automatic stay as both a shield and a weapon are well-known to attorneys, to the so-called "Pro Se Club" and to many debtors. In this case, Debtor and Debtor's attorney knew that by doing nothing to prosecute the Chapter 13 case properly, Debtor could reasonably expect to receive the protection of the stay until almost July 1994.⁴

In the instant case, because Debtor failed to file Schedules or a plan and failed to attend the § 341(a) Meeting, little or no information is known relevant to Kitchens Factors 1-4, 11-13. Some information on 15-16 was provided in the Report and Amendment. Information is vague and incomplete as to some of the other Kitchens Factors but logical inferences may be drawn based upon the information which was disclosed and upon the absence...