In re Bostick, 07-30517 (LMW).

• Decision Date: 02 February 2009
• Docket Number: No. 07-30517 (LMW).,No. 08-3018.,07-30517 (LMW).,08-3018.
• Citation: 400 B.R. 348
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: In re Lisa M. BOSTICK, Debtor. Diana G. Adams, United States Trustee for Region 2, Plaintiff v. Lisa M. Bostick, Defendant.

400 B.R. 348

In re Lisa M. BOSTICK, Debtor.

Diana G. Adams, United States Trustee for Region 2, Plaintiff v. Lisa M. Bostick, Defendant.

Bankruptcy No. 07-30517 (LMW).

Adversary No. 08-3018.

United States Bankruptcy Court, D. Connecticut.

February 2, 2009.

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Lisa M. Bostick, New Haven, CT, Debtor/Defendant, pro se.¹

Holley L. Claiborn, Esq., Office of the United States Trustee, New Haven, CT, for United States Trustee.

MEMORANDUM OF DECISION AND ORDER RE: UNITED STATES TRUSTEE'S MOTION FOR DEFAULT JUDGMENT

LORRAINE MURPHY WEIL, Bankruptcy Judge.

Before the court is the United States Trustee's (the "UST") Motion for Default Judgment (A.P. Doc. I.D. No. 11, the "Motion")² seeking entry of a judgment denying the Debtor a discharge in this chapter 7 case pursuant to 11 U.S.C. § 727(a). This court has jurisdiction over this matter as a core proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b) and that certain order dated September 21, 1984 of this District (Daly, C.J.).³

I. BACKGROUND

A. The Chapter 7 and Chapter 13 Cases

The Debtor commenced this case by the filing of a chapter 13 petition on March 8, 2007. (See Case Doc. I.D. No. 1.) Included with her petition were her schedules and statement of affairs. (See id.) Her schedules were amended on September 17, 2007. (See Case Doc. I.D. No. 24.) As of the petition date, the Debtor's schedules (as amended) showed: real property assets with a stated value of $120,000.00; personal property assets with a stated value of $29,700.00; secured claims in the aggregate stated amount of $139,832.00; no unsecured priority claims; general unsecured claims in the aggregate stated amount of $36,394.00; current monthly income for the Debtor of $4,006.50; and current monthly expenditures for the Debtor of $3,107.00. (See Case Doc. I.D. Nos. 1, 24.)

The Debtor filed a proposed chapter 13 plan on March 8, 2007. (See Case Doc. I.D. No. 2.) That plan proposed monthly payments to the Debtor's secured creditors but none to the Debtor's unsecured creditors. (See id.) The chapter 13 meeting of creditors held pursuant to Bankruptcy Code § 341 (the "Chapter 13 Meeting") was held on April 26, 2007. (See Case Docket Entry for 4/28/2007.)⁴ The Debtor filed an amended proposed chapter 13 plan on May 30, 2007. (See Case Doc. I.D. No. 23.) In addition to payments to secured creditors, that plan proposed to pay the Debtor's unsecured creditors in full (with interest). (See id.)

On October 10, 2007, the chapter 13 trustee (the "Chapter 13 Trustee") filed a motion (the "Conversion Motion") to convert the case to a case under chapter 7. (See Case Doc. I.D. No. 26.) The Conversion Motion alleged: "Upon information and believe [sic] the debtor dissipated the assets of the estate [i.e., the Lottery Winnings (as hereafter defined)] and has not adequately accounted for the money and is no longer in a position to make a lump sum payment [and] ... it would be in the best interest of creditors to convert this case to one under Chapter 7." (Id. ¶¶ 8-9.) The Conversion Motion came on for a hearing on November 15, 2007. Both the Chapter 13 Trustee and the UST appeared at that hearing but the Debtor did not appear to defend. (See Oral Record of 11/15/2007 hearing at 11:57:50 et seq.) On a finding of "cause," the court orally granted the Conversion Motion (id. at 11:59:01 et seq.) and an order converting the case to chapter 7 entered on November 19, 2007 (see Case Doc. I.D. No. 29).

The chapter 7 meeting of creditors pursuant to Bankruptcy Code § 341 (the "Chapter 7 Meeting")⁵ was held on January 25, 2008. (See Case Docket entry for 1/28/2008.) On April 29, 2008, the chapter 7 trustee (the "Chapter 7 Trustee") filed a notice that no distribution would be made to creditors in this case. (See Case Doc. I.D. No. 49.)

B. The Adversary Proceeding

The Complaint was timely filed by the UST on February 15, 2008. (See A.P. Doc. I.D. No. 1, the "Complaint.") A summons was issued on February 21, 2008 (see A.P. Doc. I.D. No. 3) and duly was served along with the Complaint upon the Debtor on the same day (see A.P. Doc. I.D. No. 6). The Debtor has neither filed an appearance, pled or otherwise defended in this adversary proceeding. The UST filed and duly served upon the Debtor a motion for default on April 1, 2008. (See A.P. Doc. I.D. No. 8.) The Clerk entered default herein against the Debtor on April 4, 2008. (See A.P. Doc. I.D. No. 9.) Notice of the default duly was served on the Debtor on April 6, 2008. (See A.P. Doc. I.D. No. 10.)

The Motion was filed on May 7, 2008. (See A.P. Doc. I.D. No. 11.) The Motion was set down for a hearing on May 21, 2008. (See A.P. Doc. I.D. No. 12.) A notice of such hearing and a copy of the Motion duly were served upon the Debtor on May 9, 2008. (See A.P. Doc. I.D. No. 13.) The hearing on the Motion was held as scheduled on May 21, 2008. Counsel for the UST appeared but the Debtor did not. At the request of counsel for the UST, copies of bank statements of the Debtor were admitted under seal in lieu of attaching them to the Motion. (See Oral Record of 5/21/2008 hearing at 2:47:27 et seq.) At the conclusion of the hearing, the court took the matter under advisement pending this decision. On August 4, 2008, the court issued an Order Requiring Briefing. (See A.P. Doc. I.D. No. 17.) That order required the parties to brief the following issue:

whether Section 727(a)(2)(B) applies to ... [the fact scenario where the subject property was acquired by the debtor postpetition but preconversion] in cases filed after the effective date of the Bankruptcy Reform Act of 1994 [the "1994 Act"] which clarified that (with certain exceptions not relevant here) only prepetition property of the debtor remains property of the estate after conversion from chapter 13 to chapter 7. See 11 U.S.C. § 348(f)(1)(A). Cf. Baker v. Rank (In re Baker), 154 F.3d 534 (5th Cir.1998) (discharge denied in a case filed in 1990 where court determined that property acquired postpetition remained property of the chapter 7 case on conversion from chapter 13).

(A.P.Doc. I.D. No. 17.) Only the UST filed a responsive brief. (See A.P. Doc. I.D. No. 19.)

II. FACTS

Four days after the petition date, on March 12, 2007, the Debtor won $100,000.00 through the CASH 5 Connecticut Lottery. (See First Transcript at 4-5; Complaint ¶ 16.) The Debtor deposited her net winnings of $70,298.82 (the "Lottery Winnings") into her People's Bank savings account (the "Savings Account") on March 14, 2007. (See Complaint ¶ 17; see also Savings Account Statement for 3/13/2007 to 4/11/2007.) The Debtor intermittently transferred some of those funds to her People's Bank checking account (the "Checking Account") throughout the following months. (See, e.g., Checking Account Statement for 3/13/2007 to 4/11/2007.) On March 15, 2007, the Debtor spent $2,000.00 at DJ World in Hamden, Connecticut. (See id.) On March 16, 2007, the Debtor spent almost another $2,000.00 on a Carnival Cruise vacation to the Bahamas. (See Checking Account Statement.) The Debtor also wrote a check noted with the word "Investment" made out to Charlene Reid in the amount of $8,000.00 on April 3, 2007.⁶ (See id.) The Debtor continued to expend her winnings on various items, and by April 11, 2007, the Debtor had $45,100.51 of the Lottery Winnings left in the Savings Account. (See Savings Account Statement.)

On April 26, 2007, the Debtor appeared and testified under oath before the Chapter 13 Trustee at the Chapter 13 Meeting. (See First Transcript.) Just prior to that Meeting, the Debtor told the Chapter 13 Trustee about the Lottery Winnings. (See id. at 4.) Under oath, the Debtor testified to the same winnings, the net value received after taxes, and the approximate $37,000.00 then remaining in the Savings Account. (See id. at 6.) The Debtor further testified that she had bought stock (the "Stock") in People's United Financial, Inc. with $12,000.00 of the Lottery Winnings. (See id. at 7; Complaint ¶¶ 31, 34.) During the Chapter 13 Meeting, the Chapter 13 Trustee instructed the Debtor not to use the remaining Lottery Winnings as that money would be used to fund her chapter 13 plan. (See id. at 7-8.)

Although the Debtor acknowledged the instruction from the Chapter 13 Trustee and subsequently filed an amended chapter 13 plan which would have paid her unsecured claims in full (see Case Doc. I.D. No. 23), the Debtor dissipated the remaining Lottery Winnings over the next few months. On September 19, 2007, the Chapter 13 Trustee was informed that the Debtor would be unable to make a lump sum payment under her amended plan because the Lottery Winnings had been almost entirely spent. (See Oral Record of 11/15/07 hearing at 11:58:38 et. seq.) As discussed above, the Chapter 13 Trustee then moved to convert the Debtor's case to chapter 7 without response or objection from the Debtor. (See Case Doc. I.D. No. 26.) When the court granted the Conversion Motion, Michael J. Daly, Esq. became the Chapter 7 Trustee.

At the Chapter 7 Meeting, the Debtor appeared and testified before the Chapter 7 Trustee. (See Second Transcript.) Under oath, she testified again that she had won $100,000.00 (gross) in the lottery, had received approximately $70,000.00 after taxes (i.e., the Lottery Winnings) and had intended to use the remaining Lottery Winnings to fund her amended chapter 13 plan. (See id. at 6-7.) The Debtor then testified that she instead used the Lottery Winnings to purchase a used truck for $10,000.00, gave her sister an unknown amount of money, gave her mother the amount of $2,500.00 and took a Carnival Cruise to the Bahamas. (See id. at 7-8.) Additionally, the Debtor testified that she used the remaining money for personal living expenses because she was sick and out of work without pay. (See id. at 8-9.) The Debtor did not tell the Chapter 7 Trustee about the Stock. (See Second Transcript.)

III. THE COMPLAINT

The Complaint is...