In re Bush

• Decision Date: 19 December 2017
• Docket Number: Case No.16–31434
• Citation: 579 B.R. 688
• Parties: IN RE: Mark B. BUSH, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of New York

579 B.R. 688

IN RE: Mark B. BUSH, Debtor.

Case No.16–31434

United States Bankruptcy Court, N.D. New York.

Signed December 19, 2017

Theodore Lyons Araujo, Esq., Bankruptcy Law Center, Bodow Law Firm, PLLC, 6739 Myers Road, East Syracuse, NY 13203 for Mark B. Bush (Debtor)

Edward Y. Crossmore, Esq., (Creditor), Crossmore Law Office, 115 W. Green St, Ithaca, NY 14850 for Jennifer Bernheim

MEMORANDUM–DECISION AND ORDER DENYING MOTION TO DISMISS AND OVERRULING OBJECTION TO CLAIM NO. 2–2

Margaret Cangilos–Ruiz, United States Bankruptcy Judge

Jennifer Bernheim ("Creditor") has moved to dismiss this chapter 13 bankruptcy case on the principle of judicial estoppel or, alternatively, failure to file the petition in good faith ("Motion"). Separately, Debtor objects to that portion of Creditor's proof of claim which seeks to recover temporary spousal maintenance arrearage ("Objection"). The court conducted a joint evidentiary hearing on both the Motion and Objection on June 21, 2017, and the Motion and Objection are now before the court for decision.

Based upon the record of these proceedings¹ and for the reasons discussed below, the court denies the Motion and overrules the Objection.

FACTUAL RECORD AND PROCEDURAL BACKGROUND

Chronology of State Court Litigation and Claims

Creditor and Debtor were previously married. During the course of protracted divorce proceedings, Creditor orally stipulated in court that she waived spousal maintenance ("Stipulation"). EX. 10. Despite the Stipulation, Creditor petitioned the court five months later for an order of temporary maintenance. Acting Supreme Court Justice Julie A. Campbell awarded Creditor temporary maintenance of $440 per week over Debtor's objections.² EX. 5. Divorce proceedings concluded with a judgment of divorce on January 18, 2012, which ordered "no award of maintenance, pursuant to the in-court oral stipulation..." EX. 8. It is undisputed that Debtor made no payments during or after the divorce proceedings toward satisfaction of the temporary maintenance order. Temporary maintenance arrears for the period in question total $12,821.60.³

At the evidentiary hearing, Attorney Elizabeth O'Connor testified that Creditor subsequently retained her to commence a state court proceeding to enforce the judgment of divorce and the outstanding arrearage which included the award of temporary maintenance.⁴ When Debtor failed to answer, Attorney O'Connor moved for default judgment, which Judge Campbell granted in Creditor's favor ("Judgment"). EX. 3. The Judgment awarded Creditor $14,693,99⁵ in divorce-related arrears and $38,280.00 in temporary maintenance arrears.⁶ Upon receiving notice of entry of the Judgment, Debtor hired counsel to object to the award of temporary maintenance arrears on the basis that the claim was never pled to provide legally sufficient notice to Debtor, and was unfounded. On this basis, Debtor's counsel moved for re-argument and sanctions against Attorney O'Connor. The matter was resolved by Creditor's submission of an amended default judgment that struck the award of temporary maintenance arrears. EX. 4. ("Amended Judgment") Creditor now reasserts in this proceeding her claim for temporary maintenance arrears, seeking $12,821.60 in her amended claim. EX. B.

Debtor's Chapter 7 and Chapter 13 Bankruptcy Filings

Debtor works as a civil engineer for the New York State Department of Transportation. He filed bankruptcy under chapter 7 on April 27, 2017, shortly after Creditor pursued enforcement proceedings and recovered the Judgment. He testified that his chapter 7 filing was prompted by insufficient income to carry his debt load including the Judgment, which he stated he could not afford. Monthly income and expenses on Debtor's chapter 7 schedules I and J reflect a negative monthly net income of ($588.51). EX. 1 at p. 30. Debtor acknowledged receiving financial help from family when needed, but included no fixed contribution from family members in his monthly income schedule. Debtor also did not mention available overtime pay from his job. As to his expenses, Debtor failed to disclose that two days prior to filing, he had filed papers with the family court to be relieved of a monthly insurance expense of $417.13. Debtor valued his total personal property at $20,802, of which $16,572 was ascribed to a 2014 Ford Taurus, the only vehicle Debtor listed on his schedules. Debtor responded "No" to owning ATVs, carpentry tools, or firearms. Id. at p.11. On his statement of financial affairs, Debtor indicated that he had not given any gifts valued at more than $600 to anyone within two years of filing nor had he sold or transferred any property to anyone during the same period other than in the ordinary course of his financial affairs. Id at 35, 36. He also affirmatively responded that he did not "hold or control" or store property belonging to someone else. Id. at 37. Debtor's real property in McGraw, New York was listed at its tax assessed value at $266,087. The chapter 7 case proceeded to discharge and the case was closed.

Creditor proceeded to press enforcement of the Amended Judgment. Just before the return of the enforcement proceeding, and less than six months after filing his chapter 7 case, Debtor filed the current chapter 13 case. Debtor testified that the purpose of the chapter 13 filing was to avoid a forced sale of his home, a foreseeable outcome upon enforcement of the Amended Judgment, as garnishment of his wages would have put him further in arrears on his mortgage (he was $21,000 in arrears at the time). The items listed in his chapter 13 schedules are almost identical to what he listed in his chapter 7 filing with a few exceptions. EX. 2⁷ . The salient difference is that Debtor reflects a positive net monthly income of $592.23, attributable to a combination of reduced expenses and increased income in the form of a $650.00 monthly contribution from his father and overtime work undertaken at his same job. Id at 29. Debtor's responses to questions in the statement of financial affairs are the same as in the chapter 7 filing. Debtor represents that (i) he gave no gifts that had a value in excess of $600 to anyone within two years of the filing, (ii) there were no sales or transfers of property outside the ordinary course of his financial affairs and (iii) he is neither holding nor storing property for another.

Although confirmation of Debtor's plan is not before the court at this time, the court takes judicial notice of the proposed plan (Doc. 2). The plan proposes to pay Creditor's claim by bifurcating it into (i) an unsecured priority claim of $7,693.99 for outstanding support obligations to be paid in full and (ii) a general unsecured claim of $7,000 for the distributive property claim, which is proposed to be paid a 1% distribution or $70.00. The plan makes no provision for payment of temporary maintenance arrears. As the claims bar date has passed, the remaining claims are limited to (i) a New York State priority tax claim in the amount of $4,108.68, (ii) a secured claim of $18,452 against Debtor's 2014 Ford Taurus on which Debtor's father is also liable, and (iii) a secured mortgage claim against Debtor's real property which includes $23,953.99 in arrears.

Debtor's Real Property and Hearing Testimony

Debtor owns two adjacent parcels of rural property in McGraw, New York in which he asserts a homestead exemption. The property, estimated to be approximately 110 to 114 acres by Debtor's father, Lyle Eugene Bush, has an outstanding mortgage which secures a note cosigned by the Debtor and his father. Debtor lives in a single family home on the smaller 6 ½ acre parcel. The larger parcel, which contains a pond, is developed as a family camp, improved with a wood-framed cabin, a pole barn and several storage trailers. The camp has been in the Debtor's family for over 55 years. Owned initially by Debtor's grandfather, then Debtor's uncle and now, Debtor, Debtor's extended family has always enjoyed use of the premises and the personal property that is kept there.

Creditor identified many items of personalty stored on the property that were not listed in Debtor's chapter 7 or chapter 13 filings. These include four vehicles registered with the New York State Department of Motor Vehicles in Debtor's name, home furnishings, and equipment used for recreational and agricultural purposes. At the hearing, Debtor testified that much of the personal property referenced by Creditor was property of his father or family. He stated that he does not own the items stored in the three tractor-trailers on the property. He further testified that in exchange for money advanced by his father to pay for his state court counsel, he transferred a 1966 Chevrolet, two ATVs, a Kubota tractor and a trailer to his father. Despite the transfers, Debtor continues to have use of these items, which remain on the property. Lyle Bush corroborated his son's testimony regarding the transfers and testified that no paperwork was executed regarding the transfers because he was dealing with his son. These were made within two years of Debtor filing for bankruptcy, and were not made in the ordinary course of Debtor's financial affairs. Lyle Bush testified that many of the camp furnishings have been present on the property from the "early days" or had been acquired by him over the years at various yard sales. According to both Debtor's and his father's testimony, the property houses numerous stored items belonging to family members other than Debtor. This was not made clear by Debtor's filings with the court and misrepresented by Debtor in his statement of affairs which has not been amended to date.

The court also heard the testimony of Rebecca Schramm, who was formerly engaged to the Debtor. She testified that on August 6, 2016, Debtor gifted her a ring of diamonds in white gold that had belonged to either his aunt or grandmother. Ms. Schramm brought the ring to a jeweler to have the stones reset and, afterwards,...