In re DeGroot

• Decision Date: 23 November 2011
• Docket Number: No. DG 05–14996.,DG 05–14996.
• Citation: 460 B.R. 159
• Parties: In re Joel DEGROOT,1 Debtor.
• Court: U.S. Bankruptcy Court — Western District of Michigan

460 B.R. 159

In re Joel DEGROOT,1 Debtor.

No. DG 05–14996.

United States Bankruptcy Court, W.D. Michigan.

Nov. 23, 2011.

James H. Sullivan, James H. Sullivan PC, Wyoming, MI, for Debtor.

OPINION AND ORDER

SCOTT W. DALES, Bankruptcy Judge.

I. INTRODUCTION

Chapter 7 Debtor Joel DeGroot divorced his wife Joy DeGroot (“Ms. DeGroot”) on December 18, 2002. As set forth in the Judgment of Divorce (“JOD”), Ms. DeGroot retained the marital home and agreed to pay the Debtor $48,000.00 in several installments. In exchange, the Debtor agreed to provide child support by making weekly payments. Ms. DeGroot made the first $10,000.00 installment, but the Debtor soon fell behind on his obligations to Ms. DeGroot and presumably his other creditors. He filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code just before the 2005 amendments took effect pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”).

Ms. DeGroot's $38,000.00 obligation to the Debtor (the “Receivable”) became property of the bankruptcy estate, although the Debtor did not list the Receivable on Schedule B. The Chapter 7 trustee Jeff A. Moyer (the “Trustee”) was aware of the estate's rights against Ms. DeGroot during the pendency of the case and took steps to administer the Receivable by recording a lien against her home, before he sought and obtained an order closing the case by filing a “no asset” or “No Distribution Report” on March 28, 2008.

In December 2010, the court granted the Trustee's motion to reopen the case, and the Trustee thereafter took steps to collect the Receivable from Ms. DeGroot, who did not have the benefit of counsel at the time. In response to the Trustee's collection efforts, Ms. DeGroot wrote to the court outlining her dispute with the Trustee regarding the bankruptcy estate's right to collect the Receivable. The court treated the correspondence as a motion.

II. JURISDICTION AND PROCEDURE

The court has jurisdiction over the bankruptcy case pursuant to 28 U.S.C. § 1334. The United States District Court has referred the Debtor's case and related proceedings, including this contested matter, to the United States Bankruptcy Court pursuant to 28 U.S.C. § 157(a) and L.Civ.R. 83.2(a) (W.D. Mich.).

Notwithstanding the Supreme Court's opinion in Stern v. Marshall, –––U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), during a pretrial conference conducted on August 17, 2011 the parties consented to the Bankruptcy Court's entry of a final order resolving the contested matter. They also agreed to waive the formalities associated with filing an adversary proceeding under Part VII of the Federal Rules of Bankruptcy Procedure, even though this dispute is to some extent a proceeding regarding the validity of the estate's supposed lien on Ms. DeGroot's home. See Fed. R. Bankr.P. 7001(2).

The following constitutes the court's findings of fact and conclusions of law in accordance with Fed.R.Civ.P. 52 made applicable to this contested matter by Fed. R. Bankr.P. 7052 & 9014(c).

III. ANALYSIS

A. Factual Findings

Almost from the moment the family court entered the JOD, Ms. DeGroot experienced difficulties getting Mr. DeGroot to honor his child support obligations. She credibly testified that he made sporadic payments and soon incurred substantial arrearages with respect to his obligations to his two minor children and his ex-wife. For her part, Ms. DeGroot was obligated to pay Mr. DeGroot for his share of the equity in the marital home in installments as noted above, represented by the Receivable.

On October 4, 2005 (the “Petition Date”), the Debtor filed a voluntary petition under Chapter 7 which created an estate comprised of all his legal and equitable interests in property including his claims against Ms. DeGroot under the JOD. At the time of the filing, there was no dispute that Ms. DeGroot owed the Debtor (and, derivatively, his bankruptcy estate) $38,000.00 under the JOD. There is also no dispute that on the Petition Date, Mr. DeGroot owed Ms. DeGroot substantial sums in unpaid child support. The Trustee, however, disputes the precise amount of her claim.²

The Trustee concluded the 341 meeting in March, 2006, and over a year later, in June, 2007, he filed a Notice of Possible Dividends to Creditors (DN 16). Both before and after the Petition Date, Ms. DeGroot pursued the Debtor in her generally fruitless attempts to collect delinquent child support obligations.

Sometime in 2006, the family court was poised to hold the Debtor in contempt (given his poor payment history) and perhaps arrest him to compel compliance with his obligations under the JOD. At this point, the Debtor and Ms. DeGroot began negotiating a resolution of their respective claims in earnest.

Ms. DeGroot and the Debtor both retained separate counsel to assist them in resolving their divorce-related issues, and the Debtor continued to consult his bankruptcy counsel, James Sullivan, Esq. At the hearing before this court on October 27, 2011, Mr. Sullivan acknowledged that the pendency of the Debtor's bankruptcy case complicated the negotiations between the Debtor and Ms. DeGroot. More specifically, he recognized that the divorce-related negotiations could not come to fruition in the family court without either (a) the Trustee's abandonment of the Receivable, or (b) relief from the automatic stay. Ms. DeGroot's counsel, James Dimitriou, II, Esq., did not testify at the October 27, 2011 hearing, but the court infers he was either ignorant of the bankruptcy complications or simply ignored them while advising Ms. DeGroot about her post-petition dealings with her ex-husband. The negotiations nevertheless continued.

Accordingly, Mr. Sullivan wrote a letter to the Trustee on or about January 18, 2006 requesting that the estate abandon the Receivable so the Debtor could negotiate with his ex-wife. On March 15, 2006, still digging out from the avalanche of cases that preceded BAPCPA's October 17, 2005 effective date, the Trustee “belatedly” responded to Mr. Sullivan's earlier correspondence, acknowledging the Receivable and requesting additional documentation about that asset, among others. See Exhibit 13 (Letter dated March 15, 2006 from Jeff A. Moyer to James H. Sullivan, Esq.). The next week, on March 22, 2006, the Trustee filed his “Form 1 (Individual Property Record and Report)” indicating that the estate had an interest in a “NON–EXEMPT ACCOUNTS RECEIVABLE FROM DIVORCE JDG.” See Exhibit C.

On or about April 17, 2006, still waiting for the documents he requested in his March 15, 2006 letter, the Trustee sent a follow-up letter, which Mr. Sullivan received and responded to on or about April 20, 2006. See Exhibit 14 (Letter erroneously dated March 15, 2006 from Jeff A. Moyer, Esq. to James H. Sullivan, Esq.) and Exhibit D (Letter dated April 20, 2006 from James H. Sullivan, Esq. to Jeff A. Moyer, Esq.). Ten days later, Mr. Sullivan again wrote to the Trustee seeking his position on the proposed abandonment of the Receivable and informing the Trustee that the ex-spouses would be heading back to family court the following week, presumably to discuss “a settlement that Mr. DeGroot wants to enter into with his ex-wife on back support arrearages.” See Exhibit E (Letter from James H. Sullivan, Esq. to Jeff A. Moyer, Esq., dated April 30, 2006).

Sometime between April 30, 2006 and May 15, 2006, perhaps fortuitously during unrelated creditor meetings, Mr. Sullivan and the Trustee discussed the DeGroot case. Thereafter, Mr. Sullivan again attempted to reach the Trustee by telephone, but without success. Again, he put pen to paper, this time advising the Trustee of some urgency because Ms. DeGroot “brought a Show Cause against Mr. DeGroot that can be settled once we have a position from you” on the abandonment request. See Exhibit F (Letter from James H. Sullivan, Esq. to Jeff A. Moyer, Esq., dated May 15, 2006). Mr. Sullivan explained during the hearing on October 27, 2011 that his client was endeavoring to avoid the threat of incarceration in the family court relating to his child support arrears.

It appears that the Trustee did not respond to this May 15, 2006 correspondence until nine months later, in a letter from the Trustee admitting that the case “unfortunately has slipped between the cracks.” See Exhibit G (Letter dated February 5, 2007 from Jeff A. Moyer, Esq. to James H. Sullivan, Esq.). Testimony from the Trustee established that during this period, all bankruptcy professionals were extremely busy and over-worked, endeavoring to manage the flood of cases that BAPCPA precipitated. He and his office were not immune. More specifically, he testified that his case load increased monumentally during the relevant period as many debtors filed bankruptcy petitions in the weeks leading up to October 17, 2005, hoping to avoid uncertainty or adversity under the 2005 amendments. See Exhibit 15.

In the meantime, however, Ms. DeGroot and the Debtor entered into, and the family court approved, a stipulation (the “Stipulation”) on June 2, 2006. See Exhibit B (the Stipulation, “so ordered” on June 2, 2006). Through this Stipulation, the ex-spouses agreed that, upon the Debtor's payment of $11,500.00, both parties would walk away from their respective claims: Ms. DeGroot would waive her claim to past and future child support; the Debtor would waive the $38,000.00 claim representing the remaining share of the equity in the marital home. The family court also purported to discharge the lien that, at the time, ran in favor of the bankruptcy estate. At no time did either Ms. DeGroot or the Debtor file a motion for relief from the automatic stay with respect to the Receivable or their Stipulation. Instead, evidently relying on Mr. Dimitriou's advice that everything would be all right and ignoring Mr. Sullivan's contrary conclusion, the DeGroots returned to state court and obtained an order approving their Stipulation. Her counsel apparently...