In re Fleury

• Decision Date: 06 June 2003
• Docket Number: No. 02-15033-WCH.,02-15033-WCH.
• Citation: 294 B.R. 1
• Parties: In re Jill A FLEURY, Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

Page 1

294 B.R. 1

In re Jill A FLEURY, Debtor.

No. 02-15033-WCH.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

June 6, 2003.

William G. Billingham, Marshfield, MA, for debtor.

Mary Jeanne Stone, Fall River, MA, for creditor.

MEMORANDUM OF DECISION ON THE ORDER TO SHOW CAUSE

WILLIAM C. HILLMAN, Bankruptcy Judge.

I. Introduction

I took this matter under advisement after I held a hearing on March 27, 2003 on my Order to Show Cause why I should not dismiss the petition of Jill A. Fleury (the "Debtor") for lack of good faith in filing. After considering the arguments of all parties and the numerous affidavits which the Debtor submitted, I conclude that the Debtor failed to show cause. For the reasons explained below, I will enter an order dismissing the Debtor's case and prohibiting the Debtor from refiling for 360 days.

II. Facts

I base my findings on the undisputed facts on the Complaint to Determine Non-Dischargeability of Debt (the "Complaint")¹ which Scott A. Carmichael (the "Creditor") filed; the Debtor's Answer to the Complaint; the Motion For Relief From Automatic Stay By Scott A. Carmichael (the "Motion for Relief"); the Debtor's Answer to the Motion for Relief; the January 9, 2003 hearing on the Motion for Relief; the March 27, 2003 hearing on the Order to Show Cause; and the affidavits which the Debtor submitted.

The Commonwealth of Massachusetts Probate and Family Court, Bristol Division (the "Probate Court") entered a Divorce Decree terminating the marriage between the Debtor and the Creditor on May 29, 1995. The Divorce Decree incorporated the marital separation agreement which provided that the Creditor receive a one third interest in any judgment or settlement received by the Debtor from her a Massachusetts Commission Against Discrimination ("MCAD") case. At the time of the Divorce Decree, the MCAD case had not been resolved.

The Debtor filed a petition for Chapter 13 bankruptcy on January 11, 1999 ("Petition I"). In Schedule B, the Debtor listed the MCAD case under the category of "other contingent and unliquidated claims of every nature," valued the judgment of the MCAD case at $143,000.00 and explained that the judgment was "less 35% contingency fee owed to attorney, costs due to attorney and one third of award for emotional distress and back pay owed to [Creditor] pursuant to divorce."² The Debtor scheduled one unsecured priority debt, $2,352.99 to the Internal Revenue Service. The Debtor listed two unsecured debts on Schedule F: a student loan of $17,000 and $10,000 on a promissory note to the Creditor. The Debtor did not list the Creditor as a creditor on the judgment of the MCAD case. The Debtor listed two secured loans on her residence totaling $124,189.29 and valued the home at $200,000.00. Additionally, the Debtor listed a $3,550.00 secured car loan. On September 1, 2001, the Debtor paid off the Chapter 13 plan that provided a one hundred percent dividend to the creditors with a lump sum payment. The Order Confirming the Chapter 13 Plan stated that all property of the estate "shall remain property of the estate during the term of the plan and shall vest in the debtor only upon discharge." The Debtor received her discharge on March 15, 2001.

In February 2001, the Debtor was awarded $390,000.00 from the MCAD case (the "Judgment"). After paying costs and attorney fees, the Debtor received $244,000.00 of the Judgment. The Debtor failed to alert the Court of her receipt of the Judgment, but states that the Chapter 13 trustee was aware of the final award.

The Debtor's entered into numerous additional financial transactions from February, 2001 until she filed a second bankruptcy petition. During that period, the Debtor loaned $30,000.00 to her law partner for real property but did not receive a promissory note or enter into a written agreement for repayment. The Debtor states that she has received an automobile from her law partner as repayment on the loan. The Debtor gave $200,000.00 to her sister and her sister then transferred the money to her father. The Debtor's father placed $100,000.00 into five separate education accounts for the Debtor's five children. The father then conveyed the remaining funds back to the Debtor. The Debtor also spent $14,000.00 on a trip to Hawaii. The Debtor gave without consideration $58,500.00 to her husband. On March 4, 2002, the Debtor had $79,217.81 in a bank account in her name. In addition, the Debtor refinanced her residence and increased her line of credit.

On June 13, 2002, after a trial on a complaint by the Debtor for modification of the Divorce Decree seeking increased child support, the Probate Court issued Findings of Fact and Rationale (the "Findings").³ Fluery v. Carmichael, Massachusetts Probate and Family Court, Case No. 94 D 1996 DVI (1997). The Probate Court, in holding that the Creditor should increase his child support payments, found that "the real motivation for filing [Petition I] for debtor relief was then, and currently is, an attempt to beat [the Creditor's] claim for a share of the MCAD claim." Id. At the same time, the Probate Court held over a complaint for contempt that the Creditor filed for a future hearing. The Debtor has appealed the Findings of the Probate Court and a ruling on the appeal has not issued.

On July 12, 2002, a month after the Probate Court decision, the Debtor filed a second Chapter 13 ("Petition II"). The Debtor again listed two secured loans on her residence, but no secured loans on automobiles.⁴ The secured loans in the Schedule D of Petition II totaled $231,605.48. The Debtor valued the home at $325,000.00. The Debtor listed no priority unsecured creditors and three unsecured creditors. The unsecured claims were: $17,417.97 on student loans; $1,373.00 on a credit card; and an unknown amount to the Creditor relating to the Judgment. The Debtor stated in Schedule F that the claim to the Creditor is disputed and alleged that the Creditor's debt was discharged in the previous bankruptcy and subject to setoff. The Debtor filed her Chapter 13 plan on July 29, 2002 and did not make any provision for payment of the Creditor's claim on the Judgment. I confirmed the Debtor's plan on October 15, 2002. The Creditor did not object to the confirmation of the plan. On October 17, 2002, the Creditor filed a proof of claim for $156,000.00 from the Divorce Decree as an unsecured, priority claim.

On October 17, 2002, the Creditor filed the Motion for Relief in order to pursue a state court action to recover the money from the Judgment that the Creditor believed was owed to him. On the same day, the Creditor filed an adversary proceeding on the non-dischargeability of his debt. On November 27, 2002, the Debtor filed a response and opposition to the Creditor's motion for relief and she filed an objection to the Creditor's proof of claim. I held a hearing on the Motion for Relief and the Creditor's proof of claim on January 9, 2003 and took these matters under advisement. After reviewing the Debtor's schedules and her actions surrounding the case, I issued an Order to Show Cause (the "Order") as to why I should not dismiss the Debtor's case for lack of good faith in filing. I held a hearing on the Order on March 27, 2003. At the hearing, I took the issue of the dismissal of the Debtor's case under advisement.

III. Analysis

A. Lack of Good Faith in Filing

The Bankruptcy Code provides that "on request of a party in interest or the United States Trustee and after notice and a hearing, the court may convert... or may dismiss a case under this chapter, whichever is in the best interests of the creditors and the estate, for cause..." 11 U.S.C. § 1307(c). Although the statute does not specifically allow a court to dismiss a case on its own motion, courts now recognize that a court's sua sponte dismissal is permitted through the 1986 amendments of 11 U.S.C. § 105.⁵ In re Hammers, 988 F.2d 32, 34-35 (5th Cir.1993); In re Kazis, 256 B.R. 242, 244 (Bankr.D.Mass.2000); In re Tobias, 200 B.R. 412, 415 (Bankr.M.D.Fla.1996). For Chapter 13 cases, 11 U.S.C. § 1307(c) specifically enumerates ten circumstances in which a court may convert or dismiss a case. While not specifically enumerated as cause, it is well established that lack of good faith (or bad faith) is cause for dismissal or conversion of a Chapter 13 case under 11 U.S.C. § 1307(c). See Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1222-23 (9th Cir.1999); In re Cabral, 285 B.R. 563, 573 (1st Cir. BAP 2002); see also Ho v. Dowell (In re Ho), 274 B.R. 867, 870-71 (9th Cir. BAP 2002).

The Debtor must file both her Chapter 13 petition and Chapter 13 plan in good faith. See In re Love, 957 F.2d 1350, 1354-55 (7th Cir.1992). The term "good faith" is not defined, and, therefore, the good faith inquiry is a "fact intensive determination better left to the discretion of the bankruptcy court." Love, 957 F.2d at 1355. Bankruptcy courts generally apply a totality of the circumstances test to determine whether a debtor lacked good faith when filing a Chapter 13 petition for purposes of § 1307(c). See e.g. In re Young, 237 B.R. 791, 798 (10th Cir. BAP 1999) (good faith analysis is made on a case by case basis and should take a "totality of the circumstances" approach); In re Lilley, 91 F.3d 491, 496 (3d Cir.1996); Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346, 1348-49 (8th Cir.1990) (en banc) (confirming continued viability and general purpose of the totality of the circumstances analysis).

The United States Bankruptcy Appellate Panel of the First Circuit originally did not adopt a totality of the circumstances approach to determine lack of good faith but instead advocated an examination of only the circumstances relevant to the debtor's proposed plan and post-filing conduct. See In re Keach, 243 B.R. 851, 856 (1st Cir. BAP 2000). The Panel in Keach proposed a "standard of simple honesty." Id. Both Judge Kenner and Judge Rosenthal, however,...