In re Lundy
| Decision Date | 19 October 2016 |
| Docket Number | Case No. 15-32271 |
| Parties | In Re: Claude Darus Lundy and Chanda Marie Lundy, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
This cause comes before the court on Debtor Chanda Lundy's Motion To Disqualify Judge John P. Gustafson from Future Proceedings Under 28 U.S.C. § 455 [Doc. # 130], and the Declaration Pursuant to 28 U.S.C. § 1746 of Chanda M. Lundy [Doc. # 136].
The Debtors in this case have filed prior bankruptcy cases, starting with a Chapter 7 case filed by Chanda Marie Hadden (now Debtor Chanda Marie Lundy) on July 21, 2004 in the Eastern District of Michigan, Case Number 04-60529, for which a discharge was entered on October 21, 2004. A Chapter 13 case, Case Number 04-75709, was filed by Claude D. Lundy on December 20, 2004 in the Eastern District of Michigan, and dismissed without a discharge on or about October 23, 2007. On October 17, 2007, a Chapter 13, Case Number 07-60912, was filed by Chanda Marie Hadden in the Eastern District of Michigan and was dismissed on December 18, 2008. Another Chapter 13 case, Case Number 11-47329, was filed by Chanda Hadden in Michigan on March 18, 2011, and was dismissed on July 11, 2011.
The Debtors' first Ohio case was a Chapter 13, Case Number 15-30990, filed on March 31, 2015. The case was originally assigned to the Honorable Mary Ann Whipple on the "Successor Judge Docket", and then transferred to John P. Gustafson on April 10, 2015. [Case No. 15-30990, Doc. # 13]. That case was dismissed, without prejudice, for failure to make plan payments on June 26, 2015.
The present Chapter 13, Case Number 15-32271, was commenced through a "skeleton filing" by Claude Darus Lundy and Chanda Marie Lundy, on July 10, 2015. Because she had a prior Chapter 13 within one year, Debtor Chanda Lundy filed a Motion to Extend the Automatic Stay on July 20, 2015 [Doc. # 9], and that Motion was granted after a Hearing held on July 27, 2015. [Doc. # 19].
The Debtors did not file the required documents - the Schedules, Statements of Financial Affairs, Means Test, and Chapter 13 Plan - within Fourteen days, as required by Fed. R Bankr. P. 1007(c). An Order to Show Cause was issued based upon the failure to timely file the required documents (and other issues), giving the Debtors until August 10, 2015 to file the required documents. [Doc. # 13]. The Schedules, Statement of Financial Affairs and Means Test were filed on July 27, 2015. [Doc. # 16]. The Chapter 13 Plan was filed the next day. [Doc. # 17]. The original Chapter 13 Plan was 6 pages, estimating a percentage to unsecured creditors of 5%. [Id.].
On or before September 15, 2015, federal tax returns for the 2013 and 2014 tax years were provided to the Chapter 13 Trustee.
On September 17, 2015, the First Meeting of Creditors was held. [Doc. # 39]. A Stipulation was entered into by the Chapter 13 Trustee and the Debtors for: 1) a Motion to continue the Confirmation Hearing past the bar date; 2) the filing of an Amended Plan; 3) proof of insurance on the Artesian property; and 4) documentation of the pay-off date of a 401(k) loan. [Doc. # 38]. There was no indication in any of the filed documents that the First Meeting of Creditors was held open as is permitted by 11 U.S.C. § 1308(b).
An Objection to the proposed Chapter 13 Plan was filed by JP Morgan Chase Bank on September 25, 2015. [Doc. # 42].
The requirements for proof of insurance, providing a 401(k) loan payoff date, and the filing of an Amended Plan were met on or before October 2, 2015. [Doc. # 43]. Excluding pages relatingto the certificate of service, the Amended Plan was 7 pages, and estimated a percentage to unsecured creditors of 7%. [Id.].
JP Morgan Chase Bank filed an Objection to the Amended Plan on October 19, 2015. [Doc. # 47]. A second Amended Plan was filed on January 19, 2016 [Doc. # 50]. The second Amended Plan was 6 pages, and estimated a percentage to unsecured creditors of 5%. [Id.]. No certificate of service was filed with the second Amended Plan, resulting in the entry of a Show Cause Order. [Doc. # 66].
On January 19, 2016, at the first Hearing held on Confirmation, the Trustee noted that Debtor Claude Lundy had not filed tax returns for the years 2005 to 2012. Chanda Lundy stated that her husband had not been able to take off work and see the accountant, and that all returns had not been filed. The Trustee indicated that she would be filing a Motion to Dismiss based upon the failure to file tax refunds. The Hearing on Confirmation of the Chapter 13 Plan was continued to the same date as the Hearing on the Motion to Dismiss, March 29, 2016. [Doc. # 53].
The Chapter 13 Trustee filed a Motion to Dismiss on January 20, 2016. [Doc. # 54]. The Motion sought dismissal of the case based upon Debtors not maintaining the monthly payments of $1,261.64 that they had proposed in their earlier Chapter 13 Plans, and the Debtors' failure to file all required tax returns. The Motion to Dismiss states: [Id.].
The Debtors never provided any proof of service of the second Amended Plan, and on February 19, 2016, an Order was entered striking the second Amended Plan. [Doc. # 69].
On March 18, 2016, the United States, on behalf of the Internal Revenue Service, ["IRS"] filed an Objection to Confirmation of the Debtors' Chapter 13 Plan. [Doc. #74]. As grounds for the Objection, the IRS asserted that Debtor Claude Lundy had not filed tax returns for the 2009 to 2012 tax years, and the 2011 and 2012 returns were for taxable periods ending during the four years immediately preceding the filing date of the Chapter 13 Petition. The Objection specifically cited the Debtors' failure to comply with 11 U.S.C. § 1325(a)(9) and § 1308. [Id.]. The IRS did not seek dismissal of the case.
The Debtors filed a Response to the Trustee's Motion to Dismiss on March 22, 2016. [Doc. # 75]. The Response admitted that the Debtors were behind on payments, stating that a payment wasbeing made to bring the total monies paid to the Trustee to within $880 of being current. The Response attributed the payment deficiency to the need to make adequate protection payments directly. Debtors' Response also admitted the allegations that the tax returns for tax years 2005 to 2012 had not been filed by Claude Lundy, and that Chanda Lundy had not filed state tax returns for 2013 and 2014. [Id., p. 3, ¶ 3]. "However, the Debtors' taxes will be filed by March 29, 2016 and served on the IRS as well to resolve their objections to confirmation." [Id.].
On March 29, 2016, the second Confirmation Hearing was held, along with the hearing on the Trustee's Motion to Dismiss. [Doc. ## 76-77]. The Trustee stated that she had not received monthly payments for the months of January and February, but that she had received a check on March 25, 2016 for $1,940.65. The day before the March 29 hearing, Chanda Lundy provided the Trustee with Federal tax returns for Mr. Lundy for the years 2005-2012, but the Trustee was not provided with any state or city tax returns, other than a Perrysburg city tax return for the 2013 tax year.
Chanda Lundy stated that she provided the Trustee with the state and city along with "all the Federal" tax returns the day prior to the hearing, but the Trustee, after personally going through the packet Mrs. Lundy had provided her the previous day, again stated that the state and city returns were not included with the Federal tax returns. Trustee had also not been provided with copies of Debtors' 2015 tax returns. When questioned by the Trustee and the court as to any tax liability regarding the state of Ohio, Mrs. Lundy stated that only she owed the state for one year. Due to a domestic issue regarding Mr. Lundy's ex-wife, Mrs. Lundy was unsure when she would be able to file their 2015 tax returns.
Based in part on the Objection filed by the IRS, the court informed the Lundys that the tax returns needed to be filed before Debtors' plan could be confirmed. Counsel for the IRS stated that they had received "some" of the missing tax returns for both Debtors, but it would take 4-6 weeks for the returns to be processed before the IRS' proof of claim could be amended. Further, the court noted an issue with Debtors' irregular plan payments and failure to make proper service to creditors on the second Amended Plan, which resulted in Debtors' second Amended Plan being stricken from the record. Because it appeared that progress was being made regarding tax returns being provided to the Trustee, albeit well outside the statutory time limit, the court continued the Confirmation Hearing and the Hearing on the Motion to Dismiss to June 14, 2016. The court also ordered theDebtors to turn over all filed tax returns, and 401(k) payoff and profit sharing documentation, to the Trustee. The court did not grant the Chapter 13 Trustee's Motion to Dismiss.
It should be noted that most decisions have held that the statutes in issue allow a bankruptcy court no discretion if a party has requested dismissal or conversion for failure to timely file required tax returns. See, United States v. Cushing (In re Cushing), 401 B.R. 528, 538 (1st Cir. BAP 2009)( ); In re Chassie, 2011 WL 133007 at *1, 2011 Bankr. LEXIS 137 at **1-2 (Bankr. D. Mass. 2011)(...
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