In re McVicker, Case No. 15–31428

• Decision Date: 17 February 2016
• Docket Number: Case No. 15–31428
• Citation: 546 B.R. 46
• Parties: In re: Mark O. McVicker, Sharon S. McVicker, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

546 B.R. 46

In re: Mark O. McVicker, Sharon S. McVicker, Debtors.

Case No. 15–31428

United States Bankruptcy Court, N.D. Ohio, Western Division.

Signed February 17, 2016

Gordon R. Barry, Toledo, OH, for Debtors.

MEMORANDUM OF DECISION RE: HUNTINGTON BANK'S MOTION TO DISMISS CASE UNDER 11 U.S.C. SECTION 707(a)

John P. Gustafson

, United States Bankruptcy Judge

This cause comes before the court on Huntington Bank's Motion to Dismiss Case Pursuant to 11 U.S.C. § 707

and for Extension of the Deadline to Object to Discharge. [Doc. # 39 & # 40].¹ The Debtors filed a Memorandum in Opposition to Creditor The Huntington, N.A.'s Motion to Dismiss [Doc. # 49], and Huntington Bank filed a Reply to Debtors' Memorandum in Opposition to Motion to Dismiss. [Doc. # 51]. An evidentiary hearing was held, at which the Debtors testified. Most of the underlying facts are not in dispute.

Huntington Bank (hereinafter "Huntington" or "Bank") seeks dismissal of this case based upon the Debtors' conduct in relation to a loan they took out to purchase rental property. In August of 2007, Cutting Edge Rentals, LLC took out a commercial loan in the amount of $175,000, which the Debtors both personally guaranteed. The funds were borrowed to consolidate three loans. The Huntington loan was secured by a mortgage on four rental apartments located at 2612 and 2652 Stitt Street in Toledo, Ohio [the "Stitt Street properties"]. The Stitt Street properties were owned by the Debtors personally. Part of the security for the loan was an assignment of rents in favor of the Bank.²

The apartments were rented out to various tenants, and payments on the loan were made, and kept current until November, 2014, a time period of a little more than seven years. In late 2007, the apartment identified as 2652 Stitt Street, Apartment A, was severely damaged by a tenant, and that unit remained uninhabitable through the date of filing. Mr. McVicker testified that he worked on the damaged apartment "as funds were available", with the last work on Apartment A having been done in the Spring or Summer of 2015. After the unit was damaged, Mr. McVicker estimated that he and his wife "were averaging approximately $900 a month out of pocket over and above the rents coming in." [Doc. # 40, Pl. Ex. 16, pp. 192–193].

In July of 2009, Debtor Mark McVicker retired³ from Columbia Gas after working there for 39 years. Mr. McVicker received a year's severance from the company, meaning his income continued unchanged through July of 2010. He started receiving Social Security Disability as of August 1, 2010. In October of 2014, Debtor Sharon McVicker retired from her job as a librarian. The Debtors have additional income of about $850 a month from IRA withdrawals. After Sharon McVicker's retirement, the Debtors testified that they reevaluated their financial situation.

At the time of the Hearing, Mark McVicker was 64 years old. He has been diagnosed with prostate cancer

. Sharon McVicker is 61 years old. She testified that she has back problems that makes it difficult to sit or stand for extended periods.

The last payment on the Huntington loan was made in late November or early December of 2014. Mr. McVicker testified that the monthly payments were stopped to get Huntington Bank's attention, because their telephone calls to the bank, seeking to work something out on the loan, were not being returned. At some point, they hired an attorney, Howard Hershman, to represent them in negotiations with Huntington Bank.

Huntington contacted the McVickers after the default, and the parties had some discussions about alternatives to continuing payments on the loan. Mr. McVicker testified that the McVickers obtained at least one "Broker Price Opinion" ["BPO"] on the value of the Stitt Street properties. While he testified that he thought Huntington Bank was going to get their own BPO on the properties, Huntington elected to take a cognovit judgment against the McVickers after the first week of March, 2015. The Common Pleas Court "Order Granting Judgment in Favor of Plaintiff" reflects a filed stamped date of April 3, 2015. [Doc. # 40, Ex. 23, p. 295]. The McVickers learned of the judgment when they were served by certified mail.

Mr. McVicker stated that the issuance of the cognovit judgment prompted the McVickers to seek bankruptcy counsel. He also testified that Huntington suggested the McVickers file bankruptcy during the course of negotiations regarding the Huntington commercial loan. The Debtors filed the above captioned Chapter 7 case on May 4, 2015. [Doc. # 1].

The amount that remains owing on the loan secured by the apartments is approximately $125,000. [Pl. Ex. 1, Schedule D, p. 14]. Unsecured debts in this case total approximately $2,300, which were primarily obligations for medical and dental services. [Id., at p. 17].

The Debtors have an IRA listed in the amount of $550,255.91, which was funded by a rollover from Mark McVicker's retirement from Columbia Gas. Sharon McVicker scheduled an IRA in the amount of $26,734.14. She also has a State Employees Retirement System pension. [Id., at p. 11].

The Debtors own a home with a first mortgage of approximately $93,000. [Id., at p. 14]. They listed the value of their residence at $200,000, and claimed the equity as exempt under Ohio's homestead exemption, O.R.C. § 2329.66(A)(1)

. [Id., at 13].

Huntington asserts that this case was filed to get rid of one debt—the obligation owed to the bank and guaranteed by the McVickers. It is Huntington's position that the Debtors could have used their retirement savings, or their exempt home equity, to pay the commercial loan, and chose not to. The Bank points out that the McVickers' retirement savings is more than four times the amount of the loan owed to Huntington, [Doc. # 40, p. 11, ¶ 46], and that at the present rate of $850 per month being withdrawn from the retirement accounts, their retirement would last more than 50 years, which exceeds the Debtors expected life span. Huntington asserts that this warrants dismissal of the above captioned Chapter 7 case under 11 U.S.C. Section 707(a)

, because the case is filed in bad faith.

LAW AND ANALYSIS

Huntington's Motion to Dismiss "for cause" is filed under 11 U.S.C. § 707(a)

, which states:

(a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including—

(1) unreasonable delay by the debtor that is prejudicial to creditors;

(2) nonpayment of any fees or charges required under chapter 123 of title 28; and

(3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521(a), but only on a motion by the United States trustee.

While the statute does not specifically state that a Chapter 7 case can be dismissed for lack of good faith under § 707(a)

, controlling Sixth Circuit case law holds that it can.⁴ The Sixth Circuit Court of Appeals has stated that "including" is not meant to be a limiting word. See, Indus. Ins. Servs., Inc. v. Zick (In re Zick), 931 F.2d 1124, 1126 (6th Cir.1991) ; and cf.,Marrama v. Citizens Bank of Mass., 549 U.S. 365, 373, 127 S.Ct. 1105, 1110–1111, 166 L.Ed.2d 956, 965–966 (2007)

(stating that the nonexclusive list of causes justifying dismissal under § 1307(c) does not mention bad faith but recognizing that dismissal for bad faith is implicitly authorized by the words "for cause" in that section). The Zick court examined the case law and was "persuaded that lack of good faith⁵ is a basis for dismissal under § 707(a)". Zick, 931 F.2d at 1127.

While Zick

holds that the facts establishing a lack of good faith "are as varied as the number of cases"⁶ , the decision also sets a high bar for dismissal. The use of § 707(a) to dismiss Chapter 7 cases based upon a lack of good faith "should be confined carefully and is generally utilized only in those egregious cases that entail concealed or misrepresented assets and/or sources of income, and excessive and continued expenditures, lavish life-style, and intention to avoid a large single debt based on conduct akin to fraud, misconduct, or gross negligence." Id. at 1129. The Zick decision also explicitly endorsed the "smell test", which was described as having "particular merit". Id. at 1127.

As the moving party, Huntington bears the burden of proving "cause" under § 707(a)

. Simon v. Amir (In re Amir), 436 B.R. 1, 16 (6th Cir. BAP 2010) ; In re Bage, 2014 WL 4749072 at *3, 2014 Bankr. LEXIS 4069 at *7 (Bankr.N.D.Ohio Sept. 24, 2014) ; In re McFadden, 477 B.R. 686, 691 (Bankr.N.D.Ohio 2012).

In this case, there does not appear to be a dispute that the debt owed to Huntington is "a large single debt" that the Debtors are seeking to avoid. While the amount owed to Huntington is approximately $125,000, the other unsecured debt in this case is approximately $2,300. Even deducting the value of $32,000 for the Stitt Street real estate that the Debtors listed on Schedule D, the potential unsecured deficiency claim of Huntington is clearly "a large single debt". See e.g., Piazza v. Nueterra Healthcare Physical Therapy, LLC (In re Piazza), 719 F.3d 1253, 1260 (11th Cir.2013)

(debt of $161,383 out of a total debt of $319,000 qualified as a "large, single debt").

However, courts have held that the presence of a single large debt, standing alone, "is insufficient to find cause for dismissal" of a Chapter 7 case. In re Bage, 2014 WL 4749072 at *3, 2014 Bankr. LEXIS 4069 at *9 (Bankr.N.D.Ohio Sept. 24, 2014)

; In re Peterson, 524 B.R. 808, 814 (Bankr.S.D.Ind.2015) ; Modi v. Verani (In re Verani), 2015 WL 6146029 at *5, 2015 Bankr. LEXIS 3526 at *16 (Bankr.N.D.Ga. Oct. 15, 2015) ; In re Ajunwa, 2012 WL 3820638 at *7, 2012 Bankr. LEXIS 4096 at **22–23 (Bankr.S.D.N.Y. Sept. 4, 2012) ; In re Sudderth, 2007 WL 119141, at *2, 2007 Bankr. LEXIS 115 at *6 (Bankr.M.D.N.C.2007) ; In re Keobapha, 279 B.R. 49, 52–53 (Bankr.D.Conn.20...