In re Reeves

• Decision Date: 29 January 2014
• Docket Number: No. 10–34961–H4–7.,10–34961–H4–7.
• Citation: 509 B.R. 35
• Parties: In re David Lee REEVES, Jr., Hope Ann Reeves, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of Texas

509 B.R. 35

In re David Lee REEVES, Jr., Hope Ann Reeves, Debtors.

No. 10–34961–H4–7.

United States Bankruptcy Court,

S.D. Texas,

Houston Division.

Signed Jan. 29, 2014.

Andrew Jeb Bolton, Attorney at Law, Huntsville, TX, Ruby Kathleen Bolton, The Bolton Law Firm, Tomball, TX, for Debtor and Joint Debtor.

Jennifer Casey, Gauntt, Earl & Binney, LLP, The Woodlands, TX, for Hope Ann Reeves (Joint Debtor).

Nancy Lynne Holley, U.S. Trustee, Houston, TX, for U.S. Trustee.

Heather R. Potts, The Kim Law Firm, Houston, TX, for Allison D. Byman, Trustee.

MEMORANDUM OPINION REGARDING TRUSTEE'S OBJECTION TO EXEMPTIONS AND MOTION TO COMPEL TURNOVER AND FILING OF STATEMENT OF FINANCIAL AFFAIRS [Doc. No. 175]

JEFF BOHM, Chief Bankruptcy Judge.

I. Introduction

This case is about a Chapter 7 Trustee who is doing her job well and a Debtors' attorney who is not. Additionally, this is a case about debtors who thumb their nose at the bankruptcy system. At issue is how this Court should rule on the Trustee's Objection to Exemptions and Motion to Compel Turnover and Filing of Statement of Financial Affairs (the Objection/Motion).¹ For the reasons set forth herein, the Court sustains the Objection and grants the Motion.

The Court makes the following Findings of Fact and Conclusions of Law under Federal Rule of Civil Procedure 52, as incorporated into by Federal Rules of Bankruptcy Procedure 7052 and 9014.² To the extent that any Finding of Fact is construed to be a Conclusions of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party.

II. Findings of Fact

The relevant facts—as established by the pleadings, the admitted exhibits, the Trustee's testimony, and the stipulations of the Debtors' counsel—are as follows:

A. Procedural Background of the Debtors' Chapter 13 Case and Their Conversion to a Chapter 7 Case

1. David Lee Reeves, Jr. (Mr. Reeves) and Hope Ann Reeves (Ms. Reeves) (collectively,the Debtors) filed their voluntary Chapter 13 petition on June 14, 2010 (the Petition Date). [Doc. No. 1, pp. 1–7].

2. On this same day, the Debtors also filed their Schedules A, B, C, D, E, F, G, H, I, and J (the Original Schedules), a Summary of the Schedules, and their Statement of Financial Affairs (the Original SOFA). [ Id. at pp. 8–29 & 32–37; Trustee's Ex. B, pp. 1–6].

3. The Debtors filed their proposed Chapter 13 plan on June 18, 2010 ³ [Doc. No. 13]; they subsequently amended their proposed Chapter 13 plan five times—on July 19, 2010 [Doc. No. 22], August 2, 2010 [Doc. No. 31], August 23, 2010 [Doc. No. 37], September 24, 2010 [Doc. No. 45], and October 13, 2010 [Doc. No. 50]. On October 18, 2010, this Court confirmed the amended Chapter 13 plan that the Debtors filed on October 13, 2010 [Doc. No. 50] (the Confirmed Plan). [Doc. No. 51].

4. On July 22, 2010, the Debtors filed their proposed Order for Withholding of Wages of Chapter 13 Debtor [Doc. No. 26]. On July 23, 2010, this Court signed the Debtors' proposed Order for Withholding of Wages of the Chapter 13 Debtor, directing the United States Department of Homeland Security—the employer of one of the Debtors (i.e., Ms. Reeves)—to remit a specific portion of her wages directly to the Chapter 13 Trustee until it receives an order from this Court directing the employer to cease making these payments (the Wage Withholding Order). [Doc. No. 27].

5. On August 23, 2010, the Debtors filed an Emergency Motion to Temporarily Suspend the Wage Withholding Order [Doc. No. 36]; and, on August 26, 2010, this Court granted this emergency motion, and signed an order suspending the withholding of Ms. Reeves' wages until October 31, 2010 [Doc. No. 39].

6. On September 3, 2010, the Chapter 13 Trustee filed a Motion to Dismiss or Convert, requesting that this Court dismiss or convert the Debtors' Chapter 13 case because the Debtors: (a) failed to make payments pursuant to § 1326(a)(1); (b) caused unreasonable delay that was prejudicial to their creditors; (c) failed to amend Schedule I to reflect Ms. Reeves' new income and employer; and (d) failed to provide a copy of their 2009 tax return. [Doc. No. 42].

7. On October 18, 2010, this Court signed an Order Withdrawing Motion to Dismiss, which (a) authorized the Chapter 13 Trustee to withdraw his motion to dismiss, conditioned on Ms. Reeves agreeing to entry of another wage order; and (b) ordered Ms. Reeves to provide the information required by the Chapter 13 Trustee for entry of a wage order within 7 days of the entry of the Order. [Doc. No. 52].

8. On January 13, 2011, the Debtors filed a Motion to Sign Amended Wage Order; attached thereto was their proposed Amended Wage Withholding Order. [Doc. No. 66]. On January 20, 2011, this Court granted the Debtors' Motion to Sign Amended Wage Order and signed an Amended Order for Withholding of Wages of Chapter 13 Debtor (the Amended Wage Withholding Order). [Doc. No. 67]. The Amended Wage Withholding Order expressly set forth that: (a) the Wage Withholding Order, which was entered on the docket on July 23, 2010 [Finding of Fact No. 4], was vacated; and (b) Ms. Reeves' current employer—US Customs & Border Protection—was ordered to remit a specific portion of her wages directly to the Chapter 13 Trustee pursuant to the Amended Wage Withholding Order. [ Id.].

9. On July 13, 2012, the Debtors filed an Amended Order to Employer to Pay Chapter 13 Trustee [Doc. No. 87]; and, on the same day, this Court signed the order (the Second Amended Wage Withholding Order), directing Ms. Reeves' employer (i.e., U.S. Customs & Border Protection) to remit a portion of her wages directly to the Chapter 13 Trustee until further order from the Court [Doc. No. 88].

10. The Debtors filed a Notice of Voluntary Conversion from Chapter 13 to Chapter 7 on February 11, 2013 (the Conversion Date). [Doc. No. 92].

11. On the Conversion Date, the Debtors filed their Amended Schedules B, C, F, I and J (the 2/11 Amended Schedules) ⁴ [Doc. Nos. 93, 93–1, 93–2 & 94; Trustee's Ex. B, pp. 7–14], and their Statement of Intent [Doc. No. 93–3]. The 2/11 Amended Schedule F set forth additional creditors and debts incurred during the Chapter 13 case; the additional scheduled debts set forth in this Schedule totaled $506,395.32 and were unsecured. See [Doc. No. 93–1].

12. On February 13, 2013, Allison Byman (the Trustee) was duly appointed as the Chapter 7 Trustee, and she continues to serve as the Trustee up to this date.

13. On March 1, 2013, the Chapter 13 Trustee, who administered the Debtors' case prior to conversion, filed the Chapter 13 Standing Trustee's Final Report and Account (the Final Report).⁵ [Trustee's Ex. D; Doc. No. 97]. There was no property listed in the Final Report. [Doc. No. 175, p. 4, ¶ 8; Tape Recording, November 19, 2013 Hearing at 1:45:40–1:45:45 p.m.; see Trustee's Ex. D; see Doc. No. 97].

14. The Final Report reflects that: (1) while the Debtors were in their Chapter 13, they paid a total of $82,999.15 to the Chapter 13 Trustee; and (2) upon conversion, the Chapter 13 Trustee sent $4,625.49 to the Debtors (the Chapter 13 Refund), representing funds that the Debtors had paid to the Chapter 13 Trustee pursuant to the Confirmed Plan but which the Chapter 13 Trustee had not distributed to creditors by the Conversion Date. [Trustee's Ex. D, p. 3; Doc. No. 97, p. 2].

15. The initial post-conversion meeting of creditors was held on March 21, 2013 at which the Debtors did appear, but the Trustee continued the meeting of creditors to April 4, 2013. [Doc. No. 123 ⁶, p. 3, ¶¶ 9–10]; see [Adv. Doc. No. 1 ⁷, p. 2, ¶ 8 & Adv. Doc. No. 10 ⁸, p. 1, ¶ 1]. ⁹ After the March 21, 2013 meeting of creditors, the “ Debtor's attorney [was] to amend within ten (10) days, Schedules ‘B’, ‘C’ & ‘J’; [and] provide [a] copy of [the Debtors'] 2012 Tax Return to Trustee.” See [Docket sheet entry for 03/22/2013 regarding the Meeting of Creditors] (emphasis in original).

16. On March 22, 2013, the Debtors filed Amended Schedules B, C, I, J, and G (the 3/22 Amended Schedules).¹⁰ [Doc. Nos. 100, 101, 102, 103 & 104; Trustee's Ex. B, pp. 15–21].

17. On April 4, 2013, one of the Debtors (i.e., Mr. Reeves) appeared at the continued meeting of creditors, but the other Debtor (i.e., Ms. Reeves) failed to appear. [Doc. No. 123, p. 3, ¶ 10]; see [Adv. Doc. No. 1, p. 2, ¶ 9 & Adv. Doc. No. 10, p. 1, ¶ 1]. Mr. Reeves was sworn and provided additional testimony. [Adv. Doc. No. 1, p. 2, ¶ 9 & Adv. Doc. No. 10, p. 1 ¶ 1]; see [Findings of Fact Nos. 29–34] (discussing Mr. Reeves' testimony at the April 4, 2013 meeting of creditors). “The Trustee continued the meeting of creditors for a second time to May 2, 2013, to allow for production of business records, the 2012 tax return ¹¹ and information regarding payment of an insurance claim for damaged goods.” [Doc. No. 123, p. 3, ¶ 10]; see [Adv. Doc. No. 1, p. 2, ¶ 9 & Adv. Doc. No. 10, p. 1, ¶ 1].

18. On April 12, 2013, the Debtors, through their attorney, filed a skeletal Motion to Dismiss this Chapter 7 case (the First Motion to Dismiss) because “the Chapter 7 Trustee and the Office Of the United States Trustee For The Southern District of Texas have aggressively pursued (via requests for documents and the 341 meeting interrogations), that Debtors cannot cope with the additional strain of enduring further interrogations.” ¹² [Doc. No. 110, pp. 1–2, ¶ 3].

19. On April 17, 2013, this Court signed an order denying the First Motion to Dismiss due to the failure of the Debtors' counsel to: (a) give notice to their creditors, the Chapter 7 Trustee, and parties requesting notice pursuant to Bankruptcy Local Rule 9013–1; and (b) file a proper Certificate of Service. [Doc. No. 111].

20. On April 25, 2013, the Debtors, through their attorney, filed a second Motion to Dismiss this Chapter 7 case (the Second Motion to...