In re Russell, Case No. 12-80537-WRS
| Decision Date | 27 November 2012 |
| Docket Number | Case No. 12-80537-WRS |
| Parties | In re DERRICK T. RUSSELL, Debtor |
| Court | U.S. Bankruptcy Court — Middle District of Alabama |
This Chapter 13 case came before the Court on September 26, 2012, in Opelika, Alabama, on the Court's Order to Appear and Show Cause. (Doc. 25). For the reasons set forth below, this case is DISMISSED WITH PREJUDICE.
The Debtor filed a petition in bankruptcy pursuant to Chapter 13 of the Code on April 12, 2012. (Doc. 1). Confirmation of the Debtors Plan was first scheduled for July 11, 2012. (Doc. 7). The Chapter 13 Trustee filed an objection to confirmation contending that the Debtor's Plan did not satisfy the "disposable income test." (Doc. 16).1 The Debtor responded by amending his Statement of Current Monthly Income. (Doc. 18). In addition, the Debtor objected to the secured claim filed by Myra Gamble, contending that her claim was not secured because there was no property to which her judgment lien could attach. (Doc. 20). Ms. Gamble, acting pro se, appeared in person complaining of her treatment under the Plan, which she thought unjust. The Court took Ms. Gamble's objection under advisement.
While considering Ms. Gamble's objection, the Court searched its records looking for prior bankruptcy filings and learned that the Debtor and his wife had filed a total of 10 bankruptcy case since 1989. Upon discovering this extraordinary history of bankruptcy filings, the Court entered a Show Cause Order on August 23, 2012, giving the Debtor notice that the Court intended to confront him with this history and consider dismissal of his case, possibly with prejudice. (Doc. 25). On September 26, 2012, the Court heard additional argument from the parties and heard argument on all issues, including the question, raised sua sponte, as to whether the case should be dismissed in light of the large number of prior bankruptcy filings. After hearing argument on September 26, 2012, the Court again took this case under advisement.
Upon reviewing its records, the Court learned that the Debtor, and his wife Kathy Russell have filed a total of 10 bankruptcy cases in the past 23 years. The following is a summary of pertinent information from those cases.
1. On November 23, 1989, Kathy Russell, the Debtor's wife, filed a petition in bankruptcy pursuant to Chapter 13, which was dismissed without a discharge on January 26, 1994. (Case No. 89-4267)(Case 1).
2. On October 26, 1990, the Debtor filed a petition pursuant to Chapter 13, which was dismissed on September 9, 1993. (Case No. 90-4038)(Case 2).
3. On January 26, 1995, Kathy Russell filed a petition in bankruptcy pursuant to Chapter 13, which was dismissed without a discharge on August 30, 1995. (Case No. 95-2749)(Case 3).
4. On September 27, 1996, the Debtor and his wife filed a joint petition pursuant to Chapter 13, which was dismissed without a discharge on February 5, 1998. (Case No. 95-2886)(Case 4).
5. On November 14, 1997, the Debtor and his wife filed a joint petition in bankruptcy pursuant to Chapter 13, which was dismissed without a discharge on February 5, 1998. (Case No. 97-5770)(Case 5).
6. On April 1, 2002, the Debtor filed a petition in bankruptcy pursuant to Chapter 13, which was dismissed without a discharge on March 5, 2004. (Case No. 02-80451)(Case 6).
7. On July 21, 2004, the Debtor filed a petition in bankruptcy pursuant to Chapter 13, which was dismissed without a discharge, and with a 180-day injunction against refiling on October 22, 2004. (Case No. 04-81033)(Case 7).
8. On April 27, 2007, Kathy Russell filed a petition in bankruptcy pursuant to Chapter 13. The case was converted to a case on October 8, 2010, and a discharge was entered on April 6, 2011. (Case No. 07-80308)(Case 8).
9. On April 28, 2009, the Debtor filed a petition in bankruptcy pursuant to Chapter 13 and was discharged on November 15, 2010. (Case No. 09-80668)(Case 9).
10. On April 12, 2012, the Debtor filed a petition in bankruptcy pursuant to Chapter 13, which initiated this case. (Case 10).
In addition to the sheer number of filings, these cases are noteworthy for two other reasons. First, of the 9 prior cases, 7 were dismissed without discharge. In other words, they were dismissed either because Chapter 13 Plan payments were not made or for some other violation of the rules. Second, the one case in which the Debtor did receive a discharge, hiscreditors received practically nothing. See (Case No. 09-80668)(Doc. 47). In Case No. 09-80668, the Debtor paid a total of $6,190.00 to the Chapter 13 Trustee. Of that amount, $2,500.00 was paid to his lawyer. In addition, $224.00 was paid for court costs and $226.20 to the Chapter 13 Trustee. Only $674.88 was paid to unsecured creditors and $355.30 was paid to secured creditors. Surprisingly, $2,145.94 was returned to the Debtor. The reason for the extraordinarily low amount paid to unsecured creditors is that only three unsecured creditors filed claims and the Debtor objected to two of them. Both of these objections were sustained by default. (Case No. 09-80668)(Doc. 37). The Court has observed a phenomenon in instances, such as this, where a debtor has filed a large number of cases over a period of years. Eventually, the creditors give up and quit filing claims as they will most likely be paid little or nothing and they may be called upon to defend a frivolous objection to their claim-which will probably not be paid in any event.
On December 8, 2011, Myra Gamble brought a civil action against the Debtor in Tallapoosa County, Alabama, alleging breach of contract. According to the allegations in her complaint, Gamble entered into a contract with the Debtor to make an addition to her house. The contract price was $13,469.00, of which $7,000.00 was paid. The Debtor removed a portion of the roof on the Debtor's house, did a minimal amount of work and then abandoned the project, leaving Gamble's residence exposed to the elements. Gamble later paid another contractor $16,000.00 to repair the damaged caused by the Debtor and complete the work. The Debtor did not respond to the complaint, and the District Court in Tallapoosa County entered judgment bydefault in favor of Gamble, and against the Debtor, in the amount of $9,531.00, on March 5, 2012.
Gamble next brought garnishment proceedings against the Debtor in an effort to collect her judgment. In response, the Debtor filed a petition in bankruptcy in this Court initiating this Chapter 13 case. The Debtor filed a Chapter 13 Plan, proposing a 0% distribution to unsecured creditors. (Doc. 4). The Debtor reports, in Schedule I, that he works for the Alexander City Schools making $1,207.89 per month and that he earns another $100 per month from "his construction." In response to Question Number 1 in the Statement of Financial Affairs, where he is required to disclose his gross income for the current year and the two years immediately preceding, it appears that he has disclosed only his income from the Alexander City Schools and understated his income from his construction work. If the Debtor did in fact receive the $7,000 alleged by Gamble in her suit, it does not appear to have been reported in the Statement of Financial Affairs. In response to Question 4 of the Statement of Financial Affairs, the Debtor reports two lawsuits; the one brought by Gamble and another brought by an individual named Dana Ford. Gamble is listed in Schedule F as being owed $9,813.00, but Dana Ford is reported to be owed only $5.00. The Debtor's claim that Ford is owed only $5.00 is not credible. Rather, it appears that he has made a business of taking installments on construction contracts and not completing the work, thereby defrauding victims such as Gamble and Ford. In summary, the Debtor has filed a Chapter 13 Plan which would pay nothing to unsecured creditors such as Gamble. It appears that the Debtor has understated his income and understated his unsecured debt.
The main question here is whether the Debtor filed his petition, and plan in good faith. The secondary question is, having found bad faith, what should be the remedy. This Court has jurisdiction pursuant to 28 U.S.C. § 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), (L). This is a final order.
A fundamental principle underlying Chapter 13 bankruptcy proceedings is that the debtor should, in all respects, act in good faith with respect to his creditors, the Trustee and the Court. See 11 U.S.C. §§ 1325(a)(3); 1307(a)(1), (3); In re Kitchens, 702 F.2d 885 (11th Cir. 1983). While there is no formulaic test one may apply to a given case to determine whether good faith is present, there is broad agreement that "the basic inquiry should be whether or not under the circumstances of the case there has been an abuse of the provisions, purpose or spirit" of the Bankruptcy Code. In re Kitchens, 702 F.2d 885, 888. In other words, it is a totality of thecircumstances test. Additional guidance was provided in Kitchens in the form of eleven nonexclusive factors that the Court may consider:
(1) the amount of the debtor's income from all sources; (2) the living expenses of the debtor and his dependents; (3) the amount of attorney fees; (4) the probable or expected duration of the debtor's Chapter 13 plan; (5) the motivations of the debtor and his sincerity in seeking relief under the provisions of Chapter 13; (6) the debtor's degree of effort; (7) the debtor's ability to earn and likelihood of fluctuation in his earnings; (8) special...
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