In re Verdi
| Decision Date | 10 December 1999 |
| Docket Number | Bankruptcy No. 99-19425DAS. |
| Citation | 241 BR 851 |
| Parties | In re Matthew P. VERDI, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Ronald Beifeld, Plymouth Meeting, PA, for Debtor.
Lawrence J. Lichtenstein, Haddonfield, NJ, Former Chapter 7 Trustee.
Danielle Tribuiani, Obermayer Rebmann Maxwell & Hippel, Philadelphia, PA, for Former Chapter 7 Trustee.
David B. Aaronson, Mesirov Gelman Jaffe, Cramer & Jamieson, LLP, Philadelphia, PA, for the Walheim Group.
Edward Sparkman, Philadelphia, PA, Chapter 13 Trustee.
Frederic Baker, Ass't. U.S. Trustee, Philadelphia, PA, United States Trustee.
This is an Opinion about the "good faith filing requirement" ("the GFFR") and how it relates to a debtor's desire to convert a Chapter 7 case to a Chapter 13 case. While precedent requires us to recognize the existence of a GFFR in Chapter 13 cases, it is not totally clear what the consequences of a finding of "bad faith" should be.
Here, we find "bad faith" on the Debtor, but we will nevertheless allow him an opportunity to utilize Chapter 13 in a manner which does not unfairly prejudice any other interested party. However, if unsuccessful in confirming a Chapter 13 plan, we will require liquidation of all of his assets which were or became property of his estate as of the date that this case was originally filed under Chapter 7.
MATTHEW P. VERDI ("the Debtor"), although married, filed this bankruptcy case as an individual case under Chapter 7 of the Bankruptcy Code on July 23, 1999. The original Schedules listed two parcels of real estate, jointly owned with his nondebtor wife, Theresa Verdi ("the Wife"), a Pennsylvania residence valued at $135,000 and a New Jersey vacation home ("the NJ Realty") valued at $190,000. Both were listed as free and clear of liens but were claimed as exempt under Pennsylvania state law as entireties property not subject to joint debts.
Personalty listed by the Debtor included a 1996 Pontiac automobile valued at $6,000 and subject to a secured creditor's lien of $5,000; a $2500 checking account; an IRA which was declared not to be property of the Debtor's estate but was valued at $70,000; and stock valued at $5600. The bank account and stock were declared exempt as entireties property not subject to joint debts and the IRA was designated as not property of the estate.
Other than the secured car loan, only one creditor was listed: the Walheim Group ("Walheim"), a tax accounting firm which was the Debtor's long-time former employer, at "$50,000+." At the hearing, we learned that this claim arises from Walheim's contention that the Debtor, when he became "semi-retired," improperly took, serviced, and received compensation from certain of Walheim's clients.
The meeting of creditors was scheduled before interim trustee Lawrence J. Lichtenstein, Esquire ("the Trustee"), on August 25, 1999, and the bar date for objecting to the Debtor's discharge or discharge of any of his debts was fixed as October 25, 1999. The meeting of creditors was commenced on August 25, 1999, but was subsequently continued to later dates by the Trustee and was never completed while the case remained in Chapter 7.
On September 15, 1999, the Trustee filed an objection ("the Objection") to the Debtor's claim that his interest in the NJ Realty was exempt. On October 4 and 5, 1999, Walheim filed motions to compel production of documents from the Debtor and examine the Wife concerning the Debtor's personalty. The Objection was granted on October 21, 1999, on the ground that, under New Jersey law, which controlled as to the NJ Realty, the Debtor's interest was not beyond the Trustee's reach. See In re Kaplan, 162 B.R. 684, 698 (Bankr.E.D.Pa. 1993), aff'd sub nom. Kaplan v. First Options of Chicago, Inc., 189 B.R. 882 (E.D.Pa.1995), reconsideration denied, 198 B.R. 91 (E.D.Pa.1996), citing In re Youmans, 117 B.R. 113 (Bankr.D.N.J.1990). Walheim's aforementioned motions were granted on October 13, 1999.
Also on October 13, 1999, the Trustee filed a motion seeking the turnover to him of initially-undisclosed joint Treasury Notes in the amount of $140,000, part of which the Debtor was alleged to have converted into joint certificates of deposit, and an adversary complaint to enjoin any future transfers of this property. Next, on October 14, 1999, Walheim filed a motion to compel compliance with the orders granting its earlier motions. And finally, on October 25, 1999, Walheim filed an adversary proceeding objecting to the Debtor's discharge.
In response to these filings, the Debtor initially, on October 19, 1999, filed a motion to voluntarily dismiss this case ("the MTD"). Prior to the scheduled hearing of November 9, 1999, on the MTD, the Debtor, on October 22, 1999, filed a "praecipe" to convert this case to Chapter 13. We also scheduled the Debtor's conversion request for a hearing on November 9, 1999.
After a colloquy with counsel on November 9, 1999, we entered an order converting this case to Chapter 13. In so ordering, we acknowledged, but declined to follow, the reasoning of cases where motions of Chapter 7 debtors to convert their cases to Chapter 13 cases were denied on grounds that debtors were acting in "bad faith" in seeking the conversions. See Martin v. Cox, 213 B.R. 571 (E.D.Ark. 1996), aff'd, 116 F.3d 480 (8th Cir.1997) (); In re Snell, 227 B.R. 127 (Bankr. S.D.Ohio 1998) (); In re Sully, 223 B.R. 582 (Bankr.M.D.Fla.1998) (); In re Lesniak, 208 B.R. 902 (Bankr.N.D.Ill. 1997) (); In re Thornton, 203 B.R. 648 (Bankr.S.D.Ohio 1996) (); and In re Jeffrey, 176 B.R. 4 (Bankr.D.Mass.1994) (). But see In re Kuntz, 233 B.R. 580, 582-84 (1st Cir. BAP 1999) (); and In re Cavaliere, 238 B.R. 247, 249 (Bankr. W.D.N.Y.1999) (). Cf. Clearstory & Co. v. Blevins, 225 B.R. 591 (D.Md.1998); and In re Patton, 209 B.R. 98 (Bankr.E.D.Tenn.1997) (). But cf. In re Barbieri, 226 B.R. 531 (E.D.N.Y.1998) (); In re Jones, 231 B.R. 110 (Bankr.N.D.Ga.1999) (); In re Johnson, 228 B.R. 663 (Bankr.N.D.Ill. 1999) (); and In re Smart, 212 B.R. 419 (Bankr.S.D.Ga.1997) (court dismissed the case with prejudice because of the debtor's failure to attend the meeting of creditors despite the pendency of the debtor's request for a voluntary dismissal).
We held that, despite the foregoing authorities, the language of 11 U.S.C. § 706(a), stating that the debtor may convert a Chapter 7 case to Chapter 13 "at any time" and that "any waiver of the right to convert a case under this section is unenforceable," allowed of no exceptions in permitting conversion. We therefore held that the proper approach, under these circumstances, was to allow the conversion from Chapter 7 to Chapter 13 and to require the parties opposing same, here Walheim and the Trustee, to seek an involuntary reconversion to Chapter 7 after this case was converted to Chapter 13.
In our conversion order, we expressly provided that, if the Trustee filed a motion to reconvert this case to Chapter 7 by November 12, 1999, we would schedule an expedited hearing on such a motion on November 16, 1999. Thus, when the Trustee filed the instant Motion on November 12, 1999, it was heard on November 16, 1999, with all interested parties being granted an opportunity to render post-hearing submissions to us by December 3, 1999.
The only witness at the two-hour hearing of November 16, 1999, was the Debtor. It was established therein that, in response to the facts pried out of him by Walheim and the Trustee, he had filed but one amendment to his Schedules, an Amended Schedule B on September 10, 1999, in which he had also listed $7500 in certificates of deposit and the $140,000.00 Treasury Notes.
However, by way of the Debtor's admissions made in the meeting of creditors, examinations by Walheim, and the November 16, 1999, hearing, it was established the Debtor had either failed to disclose or materially undervalued assets in the aggregate amount which possibly exceeded $200,000 as follows: (1) his checking account balance was understated by $9,300.90 as of the filing date and, as of the date that he filed the Amended Schedule B, it was understated by $52,129.74; (2) as many as fifteen (15) certificates of deposit owned by him and his Wife, totaling in excess at $120,000, were not listed on even the Amended Schedule B; and (3) a receivable from his son, Thomas Verdi, in the amount of $56,875.76 was similarly not listed on the Amended Schedule B.
The Debtor's testimony reflected considerable hostility towards Walheim and the Trustee for uncovering his undisclosed assets and not an ounce of remorse. He constantly stated, unconvincingly, that he had unintentionally simply overlooked the presence of the omitted...
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