In re Wood
| Decision Date | 21 April 2017 |
| Docket Number | C/A No. 16-06515-DD |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina |
| Parties | IN RE: Lee Michael Wood, Debtor. |
This matter is before the Court on a motion to dismiss this chapter 7 case, filed by Lee Michael Wood ("Debtor") on February 21, 2017 [Docket No. 18]. Michelle L. Vieira, the chapter 7 trustee assigned to Debtor's chapter 7 case ("Trustee"), filed an objection to the motion to dismiss on March 15, 2017 [Docket No. 27]. A hearing was held on Debtor's motion on April 18, 2017. At the conclusion of the hearing, the Court took the matter under advisement. The Court now issues this Order.
1. Debtor filed his chapter 7 case on December 29, 2016.
2. Debtor's Schedule A/B, filed with his petition, lists Debtor's only real property interest as a fee simple interest in a condominium located at 36 Deallyon Avenue #23, Hilton Head Island, SC 29928.
3. At the meeting of creditors on January 26, 2017 Trustee questioned Debtor and discovered that he also owned a one-third interest in a condominium located at 36 Deallyon Avenue, #77, Hilton Head Island, SC 29928 (the "Condo").1 Trustee continued Debtor's meeting of creditors and requested that Debtor amend his schedules to reflect any and all property interests that Debtor might have.
4. Debtor filed an amended Schedule A/B on February 21, 2017, listing an interest in the Condo, as well as a half interest in property located at 5761 Aiken Avenue, Mayville, NY (the "New York Property").2
5. Debtor filed amended schedules again on March 16, 2017, to list a line of credit with Bank of America, secured by the Condo, in the amount of $79,000.00. This is the only lien on the Condo. The New York Property is unencumbered.
6. Debtor filed his motion to dismiss his chapter 7 case on February 21, 2017, asserting that cause existed to dismiss his chapter 7 case because his case was filed based on an innocent mistake of fact. He maintains that he was unaware prior to the questioning by Trustee at his meeting of creditors that he had any interest in the Condo or the New York Property and that, had he been aware of his interests in those properties, he would not have filed the chapter 7 bankruptcy case.
7. Trustee filed her objection to the motion to dismiss, asserting that both the Condo and the New York Property have significant value, such that they can be sold for the benefit of creditors. Trustee argues that creditors will be prejudiced if the case is dismissed because it would be cost prohibitive for creditors to attempt to liquidate Debtor's interest in these properties using their available state court remedies.
8. Debtor testified that he does not have the current ability to pay his creditors outside of bankruptcy. Debtor testified that he currently drives for Uber and bartends at a restaurant in Hilton Head.
9. Debtor's mother, Albina Wood, also testified at the hearing on the motion to dismiss. Ms. Wood lives approximately half the year in the Condo and half the year in the NewYork Property. She purchased both properties, maintains both properties, and pays all bills for both properties.
10. Debtor testified that he spends about one week each year visiting the New York Property. However, Debtor testified that he does not receive any other benefit, financial or otherwise, from either property.
11. Ms. Wood testified that she conveyed interests in the Condo and the New York Property to Debtor as an estate planning technique. She stated that she wanted to keep the properties in the family and ensure that her children eventually inherited them.
12. Debtor testified that he signed papers at his family members' request from time to time, but that he has no recollection of signing documents specifically related to the conveyance of the interests in the properties, nor does he have any recollection of signing any documents related to the line of credit with Bank of America. Debtor testified that he did not pay anything to receive the interests in the Condo and the New York Property.
13. Debtor testified at the hearing on his motion to dismiss that the reason for his bankruptcy filing was excessive debt relating to a produce distribution business he owned and operated, Paulie's Produce Company, LLC.
14. On his schedules Debtor has listed secured debts for his condo located at 36 Deallyon Avenue #23, two debts secured by vehicles, the line of credit on the Condo, and unsecured debts in the total amount of $138,575.58.
Debtor seeks to dismiss his chapter 7 case pursuant to 11 U.S.C. § 707(a), which provides:
Another Judge in this District, in considering a motion to dismiss a chapter 7 case, has stated:
While a debtor is free to file for bankruptcy protection, he does not enjoy the same discretion to withdraw his case once it has been commenced. The debtors must make a showing of cause to dismiss their voluntary case. "Unlike a Chapter 13 bankruptcy case, where the debtor has an absolute right to dismissal, a debtor has no corresponding right to dismiss a Chapter 7 petition." . . . "[A]dequate cause to dismiss does not necessarily exist upon a showing by the debtor of his ability to pay debts." The most important consideration is the best interests of creditors.
In re Kirven, 188 B.R. 15, 16 (Bankr. D.S.C. 1994) (internal citations omitted). See also In re Thrower, 2014 WL 1873399, at *3 ( ) (citations omitted). Prejudice to creditors that would result from the dismissal must be balanced against the interests of the debtor. In re Hopper, 404 B.R. 302, 308 (Bankr. N.D. Ill. 2009) ().
Debtor argues that cause for dismissal exists in his case because he has not acted in bad faith in any way. He argues that his lack of knowledge regarding his interests in the Condo and the New York Property were innocent mistakes of fact. He also argues that his mother will be significantly prejudiced if Trustee is allowed to sell the Condo and the New York Property, because she worked hard to purchase the properties and uses them as her residences.
Debtor relies on In re Segal, 527 B.R. 85 (Bankr. E.D.N.Y. 2015), a recent Eastern District of New York bankruptcy case in which a chapter 7 debtor's motion to dismiss was denied. Debtor argues that in Segal, the debtor's motion to dismiss was denied based on his bad faith conduct and it can be inferred that absent the bad faith conduct the Segal court would have found grounds for dismissal of the debtor's case. The Court disagrees with this reading of Segal.
In Segal, the debtor instructed his attorney to file an emergency chapter 7 petition, which did not contain his signature. Segal, 527 B.R. at 88-89. Subsequently, the debtor repeatedly refused to cooperate with the chapter 7 trustee and the court, by failing to appear at hearings, including a show cause hearing, and by failing to file schedules. Id. at 89-90. The debtor then filed a motion to dismiss his case, arguing that his failure to sign the petition was a fatal defect to the filing, and further, that he never authorized his attorney to file a chapter 7 case on his behalf. Id. at 90. The court denied the debtor's request to dismiss his case, finding that the debtor's signing of an amended chapter 7 petition filed in the case and his post-petition conduct during the case ratified the chapter 7 filing, that the court should not reward the debtor's bad faith conduct, and that dismissal of the debtor's case was neither in the best interest of the debtor nor the creditors. Id. at 93-96. Nowhere in the court's opinion did it indicate that allowing a debtor's request for dismissal would be appropriate in the absence of any bad faith conduct by the debtor. Additionally, the court in Segal noted, "Voluntary dismissal may be inappropriate where a debtor 'has no ability to pay his creditors upon dismissal.'" Segal, 527 B.R. at 93 (qu...
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