Debtor who Failed to Disclose Material Information in his Schedules and Statements Did Not Meet Marrama’s “Lack of Bad Faith” Requirement to Convert to Chapter 13

Debtor who Failed to Disclose Material Information in his Schedules and Statements Did Not Meet Marrama’s “Lack of Bad Faith” Requirement to Convert to Chapter 13

Before the Court is the Debtor’s Motion to Convert from Chapter 7 to Chapter 13. The Chapter 7 Trustee objected, asserting that the Debtor does not have an absolute right to convert and that conversion is not in the best interest of the creditors and would allow the Debtor to avoid the consequences of his conduct that might warrant the denial of his Chapter 7 discharge.

The Debtor signed and filed his voluntary Chapter 7 Petition (“Petition”) on November 29, 2016. On his Petition, the Debtor indicated that he was not a sole proprietor of any business. On his Schedule A/B: Property, he stated that he had no cash on hand, a balance of $0 in a CEFCU checking account, and only $150 in a checking account with Farmer’s Bank. Among his other assets, the Debtor listed several vehicles. And he further said that he did not have any legal or equitable interest in any crops—either growing or harvested. On his Schedule I: Your Income, the Debtor indicated that he was employed as a maintenance person, and that his non-filing spouse was employed in the healthcare industry. Aside from their wages earned in those positions, no other income was listed by the Debtor. On his Statement of Financial Affairs (“SOFA”), the Debtor stated that he did have income from employment or from operating a business in the current year and over the previous two years, but he did not disclose the amount of that income or whether it was from wages or the operation of a business. The Debtor also said that he did not pay any creditor a total of $600 or more during the 90 days preceding the petition date. The Debtor did not list any payments to or for the benefit of any insiders within one year before filing for bankruptcy.

On February 21, 2017, following a February 6, 2017 meeting of creditors, the Debtor filed Amended Schedules A/B and C, as well as an Amended SOFA. On his Amended Schedule A/B, the Debtor disclosed for the first time an interest in a 1999 Honda Civic, which he described as purchased by himself but titled to his son, and a utility trailer, which he indicated was sold to his brother over a year before. In addition, the Debtor disclosed having $4329 in the Farmer’s Bank checking account, rather than the $150 listed on his original schedules, and listed the CEFCU checking account as having an unknown balance. On his Amended SOFA, the Debtor disclosed gross income of $79,636.02 from both wages and the operation of a business in 2016 before his Petition was filed. For the 2015 and 2014 calendar years, he listed gross income from wages and the operation of a business in the amounts of $59,166 and $97,070, respectively. The Debtor also disclosed for the first time payments totaling $6300 to Midwest Technical Institute and $1200 to Rodney Bowman, each made within the 90 days preceding the filing of his Petition.

The Debtor filed a motion to dismiss his Chapter 7 case. That motion was summarily denied due to the Debtor’s failure to state any cause for dismissal. Later, the Debtor filed his Motion to Convert Chapter 7 to Chapter 13, to which the Chapter 7 Trustee (“Trustee”) objected. An evidentiary hearing on the Debtor’s Motion to Convert was held on May 23, 2017.

The sole witness at the hearing was the Debtor. Much of his testimony was, however, not helpful to his case. On direct examination, the Debtor’s attorney led him through virtually every question, asking the Debtor to agree with the conclusions and statements presented by his attorney.1 Notwithstanding the leading nature of the his attorney’s questions, the Debtor did testify to some foundational matters. The Debtor testified that he initially met with his attorney to discuss the possibility of seeking bankruptcy relief in late August 2016. He estimated that he met with his attorney two more times before his Petition was filed in late November. The Debtor also stated that he was not working throughout that time because he was recovering from back surgery.

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