Debtor, who was Not a Repeat Filer, and Whose Chapter 13 Plan Paid Secured Creditors, Survived Creditors’ Motion to Dismiss Based on Bad Faith

Debtor, who was Not a Repeat Filer, and Whose Chapter 13 Plan Paid Secured Creditors, Survived Creditors’ Motion to Dismiss Based on Bad Faith

This case came before the Court for trial on Creditors’ Motion to Dismiss Pursuant to 11 U.S.C. Section 1307(c) with Prejudice and for Sanctions based on Bad Faith Filing.

In determining whether a Chapter 13 case should be dismissed for bad faith, the inquiry is whether the circumstances of the case show that the filing was an abuse of the provisions, purpose, or spirit of the Bankruptcy Code.

The Debtor filed his petition under Chapter 13 of the Bankruptcy Code in August 2017.  On his amended schedule of assets, the Debtor listed a 100% ownership interest in a corporation known as Mama Sally’s.  Mama Sally’s operates a restaurant located.  On his schedule of income, the Debtor stated that he was “self-employed” at Mama Sally’s Family Restaurant.

On his schedule of assets, the Debtor listed certain real property  (the Property), and claimed the Property as his homestead.  According to the schedules, the Property is valued at $235,000.00, and is subject to a secured claim held by creditors (the Mortgagees) in the amount of $85,535.30.

The schedule of assets also includes additional real property. The total value of the non-homestead property is $99,756.00.

Finally, on his schedule of assets, the Debtor listed a mortgage receivable in the amount of $35,000.00.

On his schedule of liabilities, the Debtor listed the Mortgagees’ secured claim in the amount of $85,535.00, a judgment lien in the amount of $56,000.00, and a claim for property taxes held by the Tax Collector in the amount of $4,013.00.  Eight proofs of claim were filed in the case.  The filed claims consist of the Mortgagees’ secured claim in the amount of $85,555.30, four secured claims for real estate taxes filed by the  Tax Collector in the total amount of $8,276.20, a secured claim for real estate taxes filed by a different County Tax Collector in the amount of $6,121.90, and two unsecured claims in the total amount of $1,985.54.

On November 1, 2017, the Debtor filed a First Amended Chapter 13 Plan.   The proposed Plan provides for the Debtor to make payments in the amount of $3,198.80 per month for 60 months.  From these payments, the total sum of $99,241.15 would be paid to the Mortgagees, the total sum of $61,879.70 would be paid to judgment lien holders, and the total sum of $6,114.35 would be paid  Tax Collector.

On October 13, 2017, the Mortgagees filed the Motion to Dismiss the Debtor’s case that is currently before the Court.   In the Motion, the Mortgagees assert that the Debtor filed the case in bad faith, as evidenced by his failure to disclose certain prepetition transactions, assets, leases, and income on his schedules and statement of financial affairs.  At trial, the Mortgagees also asserted that the Debtor’s bad faith is further evidenced by his inability to fund the proposed Chapter 13 Plan.

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