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FILED

2/4/2014

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NV-13-1325-JuKiTa

)

DIAN L. GROSSMAN, ) Bk. No. 13-13792-LBR

)

Debtor. )

______________________________)

)

BRIAN D. SHAPIRO, )

Chapter 7 Trustee )

)

Appellant, )

)

v. ) M E M O R A N D U M*

)

DIAN L. GROSSMAN, )

)

Appellee. )

______________________________)

Argued and Submitted on January 24, 2014

at Las Vegas, Nevada 

Filed - February 4, 2014

Appeal from the United States Bankruptcy Court

for the District of Nevada

Honorable Linda B. Riegle, Bankruptcy Judge, Presiding _________________________

Appearances: Brian D. Shapiro, Esq., argued pro se,

Christopher Burke, Esq. argued for appellee

Dian L. Grossman. _________________________

Before: JURY, KIRSCHER, and TAYLOR, Bankruptcy Judges.

*

 This disposition is not appropriate for publication.

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8013-1.

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Debtor Dian L. Grossman filed a motion to dismiss her

bankruptcy case under § 707(a)1

 after chapter 7 trustee, Brian

D. Shapiro, asserted that $2,500 of the $5,000 monthly payment

that debtor received from her former spouse pursuant to a

divorce decree was nonexempt and could be used to pay her

creditors. The bankruptcy court granted debtor’s motion, and

trustee appealed. For the reasons set forth below, we REVERSE

the bankruptcy court’s decision, VACATE the dismissal order and

REMAND this case to the bankruptcy court with instructions to

reinstate the case on its docket. 

I. FACTS

Prior to her bankruptcy filing, debtor went through a

divorce. Under the divorce decree, debtor is entitled to

$390,000 from her former spouse, which was characterized as an

equalization payment. Debtor’s former spouse agreed to pay her

$30,000 upon execution of the Marital Settlement Agreement,

followed by monthly payments of $2,500 commencing February 1,

2005, and continuing until paid in full, for a period of

approximately twelve years. A copy of the divorce decree is not

included in the record.

On April 30, 2013, debtor filed her chapter 7 petition. 

Shapiro was appointed the trustee. Debtor listed no real

property in Schedule A and listed minimal personal property in

Schedule B. Debtor did not include the equalization payment as

1

 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 

“Rule” references are to the Federal Rules of Bankruptcy

Procedure.

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an asset in Schedule B, but listed a $5,000 monthly payment from

her former spouse as her only source of income under

alimony/maintenance in Schedule I. In her Statement of

Financial Affairs, debtor showed under the heading “[i]ncome

other than from employment or operation of business” that she

had received $60,000 in alimony/maintenance payments for the

years 2011 and 2012 and $15,000 in 2013. Debtor did not claim

any portion of the payments exempt. Debtor listed $111,589.30

in unsecured debt, almost all of which is attributable to

medical debt.

Prior to the § 341(a) meeting of creditors, debtor’s

counsel provided trustee with a copy of debtor’s divorce decree

showing that she was entitled to $390,000 from her former

spouse. At the creditors’ meeting, debtor testified under oath

that she receives and has been receiving $5,000 monthly payments

from her former spouse and that she estimated that the

equalization payments would continue until the year 2017. 

Trustee acknowledged that $2,500 of the $5,000 monthly payment

was exempt as spousal support.2

On June 7, 2013, debtor moved to have her case dismissed

under § 707(a). Debtor alleged that she had severe health

problems prior to her bankruptcy filing and that her condition

was chronic.3 She therefore expected to incur significant

2

 Apparently the divorce decree provided for spousal support

at $2500 per month in addition to the equalization payment.

3

 Debtor declared that she had been diagnosed with 

cardiomyopathy (literally heart muscle disease) and that her

heart was working at thirty-five percent.

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medical debt in the future. Debtor also wanted to avoid any

litigation regarding the nonexempt assets and to use any 

additional income or assets to pay her creditors outside of a

bankruptcy proceeding. 

Trustee opposed, arguing that dismissal would not be

equitable under the circumstances. Trustee maintained that

(1) debtor had failed to disclose the equalization payment she

was owed under the divorce decree in Schedule B; (2) debtor’s

reasons for dismissal, i.e., the risk of incurring large medical

bills in the future and wanting to pay her creditors outside of

bankruptcy, were the result of her failure to investigate her

true financial picture; and (3) dismissal was prejudicial to the

creditors of debtor’s bankruptcy estate.4

On July 10, 2013, the bankruptcy court orally granted

debtor’s motion. The court took note of debtor’s medical

condition and her bills. The court further stated:

So I just don’t get what good it does to put somebody

more deeply in debt under the possibility of trying to

collect this amount of money. And for that matter, I

don’t know why she just doesn’t go back in and get it

recharacterized as support . . . if she’s ill. 

They probably did it for tax reasons. I’m going to

grant the motion to dismiss. I just don’t think it

makes sense to put somebody deeper in debt, to incur

more medical bills, on the possibility of collecting

$2,500 a month for four years to keep this estate

4

 Trustee filed a declaration in support of his opposition

which characterized the equalization payment as an asset of the

estate which he could administer for the benefit of the

creditors. He based this characterization on his review of the

divorce decree.

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open. The administrative assets5 would eat up

anything that goes to creditors, so I’ll grant the

motion to dismiss. 

The bankruptcy court entered the order dismissing the case

two days later. Trustee timely filed a notice of appeal. 

II. JURISDICTION

The bankruptcy court had jurisdiction over this proceeding

under 28 U.S.C. §§ 1334 and 157(b)(2)(A). We have jurisdiction

under 28 U.S.C. § 158. 

III. ISSUE

Whether the bankruptcy court abused its discretion in

dismissing debtor’s case under § 707(a).

IV. STANDARD OF REVIEW

We review the bankruptcy court’s grant of a voluntary

motion to dismiss for an abuse of discretion. Hickman v. Hana

(In re Hickman), 384 B.R. 832, 840 (9th Cir. BAP 2008). The

bankruptcy court abuses its discretion when it fails to identify

and apply “the correct legal rule to the relief requested,”

United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009)

(en banc), or if its application of the correct legal standard

was “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support

in inferences that may be drawn from the facts in the record,’”

id. at 1262.

V. DISCUSSION

Section 707(a) states that a court may dismiss a chapter 7

case “only for cause[.]” In the Ninth Circuit, a case will not

5 We assume the court was referring to administrative

expenses.

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be dismissed on the motion of a debtor if such dismissal would

cause some prejudice to a creditor. Leach v. United States

(In re Leach), 130 B.R. 855, 857-58 (9th Cir. BAP 1991). The

question of prejudice resulting from dismissal may be evaluated

using both legal and equitable considerations. Id. at 856; see

also In re Hickman, 384 B.R. at 841 (the totality of the

circumstances should be considered in evaluating cause for

dismissal and plain legal prejudice). Debtor had the burden of

proving that dismissal would not prejudice her creditors. 

Bartee v. Ainsworth (In re Bartee), 317 B.R. 362, 365 (9th Cir.

BAP 2004). 

There is no evidence in the record to show that dismissal

of debtor’s case would not prejudice her creditors and nowhere

does the bankruptcy court mention prejudice to creditors in its

ruling. Although debtor stated that she wanted to use any

additional income or assets she had to pay her creditors outside

of bankruptcy, her Schedule F shows over $111,000 in unsecured

debt, her Schedule I shows that she is unemployed and that the

$5,000 payment from her former spouse is her only income, and

her Schedule J shows that her expenses exceed her income. See

In re Hopkins, 261 B.R. 822, 823 (Bankr. E.D. Pa. 2001)

(debtor’s own testimony and schedules cast doubt on her ability

to pay creditors). Further, debtor’s medical condition and her

asserted risk of incurring future medical debt6

 reflect that she

proposed to use some or all of her income from her former spouse

6

 Other than debtor’s past medical bills, there was no

evidence that she would continue to amass a large amount of

medical debt.

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to pay her postpetition bills. Accordingly, it may be that the

asset trustee seeks to recover presents the unsecured creditors

with the best opportunity for satisfaction of their claims. On

this record, debtor failed to carry her burden of proving that

dismissal of her bankruptcy petition would not prejudice her

creditors.

In addition, trustee asserted at least two reasons why it

would be inequitable to dismiss debtor’s case: her failure to

list the equalization payment in Schedule B and her

“carelessness” in failing to evaluate her true financial picture

before filing. Nowhere does the court mention these equitable

considerations. Further, the bankruptcy court implied that

trustee would not be able to administer the asset because debtor

could request the state court to recharacterize the equalization

payment as support. There is no evidence in the record to

suggest that this could be accomplished; this statement by the

court was pure speculation. Finally, the court concluded that

trustee could not efficiently administer the stream of payments

since they would come in over a four year period. However, the

record reflects that trustee contemplated selling the asset. 

In the end, we surmise that the bankruptcy court

considered, as a matter of equity, only debtor’s medical

condition. While debtor’s situation appropriately arouses

sympathy, the court applied the wrong criteria for a voluntary

dismissal under § 707(a).

VI. CONCLUSION

For the reasons stated, we REVERSE the bankruptcy court’s

decision, VACATE the dismissal order and REMAND this case to the

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bankruptcy court with instructions to reinstate the case on its

docket.

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