Court Opinion

ID: 2652229
Source: CourtListenerOpinion
Date Created: 2014-02-04 22:36:27.382289+00
Date Added: 2024-06-11T12:57:53.920470
License: Public Domain

FILED
                                                               2/4/2014
 1
                                                        SUSAN M. SPRAUL, CLERK
 2                                                        U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT

 3                   UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                             OF THE NINTH CIRCUIT
 5   In re:                        )         BAP No.   NV-13-1325-JuKiTa
                                   )
 6   DIAN L. GROSSMAN,             )         Bk. No.   13-13792-LBR
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     BRIAN D. SHAPIRO,             )
 9   Chapter 7 Trustee             )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )         M E M O R A N D U M*
                                   )
12   DIAN L. GROSSMAN,             )
                                   )
13                  Appellee.      )
     ______________________________)
14
                     Argued and Submitted on January 24, 2014
15                             at Las Vegas, Nevada
16                           Filed - February 4, 2014
17                Appeal from the United States Bankruptcy Court
                            for the District of Nevada
18
              Honorable Linda B. Riegle, Bankruptcy Judge, Presiding
19                           _________________________
20   Appearances:      Brian D. Shapiro, Esq., argued pro se,
                       Christopher Burke, Esq. argued for appellee
21                     Dian L. Grossman.
                            _________________________
22
     Before:     JURY, KIRSCHER, and TAYLOR, Bankruptcy Judges.
23
24
25
26        *
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8013-1.

                                       -1-
 1            Debtor Dian L. Grossman filed a motion to dismiss her
 2   bankruptcy case under § 707(a)1 after chapter 7 trustee, Brian
 3   D. Shapiro, asserted that $2,500 of the $5,000 monthly payment
 4   that debtor received from her former spouse pursuant to a
 5   divorce decree was nonexempt and could be used to pay her
 6   creditors.     The bankruptcy court granted debtor’s motion, and
 7   trustee appealed.     For the reasons set forth below, we REVERSE
 8   the bankruptcy court’s decision, VACATE the dismissal order and
 9   REMAND this case to the bankruptcy court with instructions to
10   reinstate the case on its docket.
11                                   I. FACTS
12            Prior to her bankruptcy filing, debtor went through a
13   divorce.     Under the divorce decree, debtor is entitled to
14   $390,000 from her former spouse, which was characterized as an
15   equalization payment.     Debtor’s former spouse agreed to pay her
16   $30,000 upon execution of the Marital Settlement Agreement,
17   followed by monthly payments of $2,500 commencing February 1,
18   2005, and continuing until paid in full, for a period of
19   approximately twelve years.     A copy of the divorce decree is not
20   included in the record.
21            On April 30, 2013, debtor filed her chapter 7 petition.
22   Shapiro was appointed the trustee.      Debtor listed no real
23   property in Schedule A and listed minimal personal property in
24   Schedule B.     Debtor did not include the equalization payment as
25
26        1
            Unless otherwise indicated, all chapter and section
27   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     “Rule” references are to the Federal Rules of Bankruptcy
28   Procedure.

                                       -2-
 1   an asset in Schedule B, but listed a $5,000 monthly payment from
 2   her former spouse as her only source of income under
 3   alimony/maintenance in Schedule I.      In her Statement of
 4   Financial Affairs, debtor showed under the heading “[i]ncome
 5   other than from employment or operation of business” that she
 6   had received $60,000 in alimony/maintenance payments for the
 7   years 2011 and 2012 and $15,000 in 2013.     Debtor did not claim
 8   any portion of the payments exempt.     Debtor listed $111,589.30
 9   in unsecured debt, almost all of which is attributable to
10   medical debt.
11            Prior to the § 341(a) meeting of creditors, debtor’s
12   counsel provided trustee with a copy of debtor’s divorce decree
13   showing that she was entitled to $390,000 from her former
14   spouse.     At the creditors’ meeting, debtor testified under oath
15   that she receives and has been receiving $5,000 monthly payments
16   from her former spouse and that she estimated that the
17   equalization payments would continue until the year 2017.
18   Trustee acknowledged that $2,500 of the $5,000 monthly payment
19   was exempt as spousal support.2
20            On June 7, 2013, debtor moved to have her case dismissed
21   under § 707(a).     Debtor alleged that she had severe health
22   problems prior to her bankruptcy filing and that her condition
23   was chronic.3     She therefore expected to incur significant
24
25        2
            Apparently the divorce decree provided for spousal support
26   at $2500 per month in addition to the equalization payment.
          3
27          Debtor declared that she had been diagnosed with
     cardiomyopathy (literally heart muscle disease) and that her
28   heart was working at thirty-five percent.

                                       -3-
 1   medical debt in the future.     Debtor also wanted to avoid any
 2   litigation regarding the nonexempt assets and to use any
 3   additional income or assets to pay her creditors outside of a
 4   bankruptcy proceeding.
 5            Trustee opposed, arguing that dismissal would not be
 6   equitable under the circumstances.      Trustee maintained that
 7   (1) debtor had failed to disclose the equalization payment she
 8   was owed under the divorce decree in Schedule B; (2) debtor’s
 9   reasons for dismissal, i.e., the risk of incurring large medical
10   bills in the future and wanting to pay her creditors outside of
11   bankruptcy, were the result of her failure to investigate her
12   true financial picture; and (3) dismissal was prejudicial to the
13   creditors of debtor’s bankruptcy estate.4
14            On July 10, 2013, the bankruptcy court orally granted
15   debtor’s motion.     The court took note of debtor’s medical
16   condition and her bills.     The court further stated:
17            So I just don’t get what good it does to put somebody
              more deeply in debt under the possibility of trying to
18            collect this amount of money. And for that matter, I
              don’t know why she just doesn’t go back in and get it
19            recharacterized as support . . . if she’s ill.
20            They probably did it for tax reasons. I’m going to
              grant the motion to dismiss. I just don’t think it
21            makes sense to put somebody deeper in debt, to incur
              more medical bills, on the possibility of collecting
22            $2,500 a month for four years to keep this estate
23
24
25
          4
26          Trustee filed a declaration in support of his opposition
     which characterized the equalization payment as an asset of the
27   estate which he could administer for the benefit of the
     creditors. He based this characterization on his review of the
28   divorce decree.

                                       -4-
 1            open. The administrative assets5 would eat up
              anything that goes to creditors, so I’ll grant the
 2            motion to dismiss.
 3            The bankruptcy court entered the order dismissing the case
 4   two days later.     Trustee timely filed a notice of appeal.
 5                               II. JURISDICTION
 6            The bankruptcy court had jurisdiction over this proceeding
 7   under 28 U.S.C. §§ 1334 and 157(b)(2)(A).      We have jurisdiction
 8   under 28 U.S.C. § 158.
 9                                  III. ISSUE
10            Whether the bankruptcy court abused its discretion in
11   dismissing debtor’s case under § 707(a).
12                            IV. STANDARD OF REVIEW
13            We review the bankruptcy court’s grant of a voluntary
14   motion to dismiss for an abuse of discretion.     Hickman v. Hana
15   (In re Hickman), 384 B.R. 832, 840 (9th Cir. BAP 2008).        The
16   bankruptcy court abuses its discretion when it fails to identify
17   and apply “the correct legal rule to the relief requested,”
18   United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009)
19   (en banc), or if its application of the correct legal standard
20   was “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support
21   in inferences that may be drawn from the facts in the record,’”
22   id. at 1262.
23                                V. DISCUSSION
24            Section 707(a) states that a court may dismiss a chapter 7
25   case “only for cause[.]”     In the Ninth Circuit, a case will not
26
27
          5
            We assume the court was referring to administrative
28   expenses.

                                       -5-
 1   be dismissed on the motion of a debtor if such dismissal would
 2   cause some prejudice to a creditor.     Leach v. United States
 3   (In re Leach), 130 B.R. 855, 857-58 (9th Cir. BAP 1991).        The
 4   question of prejudice resulting from dismissal may be evaluated
 5   using both legal and equitable considerations.     Id. at 856; see
 6   also In re Hickman, 384 B.R. at 841 (the totality of the
 7   circumstances should be considered in evaluating cause for
 8   dismissal and plain legal prejudice).     Debtor had the burden of
 9   proving that dismissal would not prejudice her creditors.
10   Bartee v. Ainsworth (In re Bartee), 317 B.R. 362, 365 (9th Cir.
11   BAP 2004).
12            There is no evidence in the record to show that dismissal
13   of debtor’s case would not prejudice her creditors and nowhere
14   does the bankruptcy court mention prejudice to creditors in its
15   ruling.     Although debtor stated that she wanted to use any
16   additional income or assets she had to pay her creditors outside
17   of bankruptcy, her Schedule F shows over $111,000 in unsecured
18   debt, her Schedule I shows that she is unemployed and that the
19   $5,000 payment from her former spouse is her only income, and
20   her Schedule J shows that her expenses exceed her income.       See
21   In re Hopkins, 261 B.R. 822, 823 (Bankr. E.D. Pa. 2001)
22   (debtor’s own testimony and schedules cast doubt on her ability
23   to pay creditors).     Further, debtor’s medical condition and her
24   asserted risk of incurring future medical debt6 reflect that she
25   proposed to use some or all of her income from her former spouse
26
          6
27          Other than debtor’s past medical bills, there was no
     evidence that she would continue to amass a large amount of
28   medical debt.

                                       -6-
 1   to pay her postpetition bills.    Accordingly, it may be that the
 2   asset trustee seeks to recover presents the unsecured creditors
 3   with the best opportunity for satisfaction of their claims.    On
 4   this record, debtor failed to carry her burden of proving that
 5   dismissal of her bankruptcy petition would not prejudice her
 6   creditors.
 7        In addition, trustee asserted at least two reasons why it
 8   would be inequitable to dismiss debtor’s case:   her failure to
 9   list the equalization payment in Schedule B and her
10   “carelessness” in failing to evaluate her true financial picture
11   before filing.    Nowhere does the court mention these equitable
12   considerations.   Further, the bankruptcy court implied that
13   trustee would not be able to administer the asset because debtor
14   could request the state court to recharacterize the equalization
15   payment as support.   There is no evidence in the record to
16   suggest that this could be accomplished; this statement by the
17   court was pure speculation.    Finally, the court concluded that
18   trustee could not efficiently administer the stream of payments
19   since they would come in over a four year period.   However, the
20   record reflects that trustee contemplated selling the asset.
21        In the end, we surmise that the bankruptcy court
22   considered, as a matter of equity, only debtor’s medical
23   condition.   While debtor’s situation appropriately arouses
24   sympathy, the court applied the wrong criteria for a voluntary
25   dismissal under § 707(a).
26                               VI. CONCLUSION
27        For the reasons stated, we REVERSE the bankruptcy court’s
28   decision, VACATE the dismissal order and REMAND this case to the

                                      -7-
 1   bankruptcy court with instructions to reinstate the case on its
 2   docket.
 3
 4
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                                   -8-