Richard Turpen v. Larry Eide

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 99-6071NI
In re: *
*
Richard Keith Turpen and *
Marcia Ann Turpen, *
*
Debtors. *
*
Richard Keith Turpen and *
Marcia Ann Turpen, * Appeal from the United
* States Bankruptcy Court for
Debtors - Appellants, * the Northern District of Iowa
*
v. *
*
Larry Eide, *
*
Trustee - Appellee, *
*
Barbara Stuart, *
*
U.S. Trustee - Appellee, *
*
United States of America and *
Iowa Department of Revenue *
and Finance *
*
Creditors - Appellees. *
Submitted: January 27, 2000
Filed: February 16, 2000
Before KOGER, DREHER, and KISHEL,1 Bankruptcy Judges.
______
DREHER, Bankruptcy Judge
Debtors Richard and Marcia Turpen (“Debtors”) appeal the order of the bankruptcy court2 denying
their motion to dismiss their pending Chapter 7 bankruptcy case. For the reasons set forth below, we
affirm.
I. Background
The Debtors initially filed a joint Chapter 13 petition on August 8, 1997. They filed what purported
to be a 100% plan on August 26, 1997, but confirmation of the plan was denied. Subsequently, the United
States filed a proof of claim for $142,038.00. Comprehensive Systems, Inc., the Debtors’ former
employer, filed a claim for $515,169.92, which was related to a state court lawsuit pending at the time of
the bankruptcy petition. The Debtors filed objections to each of these claims. If these claims were
allowed, however, the estate would contain insufficient assets to provide for payment in full of all claims.
After more than one year, the Debtors had failed to file another plan. They assert that they delayed
in order to complete litigation over the claims of the United States and Comprehensive Systems, which
would allow them to propose a more meaningful plan. Because the Debtors were not making any payments
during this time period, the United States Trustee moved to convert the case to Chapter 7, and several
creditors joined in the motion. On February 2, 1999, the bankruptcy court granted the motion over the
Debtors’ objection. The court based its decision on a finding that there had been an unreasonable delay
in the case that was prejudicial to the creditors.
Appellee Larry S. Eide (“Trustee”) was appointed as the trustee for Debtors’ Chapter 7 estate.
The Trustee and the Debtors disagreed over the liquidation of the estate, which led to numerous conflicts
between them. For instance, the Trustee informally sought the turnover of property of the estate, which
1
The Honorable Gregory F. Kishel, United States Bankruptcy Judge for the District of
Minnesota, sitting by designation.
2
The Honorable William L. Edmonds, Chief Judge, United States Bankruptcy Court for the
Northern District of Iowa.
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was unsuccessful. After obtaining an order from the court for turnover, the Trustee was forced to seek an
order holding the Debtors in contempt for their failure to comply with the turnover order. The Trustee also
filed a motion objecting to the Debtors’ claimed exemption in certain pension plans. While such motion
was pending, the Debtors liquidated the plans and received approximately $137,000.00. Debtors claim
to have used the money to pay prepetition creditors; however, they cannot account for the full amount they
received upon liquidation.
Approximately 46 claims have been filed in the Debtors’ case, totaling $1,017,955.76.
Comprehensive Systems, Inc. settled its dispute with the Debtors and withdrew its $515,169.92 claim.
The United States also withdrew its claim of $142,038.00 after apparently reaching a settlement with the
Debtors. However, it refiled the claim in the amount of $124,941.00 after the claims bar date. After
adjusting for these settlements and discounting the claims that the Debtors paid on their own accord, the
filed, unpaid claims total $392,196.03. The United States, on behalf of the IRS, asserts that it is also owed
$6,676.54 in interest and $2,250.21 in postpetition taxes.
The Trustee holds $108,788.00 from the liquidation of assets and projects that there will be a total
of $136,164.00 for distribution. The Debtors assert that, not including the tardily filed claim of the United
States, which they dispute, the estate is solvent. On this ground they sought dismissal of the Chapter 7
case, arguing that they could more quickly pay the creditors outside of bankruptcy without forcing them
to wait for the outcome of litigation with the United States. Moreover, they maintain that the creditors will
not be prejudiced because they plan on paying every creditor in full, with the exception of the United
States, as soon as the case is dismissed. The Trustee, the United States Trustee, the United States, and
the Iowa Department of Revenue and Finance all opposed dismissal. They assert that prejudice will result
from dismissal because there is no guarantee that the Debtors will follow through on their promise to pay
the creditors in full. The bankruptcy court denied the Debtors’ motion to dismiss, finding that the estate
was likely not solvent and that the creditors would be prejudiced by dismissal. Given Debtors’ actions
during the case, in particular their liquidation of the pension funds, the court gave little weight to the promise
to pay the creditors outside of bankruptcy.
II. Discussion
A decision of whether to grant a motion to voluntarily dismiss a bankruptcy petition lies within the
discretion of the bankruptcy judge and is reviewed only for an abuse of discretion. Peterson v. Atlas
Supply Corp. (In re Atlas Supply Corp.), 857 F.2d 1061, 1063 (5th Cir. 1988); Leach v. United States
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(In re Leach), 130 B.R. 855, 856 (B.A.P. 9th Cir. 1991); In re McCullough, 229 B.R. 374, 376 (Bankr.
E.D. Va. 1999) (citing In re Marks, 174 B.R. 37, 39 (E.D. Pa. 1994)). An abuse of discretion will only
be found if the lower court’s judgment was based on clearly erroneous factual findings or erroneous legal
conclusions. Barger v. Hayes County Non-Stock Co-op (In re Barger), 219 B.R. 238, 243 (B.A.P. 8th
Cir. 1998) (citing Mathenia v. Delo, 99 F.3d 1476, 1480 (8th Cir. 1996)).
Bankruptcy Code § 707(a) provides:
The court may dismiss a case under this chapter only after notice and a
hearing and only for cause, including –
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees and charges required under chapter 123 of title 28;
and
(3) failure of the debtor in a voluntary case to file, within fifteen days or such
additional time as the court may allow after the filing of the petition commencing
such case, the information required by paragraph (1) of section 521, but only on
a motion by the United States trustee.
11 U.S.C. § 707(a) (1994). Pursuant to this section, the court can only dismiss a Chapter 7 case after
notice and hearing and only for cause. In re Williams, 15 B.R. 655, 657 (E.D. Mo. 1981); In re Haney,
241 B.R. 430, 432 (Bankr. E.D. Ark. 1999). Although this provision does not expressly refer to a
voluntary dismissal by the debtor, courts commonly conclude that it does apply to such a motion. Williams,
15 B.R. at 658; In re Watkins, 229 B.R. 907, 909 (Bankr. N.D. Ill. 1999); In re Eichelberger, 225 B.R.
437, 439 (Bankr. E.D. Mo. 1998).
Unlike under Chapter 13, the debtor has no absolute right to dismissal of a Chapter 7 case. In re
Klein, 39 B.R. 530, 532 (Bankr. E.D.N.Y. 1984)(“While a debtor may voluntarily choose to place himself
in bankruptcy, he does not enjoy the same discretion to withdraw his case once it has been commenced.”);
Leach v. United States (In re Leach), 130 B.R. 855, 857 n.5 (B.A.P. 9th Cir. 1991); Haney, 241 B.R.
at 432. In order to succeed in a motion to dismiss, the debtor must make a showing of cause and
demonstrate why dismissal is justified. Haney, 241 B.R. at 432; Watkins, 229 B.R. at 908; In re Harker,
181 B.R. 326, 328 (Bankr. E.D. Tenn. 1995). Even if the debtor can show cause, the court should deny
the motion if there is any showing of prejudice to creditors. Haney, 241 B.R. at 432; Watkins, 229 B.R.
at 909; Eichelberger, 225 B.R. at 439; Harker, 181 B.R. at 328. Courts generally consider the following
factors when ruling on a debtor’s motion to dismiss: (1) whether all of the creditors have consented; (2)
whether the debtor is acting in good faith; (3) whether dismissal would result in an prejudicial delay in
payment; (4) whether dismissal would result in a reordering of priorities; (5) whether there is another
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proceeding through which the payment of claims can be handled; and (6) whether an objection to
discharge, an objection to exemptions, or a preference claim is pending. See, e.g., Watkins, 229 B.R. at
909; Eichelberger, 225 B.R. at 439; Harker, 181 B.R. at 328; Klein, 39 B.R. 532-33; In re Pagnotta, 22
B.R. 521, 522 (Bankr. D. Md. 1982).
Section 707(a) provides three illustrative examples of cause. 11 U.S.C. § 707(a). However, these
examples are not exclusive; therefore, other grounds constituting “cause” may justify dismissal. Leach, 130
B.R. at 857 n.5; Watkins, 229 B.R. at 908 . In this case, the Debtors have made no showing of cause.
They assert that the estate is solvent, so they should be allowed to pay their creditors outside of
bankruptcy. The first problem with this argument is that the findings of the bankruptcy court indicate that
the estate may not be solvent. However, even if the estate is solvent, the ability of the Debtors to repay
their debts does not constitute adequate cause for dismissal. Williams, 15 B.R. at 655 (citing H.R. Rep.
No. 95-595, at 380 (1977); S. Rep. No. 95-989, at 94 (1978)); Kirby v. Spatz (In re Spatz), 221 B.R.
992, 994 (Bankr. M.D. Fla. 1998) (“It is well established and supported by Legislative History that the
fact that a debtor is willing and able to pay his debts outside of bankruptcy does not constitute adequate
cause for dismissal under section 707(a).”).
Furthermore, even if the Debtors could make a showing of cause, the court cannot dismiss the case
if there is a showing of prejudice to the creditors. Haney, 241 B.R. at 432; Watkins, 229 B.R. at 909;
Klein, 39 B.R. at 532. Creditors can incur prejudice if the motion to dismiss is brought after the passage
of a considerable amount of time and they have been forestalled from collecting the amounts owed to them.
Watkins, 229 B.R. at 909 (quoting In re Schwartz, 58 B.R. 923, 925-26 (Bankr. S.D.N.Y. 1986)). In
the present case, the automatic stay has prevented creditors from collecting their debts for more than two
years. To send them back to their state court remedies at this point would constitute prejudice. See Klein,
39 B.R. at 532-33.
Moreover, dismissal of a case after it has appeared that the debtors failed to account honestly for
their assets should not be permitted because such a failure indicates the likelihood of further questionable
practices to the detriment of creditors. Watkins, 229 B.R. at 909 (quoting In re Schwartz, 58 B.R. 923,
925-26 (Bankr. S.D.N.Y. 1986)). In this case the Debtors sold assets that were the subject of a dispute
with the Trustee and used a large portion of the proceeds to pay prepetition creditors themselves. This
action places the honesty of the Debtors in serious doubt, not only because of their inability to fully account
for the proceeds of the sale, but because they seem to believe that they can choose which creditors will be
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paid first even while in bankruptcy. Their actions throughout their bankruptcy strongly suggest that such
practices will continue outside of bankruptcy to the prejudice of some or all of the creditors. See Watkins,
229 B.R. at 909 (quoting In re Schwartz, 58 B.R. 923, 925-26 (Bankr. S.D.N.Y. 1986)). Indeed, the
Debtors stated that they did not know which creditors they would pay first if it turned out that they did not
have enough money to pay them all in full. In short, by the time the Debtors brought this motion, they had
lost all credibility with the court, leaving the court with ample evidence to conclude that dismissal would be
prejudicial to creditors.
CONCLUSION
The Debtors have not established any adequate cause for dismissal, and there has been an ample
showing of prejudice to the creditors. Accordingly, the bankruptcy court did not abuse its discretion, and
the decision of the bankruptcy court is AFFIRMED.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL
FOR THE EIGHTH CIRCUIT
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