Donald M Wyatt and Betty Lou Wyatt

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U.5. Bankruptcy Court
District of Idaho
Filed: November 17, 2004

at 10:00, a.m.
By: ice
IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF IDAHO

IN RE

DONALD M. WYATT and Case No. 04-21374
BETTY LOU WYATT,

Debtors. MEMORANDUM OF DECISION

a ed

AUTHENTICATED /
U.S. GOVERNMENT
INFORMATION
GPO

BACKGROUND AND FACTS

Donald and Betty | ou Wyatt filed a voluntary petition for chapter 13 relief
on September 13, 2004, Dac. No. 1. Their petition was a “skeleton filing” not
accompanied by any schedules, statement of financial affairs, oy other required
documents. Nor were those documents fled within the fifteen day period
established by Fecl. R. Bankr. P. 1007(c). No request for extension of this deadline
was ever filed. And Debtors failed to appear for their scheduled October 8, 2004,
§ 341{a) meeting of creditors and § 343 examination. See Doc. Na. 4 (minutes).

As a result of the failure to appear at the meeting of creditors, the U.S.
Trustee filed an ex parte application tor dismissal of the case. Doc. No. 7. A

creditor, Securities Financial Services (“SF5“) alsa filed a motion to dismiss the case.

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Sée Doc. No. 6, SPS noted that the bankruptcy petition was filed the day before
SF5’ scheduled foreclosure sale on Debtors’ real property, and alleged that this,
along with Debtors" failure to file schedules, appear at the firsi meeting or
otherwise prosecute the case, supported dismissal of ie case “with prejudice” in
the nature of a six month bar on filing ancther petition for relief. /of (citing

§ 349(a)).

SF’ motion was set for hearing, but the Court required it to be rescheduled
because af concerns over the adequacy of notice to Debtors and Debtors’ counsel.
The matter was rescheduled for hearing on November 9.'

Late in the day on November 8, Debtors filed a motion to voluntarily
dismiss their chapter 13 case under § 1307(b}. Doc. No. 11. At the hearing an
November &, the Court acknowledged that dismissal of the case on the Debtors’
motion was required, as that motion was filect prior te adjudication of either the
U.S. Trustee’s or SFS’ mations. See /n re Whitrnore, 225 B.R. 199, 202 (D. idaho
1995); see alsa Beatty v. Traub (in re Beatty). 162 BR. 853, 857 (9th Cir, BAP
1294), However, the Court also observed that, in dismissing the case on Debtors’
motion, the Court could still consider STS’ request that dismissal be “with
prejudice” pursuant to § 349(a), That issue was set over for further hearing on

Navember 14.

' The Court, at the initial hearing, granted SFS’ request that it forbear from entering
an order on the U.S. Trustee’s motian wntil the hearing on SES’ motion was held and the
question of the prejudicial effect of dismissal could be argued.

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At that continued hearing, Debtor Donald Wyatt testified. He explained the
financial situation of Debtors, and their conduct just prior to and immediately after
the petition’s filing,

Mr, Wyalt stated that he and his wife were both employed by the City of
Worley, idaho, and had enough income to cover their living expenses and
recurring monthly debts. They, however, did nat have enough excess income to
service their obligation to SFS.

They had previously been able to service this debt through income from a
contract Mr, Wyatt had related to the manufacture of hunting and fishing supplies,
something he indicated brought in as much as $4,000.00 gross, and $3,500.00 net,
per month. However, that corlract was terminated in some fashion, and Debtors
lost the extra income. They therefore went into default with SES early in 2004,

In response to this contract termination, Debtors hired counsel and filed
litigation seeking damages. Their attorney was employed an a contingency fee
basis. Just before the bankruptcy filing, that attorney sought leave to withdraw
because of he unexpectedly high costs to be incurred in the lawsuit. Debtors hope
to find another lawyer, and believe this litigation will be a source of payment for
SF5 and other creditors. It appears, though, that some of the targeted defondarits
have filed their own bankruptcy cases.

Debtors also have taken steps to operate a bed and breakfast facility on the

real estate, which serves as their residence as well as security for SES. hey feel this

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is a promising source of income to service debt, though actual objective financial
information is limited. And Mebtors have triad to market the real property,
believing i( has value significantly in excess of secured debt. If they cannot
generale enough income to service all debt, they indicate they would sell the
property in order to pay all creditors in full.

Mebtors explain that their filing was skeletal and the rest of the documents
were not timely filed because they were, during this time frame, trying to oblain
amployment tax information from the parties involved with the “contract” that had
previously generated a sizeable portion of Mr. Wyatt’s income. Apparently that
information was believed to be material to severai of the disclosures Debtors
needed to make in the bankruptcy.

Debtors further explained that it was only on the day of the § 341(a) meeting
that they and their attorney concluded that filing incomplete documents or
Faquesting an extension were not viable options. On their lawyer’s advice, they
did not appear at the creditors’ meeting. They were aware dismissal would follow.

The voluntary dismissal matian filed on the eve of the scheduled hearing on
SFS’ mation was deliberate. Debtors had no opposition to dismissal of the case,
They had already decided to refile, when they had their taxes and financial
information completed, rather than seeking extensions. (It appears they wished to
avaicl the need to appear at the hearing on StS’ motion, and filed their awn

dismissal request in an attempt to moot that motion and hearing.

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DISCUSSION AND DISPOSITION

ihe Court ruled orally at the conclusion of the November 15 hearing that
SFS failed to meet its burden of establishing that dismissal should be entered “with
prejudice” under § 349(a) of the Code. | he Court stated that it would enter wriller
findings of fact ancl conclusions of law. ‘This Decision thus completes the
dispasilion of the contested matter, and canstitutes the Court's factual findings and
legal conclusions. Fed. R. Bankr. P. 9014, 7052.

A. Why was there a hearing after Debtors moved to voluntarily
dismiss under § 1307(b)?

Miyenore recognized a debtor's “absolute right” to voluntarily dismiss a
chapter 13 proceeding under § 1307(b). 225 B.R. at 201-202, This “trump”
eliminates a possible conversion of the case upon a pending but not yet
adjudicated motian of a trustee or creditor under § 1307(c), and “so lang as the
dehtor has not yet faced a stay lifl motion in the case, [this stralegy] avoids the bar
of § 109(g)(2).” fel at 201.

Whitmore recognizes that giving effect ta a debtor’s § 1307(b} motion can
be “frustraling” lo trustees and creditors but thal it ig nevertheless required. /e at
202 (citing Beatty, 162 B.R. at 857). Still, while the right to dismiss is “absolute,”

thal does not mean that the righ! is unconditional, WA‘fmore held that “[e]ven if

? SFS suggested a 180 day bar on refiling as an appropriate form of “prejudice”
under § 349(a). [ts request and the present litigalion could have boon rendered moat had
oFS simply filed a request for stay relief at the same time it filed its motion to dismiss. Hac
Debtors thereafter elected to voluntarily dismiss the case, the bar of § 109(2)(2) would have
automatically arisen.

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there is no ‘defense’ to a § 1307(b} motion, the trustee stil! has the right to ask the
court to condition the granting of that relief upon payment of administrative
expenses or otherwise.” /e at 200.5 (Citing én re Leatham, 92 |.B.C.R, 179, 180
(D, Idaho 1992)); see alsa id at 202 1.10.

Here, the “condition” SF5 wanted imposed was that of “prejudice” under
§ 349(4). That section provides:

(a) Uniess the court, for cause, orders otherwise, the dismissal of a case

under this title does not bar the discharge, in a later case under this title,

of debts that were dischargeable in the case dismissed; nor does the

dismissal of a case under this title prejudice the debtor with regard to

the filing of a subsequent petition under this title, except as provided in

section 109g) of this title.
§ 349¢a).

Ordinarily the dismissal of a case is without prejudice to the filing ofa
subsequent petition (except as provided in § 109(g) which is not implicated here).
In essence, SFS contends that the Court should “for cause, order otherwise” under
§ 249(a). SFS is, of course, required to establish such cause.

Section 349(a} and § 1307(t) must be read /7 gar? materia. The Court has
the ability, tar cause shawn, to order a dismissal to be with prejudice, Nothing in
the Code indicates that this ability is Jost when a debtor elects to use the “absolute”
right to valuntarily dismiss a chapter 13 case. Neither § 1307(b) nor § 349fa)
contain language indicating any such limitation or exception.

Courts have recognized their ability to condition dismissal even when the

dismissal is under § 1307(b). Sea /n re Graffy, 216 B.R. 888, 891-92 (Bankr. M.D.

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Fla. 7998). Anc other courts have imposed prejudicial conditions on valuntary
dismissats under § 1307(b) without expressly addressing § 349(a). See, ag, ft re
Neiman, 257 B.R. 105 (Bankr, 5.D. Fla, 2001).

Debtors believed their November & motion mooted any consideration of
SFS’ motion (and, implicitly, thé motion of Ihe WLS. Trustee), While Debtors were
correct that their dismissal motion “lrumpec” [he competing dismissal requests of
this creditor and the U.S. Trustee, Debtors were wrong in thinking that all issues
were mooted. SFS had expressly asked the Court that any dismissal be with some
prejudice to refiling. See Doc. No. 6. This issue remained justiciable”

B. Should the dismissal of this case under § 1307 (b) be entered with
prejudice?

The quastion next turns to whether SFS established sufficient Cause for the
Court to order a bar upon refiling. The Court determined that SFS did not. The
following facts are urged by SFS in support of its request.
1, Debtors filed their petition without any schedules or related
statements. Mebtors failed either to timely file those
documents within fifteen days or request an extension of time

tor filing. Debtors failed te appear for their mecting of
creditors under § 341}.

+ Oidinarily, § 1307(b) motions are or can be granted without hearing. See
Mhitrnore, 225 B.R. at 201 (citing Ped. R. Bankr. P. 1077(d)). (he instant situation reflects
an exception to fhe rule. Further, since the factual basis for the requested limitation on
refiling was unproven, and was contested by Debtors, an actual hearing was required so the
parties would have an opportunity to present evidence. See Ted. R. Bankr. P. 90714{d). Ags
they were not ready to proceed on November 9, the hearing was continued to Novernbar
15,

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Debtars explanations as to these first three facts are set forth above. Those
explanations were not effectively contradicted nor was Mr. Wyatt's testimonial
credibility impeached.

2. Debtors previously filed bankruptcy cases in 1994 and in
1999,

Debtors admitted filing three cases, each about 5 years after the immediately
preceding one. There was no evidence presented regarding the first two cases.
Beyond whatever ras ipsa foguifur conclusions might be drawn fram the mere fact
af such filings, there was no evidence of any propensity of Debtors io tile serial
cases or that they dic or will abuse the bankruptcy process through repeated filings.

3. Debtors filed their petition on the eve of SFS’ foreclosure sale.

This was not the first, nor will it be the last, bankruptcy filed on the eve of a
foreclosure. The mere existence of this fact, standing alone, is not determinative
nor does it establish “cause” under § 349(a). SFS did not show that Debtors meant
to frustrate foreclosure while at the same time lacking a bona Ade desire to
reorganize. No evidence was presented to prove that the chapter 13 filing was
made in bad faith.

Debtors claim there is equity in the collateral securing SFS. They viewed the
bankruptcy filing as a “last resort” given the pending foreclosure, and they desired
to pretect that equity. If the property cannot support the bed and breaktast or if

Debtors cannot otherwise develop a plan to refinance their detst, they indicate they

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will sell the property and use the proceeds to pay all creditors in full. They had,
pre-filing, taken steps lo markel the property.

It is true that the feasibility of Debtors’ preliminary plan for reorganization ts
dependent an litigation, ar on the development of an untested becl and breakfast
operation, or perhaps alternatively on the sale of the real estate. Feasibility,
however, is an issue tested on the evidence and record wher plan confirmation
cames before the Court. Debtors were not required to prove potential feasibility in
defense of the instant mation.* Debtors’ use of bankruptcy as a means of
preserving their options was not shown to be improner.

There was no evidence of improper conduct directed at the moving creditor
or similar indication Ihal the choice lo file rather than suffer a nan-bankruptcy
foreclosure was improperly motivated. While creditors often object to repeated
filings designed to thwart foreclosure or other collection activities, Debtors’
previous bankrupicy petitions were not filed to hinder 5FS. In fact, the earlier
bankruptcy cases were filect before SFS’ claim ever arose.

4, Debtors coukt have, but did not, timely file their schedules
and statements or request an extension to do so.

Debtors’ explanation for their conduct has already been discussed above. In

addition, Mr. Wyatt testified that the inability fo cornplete [he documentation ina

* Had SPS made a stronger evidentiary showing, perhaps Debtors would have been
challenged to provide more and better detail regarding their reorganization plans. That
threshold, however, was not mat.

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timely fashion was based to some degree on missing W-? or similar tax information.
Debtors were undertaking efforts to obtain this informatian.

importantly, Debtors appreciate that all unfilect lax returns have to be
completed as a parl of any chapter 13 case. See LBR 1007.3, The information
fram the employer regarding Mr. Wyatt’s contract work was material. Furthermore,
Debtors’ son, wha was assisting Debtors with getting the docurnents and doing the
accounting, was recently deployed to serve in frag. After their son’s deployment,
Debtors immediately sought ta retain an accountant to assist them.

5, Debtors’ § 1307(b) motion was filed at the eleventh hour, and

was intended to prevent hearing and adjudication of SFS’
mation.

The motion ta voluntarily dismiss under § 1307(b) could clearly have been
filed earlier. Debtors’ rejoinder is that they relied on advice of their counsel in this
regard, as in other matters.

Debtors knew early on that (hey needed more time to get lhe accounting
and tax information in order and to refine their plan proposals. They viewed the
choice as ong between letting the case be dismissed, and filing another case in a
few weeks or months once they had that information and were prepared to go
farward with confirmation of a plan, or seeking an extension. They opted for
dismissal aver extension, Only upon realizing that SFS sought lo bar refiling did
they perceive a need to file their own motion, The sincerily of their explanation, or

their reliance on counsel, was nat effectively rebutted.

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CONCLUSION

In weighing all these factors, and in considering Mr. Wyatt's testimony and
his credibility, the Court concludes that SPS has not established sufficient § 349(a)
cause, While Debtors’ conduct could have been more exemplary, the totality of
the circumstances do not indicate bad faith conduct of a sort that would require the
Courl te impose a prejudicial bar on later filings.

Based on the foregoing, Debtors’ motion to dismiss under § 1307(b) will be
granted, withaut any conditions imposed under § 349(a), An appropriate order
will be entered.

DATED this 17th day af November, 2004.

Ag

TERRY L. MYERS *
CUP US. BANKRUPTCY JUDGE

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CERUFICATE OF SERVICE

. |, the undersigned, hereby certify that! served by the method indicated below, a true copy
of the decument fa which this certificate is attached, to the following named person(s) at the
following address(es), on the date shown below:

DATED: November 17, 2004
Case No, 04-21374 (Donald Wyatt)

Office of the U.S, Trustee
ME Central Plaza
720 Park Blyvd., Suite 220
Boise, ID 83712
eh ze. howeg@usd op. 2c
gary meclandandiusdol gov

GUS, Mail O Facsimile wf Email

Michael 6. McFarland
Attomey at Law
427 Coeur d'Alene Avenue, Suite 1L
Coeur d'Alene, ID 83414
mbm@icchause. net
DO U.S. Mail 0 Facsimile ¥” Email

Louis Garbrecht
Altarney at Law
1400 E. Sherman Avenue
Coeur d’Alene, ID a3a14
arbrechi@turbanet cont
Ui U.S, Mail O Facsimile # Email

C. Barry Zimmennan
P.O. Box 1240
Coeur d‘Alene, ID 83816

cbarryzd@mvi8o. net

OLS, Mail O Facsimite Email

Aan B. Canderan
udicial Assistant to Judge Myers

Note to Email service: A PDE version of the above deciston/order was electronically transritled ba Ue
parties indicated above, Email service is provided as a courtesy only upon request of a party, To review an
electronic image of the cilgled of thls document, or to subscribe for email service of fatine
decisionvorders from the Bauikruptcy |udge, please access the Court's Internet wah site,

www iduscourts any,

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