Michael Joseph Bertel

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 06-42175 TT
Chapter 7
MICHAEL JOSEPH BERTEL,
Debtor.
___________________________/
SECOND AMENDED MEMORANDUM OF DECISION RE MOTION TO DISMISS
The 	Office 	of 	the 	United 	States 	Trustee 	(the 	“UST”) 	moves 	to
dismiss the above-captioned case under 11 U.S.C. § 707(a) and (b)(3).
The above-captioned debtor (the “Debtor”) opposes the motion on both
substantive and procedural grounds. 	The procedural ground related to
whether 	the 	motion 	under 	11 	U.S.C. 	§ 	707(b)(3) 	was 	untimely. 	The
Court 	took 	this 	procedural 	ground 	under 	submission, 	agreeing 	to
permit further briefing by the Debtor if the procedural ground were
decided 	adversely 	to 	the 	Debtor. 	As 	set 	forth 	below, 	having
concluded that the motion to dismiss based on 11 U.S.C. § 707(b)(3)
is 	not 	untimely, 	the 	Court 	directs 	the 	parties 	to 	provide 	further
briefing and to appear at a further hearing as set forth below.
DISCUSSION
The 	Debtor 	filed 	a 	voluntary 	petition 	seeking 	relief 	under
chapter 13 of the Bankruptcy Code on November 14, 2006. 	On January
9, 	2007, 	the 	chapter 	13 	trustee 	(the 	“Trustee”) 	filed 	a 	motion 	to
Signed: July 13, 2007
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
July 13, 2007
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 06-42175 Doc# 65 Filed: 07/13/07 Entered: 07/13/07 12:23:35 Page 1 of 6

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dismiss 	the 	case 	on 	the 	ground 	that 	the 	Debtor’s 	debt 	exceeded 	the
chapter 13 debt limits. 	See 11 U.S.C. § 109(e). 	There is no dispute
that the Debtor’s secured debts were in excess of the chapter 13 debt
limits when he filed. 	Consequently, rather than oppose the motion,
the Debtor filed a motion to convert the case to chapter 7, and the
case 	was 	converted 	on 	February 	1, 	2007. 	A 	meeting 	of 	creditors 	in
the chapter 7 case was conducted on February 21, 2007.
On April 4, 2007, the UST filed a motion to dismiss the chapter
7 case pursuant to 11 U.S.C. § 707(b)(2). 	Section 707(b)(2) applies
only to debtors whose income during the six months before filing for
bankruptcy exceeds the median (“current monthly income”). 	The income
disclosed by the Debtor in his bankruptcy filings indicated that the
Debtor’s income during this period was above the median.
Above-median debtors are required to complete Form B22A, which
calculates their ability to repay their debts over a five year period
after deducting from their current monthly income expenses prescribed
by Internal Revenue Service guidelines: i.e., the “means test.” 	If
this 	calculation 	demonstrates 	a 	statutorily 	quantified 	ability 	to
repay, there is a presumption that the case is abusive. 	Based on the
deductions listed by the Debtor in his Form B22A, he had insufficient
income to repay his debts to give rise to a presumption of abuse.
Nevertheless, the UST contended that the case was presumptively
abusive. 	She 	contended 	that 	the 	Debtor 	should 	not 	be 	entitled 	to
take 	deductions 	for 	secured 	debt 	payments 	on 	real 	property 	that 	he
intended to sell or abandon and perhaps already had sold or lost at
foreclosure. 	The Debtor opposed the motion on both legal and factual
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grounds. 	He 	contended 	that 	he 	was 	entitled 	to 	take 	the 	deductions
without 	regard 	to 	his 	intent 	because 	he 	was 	contractually 	bound 	to
make the payments. 	Additionally, he disputed the factual contention
that the real property had been sold or that he intended to abandon
it. 	To the contrary, he stated that he filed for bankruptcy to avoid
losing it at foreclosure in the hopes of refinancing the secured debt
or selling the real property for a profit at some time in the future.
The 	hearing 	on 	the 	motion 	was 	continued, 	and 	the 	UST 	took 	the
Debtor’s 	deposition. 	At 	the 	deposition, 	the 	UST 	learned 	that 	the
Debtor had lied in his bankruptcy filings about his current monthly
income. 	In fact, he had received little income during the six months
prior 	to 	bankruptcy. 	Therefore, 	he 	was 	not 	subject 	to 	the 	“means
test” 	set 	forth 	in 	Form 	B22A, 	and 	his 	case 	was 	not 	presumptively
abusive.
On June 1, 2007, the UST filed a supplemental motion to dismiss,
seeking 	to 	dismiss 	the 	case 	under 	11 	U.S.C. 	§ 	707(a) 	or 	(b)(3)
instead 	of 	under 	§ 	707(b)(2). 	Section 	707(a) 	provides 	that 	a
bankruptcy 	case 	may 	be 	dismissed 	for, 	among 	other 	reasons,
“unreasonable delay...that is prejudicial to creditors....” 	Section
707(b)(3) provides that a case may be dismissed as an abuse if “the
debtor filed the petition in bad faith....” 	The UST asked the Court
to dismiss the chapter 7 case with prejudice pursuant to 11 U.S.C.
§ 349(a) so that the Debtor could not discharge his existing debts in
a future bankruptcy case.
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The 	UST 	acknowledged 	that, 	with 	exceptions 	not 	relevant 	here,
Rule 1017(e)(1) of the Federal Rules of Bankruptcy Procedure (“FRBP”)
provides that a motion to dismiss a case for abuse under 11 U.S.C.
§ 	707(b) 	must 	be 	filed 	within 	60 	days 	after 	the 	first 	date 	set 	for
the 	meeting 	of 	creditors. 	In 	this 	case, 	the 	deadline 	for 	such 	a
motion 	was 	April 	23, 	2007. 	Although 	the 	original 	motion 	was 	filed
before the deadline, the supplemental motion, which changed the basis
for the motion, was not filed prior to this deadline.
The UST argued that the supplemental motion should be deemed to
relate 	back 	to 	the 	original 	motion 	because 	the 	original 	motion 	was
based 	on 	the 	Debtor’s 	false 	statements 	in 	his 	bankruptcy 	filings.
The UST did not discover the falsity of these statements until after
the deadline had passed for filing a motion based on the true facts.
She 	also 	contended 	that 	the 	deadline 	was 	equitably 	tolled 	by 	the
Debtor’s conduct. 	The Debtor argued that the Court was required to
observe the deadline established by the Rule.
The Court is not persuaded that the supplemental motion relates
back 	to 	the 	original 	motion. 	Rule 	15(c) 	of 	the 	Federal 	Rules 	of
Civil 	Procedure, 	made 	applicable 	to 	this 	proceeding 	by 	FRBP 	7015,
provides 	that 	an 	amended 	pleading 	relates 	back 	to 	the 	original
pleading if it arises “out of the conduct, transaction, or occurrence
set 	forth...in 	the 	original 	pleading....” 	See 	Markus 	v. 	Gschwend,
313 	F.3d 	1146, 	1150 	(9 th 	Cir. 	2002). 	The 	Court 	concludes 	that 	the
supplemental motion does not meet this test. 	The UST concedes that
the original motion was based on entirely different facts, which she
only later realized were false.
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The Court is persuaded by the UST’s second argument: i.e., that
the 	deadline 	should 	be 	deemed 	to 	be 	equitably 	tolled. 	As 	noted 	by
the 	United 	States 	Supreme 	Court 	in 	Kontrick 	v. 	Ryan, 	540 	U.S. 	443
(2004), 	deadlines 	created 	by 	the 	Federal 	Rules 	of 	Bankruptcy
Procedure 	are 	not 	jurisdictional. 	For 	that 	reason, 	in 	a 	similar
context, a bankruptcy court recently concluded that the deadline for
objecting to a debtor’s discharge was subject to equitable tolling.
See In re Rychalsky, 318 B.R. 61, 64 (Bankr. D. Del. 2004).
Equitable 	tolling 	is 	appropriate 	when 	the 	claimant 	has 	acted
diligently but has been induced by the adverse party through trickery
or 	other 	misconduct 	to 	file 	a 	defective 	pleading 	or 	not 	to 	file 	at
all during the statutory period. 	See O’Donnell v. Vencor Inc., 466
F.3d 1104, 1113 (9 th Cir. 2006). 	The Court finds that the application
of equitable tolling is appropriate here.
CONCLUSION
The 	Court 	concludes 	that 	the 	UST’s 	motion 	to 	dismiss 	under 	11
U.S.C. 	§ 	707(b)(3) 	is 	timely, 	the 	deadline 	for 	filing 	the 	motion
having been equitably tolled by the Debtor’s dishonest conduct. 	The
Court directs the Debtor to file further opposition to the motion by
no 	later 	than 	September 	6, 	2007. 	The 	UST 	may 	file 	a 	reply 	on 	or
before September 13, 2007, and a further hearing will be conducted on
September 20, 2007 at 2:00 p.m.
END OF DOCUMENT
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COURT SERVICE LIST
Sally J. Elkington
Elkington Law Office
1970 Broadway 12th Fl.
Oakland, CA 94612
Margaret H. McGee
Office of the U.S. Trustee
1301 Clay St. #690N
Oakland, CA 94612-5217
Tevis Thompson
P.O. Box 1110
Martinez, CA 94553
Case: 06-42175 Doc# 65 Filed: 07/13/07 Entered: 07/13/07 12:23:35 Page 6 of 6