Earl Ray Boyette, Jr.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
EARL RAY BOYETTE, JR.,
Debtor
CHAPTER 7
CASE NO. 09-04573-8-RDD
ORDER DENYING MOTION TO DISMISS OR CONVERT
DEBTOR’S CHAPTER 7 CASE TO A CHAPTER 13 CASE
Pending before the Court is the Motion to Dismiss or Convert Debtor’s Chapter 7 Case to
a Chapter 13 Case (the “Motion”) filed by Lynanne Day, formerly known as Lynanne D. Boyette,
(“Ms. Day”) on August 15, 2011 and the response to Motion filed by Earl Ray Boyette, Jr. on
September 26, 2011. The Court conducted a hearing on January 10, 2012 in Wilson, North Carolina
to consider the Motion and the response.
BACKGROUND
Earl Ray Boyette, Jr. (the “Debtor”) filed a voluntary petition for relief pursuant to Chapter
13 of the Bankruptcy Code on June 6, 2009. The Debtor’s Chapter 13 case was converted to a case
under Chapter 7 of the Bankruptcy Code on May 9, 2011.
SO ORDERED.
SIGNED this 27 day of January, 2012.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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The Motion seeks to dismiss the Debtor’s Chapter 7 case or convert it to a Chapter 13 case
pursuant to 11 U.S.C. § 707(b)(1), (b)(3) based on bad faith of the Debtor or abuse of the provisions
of Chapter 7. At the time the Debtor filed the Chapter 13 petition, he and Ms. Day were married.
Sometime after the Debtor filed the petition, the two separated. In July 2010, Ms. Day asked the
Court to determine the status of a claim against the Debtor’s estate based on a premarital agreement
between the two. In the premarital agreement, the Debtor promised to repay Ms. Day for any
contributions she made on a promissory note secured by a deed of trust on 403 Forest Hills Road,
Wilson, North Carolina (the “Property”), which was held as a tenancy by the entirety between the
Debtor and Ms. Day. Pursuant to this Court’s Order Dismissing Motion to Determine Status of
Claim, entered on November 17, 2010, Ms. Day filed Proof of Claim # 20 in the amount of
$54,735.96 in the Debtor’s case. The Debtor filed an objection to Proof of Claim # 20. The Debtor’s
objection was scheduled to be heard on May 10, 2011. On May 9, 2011, the Debtor filed a Notice
of Conversion to Chapter 7 and withdrew the Objection to Claim # 20.
Ms. Day argues that the Debtor converted his case to Chapter 7 in order to avoid payment
of Claim # 20 through his Chapter 13 Plan of Reorganization. In support of this argument, Ms. Day
indicates that at the time the Debtor converted his case to Chapter 7, he was $21.50 from completion
of his Chapter 13 Plan.
Furthermore, Ms. Day argues the Debtor self-reported environmental hazards located on the
Property to the North Carolina Department of Environment and Natural Resources, Division of
Waste Management. Ms. Day contends the Debtor’s self-reporting was an effort to reduce the value
of the Property and is evidence of the Debtor’s abuse of the provisions of Chapter 7.
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DISCUSSION
The bankruptcy court may dismiss a case filed by an individual debtor or, with the debtor’s
consent, convert a case to a case under Chapter 13 if the court “finds that the granting of relief would
be an abuse of the provisions of [Chapter 7].” 11 U.S.C. § 707(b)(1). If the presumption of abuse
pursuant to § 707(b)(2) does not arise, the court may dismiss a case pursuant to § 707(b)(3). Section
707(b)(3) provides, in considering whether the granting of relief would be an abuse of the provisions
of Chapter 7,
the court shall consider–
(A) whether the debtor filed the petition in bad faith; or
(B) the totality of the circumstances . . . of the debtor’s financial situation
demonstrates abuse.
11 U.S.C. § 707(b)(3). The moving party bears “the burden of proving abuse pursuant to §
707(b)(3).” In re Barger, No. 09-51299, 2010 WL 1904771 at *2(Bankr. M.D.N.C. 2010) (citing
In re Lipford, 397 B.R. 320, 326 (Bankr. M.D.N.C. 2008)).
In the present case, the Court finds Ms. Day failed to prove by the preponderance of the
evidence that the petition was filed in bad faith or that the totality of the circumstances of the
Debtor’s financial situation demonstrate abuse of the provisions of Chapter 7.
At the hearing, the Debtor testified when he filed the Chapter 13 bankruptcy petition he
sought relief from large amounts of credit card debt. Ms. Day presented no evidence suggesting the
Chapter 13 petition was filed in bad faith. The Court also notes the Debtor and Ms. Day had not
yet separated on the date the petition was filed. Therefore, the filing of the petition could not have
been an effort to discharge Claim # 20, because based on the terms of the premarital agreement the
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claim could not be determined until the two separated. Accordingly, the Court finds the Chapter
13 petition was not filed in bad faith.1
In the Motion, Ms. Day also asserts that the conversion of the Debtor’s case from Chapter
13 to Chapter 7 was in bad faith. Section 707(b)(3)(A) requires the court to inquire as to bad faith
in connection with the filing of the petition. Outside of the filing of the petition, the court is
instructed by § 707(b)(3)(B) to evaluate whether the totality of the circumstances of the debtor’s
financial condition demonstrate an abuse of Chapter 7. In light of § 707(b)(3)(B), the Court must
evaluate the Debtor’s act of converting the case to Chapter 7 based on the totality of the
circumstances of his financial situation.
The Debtor testified that when he converted his Chapter 13 case to a Chapter 7 case, his
attorney advised him the provisions of the Bankruptcy Code allowed him to discharge Ms. Day’s
claim. The Debtor testified that he was not aware he was $21.50 from completing his Chapter 13
plan payments until he was so informed by Ms. Day’s counsel subsequent to the conversion.
Ms. Day also contends the Debtor’s self-reporting of the environmental hazards on the
Property was done in order to reduce its value. Ms. Day argued at the hearing that the Debtor
reported he buried creosote railroad ties on the Property approximately fifteen years ago to the
The Court recognizes § 707(b)(1) states the court “may dismiss a case filed by an	1
individual debtor under this chapter,” which by its plain meaning refers to Chapter 7. Whether §
707(b)(1) applies to a case filed under Chapter 13 but subsequently converted to Chapter 7
receives inconsistent treatment by bankruptcy courts. Compare In re Lassiter, No. 08-31578-
KRH, 2011 WL 2039363 at *1 (Bankr. E.D. Va. May 24, 2011) (Holding “11 U.S.C. § 707(b)(1)
applies to cases converted to Chapter 7 from a different chapter of the Bankruptcy Code.”) with
In re Dudley, 405 B.R. 790, 801 (Bankr. W.D. Va. 2009) appeal dismissed 428 B.R. 686 (W.D.
Va. 2010) (Holding the “Plain Meaning Rule dictates that § 707(b) apply only to cases filed
under Chapter 7.”). The application of § 707(b)(1) to the Debtor’s case was not an issue raised
by the parties, therefore, the Court proceeds with an analysis based on the evidence presented at
the hearing.
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North Carolina Department of Environment and Natural Resources, Division of Waste
Management. Ms. Day asserts this act reduced the value of the Property as well as the likelihood
of payment of her claim. The Debtor testified that he reported the existence of the creosote railroad
ties on the Property on the advice of his attorney. The Debtor stated he consulted with an
environmental attorney in Greenville, North Carolina prior to making attempts to market the
Property. Realizing he could be held liable for placing the railroad ties on the Property, the Debtor
stated his attorney negotiated an agreement by which the Debtor would not be prosecuted if he self-
reported the violations. The Debtor testified he also reported to the Division of Waste Management
that on two other occasions acetone, another environmental hazard, was spilled on the Property.
According to the Debtor’s testimony, he felt it necessary to report the environmental issues
on the Property because he found it prudent to attempt to market and sell the Property in order to
repay the debts to Ms. Day and the bank holding the deed of trust on the Property. The Debtor
stated he realized the railroad ties and acetone could cause potential issues with a sale and also
create greater liability for himself in the future. Therefore, he found it necessary to report the
violations and remedy the situation prior to attempting to sell the Property. The Debtor testified he
may also have faced criminal prosecution if the violations were not reported.
The Court finds the Debtor reported the evidence of creosote railroad ties and acetone on
the Property in order to remedy any potential environmental liabilities existing on the Property in
preparing to sell it. Viewing these actions in the totality of the circumstances of Debtor’s financial
situation, the Court finds the Debtor’s attempt to make the Property marketable in order to satisfy
his debts is not an abuse of the provisions of Chapter 7. Ms. Day has failed to prove by the
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preponderance of the evidence that the petition was filed in bad faith or granting the Debtor further
relief would be an abuse of the provisions of Chapter 7.
Accordingly, the Motion is DENIED.
Pursuant to a separate order entered by this Court on January 17, 2012, Ms. Day; the Debtor;
the North Carolina Division of Waste Management; John C. Bircher III, Chapter 7 Trustee; and
Carter Bank & Trust are to conduct a mediated settlement conference to address the issues related
to Ms. Day’s claim, the potential sale of the Property, the priority and validity of any liens on the
Property, and any other issue raised during mediation.
SO ORDERED.
END OF DOCUMENT
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