Michael Joseph Bertel

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 06-42175 TT
Chapter 7
In re MICHAEL JOSEPH BERTEL,
Debtor.
___________________________/
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. 	The above-
captioned debtor (the “Debtor”) opposes the motion. 	For the reasons
stated below, the motion will be granted.
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
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
Signed: June 26, 2007
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
June 27, 2007
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 06-42175 Doc# 63 Filed: 06/26/07 Entered: 06/27/07 11:07:30 Page 1 of 8

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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
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
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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.
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
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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.
The Debtor argued that the Court was required to observe the deadline
established by the Rule.
The Court will consider first the UST’s request that the case be
dismissed 	under 	11 	U.S.C. 	§ 	707(a): 	i.e., 	for 	unreasonable 	delay
prejudicial to creditors. 	The 60 day time limit for filing a motion
to 	dismiss 	set 	forth 	in 	FRBP 	1017(e) 	does 	not 	apply 	to 	a 	motion 	to
dismiss based on 11 U.S.C. § 707(a). 	See In re Tanenbaum, 210 B.R.
182, 	187 	(Bankr. 	D. 	Colo. 	1997); 	In 	re 	Weeks, 	306 	B.R. 	587, 	589
(Bankr. E.D. Mich. 2004). 	As noted above, the UST contends that the
case could be dismissed on this ground because, by filing first for
chapter 	13, 	for 	which 	he 	clearly 	did 	not 	qualify, 	the 	Debtor
unreasonably delayed the administration of the estate.
The 	Court 	will 	not 	dismiss 	the 	Debtor’s 	case 	on 	this 	ground.
Arguably, 	the 	facts 	support 	a 	finding 	that 	the 	Debtor’s 	conduct
unreasonably 	delayed 	the 	administration 	of 	the 	estate: 	i.e., 	if
“unreasonable” 	is 	construed 	to 	mean 	“without 	reason.” 	If, 	on 	the
other 	hand, 	“unreasonable” 	is 	construed 	as 	meaning 	“for 	an
unreasonable 	period 	of 	time,” 	the 	facts 	do 	not 	support 	such 	a
finding. 	The delay in question was not lengthy. 	More important, no
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evidence 	has 	been 	presented 	that 	creditors 	have 	been 	prejudiced 	in
any 	meaningful 	way 	by 	the 	delay. 	One 	secured 	creditor 	obtained
relief 	from 	stay 	in 	March 	2007. 	Shortly 	thereafter 	the 	chapter 	7
trustee abandoned both parcels of real property owned by the Debtor.
There is no evidence that the Debtor had any other assets which could
have been liquidated to pay a dividend to unsecured creditors.
The UST’s request that the case be dismissed based on 11 U.S.C.
§ 707(b)(3) has merit. 	The Debtor clearly filed the chapter 13 case
in bad faith, knowing his secured debts exceeded the chapter 13 debt
limits and deliberately setting forth false income information. The
only 	issue 	is 	the 	timeliness 	of 	the 	motion. 	The 	UST 	contends 	that
the 	supplemental 	motion 	is 	timely 	because 	it 	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.
However, the UST also contended that the filing deadline should
be equitably tolled due to the Debtor’s concealment of the true facts
regarding 	his 	pre-petition 	income. 	As 	noted 	by 	the 	United 	States
Supreme 	Court 	in 	Kontrick 	v. 	Ryan, 	540 	U.S. 	443 	(2004), 	deadlines
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created 	by 	the 	Federal 	Rules 	of 	Bankruptcy 	Procedure 	are 	not
jurisdictional. 	For that reason, in a similar context, a bankruptcy
court 	recently 	concluded 	that 	a 	similar 	deadline 	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.
The UST asks that the case be dismissed with prejudice. 	If this
request 	is 	granted, 	the 	Debtor 	may 	refile 	but 	will 	be 	unable 	to
discharge any of the debts that exist at this time. 	The Court will
grant 	the 	request. 	The 	Debtor 	has 	admitted 	to 	purposely 	providing
materially 	false 	information 	to 	the 	Court. 	If 	the 	case 	were 	not
dismissed, 	this 	would 	be 	sufficient 	grounds 	for 	denial 	of 	his
discharge. 	Dismissing the case with prejudice accomplishes nothing
more than would take place with respect to these debts were the case
not dismissed, and the UST pursued this remedy.
CONCLUSION
An insufficient basis has been provided for dismissal under 11
U.S.C. 	§ 	707(a). 	With 	respect 	to 	the 	motion 	to 	dismiss 	under 	11
U.S.C. § 707(b)(3), the motion to dismiss the case under 11 U.S.C. §
707(b)(3) will be granted. 	The basis for the supplemental motion is
too factually different from the original motion to relate back to it
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for 	timeliness 	purposes. 	However, 	the 	Court 	concludes 	that 	the
deadline for such a motion should be equitably tolled. 	The UST has
acted diligently and was prevented from filing a timely motion based
on 	11 	U.S.C. 	§ 	707(b)(3) 	due 	to 	the 	Debtor’s 	false 	statements
concerning 	his 	pre-petition 	income. 	Moreover, 	sufficient 	grounds
exist to warrant a dismissal with prejudice. 	The UST is directed to
submit a proposed order in accordance with this decision.
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
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