Shapiro v. Grossman (In re Grossman)

Summarized by Dean Rallis , Hahn & Hahn, LLP
12 years 3 weeks ago

Citation:

BAP No. NV-13-1325-JuKiTa; Bk No 13-13792-LBR (not for publication)

Tag(s):

Ruling:

The Ninth Circuit BAP reversed the Bankruptcy Court’s decision in granting the Debtor’s motion to dismiss her chapter 7 case, vacated the dismissal order and remanded the case to the Bankruptcy Court for reinstatement.

Procedural context:

The Debtor filed a motion to dismiss her chapter 7 case under 11 U.S.C. §707(a), which motion was opposed by the chapter 7 trustee. The Bankruptcy Court granted the Debtor’s motion and entered an order dismissing the case. The trustee filed a timely appeal. The Ninth Circuit BAP reversed the Bankruptcy Court’s ruling and ordered the case reinstated on the Bankruptcy Court’s docket.

Facts:

In 2005, the Debtor was awarded $390,000, to be paid over time, as an equalization payment in her divorce proceedings with her then husband. Under the Marital Settlement Agreement, Debtor was receiving $2,500 per month for spousal support and another $2,500 per month attributed to the equalization payment. The Debtor filed a chapter 7 petition on April 30, 2013. The Debtor’s schedules included minimal personal property. The Debtor failed to include the equalization payment in her Schedule B, but did include $5,000 monthly payments from her ex-husband in Schedule I as alimony/maintenance payments. At the 341(a) meeting of creditors, the Debtor testified that she was receiving $5,000 per month from her former spouse and that she believed the equalization payments would continue through 2017. The trustee acknowledged that $2,500 of the $5,000 monthly payment was exempt as spousal support. The trustee intended to administer the remaining $2,500 in monthly payments (from the equalization payment obligation) as a non-exempt asset of the estate. The Debtor filed a motion to dismiss the case asserting that she expected to incur significant medical expenses in the future, wanted to avoid litigation regarding non-exempt assets, and that she would pay her creditors outside of bankruptcy. The trustee opposed the Debtor’s motion. In granting the Debtor’s motion, the Bankruptcy Court commented, “I just don’t think it makes sense to put somebody deeper in debt, to incur more medical bills, on the possibility of collecting $2,500 a month for four years to keep this estate open. . .” On appeal, the BAP noted that Section 707(a) requires a showing that dismissal would not cause prejudice to creditors, and that “prejudice” may be evaluated using both legal and equitable considerations. Based on the record, the BAP concluded that the Bankruptcy Court never considered prejudice to creditors in its ruling. Drilling deeper, the BAP noted that the Debtor listed over $110,000 in unsecured debt, was unemployed and her only income was the $5,000 monthly payments from her ex-husband, and that her expenses exceeded her income. Further, as posited by the trustee, the Debtor failed to schedule the equalization payment as an asset and the Debtor was “careless” in failing to evaluate her financial picture before filing her petition. The BAP concluded that the Bankruptcy Court did not consider these factors, but only the Debtor’s medical condition. Since the Bankruptcy Court “applied the wrong criteria” as required under Section 707(a), the BAP reversed the Bankruptcy Court’s ruling and ordered that the case be reinstated.

Judge(s):

JURY, KIRSCHER and TAYLOR, Bankruptcy Judges

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