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Watkins v. U.S. Bank National Association (In re: Watkins)

Case Type:
Case Status:
BAP No. EC-22-1245-GLS (9th Circuit, Nov 09,2023) Not Published
The U.S. Bankruptcy Appellate Panel of the Ninth Circuit held a bankruptcy court did not abuse its discretion in dismissing the debtor/appellant's chapter 12 case with a three-year bar to refiling. The bankruptcy court did not err in finding cause to dismiss under 11 U.S.C. § 1208(c) owing to the debtor's conduct in this case and his multiple prior unsuccessful chapter 12 cases, and the record supported its conclusion that the debtor’s actions constituted bad faith for purposes of 11 U.S.C. § 349(a).
Procedural context:
The appeal to the BAP raised two issues: (1) "Did the bankruptcy court abuse its discretion by dismissing Debtor’s chapter 12 case?", and (2) "Did the bankruptcy court abuse its discretion by imposing a three-year bar to refiling?" The BAP reviewed the bankruptcy court's decision for an abuse of discretion, and reviewed the bankruptcy court's finding that the debtor engaged in bad faith or egregious conduct to warrant a bar for clear error. The BAP construed the dismissal of the case "with prejudice" to "reference [the bankruptcy court's] authority under § 349(a) to impose the three-year refiling bar" and found "no basis to construe the court's use of the phrase 'with prejudice' as imposing any restriction beyond the three-year bar."
Debtor Jerry Enrique Watkins filed a chapter 12 bankruptcy petition in the U.S. Bankruptcy Court for the Eastern District of California in April 2022. The debtor's petition identified six prior chapter 12 cases filed between 2009 and 2019, none of which were completed successfully. The debtor's primary secured creditor, US Bank, had been involved in the debtor's prior chapter 12 proceedings. The debtor indicated an early intent in the new case to obtain a loan against his farm property to satisfy the debts owed to all creditors. The chapter 12 trustee, however, expressed doubt about the debtor's likelihood of success in the case given the outcomes in his prior chapter 12 cases, the debtor's lack of sufficient income to fund a plan, and the likelihood the debtor would not obtain a loan in an amount sufficient to pay his creditors. At an initial hearing, the bankruptcy court stated its concerns about the debtor's ability to reorganize but that it wanted to give the debtor an opportunity to do so. The court thus issued an order to show cause "requiring Debtor to prove chapter 12 eligibility, attend the meeting of creditors, timely file all operating reports, and timely file and confirm a chapter 12 plan." It also advised "if Debtor failed to perform his duties under the Bankruptcy Code, or to prove his eligibility for chapter 12, the court would dismiss the case and impose a three-year bar to refiling." US Bank filed a proof of claim for an amount higher than what was listed in the debtor's schedules. The debtor filed a plan that proposed to treat US Bank's claim at a lower amount, and stated the debtor would make a lump sum payment on December 1, 2022 that would satisfy all allowed claims--without taking into account the higher amount of US Bank's filed claim. US Bank objected to the debtor's plan and the debtor objected to US Bank's claim. The chapter 12 trustee also objected to the debtor's plan, contending there was a lack of evidence that the debtor could sufficiently fund his plan. The court twice extended the confirmation deadline at the debtor's request. Ultimately, the loan offered to the debtor was too low to cover US Bank's entire filed claim, the debtor did not provide evidence to prove US Bank's claim should be reduced to an amount low enough that he could pay it through his proposed plan, and the debtor did not otherwise resolve his objection to US Bank's claim prior to the confirmation deadline. The debtor never filed an amended plan. The court held a hearing on December 12, 2022, at which the debtor requested an additional extension of time to obtain further information from US Bank to support his argument its claim should be reduced. By December 12, the debtor had not obtained the loan called for in his plan, nor made the lump sum payment he proposed. The court denied confirmation of the debtor's filed plan as not feasible, and concluded a further extension would not likely lead to confirmation of a plan. The court opted to dismiss the case because the debtor did not confirm his plan by the December 12 deadline, violating the order show cause's requirement that the debtor timely confirm his plan. After receiving briefs from the parties, the court entered an order dismissing the case "with prejudice under 11 U.S.C. § 349(a)" and barring the debtor from filing another bankruptcy case for three years. The debtor timely appealed.
Gan, Lafferty, and Spraker

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