Bankruptcy

Game Over: Chapter 13 Debtor Sent Packing to State Court

By Bill McLeod, Esq.

A chapter 13 can be dismissed for lots of reasons: there is no money to fund a plan, the plan cannot be confirmed, or (as I discussed yesterday) tax returns have not been filed. A chapter 13 may also be dismissed for another important reason: the case was not filed in good faith. A North Carolina debtor learned just that.

Debtor filed a chapter 13 after she was sued in state court for race, religious and sex discrimination by a former employee. She listed the employee's claim for $1.00. She also listed no other creditors. The employee sought dismissal for a variety of reasons, all grounded in what she argued was the debtor?s bad faith.

Underestimating the employee?s claim was not the only problem with the debtor?s schedules. The debtor also neglected to include the thousands of dollars she later admitted to owing the attorney who represented her in state court. So her schedules were not accurate and complete. Strike one.

The debtor filed the case two weeks before the state court case was to go to trial. While that fact alone is not determinative, it is an appropriate consideration in determining good faith. Foul ball/Ball one.

It appeared from the facts that the debtor?s only purpose in filing the case was to frustrate the state court action. The debtor and her husband owned real estate (that had no mortgages or liens) worth close to $500,000 and further, they had no debt. Since she only listed one creditor, it appeared that the only reason why she filed was to defeat the state court discrimination case. Strike two.

Perhaps the most glaring fact working against the debtor was the fact that she had no income. She was not employed and didn?t yet qualify for Social Security benefits. The only household income is that from her non-debtor husband?s Social Security. There was also a savings account solely in his name. She never bothered to submit evidence demonstrating that there would be a stream of payments from the husband to her to fund a chapter 13 plan. Strike three.

Chapter 13 is for honest debtors, and this debtor is far from honest. The court agreed, and dismissed the chapter 13. Now the debtor will be left to fight her one creditor claim in state court. Her bankruptcy game is over.

In re Tippett, Bankr.E.D.N.C. 08-00542-8 JRL, May 8, 2008.

Full post as published by McLeod Law Offices on June 26, 2008 (boomark / email).