In re Mayfield
In re Mayfield
Opinion of the Court
OPINION AND ORDER GRANTING MOTION TO DISMISS
On August 4, 2016, K. Rex Mayfield [the debtor] filed the above-captioned chapter 13 bankruptcy case. On September 28, 2016, the debtor’s ex-wife, Suzanne May-field [Mayfield] filed a motion to dismiss the debtor’s case for cause and on November 16, 2016, filed a motion for relief from stay. The Court held a hearing on May-field’s motions on November 29, 2016. Sherry Daves appeared on behalf of the debtor; Marc Honey appeared on behalf of Mayfield. At the conclusion of the hearing, the Court took the motions under advisement. For the reasons stated below, the Court grants Mayfield’s motion to dismiss, rendering her motion for relief from stay moot.
Background
After approximately 19 years of marriage, the debtor and Mayfield divorced on June 30, 2015. On that date, the parties entered into an agreement approved by the Domestic Relations Division of the Garland County Circuit Court [state court or court] and memorialized in a decree of divorce [consent decree or decree]. The consent decree provided, in relevant part, that
The Defendant [debtor] shall keep as his sole and separate property the real property and improvements located at 290 Scroggins Terrace, Hot Springs, AR 71901 and shall pay to the Plaintiff [Mayfield] the sum of $125,000.00 within 120 days of this Decree. Defendant shall be responsible for all real property taxes due for 2014 and thereafter and any other debt associated with said property. Plaintiff agrees to execute a quitclaim deed upon full payment of monies for her share in the real property.
Jt. Ex. 5. Despite the parties’ agreement, the debtor did not pay Mayfield $125,000.00 within 120 days of the decree, leading Mayfield to file a motion for contempt in state court. On May 10, 2016, the state court found that the debtor had not complied with the terms of the consent decree. To enforce the decree, the court ordered that
3. The real property and improvements located at 290 Scroggins Terrace, Hot Springs, Arkansas 71901 shall be placed for public auction on August 9, 2016 or as soon thereafter as it is convenient to the Circuit Clerk.
4. The Circuit Clerk shall sell the home to the highest bidder subject to a down payment of 10% with the balance being paid within ninety (90) days and shall thereafter make a report to the Court and seek confirmation of the sale.
Jt. Ex. 6. The state court’s May 10 order provided that after deducting the costs of the sale, the sale proceeds would be used to pay Mayfield $125,000.00 plus $3100.00 for her attorney fees, with any remaining proceeds belonging to the debtor. The Court has no evidence to suggest that the debtor appealed the state court’s May 10 order. On August 4, 2016—five days prior to the auction—the debtor filed this chap
On September 16, 2016, the debtor filed his schedules, statements, and plan. In his schedules, the debtor stated a monthly income of $7093.03, derived largely from the debtor’s telecommunications consulting business. The debtor. stated expenses of $3137.00, including $836.00 for monthly charitable contributions. Based on his stated income and expenses, the debtor had a monthly surplus of $3956.03 on the date that he filed his petition,
On September 28, 2016, Mayfield moved to dismiss the debtor’s case under 11 U.S.C. § 1307(c), alleging that the debtor filed his bankruptcy case in bad faith. On November 16, 2016, Mayfield filed her motion for relief from stay, asserting that the automatic stay does not apply to domestic support obligations under 11 U.S.C. § 362(b)(2).
At the November 29 hearing, Mayfield testified that she works at a discount store and receives alimony payments of $600.00 per month from the debtor. Mayfield currently lives in a rented apartment and testified that the purpose of the $125,000.00 was to provide her with “somewhere to live” and allow her to take care of herself. The debtor acknowledged that he owes Mayfield $125,000.00 and professed a desire to pay her. However, he does not
The debtor testified that he believes that the property is currently worth $185,000.00 based upon an appraisal that he obtained in 2015. However, he also believes that the property will be worth $250,000.00 when he finishes updating the home.
The debtor estimates that it would cost approximately $32,000.00 to purchase the materials that he would need to finish renovating the property and testified that he has the money to pay for the remainder of the materials. He does not believe, however, that it is in his best interest to invest the funds and energy required to complete the renovations unless he knows that he will reap a benefit from the sale. As a result, the debtor did not resume the renovations when he filed his plan on September 16, nor had he resumed the renovations as of the hearing on November 29. He estimated that he would need six months from November 29 to complete the renovations and six more months—or longer—to sell the property. He admitted on cross-examination that when he proposed his plan on September 16 to sell the property within six months, there was “no way” that he could have finished the renovations within that time.
Mayfield agrees with the debtor that a sale of the property on the open market would bring a higher sale price than would a court-ordered auction. However, she believes that the debtor’s lack of progress on the renovations, coupled with his attempt to establish a minimum sale price of $285,000.00, indicates that the debtor does not intend to sell the property at all. She contends that the debtor filed bankruptcy for the sole purpose of thwarting the state court’s order directing the auction of the property. For these reasons, Mayfield alleges that the debtor filed his petition and proposed his plan in bad faith under § 1325(a)(3) and (a)(7), respectively, and moves the Court to dismiss the case' for cause under § 1307(c). Absent dismissal, Mayfield asks the Court to find that the stay is not applicable to the continuation of her state court action under § 362(b)(2) or find that she established cause .to lift the automatic stay under § 362(d)(1).
Findings of Fact and Conclusions of Law
In a chapter 13 case, the issue of bad faith arises primarily in two contexts. First, under § 1307(c), if a debtor files a chapter 13 case in bad faith, the court may convert or dismiss the case “for cause.” Hansmeier v. McDermott (In re Hansmeier), 558 B.R. 299, 303 (8th Cir. BAP 2016) (citing Molitor v. Eidson (In re Molitor), 76 F.3d 218, 220 (8th Cir. 1996)). Second, in order for a debtor’s plan to be confirmed under § 1325, the debtor must have filed his chapter 13 petition in good faith and proposed his plan in good faith. 11 U.S.C. § 1325(a)(3) and (a)(7). The only substantive difference between a bad faith inquiry for purposes of dismissal under § 1307(c) and a good faith inquiry for purposes of confirmation of a plan under § 1325 lies in the party bearing the burden of proof. In re Mattson, 241 B.R. 629, 635 (Bankr. D. Minn. 1999); see also In re Goodvin, 548 B.R. 806, 811 (Bankr. N.D. Iowa 2016) (“Bad faith is synonymous with lack of good faith.”) Under § 1307(c), the moving creditor bears the burden of proving that the debtor filed his petition in bad faith, while under § 1325(a)(3), a debtor seeking confirmation of a plan bears the burden of proving that he filed his petition in good faith. In re Mattson, 241 B.R. at 635 (citing In re Love, 957 F.2d 1350, 1355 (7th Cir. 1992)). Although confirmation of
In the Eighth Circuit, courts examine the totality of the circumstances to determine whether a debtor filed a chapter 13 petition in bad faith. In re Molitor, 76 F.3d at 220. Courts generally analyze whether the debtor accurately stated his debts and expenses; whether the debtor has made fraudulent misrepresentations to mislead the Court; and whether the debt- or has unfairly manipulated the bankruptcy code. Id. Courts also examine the debt- or’s pre-filing conduct and his motivation and sincerity in seeking chapter 13 relief. In re Ussery, 261 B.R. 227, 229 (Bankr. E.D. Ark. 2001). Additional considerations may include whether the debtor has few unsecured creditors, whether the petition allows the debtor to evade a state court order, and whether the debtor filed bankruptcy solely to obtain the protection of the automatic stay. See In re Klevorn, 181 B.R. 8, 11 (Bankr. N.D.N.Y. 1995). The “‘hallmark of the totality of the circumstances test is that the factors to be considered may vary in each case.’” In re Goodvin, 548 B.R. at 811 (quoting Sullivan v. Solimini (In re Sullivan), 326 B.R. 204, 212 (B.A.P. 1st Cir. 2005)). A determination of bad faith requires a fact-intensive, “multi-faceted analysis that is applied on a case-by-case basis.” In re Sullivan, 326 B.R. at 212. Therefore, the Court will discuss the factors that appear relevant in this particular case.
In evaluating whether the debtor accurately stated his debts and expenses, the Court recognizes that there exists a question regarding whether the debtor accurately stated the amount of his debt to the IRS. On August 24, 2016, the IRS filed a proof of claim in the amount $44,767.76. Approximately three weeks later, on September 16, 2016, the debtor filed schedules stating that he owes a debt of $9600.00 to the IRS. On November 30, the IRS filed an amended proof of claim in the amount of $44,140.58. However, because the disparity could have been resolved by further amendments to the IRS’s proof of claim or through claims litigation that may ultimately have proved the debtor’s figure to be the correct one, the Court cannot find that the debtor stated the amount of his debt to the IRS inaccurately. Because the Court has no evidence contradicting jhe accuracy of the other debts or expenses as stated in the debtor’s schedules, the Court finds its examination of this particular factor unavailing. However, the absence of a certain factor is not determinative; bad faith is analyzed within a flexible framework dictated by the facts of each case. See, e.g., In re Rotellini, 510 B.R. 241, 245 (Bankr. E.D. Mo. 2014) (citing Handeen v. LeMaire (In re LeMaire), 898 F.2d 1346, 1349 (8th Cir. 1990)).
Although solvency at the time of filing is not necessarily a marker of bad faith, the Court finds that, in this case, the debtor’s overall financial condition is relevant to a determination of his motivation and sincerity in seeking chapter 13 relief. Mayfield testified that the debtor has. owned a telecommunications consulting business for several years. The debtor’s schedules reflect that he has a monthly
To the contrary, at the November 29 hearing, the debtor testified unequivocally that he filed bankruptcy on August 4 for the purpose of stopping the auction of the property that had been ordered by the state court and was scheduled to take place on August 9. The debtor testified that because the state court did not establish a minimum sale price for the property at auction, he was worried that the property would be auctioned for less than the $125,000.00 he was ordered to pay Mayfield. He also acknowledged the less altruistic—and, the Court believes, predominant-concern that an auction resulting in a low sale price would yield no excess funds for his own use after his debt to Mayfield was satisfied. To remedy his concerns, the debtor filed this case to derail the court-ordered auction and sell the property on terms more favorable to him than those ordered by the state court.
The purpose of the Bankruptcy Code is to provide debt relief to debtors who require a “fresh start.” It is not a forum to avoid the import of state court decisions or other lawful obligations. See In re Huckfeldt, 39 F.3d 829 (8th Cir. 1994); In re Maras, 226 B.R. 696 (Bankr. N.D. Okla. 1998); In re Griffith, 203 B.R. 422 (Bankr. N.D. Ohio 1996) (case dismissed where it was “clear that the bankruptcy action is merely a continuation of a previously litigated dispute between divorced spouses.”); In re Casey, 198 B.R. 910 (Bankr. S.D. Cal. 1996) (bad faith exists when the case is*635 filed for the purpose of continuing or collaterally attacking state court litigation between debtor and former spouse); In re Bandini, 165 B.R. 317 (Bankr. S.D. Fla. 1994); Rogers v. Overstreet (In re Rogers), 164 B.R. 382 (Bankr. N.D. Ga. 1994) (case filed in bad faith were [sic] admitted purpose was to circumvent state court obligations). See also In re Lewis, 227 B.R. 886 (Bankr. W.D. Ark. 1998).
In re Banks, 241 B.R. 434, 437 (Bankr. E.D. Ark. 1999). As the Court discussed earlier, the debtor in the instant case did not file bankruptcy due to financial distress. Instead, by his own admission, the debtor filed his chapter 13 case to evade the consequences of the state court’s May 10 order—namely, to stop the auction. Therefore, the Court finds that the debt- or’s motivation for filing bankruptcy was improper.
Additionally, the debtor proposed in his plan to pay Mayfield her claim of $125,000.00 when he sold the property “within six months” for “not less than $285,000.00,” Because the debtor filed his plan on September 16, the six-month period ostensibly began to run on September 16. However, at the hearing, the debtor acknowledged that when he filed his plan, he knew that there was “no way” that the property could even be ready to sell within six months due to the incomplete state of the renovations. He admitted that he had worked very little on the renovations for over three years—and did not plan to start unless he knew that he would reap a benefit from the sale. As a result, on November 29, he said that he needed a new six-month period starting on that day to finish the renovations and then an additional six months—or longer—to actually sell the property.
Conclusion
In sum, the Court finds that the debtor had no legitimate purpose for filing this chapter 13 case. Against a backdrop of financial stability and few unsecured creditors, the debtor filed this case solely to escape the ramifications of the state court’s May 10 order. The debtor sought
IT IS SO ORDERED.
. The debtor amended his schedules on November 28, 2016, to reflect a monthly alimony payment of $600.00 to Mayfield, changing his monthly surplus to $3356.03.
. The debtor's claimed exemptions drew no objections.
. The Court takes judicial notice of the proof of claim filed by the IRS on August 24, 2016, in the amount of $44,767.76 and the amended claim filed by the IRS on November 30, 2016, in the amount of $44,140.58, asserting that the debtor owes the IRS a priority unsecured debt of $27,949.76 and an unsecured debt of $16,190.82. See Fed. R, Evid. 201 (a court may take judicial notice of certain facts on its own at any stage of a proceeding); see also In re Henderson, 197 B.R. 147, 156 (Bankr. N.D. Ala. 1996) (a court may take judicial notice of records in a case before it). The Court also takes judicial notice of the fact that, to date, no additional unsecured creditors have filed claims,
.The debtor disagrees with Mayfield’s characterization of the $125,000 payment owed to Mayfield ás a domestic support obligation, arguing instead that it is a property settlement. Because the Court finds that dismissal is warranted, it need not decide the nature of the debtor’s obligation to Mayfield.
.The debtor testified that in the 60 days after the state court’s order, he applied for numerous loans to pay Mayfield but was turned down 38 times. On cross-examination, the debtor admitted that he filled out only five loan applications and further admitted that one lender approved him for a $60,000.00 loan but that he opted not to proceed with borrowing the money. He testified that despite having good credit, he was unable to obtain a loan because he is in the process of renovating the property and was told that “banking regulations” prohibit banks from using property undergoing renovations as collateral.
. When pressed on cross-examination about how he arrived at the minimum sale price proposed in his plan of $285,000.00 when he believes the property will be worth $250,000.00 when the renovations are completed, the debtor stated that $285,000.00 is what it would cost him to replace the property if something were to happen to it.
. The Court has no evidence that the debtor has ever listed the property for sale—through Jones or anyone else. Jones did, however, assist the debtor with his purchase of another home approximately two weeks prior to filing his bankruptcy case.
. Mayfield did not move for conversion as an alternative to dismissal and the Court does not believe that conversion is appropriate in this case.
. As discussed previously, the debtor scheduled a debt of $9600.00 to the IRS. The fact that the IRS filed a proof of claim for a higher amount after the debtor had already availed himself of chapter 13 relief could not have contributed to the debtor's decision to file bankruptcy in the first place.
. Had this case proceeded, the Court would not have had jurisdiction to modify the state court's order pursuant to the Rooker-Feldman doctrine. Rooker-Feldman is implicated in that subset of cases where the losing party in a state court action subsequently complains about that judgment and seeks review and rejection of it. Skit Intern, Ltd. v. DAC Tech. of Ark., Inc., 487 F.3d 1154, 1156 (8th Cir. 2007).
. At best, Mayfield would be forced to wait more than two years after the parties’ divorce to receive payment.
Reference
- Full Case Name
- IN RE: K. Rex MAYFIELD, Debtor
- Status
- Published