Opinion
Bankruptcy No. 04-11956DWS.
June 25, 2004
MEMORANDUM OPINION
Before the Court is the Motion of the debtor Sandra Washington to Reconsider Dismissal Order with a 180 Day Bar or in the Alternative for Permission to Refile (the "Motion"). The Motion is opposed by First Horizon Home Loan ("Mortgagee") which holds the mortgage on the residential real estate owned by the Debtor and her husband Milton Washington ("Mr. Washington"). For the reasons that follow, the Motion will be denied. BACKGROUND
As I advised the movant, there is no basis to reconsider the final dismissal order under Fed.R.Civ.P. 59(e) made applicable in this contested matter by Fed.R.Bankr.P. 9023. In short, Debtor alleges no manifest errors of law or fact or newly discovered evidence. See Harsco Corp. v. Zlotnicki, 779 F.2d 906, 908 (3d Cir. 1985) (enunciating standard for reconsideration under Rule 59(e)). Accordingly, I will only address the alternative request that I provide relief from the 180 day bar and permit a refiling.
The Chapter 13 trustee did not participate in this matter.
Debtor and/or Mr. Washington have filed five Chapter 13 bankruptcy cases. Exhibit R-2. In each of these cases, they have been represented by counsel. Mr. Washington testified as to their bankruptcy history as follows:
The docket for the first case was not supplied, and it is too old to be retrievable from the electronic case files.
Case #1 was filed by Mr. Washington in February 1992 and dismissed in July 1996 for reasons that Mr. Washington could not recall although he acknowledged missed payments which he attributed to surgery that caused him to miss work.
Case #2 was filed by Mr. Washington on June 28, 1996 and concluded with the his discharge on November 14, 2001. A motion to lift the automatic stay filed by Mortgagee's predecessor FT Mortgage Co. in July 1997 was settled with a stipulation which was certified to be in default in August 1999. On September 20, 1999 Mortgagee secured an order granting relief from the stay to exercise its state law remedies. Thus, the completion of this case belies the inference that Mr. Washington performed his obligations to the Mortgagee during its pendency.
This and the following case information are gleaned from the dockets of the respective cases. Exhibit R-2.
Case #3 was filed by Mr. Washington on March 1, 2002 and dismissed on December 19, 2002 for failure to make payments under his confirmed Chapter 13 plan which in any event were insufficient to pay the filed proofs of claim. Mr. Washington testified that he had surgery for a hernia and repair of his knee during this case and was unable to work for 4-5 months.
Case #4 was filed by Mr. Washington on March 3, 2003 and dismissed on October 9, 2003 also for failure to make trustee payments. Mr. Washington acknowledged that he never could afford the payments proposed in his Chapter 13 plan which included payment on account of a federal tax claim that is his individual responsibility. While he had acquired a full time second job with the City of Philadelphia in April or May 2003, he was injured at some unstated date and only returned to work in February 2004. With this case going in the same direction as his prior cases, the Mortgagee secured a order granting relief from stay and barring Mr. Washington from filing any further bankruptcy cases for 180 days from the date of the dismissal without leave of Court, i.e., until April 9, 2004. The bar order was unopposed, and the case was contemporaneously dismissed.
Mr. Washington's testimony concerning his employment history, particularly as it was affected by injuries and surgeries was confusing. He confirmed three surgeries occurring in 1994, 1996 and 2002 that caused him to miss work. However, he attributes his missed payments in the 2003 case to missing work from injuries after he secured the second job in April/May 2003. He stated that he was back in work for three months right after the 2002 case was dismissed in February 2003. With this timeline it would appear that he was unable to work from injuries about the time he began the new City of Philadelphia job in April/May 2003. I note that the City job did not begin until after the 2003 case was filed and thus was not a change of circumstances that supported the filing of that 4th case, even if he was for some short period able to work before being sidelined again.
Case #5 was filed by Debtor on February 11, 2004 admittedly in large part, if not entirely, to circumvent the bar order imposed against Mr. Washington in the last case. While this was nominally Debtor's filing, Mr. Washington appeared to be involved in its prosecution to the same, if not more so, as the Debtor. Mortgagee quickly filed a motion to dismiss or for relief from stay accompanied by a 180 day bar order against Debtor which was granted by Order dated March 25, 2004 when Debtor did not appear at the noticed hearing. Neither Debtor nor Mr. Washington satisfactorily explained their failure to appear at the hearing. Without a client and without any evidence, counsel did not contest the Motion.
Counsel had set up an appointment to discuss the motion but neither Debtor nor Mr. Washington appeared or called. The Debtor testified that she could not recall the motion papers and knew of no appointment with her counsel. Mr. Washington stated that he believed the matter was resolved because he turned over a returned check from the Mortgagee to counsel. Neither discussed the motion with counsel.
While counsel stated to the Court at the hearing that he had not heard from Debtor, the Motion avers that the following day Mr. Washington spoke with him and faxed evidence of the March trustee payment and a payment stub from a "new second job" with the City. It appears that counsel was not told of the second job when he prepared the Schedules and was led to believe that it was a new change of circumstance.
Debtor's case was too short-lived to fully test her commitment to bankruptcy relief. However, her response to her first obligations, i.e. to timely pay the Chapter 13 trustee and to defend a dismissal motion that challenged her filing, was so deficient that her case was quickly dismissed. The first trustee payment was due March 12 in the amount of $350, and the Debtor testified that she believed that she paid it in a timely manner. Mr. Washington could not recall whether the payment had been made prior to the dismissal hearing on March 25. However, the Trustee's case report evidences no receipt as of the date of the dismissal hearing. Exhibit R-2.
The Debtor agreed to a wage order to fund her trustee payments. Wage orders commonly take some time to be processed. She apparently was advised and understood that she would have to make the payments until it became effective.
While a money order receipt was attached to the Motion, it was not introduced into evidence. However, it is acknowledged that Chapter 13 trustee received the $350 March payment although it apparently was not timely. While this tardiness alone would not have resulted in a dismissal if the facts were known, Debtor's inexplicably failed to appear at the dismissal hearing or even contact her counsel to advise him that the payment was made.
Debtor is at least twenty months delinquent to Mortgagee who has scheduled numerous sheriff's sales over the years only to have them aborted by another bankruptcy filing. With respect to Mortgagee, Mr. Washington made arrangements to have the current mortgage payments automatically withdrawn from his bank account and remitted to Mortgagee. They have since been returned and Debtor's counsel presently holds $3,015 which has been offered to Mortgagee along with an additional $500 payment deducted from Mr. Washington's bank account and in transit. Mortgagee contends that the post-petition arrears for this case are $2,716, including attorneys' fees and costs. Additionally it anticipates incurring a $2,000 expense of the sheriff sale now scheduled for July 6th. In its view, the payment of $4,716 would be required to bring Mortgagee to where it should have been had the case been properly prosecuted. Mr. Washington indicated that he could make that payment before the sheriff sale. While his counsel already will be holding $3,515 toward that sum, he was not clear what the source of the balance of the payment would be.
In addition to agreeing to maintain wage orders to ensure trustee and mortgage payments, the Debtor contends that this case will also be successful as there has been a change of circumstance, namely that there has been "a significant and substantial increase in income based on the second job of the husband increasing the monthly take home for the debtors from $3,095 to $4,435.94." Motion ¶ 6. Since the second job with the City of Philadelphia is touted as the change of circumstance that will ensure the success of this case, the timing of the employment was explored at some length in cross examination. Surprisingly Mr. Washington acknowledged, contrary to the Motion, that the job was obtained during his last case. However, he testified that he did not start earning income from it until February 2004 when he returned to work from his latest, but unexplained, medical leave. Strangely, since he was employed at the City when the Debtor's petition was filed, that second job was not disclosed on Debtor's Schedule I which was used to determine the disposable income for calculating the plan payment. Nor was Debtor's counsel aware of it until after the case was dismissed. See note 7 supra. Having been confronted with that omission, Mr. Washington could only state that he made a "mistake," and Debtor could only acknowledge that it should have been listed.
The testimony also established, and the Mortgagee's counsel conceded, that the present financial resources of the Debtor and Mr. Washington should be sufficient to fund a confirmable Chapter 13 plan. However, the financial resources are not any different now than they were in the last dismissed case. Thus, the question is should the Debtor be given relief from a bar order that was intended to put Mortgagee's ten year journey through five bankruptcy cases finally to rest. Debtor's counsel argues that the dismissal of Case #5 was inadvertent because Debtor believed by establishing a wage order, having the mortgage payments withdrawn from Mr. Washington's credit union and bringing a payment to counsel's office that she did not have to appear at the hearing. Mortgagee's counsel argues that while the joint income suggests a feasible plan could be proposed so did the income of the prior cases. He notes that the evidence regarding the timing of the second job is "fuzzy" and points out the use of Case #5 to circumvent a bar order. This history, he contends, evidences, bad faith which should be an impediment to the privilege of filing a sixth time to obstruct the Mortgagee from yet another foreclosure sale.
This contention is not supported by Debtor who stated that she did not know of the Motion. More likely he is referring to Mr. Washington who, as noted above, has effectively been managing this case.
DISCUSSION
In 1984 Congress amended § 109 of the Bankruptcy Code adding what is now § 109(g) to prevent certain tactics on the debtor's part that could be deemed abusive, namely using repetitive filings as a method of frustrating creditors' efforts to recover what is owed to them. L.King, 2 Collier on Bankruptcy ¶ 109.08 at 109-51 (15th ed. 2003). See also K. Lundin, Chapter 13 Bankruptcy, 3d Edition § 21.1, at 21-1 (2002 Supp. 2002) ("§ 109(g) was added to the Code in 1984 to deal with perceived abuse of bankruptcy by debtors filing serial bankruptcy cases to avoid foreclosure or to overcome an adverse consequence in a prior bankruptcy case"). The legislative history of the amendment indicates that its purpose is "to provide the court with greater authority to control abusive multiple filings." S. Rep. No. 65, 98th Cong. 1st Sess. 74 (1983). For reasons that are beyond the scope of this opinion, the amendment has not provided courts with an effective statutory tool to deal with abusive serial filers and the efforts to achieve statutory reform that would address this problem have languished in the Congress. As a result, creditors have requested the bankruptcy court to exercise its equitable powers to enter orders that bar recidivist debtors from refiling cases without leave of court where the bankruptcy history so warrants. Indeed the number of serial Chapter 13 filings in this Court has increased to such an extent that not only secured creditors affected by the reimposition of the automatic stay but the Chapter 13 trustee and United States trustee are seeking bar orders to prevent the abuse of this Court's processes. It is therefore not surprising that I am being presented with more and more motions to obtain relief from these bar orders.
A comprehensive and useful discussion of the operation of § 109(g), including the strategies debtors employ to circumvent the bar it would impose, is provided in Judge Lundin's treatise. Lundin, supra, at 21-4 to 21-8.
While there is no per se rule against serial filings, there must be a valid bankruptcy purpose to the new case. Johnson v. Home State Bank, 501 U.S. 78, 87-88 (1991). A genuine change of circumstances may warrant further bankruptcy relief. See In re Oglesby, 158 B.R. 602, 606 (E.D. Pa. 1993) ( citing In re Metz, 820 F.2d 1495, 1498 (9th Cir. 1987)). However "many courts have recognized that a debtor does not have the right to file another bankruptcy reorganization case (under chapters 11, 12, or 13) after dismissal of an earlier one, unless there has been a material change of financial circumstances which demonstrates that the second attempt would succeed after the first had failed." In re Roxy Real Estate Co., Inc., 170 B.R. 571, 574, (Bankr. E.D. Pa. 1993) (citing cases). Thus, I have specifically held that relief from my customary bar order which precludes future filings for 180 days without leave of court "requires a showing of some change of circumstance that would support a good faith filing." In re Norley, 2002 WL 1752280, at *3 (Bankr. E.D. Pa. Jun 24, 2002). Absent the stringent application of this test for granting what is extraordinary relief, the integrity and efficacy of the bar order is undermined and the saga of serial filing incorporates another litigation hurdle that burdens both the parties who have secured the bar order and the court.
A bar order was in effect against Mr. Washington when Debtor filed her 2004 case. Debtor's filing which sought to stay the imminent sheriff's sale of the marital real estate was intended to and did circumvent the bar order that had been requested and secured by the Mortgagee to prevent that very consequence. The actions of one family member can be imputed to the another family member where there is a unity of interest and concert of action. In re Kinney, 51 B.R. 840, 845 (Bankr. C.D. Cal. 1985). Finding that Debtor's case dealt with the same assets and liabilities as Mr. Washington's cases and sought the same end, my analysis is no different here than if it were Mr. Washington seeking relief to file a further bankruptcy petition. In so stating, I am obviously unpersuaded by Debtor's counsel's contention that a filing by Debtor is different because her case did not have to deal with Mr. Washington's federal tax claim. The reality is that her dismissed case did deal with the tax claim by including in the joint budget an amount to pay the negotiated agreement with the Internal Revenue Service. I thus turn to the parties' circumstances at the time of the filing of Case #5 and now to discern whether there has been any change in the Washington's financial circumstances since the Mr. Washington's was barred from refiling in October 2003.
While Debtor acknowledged the intention to circumvent the bar, Mr. Washington stated otherwise. I found her testimony more credible. Mr. Washington's denial of that fact is disingenuous given his four individual filings that sought the same end and his deliberate choice in all these cases not to include Debtor in those cases.
The budget includes $140 monthly on account of that debt. However, the date and terms, including the period of the payout are not revealed, and indeed the arrangement was only disclosed when I expressed my concern about the tax claim being outside bankruptcy and potentially threatening the performance of any plan. Nor is it clear why an extant agreement with the IRS would not have to be honored in bankruptcy. In any event, if there are insufficient funds to pay the IRS, Mortgagee and the Chapter 13 trustee, who will be paid? The IRS which is not subject to this Court's jurisdiction or the Mortgagee and Chapter 13 trustee who are? Notably the budget also includes $450 per month in credit card debt attributable to Mr. Washington, claims that would have to be dealt with on a pari passu basis with Debtor's unsecured claims under a joint Chapter 13 plan. Thus, it is not clear to what extent this case is easier to fund than the past ones.
As noted above, the change advanced by Debtor is the second job Mr. Washington secured with the City of Philadelphia. The facts as proven, however, do not make their case. When Case #5 was filed by Debtor, Mr. Washington had allegedly returned to work at this second job generating funds that were not available in the prior cases to support a plan. Yet neither he nor Debtor told Debtor's attorney about this "new" income, and when Debtor signed her Schedules under penalty of perjury that income was not disclosed. Mr. Washington has been counseled in four prior cases and has attended multiple § 341 meetings. As an experienced debtor, he was well aware of his disclosure obligations. Neither Debtor nor Mr. Washington offered an explanation for the omission. Moreover, the sin is not merely of omission but commission since counsel was clearly given the impression that the City job was a circumstance arising now. Moreover, I found Mr. Washington's explanation concerning the absence of income from that job during his last case to be at best confusing and vague. While his earlier surgeries were explained with some detail and confirmed by his wife, there was no explanation of the nature of his medical problem in 2004 or how long it persisted, and how his absence impacted his income. In short, Debtor has not convinced me that a job secured during Mr. Washington's last failed case provides the new circumstances that would support a further opportunity for financial rehabilitation. I am not prepared to give Debtor and Mr. Washington the benefit of any doubt given that the very fact that they rely on to support their request for extraordinary relief was not disclosed in the Debtor's bankruptcy schedules filed under penalty of perjury.
I also do not find the fact that the Debtor and Mr. Washington have now agreed to a wage order for the trustee and mortgage payments a change of circumstance that supports leave to file a new petition. I attribute those steps, which obviously contribute to the success of a case by taking control of available funds out of the hands of the Debtor, to the sage advice of Debtor's counsel who also has retained all the funds returned when the last case was dismissed. However, the issue is not whether a case can now succeed with more stringent controls placed on the Debtor but whether there has been a change in the Debtor's circumstances that makes a new case different than the prior unsuccessful ones. The burden is on the Debtor to meet that test, not merely to show that after prior failed cases, the Debtor is now ready to meet her commitments. Debtor has not met that burden, and therefore I will not permit a further filing. Debtor's residential real estate has effectively been protected by this Court since 1994. Enough is enough.
An Order consistent with this Memorandum Opinion shall be entered.
ORDER
AND NOW, this 25th day of June 2004, upon consideration of the Motion of the debtor Sandra Washington to Reconsider Dismissal Order with a 180 Day Bar or in the Alternative for Permission to Refile (the "Motion"), after notice and hearing and for the reasons stated in the accompanying Memorandum Opinion;
It is hereby ORDERED that the Motion is DENIED.