J. MICHAEL DEASY, Bankruptcy Judge.
This matter is before the Court on creditor St. Mary's Bank's Motion to Dismiss, for
This Court has authority to exercise jurisdiction over the subject matter and the parties pursuant to 28 U.S.C. §§ 1334, 157(a), and U.S. District Court for the District of New Hampshire Local Rule 77.4(a). This is a core proceeding in accordance with 28 U.S.C. § 157(b)(2)(A) and (G).
Some broader context is necessary to have a fair understanding of this dispute. The debtor in this case, Guylaine Taal ("Ms. Taal") is married to Baboucar Taal ("Mr. Taal"). Their home is located at 59 Essex Road, Bedford, New Hampshire (the "Property"), which they own jointly. On December 10, 2004, Ms. Taal borrowed $353,700 from the moving creditor here, St. Mary's Bank (the "Bank"). In return, the Bank received a note from Ms. Taal, secured by a mortgage on the Property. Mr. Taal, while not a party to the note, is bound by the mortgage.
Mr. Taal is not a stranger to this Court. He has filed three chapter 13 petitions over the past two-and-a-half years, each of which was dismissed before a plan was confirmed. Each case was dismissed for a similar reason: his failure to file various documents. The Court notes that Mr. Taal, despite not filing the necessary documents in any of his three cases, filed many contentious pleadings, a good number of which were directed at the Bank.
Ms. Taal was not a joint debtor in any of those cases. This is her first bankruptcy case. She, in contrast to Mr. Taal, filed her petition with the benefit of legal representation and to date has filed all the required documents. Also, the Court notes that the chapter 13 trustee has not moved to dismiss this case for any reason. Ms. Taal has not yet had the opportunity to confirm her proposed chapter 13 plan (Doc. No. 8) because the Court deferred scheduling a confirmation hearing pending a decision on the Motion.
The Bank filed the Motion claiming that the four bankruptcy filings Mr. Taal's three and Ms. Taal's one should be considered as filed by one entity acting in concert as part of a bad-faith scheme to frustrate the Bank's attempts to foreclose on the Property. Each of the filings, the Bank asserts, happened shortly before it was scheduled to conduct a foreclosure sale of the Property. The Bank argues that each of the four filings was devoid of a rehabilitative purpose and that the Taals were purely seeking to frustrate its legitimate state-law rights. To support these arguments, the Bank generally argues that Ms. Taal's schedules, statement of financial affairs, and monthly operating reports are replete with various inconsistencies and inaccuracies.
Ms. Taal denies these allegations and argues that her bankruptcy case is separate from Mr. Taal's prior three and that nothing in the Taals' cases frustrated the Bank's foreclosure sales. First, she argues that the Bank did not start its efforts to foreclose on the Property until after Mr. Taal's first case had been dismissed. Second, she argues that because the Bank never sought relief from the automatic stay in Mr. Taal's cases, it cannot now claim that those cases frustrated its foreclosure attempts. Third, she argues that her schedules are accurate to the best of her knowledge and her good faith is demonstrated by having made substantial payments to the Bank, on account of the note and mortgage, since the inception of Mr. Taal's bankruptcy cases. Ms. Taal introduced evidence to support these payments, showing $55,029.55 in payments that she made to the Bank between September 2012 and December 2013. Ex. 103. Ms. Taal also introduced evidence that the overall amount she owes to the Bank has been decreased on account of these payments. Ex. 101. The Bank did not dispute these exhibits.
The Court sets out separately the following table to compare the filing and dismissal dates of Mr. and Ms. Taal's bankruptcy cases, and Mr. Taal's extra-bankruptcy attempts to stop the Bank's foreclosure, with the dates on which the Bank took actions to effect the foreclosure sale of the Property.
To summarize, the Bank did not notice a default on the note until after the dismissal of Mr. Taal's first bankruptcy case. Mr. Taal's second bankruptcy case came some seventy-four days after the first notice of default. His third bankruptcy case was filed eight days after the first cooperation request but over a month after the third notice of default. Ms. Taal's bankruptcy case was filed one day before the scheduled foreclosure sale.
During her testimony, Ms. Taal stated that she was generally aware of each of the events in the table above but that she and Mr. Taal did not have explicit discussions to coordinate strategically on anything. She did state affirmatively that the only reason she filed her bankruptcy case was to stop the Bank's foreclosure.
The Bank spent the lion-share of its direct examination of Ms. Taal cataloging inconsistencies and admittedly inaccurate items between and among her bankruptcy schedules, monthly operating reports, and statement of financial affairs. Rather than reviewing every detail of the Bank's examination, the Court will look at the most material elements of Ms. Taal's testimony.
Item 10 in Ms. Taal's statement of financial affairs indicates that on July 25, 2011 she and Mr. Taal transferred the Property into the "Yaram Trust." Mr. and Ms. Taal are the trustees and beneficiaries of this trust. Schedule A, as initially filed with her bankruptcy petition, did not discuss the Yaram Trust in relation to the Property. Later, Schedule A was amended to include that title to the Property was held by the trust. Ms. Taal stated that this trust was created for estate planning purposes to protect her and Mr. Taal's children.
The Bank examined Ms. Taal about the ownership and motor vehicle registration of her Toyota Tundra. The Bank pointed out that while the certificate of title lists Ms. Taal as the owner, the vehicle is registered to "Sheer Elegance, Inc." Ms. Taal's business. Ex. 41. The Bank also noted that in her deposition, Ms. Taal had stated that Mr. Taal owned the Tundra. Ms. Taal admitted that statement was incorrect, but clarified to say that she is married to Mr. Taal so they see it as both of theirs, even though her name is on the title.
The Bank also inquired into the value of Ms. Taal's business, Sheer Elegance, Inc. On line 13 of Schedule B, Ms. Taal lists the value of her business as $5,000. After being questioned by the Bank, Ms. Taal stated that the business was actually not worth anything because its liabilities exceeded its assets. She also admitted that she had not amended Schedule B to correct this inaccuracy.
Ms. Taal also testified about how she reported her income in her schedules. She admitted that her statement of financial affairs showed that she was earning about $1,200 per week from her ownership interest in Sheer Elegance. She also admitted that the income shown in her Schedule I $6,716.67 per month works out to about $1,550 per week. When questioned about the difference the Debtor stated that she simply increased the amount she paid herself from the business.
The Court will first set out the relevant legal standards and then discuss their application to the evidentiary record.
"Section 1307(c) provides that on request by a party-in-interest, after notice and a hearing, the court may dismiss a case under Chapter 13 or convert the case to a Chapter 7 case, whichever is in the best interests of the creditors and the estate, for cause."
While "bad faith" is not an enumerated "cause" under § 1307(c)(1)-(11), "it is well established that lack of good faith (or bad faith) is `cause' for dismissal or conversion of a Chapter 13 case."
Bankruptcy courts in the First Circuit apply a totality of the circumstances test to determine whether a debtor has filed a chapter 13 in good faith (or bad faith).
Although this Court and others have provided lists of relevant factors, the inquiry is inherently fact sensitive, done on a case-by-case basis, and may involve consideration of other factors or a more general balancing of equities.
However, courts have held that a debtor's "reckless disregard for the accuracy of information" contained in his schedules can rise to the level of bad faith.
Section 362(d)(4) provides for
11 U.S.C. § 362(d)(4) (emphasis added).
The Court has not found any binding or in-depth persuasive precedent covering § 362(d)(4) within the First Circuit. Courts in other circuits have, however, covered this issue thoroughly. These courts have focused on the term "scheme" when determining whether relief should be granted under § 362(d)(4). These courts have regarded this term as meaning "an intentional artful plot or plan."
Courts also apply a four-part test to determine whether
Generally, when a creditor seeks relief under § 362(d), the creditor only has the burden of proof as to the issue of lack of equity in the collateral and the debtor has the burden of proof on all other issues. § 362(g). Subsection (d)(4) supplies a more specific rule as to the burden of proof by requiring a court to make an affirmative finding (". . .if the court finds that the filing of the petition was part of a scheme. . .").
The Court will conduct a joint analysis of the record under §§ 1307(c) and 362(d)(4). On the facts before it, given the undisputed serial filings, if the Court finds bad faith, it will also likely find that
The facts of this case present the Court with a specific type of serial filing the husband-wife type. When this type of filing rises to the level of bad faith it clearly demonstrates a scheme within the meaning of § 362(d)(4). The court in
Here, the Bank has not met its burden to demonstrate bad faith under §§ 1307(c) or 362(d)(4). First, the Court finds that while errors, misstatements, and inconsistencies exist in Ms. Taal's schedules, they do not appear to be more than ordinary mistakes that exist in many bankruptcy petitions. Finding bad faith requires more than simple mistakes.
Second, there is the matter of the serial bankruptcies. The Courts notes at the outset that only Mr. Taal's second and third cases, in addition to Ms. Taal's one case are really relevant here Mr. Taal's first case was filed before the Bank even sent a notice of default under the note to Ms. Taal. Of the other three cases, only one was filed on the eve of foreclosure. This is unlike the typical husband-wife "tag team" cases, where each case is filed immediately preceding a foreclosure. None of Mr. Taal's petitions were filed when a foreclosure had actually been scheduled, only when the Bank was moving in that direction. Taal's second case is even further removed from the Bank's foreclosure activity, as it was filed more than seventy days after the Bank's first default notice to the Taals it is not clear to the Court that the second bankruptcy was necessarily motivated by this demand letter. The dockets in Mr. Taal's bankruptcy cases in this Court, and the references in his filings and filings by the Bank in those cases, reflect that Mr. Taal's principal motivation in filing his bankruptcy cases was not financial reorganization, but vindication of his problems and disputes with the Bank and its legal counsel. For these reasons the Court finds that the serial filings of the Taals do not demonstrate a scheme sufficient to trigger § 362(d)(4).
Third, Ms. Taal has been consistently making significant payments to the Bank on the note. Indeed, she was making these payments throughout the time Mr. Taal's cases were pending and up until the time she filed. There is no evidence about whether Ms. Taal has been continuing to make payments post-petition. The record indicates that Ms. Taal has made in total over $55,000 in payments since the Taals began filing bankruptcies and that these payments have been reducing the principal balance on the note over the same time. These facts also differentiate this case from the typical husband and wife bad faith serial filing case.
Fourth, Ms. Taal has complied with the requirements of the Bankruptcy Code during this case. She did not file any objection to the Bank's request for a 2004 examination and has not filed a multitude of vexatious, frivolous pleadings, which is in contrast to Mr. Taal's prior cases before this Court. Indeed, Mr. Taal's third case was dismissed by this Court for willful failure to abide by its orders regarding a legitimate request by the Bank for tax return information. This dichotomy is relevant in the bad faith analysis and goes toward Ms. Taal's demonstration of a serious bankruptcy purpose, rather than using this Court as a forum for some other, less appropriate goal.
For all these reasons, the Court finds that under the totality of the circumstances, Ms. Taal's petition was not filed in bad faith. For the same reasons, her filing does not appear to be related to Mr. Taal's filings as part of any intentional scheme or plan to frustrate the Bank's exercise of its rights under the note and mortgage on the Property. Therefore, the serial filings of Mr. and Ms. Taal do not appear to be part of a scheme meriting
The Motion shall be denied for the foregoing reasons. This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate order shall issue disposing of the Motion and setting a hearing date on confirmation of Ms. Taal's proposed chapter 13 plan.
