By Ryan C. Wood
It is possible to voluntarily dismiss a chapter 7 case, but rarely successful and it is never a good look or good position to be in. Chapter 13 cases have procedures for a debtor to file a motion to voluntarily dismiss the case and most chapter 13 trustee’s will seek dismissal for nonpayment of the chapter 13 plan payment or some other procedural failure and the case will be dismissed. Chapter 7 is a different story and once you bring that plate of food for the chapter 7 trustee and creditors to eat off of, if there is food on that plate at all, it will be difficult to convince a court to dismiss the case and let you take back the food to deal with your creditors outside of bankruptcy in the real world again. The filing for bankruptcy protection is voluntary and that is why you should meet with a bankruptcy attorney that actually takes the time to know what your circumstances are before offering you a fee for their services. Do not retain the services of an attorney that provides online quotes without ever talking to you or the only person you ever speak with is an unlicensed administrative assistant fresh off their job working fast food. I know it takes more time but as the debtor found out the hard way in this appeal it is an uphill battle to dismiss a voluntarily filed chapter 7 bankruptcy petition. Please see various articles linked below about why you should always hire an attorney, an attorney that will actually represent you in the bankruptcy case, when seeking bankruptcy protection.
In re Myron Hale; BAP No. CC-19-1225-SFL; Sept. 28, 2020
This case involves a strange set of facts that can only be partially explained by a footnote in the appellate court’s decision providing the debtor previously tried to dismiss his chapter 7 case arguing bad legal advice. The thing is the debtor represented himself and filed his own chapter 7 petition. There is more to this story of course. First though the facts of the chapter 7 case and sequence of events.
Chapter 7 Case Sequence of Events Regarding Denial of Motions to Dismiss
The debtor in this case filed his own chapter 7 bankruptcy petition on February 26, 2018, and sadly his dad previously died in 2003. There was no disclosure or mention of any interest in the deceased father’s estate in the filed bankruptcy documents. A month after the chapter 7 bankruptcy petition filing the debtor filed a petition to initiated probate proceedings regarding his deceased father’s assets. Why this happened with the timing it happened is still a mystery and may only be explained by the footnote mentioned above. The debtor filed his first motion to dismiss the chapter 7 case on March 16, 2018, not too long after filing the chapter 7 petition on his own behalf. This first motion to dismiss was denied. It is important to note that this first motion to dismiss the case was filed without disclosing the interest in his father’s estate. The chapter 7 case proceeds, meeting of creditors is held and the chapter 7 trustee files his notice of no assets for creditors on June 11, 2018. The court signs and enters the order of charge and the chapter 7 case is closed on July 16, 2018. The chapter 7 trustee gets wind of the probate case for the estate of the debtor’s deceased father and files a motion to reopen the chapter 7 case on December 7, 2018. The court grants the motion the same day and the chapter 7 case is reopened. The debtor has absolutely no real notice of the chapter 7 trustee’s motion to reopen and has absolutely no time to oppose the reopening of the chapter 7 case. While under the circumstances the chapter 7 trustee had every right to seek to reopen the case, and regardless the case probably would be reopened, what about due process and notice to the debtor or other parties in interest? Three months later the chapter 7 trustee files a motion on March 12, 2019, to retain legal counsel on behalf of him and the bankruptcy estate. On July 10, 2019, the chapter 7 trustee files a new notice to creditors that there are possibly assets of the bankruptcy estate that can be administered for their benefit. On August 21, 2019, the debtor files his second motion to voluntarily dismiss the case and this is the one that is the subject of the appeal. A hearing was held on September 11, 2019, and the following day an order was signed and docketed denying the debtor’s motion to dismiss his case. The same day, September 12, 2019, the debtor filed his notice of appeal. The Ninth Circuit Bankruptcy Appellate Panel upheld the denial of the motion to dismiss and this will allow the Chapter 7 Trustee to continue to pursue the assets of the debtor’s father’s estate, if any.
Motion to Voluntarily Dismiss Chapter 7 Denied
The debtor in this case filed the first motion to dismiss the chapter 7 case without disclosing the interest in her father’s estate though. The first motion to dismiss arguably had a better chance than the second motion to dismiss the case. The first motion to dismiss on its face just seemed like a buyer’s remorse type of argument and it appeared at that time there were no assets for the bankruptcy estate to be administered. Even then the court denied the motion to dismiss not finding adequate cause to dismiss the chapter 7 case. The second motion to dismiss in my opinion was doomed from the beginning given the court and chapter 7 trustee know the debtor failed to disclose the interest in his father’s estate. Regardless of the other facts or arguments made this is a bad look even if it was an innocent mistake. Another option prior to the first filed motion to dismiss the case was filing a motion to convert the case to Chapter 13 so at least there would be no liquidation of assets. That is a whole other story though and may not have been possible.
So I of course had to dig deeper into the facts then the appellate decision provides and here is what I found out.
The More To This Story
Sadly year after year I see the same horrible problems I believe the debtor fell victim to in this case. He is desperate to save his house and that is what horrible humans prey upon. It appears he was advised by an attorney to file the chapter 7 bankruptcy case to stop the foreclosure of his home yet the attorney providing this advice was not willing to actually represent the debtor in the chapter 7 case. An artist absolutely signs their work when painting a picture. So too should a bankruptcy attorney. If they do not then you should know there is a problem because they will not put their name on it. Each and every month people file their own petitions for bankruptcy and this case appears to unfortunately be just another cautionary tale about why it is invaluable to pay an experienced bankruptcy attorney to help you. Even if you have a simple case you never know. Over and over again assets are lost that should not be due to the court not allowing the voluntary dismissal of a chapter 7 case and the liquidation to proceed just like in this appeal and chapter 7 bankruptcy case.
What the appeal does not let us know without looking further helps explain what is going on in this case. The debtor owned real property, his primary residence, with an alleged fair market value of $350,000 and a secured loan on the residence totaling $350,000. Number one, I can safely assume the debtor’s residence was subject to some sort of foreclosure process given Clear Recon is listed as a party to be noticed of the bankruptcy filing and foreclosures are what they do. Number two, the debtor has a pending state court lawsuit with the Los Angeles Superior Court against Ditech, MERS, Caliber and U.S. Bank Trust that would only be about the real property mentioned above and their attempts to foreclosure on the property due to the debtor not paying his loan. Number three, the debtors monthly income according to the chapter 7 petition is only $1,200 a month while the monthly mortgage payment is listed as $2,700 each month and his total monthly expenses are $3,110.00.
This is exact recipe for not being able to afford a home any longer, missing many mortgage payments, filing a state court lawsuit that is doomed from the beginning, then when that lawsuit appears to be failing file a bankruptcy petition to receive the automatic stay to stop the foreclosure; albeit temporarily.
In the present case the home of the debtor is not much of an issue in the chapter 7 bankruptcy estate given the debtor applied the California Homestead Exemption totaling $175,000 that I can only assume he was eligible for. Given the amount of the secured debt and the applied exemption to protect any equity the home is of no value to the bankruptcy estate and can be abandoned bac k the debtor.
Mortgage Litigation Scams and State Court Lawsuits
Over the last ten plus years, and especially during the mortgage meltdown, there were all kinds of state court lawsuit scams regarding mortgages and loan modifications when homeowners for whatever reason could not or did not make their loan payments. Sadly the powers at be try and prosecute the perpetrators of these scams but far too often are distracted by investigating allegations resulting from personal vendettas of bad people against good attorneys that actually properly represent their clients and just want to get paid for their time. Instead far too many horrible humans make thousands and thousands of dollars, get rich, off of these scams and the beat goes on.
These lawsuits still happen today and the debtor in this case may or may not have been part of one. There are not enough facts about the state court lawsuit to know for sure but it has some of the red flags I have written about before.
See: If You Are Having A Problem With Your Home Loan Payment Call A Bankruptcy Attorney
See: California Loan Modification Scams
See: Should I Retain A Bankruptcy Attorney To File Bankruptcy
Many of the state court lawsuits filed against servicers and mortgage companies are about the securitization theory. I point this out given in the present case on appeal that is the subject of this article the debtor has MERS (Mortgage Electronic Registration System) as a named defendant in the state court lawsuit along with DiTech (sold off mortgage assets), Caliber and U.S. Bank Trust.
What The Appeal Does Not Mention
So the appeal is no about the house of the debtor but the motion to dismiss the chapter 7 case. The thing is this chapter 7 bankruptcy filing is in fact all about the debtor’s primary residence. I already mentioned the state court lawsuit To fill in some more blanks on May 20, 2018, U.S. Bank, Trust as creditor holding a security interest in the debtor’s primary residence filed a motion for relief from stay to obtain bankruptcy court permission to continue the foreclosure process under California State Law. As I predicted and mentioned above the facts in this case have all of the red flags of potential mortgage litigation scam. I do not know if the debtor was scammed or not. I hope not and hope he did not pay thousands of dollars to nameless attorneys to do all of the legal maneuvering he did. The debtor filed an opposition to U.S. Bank Trust’s motion for relief from stay providing: “Debtor does object to the Movant’s motion for relief from the automatic stay under 11 U.S.C. Section 362, on the grounds that the Movant party does not have standing and the legal right to enforce the debtor’s note, much less lay claim to be a holder and a beneficiary of the debtor’s promissory note, and for bringing fraud to the Court.” So this is the securitization theory argument I have written about before and share the link above. Are there cases in which the secured lender may not have standing? Sure. It is just really rare and like magic this argument is only made after there are missed mortgage payments and foreclosure proceedings initiated.
Anyway, the moral of the story is do not file bankruptcy without an attorney and if you have home loan problems and want to stop a pending foreclosure file chapter 13 and not chapter 7. There you go. Thousands upon thousands of dollars saved and for free.
