In re Quinn

490 B.R. 607, 2012 WL 6737484, 2012 Bankr. LEXIS 5937
CourtUnited States Bankruptcy Court, D. New Mexico
DecidedDecember 28, 2012
DocketNo. 7-12-10079 JA
StatusPublished
Cited by9 cases

This text of 490 B.R. 607 (In re Quinn) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. New Mexico primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Quinn, 490 B.R. 607, 2012 WL 6737484, 2012 Bankr. LEXIS 5937 (N.M. 2012).

Opinion

MEMORANDUM OPINION

ROBERT H. JACOBVITZ, Bankruptcy Judge.

THIS MATTER is before the Court following a final, evidentiary hearing on the merits of the United States Trustee’s Amended Motion to Dismiss Pursuant to 11 U.S.C. § 707(a) or Alternatively Convert to a Chapter 11 Proceeding (“UST’s Motion to Dismiss or Convert”— Docket No. 69) held December 5, 2012.1 Ronald E. Holmes appeared on behalf of the Debtors, Dr. Robert H. Quinn, Jr. and Stephanie S. Quinn. Ronald Andazola appeared on behalf of the United States Trustee. The heart of the parties’ dispute is whether there is a good faith requirement for seeking relief under Chapter 7 of the Bankruptcy Code, and, if so, what factors must be present to demonstrate a lack of good faith sufficient to dismiss a debtor’s bankruptcy case for “cause” under 11 U.S.C. § 707(a). After careful con[610]*610sideration of the applicable statutes and relevant case law, the Court concludes that lack of good faith on the part of a debtor, whether pre-or post-petition, or both, is a relevant consideration in determining whether to dismiss a chapter 7 case under 11 U.S.C. § 707(a) for cause, and, if sufficiently egregious, may alone be sufficient to constitute cause to dismiss. This conclusion is subject to two limiting principles described below.

The Court further concludes, after careful consideration of the evidence and testimony admitted at the final hearing, that the United States Trustee has not demonstrated cause to dismiss the Debtors’ non-consumer Chapter 7 bankruptcy case. Nor does the evidence establish sufficient grounds to grant the United States Trustee’s alternative request to convert the Debtors’ case to Chapter 11.

FINDINGS OF FACT

Dr. Robert Quinn is a cancer surgeon who is currently employed at the University of Texas, San Antonio. Before moving to San Antonio, he was employed as a cancer surgeon in Albuquerque, New Mexico. In the 1990s Dr. Quinn began investing in real estate and “flipping” properties for a profit. Beginning in 2005, with the downturn in the economy, the Debtors had several investment properties in Montana and New Mexico that they were not able to sell.

In an attempt to “stay afloat” and ride it out until markets recovered, Dr. Quinn raised funds from various sources to make debt service on loans secured by investment properties while at the same time maintaining the lifestyle to which he and his family were accustomed. Most of the real estate loans were made by Bank of America. Dr. Quinn liquidated $350,000 in a retirement account, for which he was assessed a $25,000 penalty. The Debtors borrowed $200,000 from Dr. Quinn’s mother. The Debtors liquidated a $100,000 life insurance policy, and cashed out investment accounts. In 2006, 2007, and 2008 the monthly mortgage payments for the various properties exceeded $15,000.

The Debtors are repaying the loan made by Dr. Quinn’s mother at the rate of $3,000.00 per month. She is elderly and suffered substantial losses in the recent recession. She relies on the loan payments for support. The Debtors also attempted to work with Bank of America in an effort to restructure loans, but such efforts were not successful. Further, Bank of America was unwilling to accept a deed in lieu of foreclosure on one of the investment properties (known as Spanish Peaks), and, instead, foreclosed on the property.

The Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code on January 11, 2012. Their Schedules reflect approximately $2.1 million of secured debt undersecured by about $90,000, no tax debt, and about $700,000 of unsecured debt. About $500,000 of the unsecured debt is a deficiency liability following a foreclosure sale of the Debtors’ Spanish Peaks investment property. This deficiency liability precipitated commencement of the Chapter 7 casé. About 75% of the remaining $200,000 of unsecured debt is owed to Dr. Quinn’s mother. Because of the large amount of debt associated with the Debtors’ real estate, including their investment properties, the Debtors’ debts are not primarily consumer debts.

The Debtors’ Schedule A lists five properties: 1) the Debtors’ residence at 44 Cedar Hill Place in Albuquerque, valued at $800,000 subject to a secured claim in the amount of $764,171.00; 2) an investment property in Montana located at 58 Scenic Drive (“Scenic Drive “Property”) valued at $510,000, subject to a secured claim in the [611]*611amount of $520,177; 3) an investment property in Montana located at San Mari-no, Unit 1 (“San Marino Property”), valued at $600,000, subject to a secured claim in the amount of $627,089; and 4) three vacant lots in Stanley, New Mexico valued at $10,000 each, not subject to a secured claim. The Debtors intend to surrender their Albuquerque Residence and the 58 Scenic Drive Property, and retain the San Marino Property. See UST T-2. The foreclosure of the Spanish Peaks property is disclosed in the Debtors’ Statement of Financial Affairs.

While the Debtors lived in Albuquerque, Dr. Quinn worked at the University of New Mexico (“UNM”) with a base salary of $540,000 plus the opportunity to earn performance bonuses. He supplemented his income with on call duty and consulting fees earned for evaluations and testimony in litigation. In 2011, Dr. Quinn earned over $44,968 in consulting fees. Schedule I reflects average gross monthly income of $45,000 (which is $540,000 -h 12). Consulting fees were not included in the income reported on Schedule I.

Line 17 of Schedule I requires a description of “any increase or decrease in income reasonably anticipated to occur within one year following the filing of this document.” On line 17 the Debtors reported “Income from rental property known as San Marino Unit 1 in Montana varies and is seasonal.” See UST T-l. In December of 2011, Dr. Quinn accepted a position as Chairman of the Department of Orthopedics at University of Texas, San Antonio (“UTSA”) but had not commenced such employment before filing the Chapter 7 case. Dr. Quinn earns $570,000 from his employment at UTSA, and can earn incentive pay up to $68,400 per year. The potential to earn incentive pay is uncertain. He was paid a one-time signing bonus of $50,000 in the form of a retirement annuity. The Debtors did not disclose on Schedule I the expected increase in salary from Dr. Quinn’s new job at UTSA. Mrs. Quinn is a nurse. Schedule I discloses that her monthly income as of the filing of the bankruptcy petition was $2,250.00. She is not currently working. Line 17 does not disclose the expected loss of that income.

Schedule J reflects average monthly expenses of $22,228 and monthly net income of $7,402. The Debtors did not include their $3,000 monthly loan repayment to Dr. Quinn’s mother on Schedule J, though they did identify the loan in their Schedules and the loan repayments in their Statement of Financial Affairs. See UST T-l. Schedule J lists monthly recreation expenses of $300.00. Dr. Quinn testified that those expenses are in fact more.

Schedule B identifies the following vehicles: 2011 Toyota Tundra; 2005 Lexus RX 450; 2011 Subaru Imprezza; 2007 Gulf Stream RV; 2011 Mercedes.

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Cite This Page — Counsel Stack

Bluebook (online)
490 B.R. 607, 2012 WL 6737484, 2012 Bankr. LEXIS 5937, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-quinn-nmb-2012.