In re Smith

536 B.R. 478, 2015 Bankr. LEXIS 2347, 2015 WL 5010862
CourtUnited States Bankruptcy Court, M.D. Alabama
DecidedJuly 16, 2015
DocketCase No. 11-81204
StatusPublished
Cited by7 cases

This text of 536 B.R. 478 (In re Smith) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, M.D. Alabama primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Smith, 536 B.R. 478, 2015 Bankr. LEXIS 2347, 2015 WL 5010862 (Ala. 2015).

Opinion

MEMORANDUM DECISION

William R. Sawyer, United States Bankruptcy Judge

This Chapter 13 case came before the Court on May 13, 2015, on the Court’s Order of April 23, 2015. (Doc. 37). For the reasons set forth below, this case is dismissed, with prejudice pursuant to 11 U.S.C. § 349(a), and with a five-year injunction against refiling. In addition, the Court will enter an order to show cause addressed to the Debtor’s lawyers ordering them to appear and show cause why sanctions should not be imposed.

I. FACTS

On August 11, 2011, Billy Jack Smith, II, filed a petition in bankruptcy pursuant to Chapter 13 of the Bankruptcy Code. (Doc. 1). In Schedule B, Smith reported a claim for a workmen’s compensation claim for an “unknown” amount. (Doc. 1). On the day he filed his petition, Smith also filed a Chapter 13 Plan where he proposed to pay the sum of $227.00 biweekly for a period of 56 months. (Doc. 2). In addition -to the $227.00 bi-weekly payments, Smith also promised the following:

Any amount recovered in the Civil Suit, less allowable attorney fees and cost, [sic] over and above the exemptions allowed by the debtor(s) [sic] under Ala. Code Title 6-10-6 will be turned over the Chapter 13 Trustee to be paid into the plan.”

(Doc. 2).

While one might quibble with grammar used in the Plan, it was nevertheless clear enough. The net proceeds of the work[480]*480men’s compensation suit were to be paid to the Trustee for the benefit of the creditors. Smith amended his Plan on September 29, 2011, but the provisions relating to the workmen’s compensation suit were unchanged. (Doc. 15). On November 18, 2011, the Court confirmed Smith’s Amended Plan. (Doc. 20). Smith modified his plan, after confirmation, on January 12, 2012. (Doc. 23). The Court approved the modified plan by its order of February 7, 2012. (Doc. 24). Neither the amendment to the Plan, nor the post-confirmation modification, had any impact on the provision relating to the workman’s compensation suit.

Smith had a total of six lawyers: two representing him in this bankruptcy case, and four others who represented him in his workmen’s compensation case. The Court will refer to the first group as “bankruptcy counsel” and the second group as “litigation counsel.” On March 10, 2015, the Trustee filed a Motion for Examination of Debtor’s Transactions -with his Lawyers and a Motion to Dismiss. (Docs. 31, 32). The Trustee recited in his motions'that he had written Smith, or his lawyers, numerous letters inquiring about the lawsuit. (Doc. 31). Smith and his lawyers stonewalled the Trustee, ignoring most of his letters and providing no useful information when contact was made by the Trustee. Notwithstanding the Trustee’s efforts to learn of the suit’s disposition, he was not told that it was settled in January of 2015 and that $22,000 was disbursed to Smith, with the lawyers retaining their share of the proceeds for attorney’s fees. The Trustee did not learn of this disposition until after Smith had dissipated the proceeds.

The Court scheduled the Trustee’s motions for hearing on April 8, 2015. The only appearance at that hearing was by Smith’s lead bankruptcy counsel, who did not provide any useful information. The Trustee supplemented his motion to examine Debtor’s transactions with lawyers on April 21, 2015. (Doc. 36). On April 23, 2015, the Court entered a four-page order advising that it may dismiss the case pursuant to 11 U.S.C. § 349(a), meaning that the Debtor may not discharge his debts in the future, and further with an injunction against refiling. (Doc. 37).

The Court called this case for hearing on May 13, 2015, pursuant to its April 23rd Order. Smith and all of his counsel were present. None of the lawyers gave an acceptable answer explaining their failure to provide the Chapter 13 Trustee with a timely and truthful response to his queries. Smith admitted that he received $22,000 in proceeds and testified that he has spent the money.

The result of all of this is that Smith converted the $22,000 proceeds from the litigation to his own use, contrary to the terms of his confirmed Chapter 13 Plan. The Court does not believe that Smith was candid with the Court concerning his actions or, for that matter, whether he has any money remaining. The Court finds that Smith was aware of his obligations under the Plan and willfully converted the litigation proceeds to his own use-contrary to the terms of his Chapter 13 Plan.

II. LAW

This Court has jurisdiction over this case and related proceedings pursuant to 28 U.S.C. § 1334(a) and (b).

A. Dismissal of this case is appropriate as the Debtor has committed a material default under his confirmed Chapter 13 Plan.

A Chapter 13 case may be dismissed for cause, including “material default by the debtor with respect to a term of a confirmed plan.” 11 U.S.C. § 1307(c)(6); see also In re Elliott, No. [481]*4813:10-CV-1041-WKW, 2011 WL 744800, *2 (M.D.Ala. Feb. 25, 2011). The Debtor’s Plan called for him to pay the proceeds of his workmen’s compensation suit to the Chapter 13 Trustee for the benefit of his creditors. Instead he kept $22,000 in lawsuit proceeds for himself and spent them. It is clear that this is a material default. Dismissal is appropriate pursuant to 11 U.S.C. § 1307.

B. The Court finds cause for dismissal with prejudice, meaning that debts in existence as of the date of the petition in this case will not discharge in any future bankruptcy case.

Having determined that dismissal is appropriate, the Court will.consider whether this case is appropriate for what is sometimes called “dismissal with prejudice.”

Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title.

11 U.S.C. § 349(a); see also In re Russell, Case No. 12-80537, 2012 WL 5934648, *9 (Bankr.M.D.Ala. Nov. 27, 2012) (finding cause for dismissal with prejudice where debtor had nine previous bankruptcy filings and a history of dealing with creditors fraudulently); In re Kollar, 357 B.R. 657, 662 (Bankr.M.D.Fla.2006) (finding cause for dismissal with prejudice where debtor had no ability to fund a plan and her purpose in filing was to thwart a secured creditor); In re Brown, 319 B.R. 691, 694 (Bankr.M.D.Ala.2005) (finding cause for dismissal with prejudice where debtor had filed three cases in period of 24 months, with no payments to unsecured creditors); In re Sheila Jones, 289 B.R. 436, 440 (Bankr.M.D.Ala.2003) (serial filing found to be in bad faith, supplying cause for dismissal with prejudice).

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Cite This Page — Counsel Stack

Bluebook (online)
536 B.R. 478, 2015 Bankr. LEXIS 2347, 2015 WL 5010862, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-smith-almb-2015.