In re: Dian L. Grossman

FILED 2/4/2014 1 SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NV-13-1325-JuKiTa ) 6 DIAN L. GROSSMAN, ) Bk. No. 13-13792-LBR ) 7 Debtor. ) ______________________________) 8 ) BRIAN D. SHAPIRO, ) 9 Chapter 7 Trustee ) ) 10 Appellant, ) ) 11 v. ) M E M O R A N D U M* ) 12 DIAN L. GROSSMAN, ) ) 13 Appellee. ) ______________________________) 14 Argued and Submitted on January 24, 2014 15 at Las Vegas, Nevada 16 Filed - February 4, 2014 17 Appeal from the United States Bankruptcy Court for the District of Nevada 18 Honorable Linda B. Riegle, Bankruptcy Judge, Presiding 19 _________________________ 20 Appearances: Brian D. Shapiro, Esq., argued pro se, Christopher Burke, Esq. argued for appellee 21 Dian L. Grossman. _________________________ 22 Before: JURY, KIRSCHER, and TAYLOR, Bankruptcy Judges. 23 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1.

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1 Debtor Dian L. Grossman filed a motion to dismiss her 2 bankruptcy case under § 707(a)1 after chapter 7 trustee, Brian 3 D. Shapiro, asserted that $2,500 of the $5,000 monthly payment 4 that debtor received from her former spouse pursuant to a 5 divorce decree was nonexempt and could be used to pay her 6 creditors. The bankruptcy court granted debtor’s motion, and 7 trustee appealed. For the reasons set forth below, we REVERSE 8 the bankruptcy court’s decision, VACATE the dismissal order and 9 REMAND this case to the bankruptcy court with instructions to 10 reinstate the case on its docket. 11 I. FACTS 12 Prior to her bankruptcy filing, debtor went through a 13 divorce. Under the divorce decree, debtor is entitled to 14 $390,000 from her former spouse, which was characterized as an 15 equalization payment. Debtor’s former spouse agreed to pay her 16 $30,000 upon execution of the Marital Settlement Agreement, 17 followed by monthly payments of $2,500 commencing February 1, 18 2005, and continuing until paid in full, for a period of 19 approximately twelve years. A copy of the divorce decree is not 20 included in the record. 21 On April 30, 2013, debtor filed her chapter 7 petition. 22 Shapiro was appointed the trustee. Debtor listed no real 23 property in Schedule A and listed minimal personal property in 24 Schedule B. Debtor did not include the equalization payment as 25 26 1 Unless otherwise indicated, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and “Rule” references are to the Federal Rules of Bankruptcy 28 Procedure.

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1 an asset in Schedule B, but listed a $5,000 monthly payment from 2 her former spouse as her only source of income under 3 alimony/maintenance in Schedule I. In her Statement of 4 Financial Affairs, debtor showed under the heading “[i]ncome 5 other than from employment or operation of business” that she 6 had received $60,000 in alimony/maintenance payments for the 7 years 2011 and 2012 and $15,000 in 2013. Debtor did not claim 8 any portion of the payments exempt. Debtor listed $111,589.30 9 in unsecured debt, almost all of which is attributable to 10 medical debt. 11 Prior to the § 341(a) meeting of creditors, debtor’s 12 counsel provided trustee with a copy of debtor’s divorce decree 13 showing that she was entitled to $390,000 from her former 14 spouse. At the creditors’ meeting, debtor testified under oath 15 that she receives and has been receiving $5,000 monthly payments 16 from her former spouse and that she estimated that the 17 equalization payments would continue until the year 2017. 18 Trustee acknowledged that $2,500 of the $5,000 monthly payment 19 was exempt as spousal support.2 20 On June 7, 2013, debtor moved to have her case dismissed 21 under § 707(a). Debtor alleged that she had severe health 22 problems prior to her bankruptcy filing and that her condition 23 was chronic.3 She therefore expected to incur significant 24 25 2 Apparently the divorce decree provided for spousal support 26 at $2500 per month in addition to the equalization payment. 3 27 Debtor declared that she had been diagnosed with cardiomyopathy (literally heart muscle disease) and that her 28 heart was working at thirty-five percent.

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1 medical debt in the future. Debtor also wanted to avoid any 2 litigation regarding the nonexempt assets and to use any 3 additional income or assets to pay her creditors outside of a 4 bankruptcy proceeding. 5 Trustee opposed, arguing that dismissal would not be 6 equitable under the circumstances. Trustee maintained that 7 (1) debtor had failed to disclose the equalization payment she 8 was owed under the divorce decree in Schedule B; (2) debtor’s 9 reasons for dismissal, i.e., the risk of incurring large medical 10 bills in the future and wanting to pay her creditors outside of 11 bankruptcy, were the result of her failure to investigate her 12 true financial picture; and (3) dismissal was prejudicial to the 13 creditors of debtor’s bankruptcy estate.4 14 On July 10, 2013, the bankruptcy court orally granted 15 debtor’s motion. The court took note of debtor’s medical 16 condition and her bills. The court further stated: 17 So I just don’t get what good it does to put somebody more deeply in debt under the possibility of trying to 18 collect this amount of money. And for that matter, I don’t know why she just doesn’t go back in and get it 19 recharacterized as support . . . if she’s ill. 20 They probably did it for tax reasons. I’m going to grant the motion to dismiss. I just don’t think it 21 makes sense to put somebody deeper in debt, to incur more medical bills, on the possibility of collecting 22 $2,500 a month for four years to keep this estate 23 24 25 4 26 Trustee filed a declaration in support of his opposition which characterized the equalization payment as an asset of the 27 estate which he could administer for the benefit of the creditors. He based this characterization on his review of the 28 divorce decree.

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1 open. The administrative assets5 would eat up anything that goes to creditors, so I’ll grant the 2 motion to dismiss. 3 The bankruptcy court entered the order dismissing the case 4 two days later. Trustee timely filed a notice of appeal. 5 II. JURISDICTION 6 The bankruptcy court had jurisdiction over this proceeding 7 under 28 U.S.C. §§ 1334 and 157(b)(2)(A). We have jurisdiction 8 under 28 U.S.C. § 158. 9 III. ISSUE 10 Whether the bankruptcy court abused its discretion in 11 dismissing debtor’s case under § 707(a). 12 IV. STANDARD OF REVIEW 13 We review the bankruptcy court’s grant of a voluntary 14 motion to dismiss for an abuse of discretion. Hickman v. Hana 15 (In re Hickman), 384 B.R. 832, 840 (9th Cir. BAP 2008). The 16 bankruptcy court abuses its discretion when it fails to identify 17 and apply “the correct legal rule to the relief requested,” 18 United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) 19 (en banc), or if its application of the correct legal standard 20 was “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support 21 in inferences that may be drawn from the facts in the record,’” 22 id. at 1262. 23 V. DISCUSSION 24 Section 707(a) states that a court may dismiss a chapter 7 25 case “only for cause[.]” In the Ninth Circuit, a case will not 26 27 5 We assume the court was referring to administrative 28 expenses.

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1 be dismissed on the motion of a debtor if such dismissal would 2 cause some prejudice to a creditor. Leach v. United States 3 (In re Leach), 130 B.R. 855, 857-58 (9th Cir. BAP 1991). The 4 question of prejudice resulting from dismissal may be evaluated 5 using both legal and equitable considerations. Id. at 856; see 6 also In re Hickman, 384 B.R. at 841 (the totality of the 7 circumstances should be considered in evaluating cause for 8 dismissal and plain legal prejudice). Debtor had the burden of 9 proving that dismissal would not prejudice her creditors. 10 Bartee v. Ainsworth (In re Bartee), 317 B.R. 362, 365 (9th Cir. 11 BAP 2004). 12 There is no evidence in the record to show that dismissal 13 of debtor’s case would not prejudice her creditors and nowhere 14 does the bankruptcy court mention prejudice to creditors in its 15 ruling. Although debtor stated that she wanted to use any 16 additional income or assets she had to pay her creditors outside 17 of bankruptcy, her Schedule F shows over $111,000 in unsecured 18 debt, her Schedule I shows that she is unemployed and that the 19 $5,000 payment from her former spouse is her only income, and 20 her Schedule J shows that her expenses exceed her income. See 21 In re Hopkins, 261 B.R. 822, 823 (Bankr. E.D. Pa. 2001) 22 (debtor’s own testimony and schedules cast doubt on her ability 23 to pay creditors). Further, debtor’s medical condition and her 24 asserted risk of incurring future medical debt6 reflect that she 25 proposed to use some or all of her income from her former spouse 26 6 27 Other than debtor’s past medical bills, there was no evidence that she would continue to amass a large amount of 28 medical debt.

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1 to pay her postpetition bills. Accordingly, it may be that the 2 asset trustee seeks to recover presents the unsecured creditors 3 with the best opportunity for satisfaction of their claims. On 4 this record, debtor failed to carry her burden of proving that 5 dismissal of her bankruptcy petition would not prejudice her 6 creditors. 7 In addition, trustee asserted at least two reasons why it 8 would be inequitable to dismiss debtor’s case: her failure to 9 list the equalization payment in Schedule B and her 10 “carelessness” in failing to evaluate her true financial picture 11 before filing. Nowhere does the court mention these equitable 12 considerations. Further, the bankruptcy court implied that 13 trustee would not be able to administer the asset because debtor 14 could request the state court to recharacterize the equalization 15 payment as support. There is no evidence in the record to 16 suggest that this could be accomplished; this statement by the 17 court was pure speculation. Finally, the court concluded that 18 trustee could not efficiently administer the stream of payments 19 since they would come in over a four year period. However, the 20 record reflects that trustee contemplated selling the asset. 21 In the end, we surmise that the bankruptcy court 22 considered, as a matter of equity, only debtor’s medical 23 condition. While debtor’s situation appropriately arouses 24 sympathy, the court applied the wrong criteria for a voluntary 25 dismissal under § 707(a). 26 VI. CONCLUSION 27 For the reasons stated, we REVERSE the bankruptcy court’s 28 decision, VACATE the dismissal order and REMAND this case to the

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1 bankruptcy court with instructions to reinstate the case on its 2 docket. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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