Virginia Lawyers Weekly VA Lawyers Weekly
Where the debtor failed to list a savings account on her Chapter 13 schedule, her case was dismissed with prejudice for 90 days because her failure was at least the product of a reckless disregard for the truth.
Background
This matter came before the court on the trustee’s opposed motion to dismiss the debtor’s Chapter 13 bankruptcy case with prejudice. The trustee argues that Ms. Holsenback’s schedules and means test forms were inaccurate in three respects: (1) her choice of “1” for her household size, which caused her to be below-median; (2) the value she stated for her and Mr. Williamson’s home, which enabled her to file less-than-100% plans and (3) her failure to disclose the savings account. The court heard the evidence on April 22, 2021, at which time the debtor and her former counsel testified.
Household size
Ms. Holsenback used a household size of “1” on her means test forms. This caused her to be below-median, and would have allowed her to confirm a plan of 36 months. In defending this choice in his testimony, her attorney, Andrew Chen seemed not to be familiar with the economic unit approach adopted in Johnson v. Zimmer (In re Johnson), 686 F.3d 224 (4th Cir. 2012). He relied in part on the fact that Ms. Holsenback and Mr. Williamson are not married, something the Fourth Circuit rejected. He referred to dictionary definitions of the word “family,” something the Fourth Circuit also rejected.
Mr. Chen stated that the parties’ “complex accounting” caused him to conclude that they were not an economic unit. This conclusion is belied by two facts. First, their accounting was not complex. Second, none of the law firm’s internal emails or client portal notes indicate that a complex system of accounting was the basis for this conclusion.
Ms. Holsenback depended on Mr. Chen to advise her on how to fill out the paperwork. She needed to know how much it was going to cost her both in terms of the fee and the expected monthly plan payments. The court finds that the use of “1” for Ms. Holsenback s household size was obviously not correct, but that Ms. Holsenback is not blameworthy here.
Equity
It appears that there is substantial equity in the debtor’s and Mr. Williamson’s property. The debtor listed the property in schedule A with a value of $444,709, with secured debt of $292,000. In schedule D, however. she listed the property with a value of $222,354.50 (representing her 50% of the value of the property) and the same secured debt of $292,000, so it appeared that the property was underwater by $69,645.50. Mr. Chen ascribed the difference between schedule A and schedule D as a “software error.”
The court views this issue in the same light as it viewed the household size issue. Although clients must list all of their properties at an honest and fair valuation, clients cannot be expected to know how to list their properties in the schedules beyond what their lawyers tell them. Although the schedules in this case certainly should have been more consistent in listing the value of the property, the problem here cannot be blamed on the debtor.
Savings account
The failure to list the savings account, on the other hand, is not counsel’s fault. The debtor had complete access to the savings account. She routinely transferred money in and out of the savings account. The debtor’s failure to disclose the savings account appears to be the result of her view that the savings account was used primarily for Mr. Williamson’s side job income, and Mr. Williamson’s desire to be involved as little as possible in her bankruptcy case.
This, however, does not excuse her failure to list the savings account in her schedules. If her failure to list the savings account was not knowing, it was at least the product of a reckless disregard for the truth. The court, therefore, will dismiss this case with prejudice for a period of 90 days.
United States trustee’s motion to dismiss granted in part, denied in part.
In re: Holsenback, No. 20-12242, May 15, 2021. EDVA Bankr. at Alexandria (Kenney). VLW No. 021-4-007. 15 pp.
