Case dismissed with prejudice as sanction

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Where the debtor had the benefit of the automatic stay for five years in his previous case but did not pay the mortgage on his property for four of those years, despite his representation to the court in his confirmed plan that he would do so, his second case was dismissed with prejudice for a period of 180 days.

Background

Bruce Wayne Tereick filed a Chapter 13 petition on Oct. 22, 2017, Case No. 17-13579. The plan required him to continue to make his monthly mortgage payments in the amount of $1,930.00 per month directly to the secured creditor, LoanDepot.com LLC. At that time, the debtor estimated the arrearages due on his mortgage to be approximately $17,500.00. The court granted the debtor a discharge and closed the case on Jan. 11, 2023.

The debtor filed a second Chapter 13 petition on April 10, 2023, Case No. 23-10579. He estimated his mortgage arrears with LoanDepot to be in the amount of $99,000.00.

The trustee filed an objection to confirmation of the debtor’s plan on the grounds that: (a) the debtor filed this case in bad faith, given the debtor’s failure to pay the mortgage in the prior case and (b) his net monthly income of $1,520.00 was insufficient to pay his proposed plan payment of $1,880.00. On July 27, 2023, the debtor stated that he does not oppose a dismissal of the second case.

The court issued an order to show cause in the first case as to: (a) whether the case should not be reopened and (b) whether the debtor’s discharge should be revoked. The court held an evidentiary hearing where the debtor appeared with counsel and testified.

First case

The standard for vacating a discharge on the ground of fraud is by a preponderance of the evidence. It does not appear that the debtor committed a fraud relative to his failure to make his mortgage payments in the prior case.

The certification filed by debtors under § 1328(f) at the time did not include a representation to the court that the debtor made all of his or her secured debt payments. The trustee could only certify that the debtor completed his or her plan payments, as mortgage payments are not paid through the trustee in this district. There is, therefore, no fraud-based ground for revoking the debtor’s discharge in this case under § 1328(e) for the debtor’s failure to make his post-petition mortgage payments.

The trustee argues that the debtor may have committed a fraud in failing to disclose his household income. The debtor did obtain confirmation of his plan in the previous case based on his income alone. However, he later disclosed his wife’s income in his amended schedules. The trustee moved to increase the debtor’s plan payments, but withdrew the motion after the debtor filed a response arguing that an increase was unwarranted.

Although the debtor’s testimony at the hearing on July 6, 2023, was inconsistent with the timing of his amended schedules (and was internally contradictory), the court cannot find, under the circumstances, that the debtor committed a fraud in this case.

Second case

The debtor consents to the dismissal of Case No. 23-10579. The issue is whether the court should dismiss the case with prejudice.

The debtor had the benefit of the automatic stay for five years in his previous case. He did not pay the mortgage on his property for four of those years, despite his representation to the court in his confirmed plan that he would do so. He has been in this case for four months and now consents to a dismissal after the trustee objected to the feasibility of his plan and moved to dismiss the case. The debtor testified inconsistently concerning his wife’s presence in the home.

At the end of his testimony, the debtor alluded to the fact that he is seeking a loan modification, and absent success in achieving a loan modification, he may have to sell the property. In the court’s view, he has had a sufficient amount of time between these two cases to do just that. The court will not dismiss this case without prejudice only to invite the debtor to file a third case lacking a feasible prospect for financial rehabilitation.

Discharge in Case No. 17-13579 is not vacated. Case No. 23-10579 is dismissed with prejudice for a period of 180 days.

In re: Bruce Wayne Tereick, Case Nos. 17-13579, 23-10579, Aug. 9, 2023. EDVA Bankr. at Alexandria (Kenney). VLW No. 023-4-017. 11 pp.