FT - In re Fultz (2/13/2004)

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FT - In re Fultz (2/13/2004)

Postby Riser Adkisson LLP » Mon Apr 13, 2009 12:26 pm

In re Earl Jeffrey Fultz and Deborah Rawls Fultz
(Fed.B N.D. 02/13/2004)


Bankruptcy trustee claims debtor fraudulently transferred funds to their son. Debtors
transferred money to their son, which they claimed was payment on a loan. This transaction
was made prior to filing for bankruptcy. The debtors asked for a dismissal, claiming they
meant no fraudulent behavior. The court found that the reasons given for dismissal did not
give rise to "cause" as required by federal statute.



Case No.: 03-14009 GVL1, Chapter 7


17 Fla. L. Weekly Fed. B 86

February 13, 2004, Decided
February 13, 2004, Filed

DISPOSITION: [*1] Trustee's Motion to Dismiss denied.

COUNSEL: DEBTOR, Pro se, Gainesville, FL.

TRUSTEE: Theresa M. Bender, Esq., Tallahassee, FL.

JUDGES: LEWIS M. KILLIAN, JR., Bankruptcy Judge.



THIS MATTER came on for hearing on the chapter 7 trustee's Motion to Dismiss filed on January 12,
2004. This Court has jurisdiction over this matter and this is a core proceeding under 28 U.S.C.
§ 157(b)(1) and (2). For the reasons set forth herein, the motion is denied.

The pro-se debtors, Earl and Deborah Fultz, filed their chapter 7 voluntary petition on November
13, 2003. The trustee filed the present motion after the 341 meeting of creditors. The trustee
discovered pre-petition activity by the debtors within one year of filing the petition that could
be labeled as either a preferential transfer or a fraudulent conveyance. Upon discussing this
activity with the debtors, the trustee, in her motion, stated that "Debtors have advised the
Trustee that they believe it in their best interest to dismiss their case. The Trustee has no
objection to the Court dismissing the case." At the hearing on the motion, held on February 5,
2004, the [*2] attorney appearing for the chapter 7 trustee n1 (the trustee) sought to have this
case dismissed. The debtors were present at the hearing and added on the record that they were
paying back a loan to their son n2 and intended no fraudulent behavior. Further, they felt that
they were not favoring one creditor over the next and would prefer to pay back their creditors
outside of bankruptcy. Aside from these statements, the debtors offered no other justification.

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

n1 The U.S. trustee was substituting for the chapter 7 trustee who was not able to attend the

n2 The loan was in the amount of six thousand dollars.

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

Bankruptcy Code § 707 governs dismissal of chapter 7 liquidation cases. In particular, § 707(a)
states that a court may dismiss a case after notice and hearing only "for cause." When a debtor
in chapter 7 seeks to dismiss his own case, he does not have an absolute right to voluntarily
dismiss his bankruptcy case, he must show cause for his dismissal. In re Maixner, 288 B.R. 815,
817 (8th Cir. BAP 2003); [*3] In re Simmons, 200 F.3d 738, 743 (11th Cir. 2000)(the burden to
show cause in a § 707(a) action is on the moving party). However, even if a debtor does show
cause, the bankruptcy court should deny the motion to dismiss if there is any showing of
prejudice to creditors. Maixner, at 817; citing In re Turpen, 244 B.R. 431, 433 (8th Cir. BAP
2000); In re Leach, 130 B.R. 855, 857 (9th Cir. BAP 1991); other cite omitted. Established
factors help govern consideration when a debtor seeks to dismiss his own chapter 7 case: (1)
whether all of the creditors have consented; (2) whether the debtor is acting in good faith; (3)
whether dismissal would result in a prejudicial delay in payment; (4) whether dismissal would
result in a reordering of priorities; (5) whether there is another proceeding through which the
payment of claims can be handled; and (6) whether an objection to discharge, an objection to
exemptions, or a preference claim is pending. Maixner, at 817, citing Turpen, at 434. However,
the predominant approach requires that dismissal not cause prejudice to the creditors. In re
Stephenson, 262 B.R. 871, 874 (Bankr.W.D.Okla. 2001) [*4] other cites omitted.

Here, although the trustee has submitted the motion, for all intents and purposes it is the
debtors who are asking for a dismissal of their case. During the hearing the trustee submitted
that dismissal would not hurt or prejudice the creditors of the debtors because they still have a
remedy; they could sue the debtors. However, I find that the reasons given for dismissal by the
debtors and on behalf of the debtors do not give rise to "cause" as required in § 707(a) and
therefore do not support dismissal of their case. The fact that the debtors made preferential
payments is not included in § 707(a) as cause. Additionally, the "factors" and "the prejudice
test" in prevailing case law do not support their position. In a chapter 7 case where there are
potential recoveries it is not in the best interest of the creditors to dismiss the case. If the
case was dismissed, the creditors would lose the collection power of the trustee. If the debtors'
payments to their relative were preferential, the creditors, outside of bankruptcy, would not be
able to avoid them, thus, those funds would not be available for distribution. If payments were
fraudulent, the creditors would [*5] have to obtain their judgment then pursue the transfers.
Alternatively, Bankruptcy Code § 305 Abstention, does not support dismissal of this case. This
section sets forth that the court may dismiss a case if creditors and the debtor are better
served by such a dismissal. As discussed above, in a case where there are potential recoveries,
it is clearly not in the best interest of the creditors to dismiss.

While the fresh start afforded to debtors by the discharge is one of the primary goals of
bankruptcy, it is not all about the discharge. The other major policy behind bankruptcy is to
provide for the efficient and equitable distribution of the debtor's available assets to
creditors who would otherwise have to pursue individual collection remedies. In order to achieve
the equitable distribution to creditors, bankruptcy gives the trustee the power to recover
certain assets transferred prior to the bankruptcy that creditors would not be able to recover.
Even if a debtor no longer desires to go forward and receive a discharge, he is not free to
defeat the other goals of bankruptcy when they result in adverse consequences he had not foreseen
prior to filing. Therefore, it is

ORDERED [*6] AND ADJUDGED that the Trustee's Motion to Dismiss is DENIED.

DONE AND ORDERED at Tallahassee, Florida, this 13 day of February, 2004.


Bankruptcy Judge
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