Repeat Ch. 13 Filer Can’t Wipe Out Debts in Future Bankruptcy

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By Daniel Gill

Dec. 13 — A bankruptcy court couldn’t deny a Chapter 13 debtor’s motion to dismiss her case, but it could—and did—order that the debtor can’t receive a discharge of her debts if she chooses to file another bankruptcy petition in the future ( In re Rios , 2016 BL 411006, Bankr. D. Kan., No. 13-11076 , 12/9/16 ).

Judge Robert E. Nugent of the U.S. Bankruptcy Court for the District of Kansas Dec. 9 ruled that although it is a draconian remedy, disallowing a discharge in a future case was appropriate here. The debtor was in her fifth bankruptcy case in 14 years and had improperly received and disposed of a $25,000 settlement to the detriment of her bankruptcy estate and creditors, the court said.

Vickie Rios filed five bankruptcy cases since 2002, “making her a particularly experienced debtor,” the court said. She had filed cases in Chapter 7, in which a debtor’s nonexempt assets are liquidated by a trustee and the proceeds distributed to creditors, and Chapter 13, which allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three to five year period.

Rios filed her most recent Chapter 13 case in 2013. Although the July 2013 order confirming her plan “forbade the disposition of any assets without the court’s permission, Ms. Rios sought, obtained, and spent a $25,000 employment law settlement she received from her former employer” without approval of the court, it said.

After the trustee appointed in her case objected, the debtor filed her motion to dismiss her bankruptcy case. She was “straightforward in disclosing her intention to file another chapter 13 (her sixth case),” the court said. If she were to get a discharge in another case, it would be her fourth since 2002, the court said.

The court explained that the debtor has an absolute right to dismiss her case under Section 1307(b) of the Bankruptcy Code. However, Section 349(a) of the Code allows the court, for cause, to order that debts dischargeable in the dismissed case may not be discharged in a future case.

Here, the debtor’s conduct of misappropriating the $25,000 settlement provided cause to invoke the future discharge bar, the court said. "[O]n these facts, what else can the Court do?” it asked.

Because of the severity of the decree, however, the court stayed its order for 21 days to allow the debtor to consider whether she would modify her plan instead of dismissing her case.

David J. Lund, Dewey & Lund LLP, Wichita, Kan., represented the debtor. Carl B. Davis, Wichita, Kan., served as Chapter 13 Trustee.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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