In re Goldberg, Case No. 16-12975

In re: JAN H. GOLDBERG & LAURICE M. GOLDBERG, Debtors.

Case No. 16-12975

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO

July 20, 2017

The court incorporates by reference in this paragraph and adopts as the findings and orders of this court the document set forth below. This document was signed electronically on July 20, 2017, which may be different from its entry on the record.

Chapter 7

Judge Arthur I. Harris

MEMORANDUM OF OPINION¹

In this Chapter 7 case, the U.S. Trustee moved to dismiss the debtors' case pursuant to 11 U.S.C. §§ 707(b)(1) and (b)(3) for abuse based on bad faith and/or the totality of circumstances primarily because the debtors own and seek to keep three real properties - their residence and two other properties used for their skin care business and a part-time law practice. For the reasons that follow, the Court denies the U.S. Trustee's motion to dismiss.

JURISDICTION

A motion to dismiss a bankruptcy case is a core proceeding under 28 U.S.C. § 157(b)(2)(A). This Court has jurisdiction over core proceedings pursuant to 28 U.S.C. §§ 157(a) and 1334 and Local General Order No. 2012-7, entered by the United States District Court for the Northern District of Ohio.

PROCEDURAL HISTORY

On May 27, 2016, the debtors, Jan H. Goldberg and Laurice M. Goldberg, filed the above-captioned voluntary petition for relief under Chapter 7 of the Bankruptcy Code. On September 26, 2016, a meeting of creditors was held pursuant to 11 U.S.C. § 341(a), and, on December 8, 2016, the Chapter 7 trustee filed a report of no distribution (Docket No. 34).

Beginning on September 6, 2016, the U.S. Trustee filed a series of motions for extension of time to file a motion to dismiss or a complaint objecting to the discharge (See Docket Nos. 15, 20, 29, and 35). The debtors did not oppose these motions, and the Court entered orders granting the motions (See Docket Nos. 18, 32, 37, and 40).

On November 16, 2016, the U.S. Trustee filed a motion for an order authorizing the examination of the debtors and directing production of certain documents (Docket No. 24). On November 17, 2016, the Court entered an ordergranting the examination motion (Docket No. 26). On January 11, 2017, the U.S. Trustee began the Rule 2004 examination of the debtors. The examination was continued to and concluded on February 23, 2017.

On March 10, 2017, the U.S. Trustee filed a motion to dismiss the case for abuse pursuant to 11 U.S.C. §§ 707(b)(1) and (b)(3) (Docket No. 43). On April 4, 2017, the debtors filed a response in opposition to the U.S. Trustee's motion to dismiss (Docket No. 46).

On June 27, 2017, the Court held an evidentiary hearing on the motion to dismiss. The Court heard testimony from one of the debtors, Laurice M. Goldberg. The Court received without objection the U.S. Trustee's Exhibits A and B. The Court also received the debtors' Exhibits 1 through 21 over the U.S. Trustee's objection, and the Court received the debtors' Exhibits 23 and 24 without objection.

FINDINGS OF FACT

The findings of fact contained in this memorandum of opinion reflect the Court's weighing of the evidence, including the credibility of each witness. In doing so, "the court considered the witnesses' demeanor, the substance of the testimony, and the context in which the statements were made, recognizing that a transcript does not convey tone, attitude, body language, or nuance of expression."In re Parrish, 326 B.R. 708, 711 (Bankr. N.D. Ohio 2005). Even if not specifically mentioned in this decision, the Court considered the testimony of the trial witness, exhibits admitted into evidence, and any stipulations. Unless indicated otherwise, the following facts were established at trial by a preponderance of the evidence or were stipulated to by the parties.

The parties submitted the following stipulations:

1. On May 27, 2016 (the "Petition Date"), Debtors filed a joint voluntary petition for relief under Chapter 7 of title 11 of the United States Code (the "Bankruptcy Code"). See Docket No. 1.

2. Debtors' bankruptcy petition identifies their debts as primarily consumer debts. See Docket No. 1.

3. Debtor Laurice Goldberg is 68 years old.

4. Debtor Laurice Goldberg owns and operates The Laurice Skin Care & Cosmetics LLC (the "Skin Care Business"), of which she is the sole owner. She also is an attorney with a law practice. She is also both a licensed real estate broker and a licensed real estate agent.

5. Debtor Jan Goldberg is 61 years old. Debtor Jan Goldberg assists Laurice Goldberg in the Skin Care Business but he has no independent income.

6. Debtors' monthly income/expenses as of the time of the Petition are set forth on Schedules I: Your Income & J: Your Expenses of the petition. See Docket No. 1, pp. 38-41.

7. Debtors list secured claims totaling $681,906.99, which includes several mortgages secured by Debtors' Primary Home and the Lorain Properties. See Docket No. 1, pp. 23-25.

8. As of the Petition Date, Debtors' combined monthly net income is $5,952. See Docket No. 1, pp. 38 - 39. Debtors' monthly income includes net income from the Skin Care Business, income from their law practice (Attorney Laurice M. Koury), gift from the Debtor Laurice Goldberg's mother, and social security compensation. Id.

9. Specifically, Debtor Laurice Goldberg receives $860 in monthly social security benefits. See Docket No. 1, pp. 38-39.

10. Also, Debtors receive at least $1,000/month as a gift from Debtor Laurice Goldberg's mother. See Docket No. 1, pp. 38-39.

11. Debtors own three pieces of real properties: (a) their primary residence located at 18375 Bent Tree Lane, Chagrin Falls, Ohio (the "Primary Home") listed on the petition with a value of $383,600; (b) 51883 Telegraph Road, Amherst, Ohio 44001 (the "Telegraph Rd Property") listed on the petition with a value of $136,810; and (c) 1014 West 4th Street, Lorain, Ohio 44052 (the "West 4th Street Property") listed on the petition with a value of $45,620.

12. The Telegraph Rd Property and the West 4th Street Property are hereinafter referred to jointly as the "Lorain Properties."

13. Debtor Laurice Goldberg also rents space to operate the Skin Care Business, which is located at 31100 Pinetree Road, Pepper Pike, OH 44124. She pays $800 per month plus utilities for the space.

14. As of the Petition Date, Debtors' mortgage balance regarding the Primary Home was $388,872 ($330,221 (first mortgage) + $58,651 (second mortgage)). See Docket No. 1, pp. 23-25. Debtors' schedules list the value of the Primary Home as $383,600. Id.

15. As of the Petition Date, Debtors' monthly mortgage payments for the Primary Home totals $3,380 ($2,909 (first mortgage) + $471 (second mortgage)). See Docket No. 1, pp. 40-41.

16. As of the Petition Date, Debtors list the current value of the Telegraph Rd Property as $136,810, and [list the] amount of the two mortgages that it secures as$198,187 ($151,787 (first mortgage) + $46,400 (second mortgage)). See Docket No. 1, pp. 10-12; 23-25.

17. Currently, Debtors' monthly mortgage payments for the Telegraph Road Property totals $1,126 ($976 (first mortgage) + $150 (second mortgage)).

18. As of the Petition Date, Debtors list the current value of the West 4th Street Property as $45,620, and [list the] amount of the debt it secures as $76,715.99. See Docket No. 1, pp. 10-12; 23-25.

19. Currently, Debtors' monthly mortgage payment for the West 4th Street Property is $500.

20. The monthly expenses related to the Lorain Properties are approximately $2,974 per month as follows:

Telegraph Rd Property

First Mortgage

$976 ($960 at time of filing)

Second Mortgage

$150

Taxes (which includes taxes

$340

for the West 4th St Property)

Insurance

$166

Utilities & Maintenance

$450 (U.S. Trustee has calculated $300 for

utilities - maintenance is included here)

Total:

$2,082

West 4th St Property

Mortgage

$500

Insurance

$42

Utilities & Maintenance

$350 (U.S. Trustee has calculated $300)

Total:

$892

21. There is no equity in either the Primary Home or the Lorain Properties.

22. As of the Petition Date, the Internal Revenue mortgage/rent standard for a household size of two in the county of Geauga, Ohio is $1,312.

23. The Debtors Schedule B22 form (the "Means Test") indicates that "[t]here is no presumption of abuse". See Docket No. 1, pp. 54-55. Based on the information included on the Debtors' Means Test, the U.S. Trustee is not seeking dismissal of the Debtors' case pursuant to section 707(b)(2) of the Bankruptcy Code.

At the evidentiary hearing, debtor Laurice Goldberg testified that both of the debtors have health problems for which they receive treatment. The debtors' primary source of income is their skin care business. The skin care business brings in $2,892 per month of net income (Docket No. 1). This figure accounts for the expenses of running the business, including the expenses from owning and maintaining the two Lorain Properties and leasing the Pinetree Rd Property.

Mrs. Goldberg also testified that the debtors deduct one third of their residence costs as a home office deduction. These costs include utilities, taxes, insurance, and interest accrued on the mortgage. These costs do not include the mortgage on the home.

Mrs. Goldberg also has a part-time law practice that provides a varied monthly income. On their Schedule I, the debtors reported $1,200 monthly income from the part-time law practice, but Mrs. Goldberg testified that it is more accurately around $1,000 per month. At the 2004 Examination, Mrs. Goldbergstated that she made $200 to $300 from the part-time law practice. Mrs. Goldberg explained that estimation was for the month of January 2017, but later in the year the part-time law practice brought in more fees. Mrs. Goldberg testified that she has cut back on her law practice.

Mrs. Goldberg started the skin care business in the early 1980s. The business grew to the point that Mr. Goldberg quit his job in 2002 to help with the business. The business stopped growing and declined when the recession hit in the...