In re Lloyd

458 B.R. 295

In re Sharon Sheppard LLOYD, Debtor.

No. 11–03972–DD.

United States Bankruptcy Court, D. South Carolina.

Oct. 19, 2011.

Elizabeth R. H. Jenkins, Meredith Law Firm, LLC, Robert R. Meredith, Jr., North Charleston, SC, for Debtor.

ORDER ON MOTION TO AVOID JUDICIAL LIEN AND MOTION TO DISMISS

DAVID R. DUNCAN, Bankruptcy Judge.

This matter is before the Court on a Motion to Avoid Judicial Lien (“Avoidance Motion”) filed by Sharon Sheppard Lloyd (“Debtor”) on July 5, 2011 and a Motion to Dismiss (“Dismissal Motion”) filed by ServiceMaster of Charleston (“ServiceMaster”) on August 15, 2011. ServiceMaster filed a Response to Debtor's Avoidance Motion on August 3, 2011, and Debtor replied on August 11, 2011. A hearing was held on both Motions on September 20, 2011. At the conclusion of the hearing, the Court took the matter under advisement. After further consideration of the issues, the Court now makes the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

1. Debtor owns a home which is encumbered by a mortgage. At all times relevant, Debtor maintained a homeowners insurance policy on the property.

2. In April 2009, Debtor's home was severely damaged by a kitchen grease fire. After the fire, Debtor's insurance company, at the request of Debtor, contacted ServiceMaster to perform repairs.

3. In May 2009, Debtor hired ServiceMaster to perform cleaning and restoration services on her home.

4. Debtor signed ServiceMaster's form contract and agreed to pay ServiceMaster for its services, subject to a further “price agreement” with Universal Insurance, Debtor's

insurance company. Debtor specifically and in writing authorized Universal Insurance to make direct payment to ServiceMaster or to issue a joint check in Debtor's and ServiceMaster's names. ServiceMaster's representative testified that insurance companies often disregard this authorization and instead pay the homeowner directly.

5. Debtor owed a total debt to ServiceMaster in the amount of $49,805.09 for the work ServiceMaster performed. Debtor timely repaid $45,043.61 of that debt. The remaining portion of the debt, in the amount of $4,761.48, remains outstanding and is the subject of Debtor's Motion to Avoid Judicial Lien and ServiceMaster's Motion to Dismiss.

6. Debtor received a series of checks from her insurance company. The checks were to reimburse Debtor for her losses and included not only payment for services performed by ServiceMaster but also payment for other losses covered by Debtor's insurance policy, including personal property lost in the fire and living expenses for the period during which Debtor was displaced.

7. One check introduced into evidence was jointly issued to Debtor and her mortgage company. Debtor signed and deposited the check without an endorsement from her mortgage company. The check was in the approximate amount of the balance due to ServiceMaster. Debtor used that check to purchase mattresses, box springs, draperies, and other household goods.

8. ServiceMaster filed suit and obtained a judgment for $4,841.54 against Debtor in the Dorchester County Magistrate's Court on January 11, 2011. ServiceMaster's sole cause of action was for breach of contract.

9. Subsequent to obtaining a judgment against Debtor, ServiceMaster attempted to execute on the judgment. The execution was returned nulla bona.

10. Debtor filed her chapter 7 bankruptcy on June 24, 2011. Debtor conceded at the hearing on the Motions that one of her primary reasons for filing bankruptcy was ServiceMaster's judgment.

CONCLUSIONS OF LAW

I. Motion to Dismiss

ServiceMaster seeks to dismiss Debtor's bankruptcy case for bad faith, pursuant to 11 U.S.C. § 707(a). Section 707(a) provides that a court may dismiss a debtor's case “for cause.” Bad faith is not expressly included in section 707(a)'s list of situations which constitute cause for dismissal. However, courts have often held that lack of good faith in filing a bankruptcy petition is cause for purposes of section 707(a). In re Dudley, 405 B.R. 790, 800 (Bankr.W.D.Va.2009) (citing Perlin v. Hitachi Capital Am. Corp. (In re Perlin), 497 F.3d 364, 369 (3d Cir.2007)); In re Marino, 388 B.R. 679, 682 (Bankr.E.D.N.C.2008) (citing McDow v. Smith, 295 B.R. 69 (E.D.Va.2003); In re Zick, 931 F.2d 1124, 1126–27 (6th Cir.1991)). The court has discretion in determining whether to dismiss a debtor's case pursuant to section 707(a). Dudley, 405 B.R. at 800. When making this decision, the bankruptcy court should consider the totality of the circumstances. McDow v. Smith, 295 B.R. 69, 75 (E.D.Va.2003).

In this case, ServiceMaster argues that a number of factors indicate that Debtor's case was filed in bad faith, including the fact that ServiceMaster is Debtor's largest unsecured creditor and was the only creditor actively attempting to collect from Debtor at the time of filing, and the fact that Debtor was meeting all of her living expenses and was current in payments to her other creditors at the time of filing. ServiceMaster supports its request for dismissal with a Third Circuit case which set forth several factors that indicate when a case is appropriate for dismissal based on bad faith. See Perlin v. Hitachi Capital Am. Corp. (In re Perlin), 497 F.3d 364 (3d Cir.2007). That case also discusses a previous Third Circuit case addressing bad faith dismissal under section 707(a) and states, “[In that case,] we cautioned that dismissal should be ‘confined carefully’ and utilized only in ‘egregious cases that entail concealed or misrepresented assets and/or sources of income, lavish lifestyles, and intention to avoid a large single debt based upon conduct akin to fraud, misconduct, or gross negligence.’ ” Perlin, 497 F.3d at 373 (citing In re Tamecki, 229 F.3d 205, 208 (3d Cir.2000)). Debtor's case is not such a case.

Debtor and ServiceMaster testified that Debtor owed a total debt of approximately $49,805.09 to ServiceMaster. Both Debtor and ServiceMaster testified that Debtor timely paid ServiceMaster approximately $45,043.61 of the total debt. Both parties further testified that the only portion of the debt outstanding is in the amount of $4,761.48. Additionally, Debtor testified that she did not intend to defraud ServiceMaster and that the only reason she did not turn over the final insurance check was due to a misunderstanding stemming from conversations with her insurance company. Debtor testified that no summary was included with the check to show the purpose of the check and that she previously was informed by her insurance company she would receive additional insurance proceeds for the replacement of her household items. Debtor testified that upon receipt of the check, she believed, based on representations from her insurance company, that the check was intended for replacement of her personal items and that an additional insurance check would arrive for the satisfaction of any remaining debt with ServiceMaster. Additionally, ServiceMaster's representative admitted during his testimony that confusion often ensues when the insurance company sends insurance proceeds directly to the policy holder rather than to the contractor.

Debtor's expenses are not extravagant. Debtor conceded that her bankruptcy case was filed partly to deal with ServiceMaster's lien, but also to deal with her other debt, including a car which is titled in Debtor and her daughters' names. Debtor testified that at the time of filing the payments on that vehicle were not current and that she did not want her daughter to lose her primary mode of transportation. This is not an egregious case, nor does Debtor's conduct toward ServiceMaster, to whom the large majority of the debt owed was repaid, suggest fraud. The totality of Debtor's circumstances indicates that Debtor's filing was not in bad faith and should not be dismissed.

II. Motion to Avoid Judicial Lien

Debtor filed her Avoidance Motion under section 522(f), which allows a debtor to avoid a judicial lien on property if the lien impairs the debtor's exemption. Section 522(f)(2)(A) provides a formula for calculating a judicial lien's avoidability, stating:

For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of—

(i) the lien;

(ii) all other liens on the property; and

(iii) the amount of the exemption that the debtor could claim if there were no liens on the property;

exceeds the value that the debtor's interest in the property would have in the absence of any liens.

Debtor's Schedules indicate that the value of her home is $120,000, based on her opinion of the home's value. The value of the property for tax assessment purposes is $111,320. There is a mortgage on the home securing a debt of $97,655.00, and Debtor has claimed an exemption in the property in the amount of...