By Ryan C. WoodG

1. Gutierrez v. Oregon State Department of Corrections  – 523(a)(17), 11 USC 28. 1915(b)(2)

2. Ebuehi v. United States Trustee, Los Angeles – 727(a)(3), (a)(4), (a)(6)

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1.   GUTIERREZ; BAP No. ID-21-1156-SGB; March 2, 2022

Bankruptcy court does not have “related to” subject matter jurisdiction over claims/allegations that arise after a Chapter 7 bankruptcy case is fully administered.  The claim/allegation cannot therefore affect or change a debtor’s rights, liabilities, options, or freedom of action which impacts the administration of the original bankruptcy case; it is done; See Section 523(a)(17) of the bankruptcy code and 28 U.S.C. Section 1915(b)(2)  

Mr. Gutierrez appealed a couple of issues from his Chapter 7 bankruptcy case.  Yes, humans may file for bankruptcy relief when incarcerated.  Most bankruptcy attorneys will never file a case for an incarcerated human.  It is far more likely that a human files their own Chapter 7 bankruptcy case rather than hire a bankruptcy lawyer to assist them.

Mr. Gutierrez received his discharge of debt, the case was closed, then Mr. Gutierrez reopened the Chapter 7 case to file two adversary lawsuits alleging various allegations.  One of which was against the Oregon State Department of Corrections.  Mr. Gutierrez owed a debt based upon federal court fees incurred under 28 U.S.C. Section 1915(b). 

While Mr. Gutierrez admitted that the nature of the fees are governed by Section 523(a)(17); barring dischargeability of such fees, he argued that  

Bankruptcy Code Section 523(a)(17) provides:

(a)A discharge under section 727, 1141, 1192 [1] 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

(17) for a fee imposed on a prisoner by any court for the filing of a case, motion, complaint, or appeal, or for other costs and expenses assessed with respect to such filing, regardless of an assertion of poverty by the debtor under subsection (b) or (f)(2) of section 1915 of title 28 (or a similar non-Federal law), or the debtor’s status as a prisoner, as defined in section 1915(h) of title 28 (or a similar non-Federal law)

The not dischargeable federal fees are collected from the inmate’s prisoner trust account by the applicable correctional institution. See 28 U.S.C. § 1915(b)(2). Thus, Mr. Gutierrez’s issue is with the Oregon Department of Corrections.

FIRST, Mr. Gutierrez argues the federal court fees, while covered by Section 523(a)(17), they should be dischargeable given none of his appeals were frivolous.  SECOND, Mr. Gutierrez challenged how the federal court fees were collecting the allegedly not dischargeable federal court fees.  28 U.S.C. Section 1915(b)(2) limits the amount that can be collected to 20% of the prior months credited income to their prisoner account without consideration of the number of cases the prisoner owes federal court fees. Mr. Gutierrez’s issue is notification of how the not dischargeable court fees were to be collected: 20% of his income PER lawsuit filed and not 20% of total without consideration of number of cases.

The lower bankruptcy court dismissed the Section 523(a)(17) allegation and held it did not have jurisdiction over the allegation of wrongful collection method of the federal court fees and 28 U.S.C. Section 1915(b). 

Standards of This Appeal

De novo review = appellate court reviews case as if the case is being heard for the first time; subject matter jurisdiction requires de novo review upon appeal 

Abuse of discretion = concerning retention of jurisdiction after case dismissal

Abuse of discretion occurs when the lower bankruptcy court applies an incorrect legal rule or when its factual findings are illogical, implausible, or without support in the record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).

Mr. Gutierrez focuses his argument on “related to” the bankruptcy case for the lower bankruptcy court to have jurisdiction. A bankruptcy court may have “related to” jurisdiction if the result could change a debtor’s rights, liabilities, options, or freedom of action which impacts the administration of the original bankruptcy case.   

HOLDING: The collection of the not dischargeable federal court fees is not part of the bankruptcy court’s jurisdiction.  At the time Mr. Gutierrez filed the adversary proceeding lawsuit his Chapter 7 bankruptcy case was fully administered.  Only then did the Oregon Department of Corrections begin collecting the fees.  Jurisdiction for “related to” is the date the adversary lawsuit is filed; not before.

In re Casamont Invs., Ltd., 196 B.R. at 521 (citing In re Fietz, 852 F.2d at 457 at n.2); measure of time is as when adversary proceeding filed/commenced

Montana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189, 1193 (9th Cir. 2005)

Fietz v. Great W. Sav. (In re Fietz), 852 F.2d 455, 457 (9th Cir. 1988) (cleaned up) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984))

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2.  Ebuehi, BAP No. CC-21-1199-FLT, March 8, 2022

The Ninth Cir. BAP held the bankruptcy court did not error in denying the Ebuehi’s their discharge pursuant to Sections 727(a)(3), 727(a)(4), and 727(a)(6). 

The Ebuehi’s originally filed a Chapter 11 reorganization case and confirmed, obtained approval, of the Chapter 11 Plan of Reorganization.  After approval creditors accused the Ebuehi’s of not making payments to them properly and misappropriating $5,000.00 a month in rental income.  The Court issued an order to show cause why the case should not be converted to Chapter 7 liquidation.  No real fight was mounted, and the case was converted to Chapter 7.

The Chapter 7 Trustee assigned to the case naturally sought to liquidate the Ebuehi’s assets including a piece of real property the Ebuehi’s resided at.  The Ebuehi’s eventually vacated the property.  The Chapter 7 Trustee then decided to file an adversary proceeding to take aware the Ebuehi’s discharge for alleged wronging doing pursuant to Section 727(a)(3), (a)(4) and (a)(6). 

Section 727(a)- the court shall grant a discharge unless

(3) the debtor concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information

(4) the debtor knowingly and fraudulently, in or in connection with the case (A) made a false oath or account

(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor’s liabilities

So the Court held denial of discharge was warranted under § 727(a)(6) given the Ebuehi’s had failed to comply with the Court order regarding conversion to Chapter 7 and turnover of the real property to the Chapter 7 Trustee.

In order to establish that the debtors “refused” to comply with an order, the party seeking to deny discharge “must show that Debtors (1) were aware of the order and (2) willfully or intentionally refused to obey the order (i.e., something more than a mere failure to obey the order through inadvertence, mistake or inability to comply).” Vaughan v. Weinstein (In re Vaughan), BAP No. NV-15-1254-JuKiD, 2016 WL 878308, at *7 (9th Cir. BAP Feb. 29, 2016).

Under § 727(a)(4) the debtors allegedly made a false oath regarding the number of missed mortgage payments.  The Ebuehi’s has 11 missed mortgage payments versus listing only 4.  Okay, so did they intentionally does this for some reason and does it really matter?  Apparently yes, yes it did.

The fundamental purpose of § 727(a)(4)(A) is to insure that the chapter 7 trustee and creditors have accurate information without having to conduct costly investigations.” Fogal Legware of Switz., Inc. v. Wills (In re Wills), 243 B.R. 58, 63 (9th Cir. BAP 1999).

Under § 727(a)(3) because the Ebuehi’s allegedly failed to maintain records regarding the rental payments or turn over their record-keeping notebook, making it impossible to ascertain their financial condition.

Debtors are required to “present sufficient written evidence which will enable his creditors reasonably to ascertain his present financial condition and to follow his business transactions for a reasonable period in the past.” Id. (quoting Rhoades v. Wikle, 453 F.2d 51, 53 (9th Cir. 1971)).

The Ninth Cir. BAP found no error in the bankruptcy courts denial of the Ebuehi’s discharge.