In re Jeffery R. BARNETTE, Debtor., United States Bankruptcy Court, N.D. Ohio., 309 B.R. 516, No. 03-38720., April 14, 2004
In re Jeffery R. BARNETTE, Debtor.
United States Bankruptcy Court, N.D. Ohio.
309 B.R. 516
April 14, 2004.
Robert Brennen Blackwell, Findlay, OH, for debtor.
DECISION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
Before this Court is the Debtor's Motion to Dismiss his pending Chapter 7 bank╜ruptcy case and the Trustee's Objection thereto. On March 9, 2004, a hearing was held on the Debtor's Motion at which time the Court deferred ruling so as to afford time to give the matter further consider╜ation and research. The Court has now had this opportunity, and for the reasons set forth below, finds that the Debtor's Motion should be Denied.
On the October 29, 2003, the Debtor filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. At the time he filed for bankruptcy, the Debtor owed back taxes to the IRS. On January 12, 2004, the Debtor received a letter from his tax attorney concerning a possible compromise of his tax obligations. The substance of this let╜ter provided:
Please be advised that the Internal Rev╜enue Service cannot review an Offer in Compromise if you file Bankruptcy [see Form 656, Item 8(k)]. Therefore if you file Bankruptcy while your offer in Com╜promise is pending, the Internal Revenue Service will return your Offer with no right to appeal.
Unfortunately, if you file Bankruptcy our office will not be able to work on your tax matter and will be left with no alternative but to withdraw our Power of Attorney and resign as your counsel. However, if you are considering Bank╜ruptcy, you may file bankruptcy once your Offer in Compromise has been for╜mally concluded.
(Doc. No. 12, attachment).
Based upon the contents of this letter, the Debtor filed the instant Motion to Dis╜miss, noting in his Motion that after dis╜missal he would be refiling at a later date. (Doc. No. 12). After filing this Motion, but before the time of the Hearing, the Trus╜tee filed a report setting forth that the Debtor's estate had no assets available for distribution. (Doc. No. 17).
There is a presumption that once commenced, a Chapter 7 bankruptcy will proceed until the case is fully adminis╜tered. Reflected in this policy is the rule that, unlike a Chapter 13 bankruptcy, an individual debtor has no right to dismiss a case commenced under Chapter 7 of the Bankruptcy Code. In re Blackmon, 3 B.R. 167, 169 (Bankr.S.D.Ohio 1980). Imple╜menting this policy decision is ╖ 707(a) of the Bankruptcy Code which conditions a dismissal of a Chapter 7 bankruptcy on the existence of "cause." As taken from the relevant language of ╖ 707(a): "[t]he court may dismiss a case under this chapter only after notice and a hearing and only for cause, including . . ."
As is the case with ╖ 707(a), relief in many instances throughout the Bankrupt╜cy Code is conditioned upon the existence of "cause." See, e.g., 11 U.S.C. ╖╖ 1112(b); 1307(c). Although nowhere defined, the Code will in many instances deem "cause" to exist under certain specified circum╜stances. See, Id. Section 707(a) is no ex╜ception, setting forth three grounds for dismissal: (1) unreasonable delay by the debtor that is prejudicial to the creditors; (2) nonpayment of required fees and charges; and (3) failure by the debtor to file certain required information.
The very context of these grounds, however, only apply when a nondebtor is the moving party, and thus such examples are not applicable in this particular case. Still, and as is typical throughout the Bankruptcy Code, when a movant's relief is conditioned upon the existence of "cause," the three grounds for dismissal set forth in ╖ 707(a) are nonexclusive, be╜ing preceded in the statute by the word "including" which the Bankruptcy Code defines as "not limiting[.]" 11 U.S.C. ╖ 102(3). Thus, a debtor is not necessarily prohibited from maintaining a ╖ 707(a) ac╜tions to dismiss. In re Sheets, 174 B.R. 254, 256 (Bankr.N.D.Ohio 1994).
All the same, the use of the word "cause," no matter the context, necessarily envisions that a certain minimum thresh╜old be met. As for the necessary thresh╜old, the statutory principle of ejusdem generis holds that the "meaning of an am╜biguous term may be determined by refer╜ence to other terms accompanying it in the statute" McDow v. Smith, 295 B.R. 69, 74 (E.D.Va.2003). In applying this principle to the conditions enumerated in ╖ 707(a), as well as to those other contexts in the Bankruptcy Code in which examples of "cause" are provided, this general conclu╜sion can be drawn: The minimum thresh╜old for "cause" under ╖ 707(a) requires a showing that a legitimate bankruptcy pur╜pose be served by the dismissal. Also, going one step further, it follows that, based upon ╖ 707(a)'s utilization of the permissive word "may," the existence of a proper bankruptcy purpose must be weighed in light and the extent to which other legitimate bankruptcy goals would be served by the case continuing.
Turning now to the instant case, the Debtor's Motion to Dismiss is prem╜ised upon a single argument: his need to compromise a tax obligation. (Doc. No. 12). Based upon the above discussion, im╜plicit in the Debtor's position is that with╜out a dismissal, a major policy goal of the Bankruptcy Code-specifically, the goal of providing a debtor with a fresh start 1 - ╜would be diluted.
1. ═ The Supreme Court of the United States has often noted that a "fresh-start" is at the core of federal bankruptcy law. BFP v. Resolution Trust Corp ., 511 U.S. 531, 563, 114 S.Ct. 1757, 1774, 128 L.Ed.2d 556 (1994).
On first appearance, there does ex╜ist a degree of congruity with the Debtor's position when it is considered that tax debts are generally not dischargeable in bankruptcy. See, 11 U.S.C. ╖ 523(a)(1). Moreover, given that no assets from the Debtor's bankruptcy estate are available for distribution, this significant counter╜vailing consideration is also minimized. In re Maixner, 288 B.R. 815, 817 (8th Cir. BAP 2003). (even if cause for dismissal exists, dismissal should be denied if there is any showing of prejudice to creditors). Nevertheless, the burden is on the Debtor, as the moving party, to establish the exis╜tence of "cause" for dismissal. In re Sim╜mons , 200 F.3d 738, 743 (11th Cir.2000). And in this regard, the Court finds a fatal weakness with the Debtor's reasoning: It presumes that if instead of being dis╜missed, his case proceeds to discharge, and thereafter is fully administered and closed, his ability to compromise his tax obli╜gations with the IRS will be extinguished. Such a position is neither supported by law or the terms of the letter on which the Debtor bases his Motion to Dismiss.
Section 7122 of the Internal Reve╜nue Code provides that the IRS may es╜tablish procedures to compromise tax claims. Under this grant of authority, the IRS has promulgated regulations setting forth the conditions under which a taxpay╜er's obligation may be compromised. 26 C.F.R. ╖ 301.7122-1. In brief these grounds are, (1) dispute over liability, (2) inability to pay, and (3) exceptional circum╜stances demonstrating that relief should be provided. Id . Contrary, however, to the Debtor's position, nothing in these reg╜ulations, or for that matter ╖ 7122, sug╜gests that a taxpayer is barred from com╜promising a tax obligation with the IRS solely as the result of a prior bankruptcy. Simply put, a prior bankruptcy filing will not interfere with a taxpayer's substantive right to put forth an offer in compromise as permitted under 26 U.S.C. ╖ 7122.
This is not, however, to say that a debt╜or's pending bankruptcy will not have an impact on an offer in compromise; it defi╜nitely will. To start with, the automatic stay of 11 U.S.C. ╖ 362(a), while in effect, will prevent the IRS from entering into any such agreement. In addition, in evalu╜ating whether a tax obligation should be compromised, the IRS may consider the amount of debt held by the taxpayer. 26 C.F.R. ╖ 301.7122-1. Thus, if a bankruptcy discharge frees up income that was other╜wise devoted to the repayment of unse╜cured debts, a taxpayer may become ineli╜gible to compromise a tax obligation. Id . Such effects, however, are indirect, and thus, as it concerns an offer in compromise with the IRS, do not change the basic premise that once filed, there is no sub╜stantive difference between a dismissal and allowing a case to proceed through until final administration. Illustrating this position, are the forms and instructions that accompany a motion in compromise.
To start with, the publication put out by the IRS for making an offer in compromise states that a taxpayer is ineligible for con╜sideration if they are "involved in an open bankruptcy proceeding." (emphasis added). In addition, as part of its eligibility check╜list, the application worksheet asks, "Are you currently in bankruptcy?"(emphasis added). Likewise, in the application itself it is asked, whether a bankruptcy has ever been filed, and if so, the date of the filing and discharge. IRS Form 433-A. There╜fore, while recognizing the impact of bank╜ruptcy law, none of these statements even remotely suggests that a bankruptcy for╜ever bars a taxpayer from compromising a tax obligation under ╖ 7122.
Putting things together then, there is no question the Debtor is temporarily barred from entering into an offer in compromise with the IRS. At the same time, nothing would suggest that after his case is fully administered and closed, the Debtor will be ineligible to seek an offer in compro╜mise with the IRS. The letter written by the Debtor's tax attorney simply reinforces this point by indicating that once a bank╜ruptcy case is filed, the IRS cannot consid╜er a pending motion to compromise.
Consequently, other than possibly hastening the process for compromising his tax obligation, there is no tangible ben╜efit for the Debtor to have his case dis╜missed, as opposed to being fully adminis╜tered. In this regard, it should be noted that this Court has abided by the princi╜ples that a Chapter 7 dismissal for the sole purpose of adding postpetition creditors, which would likely occur here, does not constitute "cause." In re Sheets, 174 B.R. ╜254, 256 (Bankr.N.D.Ohio 1994) (noting that this would violate the bankruptcy pro╜hibition against seeking Chapter 7 relief more than once every six years). Accordingly, based upon the presumption that once filed, a Chapter 7 bankruptcy case should proceed through until final adminis╜tration, the Court cannot find that any "cause" exists to dismiss the Debtor's case under ╖ 707(a).
In reaching the conclusions found here╜in, the Court has considered all of the evidence, exhibits and arguments of coun╜sel, regardless of whether or not they are specifically referred to in this Decision.
Accordingly, it is
ORDERED that the Motion of the Debtor, Jeffery R. Barnette, to Dismiss, be, and is hereby, DENIED.