Bankr. MDNC: In re Greene- Bad Faith Amendment of Exemptions

Summary: The Debtors had initially disclosed in their petition that they anticipated receiving tax refunds for 2008 totaling $3,000.00.  The actually received $11,194.00, but failed to notify either the Chapter 13 Trustee or their attorney. After failing to obtain confirmation of their original Chapter plan, which sought to strip-off a junior mortgage held by State Employee's Credit Union,  a the Debtors proposed a plan releasing their residence to SECU.  Under the new plan, no funds would be paid to SECU, which accordingly sought and obtained an order allowing for adequate protection payments. A few hours after the hearing, the Debtors converted their case to Chapter 7.  The Court quickly found such conversion to have been in bad faith pursuant to 11 U.S.C. § 348(f)(2) and ordered that all funds held by the Chapter 13 Trustee be turned over to the newly appointed Chapter 7 Trustee as assets of the estate. At the §341 Meeting of Creditors, the Debtors' attorney provided a copy of the 2008 tax returns,  which was the first time the larger refunds were disclosed.  The Debtors were also by then entitled to tax refunds for 2009 totaling $5,043.00.  When the Debtors amended their exemptions to claim the 2009 tax refunds, the Chapter 7 Trustee objected. The Court found that normally Bankruptcy Rule 1009(a) allows very liberal amendment of exemptions.  This is tempered, however, upon a showing of bad faith or prejudice to creditors.  In this case, the Court found that the Debtors' pattern of non-disclosure and bad faith, coupled with prejudice to creditors, as the Debtors had already disposed of the 2008 tax refunds, justified denial of the amendments. Greene-Bad Faith Amendment of Exemptions.PDF