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Eighth Circuit BAP Affirms Dismissal of Bankruptcy Case After Allegations of Misconduct - Johnson v. Fink

May 11, 2012

Vincent Howard and our Redlands consumer bankruptcy lawyers were interested to see a recent bankruptcy case in which the debtors' good luck, in winning the lottery, turned into bad luck when their bankruptcy case was dismissed. In Johnson v. Fink, Robert Allen Johnson and Leita Anne Johnson won $20,000 in a lottery shortly after they filed their Chapter 13 plan. Their bankruptcy trustee, Richard Fink, claimed most of that money for the estate, and the bankruptcy court eventually agreed. However, the Johnsons never followed up on the court's order to file an amended bankruptcy plan to account for the money, or convert to Chapter 7, which led to the dismissal of the case. In this appeal, the Bankruptcy Appellate Panel of the Eighth U.S. Circuit Court of Appeals affirmed that judgment, finding no error by the bankruptcy court.

The Johnsons confirmed their plan in late January of 2011. In May of that year, Fink learned that the Johnsons had won $20,000, and they filed a motion with the court thereafter revealing that they had already spent some of that money and planned to spend more on expenditures they said were necessary. They paid some money into their attorney's trust account, but the trustee determined that about $1,500 was not accounted for. They later argued that the bankruptcy code permitted them to retain money acquired after plan confirmation. This did not impress the bankruptcy court, which told them it would deem the spent money necessary if they would turn over $2,200. After further motions from the trustee, they eventually filed a plan that would have paid other lottery winnings in a lump sum, but the bankrutpcy court ultimately decided the money must be divided into equal monthly amounts, and told them to file a new plan or convert to Chapter 7. When they did neither, the court eventually disbursed their lottery winnings and dismissed the case.

The Johnsons appealed the dismissal as well as other rulings, but the Eighth Circuit BAP found that they only properly addressed their appeal of the confirmation of their original plan. that plan, they argued, was improper because it required them to report all windfalls during the plan period; they said Congress intended that amounts to be paid to creditors should be determined at confirmation. The trustee argued that this appeal is moot because it took place well over 14 days from when the order was final. The BAP ultimately dismissed every part of the appeal by agreeing that this appeal was improper. To appeal their original plan confirmation, in January of 2011, they would have had to give notice within 14 days, and no such notice was filed. Because their entire argument was based on this, the court said, their entire argument must be dismissed. In addition, it noted that there was no basis to find an abuse of discretion by the bankruptcy court in dismissing their bankruptcy case, an appeal that was timely.

Vincent Howard and our Westminster personal bankruptcy attorneys would have preferred more than a sentence or two about the appeal the court conceded was timely. While this opinion is detailed, it doesn't contain the details necessary to follow the court's logic on why there was no abuse of discretion. This could be because the Johnsons failed to make a good argument, but it's hard to tell from the opinion. In general, however, an experienced Los Angeles County individual bankruptcy lawyer like Vincent Howard can help bankruptcy filers avoid this kind of dismissal on appeal -- and indeed, help them handle windfall payments without getting into trouble with the trustee and the court. Chapter 13 debtors generally could use this kind of extra money, but as this case shows, the price of doing it wrong can be steep.

If you're considering bankruptcy because you feel overwhelmed by your debt and nasty calls from creditors, you should call Howard Law, P.C., to discuss how we can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.

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