In re Mix [2018] FMSC 5; 21 FSM R. 454 (Pon. 2018) (28 February 2018)

FSM SUPREME COURT TRIAL DIVISION

BANKRUPTCY CASE NO. PB 001-2012

In re ANTHONY JAMES MIX, )
)
Debtor. )
___________________________________ )

ORDER DISMISSING BANKRUPTCY APPLICATION WITHOUT DISCHARGE OF DEBTS

Beauleen Carl-Worswick
Associate Justice

Decided: February 28, 2018

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HEADNOTES

Bankruptcy Discharge; Bankruptcy Dismissal
The debtor’s failure to cooperate and the unauthorized transfer of property out of the debtor’s estate can result in the denial of the debtor’s bankruptcy application and the dismissal of the bankruptcy case without discharging any of the applicant’s debts. In re Mix, 21 FSM R. 454, 456 (Pon. 2018).

Bankruptcy Debtor’s Estate; Bankruptcy Receiver/Trustee
One of the debtor’s duties is to cooperate with the trustee or receiver in the administration of the estate. In re Mix, 21 FSM R. 454, 456 (Pon. 2018).

Bankruptcy

The Bankruptcy Code creates for the debtor, who meets the requirements of the law, an opportunity to get a fresh start where he might otherwise face a protracted struggle with debt beyond his ability to pay. A successful bankruptcy application absolves the debtor of liability for unmatured interest and for punitive damages. The Code gives to the courts substantial latitude in managing the bankruptcy proceeding to protect the interests of both creditors and debtors, to deal with abuses of the bankruptcy system, and to establish a case schedule that takes into consideration the interests of all parties. In re Mix, 21 FSM R. 454, 456 (Pon. 2018).

Bankruptcy Dismissal
If a bankruptcy case is dismissed without a discharge of the applicant’s debts, then the interest that was unmatured when the application was filed but which, without the bankruptcy application, would have accrued during the proceeding’s pendency, will mature and the debtor will be liable for it. In re Mix, 21 FSM R. 454, 456 n.1 (Pon. 2018).

Bankruptcy Receiver/Trustee
Creditor interests are served by the appointment of a receiver to marshal all of the debtor’s non-exempt assets and to manage those assets, during the pendency of the proceeding, in the best interests of the estate. In re Mix, 21 FSM R. 454, 456 (Pon. 2018).

Bankruptcy Dismissal
A voluntary bankruptcy case where the debtor has neither contacted the receiver nor offered to assist in the marshaling and sale of his non-exempt assets, cannot continue in this manner. In re Mix, 21 FSM R. 454, 457 (Pon. 2018).

Bankruptcy Automatic Stay; Bankruptcy Dismissal
When a debtor’s voluntary bankruptcy application is dismissed (and the receivership dissolved) and his debts that were the subject of that application not discharged, the stay against commencement or continuation of legal proceedings against the debtor that took effect automatically by operation of law because of the bankruptcy application, ends since the bankruptcy proceedings are terminated. All judgment creditors and any other creditors are then free to pursue their claims as if no bankruptcy application had been made. In re Mix, 21 FSM R. 454, 457 (Pon. 2018).

Bankruptcy Discharge
The clerk shall serve a "notice of no discharge" on all creditors who have either filed proofs of claim or who were listed as creditors when a debtor’s voluntary bankruptcy application is dismissed without a discharge of the debtor’s debts. In re Mix, 21 FSM R. 454, 457 (Pon. 2018).

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COURT’S OPINION

BEAULEEN CARL-WORSWICK, Associate Justice:

On June 4, 2012, debtor Anthony James Mix, with the assistance of counsel, filed, under chapter two of the FSM Bankruptcy Code, a voluntary application for protection from his creditors. For the reasons that follow, that application is now dismissed without a discharge of Mix’s debts.

I.

On June 26, 2012, because the original application was deficient, the court ordered Mix to file (or to re-file) an application that conformed to Official Forms 1, 6, and 7, and to serve Official Form 9.C (with a December 3, 2012 deadline for creditors to file claims) on the creditors that he had listed in his Schedules. The court also ordered two legal questions briefed and appointed a receiver for the debtor’s estate. Various creditors filed their proofs of claim. On March 14, 2013, the court issued an Order Resolving Questions about whether it had jurisdiction over the debtor and whether it could discharge a debt incurred in a foreign country and owed to a foreign sovereign. In re Mix, 18 FSM R. 600 (Pon. 2013).

The court next issued an Order Requiring Motions and the Debtor’s Cooperation. In that order, the court required the creditors that had expressed concerns over the Mix’s classification of certain property as exempt, to raise those concerns by motion, and the court warned the debtor "of the need for him to cooperate with the court and with his counsel." Order Requiring Cooperation at 1 (Apr. 14, 2013). The court further warned that the "[f]ailure to cooperate and the unauthorized transfer of property out of the debtor’s estate c[ould] result in the denial of the debtor’s bankruptcy application and the dismissal of the bankruptcy case without discharging any of the applicant’s debts." Id. (citing 31 F.S.M.C. 208(1)(b); In re Panuelo, 16 FSM R. 339, 344 (Pon. 2009)). The court resolved the exempt property issues in its June 5, 2013 Order Determining Non-Exempt Status and Voiding Preferential Transfers. In re Mix, 19 FSM R. 63 (Pon. 2013).

II.

On August 9, 2013, the receiver filed a report, listing the items in Mix’s estate that he was able to inventory and also listing other items that Mix had included on his schedules but which the receiver could not locate. The receiver proposed a plan to sell the debtor’s non-exempt assets. On September 2, 2013, the court approved that plan. On March 24, 2014, the court issued a further order for the receiver to proceed with the proposed asset sale. This was not done. Creditors complained that Mix’s assets seemed not to be under the receiver’s control and some seemed to be disappearing. On January 18, 2016, the receiver, in response to a court order, filed a Notice from the Receiver, in which he conceded that he had not implemented the sale plan and ascribed that failure to the "[r]eceiver’s inability to effectively secure/custody [sic] assets for debtor" and the "[d]ebtor’s uncooperativeness." The receiver also stated that it was usually difficult to contact Mix.

One of the debtor’s duties is to "cooperate with the trustee [or receiver] in . . admiation of t of the esta estate." FSM Bankr. R. 4002(4). That Mix did not do. The benefits of cooperation are obvious. The Bankruptcy Code "creates for the debtor who meets the requirements of the law an opportunity to get a fresh start where he might otherwise face a protracted struggle with debt beyond his ability to pay." FSM Pub. L. No. 13-73, § 1, 13th Cong., 5th Spec.. (ss. (2004). A successful bankruptcy application absolves the debtor of liability for unmatured interest,^[1] 31 F.S.M.C. 107(2)(b), and for punitive damages, 31 F.S.M.C. 107(2)(c). The Code "gives to the courts substantial latitude in managing the bankruptcy proceeding to protect the interests of both creditors and debtors, to deal with abuses of the bankruptcy system and to establish a case schedule that takes into consideration the interests of all parties." FSM Pub. L. No. 13-73, § 1, Cong., 5th Spec. Sess. (ss. (2004). "[C]reditor interests [are] served by the appointment of a receiver . . . to marshal all o debtorebtor’s non-exempt assets and to manage those s, during the pendency of t of the proceeding, in the best interests of the estate." Id. The receiver was unable to marshal anage Mix’s assets fots for the estate’s best interests due to Mix’s non-cooperation.

Hearings were set in January and March, 2016. Mix was sent notice of those hearings by e-mail, but he did not respond and he did not appear. It seems Mix was then in the Philippines. On May 3, 2016, the court issued its Order Noting Possible Dismissal Without Discharge, in which it noted not only Mix’s non-appearance but also "previous complaints of the debtor’s uncooperative behavior while he was present on Pohnpei and attending court hearings in this matter." The court warned Mix that if by June 24, 2016, he did not "appear and contact the Receiver, Belan Yoma, and creditor’s counsel . .&# about the sale of the bthe bankruptcy estate’s assets, then this case will be dismissed without a discharge of debtor Anthony James Mix’s debts." ourt ordered court personnel to "make every effort to serveserve this order by mail, by e-mail, and by personal service, and any [other] method reasonably calculated to reach debtor Anthony James Mix." On May 24, 2016, the State Justice Ombudsman, tried serving the order by e-mail as previous orders had been sent.

On May 26, 2016, Mix replied to that e-mail, stating that he had left Pohnpei November 23, 2015, and would return in July, 2016. He also asserted that he had been cooperative. But he did not then contact the receiver about the sale of the bankruptcy estate’s assets. And since then, Mix has neither contacted the receiver nor offered to assist in the marshaling and sale of his non-exempt assets. This case cannot continue in this manner.

III.

Accordingly, Anthony James Mix’s voluntary bankruptcy application is dismissed (and the current receivership dissolved) and his debts that were the subject of that application are not discharged. 31 F.S.M.C. 201(2). Because of the bankruptcy application, a stay against commencement or continuation of legal proceedings against the debtor took effect automatically by operation of law. 31 F.S.M.C. 106(1). That stay now ends since these bankruptcy proceedings are hereby terminated. 31 F.S.M.C. 106(3). All judgment creditors and any other creditors are now free to pursue their claims as if no bankruptcy application had been made. The clerk shall serve this "notice of no discharge" on all creditors who have either filed proofs of claim or who were listed as creditors in Mix’s Schedules. FSM Bankr. R. 4006.

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^[1] If a bankruptcy case is dismissed without a discharge of the applicant’s debts, then the interest that was unmatured when the application was filed but which, without the bankruptcy application, would have accrued during the proceeding’s pendency, will mature and the debtor will be liable for it. This is an added burden that a debtor applying for bankruptcy protection would seek to avoid, if possible.