Delaware Business Bankruptcy Report : Delaware Business Bankruptcy Report : Morris James LLP Lawyers & Attorneys

In a case before Judge Brendan L. Shannon of the United States Bankruptcy Court for the District of Delaware, debtor James E. Murray filed a petition under Chapter 7.  Thomas A. Giuliano was appointed as the Chapter 7 trustee to administer the 86 year-old debtor’s estate. The trustee then moved to dismiss the case on the basis that the debtor had sufficient income to pay his creditors. To resolve the trustee’s concerns, the debtor agreed to convert his case to one under Chapter 13, and proposed a plan to pay unsecured creditors approximately one-third of the $52,661.10 that the debtor owed. 

Now this is where it gets interesting. The trustee received an anonymous letter tipping him off that the debtor owned license plate number 67 – a coveted two-digit plate. The undisputed estimated value of the plate was given at between $200,000 to $250,000. In light of this information, the debtor amended his plan to include the sale of his license plate along with the car to which it was attached – a 2000 Lincoln Continental with 160,000 miles on the odometer. With the proceeds of this sale, the debtor proposed to pay his creditors in full.

Apparently unsatisfied with this 100% plan, the trustee filed a motion a seeking reconsideration of the order converting the case from Chapter 7 to Chapter 13. The basis for the motion? The debtor’s alleged bad faith failure to disclose the ownership of the license plate worked a forfeiture of the right to convert under section 706(a). After briefing and oral argument, the Court denied the motion, finding that the debtor did not act in bad faith.

The debtor’s testimony revealed that around 1962, the debtor asked his friend, George “Junior” Collins, if he could have one of the two double-digit plates that Mr. Collins owned. Mr. Collins offered both of them to the debtor, free of charge. Because the debtor owned only one car, he accepted the offer to take plate number 67, but turned down plate number 85. However, the debtor testified, and the Court accepted as credible, that the debtor did not know of the value of the license plate. The Court found it “astonishing . . . that a person would pay over $200,000 for the privilege of having only two digits on their license plate instead of the more typical five or six.” The Court also noted that the debtor never treated the license plate as having any value, pointing out that the debtor made the (presently regrettable) decision to turn down Mr. Collins’ offer of a second, free two-digit plate. Also, the license plate was not separately administered in a property settlement in the debtor’s divorce. Finally, the Court rejected the trustee’s argument that allowing conversion would prejudice the debtor’s unsecured creditors (who were to receive a 100% distribution on their claims) because, the trustee asserted, only a small percentage of creditors would be expected to file claims in the case.  As a remedy for this perceived problem, the trustee requested that the Court enter an order ensuring distributions to all of the debtor’s creditors. The Court declined this invitation to rescue those creditors who would not be bothered to file claims for themselves. At bottom, conversion would not alter the right of a creditor to seek and receive payment in full on a claim.

Accordingly, the Court rejected the trustee’s motion and allowed the debtor to seek prompt confirmation of his plan, which contemplates payment in full to creditors within six (6) months.