Jeffrey Neil Rubin and Sandra Kay Drake-Rubin

The Court has subject matter and personal jurisdiction	1
pursuant to 28 U.S.C. §§ 1334 and 157(b); this is a core
proceeding pursuant to 28 U.S.C. § 157(b)(2)(A); and this
Memorandum Opinion constitutes findings of fact and conclusions
of law as may be required by Rule 7052 F.R.B.P.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
JEFFREY NEIL RUBIN and
SANDA KAY DRAKE-RUBIN,
Debtors. No. 11-11-13431-SA
MEMORANDUM OPINION AFTER TRIAL ON
THE MERITS OF MOTION TO DISMISS
This matter came before the Court on Community Bank’s
(“Bank”) Amended Motion to Dismiss (doc 50), creditor Prestito
Moneta’s (“Moneta”)(collectively, “Movants”) joinder therein (doc
53) and Debtors’ Objection (doc 55). Movants seek dismissal of
this Chapter 11 proceeding pursuant to 11 U.S.C. § 1112(b) for
cause . Bank also argues that conversion is not possible because	1
the Debtors are ineligible for Chapter 7 relief.
Conversion or dismissal of a Chapter 11 case is governed by
11 U.S.C. § 1112(b), which provides:
(b)(1) Except as provided in paragraph (2) and
subsection (c), on request of a party in interest, and
after notice and a hearing, the court shall convert a
case under this chapter to a case under chapter 7 or
dismiss a case under this chapter, whichever is in the
best interests of creditors and the estate, for cause
unless the court determines that the appointment under
section 1104(a) of a trustee or an examiner is in the
best interests of creditors and the estate.
(2) The court may not convert a case under this chapter
to a case under chapter 7 or dismiss a case under this
chapter if the court finds and specifically identifies
unusual circumstances establishing that converting or
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dismissing the case is not in the best interests of
creditors and the estate, and the debtor or any other
party in interest establishes that--
(A) there is a reasonable likelihood that a plan
will be confirmed within the timeframes
established in sections 1121(e) and 1129(e) of
this title, or if such sections do not apply,
within a reasonable period of time; and
(B) the grounds for converting or dismissing the
case include an act or omission of the debtor
other than under paragraph (4)(A)--
(i) for which there exists a reasonable
justification for the act or omission; and
(ii) that will be cured within a reasonable
period of time fixed by the court.
(3) ...
(4) For purposes of this subsection, the term ‘cause’
includes--
(A) substantial or continuing loss to or
diminution of the estate and the absence of a
reasonable likelihood of rehabilitation;
(B) gross mismanagement of the estate;
...
Section 1112(f) prohibits conversion to a chapter under
which a debtor would not be eligible. (“Notwithstanding any
other provision of this section, a case may not be converted to a
case under another chapter of this title unless the debtor may be
a debtor under such chapter.”)
FACTS
The Court conducted two days of trial on this matter. Bank
called Mr. Rubin as an adverse witness. This took one and one-
half days of the trial. Bank also briefly called Ms. Drake-Rubin
as an adverse witness. No one else testified. Debtors rested at
the conclusion of Bank’s case, having presented all of their
relevant facts during cross-examination.
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The Court found both witnesses to be entirely credible.
They are highly educated and intelligent, very hard-working
individuals committed to high performance in their respective
careers, but also deeply committed to their family. The Court
also finds that both have become used to a life style consistent
with, at least for New Mexico, very high salaries. For example,
both were very unapologetic for having two children in an
expensive private school, a daily nanny for delivering and
picking up children at school and shuttling the children about
the city to their various extra-curricular activities. They live
in an exclusive gated community in a house whose value is less
than the first mortgage. They have country club memberships.
Before bankruptcy, they customarily took expensive vacations.
The Debtors drive high-end vehicles. The family has a large,
expensive motor home with no equity but a large monthly payment
and for which they flat out state a “need.” The Debtors have
millions of dollars worth of term life insurance that would
benefit their daughters in the event of death, but they were
unwilling to even consider whether the amounts were excessive.
One consistent line of questioning by Bank throughout the
two days of trial focused on the atypical expenses of this
Chapter 11 case and the Debtors’ response to those expenses.
Both Debtors expressed an unwillingness to change any expenses
unless the Court ordered them to, and then both stated that if
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the Court were to forbid certain payments, they would continue to
pay them anyway out of “exempt assets.” The Debtors both
conveyed the impression that this bankruptcy proceeding was
nothing more than a necessary evil to deal with the fact that
they have accumulated millions of dollars of debt and, once over
the distasteful process, they would resume their extravagant
lifestyle at the lake and country club and behind gated living.
Mr. Rubin is a physician. Ms. Drake-Rubin is a sales
representative for a medical supplier. They have been in their
current positions for 11 and 23 years respectively. They filed
this joint Chapter 11 petition on July 29, 2011. The Statement
of Financial Affairs (“SFA”) shows joint income from employment
of: 2009, $466,058; 2010, $483,211; and 2011 to July 29,
$128,928. Doc 58. Debtors have three children, aged 16, 13 and
9. Schedules I and J show current average monthly income and
current average monthly expenditures of $14,414 and <$18,653>
respectively. Doc 1. Therefore, there is a monthly average
shortfall of <$4,238>.
Debtors are not “consumer debtors.” Bank acknowledged
during closing arguments that more than 50% of Debtors’ debts
were related to businesses and profit making activities.
The SFA discloses Debtors involvement in six lawsuits on the
petition date. In one, Mr. Rubin was a plaintiff. In the
others, Mr. Rubin was the defendant in collection and foreclosure
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actions seeking millions of dollars in judgments, mostly in
situations where one or both of the Debtors guaranteed debt of
LLCs or partnerships involved in developing real property.
Debtors filed a Disclosure Statement on April 6, 2012
effective of even date. Debtors propose to contribute $3,000 per
month from their disposable income and $1,997 per month as
proceeds from a real estate contract to fund the plan. Based on
scheduled unsecured claims of $7,423,088 the Debtors project that
unsecured creditors would receive a 2% dividend. The Disclosure
statement also indicates that the Debtors expect professional
fees of $85,000 as an administrative expense and 2011 income
taxes as an administrative expense in the amount of $45,800.
Debtors also schedule a priority 2010 income tax of $37,801.
Therefore, the 2% dividend would probably not commence until year
4 or 5 of the plan.
Debtors ongoing budget, Exhibit F to the Disclosure
Statement, projects annual joint receipts from 2012 through 2016
of $322,296. It also projects annual joint disbursements
(including plan payments of $36,000) for the same time of
$326,230. In other words, to fund the plan the Debtors would be
expending about $4,000 per year more than their income. The
budget includes a projected RV payment of $17,434 per year and
projected term life insurance payments of $17,423 per year.
Debtors most recent Monthly Operating Report appears as
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docket number 124, filed May 18, 2012 for the month ending April,
2012. For the approximate ten month duration of this Chapter 11
case, total receipts have been $225,025. Total disbursements
have been $245,866. This is a net cash outflow of $20,841
without making any payments on prepetition debts or any payments
on a second mortgage on the Debtors’ residence (which Debtors
intend to avoid as totally unsecured.) The Operating Report also
shows an account payable to Debtors’ attorney for post-petition
services of $95,813. In summary, the estate has been depleted in
the amount of $116,654 over ten months, or about $11,700 per
month.
The Court finds that this loss represents a “substantial or
continuing loss to or diminution of the estate.” The Court also
finds that there is an “absence of a reasonable likelihood of
rehabilitation” because there is no indication or willingness on
the part of the Debtors to curb their life style. Despite
Debtors’ representations that they can make up these deficiencies
from “exempt property” the Court seriously doubts there is enough
exempt cash flow to get the creditors back to where they were
when this case was filed. In sum, the Court finds “cause” to
dismiss or convert.
The Court finds no unusual circumstances such that the case
should not be dismissed or converted. If dismissed, Bank is
agressively ready to seize and tie up as much property as
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The Court disagrees with Bank’s argument that Debtors are	2
ineligible to be Chapter 7 debtors. Chapter 7 has no good faith
requirement and the abuse provisions do not apply to non-consumer
debtors. See In re Lobera, 454 B.R. 824, 853 (Bankr. D. N.M.
2011).
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possible. This violates the principle of equality of
distribution to unsecured creditors. On the other hand, there
are non-exempt assets that a Trustee could administer, including
what appear to be three patently obvious fraudulent transfers
that occurred in the year before filing.
The Court will enter an order converting this case to a
Chapter 7 case.2
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: June 22, 2012
Copies to:
William F. Davis
6709 Academy NE, Suite A
Albuquerque, NM 87109
Leonard K Martinez-Metzgar
Office of UST
PO Box 608
Albuquerque, NM 87103-0608
James Jurgens
100 La Salle Cir Ste A
Santa Fe, NM 87505-6976
Jenny Dumas
Wiggins, Williams & Wiggins, P.C.
PO Box 1308
Albuquerque, NM 87103
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