United States District Court, E.D. Michigan, Northern Division
In re: Michael B. White and Darla Kay White, Debtors, MICHAEL B. WHITE, and DARLA KAY WHITE, Appellants,
DANIEL M. MCDERMOTT, United States Trustee, FRANKENMUTH CREDIT UNION, ALLY FINANCIAL, INC., Appellees
Michael B. White, Appellant, Pro se, Birch Run, MI.
Darla Kay White, Appellant, Pro se, Birch Run, MI.
For Daniel M McDermott, U.S. Trustee, Appellee: Sean M. Cowley, LEAD ATTORNEY, Detroit, MI. Kelley L. Callard, U.S. Department of Justice, Office of the Trustee, Detroit, MI.
For Frankenmuth Credit Union, Appellee: Paul E. Wenzloff, LEAD ATTORNEY, Shaw & Wenzloff, Bay City, MI.
For Ally Financial Inc., Appellee: Craig S. Schoenherr, LEAD ATTORNEY, O'Reilly, Rancilio, Sterling Heights, MI.
OPINION AND ORDER AFFIRMING BANKRUPTCY COURT
Honorable THOMAS L. LUDINGTON, United States District Judge.
Appellants Michael and Darla White appeal a decision of the Bankruptcy Court for the Eastern District of Michigan. The bankruptcy case was initiated on July 30, 2013 when the Whites sought the protection of Chapter 11 of the bankruptcy code. After proposing two plans of reorganization, both of which were rejected by the bankruptcy court, Judge Opperman determined that the case should be converted to a proceeding under Chapter 7 of the bankruptcy code and the automatic stay on the sale of the White's assets, namely their house and car, should be lifted. The Whites now appeal that ruling.
Michael and Darla White were a husband and wife who resided in Birch Run, Michigan. Michael White has worked in the fields of construction and sand mining. Darla White worked for a number of years in the insurance and trucking industries. The Whites' careers changed significantly in 2007 when Darla White began suffering from a disability. She was no longer able to work and Michael, facing his own issues with employment, took time to care for her. Darla's health never recovered after 2007 and she was unable to return to work. Eventually Michael found steady employment in the meat market at a local Meijer's, where he still works.
The Whites purchased their primary residence at 11085 Block Road, Birch Run, Michigan (" Block Road property" ), in 1990. The homestead consists of 40 acres of farmland and a farmhouse where the Whites reside. They paid the mortgage loan for the house in full in 2006. In 2007, the White sought a line of credit from Frankenmuth Credit Union (" FCU" ). Their credit request was approved and they secured a $100,000.00 loan from FCU that was secured by a mortgage against the Block Road property. The loan money was withdrawn using a credit card issued to the Whites.
The Whites withdrew the full amount of the loan within eighteen months of the account being opened. By 2010, the Whites began to fall behind on their loan payments. They stopped making payments altogether in 2011. In response, FCU initiated a foreclosure action in Saginaw County Circuit Court. The Whites defended the action, contending that FCU's mortgage was invalid, but were unsuccessful. The Saginaw County Circuit Court entered a judgment of foreclosure in favor of FCU on July 15, 2011. FCU was authorized to hold a foreclosure sale after August 5, 2011 and to recover $113,789.23 in costs and fees.
On July 30, 2015, before FCU conducted a foreclosure sale, the Whites filed for bankruptcy and the automatic stay barred the foreclosure sale. As part of the Chapter 11 bankruptcy proceeding, the Whites were required to provide monthly operating reports to the bankruptcy court. Those reports were timely filed each month until the case was converted to a Chapter 7 proceeding.
During the roughly one year that the Whites were in bankruptcy they reported a negative cash flow in their monthly operating reports more often than not. Indeed, seven of the twelve reports reflected a deficit. These reports also did not make any mention of the mortgage payments. The Whites also did not consistently service their car loan while in bankruptcy, ...