A little more than three years after filing for bankruptcy in a failed attempt to evade accountability for his egregious violations of Washington’s public disclosure laws, scandal-plagued libertarian activist Tim Eyman’s proceeding has been converted from a Chapter 11 reorganization case to a Chapter 7 liquidation case.
Having concluded that “there is cause pursuant to 11 U.S.C. § 1112(b)(4) to convert this bankruptcy to a case under Chapter 7, and that conversion is in best interests of the creditors,” United States Bankruptcy Court Judge Marc Barreca ordered last week that Eyman’s case be converted from Chapter 11 to Chapter 7 and a trustee appointed to liquidate his non-exempt assets.
Eyman’s counsel had asked for the case to remain in Chapter 11 despite Eyman’s failure to make his required monthly payments to the State of Washington.
But the judge sided with the State of Washington, Eyman’s main creditor, represented by Attorney General Bob Ferguson’s office. Ferguson’s office moved for a Chapter 7 conversion after Barreca suggested during a hearing last month that Chapter 7 was the logical next step for Eyman’s bankruptcy.Judge’s order approving Chapter 7 bankruptcy conversion
“The State first requested under the Plan’s default provisions that a Chapter 11 Trustee be appointed in the hopes the Chapter 11 Plan could continue,” noted a brief filed by the state on December 13th. “The responding parties objected strenuously to the State’s request arguing a Trustee was unnecessary because Debtor Eyman had no ability to make Plan payments.”
“However, now in response to the State’s Motion to Convert, the responding parties argue that the Chapter 11 Plan is the better option because it ‘preserves the opportunity for the Debtor to raise funds to pay his claims over time.’ ”
“Debtor Eyman cannot have it both ways. He cannot request the Chapter 11 Plan to remain in place, but fail to make Plan payments. Debtor Eyman’s nonsensical position makes conversion the only viable option.”
Money is still flowing to Eyman, attorneys for the state noted, yet Eyman is in default due to having failed to make his installment payments.
“Debtor Eyman’s most recent quarterly report establishes he is raising money, but he has not used these funds to make Plan payments,” the brief states.
“In September 2021, he continued to receive and deposit PayPal and check contributions received from supporters into his bank accounts, multiple times each month, with many deposits totaling several thousand dollars. From July 7th, 2021 to September 24th, 2021, Debtor Eyman made fourteen deposits of contributions from supporters, totaling $39,286.79. He identified these deposits as ‘gifts from friends’ or ‘gifts from friends for legal defense fund.’ ”
“Considering the amount of funds raised and received by Debtor Eyman, there is a question as to whether Debtor Eyman has no money to make plan payments or has simply chosen not to make Plan payments. This conundrum alone creates ’cause’ and warrants conversion to Chapter 7 because Debtor Eyman has decided not to comply with the provisions of the Chapter 11 Plan.”
The state had previously asked Barreca to convert Eyman’s bankruptcy to a Chapter 7 in 2019, but Barreca demurred. This time, however, Barreca practically invited the state to make a motion for a Chapter 7 conversion.
“After paying more than $500,000 towards his legal obligations, Eyman chose to stop making his required monthly payments. That put him in default. As a result, the judge suggested and approved this Chapter 7 conversion,” said Attorney General Bob Ferguson in a statement to NPI. “Eyman committed egregious campaign finance violations — there must be accountability. Eyman believes he can flout the rules and the law without consequences. He is mistaken.”
After granting the conversion motion, Judge Barreca appointed Virginia A. Burdette to serve as the trustee for the case. Here’s how the official website of United States Courts characterizes Burdette’s role:
The primary role of a chapter 7 trustee in an asset case is to liquidate the debtor’s nonexempt assets in a manner that maximizes the return to the debtor’s unsecured creditors. The trustee accomplishes this by selling the debtor’s property if it is free and clear of liens (as long as the property is not exempt) or if it is worth more than any security interest or lien attached to the property and any exemption that the debtor holds in the property.
On Monday, Burdette filed a motion with the Court seeking to employ Thomas S. Linde and Schweet, Linde & Coulson, PLLC as the trustee’s counsel for this case.
“I have conferred with, and now desire to employ, Thomas S. Linde and Schweet Linde & Coulson, PLLC as general counsel to perform the above-described services, which are necessary and desirable to the administration of this estate,” Burdette wrote. “I have selected Mr. Linde and Schweet, Linde & Coulson, PLLC because of their experience and knowledge of the law in the issues presented above. Accordingly, I believe they are well qualified to represent the Estate.”
Barreca approved Burdette’s motion in an order signed this morning.
Debtors in Chapter 7 are allowed to retain a certain amount of property, such as household furnishings, clothing, and qualifying retirement accounts. All other property is considered “nonexempt” and subject to liquidation.
Burdette’s next steps will be to review all of Eyman’s paperwork, verify his identity, and ascertain what’s exempt and what’s nonexempt.
Then, Burdette will attempt to sell Eyman’s nonexempt property.
The most valuable asset that Eyman still owns (or co-owns) is the family home in Mukilteo’s Harbour Pointe neighborhood. Eyman has used the home as collateral several times to obtain financing for his destructive initiatives, as he himself admitted in an email update next week, but is now angry at the prospect of the home being sold to satisfy his debts. Eyman has characterized Attorney General Bob Ferguson as “obsessed with making Karen and the kids homeless.”
Ferguson, of course, has no wish to deprive Eyman’s family of shelter, but rather wants to hold Eyman accountable for his lawbreaking and ensure that he pays what he owes. Eyman could have given up his ownership of the Harbour Pointe home years ago by dissolving his marriage and transferring sole ownership to Karen Eyman, but he did not do so. Instead, he let divorce proceedings lapse.
It is important to understand that everything that has transpired up to this point has been largely driven by Eyman’s choices. Although he claims to be the victim of a railroad, the situation Eyman is in is of his own making.
Just to recap:
- Eyman chose to break Washington State’s public disclosure laws, repeatedly and egregiously, over a period of many years
- Eyman chose to irresponsibly mix his personal finances with those of his political committees, which was extremely unwise
- Eyman chose to stonewall the state’s investigation into this lawbreaking, unnecessarily dragging it out and creating a personal hell for himself
- Eyman chose to file for bankruptcy before he was actually bankrupt in the hopes of blocking the state’s investigation (this gambit failed)
- Eyman chose to hire very expensive attorneys such as Richard Sanders to ineffectively defend him in both state and federal court
- Eyman chose to stop making his court-approved required monthly payments, putting him into default and spurring the Chapter 7 conversion
If Eyman didn’t like Chapter 11, he’s going to like Chapter 7 even less. But he has no one to blame but himself for this predicament. He brought all this on himself through a series of bad choices going back more than ten years.