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Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Wednesday, December 22nd, 2021

Judge Marc Barreca approves conversion of Tim Eyman’s bankruptcy case to Chapter 7

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.

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One Comment

  1. I agree! He did it to himself.

    # by Gretchen Sand :: December 25th, 2021 at 11:59 PM

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