Judge: No bankruptcy protection for couple

A U.S. bankruptcy judge has ruled that a husband-and-wife-mortgage-business team cannot file for bankruptcy protection again for current and possible future debts arising from the case already heard by the court.

The ruling further allows creditors to freely pursue debts owed by Kathleen Patricia Morris, also known as Tricia Morris, and David Duffy Herman of the Kihei-based Hawaii’s Premiere Mortgage Co.

In court records, the couple disclosed that between 100 and 199 creditors are owed between $1 million and $10 million in estimated liabilities.

In January, U.S. Bankruptcy Judge Robert J. Faris dismissed a Chapter 11 bankruptcy reorganization petition by the couple. Without bankruptcy protection, creditors may file actions on their own to get what they are owed.

Faris had set another hearing Monday to determine whether to dismiss the case with prejudice, which means the cases cannot be refiled, or without prejudice, where parties may refile their claims.

But on Jan. 30, the U.S. trustee, along with Morris, Herman and their attorneys, agreed that the couple shall not receive bankruptcy protection for the case and any future cases for debts arising from the case, court records show.

On Feb. 28, Faris granted a motion filed Jan. 31 to approve the stipulation to dismiss the case with prejudice. Faris noted that there were no timely objections to the motion.

The couple has said in court statements that their “finances suffered” after Herman had a heart attack in Idaho in 2009. The statements said Morris tried to reorganize their debt and obtain hardship loan modifications.

In January, after their case was dismissed, the couple said in a written statement to The Maui News that they filed for Chapter 11 to project junior lien holders on the couple’s properties. Then the couple filed a reorganization plan to preserve the rights of all creditors, including the most vulnerable of them.

Morris and Herman also said that they intended to follow through and repay as many people as they could and would be using revenue from their various businesses, including their mortgage business, which is fully licensed.

Court records show that multiple creditors had objected to the proposed bankruptcy reorganization plan.

A listing of Morris’ and Herman’s creditors holding the 20 largest unsecured claims show bank loans, credit card balances, deficiency judgments and money owned on multiple residences on Maui and the Big Island totaling more than $5.9 million, according to bankruptcy documents.

Morris and Herman listed assets that were estimated at between $1 million and $10 million in their filing. However, they are both listed as the “fee owners” of at least 15 Maui properties with a combined assessed tax value of more than $14.5 million, according to Maui County property tax records.

An acting U.S. trustee has said in court documents that the debtors “have demonstrated gross mismanagement of their estates” and did not provide information “reasonably requested by the U.S. Trustee.”

It accused the couple of having concealed assets, failing to disclose bank accounts, diverting “substantial amounts” of rental income into a business account that they claimed was inactive and improperly soliciting votes on their reorganization plan prior to court approval.