Bankruptcy judge says Honey Do Men not to be paid
A Peekskill homeowner does not have to pay $62,000 to Honey Do Men Gutters Inc., a bankruptcy judge has ruled, because the contractor failed to establish fr
aud.
“In reaching its decision today, the court does not seek to minimize the harm caused to [Honey Do Men] by the nonpayment of debt,” U.S. Bankruptcy Judge Sean H. Lane stated in an Oct. 10 opinion. While he is sympathetic, he cannot stop the debt from being cancelled “simply because of broken promises.”
The homeowner, Teba Gumbs, petitioned for bankruptcy protection in 2017, declaring $303,194 in assets and $462,034 in liabilities.
While most debts can be cancelled in bankruptcy, there are a few exceptions, such as money obtained by fraud or false pretenses. In 2018, Honey Do Men, of Carmel, and Chief Executive Officer Darrell Babboni, accused Gumbs of fraud.
In 2016, Gumbs hired the contractor for an extensive renovation, after a sewer pipe broke and damaged the house on Smith Street. The initial price was $51,000, not including materials, and grew to $72,514 for extra work.
Gumbs proposed paying for the work with a $30,000 bank loan and credit cards, according to court records, and agreed to buy the building materials, for about $43,000.
Honey Do Men claimed that Gumbs engaged in a charade.
He let the $30,000 loan expire. New loan applications were denied. He refinanced the house in 2017 but used the $50,000 in proceeds to pay off other debts. And, he allegedly used up a $41,000 line of credit without paying the contractor, meanwhile, taking trips to Florida and Las Vegas.
The main issue, Lane said, is whether Gumbs’ conduct amounted to false representation, false pretense, or actual fraud.
A finding of fraud requires an inherent sequence of events, he noted. First, a misrepresentation; second, the victim’s reliance on the misrepresentation; third, the damages resulting from the misrepresentation.
The misrepresentations must be made to obtain the contractor’s services.
But in this case, Lane found, the vast majority of alleged misrepresentations happened after Honey Do Men had already finished the work.
False statements also must be intentional. But if Gumbs did not intend to pay Honey Do Men, Lane said, it seems unlikely that he would have tried to get a new loan when the job was almost done. He also made several small payments totaling $21,458, mostly after the work was done.
“Mr. Gumbs’ action(s) speak more to a debtor who continued to attempt to rectify a sinking financial ship,” Lane stated, “than to a debtor who engineered a plot to deceive a creditor.”
Even when discharging a debt harms a small business like Honey Do Men, Lane noted, in citing a court precedent, the cancellation of Gumbs’ debt is consistent with “Congress’s policy decision to afford … debtors a fresh start at the possible expense of creditor interests.”