ROBERT H. JACOBVITZ, Bankruptcy Judge.
There are two pending matters before the Court: 1) confirmation of the Debtor's proposed First Amended Chapter 13 plan (Docket No. 68); and 2) the Debtor's Motion to Continue the Automatic Stay under 11 U.S.C. § 362(c)(3)(B) ("Motion to Continue Stay") (Docket No. 9). The Debtor's former spouse, Denise Comstock, objected to both matters.
After consideration of the evidence and testimony admitted at the final hearing as well as the trial briefs submitted by counsel for the Debtor and counsel for Ms. Comstock, and being otherwise sufficiently informed, the Court concludes that the Debtor filed his Chapter petition in good faith notwithstanding his prior failed Chapter 11 case. However, based on the totality of the circumstances, the Court concludes further that the First Amended
This case is not the Debtor's first bankruptcy filing. On September 13, 2010, the Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code as Case No. 10-11-14645 (the "Chapter 11 Case"). During the Chapter 11 Case, the Debtor failed to timely file monthly operating reports. An amended monthly operating report for December 2010, and the monthly operating reports for the months of January 2011, February 2011, March 2011 and April 2011 were filed on June 22, 2011. See Exhibits 8-12. Monthly operating reports for May 2011, June 2011, July 2011, August 2011, September 2011 and October 2011 were filed on December 29, 2011. See Exhibits 15-20. Monthly operating reports for November 2011 and December 2011 were filed on May 1, 2012. See Exhibits 26-27. The Debtor testified at the final confirmation hearing that he understood he was obligated to file operating reports as part of his Chapter 11 Case, but the he did not know that the reports were to be filed monthly. The Debtor provided financial information to his accountant at the request of the Debtors' bankruptcy counsel, and the accountant prepared the monthly operating reports filed in the Debtor's Chapter 11 Case. The Debtor did not sign any of the monthly operating reports filed in his Chapter 11 Case.
The Debtor opened a debtor-in-possession bank account (the "DIP account") as part of his Chapter 11 Case. The monthly operating reports and account records from the DIP account reflect that the Debtor spent significant sums of money during the pendency of the Debtor's Chapter 11 Case on personal travel and entertainment. The Debtor took a trip to Lima, Peru, where he got engaged. He purchased an engagement ring. He took a trip to Las Vegas with his sons to see the University of New Mexico Lobos basketball team play. Some of the expenses characterized in the bank account summaries as "recreation and entertainment" reflect an address of 8301 Golf Course. This expense is not for golf, though the Debtor testified that he plays golf once or twice a month. The address on Golf Course is the location of a Smith's grocery store where the Debtor purchased groceries. Other expenses include payments to dating cites such as E-Harmony. The debtor did not request permission from the Court to incur debt during his Chapter 11 Case before incurring his travel expenses.
The Schedules filed in the Debtor's Chapter 11 Case reflect that $5,000 was placed in his parents' bank account. See Exhibit 5-2. The Debtor testified that he placed those funds in his parents' account so that in the event the Internal Revenue Service levied his bank account, he would still have some funds available to him. The Debtor testified that he relied on his attorney in preparing and filing his Schedules and Statement of Financial Affairs and in filing the monthly operating reports in his Chapter 11 Case, and that he believes his attorney did not adequately advise him about the requirements and restrictions on a Chapter 11 debtor in possession. The Debtor retained different counsel to represent him in this Chapter 13 case.
Prior to the filing of the Chapter 11 Case, Denise Comstock filed dissolution of marriage proceedings against the Debtor in the Second Judicial District Court, State of New Mexico, County of Bernalillo in case No. D-202-DM-2003-04507 (the "Dissolution of Marriage Proceeding"). As part of the Dissolution of Marriage Proceeding, Ms. Comstock obtained an order determining that the Debtor cashed in various Individual Retirement Accounts and Retirement Funds in the amount of $123,870.00, one-half of which were owned by Ms. Comstock. See Exhibit 1. The Debtor admits that he took the one-half of the retirement funds awarded to Ms. Comstock in the Dissolution of Marriage Proceeding, but testified that when he cashed in the retirement funds, he thought that the funds had already been split, leaving only his share in the account. Ms. Comstock also obtained an order in the Dissolution of Marriage Proceeding determining that the Debtor had violated prior orders of that court. See Exhibit 2. The Debtor was held in contempt of court and sent to jail because of his failure to make payments to Ms. Comstock as required by the orders entered in the Dissolution of Marriage Proceeding. On September 10, 2010, an order was entered in the Dissolution of Marriage Proceeding requiring the Debtor to pay Ms. Comstock $15,000 as a condition to release from custody, with an additional requirement to pay Ms. Comstock an additional $14,000 by Friday, September 17, 2010. See Stipulated Order Resolving Emergency Motion to Set Terms and Order Release from Custody ("Conditional Release Order") — Exhibit 34. Failure to pay the additional $14,000 would result in the issuance of another bench warrant. Id. The Debtor obtained funds from his parents to make the $15,000 payment required under the Conditional Release Order. Because the Debtor did not have sufficient funds to make the additional $14,000 payment required under the Conditional Release Order, the Debtor filed his Chapter 11 Case the day before the deadline for that payment contained in the Conditional Release Order.
The Debtor filed this Chapter 13 case on October 31, 2012, forty-three days following the dismissal of his Chapter 11 Case. During the period between the dismissal of the Debtor's Chapter 11 Case and the filing of this case, the Debtor's former counsel sent a letter to Ms. Comstock's counsel forwarding a check for $14,000 representing the additional payment due under the Conditional Release Order and further seeking to settle the balance of her claim. See Exhibit 30. The settlement efforts were not successful. Also during this period the Internal Revenue Service ("IRS") had threatened to levy his bank account. The Debtor testified that he had
The Debtor testified that he filed this Chapter 13 case primarily because of his tax debt due to the IRS, and because he was afraid he would not be able to pay his bills and meet his obligations to his children if the IRS were to levy his bank accounts.
The Debtor is a dentist. At the time he filed his Chapter 11 Case, he was unemployed. See Exhibit 5-19. He is currently employed as a dentist for the Pueblo of Sandia earning gross wages of $14,664.15 per month. Schedule I reflects that he has been employed by Sandia Pueblo for 1.5 years. Schedule I also reflects that the Debtor contributes $733.20 per month to a 401(k) retirement plan.
In 2008 the Debtor sold his former dental practice. The sale of the Debtor's dental practice was not listed in the Debtor's Statement of Financial Affairs filed in his Chapter 11 Case, though the income from the sale was reported on the Debtor's Schedule I filed in his Chapter 11 Case. See Exhibit 5-19. Schedule B filed in this Chapter 13 case on July 13, 2012 reflects three promissory notes arising from the sale of the Debtor's dental practice, that the payments to the Debtor under the notes total $6,037 per month, that the total remaining balance of the payments due under the three promissory notes is $235,443, and that the current value of the Debtor's interest in the three promissory notes is $117, 721. See Exhibit 31. The Debtor testified that this figure represented a discounted amount that he believed he might be able to realize if he sold the promissory notes. The Debtor later amended his Schedule B to reflect that the current value of the three promissory notes is $235, 443. See Exhibit 33. The Debtor's Schedule I and the Debtor's Amended Schedule I both reflect the monthly income in the amount of $6,037 from the three promissory notes. See Exhibits 31 and 33. The Debtor has two children. The Debtor's Schedule J and Amended Schedule J reflect monthly alimony, maintenance and support payments of $1,997.00, and court-ordered monthly payments for private school in the amount of $2,100. See Exhibits 31 and 33. The Debtor's Amended Schedule J reflects monthly net income of $5,958.08. See Exhibit 33. The payments to the Debtor from the sale of the Debtor's dental practice will cease in 2015. All of the Debtor's tuition payments for his children's private school and child support payments are current. All of the Debtor's tax returns have been filed.
The Debtor scheduled a debt to his father in the amount of $140,000. See Schedule F — Exhibit C. He testified that this figure represents his best estimate of the total amount he borrowed from his parents: he initially borrowed $130,000 to pay Ms. Comstock under the marital settlement agreement; his parents lent him an additional $14,000 to secure his release from jail; and he paid his parents back approximately $4,000. This figure differs from the $130,000 figure reported on the Schedules filed in the Debtor's Chapter 11 Case. Delfino Rodriguez filed a claim in the Debtor's Chapter 13 bankruptcy case in the amount of $130,000. See Claims Register — Exhibit E. Ms. Comstock filed an objection to the claim. Id.
The Debtor's First Amended Chapter 13 plan proposes payments of $6,100 per month for a period of 56 months. See Exhibit A. The Debtor has outstanding, past due state and federal income taxes. See Exhibit E — Claims Register from Debtor's Chapter 13 case reflecting Claim No. 1-1 filed by the IRS and claim No. 2
The First Amended Chapter 13 Plan also reflects that there are pre-petition arrearages on the Debtor's residence, and that the Debtor will pay those pre-petition arrearages through the plan. Id. The Debtor's proposed Order Confirming Chapter 13 Plan dated October 31, 2012 ("Proposed Confirmation Order") provides that the Debtor will make plan payments sufficient to make a minimum distribution of $91,675 plus tax refunds to attorney's fees, trustee's fees and allowed priority and non-priority unsecured claims, and that the Debtor will make plan payments to the trustee in an amount sufficient for a minimum distribution of $103,812 to allowed priority and non-priority secured claims. Id. The Proposed Confirmation Order also provides that the Debtor's plan payments will increase from $6,100 per month to $6,527 per month for 17 months beginning January 22, 2013, increase by $1050 each month for 16 months beginning September 22, 2014, and decrease by $6,037 for the remaining period of the plan. Id. at ¶ 6. The plan payments will be supplemented by agreement or by further order of the Court as a result of each child reaching the age of majority, graduating, or ceasing to attend secondary school. Id. at ¶¶ 5 and 6. The Debtor will not pay interest to the IRS on its allowed priority claim. Id. at ¶ 7.
The proposed Chapter 13 plan payments exceed the net monthly income reported on the Debtor's Amended Schedule J. In order to make the plan payments proposed in the Debtor's Second Amended Plan, he will have to make personal sacrifices and changes to his lifestyle. He has no monthly income left over after making his Chapter 13 plan payment and paying his living expenses.
Denise Comstock filed a proof of claim in the Debtor's Chapter 13 bankruptcy case in the amount of $63,451.63. See Exhibit E. Although the Debtor scheduled the debt to Ms. Comstock in the amount of $30,000, the Debtor has not objected to Ms. Comstock's claim. See Schedule F — Exhibit C and Exhibit E. The Debtor's plan will not pay Ms. Comstock's claim in full. The Debtor testified that he did not realize until recently that the balance of the debt to Ms. Comstock after completion of his Chapter 13 plan payments will be discharged through this Chapter 13 case. He testified further that the dischargeability of her claim did not factor in to his decision to seek relief under Chapter 13. Ms. Comstock testified that she is forty-four years old, that she is employed by a school, and that she currently has $3,000 in a 401(k) plan in which her employer matches the funds she contributes.
Confirmation of a debtor's proposed chapter 13 plan is governed by 11 U.S.C. § 1325. The parties stipulated for purposes of confirmation that the Debtor's First Amended Plan satisfies the best interest of creditors requirement, the disposable income requirement, and the feasibility requirement.
To determine whether a Chapter 13 petition was filed in good faith and whether a proposed Chapter 13 plan was filed in good faith courts employ a totality of the circumstances test.
The majority of the Debtor's actions with which Ms. Comstock takes issue concern the Debtor's conduct in his prior Chapter 11 Case: the Debtor failed to timely file monthly operating reports; the monthly operating reports that the Debtor filed were deficient; and the Debtor used significant sums of money on personal travel and entertainment. The Debtor ultimately consented to dismissal. The Court finds that the Debtor's pre-petition behavior during the pendency of his Chapter 11 Case in failing to comply with the requirements of Chapter 11 is by itself insufficient to establish that the Debtor did not file his Chapter 13 petition in good faith.
Other factors, such as the nature of the debt and how the debt to Ms. Comstock arose, weigh in favor of finding that the Debtor did not file his Chapter 13 petition in good faith. The debt to Ms. Comstock arose as a result of the Debtor's misappropriation of her share of the retirement funds awarded to her as a part of the Dissolution of Marriage Proceedings. Such debt would not be dischargeable in a Chapter 7 case, but any unpaid balance of her claim will be discharged at the completion of the Debtor's Chapter 13 Plan. On the other hand, the Debtor's motive in seeking relief under Chapter 13 in order to deal with significant debts to the taxing authorities, coupled with his concern that if the IRS were to levy on his accounts it would impair the Debtor's ability to take care of his children and make payments to creditors, including child support payments to Ms. Comstock, weighs in favor of finding good faith. Ms. Comstock complains of the manner in which the Debtor originally valued the promissory notes from the sale of the Debtor's dental practice, and the change in the scheduled amount of the Debtor's father's claim from the amount scheduled in the Debtor's prior Chapter 11 Case.
Considering all of the facts and circumstances, the Court finds that the Debtor filed his Chapter 13 petition in good faith. He has given a valid reason for seeking Chapter 13 relief. He paid Ms. Comstock the additional $14,000 required under the Conditional Release Order following the dismissal of his Chapter 11 Case, and he sought to compromise her claim before filing this latest petition. He commenced his Chapter 13 case in response to a threatened IRS levy. Further, the payments the Debtor will be required to make under the proposed First Amended Chapter 13 Plan will constrain the Debtor's former spending habits that that ran afoul of the requirements of Chapter 11.
Ms. Comstock objects to the Debtor's proposed contribution of $733.20 per month to his retirement fund over the life of the plan.
Ms. Comstock's unsecured non-priority claim arises from Debtor's misappropriation of her retirement funds before the filing of his Chapter 11 Case. Yet, the Debtor now seeks to fund his own retirement by contributions of over $700 per month over the life of his Chapter 13 plan, and to discharge the balance of Ms. Comstock's claim upon completion of the plan. At $733.20 per month, which is 5% of the Debtor's gross monthly wages, the Debtor will have contributed over $42,000 to his own retirement over the life of the plan. That is a material sum in the context of the Debtor's plan. Ms. Comstock, on the other hand, now has a total of $3,000 in retirement savings. Further, if the claim of the Debtor's parents is allowed, the majority of funds to be distributed to holders of allowed unsecured non-priority claims will go to the Debtor's parents. For these reasons, the Court finds that the Debtor has failed to demonstrate that his proposed Chapter 13 plan was filed in good faith.
Further, the Flygare factors, particularly factors (1) and (7)
If a debtor had a case pending within the one-year period prior to the filing of the current case, but the prior case ended in dismissal, the automatic stay "terminate[s] with respect to the debtor on the 30th day after the filing of the later case." 11 U.S.C. § 362(c)(3)(A). The Debtor filed his Motion to Continue the Stay pursuant to 11 U.S.C. § 362(c)(3)(B), which provides that the Court may continue the automatic stay after notice and a hearing, provided the debtor "demonstrates that the fling of the later case is in good faith as to the creditors to be stayed." 11 U.S.C. § 362(c)(3)(B).
A presumption that a debtor has filed a petition in bad faith as to all creditors arises in three situations: 1) if the debtor had more than one case pending during the year before the current case; 2) if a prior case was dismissed due to the debtor's failure to file or amend certain documents, provide court-ordered adequate protection, or perform under a confirmed plan; or 3) if there has been no substantial change in the debtor's financial condition since the dismissal of the most recent previous case, and there is no other reason that the current case will end with a confirmed plan that will be fully performed.
The Gier factors used to determine whether a debtor has filed his chapter 13 case in good faith for purposes of satisfying 11 U.S.C. § 1325(a)(7) are also relevant to determine good faith filing for purposes of continuing the automatic stay. See Montoya, 333 B.R. at 458-60 (finding that the standard for assessing good faith, when applied in the totality of the circumstances "can still be useful to determine whether the Debtor has filed th[e] case in good faith as to the creditors to be stayed[,]" and concluding that because 11 U.S.C. § 362(c)(3)(B) requires the court to consider the debtor's good faith from the creditor's perspective, the Court should give more weight to Gier factors five (the debtor's motive in filing the petition and how the debtor's actions affected creditors) and six (the debtor's pre- and post-petition treatment of creditors).
Both 11 U.S.C. § 1325(a)(7) and 11 U.S.C. § 362(c)(3)(A) (assuming the debtor is the party requesting a continuation of the automatic stay) require the debtor to demonstrate that the petition was filed in good faith.
The Court has already determined for purposes of 11 U.S.C. § 1325(a)(7) under
Even though the evidence falls short of satisfying the "clear and convincing" standard for rebutting the presumption under 11 U.S.C. § 362(c)(3)(C), the termination of the automatic stay with respect to property of the Debtor will likely have no practical effect in this case. In re Holcomb, 380 B.R. 813 (10th Cir. BAP 2008), the Bankruptcy Appellate Panel of the Tenth Circuit held "that the language of § 362(c)(3)(A) terminates the stay only as to the debtor and the debtor's property." Holcomb, 380 B.R. at 816.
Further, the practical effect of the Court's ruling as to termination of the stay will be limited by 11 U.S.C. § 1327(a) in the event the Debtor is ultimately able to confirm a plan in this case. If a plan is confirmed, Ms. Comstock will be bound by its terms.
Based on the foregoing, the Court concludes that the Debtor's plan cannot be confirmed and that the automatic stay terminated with respect to the Debtor and the Debtor's property but not with respect to property of the bankruptcy estate. The Debtor may file a further amended plan should he choose to do so. The Court will
The non-exclusive factors adopted by the Tenth Circuit in Gier for assessing whether to dismiss a Chapter 13 case based on a bad faith filing are:
But see In re Hopper, 474 B.R. 872, 884 n. 23 (Bankr.E.D.Ark.2012) (noting that the Eighth Circuit "has articulated the same standard for finding bad faith in both instances") (citations omitted); In re Hall, 346 B.R. 420, 426 (Bankr.W.D.Ky.2006) (stating that the standard for good faith under 11 U.S.C. § 1325(a)(3) and 11 U.S.C. § 1325(a)(7) is identical).
Because the parties stipulated for purposes of confirmation that the Debtor has met the disposable income requirement, the Court will not address the Debtor's proposed voluntary retirement contribution within that context. Instead, the Court will confine its consideration of the Debtor's voluntary retirement contributions to the good faith requirement under 11 U.S.C. § 1325(b)(3).
Flygare, 709 F.2d at 1347.
11 U.S.C. § 362(3)(C)(i).