KEITH L. PHILLIPS, Bankruptcy Judge.
Debtor Jay Christian Dean (the "Debtor") filed this chapter case on November 28, 2018. On August 14, 2019, the Court held a hearing on the objections filed by the Chapter 13 trustee (the "Trustee") and Cassandra Dean to confirmation of the Debtor's amended Chapter 13 plan (the "Amended Plan") filed on June 12, 2019. The Court also addressed the motions of both Cassandra Dean and the Trustee to dismiss the Debtor's case, as well as Cassandra Dean's motion to convert the case to chapter 7. The Debtor did not oppose denial of confirmation, indicating that he intended to file a modified Chapter 13 plan. The Debtor opposed dismissal or conversion.
The Trustee seeks dismissal pursuant to § 1307(a)(1) of the Bankruptcy Code, 11 U.S.C. § 1307(c)(1), "for unreasonable delay that is prejudicial to creditors due to the debtor(s) having failed to address Objections by the Trustee and creditor(s) after filing three plans." Cassandra Dean seeks dismissal or conversion due to the Debtor's "filing multiple, patently defective, erroneous plans," asserting that those actions constitute "unreasonable delay prejudicial to creditors." In addition, she cites the Debtor's failure to pay "a post-petition domestic support obligation, an ongoing $936.15 a month payment on spousal support arrears . . . ."
At the conclusion of the hearing, the Court sustained the objections to confirmation and took under advisement the dismissal and conversion motions.
During the August 14 hearing, the parties asked the Court, and the Court agreed, to take judicial notice of items appearing on the case docket, including a transcript of the Section 341 meeting of creditors held in this case, a copy of a Memorandum of Agreement dated December 21, 2015, between the Debtor and his son, and a copy of the final decree of divorce between the Debtor and Cassandra Dean dated August 2, 2017. The parties also asked the Court, and the Court agreed, to take judicial notice of (1) the docket in the instant case, (2) the docket in Case No. 14-31782-KLP, the Debtor's prior bankruptcy case, and (3) the docket in Case No. 14-31405-KLP, a bankruptcy case filed by the Debtor's business, Virginia Pizza Partners, LLC. The Debtor's brief testimony and the transcript of the Section 341 Meeting of Creditors were the only testimony offered at the hearing. Neither the Trustee nor Cassandra Dean called any other witnesses to testify.
The parties agree that pursuant to the prepetition final decree of divorce, the Debtor is obligated to pay ongoing spousal support payments of $3300 per month to Cassandra Dean and that the Debtor is current in these payments. The parties also agree that the final decree of divorce requires the Debtor to pay the sum of $936.15 per month toward a prepetition arrearage in spousal support and that the Debtor has failed to keep these payments current postpetition.
The Trustee argues that his objections to the Debtor's previous plans were based on various omissions and misstatements contained in the Debtor's Form 122C-1, the "Chapter 13 Statement of . . . Current Monthly Income and Calculation of Commitment Period" (commonly referred to as the Means Test), leading to the Debtor's inability to propose a confirmable plan. The Trustee lists the deficiencies contained in each of the five plans that rendered them unconfirmable. He argues that the Debtor has repeatedly filed amended plans, generally on the eve of confirmation hearing dates, that do not adequately address issues of concern. He also points out that the Debtor has failed to act on his objection to the claim of the Internal Revenue Service. He maintains that grounds exist to dismiss a chapter 13 case for unreasonable delay when a debtor is not able to present a confirmable plan 3 after five attempts, particularly when the unconfirmable plans have "similar flaws." The Trustee contends that the debtor "has . . . no reasonable or significant ability to correct the impediments to getting this plan confirmed."
Cassandra Dean points to the defects in each of the Debtor's unconfirmed plans and contends that his "actions in filing multiple, patently defective, erroneous plans constitute unreasonable delay prejudicial to creditors" by denying creditors the ability to receive payments on their claims during the nine months following the petition date. She argues that the Debtor's previous unsuccessful chapter 13 bankruptcy case (Case No. 14-31782-KLP)
In response, the Debtor chronicles his efforts to respond to the Trustee's request for information and maintains that he has attempted in good faith to address the concerns over plan provisions. He disputes the Trustee's contention that he has engaged in unreasonable delay or has failed to timely respond to requests for information. At the hearing on August 14, counsel for the Debtor candidly acknowledged that many of the problems associated with the unconfirmed plans were attributable to her rather than her client, including one occasion in which she mistakenly filed the same plan twice. The record reflects that counsel's contrition is justified and, while it does not excuse the lack of progress in this case, it is a factor that the Court will take into consideration.
Section 1307 of the Bankruptcy Code governs dismissal of a chapter 13 case. That section provides that "on request of a party in interest . . . the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause . . . ." 11 U.S.C. § 1307(c). "The burden of proof under § 1307(c) of the Bankruptcy Code rests with the moving party." In re White, 542 B.R. 762, 771 (Bankr. E.D. Va. 2015). Whether to grant the motion is within the bankruptcy court's discretion. When "evaluating whether there has been unreasonable delay [by the debtor] which is prejudicial to creditors, the court must consider whether the debtor has engaged in some form of unreasonable delay, and whether the delay has been prejudicial." Stevenson v. TND Homes I, LP (In re Stevenson), 583 B.R. 573, 580 (B.A.P. 1st Cir. 2018) (quoting Zareas v. Bared Espinosa (In re Bared Espinosa), Adv. No. 04-0298, 2006 WL 3898379, at *4 (Bankr. D.P.R. Jan. 27, 2006)). At the hearing held August 14, Cassandra Dean admitted that this is a subjective standard.
The Trustee argues that the Debtor's failure to obtain a confirmed plan after five failed attempts, as reflected by the docket in this case, per se constitutes unreasonable delay that is sufficient cause for dismissal under § 1307(c)(1). Courts have found that continuing to afford a debtor the benefit of the automatic stay when the debtor cannot propose a confirmable plan is prejudicial to his creditors. See, e.g., Paulson v. Wein (In re Paulson), 477 B.R. 740, 745-46 (B.A.P. 8th Cir. 2012), aff'd, 524 F. App'x 306 (8th Cir. 3013)
With each failed attempt to obtain confirmation of a chapter 13 plan, the resulting delay increases the harm to creditors.
Neither the trustee nor Cassandra Dean has offered sufficient evidence to prove their contentions that the Debtor has been uncooperative or that a confirmable plan is unattainable. While the Court is cognizant of the length of time the case has been pending without confirmation of a plan, it does not find that the delay arising from the Debtor's previous failed attempts to obtain a confirmed plan is so unreasonable and prejudicial that the case should be dismissed or converted solely because of that delay.
On September 4, 2019, the Debtor filed an amended Chapter 13 plan (the "New Plan") and an amended Form 122C-1.
For the foregoing reasons,
IT IS ORDERED that the motion to dismiss filed by Chapter 13 Trustee Carl Bates, the motion to dismiss filed by Cassandra Dean, and the motion to convert filed by Cassandra Dean are DENIED without prejudice.
The Court does not agree with the position taken by the Debtor and will not dismiss the case based upon § 1307(c)(11). While the Court has been provided with no case law in this jurisdiction that is directly on point, it notes with approval the recent case of In re Guttierrez, 595 B.R. 516 (Bankr. E.D. La. 2018). In that case, the debtor had an obligation to pay his ex-wife's attorney fees, which constituted a domestic support obligation as contemplated in § 1307(c)(11). That obligation was set forth in a prepetition stipulated judgment, which established a schedule for the payment of the $100,000 award. In addition to the payment of two lump sum amounts, the debtor was required to pay the remaining $50,000 in $1000 monthly installments. Before the installments were completed, however, the debtor filed a chapter 13 case. As here, the debtor contended that the entire amount was a prepetition debt that was not subject to the provisions of § 1307(c)(11). After a lengthy analysis, the court agreed, holding that "the amount owed is a present monetary award." Id. at 523. The court noted that "[p]ayments over time do not make the Stipulated Judgments uncertain." Id. Likewise, in the instant case, the obligation accrued prior to the bankruptcy filing and may therefore be paid pursuant to Paragraph 3C of the Debtor's chapter 13 plan.