Summary
affirming as not clearly erroneous the bankruptcy court's determination that Debtor failed to establish "cause" to extend case beyond 36 months, where debtor proposed to pay for a car but was paying little unsecured debt and not saving a home or paying priority claims
Summary of this case from In re ThreattOpinion
Bankr. Ct. No. 00-82795, Dist. Ct. No. 01-4003
April 11, 2001
ORDER
Before the Court is Shannon K. Hart's appeal from the November 29, 2000 Order of Bankruptcy by Judge Thomas L. Perkins, which denied confirmation of Hart's Chapter 13 reorganization plan. For the reasons set forth below, the decision of the Bankruptcy Court is AFFIRMED.
BACKGROUND
This appeal arises out of a Chapter 13 bankruptcy case filed by Shannon K. Hart ("Debtor") in August 2000. Debtor filed a Chapter 13 plan of reorganization with a proposed length of sixty (60) months. The Parties do not dispute the facts of this case as set forth by Judge Perkins.
Debtor is a single mother of two minor children who does not receive child support. Debtor's net monthly income is $1,554.00, which she receives from her employment as a cashier. She listed her monthly expenses at $1,314.00, resulting in a monthly disposable income (net income less expenses) of $240.00.
Debtor rents an apartment and does not own her own home. She scheduled secured claims in the amount of $12,453.00, unsecured claims of $8,874.00, and no priority claims (i.e., taxes). Her scheduled assets consist of household goods and clothing, three items which were purchased on installment accounts, several small account balances, and a 1998 Chevrolet Cavalier valued at $8,850.00.
Deere Harvester Credit Union ("Deere") holds a security interest in the Cavalier and filed a proof of claim in the amount of $10,338.00.
In her Chapter 13 reorganization plan ("the Plan"), Debtor proposes to pay the Trustee $240.00 per month for sixty (60) months. The Plan directs the Trustee to pay the three small secured claims totaling $800.00 as well as Deere in the amount of $8,850.00 (the scheduled value ("cram down" value) of the Cavalier) plus interest of $1,917.00. Additionally, the Plan provides for the payment of the Trustee's 10% commission and Debtor's attorney's fees. After the Trustee, attorney's fee, and secured claims are paid, a small balance of $393.00 will remain. This amount will be paid to unsecured creditors. Under Debtor's Plan, unsecured creditors will receive only a 3.2% dividend on scheduled unsecured claims. Moreover, since unsecured creditors are paid last, they will not receive a distribution until the fifty-eighth month of the Plan.
The Trustee estimated the dividend at 5%.
The Chapter 13 Trustee's, Richard A. Bowers ("Trustee"), sole objection to the plan is that cause does not exist to extend the plan for a period longer than thirty-six (36) months as required by 11 U.S.C. § 1322(d). After briefs were filed and a hearing was conducted, Bankruptcy Judge Tomas L. Perkins denied confirmation of the plan finding that under the circumstances of this case "cause" did not exist to extend the plan beyond thirty-six (36) months.
Debtor timely appealed Judge Perkins' ruling on December 8, 2000.
STANDARD OF REVIEW
This Court has jurisdiction to review the decision of the Bankruptcy Judge pursuant to 28 U.S.C. § 158(a). District courts are to apply a dual standard of review when considering a bankruptcy appeal. The findings of fact of the Bankruptcy Judge are reviewed for clear error, while the conclusions of law are reviewed de novo. In re Yonikus, 996 F.2d 866, 868 (7th Cir. 1993); In re Ebbler Furniture and Appliances, Inc., 804 F.2d 87, 89 (7th Cir. 1986); see also, Bankruptcy Rule 8013 (West 1995).
ANALYSIS
The issue to be addressed in this appeal is whether Debtor should be entitled to a sixty (60) month Chapter 13 reorganization plan. The United States Bankruptcy Code limits Chapter 13 plans to thirty-six (36) months unless a debtor can show "cause" to extend the plan for a longer period of time. Specifically, the Code provides that "[t]he plan may not provide for payments over a period that is longer than three years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than five years." 11 U.S.C. § 1322(d). As the Bankruptcy Code fails to define "cause," courts have had to develop the parameters of "cause" on a case-by-case basis. See In re Poff, 7 B.R. 15 (Bankr.S.D.Ohio 1980).
In a thorough and well-reasoned opinion, Bankruptcy Judge Thomas L. Perkins found that Debtor had not established cause under § 1322(d) to receive an extended plan term and thus refused to confirm Debtor's Chapter 13 Plan. As correctly noted by Judge Perkins, the congressional intent of § 1322(d) was to avoid imposition on debtors of long term repayment plans and prevent "involuntary servitude." See In re Baker, 129 B.R. 127, 130 (Bankr.W.D.Tex. 1991) (citations omitted). Additionally, Congress believed that "the primary benefit of chapter 13 relative to chapter 7 is the expected improved return for unsecured creditors." Id., at 131 (citations omitted). Low percentage plans are not favored because if all of a debtor's disposable income is devoted to the payment of secured debt, "chapter 13 becomes little more than court-supervised system of reaffirmation of secured debt, with little attendant benefit to the intended beneficiaries of the chapter, unsecured creditors." Id., at 132.
Judge Perkins held that under the circumstances of this case where Debtor is proposing to use virtually all of her disposable income for five (5) years to pay off her car loan with a de minimus distribution (3.2% dividend) to unsecured creditors and where Debtor has no priority claims nor is the extended term necessary to save her home, Debtor has not established "cause" under § 1322(d). See Bankr. Order, at 5-6 (Nov. 29, 2000). Judge Perkins rejected Debtor's analogy to "save the home" cases finding that the Bankruptcy Code contains special provisions that are intended to facilitate the ability of Chapter 13 debtors to save their homes and that there are not comparable provisions designed to facilitate the debtor's retention of an automobile. See id. at 5.
A "save the home" exception to the three-year rule has been developed in the Central District by Judge William V. Altenberger. This exception allows a debtor to extend the time period of a Chapter 13 plan to preserve his or her home. However, Judge Altenberger limited the "save the home" exception to those cases where the debtor's equity in his or her home was at least 10% of the value of the property. See In re Smith, No. 99-82073 (unpublished, Oct. 5, 1999). Here, by contrast, Debtor has no equity in the Cavalier as she owes more than its value.
Debtor disagrees with the Bankruptcy Judge's findings. First, Debtor believes that this Court should apply a de novo standard of review to Judge Perkins' opinion. Although both parties admit that "the issue of what constitutes a reasonable cause to extend a plan beyond three years [is] a question of fact to be decided on a case by case basis," see In re Witt, 199 B.R. 890 (Bankr.W.D.Va. 1996), Debtor argues that the proper standard in this case is de novo because Judge Perkins "created a hard and fast rule — a new law — which prevents a Debtor from raising facts necessary to permit plan extension beyond 36 months" except to save homesteads.
See Appellant's Reply Brief, at 1. Debtor argues that Judge Perkins gave no consideration to the facts of her case because she was trying to save her automobile rather than her home.
The Court disagrees. It is clear from Judge Perkins' opinion that he did consider the facts and circumstances of Debtor's case. Rather, Judge Perkins refused to create a new blanket "save the car" exception — a new law — to the cause standards developed in the Central District. Judge Perkins stated:
This plan challenges the long-standing policy of the Court's predecessor, of requiring, as a condition to confirmation, that Chapter 13 plans in excess of thirty-six months pay at least a 70% dividend to unsecured creditors. Based upon this Court's interpretation of § 1322(d) of the Bankruptcy Code, it believes that a valid purpose is served by the established procedure and that Chapter 13 Standing Trustees should continue to object to plans that provide for a term longer than three years with less than a 70% dividend to unsecured creditors. If the proponent of such a plan wishes to seek confirmation over the Trustee's objection, this Court will consider confirmation on a case-by-case basis.
Bankr. Order, at 1 n. 1 (Nov. 29, 2000). In considering this matter on a "case-by-case" basis, Judge Perkins determined that under the facts of this case Debtor had not established "cause" for an extended plan term under § 1322(d) given prior precedent and congressional policy. Accordingly, the proper standard of review is the "clearly erroneous" standard. However, under either standard applicable to bankruptcy appeals, the Court would affirm the Bankruptcy Judge's decision.
Second, Debtor contends that she has established "cause" as required by § 1322(d) to extend the plan term to five (5) years. However, the cases upon which she relies are clearly distinguishable from the case at hand. For instance, Debtor relies upon In re Chapman, 135 B.R. 11 (Bankr.M.D.Pa. 1990) as an example of a case where a bankruptcy court did in fact extend a plan to sixty (60) months to permit repayment of a vehicle. After examination, it appears that Debtor has misread that opinion. In that case, although the bankruptcy court did extend the plan to five (5) years, the primary reason for such action was that the debtor needed the extended time to pay a priority creditor, the I.R.S. As to the car, the court stated, "[h]owever, let me add as a caveat that . . . I will not look with favor on Chapter 13 debtors, as a matter of course, attempting to extend payments on automobile loans for a five year term." Another case upon which Debtor relies is In re Fries, 68 B.R. 676 (Bankr.E.D.Pa. 1986).
However, this case is also distinguishable from the facts presented here. In Fries, the court allowed a plan extension because extra time was needed to pay priority claims, secured claims, and mortgage delinquencies. See id. at 680. Furthermore, the plan in Fries provided unsecured creditors an approximate dividend of 20%.
In this case, Debtor has no priority claims or mortgage delinquencies. Debtor's Plan proposed to use virtually all of her disposable income for five (5) years to pay for her car. At the end of the Plan, unsecured creditors will receive only a 3.2% dividend on scheduled unsecured claims. This is a significant difference from the percentage provided for in Fries. Judge Perkins determined that given the facts of this case including the de minimus distribution to unsecured creditors, Debtor had not established "cause" under § 1322(d). Debtor has provided no authority that seriously questions Judge Perkins' determination.
Under the circumstances of this case, the Court cannot say that Judge Perkins' decision is "clearly erroneous." Accordingly, the November 29, 2000 Order of Bankruptcy is affirmed.
CONCLUSION
IT IS THEREFORE ORDERED that the Bankruptcy Court's Order of November 29, 2000, is AFFIRMED.
CASE TERMINATED.