Opinion
No. 02-84004
November 19, 2002
OPINION
The issue in this case is whether an individual who is a debtor in a pending Chapter 13 case, where the plan payments have been completed but the discharge has yet to issue, and who files a new Chapter 13 case, may be a debtor in two cases at the same time. The Debtor, Carolyn Burnett ("DEBTOR"), filed her first Chapter 13 case on July 8, 1999. Her Chapter 13 plan was confirmed on August 10, 1999, providing for payment of one secured claim, secured by a car, with unsecured creditors projected to receive a three percent (3%) distribution, near the end of the plan's three-year term. The DEBTOR made the final payment due under her confirmed Chapter 13 plan in July, 2002.
On September 4, 2002, the DEBTOR filed her second Chapter 13 case scheduling unsecured non-priority claims totaling $11,546, with no secured claims and no unsecured priority claims. On September 9, 2002, the Chapter 13 Trustee (TRUSTEE) filed a Motion to Dismiss the second case because the first case was still open and the DEBTOR had not yet received a discharge. In response, the DEBTOR points out that she made her final plan payment in her first case prior to the second filing, she fulfilled all of her plan requirements, and she is presently entitled to a discharge, even though it has been slow to issue.
To the extent that the TRUSTEE'S position is that a "per se" rule exists that precludes an individual from being a debtor in two simultaneous Chapter 13 bankruptcy cases, the position must be rejected, at least to the extent that the payments due in the first case are completed. Most courts now agree that there is no per se rule that prohibits multiple bankruptcy filings, and that the real issue, most of the time, is whether the second case was filed in good faith in light of the pendency of the first case. In re Strohscher, 278 B.R. 432 (Bankr.N.D.Ohio 2002); In re Covino, 245 B.R. 162 (Bankr.D.Idaho 2000); In re Falotico, 231 B.R. 35 (Bankr.D.N.J. 1999). Good faith, with respect to both the filing of the petition and of the plan, is a question of fact that must be determined on a case-by-case basis in light of the totality of the circumstance. In re Smith, 286 F.3d 461, 465-66 (7th Cir. 2002).
Despite the absence of a per se rule, and apart from the relatively broad issue of good faith, however, there are two reasons why a second and simultaneous Chapter 13 case might be improper and subject to dismissal. The first is the "single estate rule," which, simply stated, provides that property cannot be an asset of two bankruptcy estates simultaneously.
In re Studio Five Clothing Stores Inc., 192 B.R. 998, 1006 (Bankr.C.D.Cal. 1996). Application of the single estate rule requires a determination of when the estate in the first case ceases to exist. Although this issue in the Chapter 13 arena is surprisingly unsettled, the Seventh Circuit has spoken. In Matter of Heath, 115 F.3d 521 (7th Cir. 1997), the court reconciled the apparent contradiction between Section 1327(b), which operates to vest all property of the estate in the debtor upon confirmation, and Section 1306(a)(2), which provides that post-petition earnings are property of the estate until the case is closed, dismissed, or converted, by holding that the post-confirmation estate consists only of so much of the debtor's income, or other property, as is necessary to the fulfillment of the confirmed plan. Id. at 524. It follows that, where confirmation vested all of the property of the estate in the debtor and the payments required under the confirmed plan have been fully paid, the estate, to the extent it continues to exist in theory, contains no property since the debtor's current earnings are no longer necessary to the fulfillment of the plan.
See, In re Studio Five Clothing Stores Inc., 192 B.R. at 1006 (noting a split of authority).
That is precisely the situation in the case before the Court. Confirmation of the plan served to vest all of the then-existing property of the estate in the DEBTOR. From that point forward, the bankruptcy estate consisted only of so much of the DEBTOR'S earnings as necessary to make her payments to the TRUSTEE in accordance with the plan. Now that the plan payments have been completed, the estate is empty and will not be replenished.
Accordingly, the DEBTOR'S second filing does not violate the single estate rule.
The second serious concern with simultaneous filings was addressed in the Supreme Court's decision in Freshman v. Atkins, 269 U.S. 121, 46 S.Ct. 41, 70 L.Ed. 193 (1925). There, where an individual had filed a second voluntary bankruptcy petition while the first was still pending in pre-discharge status, the Court affirmed the grant of a discharge in the second case only as to the debts incurred after the filing of the first case and denied the discharge with respect to those debts contained in the first, and still pending, petition. Although Atkins has been cited in support of varying propositions, this Court agrees with those courts that interpret Atkins to stand for the proposition that two bankruptcy cases which seek to discharge the same debt cannot be pending simultaneously. See, In re Bullock, 206 B.R. 389, 392-93 (Bankr.E.D.Va. 1997).
The Atkins rule is eminently sensible when the first case has not yet been completed. In Chapter 13, the debtor's right to a discharge is contingent upon completion of the plan payments. Once the payments have been fully made, however, the discharge is a fait accompli and is to be granted without delay. Section 1328(a) provides that the discharge is to be granted "[a]s soon as practicable after completion by the debtor of all payments under the plan." 11 U.S.C. § 1328(a). Under such circumstances, where the discharge in the first case is imminent, the Atkins rule serves no real purpose.
The reason for the delay in entry of the discharge in the DEBTOR'S first case is not part of the record. The TRUSTEE acknowledged, however, at the motion hearing, that the plan payments were completed and he gave no indication of any reason why the DEBTOR is not entitled to a discharge. Under these circumstances, the Atkins rule is no bar to a second case.
The omnipresent requirement of good faith, both as to the petition and the plan, has not been challenged by the TRUSTEE. The simultaneous filing of a second case while the first is still pending is only one factor to be taken into account in the good faith analysis, and is not dispositive in and of itself. In re Bullock, 206 B.R. 389, 393 (Bankr.E.D.Va. 1997). From a review of the case files, the Court sees no "smoking gun" evidencing any bad faith by the DEBTOR as to her second petition or plan.
See, In re Smith, 286 F.3d 461, 465-66 (7th Cir. 2002).
Ameritech is the only creditor scheduled in both cases. Whether the second case was intended to deal with debt to Ameritech incurred only since the first petition was filed is not clear, as the DEBTOR failed to disclose in Schedule F the date on which the debt was incurred. This informational requirement is mandatory, not optional. Rule 1007(b)(1) of the Federal Rules of Bankruptcy Procedure expressly requires that the schedules filed by the debtor be prepared as prescribed by the appropriate Official Form. The Official Form for Schedule F clearly calls for disclosure of the "date claim was incurred and consideration for claim." Rule 9009 of the Federal Rules of Bankruptcy Procedure also provides that the Official Forms "shall be observed." (Emphasis added). See, also, In re Price, 211 B.R. 170 (Bankr.M.D.Pa. 1997). Both the debtors and their attorneys are responsible for making sure that the schedules are complete.
Certainly, simultaneous filings are disfavored and ought to be permitted only in exceptional circumstances. For the reasons stated, the Court views this case as exceptional.
A separate Order will be entered denying the TRUSTEE'S Motion to Dismiss.
Further, since it appears from the case file that the First Meeting has been concluded and the only objection to confirmation has been withdrawn, the plan will be confirmed by entry of the Confirmation Order submitted by the DEBTOR'S attorney.
This Opinion constitutes this Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
ORDER
For the reasons stated in an Opinion issued this day, IT IS HEREBY ORDERED that the Chapter 13 Trustee's Motion to Dismiss should be and hereby is DENIED.