IN RE DODD, (Bankr.S.D.Ind. 2000)

Full title: IN RE: BRIAN KIMBERLY DODD Debtors

Court: United States Bankruptcy Court, S.D. Indiana, Indianapolis Division

Date published: Jan 21, 2000

CASE NO. 00-590-AJM-13 (Bankr. S.D. Ind. Jan. 21, 2000)

Opinion

CASE NO. 00-590-AJM-13

January 21, 2000

Mark Zuckerberg, Attorney for the Debtors.

John Steinkamp, Attorney for Steve Powell.

ORDER SUSTAINING OBJECTION OF STEVE POWELL AND ORDER DIRECTING DEBTORS TO FILE AMENDED PLAN

ANTHONY J. METZ, III, United States Bankruptcy Judge.

The Debtors filed their voluntary chapter 13 petition and Chapter 13 plan (the "Plan") on January 21, 2000. The Debtors have first and second mortgages on their residence, and propose to cure the arrears on both through the Plan, but remit the current payments to the first and second mortgage holders directly. The Debtors also lease two sport utility vehicles, (a 1999 Chevy Silverado and a 1999 GMC Jimmy) and propose to assume these auto leases and likewise cure the arrears through the Plan and remit the current payments directly. According to the Plan, three creditors — Commercial Credit, Associates Finance and American General Finance — hold non-possessory purchase money security interests in household furniture and their liens will be avoided, thus relegating their secured claims to unsecured status.

Mr. Dodd has been an air traffic controller for ten (10) years and estimates that his income this year will be $93,000. Mrs. Dodd earns no income. Schedules I and J show disposable income of $1039.81, and, through their Plan, the Debtors propose to pay $1039 a month for thirty-six (36) months for a plan base of $37,404. Deducting the administrative claims and the secured arrearage claims ($8858.00)¹ and based on an allowed unsecured claim pool of $65,658.04,² it appears that there will be an approximate 43% distribution to unsecured claimants.³

1 Taking the information contained in the Plan, it appears as if, after the payment of allowed administrative and secured claims, there will be $28,546.00 available for distribution to creditors with allowed unsecured claims. This is a rough estimation only, since the arrears on the first and second mortgages, for purpose of this illustration, do not include interest. Also, these numbers are subject to revision if the actual amount of the administrative or secured claims are greater, or if the amount of unsecured claims is reduced in the event an objection to unsecured claims is made and sustained. The computation is as follows:

2 Creditors hoping to share in the distribution of funds in a chapter 13 must file a proof of claim. The last date to file claims here was June 7, 2000. The claims docket reveals that the following unsecured creditors filed the following claims:
Chase Manhattan Bank $2407.92
GE Card Services $4614.63

Associates Financial Srvs. (Filed as secured claim, but lien to be avoided as per Plan, rendering claim unsecured) $2153.94

Wachovia Bank Card Services $7618.26

American General (Filed as secured claim, but lien to be avoided as per Plan, rendering claim unsecured) $1697.85

Citifinancial $8699.54
Service Merchandise $805.83
First USA Bank $7710.10

Wachovia Bank Card Services (Duplicate of prior claim) $0.00

Steve Powell $26085.78

Max Flow Trust, assignee of GECC/Lowes/Retail $2171.27

Household Retail Srvs. (Kittles) $1692.92
TOTAL UNSECURED CLAIMS: $65,658.04

Funds available to pay unsecured claims ($28,546) divided by total unsecured claims ($65,658.04) equals .4347677, or approximately 43%.

Creditor Steve Powell ("Powell") is an unsecured creditor by virtue of a pre petition loan to the Debtors in the amount of $25,000. Powell has objected to the Plan, primarily on the basis that the expenses are not reasonable either because they are for "luxury" items or because they exceed that which is reasonably necessary.⁴ A hearing on Powell's objection was held on July 11, 2000 wherein Powell appeared by counsel, John Steinkamp; the Debtors appeared in person and by counsel, Mark Zuckerberg. The Court took the matter under advisement at the conclusion of the hearing.⁵

Powell also objected to the Plan on the basis that: (1) the $25,000 loan was obtained through misrepresentation and (2) the Debtor has unfairly discriminated against creditors of the same class. As for his "misrepresentation" theory, § 1328 provides that the completion of plan payments discharges a debtor from all debts other than the ones described in § 523(a)(5) (support or maintenance), (a)(8) (student loan) or (a)(9) (driving while intoxicated). Thus, a debt not excepted under § 1328 is discharged, and "fraud" or "intentional tort" type debts under § 523(a)(2),(4) and (6) fall into this category, and therefore are dischargeable under chapter 13's "superdischarge" provisions. So, to the extent Powell's argument is that the debt owed to him should not be discharged due to the fraud by which it was incurred, and that his claim should be specially treated under the plan to be paid in full, it is without merit. The "unfair discrimination" argument was briefed but was not addressed at the July 11th hearing, so it will not be discussed here. The Debtors are ordered to file an amended plan, so Powell will be able to raise whatever objections, if any, he has to the amended plan, including his "unfair discrimination" objection.

The Chapter 13 Trustee has not objected to the Plan. However, the Trustee has moved to dismiss this chapter 13 case on the basis that the Debtors have failed to make plan payments and owe the Chapter 13 Trustee $2078.00 through May, 2000. This a contested matter under Rule

Powell has taken issue with just about every line item on the Debtors' budget, but the main areas of concern in the hearing were: (1) the Debtors lease two 1999 SUV's, and Mrs. Dodd alone spends $173 a month on gas, partly to travel to Nashville, Indiana, to volunteer in a friend's shop three days a week; (2) Mr. Dodd recently spent four (4) weeks at Disney World in Florida, visiting all the theme parks and staying in Disney World hotels; (3) the Debtors live in a house which has an in-ground swimming pool and a jacuzzi; (4) the monthly telephone expense of $120 is excessive because it includes charges for computer Internet use, requiring a second phone line, that is neither business related nor money-making; and (5) the Debtors' lawn maintenance expenses are excessive.

To confirm a chapter 13 plan over the objection of an unsecured creditor, the plan must provide for full payment of unsecured claims or all of the debtor's projected disposable income must be committed to the plan for at least a three-year period. § 1325(b)(1); In re McNichols, 249 B.R. 160, 168 (Bankr.N.D.Ill. 2000). "Disposable income" is defined as income which is received by the debtor and which is not reasonably necessary to be spent for the maintenance or support of the debtor or the debtor's dependents, including certain qualified charitable contributions. § 1325(b)(2)(A). So, that which must be submitted to the plan must be all of the debtor's "surplus" income left after paying those expenses which are reasonably necessary for the debtor and the debtor's dependents to live, focusing on

the eternally recurring expenses that confront everyone who lives in [twentieth century] America. These expenses represent the myriad of different obligations which must be paid in order to keep a roof over your head, food on the table and a shirt on your back . . . By limiting them to the expenses that are "reasonably necessary". . . .for the maintenance or support of the debtor or a dependent of the debtor" . . . § 1325(b) allows a debtor to maintain a reasonable lifestyle while simultaneously insuring that it makes a serious effort to fulfill its obligations to creditors by eliminating unnecessary or unreasonable expenses . . . If a debtor is not willing to make this type of commitment, it must either forego bankruptcy relief, or, subject to the limitations of § 707(b), seek relief under Chapter 7.

Matter of Jones, 119 B.R. 996, 1000-1001 (Bankr.N.D.Ind. 1990).⁶

The Jones case was decided under the "good faith" provisions of § 1325(a)(3), not the "disposable income" provisions of § 1325(b), although that theory was argued. There, a chapter 13 debtor proposed to retain a Cadillac automobile by cramming down the $32,500 debt on it to a secured claim of $19,000 and an unsecured claim for the balance. The secured claim was not to be paid directly, but through the plan by the trustee, with the unsecured claim to be paid through the plan at a undisclosed percentage. CNB, the lienholder, objected to the plan as an unsecured creditor, arguing in part that the Cadillac was a "luxury good" which was not reasonably necessary for the support of the debtor. Judge Grant determined that "disposable income" under § 1325(b) focused more on the debtor's post-petition lifestyle, i.e. the ongoing living expenses incurred by the debtor going forward, during the pendency of his chapter 13, as represented by the expenses appearing on the debtor's budget. Since the debt in Jones was debt that was to be paid through the plan, and therefore not a budget item, the "disposable income" analysis was inappropriate. But see, In re Rybicki,

The operative phrase is "reasonably necessary". One court has held that "reasonably necessary" denotes the concept of "adequacy, supporting basic needs `not related to the debtor's former status in society or the lifestyle to which he is accustomed . . ." reasoning that "[d]ebtors should not be allowed to continue in the lifestyle that drove them to file bankruptcy and at the expense of their creditors". In re Sutliff, 79 B.R. 151, 157 (Bankr.N.D.N.Y. 1987); Jones, 119 B.R. at 1000. Obviously, the money it takes to pay those expenses that are "reasonably necessary" does not mean reducing the debtor to "poverty", and "some discretionary or recreational spending is not inappropriate". . . ."but courts are loathe to favor kindly expenditures which are for luxury goods or serve to perpetuate a luxury lifestyle". In re Zaleski, 216 B.R. 425, 431 (Bankr.D.N.D. 1997). And, of course, "luxury goods" and "luxury lifestyle" themselves are relative phrases. But the general notion of what is "reasonably necessary" entails a recognition that "debtors may not maintain their pre-petition lifestyles at the expense of their creditors" In re Jones, 55 B.R. 462, 464 (Bankr.D.Minn. 1985) and the debtor "cannot go `first class' when `coach' is available". In re Kitson, 65 B.R. 615, 622 (Bankr.E.D.N.C. 1986). (See also, McNichols, 249 B.R. at 169, where the court expressed that "reasonably necessary" means "adequate, but not "first class".) Generally, a chapter 13 debtor "who is not able to pay its creditors in full is generally expected to demonstrate a degree of belt tightening and this may require some sacrifices". Jones, 119 B.R. at 1000.

No evidence was presented to suggest that the Debtors have "tightened their belts" or have made any sacrifices since filing chapter 13. As far as the Court can tell, the Debtors enjoy exactly the same lifestyle that they maintained pre-petition. They continue to lease two 1999 SUV's; Mrs. Dodd continues to spend money to drive two days a week to a "job" for which she receives no compensation; they continue to enjoy the use of the internet even though it derives no tangible financial benefit; they have not cut back on lawncare expenses by doing lawn work themselves; they continue to enjoy the benefits of a pool and jacuzzi, both of which require upkeep; and Mr. Dodd spent a month at Disney World, staying at resort hotels. Perhaps none of these factors alone would immediately jump out to the objective viewer as a "luxury". (But, see, In re Rybicki, 138 B.R. 225, (Bankr.S.D.Ill. 1992), and Zaleski, 216 B.R. at 432 and cases cited therein, where it was determined that a boat and a Chevy Blazer fell under the category of "luxury good".) However, the combination of not only these factors, but also other budget items that appear to be large,⁷ indicate that the expenses are for items that are not reasonably necessary for the support of the Debtors and their dependents. Add to that the fact that the Debtors propose only a three year plan, and the Court is left with the belief that the Plan does not pass the "disposable income" test of § 1325(b).

The Debtors have two sons, ages 11 and 8. Among the other items listed on their monthly budget are: $167 for home repairs, $650 for food, $175 for clothing, $125 for recreation, $70 for "pet" expenses (including "special dog food" for a greyhound dog), and $346 for "miscellaneous which includes school expenses ($100), and "personal care" ($100) which apparently includes haircuts every four weeks for at least three family members, with haircuts costing $15 for each of the two children.

The Court is cognizant that the estimated 43% distribution to creditors is sizable compared to many chapter 13 plans filed in this court. However, just as chapter 13 requires no minimum percentage payment to creditors in order to be confirmed, it likewise does not excuse noncompliance with § 1325 because the distribution to creditors reaches a certain level and creditors will be receiving more than most creditors receive in a typical chapter 13 case. See, Zaleski, 216 B.R. at 432, (where the Court denied confirmation on the grounds of lack of "good faith" even though the chapter 13 plan provided for a 46% distribution to creditors). The Debtors themselves, and not the Court, are in the best position to identify those areas where they can "tighten their belts" with respect to their monthly expenditures during the pendency of their chapter 13 plan, and therefore will be granted leave to amend their plan.

Accordingly, the Court SUSTAINS Powell's objection and DENIES confirmation of the current chapter 13 plan proposed by the Debtors. The Court further ORDERS that the Debtors be given twenty (20) days in which to file an amended chapter 13 plan.

Plan base: ($1039 x 36 mos) $37,404 ADMINISTRATIVE FEES: Less: Trustee's Fee (est. 6%) ($2244) $35,160 Less: Debtors' attorneys fees owed ($1390) $33770 ALLOWED SECURED CLAIMS: Less: Nat City arrears (1st mortgage ($2600) $31170 Less: Litton Loan Servicing arrears (2nd mortgage) ($924) $30246 Less: GMAC/Jimmy arrears ($1140) $29106 Less: Star Bank/Chevy Silverado arrears ($560) $28546 ($8858) $28546

Creditors hoping to share in the distribution of funds in a chapter 13 must file a proof of claim. The last date to file claims here was June 7, 2000. The claims docket reveals that the following unsecured creditors filed the following claims:
Chase Manhattan Bank $2407.92
GE Card Services $4614.63

Associates Financial Srvs. (Filed as secured claim, but lien to be avoided as per Plan, rendering claim unsecured) $2153.94

Wachovia Bank Card Services $7618.26

American General (Filed as secured claim, but lien to be avoided as per Plan, rendering claim unsecured) $1697.85

Citifinancial $8699.54
Service Merchandise $805.83
First USA Bank $7710.10

Wachovia Bank Card Services (Duplicate of prior claim) $0.00

Steve Powell $26085.78

Max Flow Trust, assignee of GECC/Lowes/Retail $2171.27

Household Retail Srvs. (Kittles) $1692.92
TOTAL UNSECURED CLAIMS: $65,658.04