Opinion
Case No. 3:16-bk-2413-PMG
04-10-2018
IN RE: Robert Edward RICHARDSON, a/k/a Robert E. Richardson, Debtor.
Rehan N. Khawaja, Law Offices of Rehan N. Khawaja, Jacksonville, FL, for Debtor.
Rehan N. Khawaja, Law Offices of Rehan N. Khawaja, Jacksonville, FL, for Debtor.
ORDER ON CONFIRMATION HEARING
PAUL M. GLENN, United States Bankruptcy Judge
THIS CASE came before the Court for hearing to consider confirmation of the Debtor's Third Amended Chapter 13 Plan. The Chapter 13 Trustee filed an Objection to confirmation.
Section 1325(a) of the Bankruptcy Code provides that the Court shall confirm a Chapter 13 plan if the plan satisfies nine requirements, including the requirement of good faith under § 1325(a)(3).
In this case, the Debtor claimed an interest in his deceased mother's probate estate as of the date that he filed his bankruptcy petition, and received the sum of $44,632.00 from his mother's estate while his bankruptcy case was pending. The Trustee contends that the Debtor has not contributed the funds to his Chapter 13 Plan, and that the Plan therefore was proposed in bad faith.
The Court finds that the Plan satisfies the good faith requirement of § 1325(a)(3), even if the Debtor is not contributing the inherited funds to the Plan. The Debtor disclosed the inheritance throughout his bankruptcy case, and the inherited funds do not clearly represent disposable income or an unfair windfall to the Debtor. Accordingly, the Trustee's Objection to confirmation should be overruled, and the Chapter 13 Plan should be confirmed.
Background
The Debtor filed a petition under Chapter 13 of the Bankruptcy Code on June 27, 2016.
On his schedules filed with the petition, the Debtor listed a 100% ownership interest in a corporation known as Industrial Technology Solutions, Inc., and stated that he was employed as president of the corporation. (Doc. 1).
The Debtor's two primary creditors are the Internal Revenue Service and U.S. Bank Trust, N.A., as Trustee for LSF9 Master Participation Trust. The IRS filed Proof of Claim No. 3-3 in the total amount of $288,073.85 based on income taxes due for almost every tax year since 2003. The IRS's total claim includes a secured component, a general unsecured component, and a priority unsecured component.
U.S. Bank Trust filed Proof of Claim No. 4-2 as a secured claim in the total amount of $804,000.00. U.S. Bank Trust's claim is based on a mortgage on the Debtor's homestead property.
On July 11, 2017, the Debtor filed his Third Amended Chapter 13 Plan. (Doc. 64). In the Plan, the Debtor proposes to pay the Trustee the sum of $7,798.43 for months 1 through 9 of the Plan, the sum of $8,362.79 for months 10 through 14 of the Plan, and the sum of $9,048.33 for months 15 through 60 of the Plan. Of these payments, the Debtor proposes for the Trustee to make distributions on account of the IRS's priority and secured claim, U.S. Bank Trust's secured claim, and two smaller secured claims related to a vehicle lien and a homeowners association lien.
The Chapter 13 Trustee objects to confirmation of the Third Amended Plan. At the evidentiary confirmation hearing, the Debtor and the Trustee stipulated to the following three facts:
1. On June 27, 2016, the Debtor filed his Chapter 13 bankruptcy petition.
2. On July 14, 2016, an Order of Summary Administration was entered in a state court probate case involving the estate of the Debtor's deceased mother.
3. On March 15, 2017, the Debtor received the sum of $44,632.39 from his mother's estate.
According to the Trustee, the Debtor has not submitted the inherited funds to the Trustee for distribution under his Plan. Based on these facts, the Trustee asserts that the Debtor's Plan was not proposed in good faith, and that confirmation should be denied. (Doc. 84).
Discussion
Section 1325(a) of the Bankruptcy Code establishes nine requirements for confirmation of a Chapter 13 plan, including the good faith requirement of § 1325(a)(3). Specifically, subsection 1325(a)(3) provides that the Court shall confirm a Chapter 13 plan if "the plan has been proposed in good faith and not by any means forbidden by law." 11 U.S.C. § 1325(a)(3).
The issues related to a debtor's good faith under § 1325(a)(3) "are inherently factual questions, not capable of any bright-line test or formulation." In re Bradley, 567 B.R. 231, 236 (Bankr. D. Me. 2017).
In evaluating a debtor's good faith, Courts generally apply a multi-factor approach. In the Eleventh Circuit, the factors to consider include the debtor's income and expenses, his motivation in filing the bankruptcy case, his sincerity in dealing with his creditors, and any special circumstances that affect his financial situation. In re Kitchens, 702 F.2d 885, 888 (11th Cir. 1983) (cited in In re Morris, 2017 WL 3503651, at 2 (Bankr. M.D. Fla.) ).
In this case, the Debtor acknowledges that he received an amount exceeding $44,000.00 as an inheritance from his deceased mother's estate while his bankruptcy case was pending. He has not submitted the funds to the Trustee's supervision. Under the circumstances of this case, however, the Chapter 13 Plan satisfies the good faith requirement of § 1325(a)(3), without the addition of the inherited funds.
A. Disclosure
First, the Debtor disclosed the inheritance throughout his bankruptcy case. The Debtor's mother had passed away before he filed his bankruptcy petition. As of the petition date, he held a claim as a potential heir to a portion of her estate.
The claim was disclosed in his initial schedules filed with the petition. On his schedule of assets, the Debtor listed a "1/3 interest in Mother's probate estate" valued at $75,000.00. (Doc. 1).
The Debtor received the funds from the probate estate on March 15, 2017. The Debtor amended his schedules to update the status of the claim.
On an Amendment to his schedule of personal property dated June 14, 2017, for example, the Debtor listed an "interest in the net proceeds received from the sale of real estate belonging to Debtor's deceased Mother," valued at $50,000.00. (Doc. 58).
And on a second Amendment to his schedule of personal property dated July 11, 2017, the Debtor listed an "interest in the net proceeds received from the sale of real estate belonging to Debtor's deceased Mother and her automobile," valued at $44,632.39. (Doc. 63).
Finally, the Debtor cooperated with requests made in his bankruptcy case by providing the Chapter 13 Trustee with information regarding the administration of his mother's probate estate. (See Trustee's proposed Exhibit 3).
In other words, the Debtor did not attempt to conceal his post-petition recovery of the inheritance in an effort to obtain confirmation of a deficient plan or other favorable treatment. See In re Wiggins, 2012 WL 3889099 (Bankr. E.D. Tenn.) ; In re Euerle, 70 B.R. 72 (Bankr. D. N.H. 1987). Instead, the Debtor disclosed the inheritance from the beginning of his bankruptcy case, and the information was available to the Trustee and the Debtor's creditors throughout the plan process.
B. Disposable income
Second, the inherited funds do not clearly represent disposable income or an unfair windfall to the Debtor.
If a Chapter 13 Trustee objects to confirmation of a plan, § 1325(b)(1) of the Bankruptcy Code provides that the plan cannot be confirmed unless all of the debtor's "projected disposable income" is applied to the plan to make payments to unsecured creditors. 11 U.S.C. § 1325(b)(1). Generally, a debtor's "projected disposable income" is his current monthly income, less the amounts necessary to pay for his maintenance and support, and to pay his business expenses if he is engaged in the operation of a business. 11 U.S.C. § 1325(b)(2).
This method of calculating "projected disposable income" is the primary means of determining whether a debtor has committed sufficient income to his plan for confirmation purposes under § 1325(b). The calculation determines the extent to which the debtor has any remaining income after payment of his reasonable expenses. Consequently, the calculation is also relevant to whether the debtor has an "ability to pay" his creditors by applying the remaining income to a Chapter 13 plan, and therefore to whether the plan was proposed in good faith under § 1325(a)(3) of the Bankruptcy Code. In re Eubanks, 581 B.R. 583, 588 (Bankr. S.D. Ill. 2018) (quoting In re Williams, 394 B.R. 550, 572-73 (Bankr. D. Colo. 2008) ).
In this case, the Debtor testified that his only income is from the operation of his solely-owned business. He also testified that his income from the business fluctuates, with the result that he periodically falls behind in his financial obligations, and later cures the arrearage when income becomes available.
The fluctuating nature of the Debtor's income has been demonstrated in his Chapter 13 case. The case has twice been dismissed based on the Debtor's failure to make the interim payments due under his proposed Plan, and twice been reinstated after the payments were cured. On December 30, 2016, for example, the case was dismissed based on an arrearage in the amount of $15,241.00, and was reinstated on February 9, 2017, after the Debtor's business improved. (Docs. 30, 37, 39, 42). On July 27, 2017, the case was again dismissed based on an arrearage in the amount of $19,820.75, and was reinstated on August 24, 2017, after the arrearage was cured. (Docs. 60, 66, 68, 71).
In fact, the Debtor testified that he used a significant portion of the inheritance funds to bring the interim plan payments current after the second dismissal. The Debtor further testified that he used another portion of the inheritance funds to pay his business's operating expenses.
Under these circumstances, it is not clear that the inherited funds represent disposable income to the Debtor, after payment of the amounts necessary for his maintenance, support, and business expenses.
This case is unlike the situations in In re Carroll, 735 F.3d 147 (4th Cir. 2013) and In re Roscoe, 2017 WL 2839496 (Bankr. M.D. Fla.), where the debtors received inheritance or life insurance proceeds after their plans were confirmed, and the proceeds materially increased the debtors' "ability to pay" their creditors under the confirmed plans.
On the contrary, this case is more like the situation in In re Portell, 557 B.R. 161 (Bankr. W.D. Mo. 2016), where the debtor received a post-confirmation inheritance, but the inheritance did not result in an unfair windfall to the debtor for purposes of determining the debtor's good faith under § 1325 of the Bankruptcy Code.
Conclusion
Section 1325(a) of the Bankruptcy Code provides that the Court shall confirm a Chapter 13 plan if the plan satisfies nine requirements, including the requirement of good faith under § 1325(a)(3).
In this case, the Debtor claimed an interest in his deceased mother's probate estate as of the date that he filed his bankruptcy petition, and received the sum of $44,632.00 from his mother's estate while his bankruptcy case was pending. The Trustee contends that the Debtor has not contributed the funds to his Chapter 13 Plan, and that the Plan therefore was proposed in bad faith. (Doc. 84).
The Court finds that the Plan satisfies the good faith requirement of § 1325(a)(3), even if the Debtor is not contributing the inherited funds to the Plan. The Debtor disclosed the inheritance throughout his bankruptcy case, and the inherited funds do not clearly represent disposable income or an unfair windfall to the Debtor.
Accordingly:
IT IS ORDERED that the Trustee's Objection to Confirmation of Debtor's Chapter 13 Plan is overruled, and the Chapter 13 Trustee may submit a proposed Order confirming the Debtor's Third Amended Chapter 13 Plan within fourteen (14) days of the date of this Order.