Opinion
Case No. 98-16599-SSM
December 3, 1998
Lawrence T. Brooke, Esquire, Fairfax, Virginia, of Counsel for the debtor
Chester Smith, Esquire, Virginia Beach, Virginia, of Counsel for USA Discounters
MEMORANDUM OPINION
This matter is before the court on the objections filed by the chapter 13 trustee and USA Discounters to confirmation of the debtor's plan. A hearing was held in open court on November 24, 1998. The chapter 13 trustee was present in person. The debtor was present in person and was represented by counsel. USA Discounters did not appear at the hearing.
The basis of the trustee's objection is the feasibility requirement of § 1325(a)(6), Bankruptcy Code. The trustee argues that the debtor has no income to make the necessary plan payments. Furthermore, the trustee contends that the debtor's budget is inadequate to support her family.
USA Discounters objects to the plan on the ground that the plan treats it as an unsecured creditor. USA Discounters' proof of claim filed October 5, 1998, asserts a secured claim in the amount of $3,696.68. After hearing testimony and arguments of the parties, the court took the mater under advisement to review the file. For the reasons set forth in the opinion, the court will sustain both objections and, accordingly, deny confirmation of the plan.
As set forth in the proof of claim, it appears that the debtor purchased a computer from USA Discounters on credit. The retail installment contract and security agreement — attached to the proof of claim — required that the debtor make monthly payments of $166.60 for 36 months, and granted USA Discounters a security interest in the computer.
Facts
The debtor, Susan D. Wilder, filed a voluntary petition under chapter 13 of the Bankruptcy Code in this court on September 8, 1998. Her proposed plan, filed September 23, 1998, provides for the payment to the trustee of $150 per month for 60 months, beginning October 7, 1998, for a total of $9,000. From each payment, the trustee is to pay, in addition to his statutory commission, $89.93 to Colonial Savings, holder of a deed of trust, to cure a pre-petition arrearage of $5,386.02. In addition, the Commonwealth of Pennsylvania is to receive a total of $1,500 on account of its priority tax claim. Finally, the plan proposes to pay a 8% dividend to unsecured creditors.
The regular mortgage payment, in the stated amount of $675.61 per month, is to be paid directly by the debtor outside the plan.
The filed proofs of claim reflect the following liabilities to be dealt with by the plan:
The proof of claim asserts a total arrearage of $6,498.05.
This claim reflects financing extended to the debtor to purchase a 1989 Pontiac Grand Am.
The debtor supports one child and is currently pregnant, with a baby due around December 30, 1998. Subsequent to filing her bankruptcy petition, the debtor was involved in a car accident on September 24, 1998. Because the accident caused the debtor to go into pre-term labor, her doctor would not allow her to work. The debtor testified that prior to the accident she had been working for Maxim Healthcare as a private duty nurse, taking home $450-$550 a week. She expects to return to work by the end of January, and anticipates making the same income as before.
Schedule I reflects a total monthly income of $2,133.59 from her employment. The debtor's projected monthly expenses amount to $1,960.00, according to Schedule J.
Since her leave from work, the debtor has had no income besides receiving food stamps and support from John D. King, III, her fiance and the father of the expected child. Mr. King has provided for the debtor, meeting the debtor's monthly expenses, since her accident. At the hearing, debtor's counsel tendered two checks made by the fiance to the trustee for the plan payments of November and December 1998. Mr. King testified that he is able and committed to support the debtor, enabling her to make the plan payments.
Conclusions of Law and Discussion I.
Confirmation of an individual debtor's chapter 13 plan of repayment is governed by § 1325, Bankruptcy Code, which requires that the court "shall" confirm a plan if certain enumerated requirements are met. The first question before the court is whether the plan is feasible. The second is whether the plan properly addresses the filed proofs of claim.
A.
For a plan to be confirmed, the plan must meet the feasibility requirement of § 1325(a)(6), Bankruptcy Code, which involves the determination of whether "the debtor will be able to make all payments under the plan and to comply with the plan." The debtor bears the burden of proof as to feasibility of the plan. See, In re Harrison, 203 B.R. 253 (Bankr. E.D. Va. 1996) (Tice, J.). The trustee argues that the plan is not feasible because the debtor presently has no income. In essence, the trustee urges that the fiance's support does not constitute income.
Only an "individual with regular income" is eligible for relief under chapter 13. § 109(e), Bankruptcy Code. Section 101(30) defines that term as an "individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13[.]" The courts have adopted a liberal application of these provisions. See, e.g., In re Varian, 91 B.R. 653 (Bankr. D. Conn. 1988); In re Campbell, 38 B.R. 193, 195 (Bankr. E.D. N.Y. 1984); In re Taylor, 15 B.R. 596, 597 (Bankr. D. Ariz. 1981). The court's inquiry should focus on the regularity and stability of the debtor's income, regardless of its source. 2 Collier on Bankruptcy ¶ 109.06[1], at 109-35 (Lawrence P. King, ed., 15th ed. rev. 1998) (citing In re Ristic, 142 B.R. 856 (Bankr. E.D. Wis. 1992). The burden of proof is upon the debtor to establish that her income meets the requirements of § 101 (30). Georgia Fed, Sav, Loan Ass'n v, Anderson (In re Anderson), 21 B.R. 443, 446 (Bankr. N.D. Ga. 1981).
As a general rule, gratuitous contributions to a debtor from either family members or other third parties do not constitute "regular income" under the Bankruptcy Code. In re Jordan, 226 B.R. 117, 199 (D. Mont. 1998); In re Antoine, 208 B.R. 17, 19 (Bankr. E.D.N.Y. 1997). However, the courts have recognized exceptions, especially where the third party has a legal obligation, Antione, 208 B.R. at 20, or has a substantial interest in the debtor's execution of a plan. Campbell, 38 B.R. at 195 (family members were jointly liable with the debtor). It is unclear as to whether a third party's moral obligation is a source of regular and stable income, but, at the very least, there must be showing of a commitment to make payments.
The debtor contends that her fiance's contributions serve as regular income. Three cases were cited to support her position. See Rowe v, Conners (In re Rowes), 110 B.R. 712 (Bankr. E.D. Pa. 1990); Varian, 91 B.R. at 654; Campbell, 38 B.R. at 196. Furthermore, the debtor argues that any doubts will be rendered moot once the debtor's baby is born. Her fiance, according to the debtor, would then be legally obligated to make child support payments.
The court finds Mr. King's testimony, regarding his commitment to provide for the debtor, to be credible. However, the court concludes that such assistance, viewed alone, does not constitute regular income. While the court believes that Mr. King will certainly continue to support the debtor in the short term, the debtor failed to bring forth evidence that such payments will continue during the entire duration of the plan. The debtor's fiance apparently has supported the debtor since September 1998, but these payments and the mere assertion by Mr. King of his intention to support the debtor in the future is insufficient to demonstrate the regularity and stability of this source of income to the debtor. Unlike the cases cited by the debtor, there is no evidence before the court in this case of a long history of support payments. See Rowe, 110 B.R. at 718 (holding that the five-year duration of payments made by the debtor's son rendered the subsequent payments regular and stable). It is true that once the baby is born, the debtor's fiance will be legally obligated to pay child support, which would constitute regular income, but the debtor has not yet given birth to a child. Furthermore, the court cannot speculate as to the amount of any legally-required child support payments. Mr. King presently has no legal obligation to provide for the plan payments. Finally, the debtor failed to present evidence demonstrating that her fiance has the ability to support her for the indefinite future. Compare In re Jordan, 226 B.R. 117, 119 (Bankr. D. Mont. 1998) (debtor's live-in boyfriend did not appear to testify as to his ability to make payments), with Antoine, 208 B.R. at 20 (the debtor's spouse demonstrated significant earnings from her employment to contribute to the payments under the chapter 13 plan). The court was not presented with evidence of Mr. King's earnings and expenses to assess his ability to make regular payments to the debtor.
While the support from the debtor's fiance is not "regular" income, the court nevertheless disagrees with the trustee's contention that the debtor has no income to fund the plan. In determining what constitutes regular income, the court may view the circumstances prospectively. Varian, 91 B.R. at 654. The court believes that after the birth, the debtor will likely return to her job as a private duty nurse by the end of January or early February 1999. While Mr. King's contributions might not constitute "regular" income over the projected life of the plan, they are a realistic source of income for the purpose of tiding the debtor over at least until she can return to work. Once the debtor returns to work, her income would become sufficiently regular and stable to fund a plan. In light of the evidence presented, the court concludes, for purposes of evaluating the feasibility of the present plan, that the debtor will have a monthly income of $2,165, plus whatever amount Mr. King may be legally obligated to pay as child support. However, this determination does not end the court's inquiry.
The debtor testified that her take home pay ranged from $450 to $550a week, depending on the number of days worked. Since the debtor's income appears to fluctuate, the court believes that the midpoint is the appropriate measure of her income.
B.
When assessing the feasibility of the plan, the court must determine whether the debtor's budget would allow her to make the proposed plan payments. The debtor is not entitled to confirmation if she does not have the ability to support herself and her dependents. 2 Collier on Bankruptcy ¶ 1325.07[2], at 1325-43 (Lawrence P. King, ed., 15th ed. rev. 1998). The particular circumstances and capability of the debtor must be considered by the court in its analysis. In re Goodavage, 41 B.R. 742, 745 (Bankr. E.D. Va. 1984) (Bostetter, C.J.).
The debtor proposes to make monthly payments of $150 and anticipates monthly expenses of $1,960. Given her fluctuating income, there is some room for doubt as to whether her budget has a sufficient cushion to account for unanticipated expenses. See id. at 746. The court also has some concern with respect to specific line items on the debtor's budget. Of more immediate concern from the point of view of feasibility, however, is that $150 per month payments into the plan will not pay the filed priority and secured claims over a 60-month term, and, unless those claims are successfully objected to, it appears that the monthly payment amount will have to be increased. What the amount of that increase will be, and whether it will be within the debtor's ability to pay, is more appropriately determined in the context of an objection, if there is one, to an appropriately modified plan.
The $100 per month for recreation seems high. On the other hand, the $150 per month for food and (once there is a second child) the $400 per month for child care may be low.
II.
As noted above, USA Discounters has also objected to confirmation, arguing that the plan fails to properly treat its secured claim. Unless a secured creditor accepts some other treatment, Section 1325(a)(5), Bankruptcy Code, requires as follows:
(5) with respect to each allowed secured claim provided for by the plan —
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that the holder of such claim retain the lien securing such claim; and
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; or
(C) the debtor surrenders the property securing such claim to such holder[.]
If the collateral is worth less than the amount of the debt, the debtor may bifurcate the claim into its secured and unsecured components under § 506(a), Bankruptcy Code, in which event the treatment required by § 1335(a)(5) only applies with respect to the secured portion of the claim. USA Discounters argues that the plan incorrectly treats its claim as wholly unsecured. Debtor's counsel stated to the court that the debtor intends to file an objection to the claim or attempt to resolve the matter with USA Discounters. In the meantime, since the filed claim is allowed until objected to, and since USA Discounters objects to the plan and the plan neither surrenders the collateral nor pays the creditor the value of the collateral, the court must sustain the creditor's objection.
The court notes that the plan does not address the proof of claim filed by Finance Company as a secured creditor. In addition, the plan does not cure the total arrearage ($6,498.05) asserted by Colonial Savings' proof of claim, as required by § 1322(b)(2), Bankruptcy Code. Finally, the debtor does not provide for the full payment of the priority tax claim filed by the Commonwealth of Pennsylvania. Any modified plan must either address these claims, or the debtor must file appropriate objections, motions, or adversary proceedings to resolve them.
III.
A separate order will be entered consistent with this opinion sustaining both objections to confirmation, without prejudice to the filing of a modified plan within ten (10) days.
If a longer period is needed, counsel for the debtor should file, prior to the running of the 10-day period, a motion to extend the time.